11.  RELATED PARTY TRANSACTIONS:

Consulting arrangements

On July 15, 2014, the Company terminated the Consulting Agreement with Mr. Richard Giles, a founder, stockholder, and former director of the Company.  The Company paid consulting fees of $69,800 to Mr. Giles during the year ended December 31, 2014; and $189,600 during the year ended December 31, 2013.  The Company had a Senior Subordinated note payable with Mr. Richard Giles, during the year ended December 31, 2014, the Company made the final required principal payments totaling $500,000 and paid interest of $7,500.  The Company paid principal payments totaling $500,000 and interest of $57,500 on the Senior Subordinated note payable during the year ended December 31, 2013.

In November 2014 the Company entered into an arrangement with Heather Kearns, the Interim Chief Financial officer and paid consulting fees of $18,000.

Share activity

Justin Yorke is the manager of the JMW Fund, the San Gabriel Fund and the Richland Fund; and was a director from April 2011 until June 2012.  During the year ended 2014 Mr. Yorke, as the manager, was issued 83,330 Series D preferred shares and warrants to purchase 41,665 common shares.  Mr. Yorke, as the manager, converted 166,660 Series D preferred shares into 285,700 common shares and warrants to purchase 142,850 common shares as part of the Private equity offering dated October 1, 2014.  Mr. Yorke, as the manager, accrued dividends from preferred stock in 2014 totaling $27,725.  During 2014, Mr. Yorke, as the manager, was issued unsecured notes payable in the aggregate principal amount of $1,729,003, bearing interest at 12% per annum and granted warrants to purchase 576,327 common shares in connection with the Company’s $1 million and $3 million note offerings.  In October 2014, Mr. Yorke, as the manager, was issued a short-term unsecured loan in the amount of $75,000, bearing interest at 12% per annum.  Mr. Yorke, as the manager, converted an aggregate amount or $1,926,537 unsecured notes payable and accrued interest into 1,100,876 common shares and was granted warrants to purchase 550,438 common shares in the Private equity offering dated October 1, 2014.  As of December 31, 2014 the Company has an unsecured note payable with Mr. Yorke, as the manager, in the amount of $20,000; a secured note payable in the amount of $160,000, and an outstanding balance of $138,000 on the revolving line of credit.  Mr. Yorke, as the manager, received or has accrued interest payments from loans payable in 2014 totaling $105,275.  See Note 14 for additional disclosure.

During the year ended December 31, 2014, Mr. Gus Blass III, a member of our board of directors and a stockholder, was issued 16,666 Series D preferred shares and warrants to purchase 8,333 common shares.  Mr. Blass III received or has accrued dividends from preferred stock in 2014 totaling $22,355.  In addition, Mr. Gus Blass II, a former member of our board of directors and father to Mr. Gus Blass III, a member of our board of directors, was issued an unsecured note payable in the amount of $250,000 during 2014, paying interest at 12% per annum, with a maturity date of January 6, 2016.  Mr. Gus Blass II was granted warrants to purchase 83,333 common shares in connection with the unsecured note payable.  Mr. Blass II, received or has accrued interest payments in 2014 totaling $29,507.

During the year ended December 31, 2014, Reginald Greenslade, a member of our board of directors and a stockholder, was issued 16,659 Series D preferred shares and warrants to purchase 8,329 common shares.  Mr. Greenslade converted 16,659 Series D preferred shares into 28,487 common shares and warrants to purchase 14,279 common shares in the Private equity offering dated October 1, 2014.  Mr. Greenslade received or has accrued dividends from preferred stock in 2014 totaling $2,180.  On January 1, 2014 as part of the Dr. Pave, LLC acquisition, the Company assumed an outstanding balance of $45,980 on the revolving line of credit to Mr. Greenslade.  Mr. Greenslade received or has accrued interest in 2014 totaling $5,518.

During the year ended 2014, the Company issued 1,500 Series D preferred shares and warrants to purchase 750 common shares to David Dworsky, the Chief Executive Officer of the Company.  Mr. Dworsky received or has accrued dividends in 2014 totaling $213.

During the year ended December 31,2013, Mr. Yorke, as the manager, of JMW Fund, San Gabriel Fund and Richland Fund; held $400,000 of the senior secured notes payable, $250,000 of the notes were converted into 83,330 Series D preferred shares and warrants to purchase 41,665 common shares.  Mr. Yorke, as the manager, received dividends from preferred stock in 2013 totaling $6,794.  As of December 31, 2013 the Company had an unsecured note payable with Mr. Yorke, as the manager, in the amount of $90,000.  Mr. Yorke, as the manager, received interest payments in the amount of $8,617 during 2013. 

During the year ended December 31, 2013, Mr. Gus Blass III, a member of our board of directors and a stockholder, held $125,000 of the senior secured notes payable in an individual capacity and $125,000 through an entity in which he is a managing member.  The principal amount of the senior secured notes payable was converted into 83,332 Series D preferred shares and warrants to purchase 41,666 common shares.  Mr. Blass III received dividends from preferred stock in 2013 totaling $6,685.  In addition, Mr. Gus Blass II, a former member of our board of directors and father to Mr. Gus Blass III, a member of our board of directors, held a senior secured note payable in the amount of $250,000 during 2013, the senior secured note payable, principal and interest, was paid in full to Mr. Blass II on September 15, 2013.  Mr. Blass II, received interest payments in 2013 totaling $9,452.

Dr. Pave Acquisition

On January 7, 2014, the Company entered into an Agreement and Plan of Reorganization (the “Acquisition Agreement”) dated January 8, 2014 with Dr. Pave, LLC, a California limited liability company.  Dr. Pave, LLC was controlled by David Dworsky, the Chief Executive Officer of the Company.  The Company acquired all of the outstanding membership interests in Dr. Pave for 58,333 shares of common stock of the Company at a value of $3.00 per share for total consideration in the amount of $175,000.  The consideration included the issuance of 41,668 shares to Dworsky Partners, LLC, an entity in which David Dworsky owned 80% of the ownership interest, and 3,333 shares to Reginald Greenslade, a member of our board of directors.