NOTE 8 – EQUITY

Common Stock:

On October 31, 2014, pursuant to the Exchange Offer described in Note 7, the Company issued an aggregate of 9,583,384 shares of common stock at $2.15 per share, in exchange for outstanding convertible notes and warrants. Included in the Exchange Offer was the issuance of 48,674 shares of common stock in lieu of cash payments of $104,463 for interest earned by noteholders for the quarter ended December 31, 2014. These shares of stock were issued at $1.58 per share, pursuant to the terms of the 2011 Notes, 2012 Notes and December 2012 Notes.

On December 31, 2014, the Company issued an aggregate of 2,815 shares of common stock in lieu of cash payments of $6,050 for interest earned by noteholders for the quarter ended December 31, 2014. These shares of stock were issued at $1.58 per share, pursuant to the terms of the 2011 Notes, 2012 Notes and December 2012 Notes.

At December 31, 2014, the Company required shares of common stock for issuance upon exercise as follows:

Options		2,229,542
Warrants		8,262,502
Convertible Notes		127,090
Total Shares		10,619,134

Warrants:

As a result of the issuance of shares of common stock in the Exchange Offer, the exercise prices of the remaining outstanding 2011 Warrants and 2012 Warrants were adjusted to $3.00 and $3.31, respectively.

Pursuant to the Loan and Security Agreement described in Note 7, during the quarter ended December 31, 2014, we issued warrants to Lenders to purchase an aggregate of 634,508 shares of Common Stock of the Company (after giving effect to the Exchange Offer). The warrants are exercisable at $2.15 per share (after giving effect to the Exchange Offer), subject to full ratchet adjustment for issuance below the exercise price, subject to certain exceptions. Additionally, the exercise price may not be adjusted below $1.00. Cashless exercise is permitted if the average trading volume of the Company’s Common Stock during at least five (5) of the ten (10) consecutive trading days immediately preceding the date of the notice of exercise is at least 10,000 shares, and will be based upon the average of the last sale price of the Common Stock during such five (5) consecutive trading day period. The warrants expire on June 6, 2018. When these warrants were issued, the fair value of each warrant granted was estimated on the date of grant using the Black-Scholes valuation model. The following weighted assumptions were used: (i) risk free interest rate of 1.39-1.63% and expected term of 3.55-3.66 years, (iii) dividend rate of 0.00% and (iv) expected volatility of 35.05%. The Company valued these warrants at $160,794, recorded as a discount to long-term debt. This discount is being amortized over the life of the Loan and Security Agreement or until such time as the notes are repaid, or upon exercise of the warrants. During the three months ended December 31, 2014, the Company amortized $18,678 of the of debt discount.

Options:

On November 17, 2014, the Company issued options to purchase 471,719 shares of common stock of the Company to Mark Patterson, former Chief Executive Officer, and options to purchase 176,894 shares of common stock of the Company to Christopher Mulvihill, President. The options were issued in exchange for an aggregate of $459,643 of deferred compensation. The options are exercisable at $2.15 per share, have a term of five years and vest immediately. When these options were issued, the fair value of each option granted was estimated on the date of grant using the Black-Scholes valuation model. The following weighted assumptions were used: (i) risk free interest rate of 1.64%, (ii) expected life of 5 years, (iii) dividend rate of 0.00% and (iv) expected volatility of 35.34%. The Company valued these options at $459,643 and recorded the expense during the three months ended December 31, 2014.

On November 17, 2014, the Company issued options to purchase 275,169 shares of common stock of the Company to a consultant. The options were issued in exchange for approximately $195,000 of services provided to the Company. The options are exercisable at $2.15 per share, have a term of five years and vest immediately. When these options were issued, the fair value of each option granted was estimated on the date of grant using the Black-Scholes valuation model. The assumptions used were similar to those used for the option grants to Messrs. Patterson and Mulvihill on November 17, 2014. The Company valued these options at $195,000 and recorded the expense during the three months ended December 31, 2014.

On November 17, 2014, the Company granted options to purchase 25,000 shares of common stock of the Company to each of Directors Joseph Bellantoni, Maureen Cowell, Kevin Cassidy, David Koffman and Anthony Miele. The options are exercisable at $2.15 per share and have a term of five years. The options are subject to a vesting schedule, under which one-third of the options will vest immediately, and one-third of the options will vest on each of November 17, 2015 and November 17, 2016. When these options were issued, the fair value of each option granted was estimated on the date of grant using the Black-Scholes valuation model. The assumptions used were similar to those used for the option grants to Messrs. Patterson and Mulvihill on November 17, 2014. The Company valued these options at $88,582 and is allocating this expense over the vesting period. The Company recorded an expense of $7,382 related to these options during the three months ended December 31, 2014.

On November 17, 2014, the Company granted options to purchase 20,000 shares of common stock of the Company to the former Chief Operating Officer of the Company. The options are exercisable at $2.15 per share, have a term of five years and vest immediately. When these options were issued, the fair value of each option granted was estimated on the date of grant using the Black-Scholes valuation model. The following weighted assumptions were used: (i) risk free interest rate of 1.49%, (ii) expected life of 5 years, (iii) dividend rate of 0.00% and (iv) expected volatility of 35.05%. The Company valued these options at $14,373 and recorded the expense during the three months ended December 31, 2014.

During the three months ended December 31, 2014, the Company recorded an expense of $49,335 related to options issued in fiscal year 2014 under the Company’s 2012 Stock Incentive Plan.