NOTE 6 – COMMITMENTS AND CONTINGENCIES

Stock Purchase Agreement and Amendment

Prior to the consummation of the merger, on September 19, 2014, duostech entered into a definitive material agreement for the Purchase of Uni-Data and Communications, Inc., (UDC) a division of Unity International Group Inc (UIG), based in New York City. The agreement called for UIG to sell UDC to duostech, as a wholly owned and operating entity. The companies executed a Stock Purchase Agreement (SPA) which called for the sale of 100% of the shares of UDC for the payment of $10 million.

As reported previously, on June 26, 2015, the parties agreed to terminate the Agreement in accordance with its terms.

Placement Agency Agreement

On February 18, 2015, duostech engaged an exclusive placement agent in connection with the possible acquisition of UDC and required private placement of equity, equity-linked or debt securities (the “Agreement”).

On June 29, 2015, the Company and the placement agent terminated the agreement; no success fee amounts were due.

On July 1, 2015, duostech entered into a limited exclusive placement agent agreement in connection with the proposed offer and  placement of up to $5,000,000 of securities, convertible instruments, private notes or loans (excluding a registered public offering) of the Company.  The Agreement is for an initial term of 120 days. duostech paid an initial fee of $15,000 in connection with this engagement with a further $5,000 due upon the acceptance by duostech of a valid term sheet. In the event of a transaction being concluded, the agent will be paid 5% of senior debt that is not convertible and 8% cash plus 8% warrants of any equity based transaction.  As of this report, no acceptable term sheet has yet been presented and the Company continues to engage with the agent. The agreement remains in force until either party cancels.   

Litigation

As previously reported, on or about December 22, 2014, Corky Wells Electric (“CW Electric”) filed suit in the Circuit Court of Boyd County, Kentucky, against duostech demanding relief related to a promissory note issued by duostech to CW Electric on December 10, 2008 in the amount of $741,329. The suit was subsequently removed to the United States District Court for the Eastern District of Kentucky, Ashland Division. Previously, duostech entered into a “Stipulation for Settlement” on September 30, 2009 wherein CW Electric agreed to dismiss a previous lawsuit and duostech agreed to resume payments on the promissory note. In its suit, CW Electric contended that duostech breached the terms of that Stipulation for Settlement by not making the required number of payments at the times stipulated therein. CW Electric further contended that due to the breach of payment terms, under the terms of the promissory note, the outstanding amount continued to accrue interest at the rate of 18% per annum, which compounded monthly for a total of $1,411,650 due through the future final payment date.

Effective October 28, 2015, duostech and CW Electric entered into a Settlement and Release Agreement (the “Settlement Agreement”) pursuant to which the parties have agreed to settle the suit upon the payment by duostech to CW Electric of $550,000 (the “Settlement Amount”) by February 15, 2016. An agreed judgment, evidencing the Company’s agreement to pay the Settlement Amount, was signed by the parties (the “Agreed Judgment”) and such document deposited into escrow with CW Electric’s counsel. At the time of the payment of the Settlement Amount, the Agreed Judgment is to be returned to the Company for destruction.

Under the terms of the Settlement Agreement, duostech is required to provide on or before November 27, 2015, a letter of intent or other reasonably sufficient documentation from a credible bank or financial institution of such bank’s or institution’s commitment to extend financing to the Company for the payment of the settlement amount (the “Security”). Upon provision of the Security, duostech will have until February 15, 2016 to pay the Settlement Amount and, if such amount is not paid by such date, then the Agreed Judgment is to be filed with the court and executed upon, with interest due at 12% per annum beginning February 15, 2016. If the Security is not provided by November 27, 2015, then the Agreed Judgment, plus interest at the rate of 12% per annum, is to be then filed with the court action but execution is to be stayed until February 15, 2016.

Upon payment of the Settlement Amount, CW will release the Company, duostech and affiliates from any action that could have been brought in the suit.

Subject to the year-end management review and independent audit, the Company anticipates that this development will result in a non-cash gain for the quarter ended December 31, 2015 in the approximate amount of $861,650. Amounts of $1,411,650 and $1,411,650 were previously accrued as a contingent lawsuit payable at September 30, 2015 and December 31, 2014, respectively, in the Company’s consolidated financial statements for these periods.

Delinquent Payroll Taxes Payable

The Company has a delinquent payroll tax payable at September 30, 2015 and December 31, 2014 in the amount of $283,411 and $600,181, respectively. The delinquent portion is included in the payroll taxes payable balance of $315,006 and $600,181, respectively, as shown on the Company’s consolidated balance sheet. Currently, the Company continues to make monthly payments to the IRS in the amount of $25,000 for the remaining balance due. The Company has requested an installment plan.

Operating Lease

The lease of the Company’s offices prior to the merger with duostech was terminated due to the relocation of our office to Jacksonville, FL as a result of the completion of reverse triangular merger. We lease approximately 8,308 square feet at our Jacksonville, FL location.