NOTE

LINE OF CREDIT, NOTES PAYABLE AND LIQUIDITY

March

18,

2013,

the Company entered into a

$2,000,000

revolving line of credit with The Northern Trust Company guaranteed by Cornelis F. Wit, Chief Executive Officer and Director. Mr. Wit receives

2.0%

interest (approximately

$9,500

per month) on the assets pledged for the Line of Credit. On

December

18,

2013

the Company renewed the Line of Credit and increased the available balance to

$4,000,000.

February

2015

the Company renewed the Line of Credit and increased the available balance to

$5,000,000.

The Line of Credit matures on

February

2018

and carries a variable interest rate based on the prime rate. At

December

31,

2016,

$2,700,000

was outstanding on the Line of Credit at an interest rate of

2.75%.

Our primary sources of working capital are funds from operations and borrowings under our revolving Line of Credit. In the event that the line of credit is called for any reason, Mr. Wit has pledged to replace the borrowing capacity under the Line of Credit with a promissory note that utilizes the same maturity date and interest rate as the Line of Credit.

To satisfy our capital requirements, we

may

seek additional financing. There can be no assurance that any such funding will be available to us on favorable terms or at all. If adequate funds are not available when needed, we

may

be required to delay, scale back or eliminate some or all of our research and product development and marketing programs. If we are successful in obtaining additional financings, the terms of such financings

may

have the effect of diluting or adversely affecting the holdings or the rights of the holders of our common and preferred stock or result in increased interest expense in future periods.

December

31,

2016,

the Company owed

$1,242,500

in notes payable all of which are unsecured. The table below provides details as to the terms and conditions of the notes payable.

			Ending principal		Non related party					Related party
Origination	Maturity	Interest	December 31,				Long					Long
date	date	rate	2016		Current		term			Current		term
2/29/2016	4/1/2019	12%	$	450,000	$	-0-	$	-0-		$	-0-	$	450,000
6/30/2016	4/1/2020	10%		420,000		-0-		420,000			-0-		-0-
6/30/2016	4/1/2020	12%		372,500		-0-		372,500			-0-		-0-
Discount on notes payable						-0-		(455,285	)		-0-		(237,664	)
Total			$	1,242,500	$	-0-	$	337,215		$	-0-	$	212,336

December

31,

2015,

the Company owed

$812,500

in notes payable all of which are unsecured. The table below provides details as to the terms and conditions of the notes payable.

				Ending principal		Non related party				Related party
Origination	Maturity	Interest		December 31,				Long				Long
date	date	rate		2015		Current		term		Current		term
4/4/2014	4/1/2017		12%	$	45,000	$	-0-	$	45,000	$	-0-	$	-0-
4/4/2014	4/1/2017		12%		137,500		-0-		137,500		-0-		-0-
4/4/2014	4/1/2017		10%		120,000		-0-		120,000		-0-		-0-
12/1/2014	4/1/2017		10%		300,000		-0-		300,000		-0-		-0-
12/1/2014	4/1/2017		12%		90,000		-0-		90,000		-0-		-0-
12/1/2014	4/1/2017		12%		100,000		-0-		100,000		-0-		-0-
4/1/2015	4/1/2018		12%		20,000		-0-		-0-		-0-		20,000
Discount on notes payable							-0-		-0-		-0-		-0-
Total				$	812,500	$	-0-	$	792,500	$	-0-	$	20,000

February

29,

2016,

the Company issued a promissory note in the principal amount of

$450,000

and warrants to purchase

1,800,000

shares of common stock of the Company at an exercise price of

$0.25

per share with an expiration date of

April

2019

to our Chief Executive Officer and Director, Cornelis F. Wit (“Mr. Wit”), in exchange for accrued interest in the amount of

$450,000.

The note carries an interest rate of

12%

per annum and has a maturity date of

April

2019.

December

2016

Mr. Wit sold

1,000,000

of the warrants to an employee of the Company.

This issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of

$325,689

was calculated and allocated to the warrants and recorded as a liability to the issuance of the note payable. As a result of the liability we recorded a discount to the note payable. The carrying amount of the note at the time of issuance was therefore

$124,311.

The warrant liability (discount) will be amortized over the

month duration of the note payable. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.

June

30,

2016,

the Company issued promissory notes in the principal amount of

$372,500

and warrants to purchase

1,490,000

shares of common stock of the Company at an exercise price of

$0.25

per share with an expiration date of

April

2020

two

investors, in exchange for existing promissory notes in the same amount. The notes carry an interest rate of

12%

per annum and have a maturity date of

April

2020.

December

14,

2016

a promissory note for

$90,000

was repaid.

This issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of

$246,921

$125,579.

The warrant liability (discount) will be amortized over the

month duration of the note payables. The Company will continue to perform a fair value calculation quarterly on the warrant liability and accordingly the warrant liability is increased or decreased based on the fair value calculation. The resulting increase or decrease is reflected in operations as an unrealized gain or loss on changes in derivative liabilities.

June

30,

2016,

the Company issued promissory notes in the principal amount of

$420,000

and warrants to purchase

1,680,000

shares of common stock of the Company at an exercise price of

$0.25

per share with an expiration date of

April

2020

two

investors, in exchange for existing promissory notes in the same amount. The notes carry an interest rate of

10%

per annum and have a maturity date of

April

2020.

This issuance caused us to calculate and record a derivative liability for the warrant liability. The warrants were valued using the Black Scholes option pricing model. A value of

$278,408

$141,592.

The warrant liability (discount) will be amortized over the

January

31,

2015

the Company issued a promissory note in the amount of

$529,000

Mr. Wit in exchange for an existing promissory note in the same amount. The promissory note carries an interest rate of

12%

and has a maturity date of

April

2017.

The expiration date of the warrants associated with the promissory note was also extended to

April

2017.

October

15,

2015

the Company issued a promissory note in the amount of

$529,000

to Mr. Wit in exchange for the existing promissory note in the same amount. The promissory note carries an interest rate of

12%

and has a maturity date of

January

2019.

The expiration date of the warrants associated with the promissory note was also extended to

January

2019.

November

19,

2015

the promissory note and the related warrants were cancelled in exchange for

2,116,000

shares of our common stock.

January

31,

2015

the Company issued a promissory note in the amount of

$2,860,000

and paid

$6,879

in principal to Mr. Wit in exchange for an existing promissory note in the same amount. The promissory note carries an interest rate of

12%

and has a maturity date of

April

2017.

The expiration date of the warrants associated with the promissory note was also extended to

April

2017.

October

15,

2015

the Company issued a promissory note in the amount of

$2,860,000

to Mr. Wit in exchange for the existing promissory note in the same amount. The promissory note carries an interest rate of

12%

and has a maturity date of

January

2019.

The expiration date of the warrants associated with the promissory note was also extended to

January

2019.

November

19,

2015

the Company and Mr. Wit agreed to cancel the promissory note and

11,440,000

warrants related to the promissory note in exchange for

11,440,000

shares of our common stock.

January

31,

2015,

the Company issued a promissory note in the principal amount of

$950,000

and warrants to purchase

3,800,000

shares of common stock of the

Company at an exercise price of

$0.25

per share with an expiration date of

April

2017

to Mr. Wit in exchange for an existing promissory note in the amount of

$280,000

and accrued interest in the amount of

$670,000.

The note carries an interest rate of

12%

per annum and is due on

April

2017.

October

15,

2015

the Company issued a promissory note in the amount of

$950,000

to Mr. Wit in exchange for the existing promissory note in the same amount. The promissory note carries an interest rate of

12%

and has a maturity date of

January

2019.

The expiration date of the warrants associated with the promissory note was also extended to

January

2019.

November

19,

2015

the Company and Mr. Wit agreed to cancel the promissory note and the warrants related to the promissory note in exchange for

3,800,000

shares of our common stock.

April

2015

the Company issued a promissory note in the amount of

$20,000

to our Chairman and Chief Technology Officer, Randall G. Smith (“Mr. Smith”) in exchange for an existing promissory note in the same amount. The promissory note carries an interest rate of

12%

and has a maturity date of

April

2018.

The note was repaid in full on

December

14,

2016.

October

2015

the Company issued a promissory note in the amount of

$980,000

to Mr. Wit in exchange for the existing promissory note in the same amount. The promissory note carries an interest rate of

12%

and has a maturity date of

January

2019.

The expiration date of the warrants associated with the promissory note was also extended to

January

2019.

November

19,

2015

the promissory note and the related warrants were cancelled in exchange for

3,920,000

shares of our common stock.

October

2015

the Company issued a promissory note in the amount of

$1,600,000

to Mr. Wit in exchange for the existing promissory note in the same amount. The promissory note carries an interest rate of

12%

and has a maturity date of

January

2019.

The expiration date of the warrants associated with the promissory note was also extended to

January

2019.

November

19,

2015

the promissory note,

400,000

related warrants and

6,000,000

unrelated warrants were cancelled in exchange for

6,400,000

shares of our common stock. On

November

23,

2015

Mr. Wit sold

4,000,000

of the related warrants to

three

employees of the Company. On

December

17,

2015

Mr. Wit sold

2,000,000

of the related warrants to a

fourth

employee of the Company.