NOTE 6 – COMMITMENTS AND CONTINGENCIES

Stock Purchase Agreement and Amendment

On September 19, 2014, UDC 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.

The agreement was subject to duostech becoming a public entity and raising $12M in capital to render the purchase price and have sufficient working capital to operate UDC successfully.

The agreement could be terminated based on a number of conditions including duostech inability to raise the required funding and/or become a public entity. On February 12, 2015, the Company executed an amendment to the Stock Purchase Agreement with Unity International Group (UIG).  The original agreement was due to expire on January 31, 2015 without the payment of a $150,000 extension fee by duostech to UIG.  The amendment called for certain changes in terms and conditions related to the original stock purchase agreement including an adjustment of the purchase price from $10M to $7M of which $6.75M was to be paid in cash and the balance of $250K paid in ISA stock based on the fact that duostech had successfully agreed to a reverse merger with Information Systems Associates (ISA) although that transaction was not consummated at the time of that amendment.  Certain other conditions were also amended including an extension of the closing date, without payment of an extension fee to June 30, 2015 and a further optional extension period to May 31, 2015 with the payment of an extension fee of $150,000 with certain credits of this fee against the purchase price if the deal was closed by April 30, 2015.  On April 1, 2015, duostech closed its reverse merger with the Company as a condition precedent to closing the UDC transaction and on April 5, 2015, remitted $150,000 in payment of the extension fee to UIG thereby extending the agreement to May 31, 2015.   As previously disclosed in the Company’s interim report, the closing of the acquisition was subject to the Company raising the capital needed for the purchase price. As the necessary amounts were not raised by May 31, 2015, the closing under the Agreement did not occur. The Company continued negotiations with the Seller after May 31, 2015 regarding an extension of such date and, although, the Seller granted a temporary extension through June 16, 2015, no agreement was reached relating to an extension acceptable to the parties. Accordingly, on June 26, 2015, the parties agreed to terminate the Agreement in accordance with its terms.

Placement Agency Agreement

On February 18, 2015, duostech agreed to engage an exclusive placement agent in connection with the possible private placement of equity, equity-linked or debt securities (the “Agreement”). The Agreement was for an initial term of 180 days and called for a transaction fee equal to 9% of amounts raised in the offering by the agent from qualified investors, payable in cash upon closing, and warrants for 9% of the aggregate amount of all equity and equity-linked securities actually placed in the offering by the agent. Additionally, duostech undertook to pay costs and expenses of the placement agent associated with the offering, which were not to exceed $40,000. On June 29, 2015, the Company and the placement agent terminated the agreement; no success fee amounts were due. Previously, on October 30, 2014, such entity was engaged as an exclusive financial advisor and pursuant to such engagement was paid a total of $15,000 in respect of the merger with ISA.

Litigation

On or about December 22, 2014, Corky Wells Electric (“CW Electric”) filed suit in the Circuit Court of Boyd County, Kentucky, demanding relief related to a promissory note issued by duostech to CW Electric on December 10, 2008 in the amount of $741,329. duostech further entered into a “Stipulation for Settlement” on September 30, 2009 wherein CW Electric agreed to dismiss its lawsuit and duostech agreed to resume payments. CW Electric is claiming that duostech breached the terms of that Stipulation for Settlement by not making the required number of payments. The plaintiff contends that due to the breach of payment terms, under the terms of the Promissory Note, the outstanding amount continues to accrue interest at the rate of 18% per annum, compounded monthly for a total of $1,411,650 due through the future final payment date. Amounts of $1,411,650 and $1,411,650 have been accrued as a contingent lawsuit payable at June 30, 2015 and December 31, 2014, respectively.

The Company disputes plaintiff’s computation and has retained counsel who has initially filed a motion to move the lawsuit into Federal court, which was successful and obtained an extension of time to respond to C.W. Electric’s Complaint. The Company believes that it has meritorious defenses to Plaintiff’s allegations.

In early 2015, the Company elected to cancel its software development with FacilityTeam of Ontario, Canada. This cancellation was based primarily on a lack of deliverables against pre-agreed project milestones. FacilityTeam elected to file a suit for breach of contract in Palm Beach county Florida which both had no merit and was in direct contravention of the agreed resolution for disputes being mediation and, if necessary, Arbitration. The Company’s counsel was successful in getting the court to order mediation which was scheduled for July 10, 2015 (see Subsequent Events).

Delinquent Payroll Taxes Payable

The Company has a delinquent payroll tax payable at June 30, 2015 and December 31, 2014 in the amount of $303,179 and $600,181, respectively. Currently, the Company has satisfied $353,859 of the December 31, 2014 balance and will continue to make monthly payments to the IRS in the amount of $25,000 for the remaining balance. 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.