13. Subsequent Events

On July 1, 2014, the Company appointed Mel Harris to serve as a member of the Board of Directors to fill an open vacancy. The Company also entered a five-year consulting agreement under which Mr. Harris will be paid $225,000 per year once the Company becomes cash flow positive. Mr. Harris also received a five-year warrant to purchase 5 million shares of the Company’s common stock at an exercise price of $0.34, vesting half immediately and the balance over two years. The vested portion of the warrant has a fair market value of approximately $766,000.

On July 1, 2014, the Company appointed a new CFO under a five-year agreement that pays a base salary of $285,000 subject to increase at the discretion of the Board of Directors. The CFO also received a ten-year option to purchase 5 million shares of the Company’s common stock at an exercise price of $0.34, vesting over five years.

On July 1, 2014, the Company granted Steve Leber, CEO, a ten-year option to purchase 5 million shares of the Company’s common stock at an exercise price of $0.34, vesting over five years.

On July 8, 2014, the Company entered into amendments to the February Notes. Pursuant to these amendments, the maturity date of each promissory note was extended until the earlier of (i) August 29, 2014, (ii) the closing of a single transaction (whether debt, equity or a combination of both) that results in aggregate gross proceeds to the Company of $1,500,000, or (iii) the acceleration of the maturity of the promissory note upon the occurrence of an Event of Default (as defined in each of the promissory notes). The amendments became effective as of June 30, 2014.

In July and August 2014, the Company issued 30,980 shares of its common stock to consultants in exchange for fees and expenses in the amount of $12,000 incurred in connection with services provided to the Company.

In July 2014, the Company granted five-year performance-based warrants to four consultants to purchase 1,250,000 shares of the Company’s common stock at exercise prices of $0.34-$0.50 per share

During July 2014, the Company entered into securities purchase agreements with several investors pursuant to which the Company sold, in private transactions, an aggregate of 1,200,000 shares of its common stock and warrants to purchase an aggregate of 300,000 shares of its common stock for gross proceeds to the Company of $300,000. The warrants are exercisable for a period of five (5) years at an exercise price of $0.25 per share, subject to customary adjustments.

During August 1 through August 5, 2014, the Company entered into securities purchase agreements with several investors pursuant to which the Company sold, in private transactions, an aggregate of 4,200,000 shares of its common stock and warrants to purchase an aggregate of 1,050,000 shares of its common stock for gross proceeds to the Company of $1,050,000. The warrants are exercisable for a period of five (5) years at an exercise price of $0.35 per share, subject to customary adjustments.

On August 6, 2014, the three January 2014 demand promissory notes for $25,000 each were all repaid in full.