Note 11 – Subsequent Events

On February 21, 2014, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Qode Services Corporation (“Qode”), a wholly owned subsidiary of the Company. Under the terms of the Merger Agreement, Qode merged into the Company and will cease to exist upon the completion of certain conditions. The Company shall continue as the surviving corporation.

Under the terms of the Merger Agreement, the Company’s charter shall be amended to provide for an increase in the amount of common stock authorized shares, and each share of the Company’s common stock issued and outstanding immediately prior to merger shall continue to remain outstanding and remain unchanged, except that (i) the par value shall change from $0.001 per share to no par value per share, and (ii) each fifteen (15) shares of common stock issued and outstanding shall be combined and converted into one (1) share of common stock. Upon the consummation of the merger and reverse stock split effected thereunder, the amount of authorized shares of common stock shall be increased from 5 billion to 7.5 billion shares.

The Company’s Board of Directors determined that the Merger Agreement was the only option available to avoid default after the holder of a majority of the outstanding secured convertible debentures communicated its intent to foreclose on all of the Company’s assets in the event that the Company’s share reserves were not sufficient to honor conversions under such instruments (a potential default thereunder). Further, the holder of the secured convertible debentures agreed to enter into amendments to the secured convertible debentures to decrease the aggregate amount of debt by $5.0 million if the Company resolved the issue.

On February 21, 2014, the Company received a correspondence (the “Delta Notice”) from Delta Capital Partners LLC (“Delta”), asserting a claim for certain amounts owed under a secured convertible debenture. The principal amount outstanding and conversion rights under such instrument had been assigned to Delta by YA Global (the “Assignment”), several years subsequent to the original issuance of the instrument by the Company to YA Global. The Company’s understanding is that pursuant to the terms of the Assignment, YA Global, as collateral agent, retained all rights in connection with the enforcement of any claims under Delta’s secured convertible debenture. YA Global has indicated that it does not intend to assert any of the claims described by Delta in the Delta Notice.