NOTE 12: SUBSEQUENT EVENTS

Grant of Options to Board of Directors Chairing Committees. On October 24, 2015, Tony Coehlo, Ernest (Sandy) Purcell and Alex Zyngier, were each awarded 750,000 options for their service as independent members of the board of directors and board committee chairmen. The term of the options is 5 years, 50% of the options vested on grant date, and 12.5% vest each 30 days thereafter. The exercise price is 0.044.

Grant of Options and Warrants to Executive Chairman, Employees, Advisor and New Member of Board of Directors; on October 26, the Executive Chairman, Dr. Carr Bettis was awarded 500,000 options and 250,000 warrants in lieu of cash compensation pursuant to his amended employment agreement. Dr, Bettis’s options and warrants have a 3 year term, 100% vested on grant date at an exercise price of 0.041. On November 4, 2015, three non-executive employees were awarded a total of 235,330 options,. These employee options have a 3 year term, 100% vested on the grant date at an exercise price will be determined by taking the 10 day average closing price from November 5, 2015 through November 18, 2015. On November 4, 2015 advisory board member Joyce Bender was awarded 100,000 options. The term of the option is 5 years, 50% of the options vested on grant date, and 12.5% vest each 30 days thereafter. The exercise price will be determined by taking the 10 day average closing price from November 5, 2015 through November 18 2015. On November 10, 2015, Christine Griffin an independent member of the board of directors of the Company was awarded 500,000 options, The term of the options is 5 years, 50% of the options vested on grant date, and 12.5% vest each 30 days thereafter. The exercise price will be determined by taking the 10 day average closing price from November 11, 2015 through November 24, 2015.

Appointment of Executive Officer. Effective November 4, 2015, Todd Bankofier, age 55, was appointed by the Board of Directors to the position of Chief Executive Officer of the Company. As a principal in Fairmont Capital Group (FCG) since 2008, Mr. Bankofier was responsible for day-to-day oversight of multiple asset holdings, including strategic planning, revenue generation, technology evolution, operational effectiveness and public relations for all FCG entities.

Change to Executive Officers Compensatory Agreement. On October 26, by resolution, the Board, with the consent of President and CTO Mr. Sean Bradley, agreed that it was in the best interests of the Company and its stockholders to award beginning October 1, 2015, $25,000 per year of Mr. Bradley’s base salary in the form of quarterly option awards, with a Black Scholes value of $6,250 per quarter. On November 4, 2015, the Board amended the employment agreement of Executive Chairman Dr. Carr Bettis, whose agreement currently requires his $175,000 salary to be paid entirely in the form of options and warrants. Dr. Bettis has voluntarily agreed to limit the number of options and warrants he receives to 750,000 per quarter, and to defer any additional owed compensation for up to a year, when he will be paid his deferred compensation either in the form of equity or cash, at the discretion of the Compensation Committee.

Note and Warrant Purchase Agreement. On October 9, 2015 (the “Initial Closing Date”), the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) with certain investors (the “Investors”) for the issuance and sale of convertible promissory notes in an aggregate principal amount of up to $3,750,000 (the “Notes”) and warrants (the “Warrants”) to purchase up to an aggregate of 37,500,000 shares of common stock of the Company (the “Common Stock”) (the “Transaction”). Notes representing up to $2,500,000 in aggregate principal, and Warrants exercisable for up to 25,000,000 shares of Common Stock in the aggregate, may be issued and sold at one or more closings during the 30-day period immediately following the Initial Closing Date. The maximum of $2,500,000 in aggregate principal has been sold as of November 8, 2015. In addition, upon the election of any Investor within the three-year period immediately following the Initial Closing Date, any Investor may purchase an additional Note in the principal amount equal to 50% of the principal amount of the Notes purchased by such Investor at previous closings (the “Option Principal Amount”) and an additional Warrant with an aggregate exercise price equal to such Investor’s Option Principal Amount. The Notes mature three years from the date of issuance (the “Maturity Date”) and, until the Notes are repaid or converted into shares of the Company’s equity securities (“Equity Securities”), accrue payable-in-kind interest at the rate of 10% per annum.

If the Company sells Equity Securities in a single transaction or series of related transactions for cash of at least $2,000,000 (excluding the conversion of the Notes and excluding the shares of Common Stock to be issued upon exercise of the Warrants) on or before the Maturity Date (the “Equity Financing”), all of the unpaid principal on the Notes plus accrued interest shall be automatically converted at the closing of the Equity Financing into a number of shares of the same class or series of Equity Securities as are issued and sold by the Company in such Equity Financing (or a class or series of Equity Securities identical in all respects to and ranking pari passu with the class or series of Equity Securities issued and sold in such Equity Financing) as is determined by dividing (i) the principal and accrued and unpaid interest amount of the Notes by (ii) 60% of the price per share at which such Equity Securities are issued and sold in such Equity Financing. The Notes, if not converted, shall be due and payable in full on the Maturity Date. The Notes contain customary events of default provisions. In connection with the issuance of the Notes, on October 9, 2015, the Company entered into a Security Agreement with the Investors (the “Security Agreement”) pursuant to which the Company granted a security interest in all of its assets to the Investors as collateral for the Company’s obligations under the Notes. The Warrants are exercisable at $0.10 per share and expire 60 months following the date of issuance. The Warrants are subject to anti-dilution protection, subject to certain customary exceptions.

Under the Purchase Agreement, the Company has agreed to use its reasonable best efforts to prepare and file with the SEC registration statement within 90 days of the Initial Closing Date, covering the resale by the Investors of any Common Stock previously issued to the Investors, and any Common Stock into which the Notes and any convertible promissory notes previously issued to the Investors are convertible and any Common Stock for which the Warrants or any warrants previously issued to the Investors are exercisable.

The foregoing description of the Transaction and summary of the terms of the Purchase Agreement, Security Agreement, Notes, Warrants and related transactions does not purport to be complete and are subject to, and qualified in their entirety by, reference to the 8-K filed on October 16, 2015 together with the complete text of the (i) Purchase Agreement filed as Exhibit 10.1; (ii) Security Agreement filed as Exhibit 10.2; (iii) form of Note issued in the Transaction filed as Exhibit 4.1; and (iv) form of Warrant issued in the Transaction filed as Exhibit 4.2, each of which is incorporated herein by reference.