In January 2011, JP Morgan Chase Bank (“JPM”) responded affirmatively to the Company’s request to delay the next few months of principal payments on the October 29, 2010 Term Note and make payments “as we are able.” JPM and the Company agreed that the Company’s funds would be better used by making payments against outstanding accounts payable. The January 2011 principal payment was paid in February 2011, the February 2011 principal payment was paid in March 2011, the March principal payment was paid in April 2011, and the April, May and June principal payments were paid in June 2011. The July 2011 principal payment was made timely, and the Company anticipates making subsequent principal payments timely.

On October 15, 2009, we issued $3,001,033 of convertible notes. The convertible notes set a maturity date on October 15, 2011 and have a stated annual interest rate of 10%. The principal is payable at maturity but interest is paid quarterly beginning January 15, 2010. The Company incurred interest expense of $75,026 for both three month periods ending June 30, 2011 and June 30, 2010. In addition, the notes are convertible at any time into restricted shares of the Company’s common stock at $0.50 per share; and related party investors as of June 30, 2011 and June 30, 2010 accounted for $430,000 and $180,000, respectively of the aggregate amount of convertible debt funds collected. The $250,000 increase between the 2010 and 2011 ending periods’ related party amounts are due to the appointment of two members in June 2011 to the Company’s Board of Directors, Mr. Philip Tracy and Mr. William Gore, who hold October 2009 convertible debt notes in the amounts of $100,000 and $150,000, respectively. Mr. Gore and Mr. Tracy are nominated for election to the Company’s Board of Directors.

On March 28, 2011, the convertible note agreements were amended to reduce the conversion price to $0.40 per share upon a change in control of the Company. This change in the conversion feature was evaluated under ASC 815-40. As a result of the new provision, the conversion feature now qualifies for derivative accounting pursuant to ASC 815. (see Note 8)

In June 2011, the Company contacted the holders of the Company’s 2009 Convertible Promissory Note to extend the note’s maturity date from October 15, 2011 to October 15, 2013. As of June 30, 2011, the Company had received signed amendment agreements from over 97% of the note holders. This change in the maturity date was evaluated under EITF 96-19 “Debtor’s Accounting for Modification or Exchange of Debt Instruments.” As a result of the maturity date extension amendment, the convertible debt notes now qualify as a debt extinguishment and therefore are treated as if the Company settled the debt prior to the maturity date and then entered into an entirely new debt agreement after the amendment. (see Note 8)

In connection with the offering, we incurred cash fees of $265,103 and issued 700,000 shares of restricted common stock, valued at $203,000 based on the grant-date fair value of our common stock. These fees were included in the deferred financing costs in our consolidated balance sheet and were being amortized over the original term of the convertible notes using the effective interest rate method. During the three-month period ended June 30, 2011 and the three-month period ended June 30, 2010, we amortized approximately $73,300 and approximately $62,200, respectively, of deferred financing cost.

Due to the determination to extinguish the original convertible debt notes and related accounts, as of June 24, 2011, we wrote off the remainder of the unamortized deferred financing asset of approximately $61,500 and the derivative liability of $820,800. These transactions resulted in a net “non-cash” gain of approximately $759,300 due to the extinguishment of the original 2009 convertible debt notes.

On June 24, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liability (using the BWMS closing share price of $0.55) and recorded a net “non-cash” loss of approximately $115,400, which represents the change in the fair value of the derivative from March 31, 2011 through June 24, 2011. Additionally as per EITF 96-19, we evaluated the fair value of the derivative related to the amended convertible debt notes as of June 24, 2011 (using the BWMS closing share price of $0.55) and recorded a new derivative liability of $2,870,987. This amount was recorded as a discount to the debt and will be amortized over the new remaining life of the notes, until October 15, 2013. On June 30, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liability again (using the BWMS closing share price of $0.51) and recorded a net “non-cash” gain of approximately $270,000. These transactions resulted in a net “non-cash” gain of approximately $154,600 due to changes in the derivative liability of the 2009 convertible debt notes.

As a result of the First Amendment to the Credit Agreement with JPM, the maturity and conversion dates of the convertible debt notes issued pursuant to the Company’s September 2009 Convertible Debt Offering were to be extended by certain intervals. As of June 24, 2011, the maturity and conversion dates have been extended until October 15, 2013 but still do not meet the maturity date of September 30, 2014 as requested by JPM.

On March 31, 2010, we issued $1,750,000 of convertible notes. The convertible notes set a maturity date on March 31, 2012 and have a stated annual interest rate of 10%. The principal is payable at maturity but interest is paid quarterly beginning June 30, 2010. The Company incurred interest expense of $44,000 for both three month periods ending June 30, 2011 and June 30, 2010. In addition, the notes are convertible at any time into restricted shares of the Company’s common stock at $0.50 per share; and related party investors as of June 30, 2011 and June 30, 2010 accounted for $245,000 and $70,000, respectively of the aggregate amount of convertible debt funds collected. The $175,000 increase between the 2010 and 2011 ending periods’ related party amounts are due to the appointment of two members in June 2011 to the Company’s Board of Directors, Mr. Philip Tracy and Mr. Gore, who hold March 2010 convertible debt notes in the amounts of $100,000 and $75,000, respectively. Mr. Gore and Mr. Tracy are nominated for election to the Company’s Board of Directors.

On March 28, 2011, the convertible note agreement was amended to reduce the conversion price to $0.40 per share upon a change in control of the Company. This change in the conversion feature was evaluated under ASC 815-40. As a result of the new provision, the conversion feature now qualifies for derivative accounting pursuant to ASC 815. (see Note 8)

In June 2011, the Company contacted the holders of the Company’s 2010 Convertible Promissory Note to extend the note’s maturity date from March 31, 2012 to September 30, 2013. As of June 30, 2011, the Company had received signed amendment agreements from 100% of the note holders. This change in the maturity date was evaluated under EITF 96-19 “Debtor’s Accounting for Modification or Exchange of Debt Instruments.” As a result of the maturity date extension amendment, the convertible debt notes now qualify as a debt extinguishment and therefore are treated as if the Company settled the debt prior to the maturity date amendment and then entered into an entirely new debt agreement after the amendment. (see Note 8)

In connection with the offering, we incurred cash fees of $164,750 and issued 659,000 shares of restricted common stock, valued at $171,340 based on the grant-date fair value of our common stock. These fees were included in the deferred financing costs in our consolidated balance sheet and were being amortized over the original term of the convertible notes using the effective interest rate method. During the three-month period ended June 30, 2011 and the three-month period ended June 30, 2010, we amortized approximately $49,900 and approximately $45,000, respectively, of deferred financing cost.

Due to the determination to extinguish the original convertible debt notes and related accounts, as of June 24, 2011, we wrote off the remainder of the unamortized deferred financing asset of approximately $130,300 and the derivative liability of $770,860. These transactions resulted in a net “non-cash” gain of approximately $640,600 due to the extinguishment of the original 2010 convertible debt notes.

On June 24, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liability (using the BWMS closing share price of $0.55) and recorded a net “non-cash” loss of approximately $78,400, which represents the change in the fair value of the derivative from March 31, 2011 through June 24, 2011. Additionally as per EITF 96-19, we evaluated the fair value of the derivative related to the amended convertible debt notes as of June 24, 2011 (using the BWMS closing share price of $0.55) and recorded a new derivative liability of $1,645,253. This amount will be amortized over the new remaining life of the notes, until September 30, 2013. On June 30, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liability again (using the BWMS closing share price of $0.51) and recorded a net “non-cash” gain of approximately $148,800. These transactions resulted in a net “non-cash” gain of approximately $70,400 due to changes in the derivative liability of the 2010 convertible debt notes.

In summary, the Company recorded a net “non-cash” gain of approximately $1,400,000 related to the extinguishment of the original convertible debt notes and the Company recorded a net “non-cash” gain of approximately $225,000 related to changes in the fair market value of the derivative liabilities associated with the convertible debt notes.

The future minimum payments related to our JPM credit facilities and convertible notes as of June 30, 2011 and for the next five years and the total amount thereafter are as follows, assuming none of the convertible notes are converted: