10 - Subsequent Events

On September 10, 2012, in accordance with the above Transition Agreement Kenneth J. Van Ness stepped down as the President and Chief Executive Officer (“CEO”) of the Company. Mr. Van Ness continues to serve as a member of the board of directors of the Company. In addition, Mr. Van Ness will serve as Senior Executive Advisor to the Company until October 16, 2012.

On September 10, 2012, the Board appointed Nader Pourhassan, Ph.D. to serve as the Company’s interim CEO, effective immediately. The Board approved Dr. Pourhassan’s title as interim President and CEO on September 13, 2012. On September 24, 2012, Dr. Pourhassan was appointed to serve as a member of the board of directors of the Company.

Subsequent to August 31, 2012, the Company issued $2,062,500 in unsecured convertible notes to investors. The notes are convertible at the election of the holder into common shares at a fixed conversion price of $.75 per share. The principal on the notes is payable in full on October 1, 2015. The notes bear interest at rates that range from 5% to 10% per year, payable in cash semiannually in arrears beginning on April 1, 2013. In connection with the sale of the notes, warrants to purchase a total of 2,616,667 common shares with exercise prices ranging from $1.50 to $2.00 per share were issued which are currently exercisable in full and will expire on October 1, 2014.

Effective September 24, 2012, the Company entered into a one-year consulting agreement for strategic communication services. The consulting engagement fee is $50,000, with the first half of the engagement fee payable upon execution, and the balance payable on December 1, 2012. On December 1, 2012, the first installment of a monthly retainer in the amount of $12,500 is due, with equal amounts payable each month as long as the agreement is in effect. The agreement can be terminated by either party upon 60 days’ prior written notice. In connection with execution of the agreement, the Company granted to the consultant fully-vested stock options to purchase common shares expiring two years from the date of the consulting agreement as follows: (i) 100,000 shares of common stock at an exercise price of $1.00 per share; (ii) 25,000 shares of common stock at an exercise price of $3.50 per share; and (iii) 50,000 shares of common stock at an exercise price of $5.00 per share.

Effective October 1, 2012, the Company entered into a one-year consulting agreement with an individual. The consulting agreement provides for a monthly cash payment of $2,500, and the grant of stock options to purchase 200,000 shares of common stock in three tranches: (i) 50,000 shares at an exercise price of $1.00 per share vesting in full on October 31, 2012; (ii) 50,000 shares at an exercise price of $2.00 per share vesting in full on December 31, 2012; and 100,000 shares at an exercise price of $3.00 per share vesting in full on December 31, 2012. The options will expire on September 30, 2015.