Note

Debt Obligations

The following table summarizes our debt obligations outstanding as of the dates indicated:

	DECEMBER 31, 2015		SEPTEMBER 30, 2016

Convertible notes, mature June 1, 2018	$	3,245,972	$	4,834,305
Convertible notes, mature September 17, 2019		—		283,571
Line of credit, matures December 1, 2017		—		50,000
Total	$	3,245,972	$	5,447,876

For the

three

and

nine

- months ended

September

30,

2015,

we recorded

$247,310

and

$564,383

of interest expense and for the

three

and

nine

- months ended

September

30,

2016,

we recorded

$1,087,578

and

$1,972,428

of interest expense related to the amortization of the discount on our convertible notes payable and interest expense related to our outstanding convertible promissory notes and line of credit.

2015

Unit Offering

January

15,

2015,

we commenced a private securities offering of “units”, each Unit consisting of a convertible promissory note and Series A stock purchase warrant

(“2015

Unit Offering”), which was closed on

September

16,

2016.

The price and availability of the Units were set forth in

five

“Pricing Supplements” issued from time - to - time. Each note issued is convertible into the Company’s common stock at the Unit price set forth in the particular pricing supplement, and matures

June

2018.

Because more than

$3,000,000

was invested, we are obligated to register the common shares underlying the notes and warrants (“Shares”) with the Securities and Exchange Commission.

Interest due will be paid quarterly in arrears in cash or shares of common stock; all interest due thus far has been paid in shares of common stock. If paid by the issuance of common stock, interest is paid at a conversion price equal to the average closing price of the Company’s common stock over the

trading days prior to the interest payment due date. The principal amount of the note

may

be paid by the issuance of shares of common stock, or cash, upon maturity at the Company’s election. When paid in shares, the number of shares to be issued shall be calculated by dividing the principal amount invested by the Unit price, as it is established at the time of the original investment by the applicable Pricing Supplement. The notes

may

be converted at any time by the investor, at maturity by the Company, or by the Company prior to maturity, so long as all of the following conditions are met: (i) the Shares issued as payment are registered with the SEC, (ii) the Company’s common stock closes for

ten

consecutive trading days at or above

three

times the Unit price.

Each investor, for no additional consideration, received a Series A stock purchase warrant. (See Note

6).

Each Series A warrant allows for the purchase of the number of common shares equal to the investment amount divided by the Unit price, (e.g.,

one

warrant share for each share of common stock which the investor is eligible to receive through conversion of his original convertible note) and, the warrant will have an exercise price as set forth in the Pricing Supplement. Each Series A warrant expires

June

2020.

The Company

may

“call” the Series A warrant, requiring the investor to exercise the warrant within

days or forever lose the rights to do so, only if the following conditions have been met: (i) the underlying Shares are registered with the SEC, and (ii) the Company’s common stock closes for

ten

consecutive trading days at or above

two

times the exercise price.

In total, we issued

five

pricing supplements setting forth the conversion price of the note, as well as the warrant price, as follows (numbers in table reflect total investments for each pricing supplement since inception of offering through the termination of the offering):

Pricing Supplement	Conversion Price		Warrant Exercise Price		Aggregate Investments
No. 1	$	0.25	$	0.40	$	460,000
No. 2	$	0.25	$	0.40		1,100,000
No. 3	$	0.35	$	0.45		1,546,713
No. 4	$	0.35	$	0.45		550,000
No. 5	$	0.55	$	0.70		1,155,000
					$	4,811,713

During the

three

and

nine

- months ended

September

30,

2015,

we received

$857,000

and

$1,635,000,

respectively, of aggregate investments in the

2015

Unit Offering, and during the

three

and

nine

- months ended

September

30,

2016,

we received

$1,405,000

and

$1,940,000

respectively. A subscription for an investment in the amount of

$200,000

was received and accepted prior to the close of the offering. Funds for the investment was not received until after

September

30,

2016.

Although the investment is included in the totals in the above table, the cash for the investment is not reflected on our balance sheet as of

September

30,

2016.

Multiple investors have chosen to convert their promissory notes into common stock (see Note

“Common Stock”).

One - Year Convertible Notes

July

2016,

we received

$250,000

and issued convertible promissory notes (convertible at

$0.45

per share) with a maturity date of

July

2017

two

accredited investors’ in the aggregate principal amount of

$280,000.

Interest is charged upon issuance at

per annum. We also issued to the investors’ stock purchase warrants to purchase an aggregate

400,000

shares exercisable at

$0.65

per share, which expire

five

years from the date of grant. We are required to include the shares underlying the warrants in any subsequent registration statement (piggy back registration rights). Additionally, the exercise price of the stock purchase warrant

may

be adjusted downward in the event we sell our common stock or issue warrants at a lower price, other than through our

2015

Unit Offering. Thus, the warrants are recorded as a derivative liability on our balance sheet. The fair value of these warrants totaled

$101,770

and was recorded as a derivative liability at issuance. On

September

30,

2016

we again calculated the fair value of the warrants, resulting in a derivative liability of

$303,880.

The

$202,110

was recorded as a change in fair value of a derivative liability.

Line of Credit

June

2016,

we received

$300,000

pursuant to a line of credit, accruing interest at a rate of

18%

per annum, for which we have pledged our inventory and accounts receivable as collateral. The line of credit

may

be repaid following

nine

- months from the date of issuance or at the maturity date

December

2017.

Each investor, for no additional consideration, received a warrant to purchase our common stock. (See Note

6).

The warrant allows for the purchase of the number of common shares equal to the investment amount. (e.g.,

one

warrant share for each dollar invested).

September

17,

2016,

investors holding

$250,000

of the line of credit converted their line of credit plus accrued interest of

$33,571

into convertible promissory notes totaling

$283,571

on the same terms and notes issued in the

2015

Unit Offering, convertible at

$0.55

per share, with the exception that these newly issued notes mature

September

17,

2019,

rather than

June

2018.

Additionally, the investors received a Series A stock purchase warrant to purchase

515,583

shares of our common stock at an exercise price of

$0.70

per share. (See Note

6).

December/January Notes

January

2015,

we received

$133,000

and issued unsecured convertible promissory notes each with a

one

- year maturity date, which accrue interest at a rate of

12%

per annum. Each noteholder, for no additional consideration, received a stock purchase warrant exercisable at

$0.30

per share, which expires

January

2018.

(See Note

6).

The funds received as part of our December/January Notes totaled

$333,000.

During the

nine

- month period ended

December

31,

2015,

these investors converted their investments into convertible promissory notes on the same terms and notes issued in the

2015

Unit Offering, convertible at

$0.25

per share, maturing

June

2018.

Additionally, the investors received a Series A stock purchase warrant to purchase

1,909,301

shares of our common stock at an exercise price of

$0.40

per share. (See Note

6).