NOTE 16 – SUBSEQUENT EVENTS

On January 3, 2012, Stephen J. Warner resigned as a director and from all offices of the Company and HEPI Pharmaceuticals, Inc., its wholly owned subsidiary. On January 4, 2012, Dr. John Crissman also resigned as a director and from all offices of the Company and HEPI Pharmaceuticals.  On January 4, 2012, Philip M. Rice, II, currently the Chief Financial Officer of the Company, was appointed to the Board of Directors of the Company, to serve in such capacity until his until his successor is appointed and qualified or until his earlier resignation or removal.  As compensation for serving as a member of the board of directors of the Company, Mr. Rice was granted warrants to purchase 200,000 shares of the Company’s common stock, at an exercise price of $.12 per share.  Such warrants have a term of three years and vest as follows: 50,000 are immediately vested, and the remaining 150,000 vest in three equal quarterly installments commencing April 1, 2012.

At various times between during the first quarter of 2012, 1% convertible notes in the aggregate principal amount of $47,500 came due. At the option of the Company, these notes may be paid in cash or converted into common stock at the rate of $.05 per share (950,000 shares).

On January 9, 2012, the Company notified Zus Health’s purported assignee (Ceptazyme LLC), its purported assignee, (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 believes that Zus Health/Ceptazyme, LLC (i) has failed to market the Company’s product in a manner compliant with state and federal regulations, and (ii) that it allowed its distributors to make claims and representations that were not in compliance with applicable regulations, among many other breaches.   Subsequently, we notified Zus and Ceptazyme that the ZUS Agreement was subject to termination due to failure to cure the specified breaches of such Agreement.  Based on the foregoing, the Company filed a lawsuit in Michigan against Zus Health and Ceptazyme on January 16, 2012, alleging breach of contract. Subsequently, Ceptazyme filed suit in Utah against the Company on January 24, 2012, also alleging breach of contract.   The Company intends to prosecute and defend this matter vigorously.

On January 27, 2012, the Company and The Venture Group, LLC, a Maryland limited liability company (“Venture Group”), entered into the following agreements, effective as of January 26, 2012: (i) a Subscription Agreement under which the Lender has agreed to advance $500,000 to the Company, as follows:  $332,000 on January 26, 2012, which advance has been made, and $168,000 by February 3, 2012, (ii) a Subordinated Convertible Promissory Note in the principal amount of $500,000 (“Note”); (iii) (a) a Security Agreement, under which the Company granted the Lender a subordinated security interest in all of its assets and (b) an IP security agreement under which the Company granted the Lender a subordinated security interest in all its intellectual properties, including patents, to secure its obligations to the Lender under the Note and related documents; (iv) a Termination and Mutual Release Agreement under which the Company and Venture Group terminated their prior agreements and released each other from any liability, including liabilities related to the financing agreements they previously executed (See Form 8-K current Report dated December 2, 2011); and (v) a Termination and Release Agreement under which the Company and Oxford Holdings, LLC terminated their prior agreement and Oxford Holdings released the Company from any liability, including liabilities related to the agreement they previously executed.  The Company also acknowledged an intercreditor agreement between Venture Group and HEP Investments, LLC, the Company senior secured lender.  As of the date hereof, Venture Group has advanced an aggregate of $388,000 to the Company.  Based on discussions with Venture Group, the Company expects the remaining $112,000 to be advanced within 10 days.     

In addition, the Company has agreed to issue the Lender warrants to purchase an aggregate of 833,333 shares of common stock at an exercise price of $.12 per share, for a term of three years.  The Warrants are issuable to the Lender pro rata based on the amount invested in relation to the total investment amount (about 166,667 warrants per $100,000 invested).   Amounts advanced under the Note are (i) secured on a subordinated basis by all the Company’s assets, (ii) convertible into the Company’s restricted common stock at $.12 per share, (iii) bear interest at the rate of 11% per annum (payable on the first and second anniversary of the Note (unless earlier paid off), in cash or stock, at the Company’s option), and (iv) unpaid principal not previously converted into common stock must be repaid on the second anniversary of the Note (January 2, 2014). The Note may be prepaid upon thirty days written notice, but not before August 31, 2012, provided that in the event of prepayment, the Company must pay the Lender an additional 5% of the outstanding principal amount.  The Company has agreed to pay the following aggregate fees to Oxford Holdings, LLC in connection with the Loan transaction (assuming funding of the full $500,000): (i) finder’s fees of approximately $27,600 in cash, (ii) warrants to purchase 200,000 shares of common stock at an exercise price of $.15 per share for a term of two years, and (iii) a $15,000 non-accountable expense allowance.  In addition, The Company has agreed to pay Venture Group $10,000 in cash in payment of the Venture Group’s legal fees.

On March 12, 2012, HEP Investments advanced the Company an additional $100,000 pursuant to the Loan Agreement entered into December 2, 2011.