9. Convertible Revolving Notes Payable to Shareholder

On July 30, 2010 the Company entered into an unsecured revolving credit agreement (the “Credit Facility”) with the Koski Family Limited Partnership (“KFLP”), an accredited investor and the Company’s largest shareholder. Pursuant to the Credit Facility, we were initially able to borrow up to $2,000,000 from the KFLP at LIBOR plus 6.0%. The term of the Credit Facility was initially for 12 months commencing August 1, 2010.

On each of September 13, 2010 and November 8, 2010, the Company borrowed $1,000,000 under the Credit Facility and executed a revolving unsecured promissory note (the “September 2010 Promissory Note” and the “November 2010 Promissory Note”) in such amounts initially to mature on July 30, 2011.

On January 24, 2011, the Company entered into a First Amendment to the Credit Facility (the “First Amendment”) to increase the available borrowing from $2,000,000 to $2,500,000 and simultaneously therewith drew on the Credit Facility as amended by the First Amendment to borrow the additional $500,000 in available funds and executed another revolving unsecured promissory note (the “January 2011 Promissory Note”) initially due on July 30, 2011.

On February 4, 2011, the Company entered into a Second Amendment (the “Second Amendment”) to the Credit Facility. As a result of the Second Amendment, the Company was able to borrow up to an additional $2,500,000 from the KFLP. Future draws under the Credit Facility, as amended, are limited to $500,000 per month commencing no earlier than March 2011. Under the Second Amendment, the due date of the amounts then outstanding under the Credit Facility, (the September 2010 Promissory Note, November 2010 Promissory Note and January 2011 Promissory Note) were extended by one year from July 30, 2011 to July 30, 2012. The interest rate remained at LIBOR plus 6.0%. The Second Amendment further provided for certain automatic conversion rights into subsequent securities offerings. In addition, the Second Amendment provided the KFLP with the right to put any undrawn available amounts under the Credit Facility, as amended, to us and thereby have a note issued to the KFLP.

On each of March 15, 2011, April 5, 2011, May 5, 2011, June 3, 2011, and July 8, 2011 the Company borrowed an additional $500,000 under the Credit Facility, as amended, and executed a revolving unsecured promissory note in such amounts that matured on July 30, 2012.

On June 29, 2011, the Company entered into a Third Amendment (the “Third Amendment”) to the Credit Facility. As a result of the Third Amendment, the Company increased its availability under the Credit Facility by $2,000,000 from $5,000,000 to $7,000,000. Future draws of the $2,000,000 in increased availability provided by the Third Amendment to the Credit Facility are limited to $1,000,000 increments beginning no earlier than August 2011 and October 2011, respectively. All other terms of the Credit Facility remained the same.

On each of August 1, 2011 and October 5, 2011, the Company borrowed an additional $1,000,000 under the Credit Facility, as amended by the Third Amendment, and executed a revolving unsecured promissory note in such amounts that mature on July 30, 2012.

On December 9, 2011, the Company entered into a Fourth Amendment (the “Fourth Amendment”) to the Credit Facility. The Fourth Amendment increased the available borrowing under the Credit Facility by $500,000 from $7,000,000 to $7,500,000. On December 9, 2011, the Company drew down on the Credit Facility, as amended, to borrow $500,000 in the newly available funds. All other terms of the Credit Facility remained the same.

On January 23, 2012, the Company entered into a Fifth Amendment (the “Fifth Amendment”) to the Credit Facility. The Fifth Amendment increased the available borrowing under the Credit Facility by $750,000 from $7,500,000 to $8,250,000. On January 23, 2012, the Company drew down on the Credit Facility, as amended, to borrow $750,000. All other terms of the Credit Facility remained the same.

On March 23, 2012, the Company entered into an Exchange of Notes for Equity Agreement (the “Debt Exchange Agreement”) with the KFLP. Pursuant to the terms of the Debt Exchange Agreement, we issued 6,285,619 shares of common stock and a warrant to acquire 1,571,405 shares of common stock to the KFLP in exchange for the cancellation of an aggregate of $8,737,011 of indebtedness owed to the KFLP under our previously existing unsecured revolving credit facility (the “Credit Facility) with the KFLP. The outstanding indebtedness consisted of $8,250,000 in principal owed on twelve separate promissory notes previously issued by us to the KFLP under the Credit Facility and accrued interest of $487,011 through March 23, 2012 (the closing date). As a result of the Debt Exchange Agreement, the Credit Facility was terminated and the previously issued promissory notes thereunder were cancelled. The warrant is exercisable immediately at a price per share of $2.00 and expires three years from the date of issuance. The Company valued the common stock and warrant at $8,737,011 which equaled the carrying value of the Credit Facility and related accrued interest. The market for the Company’s stock did not generate enough volume to provide accurate pricing for the block of stock and warrants covered by the Debt Exchange Agreement. A significant discount to the market for the Company’s stock would be needed to sell the shares issued and issuable pursuant to the warrant, as such, the value of the existing indebtedness under the Credit Facility of $8,737,011 was determined to be indicative of the combined value of the transaction. As a result, no gain or loss was recognized on this exchange of debt for equity.

On March 23, 2012, the Company also entered into a new loan agreement (the “Loan Agreement”) with the KFLP which provided the Company with up to $2.5 million in secured funding in two advances of $1,250,000, the first of which occurred on March 23, 2012 and the second on April 23, 2012. The Loan Agreement provided that borrowings would mature in three years and bear interest at the rate of 5.0% and were secured by select Company assets relating to or connected with the Company’s technologies. Pursuant to the Loan Agreement we issued an additional warrant to the KFLP to acquire 599,520 shares of our common stock. The warrant is exercisable immediately at a price per share of $2.00 and expires three years from the date of issuance. See Note 6 — Warrants.

Amounts borrowed under the Loan Agreement were subject to automatic conversion upon a subsequent “qualified financing” by the Company of $5,000,000 (excluding any converted debt amount) of its securities to accredited investors.

Subsequent to the end of June 30, 2012 reporting period the outstanding indebtedness under the Loan Agreement was automatically converted into common stock pursuant to a private placement offering meeting the definition of a “qualified financing” in the Loan Agreement. See Note 10 — Subsequent Events.