Prior to December 31, 2011 the Company had entered into a number of unsecured revolving credit agreements and amendments (the “Credit Facility”) with the Koski Family Limited Partnership (“KFLP”), and accredited investor and the Company’s largest shareholder. As of December 31, 2011 the Company had borrowed $7,500,000 under the Credit Facility. 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, the Company 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 occurred 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 the Company 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.

On July 30, 2012, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Purchasers”) pursuant to which the Company: (i) sold to the Purchasers an aggregate of 8,666,665 shares of the Company’s Common Stock at a price per share of $1.50 (the “Common Shares”) for aggregate gross proceeds of approximately $13,000,000 (the “Offering”).

Because the Offering constituted a “qualified financing” under the terms of the Company’s Loan Agreement with the KFLP, the Company’s secured debt in the principal amount of $2.5 million, together with accrued but unpaid interest of $38,185 thereon, due to the KFLP was automatically converted contemporaneously with the closing of the Offering into 1,692,123 shares of common stock issued to the KFLP at the same price of $1.50 per share paid by the Purchasers in the Offering. As a result of the conversion of the secured indebtedness, the Loan Agreement together with the related Security Agreement and related agreements were terminated. In addition the Company recognized $443,970 in interest expense due to the conversion of the note payable with warrants to common stock and the write off of the remaining discount to interest expense.