NOTE 11 – SETTLEMENT AGREEMENT

In September 2, 2010, the Company executed a multi-year exclusive worldwide distribution agreement (“Zus Agreement”) regarding the ProAlgaZyme product (“ProAlgaZyme” or “Product”) with Zus Health, LLC, an international distributor of health and nutritional products (“Zus” or “Distributor”). This Agreement called for certain minimum payments subject to the satisfaction of certain conditions. The Company new management team (from December 2011) had been assessing certain of the Company contractual relationships, including the Zus relationship, in the context of the regulatory environment in which they are currently operating. Based on this review, the Company determined that Zus (as well as its purported assignee, Ceptazyme, LLC) had engaged in multiple material breaches of the Zus Agreement.  On January 9, 2012, a dispute arose when Zus Health attempted to assign its License Agreement to Ceptazyme.  The Company notified Ceptazyme (i) that there was no agreement between the Company and Ceptazyme, as the Company had not approved any assignment of the License Agreement by Zus Health to Ceptazyme and (ii) that, even if there had been a valid assignment to Ceptazyme, Ceptazyme had committed multiple material breaches of the agreement.  The Company believed that Ceptazyme (i) failed to market the Company’s product in a manner compliant with state and federal regulations, and (ii) allowed its distributors to make claims and representations that were not in compliance with applicable regulations, among many other breaches.  As a result, the Company filed a lawsuit in Michigan against Zus Health and Ceptazyme on January 16, 2012, alleging breach of contract.  Ceptazyme responded by filing suit in Utah against the Registrant on January 24, 2012, also alleging, breach of contract.

On June 12, 2013, the Company entered into a Settlement Agreement and Mutual Release of all Claims (the “Settlement Agreement”) with Ceptazyme, LLC (“Ceptazyme”) and Zus Health, LLC (“Zus Health”) resolving claims the parties brought against one another in connection with a license agreement between the Company and Zus Health dated September 2, 2010 (the “License Agreement”).  Under the terms of the Settlement Agreement, the parties agreed to terminate the License Agreement and that no party would have any further obligations thereunder.  No monetary consideration was exchanged in connection with the Settlement Agreement.

As a result of this settlement, the deferred revenue of $235,000 and customer deposits of $27,837 were recognized as other income.