7. Subsequent Events

6 Months Ended

Jun. 30, 2013

Note 7 — Subsequent Events:

On July 5, 2013, the Company received gross proceeds of $1,425,000 upon approval of a CE Mark certification. The Company had entered into an agreement with existing stockholders in May 2013 for an aggregate principal amount of $1,500,000 of senior secured convertible notes and warrants to purchase up to an aggregate of 1,000,000 shares of its common stock. The receipt of gross proceeds of $1,425,000 was dependent upon awarding of a CE Mark certification, which occurred on July 5, 2013. The notes bear interest at the rate of 8.0% per annum and will be subject to a “make-whole” upon any conversion of the notes into common stock, as if the notes being converted were outstanding to April 1, 2014. Interest is first payable on September 3, 2013 and on the first trading day of each month thereafter. The notes mature on April 1, 2016 unless redeemed prior to that date, subject to amortization, discussed below. A noteholder may elect to have any interest due prior to April 1, 2014 added to the principal amount of a note; thereafter, interest will be paid in cash only. The warrants are exercisable one year after issuance, have an exercise price of $1.10 per share, subject to adjustment, and a term of five years from the date they are first exercisable. The holders of the notes and warrants will be prohibited from converting the notes into or exercising the warrants for shares of common stock if, as a result of such conversion or exercise, the holder, together with its affiliates, would own more than 4.99% or 9.99%, at the initial holder’s election, of the total number of shares of the Company’s common stock then issued and outstanding. The Company will record this transaction in the third quarter of 2013 upon receipt of the funds.

In July 2013, senior convertible notes in the principal amount of $7,000 were converted at a conversion price of $0.35 per share resulting in the issuance of 20,000 shares of the Company’s common stock.

In July 2013, warrants to purchase 471,588 shares of the Company’s common stock were exercised on a cashless basis resulting in the issuance of 300,808 shares of common stock.

In July 2013, an aggregate of 287,324 shares of the Series A non-voting convertible preferred stock were converted into 287,324 shares of common stock.

In July 2013, a senior convertible note in the principal amount of $100,000 was converted at a conversion price of $1.10 per share. This conversion, plus payment of accrued interest in shares, resulted in the issuance of 96,969 shares of the Company’s common stock.

In July 2013, a senior convertible note in the principal amount of $93,750 was converted at a conversion price of $0.82 per share. This conversion, plus payment of accrued interest in shares, resulted in the issuance of 131,277 shares of the Company’s common stock.

In July 2013, the Company received notice from the NYSE MKT that it granted the Company an extension until October 20, 2013 to regain compliance with continued listing standards of Section 1003(a)(iv) of the NYSE MKT, during which time the NYSE MKT will continue its listing. The NYSE MKT previously notified the Company on April 20, 2012 that the Company was not in compliance with Section 1003(a)(iv) of the NYSE MKT Company Guide in that the Company had sustained losses which are so substantial in relation to its overall operations or its existing financial resources, or its financial condition had become so impaired that it appeared questionable, in the opinion of the NYSE MKT, as to whether the Company will be able to continue operations and/or meet its obligations as they mature. The Company was afforded an opportunity to submit a plan of compliance to the NYSE MKT and, on May 17, 2012, a plan was presented to the NYSE MKT. On June 27, 2012, the NYSE MKT accepted the Company’s plan to regain compliance with its continued listing standards and granted an extension until August 22, 2012. On September 21, 2012, the NYSE MKT notified the Company that it granted the Company another extension to January 31, 2013 and on February 1, 2013, NYSE MKT notified that the Company was further granted extension until April 15, 2013 to regain compliance with the continued listing standards of the NYSE MKT, which was further extended to June 30, 2013 and then to October 20, 2013.

Separately, the NYSE MKT notified the Company on April 5, 2013, that, based on its Form 10-K for the fiscal year ended December 31, 2012, filed on March 27, 2013, the Company did not meet an additional continued listing standard of the NYSE MKT as set forth in Part 10 of the NYSE MKT Company Guide, or the Company Guide. Specifically, the Company is not in compliance with Section 1003(a)(i) of the Company Guide because it reported stockholders’ equity of less than $2 million as of December 31, 2012, and losses from continuing operations and/or net losses in two of its three most recent fiscal years viewed prospectively from the date of its initial listing. As a result, the Company again became subject to the procedures and requirements of Section 1009 of the Company Guide. The Company had to submit to the NYSE MKT no later than May 6, 2013, which the Company did, a plan of compliance to address how it intends to regain compliance with Section 1003(a)(i) of the Company Guide by October 20, 2013. On May 29, 2013, the NYSE MKT notified the Company that its plan had been accepted and that the Company has until October 20, 2103 to regain compliance with Section 1003(a)(i).

The Company remains subject to the conditions set forth in the NYSE MKT’s letters dated April 20, 2012 and April 5, 2013. If the Company is not in compliance with all of the NYSE MKT’s continued listing standards of both Section 1003(a)(i) and Section 1003(a)(iv) by October 20, 2013, the NYSE MKT will initiate delisting proceedings. The Company is not eligible for any extension after October 20, 2013.

On July 30, 2013, the Company sold 454,546 shares of its newly created Series B Non-Voting Convertible preferred stock and a warrant to purchase up to 227,273 shares of the Company’s common stock, for gross proceeds of $500,000. The Series B shares and the warrant were sold together at a price of $1.10 per share for each share of Series B stock. Each share of Series B Stock is convertible into one share of the Company’s common stock at any time at the holder’s option. However, the holder will be prohibited from converting Series B Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 3.99% of the total number of shares of the Company’s common stock then issued and outstanding. In the event of the Company’s liquidation, dissolution, or winding up, holders of the Series B Stock will receive a payment equal to $0.001 per share of Series B Stock before any proceeds are distributed to the holders of common stock. Shares of the Series B Stock will not be entitled to receive any dividends, unless and until specifically declared by the Company’s board of directors, and will rank:

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senior to all common stock;

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senior to any class or series of capital stock hereafter created specifically by its terms junior to the Series B Stock;

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on parity with our Series B Preferred Stock and any class or series of capital stock hereafter created specifically ranking by its terms on parity with the Series B Stock; and

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junior to any class or series of capital stock hereafter created specifically ranking by its terms senior to the Series B Stock;

in each case, as to distributions of assets upon our liquidation, dissolution or winding up whether voluntarily or involuntarily.

The warrant is exercisable immediately upon issuance and has an exercise price of $1.50 per share and a term of five years. However, the holder will be prohibited from exercising the warrant if, as a result of such exercise, the holder, together with its affiliates, would own more than 3.99% of the total number of shares of the Company’s common stock then issued and outstanding.