Amended Annual Report (10-k/a)

BZIC Beamz Interactive Inc (CE)

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Share Name	Share Symbol	Market	Type
Beamz Interactive Inc (CE)	USOTC:BZIC	OTCMarkets	Common Stock

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-K/A

Amendment No. 1

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended June 30, 2014

Commission file number 000-54662

Beamz Interactive, Inc.

(Name of registrant as specified in its charter)

Delaware	94-3399024
(State or other jurisdiction of incorporation)	(IRS employer identification no.)

15354 N. 83rd Way, Suite 101 Scottsdale, Arizona 85260	(480) 424-2053
(Address of principal executive offices)	(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one)

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange A. Yes o No x

As of September 24, 2014, 53,803,411 shares of the registrant’s $.001 par value common stock were issued and outstanding (“Common Stock”).

The aggregate market value of the registrant’s voting and non-voting securities held by persons other than affiliates of the registrant – computed at the price at which the registrant’s common equity was last sold is $576,424

EXPLANATORY NOTE

The purpose of this Amendment No. 1 to Beamz Interactive, Inc.’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014, filed with the Securities and Exchange Commission on October 14, 2014, is solely to include exhibits that were inadvertently omitted from such filing. No substantive changes have been made to the Form 10-K. This Amendment does not reflect events that may have occurred subsequent to the original filing date.

BEAMZ INTERACTIVE, INC.

FORM 10-K

JUNE 30, 2014

PART I
ITEM 1. BUSINESS	3
ITEM 1A. RISK FACTORS	7
ITEM 1B. UNRESOLVED STAFF COMMENTS	7
ITEM 2. PROPERTIES	7
ITEM 3. LEGAL PROCEEDINGS	7
ITEM 4. MINE SAFETY DISCLOSURES	7
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	8
ITEM 6. SELECTED FINANCIAL DATA	9
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	9
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	33
ITEM 9A. CONTROLS AND PROCEDURES	33
ITEM 9B. OTHER INFORMATION	33
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	34
ITEM 11. EXECUTIVE COMPENSATION	35
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	40
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	43
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES	44
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES	45

EMERGING GROWTH COMPANY STATUS

As a result of the Jumpstart Our Business Startups Act (the “JOBS Act”), enacted in 2012, the information that we are required to disclose has been reduced in a number of ways because, in addition to being a smaller reporting company, we also qualify as an “emerging growth company,” as defined in the JOBS Act (an “EGC”). We will retain that status until the earliest of (A) the last day of the fiscal year in which we have total annual gross revenues of $1,000,000,000 (as indexed for inflation in the manner set forth in the JOBS Act) or more; (B) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our Common Stock pursuant to an effective registration statement under the Securities Act of 1933; (C) the date on which we have, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or (D) the date on which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act or any successor thereto. As an EGC, we will continue to be relieved from certain significant disclosure requirements, even if we no longer qualify as a smaller reporting company, including the following:

EGCs are excluded from Section 404(b) of the Sarbanes-Oxley Act, which requires our auditors to attest to and report on internal controls over financial reporting. The JOBS Act also amended Section 103(a)(3) of the Sarbanes-Oxley Act to provide that (i) any new rules that may be adopted by the PCAOB requiring mandatory audit firm rotation or changes to the auditor’s report to include auditor discussion and analysis (each of which is currently under consideration by the PCAOB) shall not apply to an audit of an EGC and (ii) any other future rules adopted by the PCAOB will not apply to our audits unless the SEC determines otherwise.

The JOBS Act amended Section 7(a) of the Securities Act to provide that as an EGC we need not present more than two years of audited financial statements in an initial public offering registration statement and in any other registration statement need not present selected financial data pursuant to Item 301 of Regulation S-K for any period prior to the earliest audited period presented in connection with such initial public offering. In addition, as an EGC we are not required to comply with any new or revised financial accounting standard until such date as a private company (i.e., a company that is not an “issuer” as defined by Section 2(a) of the Sarbanes-Oxley Act) is required to comply with such new or revised accounting standard. Corresponding changes have been made to the Exchange Act, which relates to periodic reporting requirements, which would be applicable to us if we were required to comply with them. Also, as long as we are an EGC, we may continue to comply with the reduced requirements applicable to smaller reporting companies under Item 402 of Regulation S-K, which requires extensive quantitative and qualitative disclosure regarding executive compensation

The JOBS Act will also continue to exempt us from the following additional compensation-related disclosure provisions that were imposed on U.S. public companies pursuant to the Dodd-Frank Act: (i) the advisory vote on executive compensation required by Section 14A(a) of the Exchange Act, (ii) the requirements of Section 14A(b) of the Exchange Act relating to stockholder advisory votes on “golden parachute” compensation, (iii) the requirements of Section 14(i) of the Exchange Act as to disclosure relating to the relationship between executive compensation and our financial performance, and the requirement of Section 953(b)(1) of the Dodd-Frank Act, which will require disclosure as to the relationship between the compensation of our chief executive officer and median employee pay.

As an EGC, we have elected to use the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates for such new or revised standards.

PART I

ITEM 1. BUSINESS

General

We were incorporated in Delaware in 2001 under the name HumanBeams, Inc. On December 18, 2007, we changed our name to Beamz Interactive, Inc. Our principal executive office is located at 15354 North 83rd Way, Suite 101, Scottsdale, Arizona 85260, and our telephone number is 480-424-2053. Our principal operations are located in Scottsdale, Arizona. Our website address is www.thebeamz.com.

Products

We have developed an interactive music and laser controller technology that can be implemented in a wide variety of music, game, education, therapy, senior care, lighting and consumer applications. Our professional and consumer products (”Beamz Education and Healthcare”, or “Beamz EHC” and “Beamz by Flo” product families and collectively the “Beamz” or “Beamz Products”) can bring music to everyone in a manner that has previously not been possible. By connecting the Beamz to a PC or MAC computer, iPad, or iPhone, depending upon the model, and installing the associated software, the user can “play” a wide range of digitized musical instruments by simply interrupting one or more laser beams with their hands, or by playing the touch screen on their mobile device. This allows them to create great music in conjunction with a background rhythm track of original, popular, and children’s songs across numerous music genres (e.g., jazz, blues, hip hop, rock, classical or Latin). In each song, the user can select up to twelve different instruments, music clips and sound effects that are harmoniously paired with a background rhythm track, resulting in hundreds of instruments to choose from across all songs in the Beamz music library. These are often actual recordings of artists playing such instruments, and thus sound just like a high quality digital recording of the instrument. By following the diagram on the screen of the attached device, the user is able to identify which laser beam controls the various instruments. Beamz songs are harmonious regardless of how they are played and the music samples assigned to a laser beam offer additional complexity, often with several notes, chords and/or series of music samples controlled by touching one of the laser beams. Because the music is harmonious, no matter which laser beam is interrupted, no previous musical background or training is required to play and enjoy music with the Beamz.

The Beamz laser controller hardware is a combination of buttons, rocker switches and class 2 laser beams that function as controls and switches for triggering commands in software applications. In the combination of the Beamz laser controller with the Beamz interactive music software application, the laser controller is the trigger and playback method for single music notes, chords, sound effects, vocals and music files. Playback varies depending on how each Beamz song is constructed, how a user decides to use the buttons and rocker switches, and how they interrupt the laser beams (e.g. by putting their hands or any other object through the path of the laser beams).

We have commercialized several products that use the Beamz interactive laser controller technology for music making and music-controller related products. Our Beamz EHC product family includes the Professional and Home Editions. The Professional Edition is designed for use by professionals in educational or therapeutic settings. In schools, for example, the Beamz is being used to teach learning concepts, implement therapy protocols in special needs classrooms, or as a sensory solution for children with autism or other disabilities. When used in a therapeutic setting or in a senior home or living facility, the Beamz Professional Edition can be used to motivate children, adults and seniors to achieve their therapeutic goals through the use of music. In addition, during the upcoming months, Beamz is planning to offer professional lesson plans and therapeutic protocol manuals, all of which will be paired and used with Beamz music content, and adapter plates that allow the user to attach the Beamz to a desk, wheelchair, or other platform. The Beamz can also be paired with switches that allow users who are unable to readily break the laser beams to play the sounds to simply push a switch to generate the same result. When paired with the appropriate content and these additional accessories when needed, the Beamz Professional becomes a compelling solution for professional education and therapeutic professionals alike.

In addition, we offer a Beamz Home Edition, which is universally designed so that anyone, regardless of age or ability level, can actively participate in making music. In addition to the sheer pleasure of playing music and creating original song mixes, Beamz can be used in very specific ways to target skill development or extend physical and cognitive therapies at home. Beamz software is totally accessible, meaning if a family member requires the use of a switch, adapted keyboard, touch surface or other option the ability to connect is built in.

As of September 2014, our primary product offering consists of three product lines: the Beamz EHC product family, which includes the Beamz EHC Professional and Home Editions, the Beamz By Flo consumer product family, and stand-alone software applications that work on PCs, MACs, iPhones, iPads and Android devices without connecting to the Beamz hardware. The basic technology for these products has been in full production since late 2010. We produced and distributed to customers approximately 13,000 units of our first and second generation Beamz products. The first units of our Beamz by Flo product began shipping in September 2013 and the Beamz EHC product family first shipped in January 2014. In addition to these primary product lines, we also offer a variety of music and other content which can be purchased for use with our applications and/or the Beamz Products.

During the year ended June 30, 2014 the Company had two customers that represented approximately 46% of net sales. The Company had no accounts receivable at June 30, 2014 from these customers.

Future Products

In August 2014 we introduced our Android tablet and mobile phone applications and are planning to introduce an update to these applications in 2015 that will allow them to also be used with the Beamz hardware products, similar to the iOS products we currently offer. Also in 2015 we expect to introduce compatibility with Windows 8 tablet devices. In September 2014 we will be introducing our new early learning iOS and Android applications, which include interactive music and video content. We also expect to continue to develop ongoing releases of lesson plans, therapeutic protocols and music content for use both with the Beamz hardware products and applications. In the future, we expect to also address new market opportunities such as the toy or gaming markets.

Marketing

We believe we are uniquely positioned to make significant inroads in the sizable education, therapy and special needs markets worldwide. We are currently marketing the Beamz EHC Professional Edition through direct sales to select education markets to build awareness for our products with educators. Our plans also include working with therapists and educators to continue to develop lesson plans and therapeutic protocols for use with the Beamz EHC Professional Edition products. Those collaborations include endorsements from the educators and therapists with whom we are working, as well as their availability for press events and joint presentations at industry trade shows. We have also redesigned our website to feature both the Professional and Home editions of the Beamz EHC family of products. The website includes numerous videos that demonstrate use of the Beamz in various educational, special needs and/or therapeutic situations.

In the senior, special needs, and early learning home markets, we intend to advertise the Beamz EHC Home Edition product to individuals and their families through a digital marketing campaign that includes e-mail, social media, YouTube and Google ad campaigns, particularly through the holiday season. We are also pursuing relationships with select retailers who specialize in sales to the special needs community, as well as with organizations that are also directly involved with individuals who receive services in their homes, and we will participate in trade shows directed at these markets, such as the American Therapy Recreation Association (“ATRA”) trade show, which we recently attended.

Sales and Distribution Strategy

Our historical sales and distribution strategy included marketing products on the Beamz web site, on Amazon, with various affiliates and online retailers, in certain retail musical instrument stores, in selected consumer retailers and with select international distributors.

Sales Staff Efforts. In addition to our direct sales strategy in select education markets, we have entered into agreements with more than twenty select educational product resellers worldwide and intend to continue to build our reseller network as awareness in the education market grows. We are in the process of building a similar reseller network in the therapy and senior living market and are pursuing a direct sales effort to large corporate providers of senior living facilities. We currently have two international sales resources based in the United Kingdom and two United States sales resources – one who is dedicated to educational market sales and the second who is dedicated to sales in the therapy and senior living markets. We intend to add additional sales resources as funding permits.

Website and Internet Marketing Strategy. We intend to employ a digital marketing campaign, including e-mail, social media, YouTube and Google ad campaigns to not only increase awareness of our products, but also to drive sales through our web store.

Strategic Relationships. We have recently entered into agreements with The Learning Station and Gigglebellies (Magic Factory) to adapt a variety of their early learning educational and entertainment videos for use with the Beamz Products and Beamz Applications, which are available for PC, MAC, iOS and Android operating systems. These newly adapted videos form the basis of our early learning content and are targeted at children from age two through early grammar school. This content is also being promoted through e-mail campaigns and social media in order to drive sales through our applications. In addition, we are collaborating with Learning Station for the creation of educational lesson plans for use with the Learning Station/Beamz video content and both Learning Station and Gigglebellies will be promoting the Beamz early learning content which incorporates their videos to their respective customer bases. We expect to seek strategic relationships with other companies such as Learning Station and Gigglebellies in order to continue to build a wide variety of our application content offering, as well as to extend the Beamz technology into other markets, such as toys or gaming.

Research and Development

We believe continued innovation through research and development is critical to our future success. Through June 30, 2014, our research and development was conducted by a number of outside hardware and software contractors that are under contract with us to develop new products that can be integrated with our current product lines. We spent $907,055 on research and development in fiscal 2014 and $880,379 in fiscal 2013. We believe that our current research and development effort is sufficient for our current needs; however, we may increase our research and development expenditures depending on the progress of our ongoing efforts, closure of additional customers, strategic relationships, and the availability of funding.

Manufacturing and Assembly

Assembly of our primary products occurs at Chen-Source, Inc., a Taiwanese company (“Chen-Source”). We believe Chen-Source has the capability to manufacture the product in high volumes at reasonable costs. Currently, Chen-Source is our only Beamz Product hardware vendor. If their facility experiences a disruption, we would have no other means of assembling those components until we are able to develop the same capability at an alternative facility. A vendor selection process will be used to choose the manufacturer for our future products.

Intellectual Property

We believe that in order to maintain a competitive advantage in the marketplace, we must develop and maintain the proprietary aspects of our technologies. We rely on a combination of patent, copyright, trademark and other intellectual property rights and measures to protect our intellectual property.

Our patent portfolio includes rights to patents and patent applications that we own. We seek patent protection in the United States and internationally for our products and technologies where and when we believe it is appropriate. United States patents are granted generally for a term of twenty years from the earliest effective priority date of the patent application. The actual protection afforded by a foreign patent, which can vary from country to country, depends on the type of patent, the scope of its claims and the availability of legal remedies in the country.

We also rely on other forms of intellectual property rights and measures, including nondisclosure and confidentiality agreements, to maintain and protect proprietary aspects of our products and technologies. We require our consultants to execute confidentiality agreements in connection with their consulting relationships with us. We also require our consultants to disclose and assign to us all inventions conceived during the term of their engagement while using our property or which relate to our business.

Patents and Patent Applications

Our strategy is to aggressively file, secure, and maintain a broad range of patents and other intellectual property to protect our current and future business. Currently, we have seven U.S. Utility Patents and one U.S. Design Patent. We also have five pending U.S. Utility Patent Applications, three pending International Utility Patent Applications and three pending International Patent Cooperation Treaty (“PCT”) Patents Applications.

We have four U.S. Registered Trademarks: the Beamz name, the Beamz logo, the name “iBeamz” and the phrase “Play the Light” and two pending foreign trademark applications. We have a U.S. Registered Copyright on our core Beamz software. We have filed, or will file, copyrights on our original music and software.

License Arrangements

On August 30, 2012 we restructured our licensing arrangement with Cypher Entertainment Group, LLC (“Cypher”) by terminating our joint venture in favor of entering into a license agreement directly with Cypher (the “Cypher License Agreement”). The restructured agreement expires May 19, 2021. Pursuant to the Cypher License Agreement, we granted Cypher a worldwide, exclusive right and license to develop and manufacture a specific version of the Beamz, the Smart Phone Beamz Player, and market it to online and in-store mass retail channels. This license was subsequently amended on April 4, 2013. Pursuant to the license agreement and the amendment to the license agreement, Beamz has retained the right to market the new Smart Phone Beamz Player product to a range of other channels, including the professional, DJ, retirement, education, special needs and select internet consumer markets and to make any other Beamz Products that are powered by smart phones or any other devices. The Cypher License Agreement provides for payments to Beamz for the use of the original content included on the Smart Phone Beamz Player (the “Beamz Content”) equal to $1.50/Unit plus 100% of the out-of-pocket third-party royalties associated with such Beamz Content. In addition, for each Unit sold by Cypher, Cypher will pay Beamz a royalty equal to thirteen (13%) of the manufacturer contract purchase price for such product. Similarly, we will purchase Smart Phone Beamz Players from Cypher at cost plus thirteen percent (13%) of the manufactured cost for Beamz sales of such new product. Beamz has retained the right to develop, manufacture or license any other products or versions of the Beamz Products as it may desire, other than the Smart Phone Beamz Player product family. Pursuant to the April 4, 2013 amendment, Beamz will pay Cypher a royalty equal to 5% of Beamz’ contract manufacturer cost on any new product developed by Beamz that is powered by, and used with, a smart phone.

On April 17, 2013 we entered into a perpetual licensing agreement with Mindsight, LLC. Pursuant to the agreement, Mindsight is developing an interactive music audit engine that allows Beamz to operate on a variety of operating systems including Mac, Windows, iOS, and Android. Beamz has the exclusive right to use this technology in Beamz’ markets.

We have agreements with a number of music labels and/or licensing agencies—EMI Music Services, Walt Disney Records, Blind Pig Records, Sony Records, Harry Fox Agency, Inc., Rhino Entertainment, Warner Music Inc., and others—whereby we license the right to use a broad range of songs and videos for use on the Beamz. We believe this adds an exciting multi-media video dimension, enabling the user to display the music video on a television or large monitor while playing the Beamz along with the song. We currently offer a library of over 300 interactive songs for sale on our web site, which we intend to continue to grow via both internal development and third-party artist relationships. These agreements fall into three primary categories:

Original Music Licenses

Beamz licenses original music from various labels, publishers and recording artists. In general, the agreements with recording artists provide that they will receive 30% of the net revenue received by Beamz for the sale of such original music.

Synchronization and Master Lease Agreements

Video song synchronization agreements grant Beamz a worldwide, nonexclusive, irrevocable, unencumbered and transferable right to use, perform, reproduce, and fix the compositions in synchronization with visual images when used in conjunction with the Beamz device. Each license includes two components, one with a record company (e.g. Hollywood Records and Walt Disney Records, Capital Records, LLC dba EMI Music Services, Rhino Entertainment, Blind Pig Records, Polyvinyl Record Company, and others,) and one with the music publisher (i.e. Seven Peaks Music and Seven Summits Music, EMI Music Publishing, Warner Music Inc., Viper Music, Sony ATV Music Publishing LLC, Polyvinyl Record Company, and others). In general, for downloads, Beamz pays both the music publishers and the record label the greater of $0.30 per sale or 17.5% of the net sales of the licensed product. In the case of licensed product that is included with the Beamz Products, Beamz pays both the publisher and the label $0.15 for each licensed product. Such agreements typically have a term of ten years and call for non-refundable advances that are recoupable from all compensation otherwise payable by Beamz to the licensors.

Mechanical Licensing Agreements

Beamz also secures statutory rate mechanical licenses from various publishers, and via the Harry Fox Agency, for its audio-only cover versions of popular songs. The mechanical licensing rate is $0.091 for each licensed product sold.

Competition

While there are no direct competitors for the Beamz Products and technology, there are several indirect competitors in both the education and health care market and the consumer market. In education and health care, there are various options that may be chosen by an educator or therapist for accomplishing their particular goals with their students, patients or seniors. While some of those products may include a musical aspect, none provide the music-making enjoyment or stimulation in the same manner as the Beamz Products. There are indirect competitors in the consumer market as well who make products consumers may compare to the Beamz music-making experience. These include traditional musical instruments, electronic keyboards/digital pianos and music games using pre-programmed music (e.g. Guitar Hero, Rock Band, and DJ Hero) on PCs, consoles and mobile devices.

Although some of the products offered in Beamz' markets include pre-programmed instrument notes and chords from hundreds of different instruments plus options to play into pre-programmed rhythm tracks, they are not setup to allow for immediate recreational or therapeutic music making. In contrast, Beamz songs are setup to be harmonious regardless of how they are played and the music samples assigned to a laser beam offer more complexity, often with several notes, chords and/or series of music samples controlled by touching one of the laser beams.

Employees

As of the date of this filing, we had two full-time employees. All other management and business operations services are provided on a consulting contract basis. We have consulting contracts with nine key individuals or firms that provide sales, engineering, software development, song and content production, operations, accounting, and marketing services. All such contracts may be terminated with sixty days’ notice. Upon completion of our current private offering, we anticipate converting some of these contractors to employee status.

ITEM 1A. RISK FACTORS

As a smaller reporting company, we are not required to provide this information.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We do not own any real property. We lease approximately 5,800 square feet of space from Arizona Design LLC for $5,500/month. This lease terminates May 31, 2015. We believe that our current facilities are sufficient to meet our needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

We registered and began to be traded on the OTCQB under the symbol “BZIC,” on January 22, 2013 but there is a limited active public market for our securities at this time. OTCQB is one of three tiers established by OTC Markets Group, Inc., which operates one of the world’s largest electronic interdealer quotation systems for broker-dealers to trade securities not listed on a national exchange. The following table sets forth the high and low sales price information of the Company’s common stock for the quarterly periods indicated as reported by NASDAQ. Please note that we do not have this information for the quarter ended September 30, 2012 or December 31, 2012 because we were not yet traded on the OTCQB.

YEAR	QUARTER ENDING	HIGH	LOW
2012	September 30, 2012	N/A	N/A
	December 31, 2012	N/A	N/A
2013	March 31, 2013	$2.00	$0.60
	June 30, 2013	$0.80	$0.20
	September 30, 2013	$1.33	$0.30
	December 31, 2013	$0.75	$0.13
2014	March 31, 2014	$0.62	$0.10
	June 30, 2014	$0.22	$0.04

As of September 24, 2014, we had 53,803,411 shares of Common Stock outstanding and 796,039 shares of Series D Convertible Preferred Stock outstanding that are convertible into 7,960,310 shares of Common Stock. We also have outstanding options for the purchase of 23,325 shares of Common Stock, warrants for the purchase of 1,437,015 shares of Common Stock, and Convertible Secured Subordinated Promissory Notes convertible into 16,155,405 shares of Common Stock.

Holders

Our Common Stock is currently held by approximately 154 holders of record, while our Series D Convertible Preferred Stock is held by 35 holders of record.

Dividends

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all future earnings for the operation and expansion of our business and, therefore, do not anticipate declaring or paying cash dividends in the foreseeable future. The payment of dividends will be at the discretion of our Board of Directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payments of dividends present in any of our future debt agreements and other factors our Board of Directors may deem relevant. The payment of dividends will also be subject to the requirements of the Delaware General Corporation Law.

The information required to be reported by Item 201(d) of Regulation S-K has been included in Item 12 of this Form 10-K.

Recent Sales of Unregistered Securities

Set forth below is information regarding the issuance and sales of the Company’s securities without registration for the year ended June 30, 2014. As further described in the notes accompanying the financial statements filed herewith, during the year ended June 30, 2014, the Company issued:

·	7,205,266 shares of common stock as consideration for services provide by independent contractors and consultants and members of the Board of Directors;

·	1,590,110 shares of common stock in relation to the exercise of warrants;

·	150,001 shares of common stock for the conversion of Series D preferred stock;

·	580,000 shares of common stock for the conversion of accounts payable and debt

We are currently conducting a convertible secured debt financing of up to $6,500,000. Such loans will bear interest at 10% per annum and have maturity dates through December 2015. For each dollar loaned we will issue to the purchaser a warrant to purchase one-half (1/2) share of Common Stock at an exercise price of $0.02 per share. The warrants have a term of three years. The principal and interest amounts issued pursuant to this debt financing are represented by convertible notes which are convertible into common stock of the Issuer at a rate of $0.40 per share. In February 2014 the convertible debt financing agreement was amended to provide the purchasers after the amendment date a warrant to purchase one share of Common Stock for each dollar loaned at an exercise price of $.02 per share and a term of three years. The conversion price of the notes issued following the amendment date is $0.20 per share. As of the date of this filing we have received proceeds equal to $4,808,509 of which $4,545,809 was provided by related parties.

In July 2014 we initiated a private placement of up to 30,000,000 shares of Common Stock at $0.05 per share including up to 30,000,000 warrants to purchase Common Stock (the “2014 Offering”). The warrants are immediately exercisable, have a term of three years, and have an exercise price of $0.02 per share. As of the date of this filing, we have received proceeds of $1,025,000 in connection with this offering and have issued 20,500,000 shares of Common Stock and 20,500,000 warrants to purchase Common Stock. The placement agent for the unit offering will receive a cash fee equal to 10% of the gross proceeds, excluding proceeds received directly from management or from investing parties introduced by management. The 2014 Offering was made in reliance on the exemption from registration available under Rule 506(c) of Regulation D. Participation in the 2014 Offering was available only to “accredited investors” as such term is defined under Regulation D and we filed a Form D with the SEC also in compliance with Regulation D.

Except as otherwise described in the paragraph above with respect to the 2014 Offering, the issuances described above were made in private transactions or private placements intending to meet the requirements of one or more exemptions from registration, including the exemption provided under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Act”). The investors were not solicited through any form of general solicitation or advertising, the transactions being non-public offerings, and the sales were conducted in private transactions where the investor identified an investment intent as to the transaction without a view to an immediate resale of the securities; the shares were “restricted securities” in that they were both legended with reference to Rule 144 as such and the investors identified they were sophisticated as to the investment decision and in most cases we reasonably believed the investors were “accredited investors” as such term is defined under Regulation D based upon statements and information supplied to us in writing and verbally in connection with the transactions. We have never utilized an underwriter for an offering of our securities and no sales commissions were paid to any third party in connection with the above-referenced sales.

ITEM 6. SELECTED FINANCIAL DATA

As a smaller reporting company, we are not required to provide this information.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes included elsewhere in this report. This discussion and analysis contains forward-looking statements that are based upon current expectations and involve risks, assumptions and uncertainties. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, expected, estimated, projected, suggested or intended.

Overview

We have developed an interactive laser controller technology that can be used in a wide variety of music, game, education, therapy, lighting and consumer applications. Our Beamz Products can bring music to everyone in a manner that has previously not been possible. By simply interrupting one or more laser beams with their hands, the user can play a wide range of musical instruments and create great music in conjunction with a background rhythm track of original, popular, and children’s songs across numerous music genres, including jazz, blues, hip hop, rock, classical and Latin. Currently, Beamz Products are being used in schools to teach learning concepts, implement therapy protocols and as a sensory solution for children with Autism, as well as in the implementation of therapy protocols to motivate children, adults and seniors to achieve their therapeutic goals through the use of music. Consumers also enjoy the product simply as a form of musical entertainment.

Factors That May Influence Future Results of Operations

The following is a description of factors that may influence our future results of operations, including significant trends and challenges that we believe are important to an understanding of our business and results of operations.

Revenues

The generation of recurring revenues through sales and licensing of our current and new Beamz products, technology and content are an important part of our business model. Our first commercial product began shipping in fiscal 2008 at a retail price point of $599 per unit. Sales at that time were achieved through an exclusive distribution arrangement with Sharper Image, who subsequently filed for bankruptcy in early 2008. We refocused our strategy in 2009 to seek alternative sales and distribution channels, and to reduce the price for our consumer product to $199.95. Based on market feedback, we defined and developed a second generation product that had a much lower cost and a broader range of capabilities. A consumer and professional version of the second generation product began shipping in late 2010, allowing us to achieve net revenues of $563,411 and $338,830 in fiscal years ending June 30, 2011 and 2012, respectively. The revenues related to the second generation product continued through fiscal year ending June 30, 2013, with net revenues of $261,949, although the last quarter of fiscal 2013 sales were not material due to the focus on the next generation product that began shipping in September 2013. Our third generation products, Beamz by Flo and Beamz EHC, include many new features based on continuing market feedback – most notably compatibility with Apple computers and iOS devices such as iPhones and iPads, MIDI capability and a smaller form factor. During the fiscal year ended June 30, 2014 net revenues for the third generation product were $362,851.

Since inception, our revenues relate primarily to the sale of our Beamz Player and Beamz Pro products. We have now phased out these products and expect our material future revenues to come from our Beamz EHC and Beamz By Flo product families, as well as from sales of music content, therapeutic protocols and lesson plans, all developed to provide a satisfying user experience. Historically, our business has typically been affected by seasonal sales trends primarily resulting from the timing of the holidays in the quarter ending December 31. In the future, as additional markets and distribution channels are developed, our business is expected to be less seasonal.

Our revenue recognition policies are more fully described in the “Critical Accounting Policies and Significant Judgments and Estimates” section below.

Research and Development Costs

Our research and development costs consist primarily of costs associated with the conceptualization, design, testing and prototyping of our various Beamz Products and products under development, and the development of software and content (such as songs, games, and educational content) for such products. This includes the consulting fees, travel and benefits of research and development personnel and contractors; materials and supplies used by our research personnel, sponsored contract research and product development with third parties; and licensing costs. Subject to securing adequate financing, research and development expenses may increase as we: (1) continue to develop enhancements to our product offering; (2) expand our product development efforts for both music, therapeutic and educational content for use with the Beamz product family; and (3) expand research and development to apply our technologies to additional product, market, and technology applications.

Selling, Marketing, General and Administrative Expenses

Our selling, marketing, general and administrative expenses consist primarily of consulting fees and expenses, advertising and commercial fees and endorsement costs related to our relationship with Flo Rida, sales incentive payments and commissions, travel and benefits; share-based compensation; professional fees, including fees for attorneys and outside consultants; intellectual property protection filings, insurance, marketing costs, and other general and administrative expenses, which include corporate licenses and taxes, postage, office supplies and meeting costs. Our selling, general and administrative expenses are expected to increase due to costs associated with the commercialization primarily of our Beamz EHC products, increased consultant fees and/or headcount necessary to support our anticipated growth in operations, and the additional operational and regulatory burdens and costs associated with operating as a publicly traded company. In addition, we expect to incur additional costs associated with protecting our intellectual property rights as necessary to support our product offerings.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements as well as the reported expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. Actual results may differ materially from these estimates under different assumptions or conditions.

As an emerging growth company under the JOBS Act, we have elected to use the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates for such new or revised standards.

While our significant accounting policies are more fully described in the notes to our financial statements included herewith, we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results.

Going Concern. The going concern basis of presentation assumes we will continue in operation throughout the next fiscal year and into the foreseeable future and will be able to realize our assets and discharge our liabilities and commitments in the normal course of business. As discussed below, certain conditions currently exist which raise substantial doubt upon the validity of this assumption. The financial statements do not include any adjustments that might result from the outcome of the uncertainty.

The accompanying financial statements as of and for the year ended June 30, 2014, have been prepared assuming that the Company will continue as a going concern. As of June 30, 2014, the Company has yet to achieve profitable operations and is dependent on our ability to raise capital from stockholders or other sources to sustain operations. Ultimately, we hope to achieve viable profitable operations when markets can be developed for our products and sales of our products increase sufficiently to support our costs. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. These factors raise substantial doubt about the Company's ability to continue as a going concern. In their report attached to our financial statements, our independent registered public accounting firm included an emphasis-of-matter paragraph with respect to our financial statements for the fiscal year ended June 30, 2014, concerning the Company’s assumption that we will continue as a going concern.

Management's plans to address these matters include raising additional financing through offering our shares of capital stock in private offerings of our securities and through debt financing if available and needed. However, should the Company be unsuccessful with these financing efforts, it will scale back operations and expects, but has no guarantee, that existing shareholders will continue to support the Company at such reduced levels. The Company plans to become profitable by executing our current sales, marketing, partner and development plans.

Collectability of Accounts Receivable. Accounts receivable consist primarily of amounts due from customers from sales of products and is recorded net of an allowance for doubtful accounts and product returns. The allowance for uncollectible accounts and product returns totaled $9,274 and $4,256 as of June 30, 2014 and 2013, respectively. In order to record our accounts receivable at their net realizable value, we assess their collectability. A considerable amount of judgment is required in order to make this assessment, based on a detailed analysis of the aging of our receivables, the credit worthiness of our customers and our historical bad debts, product returns and other adjustments. If economic, industry or specific customer business trends worsen beyond earlier estimates, we increase the allowance for uncollectible accounts by recording additional expense in the period in which we become aware of the new conditions.

The majority of our customers are based in the United States and European Union. The economic conditions in the United States and European Union can significantly impact the recoverability of our accounts receivable.

Inventory. Inventory is carried at the lower of cost (first-in, first-out method) or net realizable value. All items included in inventory relate primarily to our Beamz products. In determining whether inventory valuation issues exist, we consider various factors including estimated quantities of slow-moving inventory by reviewing on-hand quantities, historical sales and production usage. Shifts in market trend and conditions, changes in customer preferences or the losses of one or more significant customers are factors that could affect the value of our inventories. These factors could make our estimates of inventory valuation differ from actual results. We periodically review our inventory for obsolete items and provide a reserve upon identification of potential obsolete items. With the launch of our next generation product in September 2013, we believed that our second generation products became obsolete and provided a reserve for them in their entirety, in the amount of $100,708, as of June 30, 2013.

Valuation allowance for deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that included the enactment date.

Valuation allowances are recorded for deferred tax assets when the recoverability of such assets is not deemed more likely than not.

We have evaluated the effect of guidance provided by GAAP regarding accounting for uncertainty in income taxes. In that regard, we have evaluated all tax positions that could have a significant effect on the financial statements and determined that we have no uncertain tax positions at June 30, 2014, that could have a significant effect on our financial statements. Our returns after 2011 remain open for examination.

Share-based compensation. We account for compensation for all arrangements under which directors, consultants, and others receive shares of stock or equity instruments (including options and warrants) in accordance with FASB ASC Topic 718 “ Compensation – Stock Compensation”, or ASC Topic 505-50 “ Equity Based Payments to Non-Employees ”. Certain of our directors and consultants have been granted long-term incentive awards, primarily restricted Common Stock, which provides them with equity interests as an incentive to remain in our service and align the recipients' interests with those of our equity holders. We estimate the fair value of restricted stock at the date of grant when awards are granted in accordance with ASC Topic 718 and the vesting date when awards are granted under ASC Topic 505-50. Share-based compensation expense is recognized in sales and marketing expenses and general and administrative expenses ratably over the vesting period at the greater of the amount amortized on a straight-line basis or the amount vested. Historically, we have valued the restricted Common Stock based on the per-share closing price as quoted on the OTCQB market

Research and development costs. Expenses related to research, design and development of products are charged to research and development costs as incurred. These expenditures include direct salary costs and/or consultant expenses for research and development personnel and contractors, costs for materials used in research and development activities and costs for outside services.

Results of Operations

Comparison of the Twelve Months Ended June 30, 2014 to the Twelve Months Ended June 30, 2013

	2014		2013		Percentage Change

Sales, net	$	362,851		261,949		38.5	%
Cost of goods sold		307,520		141,329		117.6	%
Depreciation and amortization		31,653		683		4534.4	%
Research and development expenses		907,055		880,379		3.0	%
Sales and marketing expenses		1,731,012		1,576,836		9.8	%
General and administrative expenses		2,731,517		1,717,872		59.0	%
Inventory impairment		-		100,708		(100.0)	%
Interest expense, net		708,416		585,582		21.0	%
Loss on extinguishment of debt		85,640		499,320		(82.8)	%
Net loss		(6,139,962)		(5,240,760)		17.2	%

Sales, net. Sales, net were $362,851 for the year ended June 30, 2014, compared to $261,949 for the year ended June 30, 2013. The increase was primarily due to the launch of the next generation Beamz Products.

Cost of Goods Sold. Cost of goods sold was $307,520 for the year ended June 30, 2014, compared to $141,329 for the year ended June 30, 2013. The increase in cost of goods sold was due to increased fulfillment costs due to the use of two warehouses from September 2013 through March 2014; and, for the year ended June 30, 2014 compared to June 30, 2013, higher revenues, increased shipping costs, and increased royalty fees related to the relationship with Flo Rida. The gross margin decreased to approximately 15% for the year ended June 30, 2014, compared to approximately 46% for the year ended June 30, 2013, and is primarily due to the increased fulfillment and shipping costs of approximately $97,000 and increased royalty fees of approximately $54,000. The Company does not expect additional increases in these fees going forward.

Research and Development Expenses. Research and development expenses were $907,055 for the year ended June 30, 2014, compared to $880,379 for the year ended June 30, 2013. This increase was due primarily to the development efforts associated with the third generation Beamz Products, most of which were completed in the first quarter of fiscal 2014, including both hardware development and software compatibility with the Windows, MAC, and iOS (iPhone and iPad) operating systems. Development of software compatible with the Android operating system, however, continued throughout the fiscal year and was completed after the fiscal year end. The periods ending June 30, 2014 and 2013 also include non-cash development contractor expenses of approximately $306,000 and $158,000, respectively associated with stock compensation.

Sales and Marketing Expenses. Sales and marketing expenses were $1,731,012 for the year ended June 30, 2014, compared to $1,576,836 for the year ended June 30, 2013. The increase was primarily due to contractor services related to the development of a sales and marketing presence in Europe. The years ending June 30, 2014 and 2013 also include non-cash contractor expenses of approximately $380,000 and $150,000, respectively associated with stock compensation.

General and Administrative Expenses. General and administrative expenses were $2,731,517 for the year ended June 30, 2014, compared to $1,717,872 for the year ended June 30, 2013. The increase relates primarily to the issuance of compensatory Common Stock to reward and provide an incentive to our consultants and board of directors and align their interest with our shareholders while conserving cash for expanding marketing, sales and research and development activities. Common Stock was issued by the Company for services and board of directors fees, the contracting with several financial contractors to secure outside financing, and increased legal fees related to the execution of numerous contracts. The periods ending June 30, 2014 and June 30, 2013, include non-cash expenses of approximately $1,544,000 and $563,000, respectively, associated with non-cash compensation (payments for various services were made in stock or bridge loan securities) for directors, the CEO, and other individuals.

Inventory Impairment. Inventory impairment charges decreased to zero for the year ended June 30, 2014. With the launch of our next generation product in September 2013, we believed that our older products became obsolete and provided a reserve for them in their entirety, resulting in an inventory impairment charge for the year ended June 30, 2013 of $100,708.

Other (Income) Expense, Net. Net other expense was $794,058 for the year ended June 30, 2014, compared to net other expense of $1,084,902 for the year ended June 30, 2013. The net decrease was primarily due to a decrease in the charge in fiscal 2014 as compared to 2013 for the extinguishment of debt in the amount of $85,640 and $499,320, respectively, offset by an increase in interest expense as the result of an increase in debt convertible of approximately $2.6 million during the year ended June 30, 2014. Of the $794,058, non-cash expenses totaled $784,747

Liquidity and Capital Resources

Our principal liquidity from inception (2001) to June 30, 2014, came from the sale of equity interests in private transactions and debt financing. As of June 30, 2014, we had issued 32,193,416 shares of Common Stock including the conversion of all shares of Series A, A-1, B, and C Convertible Preferred into shares of Common Stock. We also issued $6,730,208 of notes payable with interest rates between 8% and 10%, which were subsequently converted to Series D Convertible Preferred Stock in June 2011. Through June 30, 2014, the Company received $4,808,509 from the 2013 Secured Convertible Debt of which $4,545,809 was received from related parties, and $1,981,045 was received from the 2012 Bridge Loans of which $1,530,420 was received from related parties. As of June 30, 2014, total paid in capital equaled $18,382,374. During fiscal 2014, we have used approximately $1,011,912 to fund operations.

As discussed above, we anticipated incurring additional expenditures during fiscal 2014 and 2015 to pursue our planned business operations, including additional research and development of products and technology. Our ability to continue to execute on these plans is dependent on our ability to generate additional investment proceeds and/or cash flow from sales and operations. In the event that we are unable to raise the necessary funds, we will have to modify our current business plans and may not be able to attract the customers necessary to generate positive income from operations in such case; the business plan would have to be modified to address the funding issues.

The past operating expenses and cash needs are not indicative of our current planned operations, as we have completed our development stage this fiscal year and the company has now entered a sales, marketing, and operating business phase. Our plan may require substantially more cash to operate depending upon how quickly new product sales and new distribution channels can be established. However, if funding is not secured and sales do not generate sufficient cash flow, we will be scaled back proportionately. At this time, we are dependent on outside funding to support our operations and anticipate we will need outside funding for at least the next twelve to twenty four months to support our business model. If we are unable to obtain continued outside funding, our operations would be severely impacted and it may not be possible to remain in business. Given current operations, traditional debt financing is not likely and we will have to continue to rely on equity or debt investments from outside non-banking sources. To date we have not had income from operations and our revenues have not been significant enough to be impacted by inflation.

As described in further detail above under Item 5, we are currently conducting a convertible debt financing which is meant to address our present liquidity concerns in addition to a private offering of our common stock. During July and August 2014 the Company has received proceeds of $1,025,000 under a $1.5 million private placement and has paid a commission related to same of $62,500. Included in the proceeds is $375,000 from entities controlled by an officer of the Company.

However, the present circumstances and our dependence on additional financing, raise substantial doubt about the Company's ability to continue as a going concern. In their report attached to our financial statements, our independent registered public accounting firm included an emphasis-of-matter paragraph with respect to our financial statements for the fiscal year ended June 30, 2014, concerning the Company’s assumption that we will continue as a going concern.

Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk for changes in interest rates relates to our cash equivalents on deposit in demand deposit accounts and certificates of deposit. The primary objective of our cash investment activities is to preserve principal while at the same time maximizing the income we receive from our invested cash without significantly increasing risk of loss. We do not currently use derivative financial instruments. Our cash and investments policy emphasizes liquidity and preservation of principal over other portfolio considerations. Substantially all of our transactions have been denominated in United States dollars; accordingly, we do not have any material exposure to foreign currency rate fluctuations.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

Recent Accounting Pronouncements

In 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2014-15, Presentation of Financial Statements – Going Concern and in May 2014, the FASB issued new accounting guidance related to revenue recognition.

ASU 2014-15 requires management to perform an assessment of going concern and under certain circumstances disclose information regarding this assessment in the footnotes to the financial statements. ASU 2014-15 is effective for the Company beginning July 1, 2016.

The new revenue recognition standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for the Company beginning July 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are evaluating the impact of adopting these new accounting standards on our financial statements.

There have been no other recent accounting pronouncements or changes in accounting pronouncements during the year ended June 30, 2014 that are of significance, or potential significance to us.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide this information.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

Beamz Interactive, Inc.

We have audited the accompanying balance sheets of Beamz Interactive, Inc. as of June 30, 2014 and 2013, and the related statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Beamz Interactive, Inc. at June 30, 2014 and 2013, and the results of its operations, and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred recurring losses from operations and has had negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Certified Public Accountants

Phoenix, Arizona

October 10, 2014

BEAMZ INTERACTIVE, INC.

BALANCE SHEETS

June 30, 2014 and 2013

ASSETS

	2014		2013

Current Assets:
Cash and cash equivalents	$	37,054	$	152,124
Accounts receivable, net		35,506		33,549
Inventory, net		336,205		-
Prepaid expenses		57,939		632,050

Total Current Assets		466,704		817,723

Prepaid expenses - long term portion		7,000		126,750
Property and equipment, net		63,307		-
Deposits		10,370		10,496

Total Assets	$	547,381	$	954,969

The Accompanying Notes are an Integral Part

of the Financial Statements

BEAMZ INTERACTIVE, INC.

BALANCE SHEETS (CONTINUED)

June 30, 2014 and 2013

LIABILITIES AND STOCKHOLDERS’ DEFICIT

	2014			2013
Current Liabilities:
Accounts payable	$	489,541		$	343,895
Accrued liabilities		497,916			130,060
Advances from related party		509,865			-
Notes payable, net of discount - current		201,305			34,886
Notes payable - related parties, net of discount - current		2,788,289			-

Total Current Liabilities		4,486,916			508,841

Long-Term Liabilities
Notes payable, net of discount		51,314			147,473
Notes payable - related parties, net of discount		1,433,750			1,810,533

Total Liabilities		5,971,980			2,466,847

Commitments and Contingencies		-			-

Stockholders' Deficit:
Preferred Stock 10,000,000 shares authorized $.001 par value:
Series D Convertible Preferred; 1,300,000 authorized;
796,039 and 811,038 shares issued and outstanding		796			811
Common Stock, $.001 par value, 40,000,000 shares
authorized; 32,193,416 and 22,668,039 shares issued and
outstanding		32,193			22,668
Additional paid-in capital		18,349,385			16,131,654
Accumulated deficit		(23,806,973	)		(17,667,011	)

Total Stockholders' Deficit		(5,424,599	)		(1,511,878	)

Total Liabilities and Stockholders' Deficit	$	547,381		$	954,969

The Accompanying Notes are an Integral Part

of the Financial Statements

BEAMZ INTERACTIVE, INC.

STATEMENTS OF OPERATIONS

For The Years Ended June 30, 2014 and 2013

	2014			2013

Sales, net	$	362,851		$	261,949

Cost of goods sold		307,520			141,329

Gross profit		55,331			120,620

Depreciation and amortization		31,653			683
Research and development expenses		907,055			880,379
Sales and marketing expenses		1,731,012			1,576,836
General and administrative expenses		2,731,517			1,717,872
Inventory impairment		-			100,708

Loss from Operations		(5,345,906	)		(4,155,858	)

Other Income (Expense):
Interest expense		(708,416	)		(585,582	)
Loss on extinguishment of debt		(85,640	)		(499,320	)

Loss before provision for income taxes		(6,139,962	)		(5,240,760	)
Provision for income taxes		-			-
Net Loss	$	(6,139,962	)	$	(5,240,760	)

Loss per share
Basic and diluted loss per common share	$	(0.24	)	$	(0.35	)
Weighted average common shares outstanding - basic
and diluted		25,519,419			15,185,945

The Accompanying Notes are an Integral Part

of the Financial Statements

BEAMZ INTERACTIVE, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For The Years Ended June 30, 2014 and 2013

											Additional						Total
	Series D Convertible Preferred						Common Stock				Paid In			Accumulated			Stockholders'
	Shares			Amount			Shares		Amount		Capital			Deficit			Deficit

Balance, June 30, 2012		800,440		$	800			14,146,082	$	14,146	$	11,839,928		$	(12,426,251	)	$	(571,377	)

Issuance of Series D Convertible Preferred Stock		27,500			28			-		-		142,472			-			142,500

Conversion of Series D Convertible Preferred Stock		(16,902	)		(17	)		169,020		169		(152	)		-			-

Issuance of warrants in conjunction with bridge loans		-			-			-		-		657,358			-			657,358

Issuance of stock for services		-			-			1,709,000		1,709		928,771			-			930,480

Conversion of debt and interest to equity		-			-			5,185,260		5,185		2,535,562			-			2,540,747

Exercise of warrants		-			-			1,458,677		1,459		27,715			-			29,174

Net loss for the year		-			-			-		-		-			(5,240,760	)		(5,240,760	)
Balance, June 30, 2013		811,038			811			22,668,039		22,668		16,131,654			(17,667,011	)		(1,511,878	)

Conversion of Series D Convertible Preferred Stock		(14,999	)		(15	)		150,001		150		(135	)		-			-

Issuance of warrants		-			-			-		-		433,575			-			433,575

Issuance of stock for services		-			-			7,205,266		7,205		1,557,459			-			1,564,664

Conversion of debt, interest, and payables to equity		-			-			580,000		580		196,620			-			197,200

Exercise of warrants		-			-			1,590,110		1,590		30,212			-			31,802

Net loss for the year		-			-			-		-		-			(6,139,962	)		(6,139,962	)

Balance, June 30, 2014		796,039		$	796			32,193,416	$	32,193	$	18,349,385		$	(23,806,973	)	$	(5,424,599	)

The Accompanying Notes are an Integral Part

of the Financial Statements

BEAMZ INTERACTIVE, INC.

STATEMENTS OF CASH FLOWS

For the years ended June 30, 2014 and 2013

	2014			2013
Reconciliation of Net Loss to Net Cash Used by Operating Activities:
Net Loss	$	(6,139,962	)	$	(5,240,760	)
Cash flows from operating activities:
Depreciation and amortization		31,653			683
Non-cash investing and financing for payment of services and interest		3,292,190			3,804,547
Amortization of debt discount		339,376			427,753
Allowance for doubtful accounts		5,018			(40,169	)
Inventory reserve		-			(1,284	)
Inventory impairment		-			100,708
Loss on extinguishment of debt		85,640			499,320
Changes in Operating Assets and Liabilities
Accounts receivable		(6,975	)		19,167
Inventory		(336,206	)		39,792
Prepaid expenses		693,861			(493,352	)
Deposits		126			(7,996	)
Accounts payable		145,646			(83,150	)
Accrued liabilities		367,856			84,398
Advances from related parties		509,865			-
Net cash used by operating activities		(1,011,912	)		(890,343	)
Cash flows used in investing activities:
Purchase of property and equipment		(94,960	)		-
Net cash used by investing activities		(94,960	)		-

Cash flows from financing activities:
Proceeds from exercise of warrants		31,802			29,174
Proceeds from issuance of debt		50,000			50,000
Proceeds from issuance of debt - related parties		910,000			950,000
Net cash provided by financing activities		991,802			1,029,174

Increase (decrease) in cash and cash equivalents		(115,070	)		138,831
Cash and cash equivalents, beginning of year		152,124			13,293
Cash and cash equivalents, end of year	$	37,054		$	152,124

Non-cash investing and financing activities
Conversion of debt and interest to common stock	$	40,000		$	2,041,427
Common stock issued for services	$	1,638,534		$	930,480
Issuance of warrants	$	433,575		$	657,358
Issuance of preferred stock for license agreement	$	-		$	142,500
Loss on extinguishment of debt	$	85,640		$	499,320
Debt issued for payment of services and interest	$	78,248		$	953,625
Advances from related party converted to debt	$	1,575,408		$	1,912,275
Cash paid for:
Income taxes	$	-		$	-
Interest	$	9,310		$	9,776

The Accompanying Notes are an Integral Part

of the Financial Statements

BEAMZ INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS

Note 1

Nature of Corporation

Beamz Interactive, Inc. (the “Company” or “us”) was incorporated in the State of Delaware in 2001. The Company's operations consist of the development and sales of interactive laser controller products, content, and technology (the “Beamz”) that can be used to develop new market opportunities in a wide variety of music, game education, therapy, lighting, and consumer applications throughout the world.

Note 2

Summary of Significant Accounting Policies and Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to establish accounting policies and make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements. These financial statements include estimates and assumptions that are based on informed judgments and the experience of management. Significant estimates include, but are not limited to, collectability of accounts receivable, the allowance for obsolete inventory, the lives and methods of depreciation of property and equipment, and the valuation of stock issuances, stock-based compensation and warrants. We evaluate our policies and estimates on an on-going basis and discuss the development, selection and disclosure of critical accounting policies with the Company’s Audit Committee. Predicting future events is inherently an imprecise activity and as such requires the use of judgment. Our financial statements may differ materially based upon different estimates and assumptions.

We discuss our significant accounting policies to our financial statements below. Our significant accounting policies are subject to judgments and uncertainties that affect the application of such policies. We believe these financial statements include the most likely outcomes with regard to amounts that are based on our judgment and estimates. Our financial position and results of operations may be materially different when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. We believe the following accounting policies are critical to the preparation of our financial statements due to the estimation process and business judgment involved in their application.

Fair Value of Financial Instruments

We adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820 for financial instruments measured at fair value on a recurring basis. ASC Topic 820 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

	·	Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
	·	Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
	·	Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

BEAMZ INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The Company’s financial instruments include cash and cash equivalents, deposits, and debt and approximate fair value based on their short maturities or for long-term debt, based on borrowing rates currently available to the Company for loans with similar terms, which represents level 3 inputs.

Stock-Based Compensation and Warrants

We use the Black-Scholes pricing model as a method for determining the estimated fair value for all stock options and warrants awarded to employees, officers, directors, investors and consultants. We apply judgment in estimating key assumptions that are important elements in the model and in expensing stock options, such as the expected stock-price volatility, expected stock option life, stock value on the date of grant, and expected forfeiture rates. Our estimates of these important assumptions are based on historical data and judgment regarding market trends and factors. We have not historically issued any dividends and we do not expect to in the future. We use the graded vesting attribution method to recognize compensation costs over the requisite service period for options granted to employees and directors.

We account for compensation for all arrangements under which directors, consultants, and others receive shares of stock or equity instruments (including options and warrants) in accordance with FASB ASC Topic 718 " Compensation — Stock Compensation", or ASC Topic 505-50 " Equity Based Payments to Non-Employees ". Certain of our directors and consultants have been granted long-term incentive awards, primarily restricted Common Stock, which provides them with equity interests as an incentive to remain in our service and align the recipients' interests with those of our equity holders. We estimate the fair value of restricted stock at the date of grant when awards are granted in accordance with ASC Topic 718 and the vesting date when awards are granted under ASC Topic 505-50. Share-based compensation expense is recognized in sales and marketing expenses and general and administrative expenses ratably over the vesting period at the greater of the amount amortized on a straight-line basis or the amount vested. Historically, we have valued the restricted Common Stock based on the per-share closing price as quoted on the OTCQB market.

Cash and Cash Equivalents

Cash equivalents are considered to be all highly liquid investments purchased with a maturity, at the time of purchase, of three (3) months or less.

Accounts Receivable, Net

Accounts receivable represents amounts earned but not collected in connection with the Company's sales. Trade receivables are carried at their estimated collectible amounts and are generally unsecured. Trade credit is generally extended on a short-term basis, thus trade receivables do not bear interest.

The Company provides an allowance for doubtful accounts based upon an individual review of the accounts outstanding, as well as the prior history of bad debts. Accounts are considered past due or delinquent based on contractual terms, recent payment activity, and our judgment of collectability. Accounts are written off when all reasonable collection efforts have been exhausted. As of June 30, 2014 and 2013, an allowance has been provided for potentially uncollectible accounts receivable and product returns, in the amounts of $9,274 and $4,256, respectively. Bad debt expense for the years ended June 30, 2014 and 2013 was $32,929 and $2,846, respectively.

Prepaid Expenses

Prepaid expenses represent payments for consulting, development, royalty and director fees and are being amortized to expense on a straight-line basis over the related contract periods.

Inventory, Net

Inventory consists primarily of finished products and materials and supplies. Inventory is stated at the lower of cost or market. Cost is determined by using the first-in, first-out method. The Company periodically reviews its inventory and makes provisions for damaged or obsolete inventory. The Company fully impaired inventory of approximately $100,708 in fiscal 2013 related to the write off of the second generation C4 and C6 models and Beamz product components and the finished goods, in contemplation of a new product line.

The Company warrants its products generally for one year. A provision for estimated future warranty costs, based on a review of historical and pending claims and which is currently de minimus, is recorded in the period in which the revenue is recognized.

At June 30, 2014 and 2013, inventory is comprised of the following:

	2014		2013

Finished goods	$	253,410	$	-
Components		82,795		-
		336,205		-
Less: allowance for obsolescence		-		-

Inventory, net	$	336,205	$	-

BEAMZ INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided for on the straight-line method over the estimated useful lives of approximately one to three years. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred.

Research and Development

Expenditures for research activities relating to product development and improvement are charged to expense as incurred. Such expenditures amounted to $907,055 and $880,379 for the years ended June 30, 2014 and 2013, respectively.

Software development costs are expensed as incurred until technological feasibility has been established, at which time such costs are capitalized until the product is available for general release to customers. To date, the Company’s software has been available for general release to customers and, accordingly, no development costs have been capitalized.

Software development costs incurred and included in research and development expense noted above totaled $511,063 and $279,768 for the years ended June 30, 2014 and 2013, respectively.

Advertising Costs

Advertising costs are expensed as incurred and are included in sales and marketing expenses on the accompanying statements of operations. Advertising expense totaled $639,644 and $803,134 for the years ended June 30, 2014 and 2013, respectively.

Revenue Recognition

Revenues are recognized when a contract has been entered into or an order placed, the price is fixed, shipment of the products to the customer has occurred, or the transfer of title, if later, and collection is reasonably assured. Amounts billed to a customer related to shipping or handling charges are included in revenues. Revenues are presented net of sales taxes.

Provisions for sales discounts and rebates to customers are recorded, based upon the terms of sales contracts, in the same period the related sales are recorded, as a reduction to the sale. Sales discounts and rebates are offered to certain customers to promote customer loyalty and encourage greater product sales. The Company also provides an allowance for sales returns, which is estimated based upon prior experience. As of June 30, 2014 and 2013, this allowance was $251 and $46, respectively.

Concentrations of Credit Risk

Management maintains the Company’s cash and cash equivalents in bank accounts, which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts, and Management believes the Company is not exposed to any significant credit risk on cash and cash equivalents. There are no balances that exceeded federally insured limits at June 30, 2014 and 2013.

During the year ended June 30, 2014 the Company had two customers that represented approximately 46% of net sales. The Company had no accounts receivable at June 30, 2014 from these customers. During the year ended June 30, 2013, the Company had two customers representing approximately 45% of net sales. The Company had $6,142 of accounts receivable at June 30, 2013 from these customers.

During the years ended June 30, 2014 and 2013, the Company purchased substantially all of its inventory from one manufacturer and its inventory was held and processed at the same fulfillment center.

BEAMZ INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Recent Accounting Pronouncements

There have been no other recent accounting pronouncements or changes in accounting pronouncements during the year ended June 30, 2014 that are of significance, or potential significance, to us.

Per Share Data

Net loss per share (EPS) of Common Stock is computed based upon the weighted-average number of common shares outstanding during the year. Net loss equates to loss available to common stockholders as there is no dividend accrued for preferred stock. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock. Basic and diluted EPS were the same for fiscal 2014 and 2013, as the Company had losses from operations during both years and therefore the effect of all potential common stock equivalents is anti-dilutive (reduces loss per share). Stock options and warrants representing 1,460,340 and 692,297 shares of Common Stock were outstanding at June 30, 2014 and 2013, respectively, with exercise prices ranging from $0.02 to $0.50 per share. Additionally, there were 796,039 and 811,038 shares of Series D preferred stock outstanding at June 30, 2014 and 2013, respectively, that were convertible into Common Stock on a 1 for 10 basis. As of June 30, 2014, the Company had granted 1,381,875 restricted Common Stock shares that had not yet vested and were excluded from the EPS calculation.

For the years ended June 30, 2014 and 2013, the 10% Convertible Secured Subordinated Debt were anti-dilutive and were convertible into 16,155,405 and 5,587,138 shares, respectively.

Income Taxes

Deferred tax assets and liabilities arise from temporary timing differences between the book and tax basis of accounting for assets, liabilities, and income as well as from timing in the recognition of net operating losses. Deferred income tax assets primarily arise from net operating loss carry-forwards and deferred income tax liabilities are based on the different depreciation and amortization methods used for tax reporting and financial accounting purposes. The Company assesses its ability to realize deferred tax assets based on the current earnings performance and on projections of future taxable income in the relevant tax jurisdictions. These projections do not include taxable income from the reversal of deferred tax liabilities and do not reflect a general growth assumption but do consider known or pending events, such as the passage of legislation. The Company’s estimates of future taxable income are reviewed annually.

All tax positions are first analyzed to determine if the weight of available evidence indicates that it is more likely than not that the position will be sustained under audit, including resolution of any related appeals or litigation processes. After the initial analysis, the tax benefit is measured as the largest amount that is more than 50% likely of being realized upon ultimate settlement. Our income tax returns are subject to adjustment under audit for approximately the last three years.

If the Company is required to pay interest on the underpayment of income taxes, the Company recognizes interest expense in the first period the interest becomes due according to the provisions of the relevant tax law.

If the Company is subject to payment of penalties, the Company recognizes an expense for the amount of the statutory penalty in the period when the position is taken on the income tax return. If the penalty was not recognized in the period when the position was initially taken, the expense is recognized in the period when the Company changes its judgment about meeting minimum statutory thresholds related to the initial position taken.

BEAMZ INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Going Concern

The Company has incurred recurring losses from operations and has had negative cash flows from operations. As of the date of issuance of these financial statements, the Company does not have adequate cash and cash equivalents to continue operations for the next 12 months. In order to address this situation, management is pursuing a $6.5 million convertible secured debt financing and a $1.5 million equity financing. To date, $1,025,000 has been raised on the equity financing and $4,808,509 has been funded as part of the debt financing. Management believes that it will be successful in completing these financing transactions and that as long as at least an additional $1 million is secured it will be able to execute its current sales, marketing, partner and development plans. However, should the Company be unsuccessful with these financing efforts, it will scale back operations and expects, but has no guarantee, that existing shareholders will continue to support the Company at such reduced levels. The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.

Note 3

Property and Equipment

Property and equipment consists of the following as of June 30, 2014 and 2013:

	Estimated Useful Life	2014			2013

Tooling	3 years	$	94,960		$	-
Computers and office equipment	3 years		-			10,485
Accumulated depreciation			(31,653	)		(10,485	)

Property and equipment, net		$	63,307		$	-

For the years ended June 30, 2014 and 2013 depreciation expense was $31,653 and $683, respectively.

Note 4

Notes Payable

As of June 30, 2014 and 2013, notes payable consists of the following:

	2014			2013

10% Bridge Loan to an entity due April 2014	$	-		$	40,000
10% Convertible Secured Subordinated Debt due December 2014		210,000			160,000
10% Convertible Secured Subordinated Debt due December 2015		52,700			-

		262,700			200,000
Less: current portion		(210,000	)		(40,000	)

Notes payable - long-term portion	$	52,700		$	160,000

BEAMZ INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

	2014			2013
Notes payable are presented net of unamortized discounts as follows:

Notes payable - current portion	$	210,000		$	40,000
Less: unamortized discount		(8,695	)		(5,114	)
	$	201,305		$	34,886

Notes payable - long term portion	$	52,700		$	160,000
Less: unamortized discount		(1,386	)		(12,527	)
	$	51,314		$	147,473

During the years ended June 30, 2013 and 2012, the Company issued Bridge Loans (“2012 Bridge Loans”) to related parties (Note 5) and several unrelated parties. The 2012 Bridge Loans were all retired as of June 30, 2014 through conversion to equity and a loss on the extinguishment of debt in the amount of $85,640 was recorded.

On June 17, 2013 the Company offered a Conversion Option to the 2012 Bridge Loan holders. The option provided for the conversion of principal and accrued interest into Common Stock at $0.40 per share and expired on June 30, 2013. As of June 30, 2013, 2012 Bridge loans, in the aggregate of $1,908,368 and accrued interest related thereto, in the aggregate of $133,059 had been converted to Common Stock under the aforementioned Conversion Option and a loss on the extinguishment of debt, in the amount of $499,320 was recorded.

As of June 30, 2013 there was $1,981,045 in 2012 Bridge Loans issued of the available $2.5 million authorized, $40,000 of which remained outstanding. As of June 30, 2013 the 2012 Bridge Loans are reflected net of discounts of $5,114.

During the year ended June 30, 2013 the Company issued Convertible Secured Subordinated Debt (“2013 Convertible Debt”) to related parties (Note 5) and two unrelated parties. The 2013 Convertible Debt provides for the issuance of warrants to purchase one share of common stock of the Company for each two dollars of principal investment that are exercisable at $0.02 per share (Note 8). A discount, related to the relative fair value of the warrants at the date of grant, was recorded and is being amortized to interest expense over the term of the loans under the effective interest method. The 2013 Convertible Debt provides that each noteholder can convert all of the principal balance and accrued, but unpaid, interest on such noteholders’ 2013 Convertible Debt into Common Stock at a price of $0.40 per share. In addition, the 2013 Convertible Debt provides that each note holder must convert all of the principal balance of, and accrued, but unpaid interest on such noteholders’ 2013 Convertible Debt into securities offered in an equity financing of the Company of $2,000,000 or more consummated after May 1, 2013. The closing of such financing has not occurred as of the date of the financial statements and no principal or interest has been paid on the 2013 Convertible Debt. The 2013 Convertible Debt also includes a commitment that the Company’s Chief Executive Officer, along with other existing investors, will commit to purchase at least $2.5 million of the $5 million offering by September 30, 2013. The debt is secured by all assets of the Company and is subordinated to all senior indebtedness. As of June 30, 2013 there was $2,194,855 in 2013 Convertible Debt issued and outstanding of the available $5 million authorized of which $2,034,855 are from related parties (Note 5). As of June 30, 2014 and 2013 the 2013 Convertible Debt to unrelated parties is reflected net of discounts of $10,081 and $17,641, respectively. The 2013 Convertible Debt matures through December 31, 2015. As of September 2013, the aforementioned $2.5 million commitment by the Chief Executive Officer was fulfilled.

On July 22, 2013 the Company amended its 2013 Convertible Debt Agreement to allow for $5 million in financing and to include that the debt can be converted to Common Stock the earlier of January 15, 2014 or when the Company amends their Certificate of Incorporation to authorize 60 million shares of stock. In February 2014, the 2013 Convertible Debt Agreement was amended again to allow for the issuance of warrants to purchase one share of common stock of the Company for each dollar of principal investment that are exercisable at $0.02 per share. The amendment also provides for the conversion of the principal balance and accrued, but unpaid, interest at a price of $0.20 per share for any debt incurred subsequent to the February 2014 amendment date.

BEAMZ INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Note 5

Related Party Transactions

Notes payable to related parties consisted of the following at June 30, 2014 and 2013:

	2014			2013

10% Convertible Secured Subordinated Debt due December 2014	$	2,944,855		$	2,034,855

10% Convertible Secured Subordinated Debt due December 2015		1,600,954			-

		4,545,809			2,034,855
Less: current portion		(2,944,855	)		-
Notes payable - long-term portion	$	1,600,954		$	2,034,855

Notes payable - current portion	$	2,944,855		$	-
Less: unamortized discount		(156,566	)		-
	$	2,788,289		$	-

Notes payable - long term portion	$	1,600,954		$	2,034,855
Less: unamortized discount		(167,204	)		(224,322	)
	$	1,433,750		$	1,810,533

At June 30, 2014 the Company has a payable to an entity controlled by the chief executive officer in the amount of $509,865 for Company expenses paid by the entity. The payable is non-interest bearing, uncollateralized, and due on demand. The aforementioned entity paid additional expense on behalf of the Company during the year ended June 30, 2013 and converted $677,421 into bridge loans in October 2012, $1,017,665 into convertible secured debt in May 2013, and $217,191 into convertible secured debt in June 2013. The Bridge Loan for $677,421 was converted to Common Stock in June 2013.

During the year ended June 30, 2014, the Company issued $2,510,954 of notes payable to related parties. The Company received $910,000 in cash and the remaining $1,600,954 was related to non-cash conversions of related party payables and advances. The related parties received 2,055,953 warrants to purchase Common Stock at $0.02 per share, expiring three years from the grant date. During the year ended June 30, 2013 the Company issued $2,862,276 of notes payable to entities controlled by the chief executive officer. The Company received $950,000 in cash and the remaining $1,912,275 was related to the conversion of related party advances to notes payable. The entities received 1,431,138 warrants to purchase Common Stock at $0.02 per share, expiring in April 2013. The entities exercised the warrants in June 2013.

During the year ended June 30, 2013 the Company issued 50,000 shares of Common Stock to the audit committee chair for services and 150,000 shares of Common Stock to an officer for services to be performed through July 2013. In addition, the Company issued notes payable, in the aggregate amount of $443,000, to three related parties for services and the conversion of accounts payable.

Effective September 1, 2013 the Company entered into a consulting agreement for business and financial management services with an entity that is 50% owned by an individual who was named President and Chief Financial Officer of the Company. The entity was awarded 1,600,000 shares of restricted Common Stock of which 500,000 shares vested immediately with the balance vesting over a twenty-four month period. The agreement provides for six months of severance pay. In April 2014, the entity was granted an additional 500,000 shares of restricted Common Stock that vests over a twenty-four month period.

The Company has entered into a consulting agreement for business development and project management with an entity owned by an officer. The agreement provides for a monthly fee of $10,000 and is cancellable by either party by giving a 60 day notice. All payments are current as of June 30, 2014.

BEAMZ INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Note 6

Commitments

Pursuant to the July 2010 Bridge Loan Stock Purchase and Security Agreement (the “Loan”), each cash lender under the Loan Document, simultaneously with the consummation of a Sale Event shall be entitled to a fee in an amount equal to two hundred percent (200%) of the original principal amount loaned by such Lender to the Company, regardless of whether such Lender's Note is outstanding at that time, and such fee shall be paid to the Lenders in preference above any amounts owed by the Company to its other stockholders. The aggregate amount of such preference payments equals $2,815,850 as of June 30, 2014.

The Company is a party to various licensing agreements with regards to music and video content and the use and sale of same with its product and through its website. The agreements have varying terms and include royalties based on the sales or use of the aforementioned licenses. The terms range from a royalty equal to 17.5% to 25% of the net revenues or a floor rate of $0.091 to $0.30 per record in each electronic transmission record. For the years ended June 30, 2014 and 2013, royalty fees under these licenses were approximately $12,324 and $9,300, respectively, and are included in cost of goods sold on the statement of operations.

The Company is a party to a license agreement that provides for payments to Beamz for the use of the original content included on the Smart Phone Beamz Player (the “Beamz Content”) equal to $1.50/Unit plus 100% of the out-of-pocket third-party royalties associated with such Beamz Content. In addition, for each Unit sold by licensee, licensee will pay Beamz a royalty equal to thirteen (13%) of the manufacturer contract purchase price for such product. Similarly, we will purchase Smart Phone Beamz Players from licensee at cost plus thirteen percent (13%) of manufactured cost for Beamz sales of such new product. Beamz has retained the right to develop, manufacture or license any other products or versions of the Beamz Products as it may desire other than the Smart Phone Beamz Player product family. Pursuant to the April 4, 2013 amendment to the license agreement, Beamz will pay a royalty equal to 5% of its contract manufacturer cost on any new product it develops that is powered by, and used with a smart phone.

In January, 2013 the Company entered into a three year contract with a consulting firm to provide marketing services. The marketing program is to include direct response marketing, branding and advertising. The consulting firm received 125,000 shares of Common Stock at the commencement of the contract. The contract provides for a royalty fee of 3% of all product net revenue received as a direct result of the marketing of the Company’s consumer products in the United States and additional stock compensation for achieving certain sales goals.

During March, 2013 the Company entered into a three year contract with a third party to manufacture the next generation Beamz product. The contract provides for the manufacturer to prepare the tooling and molds for the next generation product as well as manufacture, source raw materials, test and ship the products. In addition to the obligation for the payment for the tooling and molds in the approximate amount of $119,000, all of which has been paid for as of June 30, 2014, the Company has committed to purchase $231,140 of inventory from the manufacturer of which approximately $166,000 has been fulfilled as of June 30, 2014.

On April 5, 2013, the Company entered into endorsement and licensing agreements with musical artist Flo Rida, together with Strong Arm Productions, Inc. and Global Merchandising and Promotions, LLC. Pursuant to these agreements, which provide the Company a license to use a range of Flo Rida’s music content, the Company has created a “Beamz by Flo” product offering, including: (a) a Flo Rida version of the Beamz interactive music player, which includes Flo Rida’s signature and logo and (b) Flo Rida content bundles which can be purchased in various Beamz software applications, featuring a range of Flo Rida’s music in Beamz interactive format. Under the agreements, Flo Rida has also filmed both commercials and videos with Beamz and has agreed to promote the Beamz interactive music player in a variety of arenas, potentially including social media, concerts and special events. The agreements provide for the issuances of 300,000 shares of Common Stock, all of which have been issued as of June 30, 2013, and minimum annual royalties of $100,000, among other provisions. During May 2014, the royalty agreement was amended to reduce the minimum annual royalties to $50,000. Pursuant to the amendment, the Company issued 275,000 shares of common stock and 75,000 common stock warrants with an exercise price of $.20 per share, expiring through June 2017. In addition, pursuant to a subsequent agreement, the above parties agreed to produce the “Laser Light Show” song and music video, for which payment of $15,000 cash and $110,000 in the form of the 2013 Convertible Debt was made.

In April, 2013 the Company entered into a licensing agreement with a software developer to provide Beamz with a cross platform interactive music engine for its exclusive use in Beamz markets. The licensing agreement provides for the issuance of 100,000 shares of Common Stock to be issued monthly over a three year period, a payment, in the amount of $40,000 to be made in the form of a bridge loan, and a royalty fee of $.10 per royalty product sold. The licensing agreement will continue unless terminated by mutual agreement.

BEAMZ INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

In May, 2013 the Company entered into a consulting agreement to manage operations outside of the United States expiring on December 31, 2014. The agreement provides for monthly payments of approximately $13,000 and the issuance of 120,000 shares of Common Stock, beginning June 2013 and vesting monthly over a two year period.

During April 2013, the Company entered into a one year agreement for marketing services including web development, micro site programming, and online marketing. The agreement provides for a $10,000 fee for the development of the micro site and commissions up to 35% of certain net revenues, among other provisions.

The Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. However, the Company has had limited operations and no pending litigation or potential claims. As a result of these items, the Company believes the estimated fair value of these indemnification agreements is minimal and has no liabilities recorded for these agreements as of June 30, 2014 and 2013.

During June 2013 the Company entered into a 24-month lease agreement for office space. For the years ended June 30, 2014 and 2013 the Company incurred rent expense of $48,444 and $3,646, respectively. Future minimum lease payments for the next year are $45,870.

Note 7

Income Taxes

We have incurred losses since operations commenced in 2001. We currently have net operating loss carryforwards for Federal and State income tax purposes of approximately $22,300,000 and $16,800,000, respectively. The net operating losses expire as follows:

Year of expiration	Federa1		State

June 30, 2015				2,200,000
June 30, 2016				2,600,000
June 30, 2017				2,000,000
June 30, 2018
June 30, 2019
June 30, 2022	$	1,700,000
June 30, 2023		1,800,000
June 30, 2024		1,800,000
June 30, 2025		2,200,000
June 30, 2026		2,800,000
June 30, 2027		2,000,000
June 30, 2028		4,300,000		4,300,000
June 30, 2029		5,700,000		5,700,000
	$	22,300,000	$	16,800,000

The deferred tax assets derived from these net operating losses are fully reserved by a valuation allowance as management has determined that it is more likely than not that the deferred tax assets will not be realized.

A reconciliation of statutory rates is as follows as of June 30:

	2014			2013


Statuatory rate		34.0	%		34.0	%
State income taxes, net of federal		5.0	%		5.0	%
Reduction in valuation allowance related to net operating loss carryforwards		(39.0	) %		(39.0	) %

		0.0	%		0.0	%

BEAMZ INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

As of June 30, 2014 and 2013, the deferred tax asset is as follows:

	2014			2013

Deferred tax asset - net operating loss carryforwards	$	8,400,000		$	6,300,000
Less valuation allowance		(8,400,000	)		(6,300,000	)

Net deferred tax asset	$	-		$	-

A reconciliation of anticipated tax benefits of net operating losses is as follows for the years ended June 30, 2014 and 2013:

	2014			2013

Federal benefit of net operating losses	$	1,900,000		$	1,450,000
State benefit of net operating losses		200,000			150,000
Change in valuation allowance		(2,100,000	)		(1,600,000	)
Net benefit of net operating losses	$	-		$	-

As of June 30, 2014 and 2013, the Company had no unrecognized tax benefits or liabilities due to uncertain tax positions.

Note 8

Equity

Common Stock

As of June 30, 2014, the Company has 50,000,000 shares of stock authorized, 40,000,000 shares of which have been designated as Common Stock, $.001 par value. On July 1, 2014 stockholders voted to increase the authorized shares to 100,000,000. There were 32,193,416 and 22,668,039 common shares issued as of June 30, 2014 and 2013, respectively.

During the year ended June 30, 2014, the Company issued 7,205,266 shares of common stock for services valued at $1,564,664, and issued 580,000 shares of Common Stock for the conversion of accounts payable, debt, and accrued interest in the aggregate amount of $197,200. In addition, 1,590,110 shares of Common Stock were issued for proceeds of $31,802, pursuant to the exercise of 1,590,110 warrants and 150,001 shares of Common Stock were issued pursuant to the conversion 14,999 shares of Series D Preferred Stock.

Preferred Stock

As of June 30, 2014 the Company has 10,000,000 shares of preferred stock authorized, $.001 par value, of which 1,300,000 shares are authorized as Series D Convertible Preferred Stock (“Series D Preferred”). There are 796,039 and 811,038 shares of Series D Preferred issued and outstanding at June 30, 2014 and 2013, respectively. Each share of Series D Preferred is convertible into 10 shares of Common Stock and has a liquidation preference of $10 per share. All previously issued shares of Series A, A-1, B, and C Convertible Preferred Stock were converted into shares of Common Stock on June 11, 2011 and those series were cancelled.

During the year ended June 30, 2014, 14,999 shares of Series D Preferred stock were converted into 150,001 shares of Common Stock. During the year ended June 30, 2013 the Company issued 25,000 shares of Series D Preferred pursuant to a renegotiated license agreement. The estimated value of the shares was $142,500, based on a third party valuation of the Company’s Common Stock and the conversion rights. During February, 2013, 16,902 shares of Series D Preferred were converted into 169,020 shares of Common Stock. In addition, the Company has corrected the outstanding Series D shares to include 2,500 Series D shares issued in 2008 with a de minimis value.

Warrants and Options

Pursuant to the 2012 Bridge Loan Financing Agreement and the 2013 Convertible Debt Agreement (the “Loans”), as additional consideration for each of the Loans, the Company granted warrants to the lenders. The warrants provide for the purchase of one share of Common Stock of the Company for each $2 of the principal amount of the lender's Notes. In February 2014 the 2013 Convertible Debt Agreement was amended to provide for the grant of one warrant for each $1 of principal amount of lender’s Notes received subsequent to the amendment date. As of June 30, 2014, 990,538 and 3,251,081 warrants were issued pursuant to the 2012 Bridge Loan.

BEAMZ INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Financing Agreement and the 2013 Convertible Debt Agreement, respectively. The warrants are exercisable at $0.02 per share and expire through June 2016. As the warrants were issued with the debt, the relative fair value of same was allocated between the debt proceeds and the warrants and the warrant relative value is reflected as a discount on the debt that will be amortized over the term of the debt.

2004 Incentive Compensation Plan

The Company has adopted the 2004 Incentive Compensation Plan (the “2004 Plan”). The 2004 Plan provides for the issuance of incentive and non-incentive stock options or shares. The Company has reserved 750,000 shares of Common Stock for issuance underlying the grants under the Plan. As of June 30, 2014, 23,325 options under the Plan are outstanding. Options generally become exercisable over vesting periods of up to four years and expire ten years from the date of grant. As of June 30, 2014 there are 7,175 shares available for grant under the Plan.

2009 Incentive Compensation Plan

In January 2009, the Company adopted the 2009 Incentive Compensation Plan (the “2009 Plan”) that permits the issuance of options or shares to selected employees and directors of, and consultants to, the Company. The Plan was amended in January 2012 to reserve 1,150,000 shares of Series C Convertible Preferred Stock for issuance underlying the grants of stock, stock options and warrants and to provide Common Stock awards rather than Series C Convertible Preferred shares. The Company has issued 765,906 shares of Series C Convertible Preferred Stock pursuant to the Plan, all of which were converted to Common Stock as of June 30, 2011. Options generally become exercisable over vesting periods of up to four years and expire ten years from the date of grant. There are 384,094 shares available for grant as of June 30, 2014.

A summary of the options and warrants issued is presented in the table below:

	Weighted Average Exercise Price		Number of Options and Warrants			Weighted Average Remaining Contractual Term		Aggregate Fair Value

Outstanding at June 30, 2012	$	0.04		209,924			3.16	$	151,955
Granted		0.45		3,441,050			1.48		732,304
Cancelled		1.00		(1,500,000	)		0.17		-
Exercised		0.02		(1,458,677	)		2.35		(610,644	)
Outstanding at June 30, 2013		0.06		692,297			2.68		273,615
Granted		0.04		2,364,653			2.60		433,575
Expired		0.50		(6,500	)		-
Exercised		0.02		(1,590,110	)		2.61		(252,267	)
Outstanding at June 30, 2014	$	0.07		1,460,340			2.08	$	454,923

For purposes of determining the fair values of warrants using the Black-Scholes option pricing model, the Company used the following assumptions in the years ended June 30, 2014 and 2013; expected volatility of 40%-150%, risk-free interest rate 1%, warrant life of 1.5 to 3 years and expected dividend rate of 0%. The expected term of current year grants was determined under the simplified method using the average of the contractual term and vesting period of the award as appropriate statistical data required to properly estimate the expected term was not available.

Included in the table above are options to purchase 23,325 and 29,825 shares of Common Stock outstanding at June 30, 2014 and June 30, 2013, respectively. The options are all fully vested as of June 2014. The options expire on various dates through October, 2018. Additionally, the options and warrants had an intrinsic value of $82,275 and $406,311 as of June 30, 2014 and 2013, respectively. Intrinsic value arises when the exercise price is lower than the market.

Options and warrants outstanding at June 30, 2014 and 2013 had no unrecognized compensation costs, and were fully exercisable.

BEAMZ INTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS (Continued)

Note 9

Subsequent Events

Effective July 1, 2014, upon stockholder approval, the Company amended their Articles to authorize 100,000,000 shares of stock.

Subsequent to the balance sheet date the Board has approved the grant of up to an additional 440,000 shares of Common Stock for services and has issued 40,000 shares.

During July and August 2014 the Company has issued 20,500,000 shares of Common Stock and has received proceeds of $1,025,000 under a $1.5 million private placement and has paid a commission related to same of $62,500. Included in the proceeds is $375,000 from entities controlled by an officer of the Company.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officers, the effectiveness of our disclosure controls and procedures as of June 30, 2014, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of June 30, 2014, our disclosure controls and procedures were effective.

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal co

ntrol over financial reporting for the Company, and for performing an assessment of the effectiveness of internal control over financial reporting as of June 30, 2014. For this purpose, internal control over financial reporting refers to a process designed by, or under the supervision of, the Company’s principal executive and financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2014 based upon criteria in an Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management believes the Company’s internal control over financial reporting was effective as of June 30, 2014 based on the criteria issued by COSO.

This report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not required to be attested to by the Company’s independent registered public accounting firm pursuant to applicable law and rules that permit the Company to provide only management’s report in this report.

Changes in Internal Control over Financial Reporting.

There were no changes to our internal control over financial reporting during the fourth quarter ended June 30, 2014 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

At the annual meeting of the stockholders of the Company on July 1, 2014 the stockholders approved a Second Amendment to the Company’s Fourth Amended and Restated Certificate of Incorporation (the “Second Amendment”) increasing the authorized shares of common stock of the Company to 100,000,000. The Second Amendment was filed with the Delaware Secretary of State on July 15, 2014 and was effective on the same date. The Second Amendment is attached to this Form 10-K as Exhibit 3.(i)(3).

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Set forth below is certain information concerning each of the directors and executive officers of the Company as of June 30, 2014:

Name	Age	Position(s)

Directors and Executive Officers

Charles R. Mollo	63	Chairman of the Board and Chief Executive Officer
Joan W. Brubacher	60	President, Chief Financial Officer and Director
Albert J. Ingallinera, Jr.	44	Vice President Product Management and Business Development
Jeff Doss	52	Director
Jerry Riopelle	73	Director
Jeffrey R. Harris	66	Director
Thomas F. Gardner	55	Director

Board of Directors & Executive Officers

Charles R. Mollo, Chairman, CEO, and Director – Charlie Mollo has served as a director since 2007 and as our Chairman of the Board and CEO since January of 2009, and is responsible for the overall management of our business strategy including development of product sales channels, marketing, finance and product development. As a successful business leader, Mr. Mollo has worked in a number of industries including wireless telecommunications, consumer electronics, computers, child care and real estate, growing privately-owned entrepreneurial start-up organizations into leading publicly-traded companies. His management experience with mergers and acquisitions, financing, venture capital, strategic planning and technology, and his passion for music have earned him his role as our Chairman of the Board and CEO.

Prior to joining Beamz Interactive, Mr. Mollo was a co-founder and Chairman, President and CEO of Mobility Electronics, Inc. (now iGo, Inc.), a NASDAQ company focused on developing and marketing innovative products for the converging mobile electronics industry from May 1995 to June 2007 (from June 2007 until January of 2009, Mr. Mollo primarily managed his personal investments and consulted with various parties). Mr. Mollo also helped build Alliance Telecommunications Corporation in the late 1980s and early 1990s. This wireless telecommunications company went from start-up to just under $100 million in revenues, and was successfully sold in July 1992 to a New York Stock Exchange listed company. Other notable accomplishments include the management of a variety of venture investments, including a $150 million venture capital fund for Meadows Resources, and managing New Vistas Investments Corporation, a New Mexico real estate and investment company, Mr. Mollo has an MBA from the University of New Mexico, a Master’s in Electrical Engineering from Newark College of Engineering, NJ Institute of Technology and a Bachelor’s in Electrical Engineering from Manhattan College.

Joan W. Brubacher, President, Chief Financial Officer and Director – Ms. Brubacher, who joined the Board in March of 2012 and became the Company’s President and Chief Financial Officer in July of 2013, has served as a principal and Chief Financial Officer at Resolute Commercial Services from October of 2009 through August 2013. Prior to joining Resolute, Ms. Brubacher served as an outside consultant for various companies from February 2009 to October 2009. Ms. Brubacher served as the Executive Vice President and Chief Financial Officer for iGo, Inc., where she was a member of the team that took the company public in 2000, until February of 2009. Prior to her tenure at iGo, Ms. Brubacher was employed at several private small and start-up companies where she served as Controller, Chief Financial Officer and Chief Operating Officer. She started her career on the audit staff of Ernst & Whinney (now Ernst & Young). She holds a Bachelor of Science Degree in Business Administration with Concentration in Accounting from Kansas State University. Ms. Brubacher brings the Company and the Board valuable public company and CFO experience and insight on a broad range of financial and operational issues.

Albert J Ingallinera Jr., VP Product Management and Business Development – Joining Beamz Interactive in March of 2009 as Vice President, Product Management and Business Development, Mr. Ingallinera is responsible for leading product management and marketing, including messaging, advertising and public relations, channel marketing and website development and management. Mr. Ingallinera has more than 20 years of experience launching new hardware and software technology products into consumer, business and vertical markets.

Prior to Beamz Interactive, Mr. Ingallinera was the Vice President of Sales and Marketing for Ambir Technology, Inc., a digital imaging product manufacturer and scanner software provider, from January 2003 to April 2009. In this role, Mr. Ingallinera contributed to the establishment of Ambir as a leading provider of ID card imaging and scanning technology products in the healthcare market through branding, event marketing and business development initiatives. Mr. Ingallinera ventured into the mobile computer world in 1998, when he took a sales and product marketing position with CNF Mobile Solutions, a PC notebook peripheral manufacturer. He eventually moved to Mobility Electronics, Inc. (now iGo, Inc.), where he became the Director of Corporate Marketing and Market Development. Since 1991, Mr. Ingallinera has worked with leading computer product technology manufacturers, distributors and resellers, holding various leadership positions in sales, marketing, business development and product management. Other past employers include Iomega Corporation and Merisel Corporation. Mr. Ingallinera received a Bachelor in Business Administration degree from the University of San Diego and an MBA from the University of Maryland’s Robert H. Smith Business School.

Jeff Doss – Mr. Doss joined the Board in 2009. As founder, President and CEO of Hotwire Development, LLC, an industrial design and product development company, Mr. Doss has built a solid reputation in consumer and mobile computing product markets. Since December of 2005, Mr. Doss has also served as CEO of ShowerStart, LLC, an innovative water and energy saving green company that produced a patented state-of-the-art showerhead. Prior to forming Hotwire in December of 2002, Mr. Doss worked as the Co-Founder, VP Product Development, Technology & Marketing for Mobility Electronics, Inc. (now iGo, Inc.). Prior to iGo, Mr. Doss worked with Mr. Mollo at Andrew Corporation where he developed a variety of wireless telecommunication accessories, and was the president and owner of Unitech Industries, Inc., a wireless telecommunications power and accessories company. Mr. Doss graduated from Arizona State University with a Bachelor of Science degree in Finance. Mr. Doss’s background and experience in leadership roles at a variety of technology companies, and his broad consumer electronics product development experience, allows him to provide valuable guidance to the Board in a variety of areas including strategy, product development, and management.

Jerry Riopelle - As the inventor of the Beamz, Mr. Riopelle has taken his 40 years of experience as an accomplished musician, songwriter and producer, and funneled it into the creation of the Beamz music system.

Mr. Riopelle started creating the Beamz music system in 2001 after many years of envisioning an instrument that could activate sound with laser beams. With Mr. Riopelle’s passion for making music, he envisioned an instrument that anyone could play, that would feature many dimensions of sound that would always work together no matter how they were combined and that would provide a new performance element for accomplished musicians like himself.

Raised in Tampa, Florida, Mr. Riopelle moved to Los Angeles to begin his music career in the 1960s by learning the ropes of independent record production. After playing drums for the Hollywood Argyles he signed on as a staff songwriter for Screen Gems. Upon hearing a single Mr. Riopelle had written and produced with Clydie King titled, “The Thrill is Gone,” Phil Spector hired Mr. Riopelle as a staff writer and producer for Phillies Records.

Mr. Riopelle soon produced a Top 20 hit, “Home of the Brave,” recorded by Bonnie & The Treasures. He also produced Top 40 singles for recording artists April Stevens & Nino Tempo and The Parade. That success earned Mr. Riopelle a job as producer at A&M Records as well as a staff writing position at Irving Music. During that time he wrote and produced for The We Five, Brewer & Shipley, The Parade and Shango, and had songs covered by Herb Alpert, Leon Russell and later Kenny Loggins, Rita Coolidge, Meat Loaf and many others. During his years in Hollywood, Mr. Riopelle also wrote numerous songs and musical pieces for films and television shows.

Mr. Riopelle joined the Board in 2001, and his experience in the music industry provides the Board with unique and valuable contacts and a perspective on issues such as technology development, music and video production, strategy, and music licensing strategy.

Jeffrey R. Harris – Jeff Harris is a proven executive manager with a technical engineering background and an established track record of managing people and processes to identify, define, develop and achieve goals and objectives. Mr. Harris joined the Board in April 2010, and brings to the Board a perspective and expertise developed as the result of a broad range of general management, board, financing, investment, M & A, and strategic planning experience in a number of industries including the following areas:

·	Consumer electronics

·	Electric power production and delivery

·	Real estate development and management

·	Contract negotiations and administration

·	Environmental approvals and licensing

·	Regulatory, financial and legal compliance

·	Accounting and tax issues

Since March of 1993, Mr. Harris has served as President of New Vistas Investment Corp., a technology investment and real estate development and management company in Albuquerque, New Mexico. He is also an active angel investor and practicing consultant in a number of local entrepreneurial start-up companies. He has served on the board of directors of several companies and organizations, including Advent Solar, iGo, Inc. and the Border Trade Alliance.

Mr. Harris is a registered professional engineer in the state of New Mexico. He previously retired from Public Service Company of New Mexico in 2002, where he had worked since 1972, most recently as Director, International Business Development.

Thomas F. Gardner – Mr. Gardner is the founder of Gardner Real Estate Company. As a commercial real estate entrepreneur, broker and investor since 1983, Mr. Gardner seeks out opportunities to fund and invest in innovative technology. Mr. Gardner joined the board in late 2008.

Upon graduation from Arizona State University in 1982, Mr. Gardner obtained a Series 3 license and traded commodity futures. After a year, he was offered a Marketing Director position with a medium-sized development company, and relocated to Dallas to establish its Texas office. At the same time, he obtained a Texas real estate license and began his nearly three-decade adventure in commercial real estate brokerage, investment, and, ultimately, development.

After 10 years in Dallas, Mr. Gardner returned to Phoenix and established Gardner Real Estate Company, of which he has served as a principal since 1993. An Arizona licensed, full-service commercial real estate brokerage, its varied completed transactions range from the sale of Mirabel, a 1000 acre luxury golf course community in far north Scottsdale, to the Villages of Queen Creek, another golf course community located in the far southeast valley, and other deals located geographically in between. Gardner Real Estate Company has evolved over time into a consulting firm as well, for services ranging from bankruptcy guidance to land entitlement to asset management. It also served as the development vehicle for investment in and construction of a large mixed-use project named Villa Pallavicini, in Chandler, Arizona.

Mr. Gardner has been active in various fund raising activities for Arizona State University. Initially he was instrumental in raising $1 million to establish the endowment for the Furst Private Equity program in the College of Business, and has since been heavily involved in the Sun Angel Foundation, acting as Chair of the Sun Angel Foundation Committee, and creator and Chairman of several significant event committees responsible for raising in excess of another $1 million.

At the Company’s annual shareholder meeting held on July 1, 2014, Mr. Gardner was not reelected to the Board.

None of the officers or directors listed above has been involved with or subject to, in the last ten years, any of the legal matters set forth under Item 401(f) of Regulation S-K.

BOARD COMPOSITION AND COMMITTEES

We may expand the number of members constituting our Board of Directors and will seek persons who are “independent” within the meaning of the rules and regulations of NASDAQ to fill vacancies created by any expansion. We currently have an audit committee and a compensation committee with the following members:

Audit Committee: Jeffrey Harris (Chair) and Jeff Doss

Compensation Committee: Jeffrey Harris (Chair) and Jeff Doss

The Board meets periodically throughout the year as necessity dictates. No current director has any arrangement or understanding whereby they are or will be selected as a director or nominee.

We believe both Jeffrey Harris and Jeff Doss qualify as “audit committee financial experts” under applicable regulations of the Securities and Exchange Commission. Further, neither of Messrs. Doss or Harris is a current or former employee of the Company or is engaged in any relationship or holds any position that would require disclosure under Item 404 or Item 407(e) (iii) of Regulation S-K. Both Messrs. Doss and Harris are independent under the NASDAQ Marketplace Rules applicable to audit committee members of boards of directors.

DIRECTOR COMPENSATION

We do not pay our directors a fee for attending scheduled or special meetings of our board of directors. We intend to reimburse each director for reasonable travel expenses related to such director’s attendance at board of directors and committee meetings. We also provide each director with shares of Common Stock each year. For the calendar year 2014, each director received 40,000 shares of Common Stock. In the future we may offer additional compensation to attract the caliber of independent board members the Company is seeking.

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

None of our directors or officers or their respective associates or affiliates is indebted to us.

FAMILY RELATIONSHIPS

There are no family relationships among our directors or executive officers.

CODE OF ETHICS

On September 17, 2012, we adopted a Code of Ethics applicable to our principal executive, financial and accounting officers. The Code of Ethics can be found on our website at http://thebeamz.com/codeofethics .

SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it and representations from certain reporting persons regarding their compliance with the relevant filing requirements, the Company has determined that, during the fiscal year ended June 30, 2014, the directors and officers listed below were late in making certain filings on Forms 3 and 4 as set forth in more detail below:

Name	Number of Late Filings on Forms 3 or 4 in Twelve Months Ended June 30, 2014		Number of Transactions Disclosed on Such Filings

Joan W. Brubacher		2		2
Charles R. Mollo		1		1
TM-07 Investments, LLC		1		1
Gerald H. Riopelle		2		2
Jeff Doss		1		1
Jeffrey R. Harris		1		1
Thomas F. Gardner		1		1

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation

The following table shows the compensation awarded or paid to, or earned by Executive Officers as required by Item 402 of Regulation S-K, for the years ended June 30, 2014 and 2013. We refer to these officers in this report as our “named executive officers.”

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Nonequity incentive compen- sation ($)	Non- qualified deferred compen- sation earnings ($)	All other compen- sation ($)	Total ($)

Charlie R. Mollo, Principal Executive Officer	2013 2014	120,0001 120,0001	— —	37,5007 4,0008	— —	— —	— —	— —	157,500 124,000

Joan W. Brubacher, Principal Financial Officer	2013 2014	— 111,5002	— —	75,0009 4,0008	— —	— —	— —	— 391,8753	75,000 507,375

Albert J. Ingallinera Jr., VP Product Management and Business Development	2013 2014	102,000 120,0005	50,000 4	—	— —	— —	— —	— 1,9386	152,000 121,938

1	Includes accrued compensation of $60,000 in 2013 and 2014
2	Includes $74,000 in cash compensation and $37,500 in convertible debt including 37,500 common stock warrants.

3	During 2014, we paid Highland Consulting, LLC, (“Highland”) to provide the consulting services of Ms. Brubacher to the Company, a total of $111,500 in cash and 2,100,000 restricted Common Stock shares vesting over a twenty-four month period. Highland is solely owned by Ms. Brubacher. The restricted Common Stock shares granted to Highland are accounted for in accordance with ASC 505-50 with 975,000 shares vested and $391,875 of consulting expense for the grant recorded for the year ended June 30, 2014. The consulting agreement may be terminated by either party with notice as required by the consulting agreement.

4	Promissory note of $50,000 was issued to Evolution Marketing, an entity controlled by Mr. Ingallinera, in lieu of a like amount of cash compensation. The promissory note and accrued interest thereon were subsequently exchanged for 128,482 shares of Common Stock.

5	Includes $95,000 of cash compensation and $25,000 in convertible debt including 25,000 common stock warrants.

6	Reflects 150,000 shares of Common Stock issued to Evolution Marketing, an entity controlled by Mr. Ingallinera. The restricted Common Stock shares granted to Evolution are accounted for in accordance with ASC 505-50 with 18,750 shares vested and $1,938 of consulting expense for the grant recorded for the year ended June 30, 2014. The consulting agreement may be terminated by either party with notice as required by the consulting.

7	Includes 25,000 shares of Common stock, valued at $1.50 per share, issued for serving on the Board of Directors.
8	Includes 40,000 shares of Common stock, valued at $0.10 per share, issued for serving on the Board of Directors.

9	Includes 50,000 shares of Common stock, valued at $1.50 per share, issued for serving on the Board of Directors.

Outstanding Equity Awards at June 30, 2014

As of June 30, 2014, there were no unvested stock awards outstanding, or other outstanding equity awards held by our named executive officers that would be required to be disclosed pursuant to Item 402(p) of Regulation S-K, other than those set forth below.

	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plans: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date
Charles R. Mollo (1)	750	—	—	$ .50	December 19, 2017

(1)	Issued to TM 07 Investments, LLC, an entity controlled by Mr. Mollo and fully vested at June 30, 2013.

(2)	Issued to Highland Consulting, Inc., an entity controlled by Ms. Brubacher and vesting monthly through March 2016.
(3)	Issued to Evolution Marketing, Inc., an entity controlled by Mr. Ingallinera and vesting monthly through March 2016.

Option Exercises

None of our named executive officers exercised stock options in fiscal 2013. During fiscal 2014, Charles Mollo exercised 1,590,110 warrants.

Consulting Agreements

The Company has entered into a consulting agreement with Evolution Marketing, Inc., pursuant to which it has paid for the services of Albert J. Ingallinera, Jr., our Vice President of Product Management and Business Development. The agreement is cancellable by either party with a 60-day notice and is currently at a rate of $10,000 per month. During the years ended June 30, 2014 and 2013, the Company paid the entity $120,000 pursuant to the contract.

For services provided by Charles R. Mollo as CEO of the Company, TM 07 Investments, LLC receives $120,000 per year in compensation. In fiscal 2013 the yearly compensation was in the form of 60,000 shares of Common Stock and the balance of $60,000 has been accrued and is payable as of June 30, 2013. In fiscal 2014 the yearly compensation was accrued. $60,000 was exchanged for a like amount of convertible debt in December 2013 and the remaining $60,000 remains payable as of June 30, 2014.

Effective September 1, 2013 the Company entered into a consulting agreement with an entity for the services of Joan W. Brubacher, President and Chief Financial Officer. The entity was awarded 1,600,000 shares of Common Stock of which 500,000 vested immediately, with the balance vesting over a twenty-three month period. The agreement provides for cash compensation of $11,000 per month, is cancellable by either party with a 60-day notice and also provides for six months of severance pay. During the year ended June 30, 2014 the Company paid the entity $111,500.

2014 Director Compensation

The following table sets forth information with respect to the compensation of our directors in fiscal 2014. (As no option award, non-equity incentive plan compensation, or non-qualified deferred compensation was granted to a director in fiscal 2014, columns (d), (e), and (f) of the table required by Item 402(r) of Regulation S-K have been omitted.)

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)		All Other Compensation ($)		Total ($)

Joan Brubacher	$	0	$	4,000	$	—	$	4,000
Jeff Doss		0		4,000		—		4,000
Thomas Gardner		0		2,000		—		2,000
Jeffrey Harris		0		4,000		—		4,000
Charles Mollo		0		4,000		—		4,000
Jerry Riopelle		0		4,000		—		4,000

Notes:

1.	During the fiscal year ended June 30, 2014, the Director compensation was paid in the form of 40,000 shares of Common Stock, which was valued at market on the date of issue, or $.10 per share.

As of June 30, 2014, other than the options for purchase of 750 shares of Common Stock beneficially owned by Charles Mollo and the 1,125,000 unvested shares of Common Stock beneficially owned by Joan W. Brubacher as described above under “Outstanding Equity Awards as of June 30, 2014”, there were no outstanding options or unvested stock grants held by directors.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Benefit Plans

2004 Incentive

Compensation Plan. We adopted the 2004 Incentive Compensation Plan and amended it on December 19, 2007 to enable us to attract, retain and motivate our officers, directors, employees and consultants. Of the 750,000 shares of Common Stock that were eligible for issuance pursuant to awards made under this plan, 23,325 shares of Common Stock were subject to options outstanding as of June 30, 2014. As of such date, the outstanding options had a weighted average exercise price of $0.49 per share and had expiration dates ranging from January 14, 2014 to October 15, 2018. Although this plan remains in effect and options under the plan remain outstanding, we ceased making awards under the plan upon the adoption of our 2009 Incentive Compensation Plan.

2009 Incentive Compensation Plan. We adopted our 2009 Incentive Compensation Plan on January 27, 2009, and subsequently amended the plan on December 7, 2009, and January 31, 2012. The principal purpose of the plan was to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards. Of the 1,150,000 shares of Common Stock that were eligible for issuance pursuant to awards made under the 2009 Incentive Compensation Plan, as of June 30, 2014, 765,906 shares had been issued pursuant to the Plan.

2009 Deferred Compensation Plan. We adopted our Non-Qualified Deferred Compensation Plan on February 23, 2009. The principal purpose of the plan was to allow for the payment to officers and employees certain deferred compensation in compliance with Internal Revenue Code Section 409A.

Effect of Change of Control. Upon the occurrence of a change of control, the Board of Directors may:

·	accelerate, vest or cause the restrictions to lapse with respect to all or any portion of an award under the 2004 and 2009 Incentive Compensation Plans;

·	cancel such awards for fair value (as determined by the compensation committee); and

·	provide for the issuance of substitute awards that will substantially preserve the otherwise applicable terms of any affected awards previously granted under the 2004 and 2009 Incentive Compensation Plans, as determined by the Board of Directors or a designated committee

The Deferred Compensation Plan provides that with respect to plan participants, plan distributions are to be made upon a majority change in ownership of the Company.

The following provides information with respect to securities to be issued pursuant to our compensation plans as of June 30, 2014, all of which are fully vested unless otherwise noted below.

Plan Category

Number of

securities to be

issued upon

exercise of

outstanding options,

warrants and rights

Weighted average

exercise price of

outstanding options,

warrants and rights

Number of securities

remaining

available for future

issuance under

equity compensation plans

(excluding securities

reflected in

column (a))

(a)

(b)

(c)

Equity compensation plans approved by

security holders

23,325

$0.49

391,269

2004 Equity Incentive Plan

23,325

$0.49

7,175

2009 Equity Incentive Plan

—

384,094

Equity compensation plans not approved by

security holders

The following table sets forth information as of Septembert 24, 2014, regarding the beneficial ownership of our capital stock by:

·	each person, or group of affiliated persons, who is known by us to own beneficially five percent or more of our Common Stock or preferred;

·	each of our directors;

·	each of our named executive officers; and

·	all our directors and executive officers as a group.

Percentage ownership calculations for beneficial ownership are based on 53,803,411 shares of Common Stock and 796,039 shares of Series D Convertible Preferred Stock outstanding as of September 24, 2014.

We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission (the “SEC”). These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of Common Stock issuable pursuant to the exercise of stock options and warrants, or conversion of shares of preferred stock or convertible debt, that are either immediately exercisable or exercisable within 60 days of August 31, 2014. These shares are deemed to be outstanding and beneficially owned by the person holding those options, warrants or convertible shares or notes for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them.

	Common Stock					Preferred Stock
	Number of					Number of
	Shares		Beneficial			Shares		Beneficial			Total
	Beneficially		Ownership			Beneficially		Ownership			Voting
Name (1)	Owned		Percentage (2)			Owned		Percentage (2)			Power (3)
5% Stockholders
New Vistas Investment Corp. (4)		4,829,389		8.79	%		97,796		12.29	%		7.58	%
CJMO, LLC (5)		2,168,643		3.94	%		121,532		15.27	%		3.51	%
Bob Flowers (6)		2,703,393		4.94	%		85,646		10.76	%		4.35	%
TM 07 Investments, LLC (7)		14,036,487		24.26	%		35,256		4.43	%		16.73	%
CRM 008 Trust (8)		9,379,507		16.20	%		6,810		0.86	%		8.66	%

Directors and Named Executive Officers
Charles R. Mollo (9)		30,722,858		47.62	%		262,701		33.00	%		36.65	%
Jeff Doss (10)		622,064		1.15	%		24,153		3.03	%		1.01	%
Gerald H. Riopelle (11)		617,409		1.14	%		16,590		2.08	%		1.00	%
Al Ingallinera (12)		1,129,717		2.09	%		24,230		3.04	%		1.71	%
Jeffrey R. Harris (13)		6,058,940		10.95	%		139,135		17.48	%		9.57	%
Joan Brubacher (14)		2,367,826		4.39	%		3,018		0.38	%		3.73	%

All directors and executive officers as a group (8 persons)		39,392,818		55.84	%		457,677		46.74	%		50.48	%

(1)

The address of each officer, director and 5% stockholder listed below is c/o Beamz Interactive, Inc., 15354 North 83rd Way Suite 101, Scottsdale, AZ 85260.

(2)

Beneficial ownership is calculated in accordance with SEC rules and regulations. For the purpose of computing the percentage ownership of each beneficial owner, any securities that were not outstanding but that were subject to options, warrants, rights or conversion privileges held by such beneficial owner exercisable within 60 days were deemed to be outstanding in determining the percentage owned by such person, but were not deemed outstanding in determining the percentage owned by any other person.

(3)

Reflects the total voting power of such person or entity when both Common Stock and preferred stock vote together as a single class, on an as-converted, fully diluted basis.

	(4)	Includes 977,958 shares issuable upon conversion of shares of Series D Convertible Preferred Stock, as well as 150,000 shares issuable upon exercise of warrants. Mr. Mollo, our CEO and Chairman, serves as the trustee of trusts owning a total of 73.36% of the issued and outstanding stock of New Vistas Investment Corp., and Mr. Harris, a member of our Board, owns 24.13% of the issued and outstanding stock of New Vistas Investment Corp. and serves as the President of New Vistas Investment Corp.

	(5)	Includes 1,215,322 shares of Common Stock issuable upon conversion of shares of Series D Convertible Preferred Stock. Mr. Mollo serves as a manager of CJMO, LLC.

(6)

Includes 856,461 shares of Common Stock issuable upon conversion of shares of Series D Convertible Preferred Stock, as well as 15,035 shares of Common Stock issuable upon exercise of warrants.

(7)

Includes 352,562 shares of Common Stock issuable upon conversion of shares of Series D Convertible Preferred Stock, as well as 750 shares of Common Stock issuable upon the exercise of stock options and 3,700,000 shares of Common Stock issuable upon the exercise of stock warrants. Mr. Mollo serves as a trustee of trusts owning 100% of the membership interests of TM07 Investments, LLC, and also serves as a manager of TM07 Investments, LLC.

(8)

Includes 68,100 shares of Common Stock issuable upon conversion of shares of Series D Convertible Preferred Stock as well as 4,031,288 shares issuable upon exercise of warrants. Mr. Mollo serves as a trustee of CRM 008 Trust.

	(9)	Includes all shares beneficially owned by the following entities over which Mr. Mollo may be deemed to exercise voting or dispositive control: New Vistas Investment Corp. (see footnote (4) above), CJMO, LLC (see footnote (5) above), TM 07 Investments, LLC (see footnote (7) above), CRM 008 Trust (see footnote (8) above), and La Luz LLC. Includes (i) 106,021 shares of Common Stock (including 12,306 shares issuable upon conversion of shares of Series D Convertible Preferred Stock) beneficially owned by JLM 008 Trust for which Mr. Mollo disclaims beneficial ownership, (ii) 750 shares of Common Stock issuable upon the exercise of options held by TM 07 Investments, LLC, (iii) 4,031,288 shares of Common Stock issuable upon the exercise of warrants held by CRM 008 Trust, (iv) 150,000 shares of Common Stock issuable upon the exercise of warrants held by New Vistas Investment Corp., (v) 3,700,000 shares issuable upon the exercise of warrants held by TM07 Investments, LLC, and (vi) 202,055 shares of Common Stock issuable upon the exercise of warrants held by CRM Revocable Trust.
	(10)	Includes 84,802 shares of Common Stock issuable upon conversion of shares of Series D Convertible Preferred Stock, as well as 339,476 shares of Common Stock (including 156,732 shares of Common Stock issuable upon conversion of shares of Series D Convertible Preferred Stock) beneficially owned by Hotwire Development, LLC, over which Mr. Doss may be deemed to exercise voting or dispositive control.

(11)

Includes 165,900 shares of Common Stock issuable upon conversion of shares of Series D Convertible Preferred Stock.

(12)

Includes 242,299 shares issuable upon conversion of shares of Series D Convertible Preferred Stock owned by Evolution Marketing, Inc., over which Mr. Ingallinera may be deemed to exercise voting or dispositive control, as well as 74,000 shares of Common Stock issuable upon exercise of warrants.

(13)

Includes all shares beneficially owned by New Vistas Investment Corp. (see footnote (4) above) over which Mr. Harris may be deemed to exercise voting or dispositive control. Also includes 165,000 shares of Common Stock issuable upon exercise of warrants and 150,000 shares of Common Stock issuable upon the exercise of warrants held by New Vistas Investment Corp.

(14)

Includes 30,180 shares of Common Stock issuable upon conversion of shares of Series D Convertible Preferred Stock.

To our knowledge, there exists no arrangement, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Related Party Transactions

The following is a description of transactions since July 1, 2012, or currently proposed, to which we have been or will be a participant, in which the amount involved in the transaction exceeds the lesser of $120,000 or 1% of the average of our total assets at year end for the last two completed fiscal years, and in which any of our executive officers, directors or principal stockholders, including their immediate family members, had or will have a direct or indirect material interest:

2013 Convertible Secured Debt

Since May 2013, we have entered into various Convertible Secured Debt Agreements, including such agreements with the related parties set forth in the table below as of the date of this filing. The interest rate on the Convertible Secured Debt is 10% per annum and the principal and accrued, but unpaid, interest could be converted into shares of the Company’s common stock at a rate of $0.40 per share. In connection with those transactions we agreed to issue warrants to purchase one share of Common Stock for each $2 of principal amount of the Convertible Secured Notes issued to the noteholders, at an exercise price of $0.02. In February 2014 the Convertible Secured Debt Agreement was amended to issue warrants to purchase one share of Common Stock for each $1 of principal amount issued to noteholders subsequent to the amendment date at an exercise price of $0.02 per share and to allow for conversion at $0.20 per share. The Convertible Secured Debt Agreements provide that each noteholder shall have the option to convert any or all of the principal balance of, and accrued, but unpaid interest on, such noteholder’s Convertible Secured Note at any time. In addition, the principal balance and accrued, but unpaid interest will automatically convert upon the receipt by the Company of an aggregate of $2,000,000 or more through one or more equity or convertible investments in the Company (the “Investment”) into the same securities offered in the Investment at the lesser of (i) the price at which such securities are sold in the Investment or (ii) the conversion rate stated in the Convertible Secured Debt Agreement. As of the date of this filing the Company has outstanding Convertible Secured Debt financing of $4,545,809 from our executive officers, directors or principal stockholders. 2013 Convertible Secured Debt issued to date to related parties are summarized below.

Name of Related Party	Original Amount of Principal of Convertible Debt		Total Amount of Interest Paid		Estimated Value of Common Stock Underlying Warrants (8)

TM 07 Investments, LLC(1)	$	2,944,966	$	0	$	87,100
New Vistas Investment Corp. (2)	$	600,000	$	0	$	12,000
CRM 008 Trust (3)	$	611,288	$	0	$	13,300
CRM Revocable Trust (4)	$	302,055	$	0	$	8,100
Evolution Marketing (5)	$	25,000	$	0	$	1,000
Joan W. Brubacher (6)	$	68,000	$	0	$	1,700
Highland Consulting (7)	$	19,500	$	0	$	800

(1)	Mr. Mollo, our Chairman and CEO, serves as a trustee of trusts owning 100% of the membership interests of TM07 Investments, LLC and also serves as a manager of TM07 Investments, LLC. The warrants issued under the Secured Debt were exercised in full as of June 2014.

(2)

Mr. Mollo also serves as the trustee of trusts owning a total of 73.36% of the issued and outstanding stock of New Vistas Investment Corp., and Mr. Harris owns 24.13%, and serves as the President, of New Vistas Investment Corp. In June 2013, 150,000 warrants issued under the Secured Debt were exercised.

(3)	Mr. Mollo also serves as the trustee of CRM 008 Trust. In June 2013, 100,000 warrants issued under the Secured Debt were exercised.
(4)	Mr. Mollo also serves as trustee of CRM Revocable Trust.
(5)	Mr. Ingallinera, our VP Product Management and Business Development, owns 100% of Evolution Marketing, Inc.
(6)	Ms. Joan Brubacher, our President and Chief Financial Officer.
(7)	Ms. Brubacher, our President and CFO, owns 100% of Highland Consulting.
(8)	Based on an average share price of $0.04 as of September 24, 2014.

Expenses

During the years ended June 30, 2014 and 2013, TM 07 Investments, LLC, a limited liability company controlled by Charlie Mollo, the Company’s Chief Executive Officer and Chairman of the Board paid various expenses on our behalf totaling $2,085,272 and $1,644,883, respectively, which were recorded in the periods incurred. In February, 2014 $1,575,408 was converted to Convertible Secured Debt.

Board Independence

Our Board of Directors has undertaken a review of the independence of each director by the standards for director independence set forth in the NASDAQ Marketplace Rules. Under these rules, a director is not considered to be independent if he or she also is an executive officer or employee of the corporation. Our board has concluded that Jeffrey R. Harris, Jeff Doss, Gerald Riopelle, and Thomas Gardner (who has not been reelected to the Board) are independent.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The 2014 and 2013 audit services provided by Semple, Marchal & Cooper, LLP were approved by our Audit/Corporate Governance Committee. The Audit/Corporate Governance Committee implemented pre-approval policies and procedures related to the provision of audit and non-audit services. Under these procedures, the Audit/Corporate Governance Committee pre-approved both the type of services to be provided by our independent registered public accounting firm and the estimated fees related to these services. During the approval process, the Audit/Corporate Governance Committee considers the impact of the types of services and related fees on the independence of the auditor. These services and fees must be deemed compatible with the maintenance of the auditor’s independence, in compliance with the SEC rules and regulations. Throughout the year, the Audit/Corporate Governance Committee and, if necessary, the Board of Directors, reviews revisions to the estimates of audit an non-audit fees initially approved.

The Company was billed for the following audit, tax, and other related fees by its principal accountant for the last two fiscal years:

	2014		2013

Audit Fees	$	111,200	$	104,000
Audit-Related Fees		–		–
Tax Fees		–		–
All Other Fees (1)		-	$	5,000

(1) Related to filing of Form 10

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as a part of this report:

(b) Exhibits.

Number		Description

3(i).1		Fourth Amended and Restated Certificate of Incorporation (1)
3(i).2		Amendment to Fourth Amended and Restated Certificate of Incorporation (1)
3(i).3		Second Amendment to Fourth Amended and Restated Certificate of Incorporation (8)
3(ii)		Bylaws (1)
4.1		HumanBeams, Inc. 2004 Incentive Compensation Plan (1)
4.2		Beamz Interactive 2009 Incentive Compensation Plan (1)
4.3		First Amendment to Beamz Interactive 2009 Incentive Compensation Plan (1)
4.4		Second Amendment to Beamz Interactive 2009 Incentive Compensation Plan (1)
4.5		Non-Qualified Deferred Compensation Plan (1)
10.1		Form of Warrant to Purchase Shares of Common Stock Bridge Loan Agreement dated January 3, 2012 (1)
10.2		Form of Indemnity Agreement (2)
10.3		License Agreement by and between Cypher Entertainment Group LLC and Beamz Interactive, Inc. dated August 30, 2012 (4)
10.4		First Amendment to License Agreement by and between Cypher Entertainment Group LLC and Beamz Interactive, Inc. dated April 4, 2013 (7)
10.5		Manufacturing Agreement by and between Chen-Source, Inc. and Beamz Interactive, Inc. dated March 8, 2013 (8)
10.6		Standard Industrial/Commercial Multi-Tenante Lease-Gross by and between Arizona Design, LLC and Beamz Interactive, Inc. dated April 30, 2013 (8)
10.7		2013 Convertible Debt and Security Agreement dated May 1, 2013 (5)
10.8		Form of Convertible Note issued in connection with the 2013 Convertible Debt and Security Agreement dated May 1, 2013 (5)

10.9		Form of Warrant to Purchase Shares of Common Stock in connection with the 2013 Convertible Debt and Security Agreement dated May 1, 2013 (5)
10.10		Consulting Agreement dated July 12, 2013 (6)
10.11		Amended and Restated 2013 Convertible Debt and Security Agreement dated February 21, 2014 (8)

10.12		Form of Convertible Note issued in connection with the Amended and Restated 2013 Convertible Debt and Security Agreement dated February 21, 2014 (8)
10.13		Form of Warrant to Purchase Shares of Common Stock in connection with the Amended and Restated 2013 Convertible Debt and Security Agreement dated February 21, 2014 (8)
21		The Company has no subsidiaries.
31.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (8)
31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (8)
32.1		Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (8)
32.2		Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (8)
101.INS		XBRL Instance Document (8)
101.SCH		XBRL Taxonomy Extension Schema (8)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase (8)
101.DEF		XBRL Taxonomy Extension Definition Linkbase (8)
101.LAB		XBRL Taxonomy Extension Label Linkbase (8)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase (8)

(1)	Previously filed as an exhibit to the Company’s Registration Statement on Form 10, filed April 19, 2012.

(2)	Previously filed as an exhibit to Amendment No. 1 to the Company’s Registration Statement on Form 10, filed June 12, 2012.

(3)	Previously filed as an exhibit to Amendment No. 2 to the Company’s Registration Statement on Form 10, filed July 5, 2012.

(4)	Previously filed as an exhibit to the Company's Annual Report on Form 10-K, filed on October 9, 2012

(5)	Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed on May 15, 2013

(6)	Previously filed as an exhibit to the Company's Current Report on Form 8-K, filed on July 16, 2013

(7)	Previously filed as an exhibit to the Company's Annual Report on Form 10-K, filed on October 11, 2013

(8)	Filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

By:	/s/ Charles R. Mollo
	Charles R. Mollo, Chief Executive Officer

Dated: October 22, 2014

Signature	Title	Date


/s/ Charles R. Mollo	Chief Executive Officer and Chairman (Principal Executive Officer)	October 22, 2014
Charles R. Mollo


/s/ Joan Brubacher	President, Principal Financial Officer and Principal Accounting Officer	October 22, 2014
Joan Brubacher


/s/ Jerry Riopelle	Director	October 22, 2014
Jerry Riopelle


/s/ Jeff Doss	Director	October 22, 2014
Jeff Doss


/s/ Jeffrey R. Harris	Director	October 22, 2014
Jeffrey R. Harris

SECOND AMENDMENT TO FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF BEAMZ INTERACTIVE, INC.

Pursuant to the provisions of Section 242 of the Delaware General Corporation Law (“DGCL”), Beamz Interactive, Inc. (the “Corporation”), a for-profit corporation organized and existing under and by virtue of the DGCL, adopts the following amendment to its Fourth Amended and Restated Certificate of Incorporation (the “Certificate”):

1. The initial paragraph of Article IV is hereby amended and restated in its entirety as follows:

The Corporation shall have authority to issue a total of one hundred ten million (110,000,000) shares, consisting of (i) one hundred million (100,000,000) shares of common stock, $0.001 par value per share (the “Common Stock”), and (ii) ten million (10,000,000) shares of preferred stock, $0.001 par value per share (the “Preferred Stock”), of which: (A) thirty thousand (30,000) shares of Preferred Stock have been designated as Series A Convertible Preferred Stock; (B) one thousand (1,000) shares of Preferred Stock have been designated as Series A-1 Convertible Preferred Stock; (C) sixty thousand (60,000) shares of Preferred Stock have been designated as Series B Convertible Preferred Stock; (D) four million four hundred thousand (4,400,000) shares of Preferred Stock have been designated as Series C Convertible Preferred Stock; and (E) one million three hundred thousand (1,300,000) shares of Preferred Stock have been designated as Series D Convertible Preferred Stock. Article IV hereof contains a description of the Preferred Stock and a statement of the designations and the powers, privileges, and rights, and the qualifications, limitations, or restriction thereof, of the Series A Convertible Preferred Stock, Series A-1 Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred Stock.

This Amendment was duly adopted (i) on April 16, 2014, at a special meeting of the board of directors of the Corporation (the “Board”) and (ii) having been recommended for adoption by the Board, by the holders of a majority of the stock of the Corporation in accordance with the provisions of DGCL §242.

[remainder of page intentionally left blank]

IN WITNESS WHEREOF, the Corporation’s President and Chief Executive Officer, Charles R. Mollo, has signed this Amendment this 14th day of July, 2014.

	By: /s/ Charles R. Mollo
	Charles R. Mollo, President and CEO

Exhibit 10.5

Exhibit 10.6

o a site plan depicting the Project;

x a current set of the Rules and Regulations for the Project;

o a current set of the Rules and Regulations adopted by the owners' association;

o a Work Letter;

o other (specify):

2. Premises.

2.1Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. While the approximate square footage of the Premises may have been used in the marketing of the Premises for purposes of comparison, the Base Rent stated herein is NOT tied to square footage and is not subject to adjustment should the actual size be determined to be different. NOTE: Lessee is advised to verify the actual size prior to executing this Lease.

2.2Condition. Lessor shall deliver that portion of the Premises contained within the Building ("Unit") to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ("Start Date"), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, sump pumps, if any, and all other such elements in the Unit, other than those constructed by Lessee, shall be in good operating condition on said date, that the structural elements of the roof, bearing walls and foundation of the Unit shall be free of material defects, and that the Unit does not contain hazardous levels of any mold or fungi defined as toxic under applicable state or federal law. If a non-compliance with such warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor's expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Unit. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee's sole cost and expense (except for the repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls - see Paragraph 7).

2.3Compliance. Lessor warrants that to the best of its knowledge the improvements on the Premises and the Common Areas comply with the building codes that were in effect at the time that each such improvement, or portion thereof, was constructed, and also with all applicable laws, covenants or restrictions of record, regulations, and ordinances in effect on the Start Date ("Applicable Requirements"). Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee's use (see Paragraph 49), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning are appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Unit, Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ("Capital Expenditure"), Lessor and Lessee shall allocate the cost of such work as follows:

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to 6 months' Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor shall pay for such Capital Expenditure and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease or any extension thereof, on the date that on which the Base Rent is due, an amount equal to 1/144th of the portion of such costs reasonably attributable to the Premises. Lessee shall pay Interest on the balance but may prepay its obligation at any time.; If, however, such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not have any right to terminate this Lease.

2.4Acknowledgements. Lessee acknowledges that: (a) it has been given an opportunity to inspect and measure the Premises, (b) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the size and condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee's intended use, (c) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, (d) it is not relying on any representation as to the size of the Premises made by Brokers or Lessor, (e) the square footage of the Premises was not material to Lessee's decision to lease the Premises and pay the Rent stated herein, and (f) neither Lessor, Lessor's agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

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2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.

2.6 Vehicle Parking. Lessee shall be entitled to use the number of Parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called "Permitted Size Vehicles." Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other than Permitted Size Vehicles may be parked in the Common Area without the prior written permission of Lessor. In addition:

(a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities.

(b) Lessee shall not service or store any vehicles in the Common Areas.

(c) If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

2.7 Common Areas - Definition. The term "Common Areas" is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceways and installations within the Unit that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, walkways, driveways and landscaped areas.

2.8 Common Areas - Lessee's Rights. Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any rules and regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessor's designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor.

2.9 Common Areas - Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations ("Rules and Regulations") for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their invitees. Lessee agrees to abide by and conform to all such Rules and Regulations, and shall use its best efforts to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said Rules and Regulations by other tenants of the Project.

2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole discretion, from time to time:

(a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways;

(b) To close temporarily any of the Common Areas for maintenance purposes so long as reasonable acces to the Premises remains available;

(d) To add additional buildings and improvements to the Common Areas;

(e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof; and

(f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be appropriate.

3. Term.

3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2 Early Possession. Any provision herein granting Lessee Early Possession of the Premises is subject to and conditioned upon the Premises being available for such possession prior to the Commencement Date. Any grant of Early Possession only conveys a non-exclusive right to occupy the Premises. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Lessee's Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such Early Possession shall not affect the Expiration Date.

3.3 Delay In Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or change the Expiration Date. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of the delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed, but minus any days of delay caused by the acts or omissions of Lessee. If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee's right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Commencement Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within 4 months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

3.4 Lessee Compliance. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

4. Rent.

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4.1. Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("Rent").

	BASE RENT SCHEDULE

	06/01/13 - 06/30/13;	$1,500.00/month + rental tax
	07/01/13 - 09/30/13;	$4,500.00/month + rental tax
	10/01/13 - 12/31/13;	$5,000.00/month + rental tax
	01/01/14 - 05/31/15;	$5,500.00/month + rental tax

4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined, over and above the 2013 operating year (2013 Expense Stop), during each calendar year of the term of this Lease, in accordance with the following provisions:

(a) The following costs relating to the ownership and operation of the Project are defined as "Common Area Operating Expenses" :

(i) Costs relating to the operation, repair and maintenance, in neat, clean, good order and condition, and if necessary the replacement, of the following:

(aa) The Common Areas and Common Area improvements, including parking areas, loading and unloading areas,

trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, exterior walls of the buildings, building systems and roof drainage systems.

(bb) Exterior signs and any tenant directories.

(cc) Any fire sprinkler systems.

(dd) All other areas and improvements that are within the exterior boundaries of the Project but outside of the Premises and/or any other space occupied by a tenant.

(ii) The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered.

(iii) The cost of trash disposal, pest control services, property management, security services, owner's association dues and fees, the cost to repaint the exterior of any structures and the cost of any environmental inspections.

(iv) Reserves set aside for maintenance and/or replacement of Common Area improvements and equipment.

(v) Any increase above the Base Real Property Taxes (as defined in Paragraph 10).

(vi) Any "Insurance Cost Increase" (as defined in Paragraph 8).

(vii) Any deductible portion of an insured loss concerning the Building or the Common Areas.

(viii) Auditors', accountants' and attorneys' fees and costs related to the operation, maintenance, repair and replacement of the Project.

(ix) The cost of any capital improvement to the Building or the Project not covered under the provisions of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such capital improvement over a 12 year period and Lessee shall not be required to pay more than Lessee's Share of 1/144th of the cost of such capital improvement in any given month.

(x) The cost of any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense.

(b) Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Unit, the Building or to any other building in the Project or to the operation, repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project.

(c) The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Project already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them.

(d) Lessee's Share of Common Area Operating Expenses is payable monthly on the same day as the Base Rent is due hereunder.

The amount of such payments shall be based on Lessor's estimate of the annual Common Area Operating Expenses. Within 60 days after written request (but not more than once each year) Lessor shall deliver to Lessee a reasonably detailed statement showing Lessee's Share of the actual Common Area Operating Expenses for the preceding year. If Lessee's payments during such year exceed Lessee's Share, Lessor shall credit the amount of such over-payment against Lessee's future payments. If Lessee's payments during such year were less than Lessee's Share, Lessee shall pay to Lessor the amount of the deficiency within 10 days after delivery by Lessor to Lessee of the statement.

(e) Common Area Operating Expenses shall not include the cost of replacing equipment or capital components such as the roof, foundations, exterior walls or Common Area capital improvements, such as the parking lot paving, elevators, fences that have a useful life for accounting purposes of 5 years or more.

(f) Common Area Operating Expenses shall not include any expenses paid by any tenant directly to third parties, or as to which Lessor is otherwise reimbursed by any third party, other tenant, or insurance proceeds.

4.3 Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset ordeduction (except as specifically permitted in this Lease), on or before the day on which it is due. All monetary amounts shall be rounded to the nearest whole dollar. In the event that any statement or invoice prepared by Lessor is inaccurate such inaccuracy shall not constitute a waiver and Lessee shall be obligated to pay the amount set forth in this Lease. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future Rent be paid by cashier's check. Payments will be applied first to accrued late charges and attorney's fees, second to accrued interest, then to Base Rent and Common Area Operating Expenses, and any remaining amount to any other outstanding charges or costs.

4.4 Rental Taxes. In addition to Base Rent and Common Area Operating Expenses, Lessee shall pay to Lessor each month anamount equal to any rental taxes, gross receipts taxes, transaction privilege taxes, sales taxes, or similar taxes ("Rental Taxes") levied on the Base Rent then due or otherwise assessed in connection with the rental activity. Said monies shall be paid at the same time and in the same manner as the Base Rent.

5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performanceof its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount already due Lessor, for Rents which will be due in the future, and/ or to reimburse or

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compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 90 days after the expiration or termination of this Lease Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

6. Use.

6.1Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Other than guide, signal and seeing eye dogs, Lessee shall not keep or allow in the Premises any pets, animals, birds, fish, or reptiles. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the Building or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Project. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in the Agreed Use.

6.2 Hazardous Substances.

(a) Reportable Uses Require Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements. "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

(c) Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense,comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

(d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and groundlessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from areas outside of the Project not caused or contributed to by Lessee). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

(e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, itsemployees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which suffered as a direct result of Hazardous Substances on the Premises prior to Lessee taking possession or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(f) Investigations and Remediations. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee taking possession, unless such remediation measure is required as a result of Lessee's use (including "Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities.

(g) Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13),

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Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor's notice of termination.

6.3 Lessee's Compliance with Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any manner to such Requirements, without regard to whether said Requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. Likewise, Lessee shall immediately give written notice to Lessor of: (i) any water damage to the Premises and any suspected seepage, pooling, dampness or other condition conducive to the production of mold; or (ii) any mustiness or other odors that might indicate the presence of mold in the Premises.

6.4 Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see Paragraph 9.1e) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of written request therefor.

7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.

7.1 Lessee's Obligations.

(a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations (intended for Lessee's exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.

(b) Service Contracts. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels, and (iii) clarifiers. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and Lessee shall reimburse Lessor, upon demand, for the cost thereof.

(c) Failure to Perform. If Lessee fails to perform Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

(d) Replacement. Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay Interest on the unamortized balance but may prepay its obligation at any time.

7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

7.3 Utility Installations; Trade Fixtures; Alterations.

(a) Definitions. The term "Utility Installations" refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

(b) Consent. Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Alterations or Utility Installations to the interior of the Premises (excluding the roof) without such consent but

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upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls,will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month's Base Rent in the aggregate or a sum equal to one month's Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month's Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor.

(c) Liens; Bonds. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys' fees and costs.

7.4 Ownership; Removal; Surrender; and Restoration.

(a) Ownership. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b) Removal. By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

(c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall also completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

8. Insurance; Indemnity.

8.1 Payment of Premium Increases.

(a) As used herein, the term "Insurance Cost Increase" is defined as any increase in the actual cost of the insurance applicable to the Building and/or the Project and required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), ("Required Insurance"), over and above the Base Premium, as hereinafter defined, calculated on an annual basis. Insurance Cost Increase shall include, but not be limited to, requirements of the holder of a mortgage or deed of trust covering the Premises, Building and/or Project, increased valuation of the Premises, Building and/or Project, and/or a general premium rate increase. The term Insurance Cost Increase shall not, however, include any premium increases resulting from the nature of the occupancy of any other tenant of the Building. The "Base Premium" shall be the annual premium applicable to the 12 month period immediately preceding the Start Date. If, however, the Project was not insured for the entirety of such 12 month period, then the Base Premium shall be the lowest annual premium reasonably obtainable for the Required Insurance as of the Start Date, assuming the most nominal use possible of the Building. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $2,000,000 procured under Paragraph 8.2(b).

(b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Start Date or Expiration Date.

8.2 Liability Insurance.

(a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000. Lessee shall add Lessor as an additional insured by means of an endorsement at least as broad as the Insurance Service Organization's "Additional Insured-Managers or Lessors of Premises" Endorsement and coverage shall also be extended to include damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee shall provide an endorsement on its liability policy(ies) which provides that its insurance shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b) Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

8.3 Property Insurance - Building, Improvements and Rental Value.

(a) Building and Improvements. Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor,

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with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full insurable replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee not by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence.

(b) Rental Value. Lessor shall also obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days ("Rental Value insurance"). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period.

(c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises.

(d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease.

8.4 Lessee's Property; Business Interruption Insurance.

(a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

(c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease.

8.5 Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least A-, VI, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 10 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7 Indemnity. Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8 Exemption of Lessor and its Agents from Liability. Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, indoor air quality, the presence of mold or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places, (ii) any damages arising from any act or neglect of any other tenant of Lessor or from the failure of Lessor or its agents to enforce the provisions of any other lease in the Project, or (iii) injury to Lessee's business or for any loss of income or profit therefrom. Instead, it is intended that Lessee's sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of paragraph 8.

8.9 Failure to Provide Insurance. Lessee acknowledges that any failure on its part to obtain or maintain the insurance requiredherein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee's failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee's Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

9. Damage or Destruction.

9.1 Definitions.

(a) "Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 3 months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or

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destruction as to whether or not the damage is Partial or Total. Notwithstanding the foregoing, Premises Partial Damage shall not include damage to windows, doors, and/or other similar items which Lessee has the responsibility to repair or replace pursuant to the provisions of Paragraph 7.1.

(b) "Premises Total Destruction" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 month's Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(c) "Insured Loss" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e) "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance, in, on, or under the Premises which requires repair restoration.

9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.

9.5 Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished.

9.6 Abatement of Rent; Lessee's Remedies.

(a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b) Remedies. If Lessor is obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. "Commence" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7 Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor.

10. Real Property Taxes.

10.1 Definitions.

(a) "Real Property Taxes." As used herein, the term "Real Property Taxes" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or

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license fee imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Project address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Project is located. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Project, (ii) a change in the improvements thereon, and/or (iii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

(b) "Base Real Property Taxes." As used herein, the term "Base Real Property Taxes" shall be the amount of Real Property Taxes, which are assessed against the Premises, Building, Project or Common Areas in the calendar year during which the Lease is executed. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common.

10.2 Payment of Taxes. Except as otherwise provided in Paragraph 10.3, Lessor shall pay the Real Property Taxes applicable to the Project, and said payments shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2.

10.3 Additional Improvements. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the Project by other tenants or by Lessor for the exclusive enjoyment of such other tenants. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessee's request or by reason of any alterations or improvements to the Premises made by Lessor subsequent to the execution of this Lease by the Parties.

10.4 Joint Assessment. If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitableproportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive.

10.5 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property.

11. Utilities and Services. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessor's sole judgment, Lessor determines that Lessee is using a disproportionate amount of water, electricity or other commonly metered utilities, or that Lessee is generating such a large volume of trash as to require an increase in the size of the trash receptacle and/or an increase in the number of times per month that it is emptied, then Lessor may increase Lessee's Base Rent by an amount equal to such increased costs. There shall be no abatement of Rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor's reasonable control or in cooperation with governmental request or directions.

12. Assignment and Subletting.

12.1 Lessor's Consent Required.

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, "assign or assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent.

(b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.

(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. "Net Worth of Lessee" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d) An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

(f) Lessor may reasonably withhold consent to a proposed assignment or subletting if Lessee is in Default at the time consent is requested.

(g) Notwithstanding the foregoing, allowing a de minimis portion of the Premises, ie. 20 square feet or less, to be used by a third party vendor in connection with the installation of a vending machine or payphone shall not constitute a subletting.

12.2 Terms and Conditions Applicable to Assignment and Subletting.

(a) Regardless of Lessor's consent, no assignment or subletting shall : (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b) Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach.

(c) Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's

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determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor's considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment, entering into such sublease, or entering into possession of the Premises or any portion thereof, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

(g) Lessor's consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)

12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee's then outstanding obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.

(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

13. Default; Breach; Remedies.

13.1 Default; Breach. A "Default" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A "Breach" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee. THE ACCEPTANCE BY LESSOR OF A PARTIAL PAYMENT OF RENT OR SECURITY DEPOSIT SHALL NOT CONSTITUTE A WAIVER OF ANY OF LESSOR'S RIGHTS, INCLUDING LESSOR'S RIGHT TO RECOVER POSSESSION OF THE PREMISES.

(c) The failure of Lessee to allow Lessor and/or its agents access to the premises or the commission of waste, act or acts constituting public or private nuisance, and/or an illegal activity on the Premises by Lessee, where such actions continue for a period of 3 business days following written notice to Lessee.

(d) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate or financial statements, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 41, (viii) material data safety sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

(e) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than those described in subparagraphs 13.1(a), (b), (c) or (d), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee's Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

(f) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a "debtor" as defined in 11 U.S.C. § 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(g) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(h) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2 Remedies. If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 115% of

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the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b) Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession.

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.

13.3 Inducement Recapture. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions", shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance.

13.5 Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest ("Interest") charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6 Breach by Lessor.

(a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished to Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

(b) Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month's Base Rent or the Security Deposit, reserving Lessee's right to reimbursement from Lessor for any such expense in excess of such offset. Lessee shall document the cost of said cure and supply said documentation to Lessor.

14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "Condemnation"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the Unit, or more than 25% of the parking spaces Lessee's, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation paid by the condemnor for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all

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compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

15. Brokerage Fees.

15.1Additional Commission. In addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee or anyone affiliated with Lessee acquires from Lessor any rights to the Premises or other premises owned by Lessor and located within the Project, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.

15.2Assumption of Obligations. Any buyer or transferee of Lessor's interest in this Lease shall be deemed to have assumed Lessor's obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor's Broker for the limited purpose of collecting any brokerage fee owed.

15.3Representations and Indemnities of Broker Relationships. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto.

16. Estoppel Certificates.

(a) Each Party (as "Responding Party") shall within 10 days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "Estoppel Certificate" form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not more than one month's rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall within 10 days after written notice from Lessor deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17. Definition of Lessor. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19. Days. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days.

20. Limitation on Liability. The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor's partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties underthis Lease.

22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any mattermentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party.

23. Notices.

23.1Notice Requirements. All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 72 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24. Waivers.

(a)No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition

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hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent.

(b) The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be

accepted by Lessor on account of monies or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

(c) THE PARTIES AGREE THAT THE TERMS OF THIS LEASE SHALL GOVERN WITH REGARD TO ALL MATTERS RELATED THERETO AND HEREBY WAIVE THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE TO THE EXTENT THAT SUCH STATUTE IS INCONSISTENT WITH THIS LEASE.

25. Disclosures Regarding The Nature of a Real Estate Agency Relationship.

(a)When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

(i) Lessor's Agent. A Lessor's agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor's agent or subagent has the following affirmative obligations: To the Lessor: A fiduciary duty and a duty to protect and promote the Lessor's interests. To the Lessee and Other Parties:: A duty to deal fairly with the Lessee and other parties to the transactions. To All Parties. A duty to disclose in writing any information known to the agent materially affecting the consideration to be paid by any Party or the value or desirability of the property. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(ii) Lessee's Agent. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the

Lessor's agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty and a duty to protect and promote the Lessee's interests. To the Lessor and Other Parties : A duty to deal fairly with the Lessor and other parties to the transation. To All Parties. A duty to disclose in writing any information known to the agent materially affecting the consideration to be paid by any Party or the value or desirability of the property . An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(iii) Agent Representing Both Lessor and Lessee. A real estate agent, either acting directly or through one or more associate

licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: a. A fiduciary duty and a duty to protect and promote the interest of both Parties in the dealings with either Lessor or the Lessee. b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional.

(b)Brokers have no responsibility with respect to any default or breach hereof by either Party. The Parties agree that no lawsuit or other legal proceeding involving any breach of duty, error or omission relating to this Lease may be brought against Broker more than one year after the Start Date and that the liability (including court costs and attorneys' fees), of any Broker with respect to any such lawsuit and/or legal proceeding shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

(c)Lessor and Lessee agree to identify to Brokers as "Confidential" any communication or information given Brokers that is considered by such Party to be confidential.

26.No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

27.Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28.Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be observed or performed by Lessee are bothcovenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29.Binding Effect; Choice of Law. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30. Subordination; Attornment; Non-Disturbance.

30.1Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as "Lender") shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

30.2Attornment. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Devise to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of the new owner, this Lease will automatically become a new lease between Lessee and such new owner, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor's obligations, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month's rent, or (d) be liable for the return of any security deposit paid to any prior lessor.

30.3Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "Non-Disturbance Agreement")

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from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall, if requested by lessee, use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee's option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31. Attorneys' Fees. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

32. Lessor's Access; Showing Premises; Repairs. Showing Premises; Repairs. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect on Lessee's use of the Premises. All such activities shall be without abatement of rent or liability to Lessee.

33. Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34. Signs. Lessor may place on the Premises ordinary "For Sale" signs at any time and ordinary "For Lease" signs during the last 6 months of the term hereof. Except for ordinary "For Sublease" signs which may be placed only on the Premises, Lessee shall not place any sign upon the Project without Lessor's prior written consent. All signs must comply with all Applicable Requirements.

35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.

36. Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

37. Guarantor.

37.1 Execution. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association for use in the State of Arizona.

37.2 Default. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

38. Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39. Options. If Lessee is granted an option, as defined below, then the following provisions shall apply.

39.1 Definition. "Option" shall mean: (a) the right to extend or reduce the term of or renew this Lease or to extend or reduce the term of or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase, the right of first offer to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2 Options Personal To Original Lessee. Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4 Effect of Default on Options.

(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if,

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after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

40. Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

41. Reservations. Lessor reserves the right: (i) to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, and (iii) to create and/or install new utility raceways, so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights.

42. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. A Party who does not initiate suit for the recovery of sums paid "under protest" within 6 months shall be deemed to have waived its right to protest such payment.

43. Authority.; Multiple Parties; Execution.

(a) If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each Party shall, within 30 days after request, deliver to the other Party satisfactory evidence of such authority.

(b) If this Lease is executed by more than one person or entity as "Lessee", each such person or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

(c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

44. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

45. Offer. Preparation of this Lease by either party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

46. Amendments. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

47. Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

48. Arbitration of Disputes. An Addendum requiring the Arbitration of disputes between the Parties and/or Brokers arising out of this Lease o is þ is not attached to this Lease.

49. Americans with Disabilities Act. Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee's specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee's use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee's expense.

THE FOLLOWING TERMS AND CONDITIONS ARE INCORPORATED INTO THIS LEASE (PARAGRAPHS 50 - 52). IF THERE ARE ANY DISCREPANCIES BETWEEN THE LEASE AND THESE TERMS AND CONDITIONS, THE TERMS AND CONDITIONS SHALL PREVAIL.

50. PREMISES. Lessee accepts space in 'as-is' condition, subject to terms and conditions of the Lease.

51. OPTION TO TERMINATE. Lease may be terminated by either Party with a ninety (90) day advance written notice of Lease termination to the other Party, and the Lease shall end on the last day of the 90 day notice or on the last day of the month that the 90 day notice falls in, the latter thereof.

52. CONFIDENTIALITY. TENANT ACKNOWLEDGES THAT THE TERMS OF THIS LEASE ARE STRICTLY CONFIDENTIAL BETWEEN LESSEE AND LESSOR. FAILURE TO ADHERE TO THE CONFIDENTIAL NATURE OF THIS LEASE WILL CONSTITUTE A BREACH OF TERMS THEREIN (PARAGRAPH 13 - DEFAULT; BREACH; REMEDIES), WITH THE EXCEPTION OF POTENTIAL SUBTENANTS, INSURANCE AGENTS, OR ATTORNEYS REPRESENTING LESSEE.

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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID

INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.

WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN ARIZONA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.

Note: If either Party to this Lease is a married individual, both spouses may need to execute this Lease in order to bind the marital community.

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RULES & REGULATIONS

General:

1. Lessee shall not suffer or permit the obstruction of any Common Areas, including driveways, walkways and stairways.

2. Lessor reserves the right to refuse access to any persons Lessor in good faith judges to be a threat to the safety and reputation of the Project and its occupants.

3. Lessee shall not make or permit any noise or odors that annoy or interfere with other lessees or persons having or doing business within the Project.

4. Lessee shall not keep animals within the Project.

5. Lessee shall not bring bicycles, motorcycles or other vehicles into unauthorized areas.

6. Lessee shall not make, suffer or permit litter except in appropriate receptacles for that purpose.

7. Lessee shall not alter any lock or install new or additional locks or bolts without Lessor’s written permission.

8. Lessee shall be responsible for the inappropriate use of any toilet rooms, plumbing or other utilities. No foreign substances of any kind are to be inserted therein.

9. Lessee shall not deface the walls, partitions or other surfaces of the Premises or Project.

10. Lessee shall not suffer or permit anything in or around Premises or Building that causes excessive vibration or floor loading in any part of the Project.

11. Lessee shall not employ any service or contractor for services or work to be performed in the Building, except in fulfillment of Lessee’s responsibilities as outlined in the Lease.

12. Lessee shall return all keys to Lessor at the termination of its tenancy and shall be responsible for the cost of replacing any keys that are lost or not returned.

13. No window coverings, shades or awnings shall be installed or used by Lessee, except as expressly approved by Lessor.

14. Lessee, Lessee’s employees and contractors shall not go upon the roof of the Building for any reason except that licensed contractors employed by Lessee may go upon the roof for purposes of servicing the HVAC equipment serving the premises in fulfillment of Lessee’s responsibilities under the Lease (if so provided). Lessee’s contractors are responsible for removing parts and debris associated with their work from the roof and assumes responsibility for any damage to the roof and building structures caused by them.

15. Lessee shall not suffer or permit smoking or carrying of lighted cigars or cigarettes in areas designated by Lessor or by applicable governmental agencies as non-smoking areas.

16. Lessee shall not use any method of heating or air conditioning other than as provided by Lessor.

17. Lessee shall not install, maintain or operate any vending machines upon the premises without Lessor’s written consent.

18. The Premises shall not be used for lodging, cooking or food preparation.

19. Lessee shall comply with all safety, fire protection and evacuation regulations established by Lessor or any applicable governmental agency.

20. Lessee agrees to not display any signs, banners, or similar displays in the windows or exterior of the premises, except as authorized in writing.

21. Lessor reserves the right to waive any of these rules or regulations, and/or as to any particular Lessee, and any such waiver shall not constitute a waiver of any other rule or regulation or any subsequent application thereof to such Lessee.

22. Lessee assumes all risks from theft or vandalism and agrees to keep its Premises locked as may be required.

23. Lessee agrees to deposit normal trash and refuse in trash dumpsters, if applicable. Trash dumpsters provided by Lessor are not to be used for the disposal of any hazardous materials, construction debris, equipment, pallets, petroleum products, chemicals, liquids, appliances or other heavy and unusual items. Lessee agrees to collapse cardboard cartons prior to depositing them into trash dumpsters in order to minimize the bulk of the deposited items. Lessee agrees to make special provisions for the proper disposal of items prohibited from being deposited in trash dumpsters and similar receptacles.

24. Lessee is prohibited from storing pallets, equipment, materials or similar items outside of the premises including driveways, walks and any other common area.

Parking:

1. Parking areas shall be used only for parking by vehicles no longer than full size, passenger automobiles and pickup trucks.

2. All vehicles parked on the premises must display valid unexpired registration tags.

3. Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee’s employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities.

4. Parking areas are not to be used for the overnight, long-term storage of vehicles or trailers, except when approved by Lessor in writing.

5. Maintenance and repair of vehicles, including oil changing and washing, are not permitted in the parking areas, driveways and common areas or within the premises.

6. Users of the parking area will obey all posted signs and park only in the areas designated for vehicle parking.

7. Lessor is not responsible for any damage to vehicles, injury to persons or loss of property, all of which risks are assumed by the party using the parking area and driveways.

8. In the instance of assigned/reserved parking for use by Lessee, Lessor will make reasonable efforts to prohibit unauthorized vehicles for parking in such spaces. Lessor cannot guarantee that unauthorized vehicles will not park in Lessee’s assigned/reserved spaces.

9. Lessor reserves the right to employ a towing company to remove from the property vehicles that are in violation of these rules.

Lessor reserves the right to make other reasonable rules and regulations as it may from time to time deem necessary for the appropriate operation and safety of the Project and its occupants. Lessee agrees to abide by these and such rules and regulations.

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Exhibit 10.11

BEAMZ INTERACTIVE, INC.

AMENDED AND RESTATED 2013 CONVERTIBLE DEBT AND SECURITY

AGREEMENT

This Amended and Restated 2013 Convertible Debt and Security Agreement (this “Agreement”), dated as of February 21, 2014, is by and among the parties executing this Agreement as Investors on the signature pages hereto and the Original Agreement (as defined below) and Beamz Interactive, Inc., a Delaware corporation (the “Company”). This Agreement amends and restates in its entirety that certain 2013 Convertible Debt and Security Agreement (the “Original Agreement”), dated as of May 1, 2013 and the First Amendment to the Original Agreement dated as of July 22, 2013, and further amends the Original Agreement and the First Amendment as provided below. In addition to others that execute this Agreement, this Agreement is being executed by holders of Notes (as defined below) holding at least a majority of the outstanding principal amount of Notes as of the date of this Agreement as required by Section 7.9 of the Original Agreement. Investors and the Company are sometimes referred to herein collectively as the “Parties” and each individually as a “Party”.

RECITALS:

A. As of the date hereof, the Company has issued $3,154,855.23 in principal amount of Notes and accompanying Warrants (as defined below) exercisable for shares of common stock, par value $0.001 per share, of the Company (the “Common Stock”) and now desires to issue up to an aggregate of $6,500,000 in principal amount of Notes, which amount shall include previously issued Notes, together with Warrants, to Investors on the terms and conditions set forth below; and

B. Investors, severally and not jointly, have or wish to purchase the Notes and the Warrants from the Company upon the terms and conditions set forth in this Agreement.

AGREEMENT:

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed, and intending to be legally bound, the Parties agree as follows:

ARTICLE 1

INTERPRETATIONS

1.1 Definitions. Terms used herein but not otherwise defined shall have the meanings ascribed thereto in Exhibit A attached hereto.

ARTICLE 2

PURCHASE AND SALE OF SECURITIES

2.1 Purchase and Sale of Notes.

(a) The Company hereby agrees to borrow, or in the case of amounts set forth on Exhibit B dated before the date hereof, has borrowed, and Investors hereby severally, and not jointly, agree to loan or have loaned, as applicable, to the Company, the principal amounts (each a “Loan” and collectively the “Loans”) set forth under the heading “Principal Amount of Loan” on Exhibit B attached hereto.

(b) Each Loan shall be or has been separately evidenced by and subject to the provisions of a Convertible Secured Subordinated Promissory Note, substantially in the form attached hereto as Exhibit C (each a “Note,” and collectively, the “Notes”) to be executed by the Company and delivered to each Investor in respect of such Investor’s applicable Loan amount on the applicable Closing Date (as defined below). Upon the execution of this Agreement, each Investor making a Loan on or after the date hereof shall deliver his/its applicable Loan amount to the Company by check or electronic transfer of immediately available funds to such account as the Company shall specify in writing to such Investor and the Company shall promptly deliver the applicable Note to the Investor.

(c) Notwithstanding the separate payment obligations of the Company to each Investor under this Agreement and each Note, the Parties agree that all payments made by the Company hereunder and under the Notes shall be made pro rata among the Investors, without any preference to any Investor, whether such payments are made before or following an Event of Default (as defined in the Notes). In such regard, if and to the extent the Company fails to pay the full amount due and owing to Investors hereunder and under the Notes, the aggregate amount (if any) actually paid to Investors shall be divided among them pro rata in relation to the original principal amounts of their respective Loans. To the extent the Company gives any payment-related preference to any Investor in violation of this Section 2.1(c), such Investor shall, upon being made aware of such payment preference, forward the applicable portion of such payment to each other Investor to correct such violation by the Company. In such event, the records of the Company and Investors shall be adjusted to reflect such redistributed payments.

(d) The occurrence of any Event of Default under the Notes shall constitute an “Event of Default” under this Agreement. Upon the occurrence of an Event of Default, each Investor may, at its option, accelerate and make immediately payable all sums of principal and interest outstanding and unpaid under its Loan, without demand, presentment or notice, all of which are hereby expressly waived by the Company.

(e) Upon the occurrence and during the continuation of an Event of Default, each Investor may, at its sole election, without notice of such election and without demand, exercise any one or more of the rights or remedies available to Investors at law or in equity.

(f) Optional Conversion.

	(i)	Subject to Section 2.1(h) below, at the option of each holder of a Note issued prior to the date of this Agreement such Note may be converted at any time into fully-paid and non-assessable shares of Common Stock at the rate of $0.40 per share (as appropriately adjusted for any stock split, stock dividends, recapitalizations and the like).
	(ii)	Subject to Section 2.1(h) below, at the option of each holder of a Note that was issued on or after the date of this Agreement such Notes may be converted at any time into fully-paid and non- assessable shares of Common Stock at the rate of $0.20 per share (as appropriately adjusted for any stock split, stock dividends, recapitalizations and the like).
	(iii)	The Common Stock to be issued in Section 2.1(f)(i) and (ii) above are called “Optional Conversion Securities” herein. It is agreed and understood that, as a condition to receiving the Optional Conversion Securities, such converting Investor must deliver to the Company the original Note being converted, which will be marked “canceled” by the Company.

(g) Automatic Conversion. Upon the closing of the Permanent Financing (the“Permanent Financing Closing”), each Note holder will be given written notice thereof (the “Closing Notice”), and effective as of the date of the Permanent Financing Closing, all of the principal balance of, and accrued but unpaid interest on, such Investor’s Note will automatically and without any action on the part of Investor convert on the books of the Company into securities offered in the Permanent Financing at lessor of (i) the price at which such securities are sold in the Permanent Financing or (ii) the applicable conversion price set forth in Section 2.1(f)(i) or (ii) above (the “Automatic Conversion Securities”); it being agreed and understood that, as a condition to receiving the Automatic Conversion Securities in the Permanent Financing, such converting Investor must deliver to the Company the original Note being converted, which will be marked “canceled” by the Company.

(h) Notwithstanding anything to the contrary set forth herein, including Sections 2.1(f) and (g) above, no Note shall be converted into shares of Common Stock until the date upon which the Company’s amendment to its Certificate of Incorporation increasing the authorized shares of Common Stock to at least 75 million shares becomes effective with the Secretary of State of the State of Delaware.

2.2 Warrants.

(a) The Company formerly issued to each Investor who was issued a Note before the date hereof a warrant to purchase one share (as appropriately adjusted for any stock split, stock dividends, recapitalizations and the like) of Common Stock at a price of $0.02 per share for each two dollars of principal amount of Notes purchased by such Investor.

(b) The Company hereby agrees to issue to each Investor who purchases a Note on or after the date hereof a warrant to purchase one share (as appropriately adjusted for any stock split, stock dividends, recapitalizations and the like) of Common Stock at a price of $0.02 per share for each one dollar of principal amount of Notes purchased by such Investor

(c) The warrants issued in 2.2(a) and (b) above, are or will be in substantially the form of Exhibit D attached hereto (the “Warrants”). The Common Stock underlying the Warrants is referred to herein as the “Underlying Warrant Securities”.

2.3 Closing.

(a) The Parties held an initial closing hereunder (the “Initial Closing”) on

May 1, 2013 (the “Initial Closing Date”).

(b) The Company held and may hold additional closings after the Initial Closing; provided, however, that no additional closings may be held after the earlier to occur of the Permanent Financing or December 31, 2014. Any such additional closings are each hereinafter referred to as an “Additional Closing” and shall occur on one or more dates each hereinafter referred to as an “Additional Closing Date”. Each Loan made pursuant to an Additional Closing, and the rights and obligations of each Investor making a Loan to the Company at such Additional Closing, shall be subject to the terms and conditions set forth herein. Each Investor at each Additional Closing shall join in this Agreement by executing a counterpart signature page hereto and Exhibit B shall be amended accordingly. The Initial Closing and each Additional Closing are each sometimes hereinafter referred to as a “Closing,” and the Initial Closing Date and each Additional Closing Date are each sometimes hereinafter referred to as a “Closing Date”.

2.4 Investment by Entities Controlled by Charles R. Mollo. The Company and Investors acknowledge the Company’s former accounts payable to TM-07 Investments (approximately $1,017,664.53 as of May 1, 2013) was converted into a Note at the Initial Closing. As part of one or more Additional Closings on or after the date of this Agreement, (a) Company accounts payable in the amount of $ 1,207,405.46 (as of February 17, 2014) to TM-07 will also be converted into a Note and (b) Company loans payable to CRM 008 Trust, Charles R. Mollo Revocable Trust, and TM 07 Investments, LLC in the aggregate amount of $356,047.93 (which includes principal and interest as of Feb 17, 2014) will be converted into a Note. Investors acknowledge TM-07 Investments and CRM 008 Trust are owned or controlled by Charles R. Mollo, the Chief Executive Officer and a director of the Company, and his wife Janice L. Mollo.

ARTICLE 3

SECURITY AND SUBORDINATION

3.1 Grant of Security Interest. Subject to Section 3.2 below, in order to secure the Company’s prompt repayment of the Notes, the Company hereby grants to Investors, jointly, a continuing security interest in all presently existing and hereafter acquired or arising Collateral.

3.2 Subordination. Notwithstanding any other provision of this Agreement or the Notes, Investors acknowledge and agree that (i) Investors’ rights hereunder and under the Notes shall be subordinate to, and subject at all times to, the rights of the holder(s) of any Senior Indebtedness. Investors shall execute and deliver such subordination, inter-creditor or other agreements, in form and substance reasonably acceptable to the holder(s) of any Senior Indebtedness, as those holder(s) may reasonably require to evidence the subordination of the Loans and Investors’ rights hereunder and under the Notes.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth on the Schedule of Exceptions in Exhibit E, the Company hereby represents and warrants to each Investor as follows:

4.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the requisite corporate power and authority to own and operate its properties and assets, to carry on its business as proposed to be conducted, to execute and deliver this Agreement, the Notes and the Warrants (collectively, the “Transaction Agreements”) and to perform its obligations pursuant to the Transaction Agreements. The Company is presently qualified to do business as a foreign corporation in each jurisdiction where the failure to be so qualified could reasonably be expected to have a material adverse effect on the Company’s financial condition or business as now proposed to be conducted (a “Material Adverse Effect”).

4.2 Subsidiaries. The Company does not currently own or control, directly or indirectly, any interest in any other corporation, partnership, trust, joint venture, limited liability company, association, or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement.

4.3 Capitalization. Immediately prior to the Initial Closing, the authorized capital stock of the Company will consist of 40,000,000 shares of common stock, par value $0.001 per share (the “Common Stock”), and 10,000,000 shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”)

4.4 Public Reporting Company. The Company is a reporting company under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is current on all of its reporting requirements under the Exchange Act. The Common Stock is listed for trading on the OTCQB.

4.5 Authorization. All corporate action on the part of the Company and its managers, officers and members necessary for the Company’s obligations under the Transaction Agreements has been taken or will be taken prior to the Closing. The Transaction Agreements, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company, enforceable in accordance with their terms, except (i) as limited by laws of general application relating to bankruptcy, insolvency and the relief of debtors, (ii) as limited by rules of law governing specific performance, injunctive relief or other equitable remedies and by general principles of equity, and (iii) to the extent the indemnification provisions may further be limited by applicable laws and principles of public policy.

4.6 Financial Statements. The Company’s audited financial statements, for the fiscal year ended June 30, 2013 and the Company’s unaudited financial statements for the quarter ended September 30, 2013 are available at www.sec.gov (collectively, the “Financial Statements”). The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated, except that the unaudited Financial Statements may not contain all footnotes required by generally accepted accounting principles. The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein. Except as set forth in the Financial Statements, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to September 30, 2013, (ii) obligations under contracts and commitments incurred in the ordinary course of business and (iii) liabilities and obligations of a type or nature not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in all such cases, individually and in the aggregate would not have a Material Adverse Effect. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles.

4.7 Changes. Since September, 2013, there has not been:

(a) any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not resulted, in the aggregate, have a Material Adverse Effect;

(b) any damage, destruction or loss, whether or not covered by insurance, that would have a Material Adverse Effect;

(d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and the satisfaction or discharge of which would not have a Material Adverse Effect;

(e) any material change to a material contract or agreement by which the

Company or any of its assets is bound or subject;

(f) any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder;

(g) any resignation or termination of employment of any officer of the Company;

(h) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and do not materially impair the Company’s ownership or use of such property or assets;

(i) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any immediate family members thereof, other than travel advances and other advances made in the ordinary course of its business;

(j) any declaration, setting aside or payment or other distribution in respect of any of the Company’s capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company;

(k) any sale, assignment or transfer of any Company Intellectual Property that could reasonably be expected to have a Material Adverse Effect;

(l) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company;

(m) to the Company’s knowledge, any other event or condition of any character that could reasonably be expected to have a Material Adverse Effect; or

(n) any arrangement or commitment by the Company to do any of the things described in this Section 3.7.

4.8 Liabilities. Other than pursuant to this Agreement or as disclosed in the Company’s SEC Filings, the Company has no: (i) indebtedness for borrowed money or other obligations or liabilities that the Company has directly or indirectly created, incurred, assumed, or guaranteed, or with respect to which the Company has otherwise become directly or indirectly liable; (ii) material liability or obligation, absolute or contingent, except, in either case (i) as set forth in the Financial Statements; (iii liabilities incurred in the ordinary course of business subsequent to September 30, 2013, (iv) obligations under contracts and commitments incurred in the ordinary course of business or (v) liabilities and obligations of a type or nature not required under generally accepted accounting principles to be reflected in the Financial Statements.

4.9 Material Contracts.

(a) Except for the agreements explicitly contemplated hereby or as disclosed in the Schedule of Exemptions, there are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is or will be a party, or by which it is or will be or otherwise, bound which may involve (i) obligations of, or payments to, the Company in excess of $50,000 (other than obligations of, or payments to, the Company arising from purchase or sale agreements entered into in the ordinary course of business), or (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company, or (iii) the grant of rights to manufacture, produce, assemble, license, market

or sell the Company’s products or affect the Company’s exclusive right to develop, manufacture, assemble, distribute, market or sell its products. All of the material contracts identified on the Schedule of Exceptions (each a “Material Contract”, and collectively the “Material Contracts”) are valid, binding and in full force and effect in all material respects, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies and to general principles of equity. To the Company’s knowledge, there is no other party to the Material Contracts in material default under any of such Material Contracts.

(b) The Company has not entered into any letter of intent, memorandum of understanding or other similar document (i) with any representative of any corporation or corporations regarding the merger of the Company with or into any such corporation or corporations, (ii) with any representative of any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company would be disposed of, or (iii) regarding any other form of liquidation, dissolution or winding up of the Company.

(c) For the purposes of subsection (a) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections.

4.10 Intellectual Property. Except as disclosed in the Schedule of Exceptions:

(a) The Company owns or possesses sufficient legal rights to the Intellectual Property necessary to the business of the Company as planned to be conducted, the lack of which could reasonably be expected to have a Material Adverse Effect, without any conflict with or infringement of the rights of others. Except for agreements with its consultants, standard end- user license agreements, support/maintenance agreements and agreements entered in the ordinary course of the Company’s business, there are no outstanding options, licenses or agreements relating to the Intellectual Property, and the Company is not bound by or a party to any options, licenses or agreements with respect to the Intellectual Property of any other person or entity. The Company has not received any written communication alleging that the Company has violated or, by conducting the Company’s business as planned to be conducted, would violate any of the Intellectual Property of any other person or entity. Except as set forth in the Schedule of Exceptions, the Company is not obligated to make any payments by way of royalties, fees or otherwise to any owner or licensor of or claimant to any Intellectual Property with respect to the use thereof in connection with the conduct of its business as conducted by or proposed to be conducted by the Company. There are no agreements, understandings, instruments, contracts, judgments, orders or decrees to which the Company is a party or by which the Company is bound which involve indemnification by the Company with respect to infringements of the Intellectual Property.

(b) The Company is not aware that any of its non-employee consultants is obligated under any contract or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with the use of his or her efforts to promote the interests of the Company or that would conflict with the Company’s business as conducted or contemplated under the Agreements. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company’s business by non-employee consultants, nor the conduct of the Company’s business as conducted or contemplated under the Transaction Agreements, will, to the Company’s knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such non-employee consultants is now obligated.

4.11 Proprietary Information and Invention Assignment.

(a) Each consultant to the Company that has had access to the Intellectual Property has entered into an agreement containing appropriate confidentiality and invention assignment provisions.

(b) To the Company’s knowledge no officer or consultant of the Company is in violation of such confidential information and invention assignment agreement or any prior employee contract or proprietary information agreement with any other corporation or third party.

4.12 Title to Properties and Assets; Liens. The Company has good and marketable title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no material mortgage, pledge, lien, lease, encumbrance or charge, other than (i) liens for current taxes not yet due and payable, (ii) liens imposed by law and incurred in the ordinary course of business for obligations not past due, (iii) liens in respect of pledges or deposits under workers’ compensation laws or similar legislation, and (iv) liens, encumbrances and defects in title which do not in any case materially detract from the value of the property subject thereto or have a Material Adverse Effect, and which have not arisen otherwise than in the ordinary course of business. With respect to the property and assets it leases, the Company is in compliance with such leases in all material respects and holds a valid leasehold interest free of any liens, claims or encumbrances, subject to clauses (i)-(iv) above.

4.13 Compliance with Other Instruments.

(a) The Company is not in violation of any material term of its By-Laws or, to the Company’s knowledge, in any material respect of any term or provision of any mortgage, indebtedness, indenture, contract, agreement, instrument, judgment, order or decree to which it is party or by which it is bound which would have a Material Adverse Effect. The Company is not in violation of any federal or state statute, rule or regulation applicable to the Company the violation of which would have a Material Adverse Effect. The execution and delivery of the Transaction Agreements by the Company or the performance by the Company of its obligations pursuant to the Transaction Agreements will not result in any material violation of, or materially conflict with, or constitute a material default under, any of its agreements, nor to the Company’s knowledge, result in the creation of any material mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties other than as created under this Agreement.

(b) The Company is not in default under any Material Contract.

4.14 Litigation. There are no actions, suits, proceedings or investigations pending against the Company or their properties (nor has any such party received notice of any threat thereof) before any court or governmental agency. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit or proceeding initiated by the Company currently pending or which the Company currently intends to initiate.

4.15 Governmental Consent. No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of the Transaction Agreements or the consummation of any other transaction contemplated by the Transaction Agreements, except (i) the filing of such notices as may be required under the Securities Act of 1933, as amended (the “Securities Act”) and (ii) such filings as may be required under applicable state securities laws, which will be timely filed within the applicable periods therefor.

4.16 Permits. The Company has all franchises, permits, licenses, and intellectual property and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would have a Material Adverse Effect, and believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as presently planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.

4.17 Offering. Subject to the accuracy of the Investors’ representations and warranties in Section 5 below, the offer, sale and issuance of the Notes, Warrants, Underlying Warrant Securities, Optional Conversion Securities and Automatic Conversion Securities (and any shares that may be issuable upon conversion thereof (the “Underlying Conversion Shares”)) to be issued in conformity with the terms of this Agreement, constitute transactions exempt from the registration requirements of Section 5 of the Securities Act and from the registration or qualification requirements of applicable state securities laws, and the Company does not have any authorized agent acting on its behalf that will take any action hereafter that would cause the loss of such exemption.

4.18 Registration and Voting Rights. The Company is presently not under any obligation and has not granted any rights to register under the Securities Act any of its presently outstanding securities or any of its securities that may hereafter be issued. To the Company’s knowledge no shareholder of the Company has entered into any agreements with respect to the voting of membership interests of the Company.

4.19 Tax Returns and Payments. The Company has filed in a timely manner all tax returns required to be filed by it with appropriate federal, state and local governmental agencies, except where the failure to do so would not have a Material Adverse Effect on the Company. Such returns and reports are true and correct in all material respects. All taxes shown to be due and payable on such returns, any assessments imposed, and, to Company’s knowledge, all other taxes due and payable by on or before the Closing have been paid or will be paid prior to the time they become delinquent. The Company has not been advised in writing (i) that any of its returns have been or are being audited as of the date hereof, or (ii) of any deficiency in assessment or proposed judgment with respect to its federal, state or local taxes.

4.20 Employees; Non-Employee Consultants. The Company does not have any employees.

4.21 Obligations to Related Parties. Except as disclosed in the Schedule of Exceptions:

The Company is not indebted (nor committed to make loans or extend or guarantee credit) to any non-employee consultant or any immediate family member thereof, other than (i) for payment for services rendered and (ii) reimbursement for reasonable expenses incurred on behalf of the Company. To the Company’s knowledge, no senior non- management consultant of the Company or immediate family member of its officers has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except in connection with the ownership of stock in publicly-traded companies. To the Company’s knowledge, no non-employee consultant or any immediate family member thereof, is, directly or indirectly, interested in a Material Contract, or in any other material contract which may be assumed by the Company or to which the Company may succeed.

4.22 Disclosure. The Company has provided Investors with all the information regarding the Company requested without undue expense that the Investors have requested for deciding whether to purchase the Notes, the Warrants, the Optional Conversion Securities, Automatic Conversion Securities, the Underlying Conversion Securities or Underlying Warrant Securities.

4.23 Obligations of Management. Except as set forth in the Schedule of Exceptions, each officer of the Company is currently devoting substantially all of his or her business time to the conduct of the business of the Company. The Company is not aware that any officer of the Company is planning to work less than full time at the Company in the future. No officer is currently working or, to the Company’s knowledge, plans to work for a competitive enterprise, whether or not such officer is or will be compensated by such enterprise.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

Each Investor, severally, and not jointly, represents and warrants to the Company that, as of the date of the Closing at which such Investor is making a Loan:

5.1 No Registration. Such Investor understands that the issuance of the Notes, the Warrants, the Automatic Conversion Securities, the Optional Conversion Securities, the Underlying Conversion Securities and the Underlying Warrant Securities, will not be registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of such Investor’s representations as expressed herein or otherwise made pursuant hereto.

5.2 Investment Intent. Upon the automatic or optional conversion of the Notes and exercise of the Warrants, such Investor will be acquiring the Automatic Conversion Securities, Optional Conversion Securities, Underlying Conversion Securities and Underlying Warrant Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. Such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. Such Investor further represents that it does not have any contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or grant participation to such person or entity or to any third person or entity with respect to any of the Notes, the Warrant, Automatic Conversion Securities, Optional Conversion Securities, Underlying Conversion Securities or Underlying Warrant Securities.

5.3 Investment Experience. Such Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company and acknowledges that such Investor can protect its own interests. Such Investor has sufficient knowledge and experience in financial and business matters such that it is capable of evaluating the merits and risks of its investment in the Company.

5.4 Speculative Nature of Investment. Such Investor understands and acknowledges that the Company has a limited financial and operating history and that an investment in the Company is highly speculative and involves substantial risks. Such Investor can bear the economic risk of such Investor’s investment and is able, without impairing its financial condition, to suffer a complete loss of the Investor’s investment in the Company.

5.5 Access to Data. Such Investor has had an opportunity to ask questions of, and receive answers from, the officers of the Company concerning the Transaction Agreements, the exhibits and schedules attached hereto and thereto and the transactions contemplated by the Transaction Agreements, as well as the Company’s business, management and financial affairs, and any questions that may have been asked were answered to the Investor’s satisfaction. Such Investor understands that all representations and warranties set forth in this Agreement, including in Article 4, are qualified in their entirety by the information contained in the reports filed by the Company under the Exchange Act. Such Investor believes that it has received all the information it considers necessary or appropriate for deciding whether to purchase the Note, the Warrant, the Automatic Conversion Securities, Optional Conversion Securities, Underlying Conversion Securities and the Underlying Warrant Securities. Such Investor acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or other such documents are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.

5.6 Accredited Investor. Such Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission under the Securities Act and shall submit to the Company such further assurances of such status as may be reasonably requested by the Company.

5.7 Residency. The state of formation, and principal place of business, of such Investor is as provided on such Investor’s Signature Page to this Agreement.

5.8 Authorization.

(a) Such Investor has all requisite power and authority to execute and deliver the Transaction Agreements, to purchase the Note, the Warrant, the Automatic Conversion Securities, the Optional Conversion Securities, the Underlying Conversion Securities and the Underlying Warrant Securities and to carry out and perform its obligations under the terms of the Transaction Agreements. All action on the part of such Investor necessary for the authorization, execution, delivery and performance of the Transaction Agreements, and the performance of all of such Investor’s obligations under the Transaction Agreements, has been taken or will be taken prior to the Closing.

(b) The Transaction Agreements, when executed and delivered by such Investor, will constitute valid and legally binding obligations of such Investor, enforceable in accordance with their terms except: (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies or by general principles of equity.

(c) No consent, approval, authorization, order, filing, registration or qualification of or with any court, governmental authority or third person is required to be obtained by such Investor in connection with the execution and delivery of the Transaction Agreements by the Investor or the performance of such Investor’s obligations hereunder or thereunder.

5.9 Brokers or Finders. Such Investor has not engaged any brokers, finders or agents, and neither the Company nor the Investor has, nor will, incur, directly or indirectly, as a result of any action taken by such Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Transaction Agreements.

5.10 Tax Advisors. Such Investor has reviewed with its own tax advisors the U.S. federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Transaction Agreements. With respect to such matters, such Investor relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. Such Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Transaction Agreements.

5.11 Legends. Such Investor understands and agrees that the certificates evidencing the Conversion Securities, Underlying Conversion Securities or Underlying Warrant Securities, or any other securities issued in respect of the foregoing upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall bear the following legend (in addition to any legend required by any registration rights agreement or under applicable state securities laws):

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND/OR APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSELOR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”

5.12 No Investor nor the respective controlling persons, officers, directors, partners, agents, or employees of any Investor shall be liable to any other Investor for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the execution of the Transaction Documents and the purchase of the Notes.

ARTICLE 6

CLOSING CONDITIONS

6.1 Conditions of Investors. The obligations of Investors to make the Loans are subject to the fulfillment, to the satisfaction of Investors, of each of the following conditions on or before the Closing Date applicable to each Investor:

(a) The Company shall have executed and delivered to Investors the Transaction Agreements;

(b) The representations and warranties contained in Article 4 shall be true, complete, and correct on and as of such Closing Date;

(c) The Company shall have performed and complied in all material respects with all agreements contained herein required to be performed or complied with by it prior to or at such Closing Date, as appropriate;

(d) All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Notes and Warrants pursuant to this Agreement shall be obtained and effective as of such Closing Date; and

(e) The Transaction Agreements, and the transactions contemplated thereby, shall have been approved by the Board of Directors.

6.2 Conditions of the Company. The obligation of the Company to consummate the transactions contemplated herein is, at the option of the Company, subject to the satisfaction, on or before each Closing Date, of the following conditions:

(a) Each Investor shall have executed and delivered to the Company the Transaction Documents to which such Investor is a party;

(b) The representations and warranties contained in Article 5 above shall be true, complete, and correct on and as of such Closing Date with the same effect as though such representations and warranties had been made on and as of such date;

(c) Each Investor shall have delivered to the Company such Investor’s Principal Amount of Loan as set forth opposite such Investor’s name in Exhibit B attached hereto; and

(d) No action or proceeding before any court or any other governmental agency shall have been instituted or threatened to restrain or prohibit the transactions contemplated herein.

ARTICLE 7

MISCELLANEOUS

7.1 Expenses and Attorney’s Fees. If suit is brought to enforce any provision of this Agreement, the prevailing Party shall be entitled to recover its reasonable attorneys’ fees and court costs in addition to any other remedy or recovery awarded by the court. Furthermore, irrespective of whether the Initial Closing or any Additional Closing is effected, the Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery, and performance of this Agreement.

7.2 Survival. All representations, warranties, and covenants made herein or in any agreement, certificate, or instrument delivered to the Investors pursuant to or in connection with this Agreement shall survive the execution and delivery of the Transaction Documents, the issuance, sale, and delivery of the Notes, and the issuance and delivery of the Warrants for a period of twelve months.

7.3 Parties in Interest. This Agreement shall bind and inure to the benefit of the respective successors and assigns of the Parties whether so expressed or not.

7.4 Notices. All notices, requests, demands, claims and other communications permitted or required to be given hereunder must be in writing and shall be deemed duly given and received (i) if personally delivered, when so delivered, (ii) if mailed, three (3) Business Days after having been sent by registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below, (iii) if sent by electronic facsimile, once transmitted to the fax number specified below and once the appropriate facsimile confirmation is received, provided that a copy of such notice, request, demand, claim or other communication is promptly thereafter sent in accordance with the provisions of clause (i) or (ii) hereof, or (iv) if sent through an overnight delivery service in circumstances to which such service guarantees next day delivery, the day following being so sent:

(a) If to Investors (or any of them), addressed to them at the address set forth on the signature pages hereto.

(b) If to the Company:

Beamz Interactive, Inc.

15354 N. 83rd Way, Suite 101

Scottsdale, Arizona 85260

Attn: Chief Executive Officer

Any Party may give any notice, request, demand, claim or other communication hereunder using any other written means (including ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the individual for whom it is intended. Any Party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered to it by giving each other Party notice in the manner herein set forth.

7.5 Governing Law. THIS AGREEMENT, THE ENTIRE RELATIONSHIP OF THE PARTIES HERETO, AND ANY LITIGATION BETWEEN THE PARTIES (WHETHER GROUNDED IN CONTRACT, TORT, STATUTE, LAW OR EQUITY) SHALL BE INTERPRETED, CONSTRUED, AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA, WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES.

7.6 Venue for Disputes. THE COURTS OF ARIZONA, FEDERAL OR STATE, SHALL HAVE EXCLUSIVE JURISDICTION OF ALL LEGAL ACTIONS ARISING OUT OF THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS. BY EXECUTING THIS AGREEMENT, EACH PARTY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS OF ARIZONA. EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR ALL OF THE PARTIES’ MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE OBLIGATIONS, AND EACH SUCH PARTY HEREBY AGREES THAT ANY SUCH TRIAL OR OTHER PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY.

7.7 Waiver; Remedies Cumulative. The rights and remedies of the Parties hereunder are cumulative and not alternative. Neither any failure nor any delay by any Party in exercising any right, power or privilege under this Agreement shall operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege shall preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (i) no claim or right arising out of this Agreement can be discharged by one Party, in whole or in part, by a waiver or renunciation of the claim or right unless made in writing and signed by each other Party; (ii) no waiver that may be given by a Party shall be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on one Party shall be deemed to be a waiver of any obligation of that Party or of the right of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

7.8 Severability. If any provision of this Agreement, or the application of any such provision to any person, entity or circumstance, is held to be unenforceable or invalid by any court of competent jurisdiction or under any applicable law, the validity and enforceability of the remaining provisions of this Agreement shall not be affected thereby. Without limiting the foregoing, the covenants and obligations contained in this Agreement shall be construed as separate covenants and obligations, covering their respective subject matters. Each breach of a covenant or obligation set forth in this Agreement shall give rise to a separate and independent cause of action.

7.9 Entire Agreement; Modification. This Agreement and the other Transaction Agreements collectively constitute the entire and final agreement among the Parties with respect to the subject matter hereof, and supersede and replace all prior agreements, understandings, commitments, communications and representations made between the Parties, whether written or oral, with respect to the subject matter hereof. This Agreement may not be amended, supplemented, or otherwise modified except by a written agreement executed by the Company and Investors owning a majority of the then outstanding principal amount of the Notes.

7.10 No Assignment; Successors and Assigns; No Third-Party Rights. No Party may assign any or all of his/its rights under this Agreement to any Person without the prior written consent of the other Parties. Any attempted assignment or assumption without such written consent shall be null and void and without legal effect. Subject to the foregoing, this Agreement shall apply to, be binding in all respects upon and inure to the benefit of the heirs, executors, personal representatives, successors and assigns of the Parties. Nothing expressed or referred to in this Agreement shall be construed to give any Person other than the Parties any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement.

7.11 Execution of Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original copy and all of which, when taken together, shall be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Agreement as to the Parties and may be used in lieu of the original Agreement for all purposes. Signatures of the Parties transmitted by facsimile shall be deemed to be their original signatures for all purposes.

IN WITNESS WHEREOF, the Parties have executed this Agreement on the date first written above.

BEAMZ INTERACTIVE, INC.

By: ______________________________

Joan Brubacher, President

INVESTORS:

[See attached signature pages]

SIGNATURE PAGE OF INVESTOR TO

AMENDED AND RESTATED 2013 CONVERTIBLE DEBT AND SECURITY

AGREEMENT

Reference is hereby made to that certain Amended and Restated 2013 Convertible Debt and Security Agreement, dated as of January 22, 2014, (the “Agreement”), by and among Beamz Interactive, Inc., a Delaware corporation (the “Company”), and certain persons and entities who are executing the Agreement as Investors. Each capitalized term used herein but not expressly defined shall have the meaning given to such term in the Agreement.

The undersigned accepts, joins in and agrees to be bound by, and subject to, the Agreement as an “Investor”. The undersigned authorizes the Company to attach to the Agreement a copy of this Signature Page to Agreement to evidence the foregoing agreement of the undersigned.

Executed as of ________________, 2014.

	If undersigned is an entity:

	_____________________________________________________
	(Print Name of Entity)


	By: __________________________________________________
	Printed: _______________________________________________
	Title: _________________________________________________


	Principal Business Address:

	_____________________________________________________
	_____________________________________________________
	_____________________________________________________

	State of Formation: ______________________________________




	If undersigned is an individual:


	By: __________________________________________________
	Printed: _______________________________________________


	Address: ______________________________________________
	______________________________________________

EXHIBIT A

Definitions

“Accounts” means all presently existing and hereafter arising accounts, accounts receivable, contract rights and other forms of monetary obligations and receivables (as such terms are defined in the UCC) owing to the Company, and any credit insurance, guaranties, or security therefor, irrespective of whether earned by performance.

“Affiliate” of any Person means a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the first mentioned Person. A Person shall be deemed to control another Person if such first Person possesses directly or indirectly the power to direct, or cause the direction of, the management and policies of the second Person, whether through the ownership of voting securities, by contract or otherwise.

“Business Day” means a day that is not a Saturday or a Sunday or any other day on which banks in Phoenix, Arizona are required or permitted by applicable law to close.

“Chattel Paper” means all chattel paper (including tangible chattel paper and electronic chattel paper, as such terms are defined in the UCC).

“Collateral” means all of the Company’s right, title, and interest in and to all property or assets of the Company now existing or hereafter acquired, including without limitation, the following: (i) the Accounts; (ii) the Company’s books and records (including electronic records) (“Books”); (iii) the Deposit Accounts; (iv) the Equipment; (v) the General Intangibles and all Patents; (vi) the Inventory; (vii) the Investment Property; (viii) the Negotiable Collateral; (ix) commercial tort claims, documents (including negotiable and non-negotiable documents of title); (x) cash and equivalents, whether on hand or in any Deposit Account or other financial institution; and (xi) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the Collateral, and any and all Accounts, the Company’s Books, Deposit Accounts, Equipment, General Intangibles, Inventory, Negotiable Collateral, money, deposit accounts, or other tangible or intangible property received or receivable from the sale, exchange, collection, lease, license, use or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof.

“Deposit Account” means any demand, time, savings, passbook or similar account now or hereafter maintained by or for the benefit of the Company with an organization that is engaged in the business of banking including a bank, savings bank, savings and loan association, credit union and trust companies, and all funds and amounts therein, whether or not restricted or designated for a particular purpose.

“Equipment” means all of the Company’s machinery, machine tools, apparatus, motors, equipment, fittings, furniture, furnishings, fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods (including software imbedded in such goods) and other tangible personal property (other than Inventory) of every kind and description used in the Company’s operations or owned by the Company or in which the Company has an interest, whether now owned or hereafter acquired by the Company and wherever located, and all parts, accessories, and special tools, and all increases and accessions thereto and substitutions and replacements therefor.

A - 1

“General Intangibles” means all of the Company’s present and future general intangibles and other personal property (including payment intangibles, electronic Chattel Paper, contract rights, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, Intellectual Property, blueprints, drawings, plans, diagrams, schematics, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, software, information contained on computer disks or tapes, literature, reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), other than goods, Accounts, and Negotiable Collateral.

“Intellectual Property” means patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses (software or otherwise), information, processes and similar proprietary rights.

“Inventory” means all of the Company’s goods (including software imbedded in such goods), merchandise and other personal property which are held for sale or lease, including those held for display or demonstration or out on lease or consignment or to be furnished under a contract of service or are raw materials, work in process or materials used or consumed, or to be used or consumed in the Company’s business, and shall include any returns or repossessions thereof and all property rights, Intellectual Property, plans, drawings, diagrams, schematics, assembly and display materials relating thereto.

“Negotiable Collateral” means all of the Company’s present and future letters of credit, advises of credit, certificates of deposit, notes, drafts, money, instruments, documents, and tangible Chattel Paper.

“Investment Property” means any and all of the Company’s presently existing and hereafter acquired investment property (as defined in the UCC).

“Permanent Financing” means the receipt by the Company of an aggregate of

$2,000,000 or more through one or more equity investments or convertible investments in the Company that is consummated simultaneously with, or after the date of, this Agreement. Such equity investment can be in the form of Common Stock, preferred stock of the Company or convertible debt or a combination of the foregoing.

“Person” means any individual, corporation, limited liability company, partnership (general or limited), syndicate, joint venture, society, association, trust, unincorporated organization or Governmental Authority, or any trustee, executor, administrator or other legal representative thereof.

“Securities Act” shall mean the Securities Act of 1933, as amended.

“Senior Indebtedness” means indebtedness incurred from a lending institution or another similar entity or individual for the purpose of funding working capital, and certain preference payments, including to Affiliates of the Company, upon a Company sale event as disclosed on the Company’s Financial Statements.

A - 2

“UCC” means the Arizona Uniform Commercial UCC, as amended or supplemented from time to time. Any and all terms used in the Agreement which are defined in the UCC shall be construed and defined in accordance with the meaning and definition ascribed to such terms under the UCC, unless otherwise defined herein.

A - 3

EXHIBIT B

Investors and Loan Amounts

Investor	Date	Amount		Warrants For Common Shares

BCG Partnership, Ltd.	5/1/2013	$	50,000.00		25,000
New Vistas Investments Corporation	5/1/2013	$	300,000.00		150,000
TM 07 Investments, LLC	5/1/2013	$	1,017,664.53		508,832
CRM 008 Trust	5/24/2013	$	100,000.00		50,000
CRM 008 Trust	5/29/2013	$	150,000.00		75,000
CRM 008 Trust	6/17/2013	$	100,000.00		50,000
CRM 008 Trust	6/27/2013	$	150,000.00		75,000
TM 07 Investments, LLC	6/28/2013	$	217,190.70		108,595
D3M Licensing Group, LLC	7/28/2013	$	110,000.00		55,000
New Vistas Investments Corporation	8/1/2013	$	300,000.00		150,000
TM 07 Investments, LLC	9/10/2013	$	300,000.00		150,000
CRM 008 Trust	10/15/2013	$	60,000.00		30,000
D3M Licensing Group, LLC	10/22/2013	$	50,000.00		25,000
CRM Revocable Trust	11/15/2013	$	100,000.00		50,000
CRM Revocable Trust	11/15/2013	$	100,000.00		50,000
Joan W Brubacher	11/25/2013	$	50,000.00		25,000

TOTAL		$	3,154,855.23		1,577,428

B - 1

EXHIBIT C

Form of Bridge Promissory Note

[See attached document]

C - 1

EXHIBIT D

Form of Warrant

[See attached document]

D - 1

EXHIBIT E

Schedule of Exceptions

[see attached]

E - 1

Exhibit 10.12

THIS BRIDGE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT, AND ANY APPLICABLE STATE SECURITIES LAW REQUIREMENTS HAVE BEEN MET OR (II) EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT AND THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF APPLICABLE STATE SECURITIES LAWS ARE AVAILABLE.

$________

BEAMZ INTERACTIVE, INC.

CONVERTIBLE SECURED SUBORDINATED PROMISSORY NOTE

_______, 2014

Beamz Interactive, Inc. a Delaware corporation (the “Company”), the principal office of which is located at 15334 N. 83rd Way, Suite 102, Scottsdale, Arizona 85260, for value received hereby promises to pay to _________________ or its registered assigns (“Holder”), the sum of _________________ Dollars ($_________.00), or such lesser amount as shall then be outstanding hereunder, together with interest from the date of this Convertible Secured Subordinated Promissory Note (this “Note”) on the unpaid principal balance at a rate equal to 10.00% per annum, computed on the basis of the actual number of days elapsed and a year of 365 days (the “Initial Interest Rate”); provided, however, in the event that the principal amount of this Note is not paid in full when such amount becomes due and payable hereunder, the interest on this Note shall accrue at the rate equal to the lesser of (a) the Initial Interest Rate plus five percent (5.0%) or (b) the highest rate then permitted by law until such balance is paid in full. This Note is one in a series of Notes (collectively, the “Notes”) issued by the Company pursuant to that certain Amended and Restated 2013 Convertible Debt and Security Agreement, dated as of January 22, 2014, by and among the Company, Holder and certain other persons (the “Purchase Agreement”). The Company and Holder are sometimes each referred to herein as a “Party” and collectively, as the “Parties”.

The following is a statement of the rights of the Holder of this Note and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees:

1. Payments.

(a) All unpaid principal, together with any then unpaid and accrued interest, shall be due and payable on the earlier of (i) December 31, 2015 (the “Maturity Date”), (ii) upon the closing of at least an aggregate of $2 million of subscriptions under the Permanent Financing (as defined in the Purchase Agreement); or (iii) when, upon the occurrence and during the continuance of an Event of Default (as defined below), such amounts are declared due and payable by Holder or made automatically due and payable, in each case, in accordance with the terms hereof. Payment for all amounts due hereunder shall be made by mail to the registered address of Holder. (b) The Company may prepay this Note in whole or in part, provided that (i) any prepayment of this Note may only be made in connection with the prepayment of all Notes on a pro rata basis, based on the respective aggregate outstanding principal amounts of each such Note and (ii) any such prepayment will be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note.

2. Security Interest and Subordination. This Note is secured by a security interest and subordinated to Senior Indebtedness as described in Article 3 of the Purchase Agreement.

3. Optional Conversion. The principal balance of and accrued, but unpaid interest on, this Note may be converted at the option of Holder as described in Section 2.1(f) of the Purchase Agreement

4. Automatic Conversion. The principal balance of and accrued, but unpaid interest on, this Note shall be automatically converted on the date of the Permanent Financing Closing as described in Section 2.1(g) of the Purchase Agreement.

5. Events of Default. The occurrence of any of the following shall constitute an “Event of Default” under this Note and the other Transaction Agreements:

(i) failure by the Company to make any payment under this Note of the principal or unpaid accrued interest of this Note when due and payable if such failure is not cured by the Company within ten (10) days after Holder has given the Company written notice of such default; or

(ii) failure of the Company to perform any other covenant contained herein or in any other Transaction Agreement (as defined in the Purchase Agreement), if the same has continued for thirty (30) days after written notice specifying such failure has been delivered to the Company by Holder; or

(iii) any representation, warranty, certificate, or other statement (financial or otherwise) made or furnished by or on behalf of the Company to Holder in writing in connection with this Note or any of the other Transaction Agreements, or as an inducement to Investor to enter into this Note and the other Transaction Agreements, shall be false, incorrect, incomplete or misleading in any material respect when made or furnished; or

(iv) an Event of Default occurs on any of the other Notes and such default is not cured within any applicable cure period in such Note; or

(v) the institution by the Company of proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings against it or the filing by it of a petition or answer or consent seeking reorganization or release under the federal Bankruptcy Act, or any other applicable federal or state law, or the consent by it to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee, or other similar official of the Company, or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the taking of corporate action by the Company in furtherance of any such action; or

(vi) if, within sixty (60) days after the commencement of an action against the Company (and service of process in connection therewith on the Company) seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution, or similar relief under any present or future statute, law, or regulation, such action shall not have been resolved in favor of the Company or all orders or proceedings thereunder affecting the operations or the business of the Company stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or if, within sixty (60) days after the appointment without the consent or acquiescence of the Company of any trustee, receiver, or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated.

Upon the occurrence of any Event of Default, and at any time thereafter during the continuance of such Event of Default, Holder may, by written notice to the Company, declare all outstanding obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Agreements to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence and during the continuance of any Event of Default, Holder may exercise any other right power or remedy granted to it by the Transaction Agreements or otherwise permitted to it by law, either by suit in equity or by action at law, or both.

6. Assignment. The rights and obligations of the Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators, and transferees of each of the Parties; provided, however, that neither the Holder nor the Company may assign any of its rights or obligations hereunder without the prior written consent of the other party.

7. Waiver and Amendment. Any provision of this Note may be amended, waived, or modified upon the written consent of the Company and Holder.

8. Pari Passu Notes. Holder acknowledges and agrees that the payment of all or any portion of the outstanding principal amount of this Note and all interest hereon shall be pari passu in right of payment and in all other respects to the other Notes. In the event Holder receives payments in excess of its pro rata share of the Company’s payments to the holders of all of the Notes, then Holder shall hold in trust all such excess payments for the benefit of the holders of the other Notes and shall pay such amounts held in trust to such other holders upon demand by such holders.

9. Usury. It is the intent of the Company and Holder to conform to and contract in strict compliance with applicable usury law from time to time in effect. In no way, nor in any event or contingency (including but not limited to prepayment, default, demand for payment, or acceleration of the maturity of any obligation), shall the rate of interest taken, reserved, contracted for, charged or received under this Note exceed the highest lawful interest rate permitted under applicable law. If Holder shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the highest lawful interest rate permitted under applicable law, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on this Note and not to the payment of interest, or refunded to the Company or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal. All interest paid or agreed to be paid to Holder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of this Note so that the amount of interest on account of such obligation does not exceed the maximum permitted by applicable law. As used in this Section, the term “applicable law” shall mean the laws of the State of Arizona or the federal laws of the United States, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.

10. Waivers. The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument. No delay or omission on the part of the holder of this Note in the exercise of any power, remedy or right under this Note, or under any other instrument executed pursuant hereto, shall operate as a waiver thereof, nor shall a single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other right or power hereunder.

11. Attorneys’ Fees and Costs. In the event an Event of Default and if this Note is thereafter placed in the hands of an attorney for collection, or in the event this Note is collected in whole or in part through legal proceedings of any nature after the occurrence of an Event of Default, then and in any such case the Company promises to pay all reasonable costs of collection, including, but not limited to, reasonable attorneys’ fees and court costs incurred by the holder hereof on account of such collection, whether or not suit is filed.

12. Severability. In case any one or more of the provisions contained in this Note shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof.

13. Notices. Any notice, request, or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given on the date of service if personally served on the Party to whom such notice is to be given, on the date of transmittal of service via telecopy to the party to whom notice is to be given (with a confirming copy delivered within 24 hours thereafter), or on the third day after mailing if mailed to the Party to whom notice is to be given, by first class mail, registered or certified mail, postage prepaid, or via a recognized overnight courier providing a receipt for delivery and properly addressed at the respective addresses of the Parties as set forth in the Purchase Agreement. Any Party may by notice so given change its address for future notice hereunder.

14. Governing Law. This Note, the entire relationship of the Parties, and any litigation between the Parties (whether grounded in contract, tort, statute, law or equity) shall be interpreted, construed, and enforced in accordance with the laws of the State of Arizona, without regard to its choice of law principles.

15. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except where otherwise indicated, all references herein to Sections refer to Sections hereof.

IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first set forth above.

BEAMZ INTERACTIVE, INC.

By: ____________________________

Charles R. Mollo

Chief Executive Officer

Exhibit 10.13

NEITHER THIS WARRANT NOR THE SHARES (AS DEFINED BELOW) OF THE COMPANY ISSUABLE UPON ITS EXERCISE HAVE BEEN REGISTERED UNDER EITHER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

WARRANT TO PURCHASE SHARES OF COMMON STOCK

BEAMZ INTERACTIVE, INC.

Void after ______, 2017

Warrant No. __________

____, 2014

THIS CERTIFIES THAT, for value received, ___________________, a _____________, or its registered successors or assigns (hereinafter, the “Holder”), is entitled to purchase, subject to the conditions set forth below, at any time or from time to time during the Exercise Period (as defined in subsection 1.1 below), _________________ (_____________) fully-paid and non-assessable shares (the “Shares”) of the common stock, par value $0.001 per share (the “Common Stock”), of Beamz Interactive, Inc., Inc., a Delaware corporation (the “Company”), at an exercise price of $0.02 per share, subject to adjustment as provided in Section 3 below (the “Exercise Price”).

1. EXERCISE OF WARRANT

The terms and conditions upon which this Warrant may be exercised, and the Shares covered hereby may be purchased, are as follows:

1.1 Method Of Exercise. At any time after the date of this Warrant and on or prior to January__, 2017 (the “Exercise Period”), Holder may exercise, in whole or in part, and from time to time, the purchase rights evidenced by this Warrant. Such exercise shall be effected by: (a) the surrender of the Warrant, together with a duly executed copy of the form of Notice of Exercise attached hereto, to the Chief Executive Officer of the Company at the Company’s offices in Scottsdale, Arizona; and (ii) the payment to the Company of an amount equal to the aggregate Exercise Price for the Shares being purchased.

1.2 Issuance Of Shares and New Warrant. Certificates for Shares purchased hereunder shall be delivered by the Company to Holder as soon as possible after delivery by Holder to the Company of the items described in Section 1.1 above; provided, however, if the Company has appointed a transfer agent for the Common Stock, then certificates for Shares shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is a participant in such system, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 trading days from the delivery to the Company of the Notice of Exercise form, surrender of this Warrant and payment of the aggregate Exercise Price as set forth above (“Share Delivery Date’). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such Shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 1.5 below prior to the issuance of such Shares, have been paid.

1.3 Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

1.4 No Fractional Shares or Scrip. No fractional shares or scrip representing fractional Shares shall be issued upon the exercise of this Warrant. As to any fraction of a Share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price.

1.5 Charges. Taxes and Expenses. Issuance of certificates for Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

2. TRANSFERS

2.1 Transferability Subject to compliance with any applicable securities laws and the conditions set forth in Sections 2.4, 5 and 6.1 below, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company, together with the appropriate form of Assignment, as attached hereto, duly executed by the Holder and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Shares without having a new Warrant issued.

2.2 New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 2.1, as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.

2.3 Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

2.4 Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the Holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company, and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act or a qualified institutional buyer as defined in Rule 144A(a) under the Securities Act.

3. ANTIDILUTION PROVISIONS

The provisions of this Section 3 shall apply in the event that any of the events described in this Section 3 shall occur with respect to the Shares at any time on or after the original issuance date of this Warrant:

3.1 Splits and Combinations. If the Company shall at any time subdivide or combine its outstanding shares of Common Stock, this Warrant shall, after that subdivision or combination, evidence the right to purchase the number of shares that would have been issuable as a result of that change with respect to the Shares which were purchasable under this Warrant immediately before that subdivision or combination. If the Company shall at any time subdivide the outstanding shares of Common Stock, the Exercise Price then in effect immediately before that subdivision shall be proportionately decreased, and, if the Company shall at any time combine the outstanding shares, the Exercise Price then in effect immediately before that combination shall be proportionately increased. Any adjustment under this Section shall become effective at the time that such subdivision or combination becomes effective.

3.2 Reclassification, Exchange and Substitution. If the Shares issuable upon exercise of this Warrant shall be changed into the same or a different number of securities of any other class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares provided for above), the Holder of this Warrant shall, on its exercise, be entitled to purchase for the same aggregate consideration, in lieu of the Shares which the Holder would have become entitled to purchase but for such change, the number of securities of such other class or classes of stock equivalent to the number of Shares that would have been subject to purchase by the Holder on exercise of this Warrant immediately before that change.

3.3 Reorganizations, Mergers, Consolidations Or Sale Of Assets. If at any time there shall be a capital reorganization of the shares of Common Stock (other than a combination, reclassification, exchange, or subdivision of shares provided for elsewhere above) then, as a part of such reorganization, lawful provision shall be made so that the Holder of this Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified in this Warrant and upon payment of the Exercise Price then in effect, the number of shares or other securities or property of the Company to which a holder of the Shares deliverable upon exercise of this Warrant would have been entitled in such capital reorganization if this Warrant had been exercised immediately before that capital reorganization. In any such case, appropriate adjustment (as determined in good faith by the Company’s Board of Directors) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder of this Warrant after the reorganization to the end that the provisions of this Warrant (including adjustment of the Exercise Price then in effect and number of Shares purchasable upon exercise of this Warrant) shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of this Warrant.

3.4 Distributions. In the event the Company should at any time prior to the expiration of this Warrant fix a record date for the determination of the holders of shares entitled to receive a distribution payable in additional shares of Common Stock or other securities or rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock (hereinafter referred to as the “Share Equivalents”) without payment of any consideration by such holder for the additional shares (including the additional shares issuable upon conversion or exercise thereof), then, as of such record date (or the date of such distribution, split or subdivision if no record date is fixed), the Exercise Price shall be appropriately decreased and the number of Shares issuable upon exercise of the Warrant shall be appropriately increased in proportion to such increase of outstanding shares.

3.5 Certificate as to Adjustments. In the case of each adjustment or readjustment of the Exercise Price pursuant to this Section 3, the Company will promptly compute such adjustment or readjustment in accordance with the terms hereof and cause a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, to be delivered to the Holder of this Warrant. The Company will, upon the written request at any time of the Holder of this Warrant, furnish or cause to be furnished to such Holder a certificate setting forth: (a) such adjustments and readjustments; (b) the Exercise Price at the time in effect; and (c) the number of Shares issuable upon exercise of the Warrant and the amount, if any, of other property at the time receivable upon the exercise of the Warrant.

3.6 Reservation of Shares Issuable Upon Exercise. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the exercise of this Warrant such number of shares of Common Stock as shall from time to time be sufficient to effect the exercise of this Warrant and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the exercise of this Warrant, in addition to such other remedies as shall be available to the Holder of this Warrant, the Company will use its best efforts to take such action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

4. RIGHTS PRIOR TO EXERCISE OF WARRANT

This Warrant does not entitle the Holder to any of the rights of a shareholder of the Company. If, however, at any time prior to the expiration of this Warrant and prior to its exercise, any of the following events shall occur: (a) the Company shall make any distribution (other than a cash distribution) to the holders of shares of Common Stock; (b) the Company shall offer to all of the holders of shares of Common Stock any additional shares or Share Equivalents or any right to subscribe for or purchase any thereof; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation, merger, sale, transfer or lease of all or substantially all of its property, assets, and business as an entirety) shall be proposed and action by the Company with respect thereto has been approved by the Company’s Board of Directors (each, a “Material Action”), the Company shall give notice in writing of such Material Action to the Holder at its last address as it shall appear on the Company’s records at least twenty (20) days’ prior to the date fixed as a record date or the date of closing the transfer books for the determination of the Members entitled to such dividends, distribution, or subscription rights, or for the determination of Members entitled to vote on the Material Action. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to publish, mail or receive such notice or any defect therein or in the publication or mailing thereof shall not affect the validity of the Material Action.

5. RESTRICTED SECURITIES

The Holder acknowledges that the Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. In order to enable the Company to comply with the Securities Act and applicable state laws, the Company may require the Holder as a condition of the transfer or exercise of this Warrant, to give written assurance satisfactory to the Company that the Warrant, or in the case of an exercise hereof the Shares subject to this Warrant, are being acquired for his or her own account, for investment only, with no view to the distribution of the same, and that any disposition of all or any portion of this Warrant or the Shares issuable upon the due exercise of this Warrant shall not be made, unless made in compliance with the requirements of the Securities Act and applicable securities laws of any State or other jurisdiction. Holder acknowledges that this Warrant is, and each of the Shares issuable upon the due exercise hereof will be, a restricted security, and that the certificates evidencing securities issued to the Holder upon exercise of this Warrant will bear a legend substantially similar to the legend set forth on the front page of this Warrant.

6. MISCELLANEOUS

6.1 Title to Warrant. During the Exercise Period, and subject to compliance with applicable laws and Section 2 above, this Warrant and all rights hereunder are transferable, in whole or in part, at the office of the Company by the Holder, upon surrender of this Warrant together with the appropriate Assignment form attached hereto properly endorsed. To the extent Section 2.4 above is applicable, the transferee shall sign an investment letter in form and substance reasonably satisfactory to the Company, if required by the Company.

6.2 Loss Theft Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

6.3 Saturdays, Sundays, Holidays, Etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday.

6.4 Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued shares of Common Stock a sufficient number of shares of Common Stock to provide for the issuance of the Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any market or exchange upon which the Common Stock may be listed.

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

6.5 Non-Waiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate upon expiration of the Exercise Period. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise; enforcing any of its rights, powers or remedies hereunder.

6.6 Limitation of Liability. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant or purchase Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

6.7 Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

6.8 Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Shares.

6.9 Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

6.10 Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

6.11 Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

6.12 Notices. All notices, requests, demands and other communications under this Warrant shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, or on the date of mailing if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, and properly addressed as follows: if to the Holder, at such Holder’s address as shown in the Company records; and if to the Company, at 15354 N. 83rd Way, Suite 102, Scottsdale, Arizona 85260, Attention: Chief Executive Officer. Any party may change its address for purposes of this Section by giving the other party written notice of the new address in the manner set forth above.

6.13 Governing Law. This Warrant and any dispute, disagreement or issue of construction of interpretation arising hereunder whether relating to its execution, its validity, the obligations provided herein or performance shall be governed or interpreted according to the internal laws of the State of Delaware without regard to conflicts of law.

EXECUTED as of the date first set forth above.

BEAMZ INTERACTIVE, INC.

By: _______________________

Charles R. Mollo,

Chief Executive Officer

NOTICE OF EXERCISE

TO: BEAMZ INTERACTIVE, INC.

(1) The undersigned hereby elects to purchase __________ Shares (the “Exercised Shares”) pursuant to the terms of the attached Warrant to Purchase Shares of Common Stock of Beamz Interactive, Inc. (the “Warrant”), and tenders herewith payment of the aggregate Exercise Price for the Exercised Shares, together with all applicable transfer taxes, if any.

(2) Please issue a certificate or certificates representing the Exercised Shares in the name of the undersigned or in such other name as is specified below:

_______________________________________

The Exercised Shares shall be delivered to the following:

_______________________________________

(3) All terms used herein but not otherwise defined shall have the meanings ascribed thereto in the attached Warrant.

Date:________________________.

If an individual:

___________________________________

Printed: _____________________________

If a legal entity:

___________________________________

(type in name)

By: ________________________________

Printed: _____________________________

Title: ______________________________

ASSIGNMENT

FOR VALUE RECEIVED ___________________________ hereby sells, assigns and transfers unto _______________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint __________________________, attorney, to transfer the said Warrant on the books of the within named Company.

Dated:________________________.

If an individual:

___________________________________

Printed: _____________________________

If a legal entity:

___________________________________

(type in name)

By: ________________________________

Printed: _____________________________

Title: ______________________________

PARTIAL ASSIGNMENT

FOR VALUE RECEIVED ______________________________ hereby sells, assigns and transfers unto _______________________________ that portion of the within Warrant and the rights evidenced thereby which will on the date hereof entitle the holder to purchase __________ shares of Common Stock of Beamz Interactive, Inc., and does hereby irrevocably constitute and appoint __________________________ and ______________________, or either of them, attorney, to transfer that part of the said Warrant on the books of the within named Company.

Dated:_________________________.

If an individual:

___________________________________

Printed: _____________________________

If a legal entity:

___________________________________

(type in name)

By: ________________________________

Printed: _____________________________

Title: ______________________________

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Pursuant to section 3.02 of the Sarbanes-Oxley Act of 2002

I, Charles R. Mollo, certify that:

1. I have reviewed this Annual Report on Form 10-K of Beamz Interactive, Inc. (“the Registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 22, 2014

By:

/s/ Charles R. Mollo

Charles R. Mollo

Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to Section 3.02 of the Sarbanes-Oxley Act of 2002

I, Joan W. Brubacher, certify that:

1. I have reviewed this Annual Report on Form 10-K of Beamz Interactive, Inc. (“the Registrant”);

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: October 22, 2014

By:

/s/ Joan W. Brubacher

Joan W. Brubacher

President and Chief Financial Officer

(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned officer of Beamz Interactive, Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that the accompanying Annual Report on Form 10-K for the fiscal year ended June 30, 2014, and filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 22, 2014

By:

/s/ Charles R. Mollo

Chief Executive Officer

(Principal Executive Officer)

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Date: October 22, 2014

By:

/s/ Joan W. Brubacher

Chief Financial Officer

(Principal Financial Officer)

Unvested

Common Stock

Aggregate

Market Value

Joan W. Brubacher (2)

Albert J. Ingallinera, Jr. (3)