Note 15 – Subsequent Events

$3.2 Million Funding

On October 21, 2013, pursuant to the Note Purchase Agreement, dated August 24, 2012, (see Note 6 – 8% Convertible Promissory Notes), we issued and sold to MLTM Lending, LLC (“MLTM”), Samuel Rose (“Rose”), and Allen Kronstadt (“Kronstadt”) (collectively, the “Investors”) an aggregate principal amount of $596,992.80 of our 8.0% convertible promissory notes (the “8% Notes”) which are initially convertible into shares of our common stock, no par value (the “Common Stock”), at a conversion price equal to $0.40 per share of Common Stock, subject to adjustment as provided on the terms of the 8% Notes, and associated warrants (the “Warrants”) to purchase, in the aggregate, 1,492,482 shares of Common Stock, subject to adjustment as provided on the terms of the Warrants. In consideration for the issuance of the 8% Notes and the Warrants, the Investors paid us cash in the aggregate amount of $596,992.80.

The 8% Notes and the Warrants were offered and sold to the Investors in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D promulgated thereunder. The Investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.

The 8% Notes, including all outstanding principal and accrued and unpaid interest, are due and payable on the earlier of October 21, 2018 or upon the occurrence of an Event of Default (as defined in the 8% Notes). We may prepay the 8% Notes, in whole or in part, upon 60 calendar days prior written notice to the holders thereof. Interest accrues on the 8% Notes at a rate of 8.0% per annum, payable during the first three years that the 8% Notes are outstanding in shares of Common Stock, valued at the weighted average price of a share of Common Stock for the twenty consecutive trading days prior to the interest payment date, pursuant to the terms of the 8% Notes. During the fourth and fifth years that the 8% Notes are outstanding, interest that accrues under the 8% Notes shall be payable in cash.

The Warrants are exercisable at an exercise price of $0.60 per share of Common Stock, subject to adjustment as provided for by the terms thereof, for a period commencing on the date of issuance and ending on the earlier to occur of the date that is (i) three years after the date upon which the weighted average price of a share of Common Stock for the 90 consecutive trading days prior to such date is at least $2.00 per share, and (ii) five years after the date on which the 8% Note to which the applicable Warrant is related has been repaid in full.

In addition, on October 21, 2013 and November 6, 2013, the Investors loaned the Company an aggregate principal amount of $2,603,007.20 pursuant to our secured promissory notes (the “Secured Notes”), each of which shall be exchanged by us on a future date, when the authorized shares of capital stock of the Company are available, for an 8% Note and Warrants, on the terms set forth in the Secured Notes. In connection with the issuance of the Secured Notes, we entered into an amendment to our existing Security Agreement with the Investors to provide that our obligations under the Secured Notes are secured by a security interest and lien in all of our assets and the assets of our wholly-owned subsidiaries.

The Secured Notes, including all outstanding principal and accrued and unpaid interest, are due and payable on the earlier of November 29, 2013 or upon the occurrence of an Event of Default (as defined in the Secured Notes). We may prepay the Secured Notes, in whole or in part, upon 5 calendar days prior written notice to the holders thereof. Interest accrues on the Secured Notes at a rate of 8.0% per annum, payable in arrears on the date the Secured Notes are repaid or prepaid in full.