The term of the Bridge Note includes a seventeen-month maturity period, with partial redemption beginning on February 1, 2015. The Bridge Note bears interest at a rate of 8% per annum, which is paid quarterly. Interest is payable in cash or at the Company’s option in shares of common stock, provided certain conditions are met, based on a share value equal to the lesser of (a) 90% of the average of the volume weighted average price (the “VWAP”) for the 20 consecutive trading days prior to the applicable interest payment date and (b) 100% of the average of the VWAP for the 20 consecutive trading days prior to the applicable interest payment date less $1.00. If any Event of Default (as defined in the Debentures) occurs, the outstanding principal amount of the Debentures, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the holder’s election, immediately due and payable in cash. Commencing five days after the occurrence of any Event of Default that results in the eventual acceleration of the Debentures, the interest rate on the Debentures shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. The Bridge Note Conversion Price is subject to “full ratchet” and other customary anti-dilution protections.

The agreement relating to the Bridge Note includes the covenant that the Company must timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company pursuant to the Exchange Act. The Company did not timely file this Form 10-Q and as a result we are in breach of this covenant. The Bridge Note limits the Company’s ability to (i) incur additional indebtedness, (ii) pay dividends or make distributions to its shareholders, (iii) incur liens that would rank senior in priority or pari passu to the Bridge Note, or (iv) sell or otherwise dispose of any assets or rights of the Company or its subsidiaries.

In connection with the issuance of the Bridge Note, warrants to purchase 345,868 shares of the Company’s common stock (“Bridge Note Warrants”) were issued. The Bridge Note Warrants are exercisable for five years on a cashless basis. The Bridge Note Warrants are exercisable at $3.50 per share (after giving effect to the Reverse Stock Split) and are subject to “weighted average” and other customary anti-dilution protections (see Note 6).

On February 1, 2015 and May 1, 2015, the Company is obligated to redeem an amount equal to $280,000 and on August 1, 2015, the Company is obligated to redeem an amount equal to $560,000 (plus accrued but unpaid interest, liquidated damages and any other amounts then owing in respect of the Bridge Note) (collectively, the “Periodic Redemption Amount”). In lieu of a cash redemption and subject to the Company meeting certain equity conditions described in the Bridge, the Company may elect to pay the Periodic Redemption Amount in shares of its common stock based on a conversion price equal to the lesser of (a) $2.90 per share, subject to adjustments upon certain events, and (b) 90% of the average of the VWAP for the 20 consecutive trading days prior to the applicable redemption date.

The fair value of the Bridge Note Warrants and the corresponding Debt Conversion Feature, issued on March 31, 2014, totaling $111,808 is recorded as a debt discount in the accompanying consolidated condensed balance sheet as of March 31, 2014 and is amortized as interest expense in the accompanying condensed statements of operations over the term of the Bridge Note using the effective interest method (see Note 6).

For certain convertible debt issue, the Company may provide the debt holder with an original issue discount. The Bridge Note was issued with an original issue discount of 12%. The original issue discount is recorded as debt discount, reducing the face amount of each Bridge Note and is amortized to interest expense over the term of the Bridge Note.

Bridge Note Face Value	$	1,120,000
Debt Discount
Bridge Notes – Issued Warrant Derivative		93,980
Conversion Feature Derivative		17,828
Original Issue Discount		120,000
Total Debt Discount	$	231,808
Amortization of Debt Discount, as of March 31, 2014		(459	)
Debt Discount, Net	$	231,349

Bridge Note Carrying Value at March 31, 2014	$	888,651

On August 29, 2013, the Company issued senior secured convertible notes (the “August Convertible Notes”) with an original issue discount of 12% and a conversion price of $6.80 per share (the “August Conversion Price”) for gross proceeds of $616,000. The term of the August Convertible Notes include an eighteen-month maturity period, with partial redemption beginning on September 1, 2014. The August Convertible Notes bear interest at a rate of 8% per annum, which is paid quarterly. Interest is payable in cash or at the Company’s option in shares of common stock, provided certain conditions are met, based on a share value equal to the lesser of (a) 90% of the average of the volume weighted average price (the “VWAP”) for the 20 consecutive trading days prior to the applicable interest payment date and (b) 100% of the average of the VWAP for the 20 consecutive trading days prior to the applicable interest payment date less $1.00. Upon any Event of Default (as defined in the August Convertible Notes), the outstanding principal amount of each August Convertible Note, plus liquidated damages, interest, a premium of 30% and other amounts owing in respect thereof through the date of acceleration, shall become, at the noteholders’ election, immediately due and payable in cash. Commencing five days after the occurrence of any Event of Default, the interest rate on each August Convertible Note shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. The August Conversion Price is subject to “full ratchet” and other customary anti-dilution protections.

In connection with the issuance of the August Convertible Note, warrants to purchase 90,588 shares of the Company’s common stock (“August Convertible Note Warrants”) were issued. The August Convertible Note Warrants are exercisable for five years on a cashless basis. The August Convertible Note Warrants are exercisable at $8.20 per share and are subject to “weighted average” and other customary anti-dilution protections (see Note 6).

On September 1, 2014, October 1, 2014, November 1, 2014, December 1, 2014, January 1, 2015 and February 1, 2015, the Company is obligated to redeem an amount equal to $51,333 and on March 1, 2015, the Company is obligated to redeem an amount equal to $308,000 (plus accrued but unpaid interest, liquidated damages and any other amounts then owing in respect of the August Convertible Notes) (collectively, the “Periodic Redemption Amount”). In lieu of a cash redemption and subject to the Company meeting certain equity conditions described in the August Convertible Notes, the Company may elect to pay the Periodic Redemption Amount in shares of its common stock based on a conversion price equal to the lesser of (a) $6.80 per share, subject to adjustments upon certain events, and (b) 90% of the average of the VWAP for the 20 consecutive trading days prior to the applicable redemption date.

The fair value of the August Convertible Note Warrants and the corresponding Debt Conversion Feature, issued on August 29, 2013, totaling $113,091 is recorded as a debt discount in the accompanying consolidated condensed balance sheet as of March 31, 2014 and is amortized as interest expense in the accompanying condensed statements of operations over the term of the August Convertible Note using the effective interest method (see Note 6).

For certain convertible debt issue, the Company may provide the debt holder with an original issue discount. The August Convertible Notes were issued with an original issue discount of 12%. The original issue discount is recorded as debt discount, reducing the face amount of each August Convertible Note and is amortized to interest expense over the term of the August Convertible Note.

August Convertible Note Face Value	$	616,000
Debt Discount
August Convertible Notes – Issued Warrant Derivative		87,264
Conversion Feature Derivative		25,827
Original Issue Discount		66,000
Total Debt Discount	$	179,091
Amortization of Debt Discount, as of March 31, 2014		(179,091	)
Debt Discount, Net	$	0

August Convertible Note Carrying Value at March 31, 2014, gross	$	616,000
Conversion of August Convertible Note into Preferred		(616,000	)
August Convertible Note Carrying Value at March 31, 2014, net	$	0

On June 20, 2013, the Company issued $1,500,000 senior secured convertible notes (the “June Convertible Notes”) with an original issue discount of 12%, and a conversion price of $6.80 per share (the “June Conversion Price”), for gross proceeds of $1,680,000. The term of the June Convertible Notes includes an eighteen-month maturity period, with partial redemptions beginning on June 1, 2014. The June Convertible Notes bear interest at 8% per annum, which is paid quarterly beginning on November 1, 2013. Interest is payable in cash or at the Company’s option in shares of the Company’s common stock, provided certain conditions are met, based on a share value equal to the lesser of (a) 90% of the average of the VWAP for the 20 consecutive trading days prior to the applicable interest payment date and (b) 100% of the average of the VWAP for the 20 consecutive trading days prior to the applicable interest payment date less $1.00. Upon any Event of Default (as defined in the June Convertible Notes), the outstanding principal amount of the June Convertible Notes plus liquidated damages, interest, a premium of 30% and other amounts owing in respect thereof through the date of acceleration, shall become, at the holders’ election, immediately due and payable in cash. Commencing five days after the occurrence of any Event of Default, the interest rate on the June Convertible Notes shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. The June Conversion Price is subject to “full ratchet” and other customary anti-dilution protections.

The agreement relating to the June Convertible Notes includes the covenant that the Company must timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company pursuant to the Exchange Act. The Company did not timely file this Form 10-Q and as a result we are in breach of this covenant. The June Convertible Notes limit the Company’s ability to (i) incur additional indebtedness, (ii) pay dividends or make distributions to its shareholders, (iii) incur liens that would rank senior in priority or pari passu to the June Convertible Notes, or (iv) sell or otherwise dispose of any assets or rights of the Company or its subsidiaries.

In connection with the issuance of the June Convertible Notes, warrants to purchase 247,059 shares of the Company’s common stock (“June Convertible Note Warrants”) were issued. The June Convertible Note Warrants are exercisable for five years on a cashless basis. The June Convertible Note Warrants are exercisable at $8.20 per share and are subject to “weighted average” and other customary anti-dilution protections (see Note 6).

On June 1, 2014, July 1, 2014, August 1, 2014, September 1, 2014, October 1, 2014 and November 1, 2014, the Company is obligated to redeem an amount equal to $140,000 and on December 1, 2014, the Company is obligated to redeem an amount equal to $840,000 (plus accrued but unpaid interest, liquidated damages and any other amounts then owing in respect of the June Convertible Notes) (collectively, the “June Periodic Redemption Amount”). In lieu of a cash redemption and subject to the Company meeting certain equity conditions described in the June Convertible Notes, the Company may elect to pay the June Periodic Redemption Amount in shares of its common stock based on a conversion price equal to the lesser of (a) $6.80 per share, subject to adjustments upon certain events, and (b) 90% of the average of the VWAP for the 20 consecutive trading days prior to the applicable redemption date.

The fair value of the June Convertible Note Warrants and the corresponding Debt Conversion Feature, issued on June 20, 2013, totaling $1,423,177 is recorded as a debt discount in the accompanying condensed consolidated balance sheet as of March 31, 2014. As of March 31, 2014, the Company had expensed $568,341 of debt discount costs as loss from extinguishment in relation to the conversion of certain of the June Convertible Notes (see Note 7). The remaining balance of $145,729 will be amortized as interest expense in the accompanying condensed consolidated statements of operations of the term of the remaining June Convertible Notes using the effective interest method (see Note 6).

For certain convertible debt issue, the Company may provide the debt holder with an original issue discount. The June Convertible Notes were issued with an original issue discount of 12%. The original issue discount is recorded to debt discount, reducing the face amount of each June Convertible Note and is amortized to interest expense over the term of the June Convertible Notes.

June Convertible Notes Face Value	$	1,680,000
Debt Discount
June Convertible Notes – Issued Warrant Derivative		752,126
Conversion Feature Derivative		491,051
Original Issue Discount		180,000
Total Debt Discount	$	1,423,177
Amortization of Debt Discount, as of March 31, 2014		(709,107	)
Debt Discount, gross	$	714,070
Amortized under Loss from Extinguishment as of March 31, 2014		568,341
Debt Discount, net	$	145,729

June Convertible Notes Carrying Value at March 31, 2014, gross (net of debt discounts of $714,070)	$	965,930
Conversion of June Convertible Notes into Preferred		768,802
June Convertible Notes Carrying Value at March 31, 2014, net (net of debt discounts of $145,729)	$	197,128

The Company paid Gottbetter Capital Markets (“GCM”) who acted as the sole placement agent for the June Convertible Notes offering a commission of 7.2% of the first $1,400,000 funds raised in the June Convertible Notes offering for a total payment of $100,000. In addition, GCM received five-year broker warrants to purchase approximately 0.019 million shares of the Company’s common stock at an exercise price of $8.20 per share (the “June Convertible Note Broker Warrants”). The June Convertible Note Broker Warrants are identical to the June Convertible Note Warrants in all material respects. The Company also paid $117,446 in legal fees to Gottbetter & Partners and $85,207 in professional fees to the lead investor in the June Convertible Notes offering. The following table sets forth a summary of the fees and costs associated with the June Convertible Notes offering.

On December 21, 2012 the Company issued senior secured convertible notes (the “Convertible Notes”). The term of the Convertible Notes include an eight month maturity period and an annual interest rate of 12% which is accrued until payment or until the Convertible Notes are converted into equity. The Convertible Notes were issued at a price of $200,000 per unit, for total gross proceeds of $2,000,000 with an original issue discount of 0.2%. On March 28, 2013, the Company issued additional Convertible Notes for total gross proceeds of $1,130,000 with an original issue discount of 0.2%.

The Convertible Notes are convertible at a per share conversion price of $25.00, which is subject to a one-time reset right (“Conversion Price Reset”) as well as “weighted average” and other customary anti-dilution protections (“Debt Conversion Feature”). The Conversion Price Reset will be available on the earlier of (the “Reset Date”) (i) the date of maturity of the 12% Notes or (ii) the completion of a subsequent financing by the Company of at least $5,000,000, if the closing price of the Company’s stock is less than $30.00 on the Reset Date. For (i) the conversion price after the reset will be equal to 70% of the 5-day VWAP immediately preceding the Reset Date. For (ii) the Conversion Price after the reset will be equal to 70% of 5-day VWAP immediately after the Reset Date.

In connection with the issuance of Convertible Notes, 125,200 five-year cashless exercise warrants (“Convertible Note Warrants”) were issued with “weighted average” and other customary anti-dilution protections. 62,600 Convertible Note Warrants are exercisable at $50.00 and 62,600 Convertible Note Warrants are exercisable at $25.00 (see Note 6 for further detail).

As of June 20, 2013, the Convertible Notes and the Convertible Note Warrants were converted into equity. The Convertible Notes were converted at a per share price of $70.00, as the Company’s stock price was less than $30.00 on the Reset Date, for 302,762 shares. The Convertible Note Warrants were converted into 700,00 shares of the Company’s common stock.

The fair value of the Convertible Note Warrants and the Debt Conversion Feature, issued as of December 21, 2012, totaling $1,353,720 was recorded as a debt discount in the accompanying balance sheet and was amortized as interest expense in the accompanying statement of operations over the term of the Convertible Note using the effective interest method (see Note 6 for further detail). The fair value of the Convertible Note Warrants and the Debt Conversion Feature, issued on March 28, 2013, totaling $272,697 is recorded as a debt discount in the accompanying balance sheet and is amortized as interest expense in the accompanying statement of operations over the term of the Convertible Note using the effective interest method (see Note 6, for further detail).

Original Issue Discount

For certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The Convertible Notes issued on December 21, 2012 and March 28, 2013 were issued with an original issue discount of 0.2%. The original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the term of the Convertible Note.

As of June 30, 2013, the full value of this debt discount had been amortized as a result of the conversion of the Convertible Notes and Convertible Note Warrants into equity.

The Company paid Aegis Capital Corp. (“Aegis”), who acted as the sole placement agent for the Convertible Notes Offering a commission of 10% of the funds raised in the Convertible Notes Offering and a 3% non-accountable reimbursement of its expenses, for a total payment of $406,900, which is recorded as a deferred financing cost in the accompanying balance sheet.

In addition, Aegis received five-year warrants (the “Convertible Note Broker Warrants”) to purchase 25,040 shares of the Company’s common stock. The Convertible Note Broker Warrants were issued with “weighted average” and other customary anti-dilution protections. The Convertible Note Broker Warrants are identical to the Convertible Note Warrants in all material respects, except that they are exercisable at $25.00. As of June 20, 2013, the Convertible Note Broker Warrants were considered converted into 22,536 shares of common stock based on the same conversion terms as the Convertible Note Warrants. The Convertible Note Broker Warrants were valued at approximately $194,381 based on a Black-Scholes model (see Note 6 for further detail).

The Convertible Note holders were sold 62,600 free trading shares by non-affiliated, third party shareholders of the Company at par value. Although the Company was not a party to the sale of these shares by third party shareholders, per FASB ASC Topic 718, the fair value of this non-affiliated third party transaction is recognized by the Company as a deferred financing cost of the Convertible Note transaction. Additionally, the Company will provide no reimbursement or compensation to the selling shareholders of the 62,600 free trading shares. As such, the Company does not anticipate recognizing any further expenses in relation to this third-party transaction. The fair value of this third party transaction of $1,537,940 is recorded under deferred financing costs in the accompanying balance sheet.