NOTE 9 – SUBSEQUENT EVENTS

On March 31, 2016, the Company entered into a Securities Purchase Agreement with an institutional investor, which, together with the transaction documents referenced therein, provides for the terms in the following paragraph. The Company closed the Offering on April 1, 2016.

The Offering amount is $1,800,000 less a 5% original issue discount. The securities of the note are senior secured by substantially all assets of the Company and shares of all current and future subsidiaries as well as being guaranteed by each subsidiary but are not convertible into the Company’s stock. The senior secured note also contains certain default provisions and is subject to standard covenants such as restrictions on issuing new debt. In conjunction with the note, the Company issued a warrant exercisable into 2.5 million shares with a term of five years and exercise price of $0.35 per share. The Warrants also contain certain antidilution provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions as well as a potential adjustment to the exercise price based on certain events. The relative fair value of the warrants of approximately $460,000 will be recorded as a debt discount and amortized to interest expense over the term of the debt. The note will mature three years from the closing date and will accrue interest at the rate of 14% per annum, payable monthly. The note will accrue additional interest at the rate of 2% per annum, compounding monthly, payable annually in arrears. The Company may choose to begin amortizing the principal at any time subject to prepayment premiums. Also, the Company agreed to an amended Placement Agent’s Fee with respect to the placement of such loan which differed from the original terms agreed with the Placement Agent as that agreement had expired (see Note 5, Placement Agency Agreement). The amendment included (a) postponement of payment of the cash fee of $5,000 to 15 days of execution of the term sheet, (b) the closing fee was fixed to $137,000 (based on a $1.8 million debt funding) and three-year warrants for 200,000 shares at an exercise price of $0.40 per share.  Closing expenses of $182,000, the original issue discount of $90,000 and the warrant relative fair value of $460,000 will be recorded as debt discounts to be amortized over the three-year term of the debt.  Additionally, at closing, certain obligations of the Company totaling $690,110, as discussed below, were paid direct from the lender. Net proceeds to the Company was $837,891.

On April 1, 2016, in conjunction with the closing of the aforementioned Securities Purchase Agreement, the sum of $558,032 was remitted out of the proceeds in final settlement of the litigation with CW Electric.  This amount consisted of $550,000 of the agreed settlement plus $8,032 of accrued interest. This represents full and final settlement of this matter, which is now closed.

On April 1, 2016, the Company directed the sum of $132,078 to be paid out of proceeds of the Securities Purchase agreement to a shareholder who held a note secured against part of the Company’s assets.  The payment of $125,000 in principal and $7,078 of accrued interest represents full payment of the note and the noteholder no longer holds any security against the assets.

On April 1, 2016, the Company made a payment of $142,000 (part of the $182,000 discussed above) to a placement agent as compensation for arrangement of financing through the aforementioned Securities Purchase Agreement.  The payment was deducted from proceeds of that agreement.  The Company will also issue 200,000 three-year warrants with an exercise price of $0.40 to the agent as additional compensation.  These amounts are broadly in line with the anticipated compensation agreed within the original placement agency agreement which was terminated in December, 2015.

On April 1^, 2016, the Company made a payment of $233,792 representing a portion of the taxes payable of $456,368 listed on the Balance Sheet.  The remaining balance is covered by an approved payment plan in the amount of $25,000 per month. The current balance as of the date of this report is $194,470.

On April 1, 2016, the Company entered into an agreement with its insurance provider by executing a $65,000 note payable (See Note 3-Insurance Note 4) issued to purchase an insurance policy with an annual interest rate of 9.24% payable in monthly installments of principal and interest totaling $5,782 through February 1, 2017.

On April 27, 2016, the holder of two convertible notes issued a notice of conversion to the Company for a portion of one of the notes.  The conversion notice was determined to be invalid as was a previous conversion notice issued on the other note during the quarter.  A difference of opinion has arisen between the holder and the Company as to the mechanics of conversion and the Company is currently in discussions to resolve those differences.  As of this report the company has reserved $53,317 in cash for repayment of one of the notes including principal and interest.

On May 5, 2016, the Company cancelled an agreement due to lack of performance with a consultant who was to provide advisory services for an initial period of six months.  The Company paid an initial amount of $2,500 and no further compensation will be paid.  No shares of common stock were issued in connection with this agreement.