NOTE 11 - SUBSEQUENT EVENTS

Board of Directors

On July 19, 2014 the Board of Directors reappointed John B. Payne as a director for a 1 year term.  Mr. Payne received warrants to purchase 50,000 shares of common stock at an exercise price of $.14 per share for a term of three years, vested at 12,500 per quarter.  The terms of the appointment also includes a cash payment of $10,000, paid quarterly.  

HEP Investments

On July 13, 2014, the Company and HEP Investments, LLC, a Michigan limited liability company (“Lender”), entered into the following documents, effective as of July 1, 2014: (i) Third Amendment to Loan Agreement under which the Lender has agreed to advance up to a total of $6,000,000 to the Company, subject to certain conditions, and (ii) a Fourth Amended and Restated Senior Secured Convertible Promissory Note.  These agreements amend agreements the Company entered into with HEP Investments as previously disclosed.

During the period from July 1, 2014 through August 9, 2014, the Lender has funded an additional $1,035,000 for a current total outstanding debt of $5,085,000.

                Change in control agreements

In August 2014, the Board of Directors approved a Change in Control Agreement (the “Agreement”) which the Company entered into on August 11, 2014 with both of its executive officers. The Agreement with each of the executive officers provides that if a Change of Control (as defined in the Agreement) occurs and the participant is not offered substantially equivalent employment with the successor corporation or the participant’s employment is terminated without Cause (as defined in the Agreement) during the three month period prior to the Change of Control or the 24 month period following the Change of Control, then 100% of such participant’s unvested options will be fully vested and the restrictions on his restricted shares will lapse.  The Agreement also provides for severance payments of 500% of base salary and target bonus in such event.  The Agreement terminates on December 31, 2014 (with two 6 month extensions), with the provision that if a Change of Control occurs prior to the termination date, the obligations of the Agreement will remain in effect until they are satisfied or have expired.

The foregoing description of the Agreement is qualified in its entirety by reference to the copies of the Agreement, a form of which is attached hereto as Exhibit 10.30 and which are incorporated by reference herein.

                Miscellaneous Receivable

                On August 1, 2014, the Company and its former landlord agreed to dismiss a lawsuit with prejudice regarding the security deposit on premises formerly occupied by the Company. The stipulations were that both party dropped their respective lawsuits and that each would pay their own attorney’s fees. Accordingly, the Company wrote off the receivable and recorded other expense of $118,467 in the quarter ended June 30, 2014 (see Note 9).

                Cancellation of Payable

                On July 15, 2014, the Company came to an agreement with a vendor whereby the vendor agreed to reduce a payable by $93,683. Accordingly, the Company has reduced Accounts Payable and recorded Other Income of $93,683 in the quarter ended June 30, 2014 (see Note 9).