NOTE 9. COMMITMENTS AND CONTINGENCIES

Lease Commitment

In November 2013, the Company moved its office located at 40 Washington Street, Westborough, MA and entered into a lease for a premise located at 200 Friberg Parkway, Westborough, MA. The 200 Friberg Parkway lease is for a three-year term ending in November 2016. The original lease at 40 Washington Street was prepaid with 6,082,985 shares of common stock having a closing price of $0.21 per share on August 22, 2011. The payment was for rent over five years, projected taxes and operating expenses, and a security deposit. As a result of the termination of the 40 Washington Street lease, the Company forfeited its security deposit of $83,134, which was previously paid with shares of common stock of the Company, paid a termination fee of $166,865, recorded an other receivable due from the landlord, Carruth Capital, in the amount of $635,056 in the accompanying balance sheet, amortized $748,049 of prepaid facility costs included in operating expenses and a change in fair value of $105,843 included in other expense in the accompanying statement of comprehensive loss. The balance due is a result of the remaining shares available for sale which were issued as prepayment for rent.

The future minimum rent under the current operating lease for each of the remaining years is:

2014	$	14,654
2015		14,654
2016		13,433
	$	42,741

Stock Price Guarantee

The Company guaranteed the landlord of the 40 Washington Street location that the shares would sell on the open market for at least $1,386,500, given the landlord sells the shares within a period of three months after the initial six month restriction on transfer has expired. The guarantee period ended on December 31, 2012.

In connection with the Company’s advance royalties, during the second quarter of 2012, the Company issued options to purchase common stock at an exercise price of $0.001 per share for both advance and previously earned royalties. The options were exercised immediately along with a Company guarantee that the shares acquired would sell for at least $1,246,118 within six months. If the shares do not reach the required $0.12 per share within that period, the Company has the option of issuing additional shares at their fair value at the end of the period or making a cash payment for the difference between the guaranteed sales price and the fair value of the stock at the end of the six month period. At December 31, 2012, the Company extended the guarantee. As of December 31, 2013, the stock price guarantee was $0 as the Company’s stock price was above $0.12 per share.

Legal Matters

In the normal course of business, the Company periodically becomes involved in litigation. As of December 31, 2013, in the opinion of management, the Company had no pending litigation that would have a material adverse effect on the Company's financial position, results of operations, or cash flows.

Indemnities and Guarantees

The Company has made certain indemnities and guarantees, under which it may be required to make payments to a guaranteed or indemnified party, in relation to certain actions or transactions. The Company indemnifies its directors, officers, employees and agents, as permitted under the laws of the State of Delaware. In connection with its facility leases, the Company has agreed to indemnify its lessors for certain claims arising from the use of the facilities. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreement. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. Historically, the Company has not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying condensed balance sheets.