NOTE 12 - CONTINGENCIES McCrae Associates, LLC Lawsuit In July 2006, McCrae Associates, LLC ("McCrae) filed a lawsuit against the Company and its directors and officers in the United States District Court for the District of Connecticut. The lawsuit alleged that McCrae is the owner of 300,000 shares of the Company's common stock and that the Company did not deliver to and is wrongfully withholding such shares from McCrae. The lawsuit alleged that the directors and officers conspired with the Company to deprive McCrae of such shares, and that the directors and officers owed a fiduciary duty to McCrae that they violated by refusing to tender the shares to McCrae upon demand. The lawsuit also alleged that all of the defendants violated the Connecticut Unfair Trade Practices Act. McCrae sought delivery of a stock certificate covering the shares, unspecified monetary damages, including treble damages, attorney fees and punitive damages. The Company vigorously defended the action and filed a counter-claim against McCrae and a third-party claim against Stephen Funk seeking to rescind the issuance of shares to McCrae and to recover monetary damages on fraud and breach of contract theories. The Company also filed similar claims in the Chancery Court in Wilmington, Delaware seeking to rescind the issuance of 200,000 shares of common stock to Liberator, LLC, and a company it believes is controlled by Stephen Funk. The parties agreed to the voluntary dismissal of the action in Delaware with the express understanding that Liberator would be bound by the decision of the Court in Connecticut with respect to the McCrae shares. Efforts by the Company and McCrae to settle the litigation were unsuccessful and the parties commenced discovery. In February 2011, the Company agreed to a settlement regarding the McCrae lawsuit. In exchange for settlement of the lawsuit, the Company exchanged a warrant to purchase 42,500 shares of Lightwave Logic, Inc. common stock at an exercise price of $0.25 per share, expiring February 2012 for 500,0