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As previously reported, on March 31, 2017, the Company received a notice of default from GKS Funding stating that the Company was in default of the Loan for failure to make a scheduled interest payment on the Loan that was due on March 31, 2017. If such failure described above was not cured within the 15-day cure period, which was April 15, 2017, the Lenders (through GKS Funding, as administrative agent under the Loan Agreement) intended to exercise all rights and remedies available to them under the Loan Agreement, related note and applicable law, which included foreclosing on the collateral under the Loan Agreement.</font></p> <p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">&#160;</font></p> <p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">As of the date of the Cooperation Agreement, the outstanding balance of the Company&#8217;s obligations under the Loan Agreement was approximately $1,011,800, plus accrued and accruing legal fees and expenses. 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The Company executed an amendment number 3 to the 14% nonconvertible subordinated secured notes (dated September 29, 2014, October 23, 2014, October 30, 2014 and December 3, 2014, respectively) whereby the maturity date for each note was extended from May 29, 2015 to December 31, 2015. Bears interest at 14% computed based on a 365-day year. Bears interest at 14% computed based on a 365-day year. Bears interest at 14% computed based on a 365-day year. Bears interest at 14% computed based on a 365-day year. Bears interest at 14% computed based on a 365-day year. Bears interest at 14% computed based on a 365-day year. Bears interest at 14% computed based on a 365-day year. The note matures in six months (March 26, 2016) and bears interest at 14% computed based on a 365- day year. 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The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights. 3791 3094 1824 1562 3189 3791 3189 1562 3924 15342 6383 2117 2117 3791 1824 2117 The Company executed an amendment number 3 to the 14% nonconvertible subordinated secured notes (dated September 29, 2014, October 23, 2014, October 30, 2014 and December 3, 2014, respectively) whereby the maturity date for each note was extended from May 29, 2015 to December 31, 2015. On December 23, 2015, the company executed an amendment whereby the maturity date was extended to July 1, 2016. On June 29, 2016, the company executed an amendment whereby the maturity date was extended to October 1, 2016. On September 30, 2016, the company executed an amendment whereby the maturity date was extended to April 3, 2017. The company executed an amendment to the 14% nonconvertible subordinated secured notes (dated September 29, 2014, October 23, 2014, October 30, 2014, December 3, 2014, June 12, 2015, August 13,2015, and August 21, 2015 respectively) whereby the maturity date for each note was extended to July 1, 2016. The company executed an amendment to the 14% nonconvertible note (dated September 29, 2015) whereby the maturity date was extended to July 1, 2016. The Company executed an amendment to the 14% nonconvertible subordinated secured notes (September 29, 2014, October 23, 2014, October 30, 2014, December 3, 2014, June 12, 2015, August 13, 2015, and August 21, 2015 respectively) whereby the maturity date for each note was extended to October 1, 2016. The Company executed an amendment to the 14% nonconvertible subordinated secured notes (September 29, 2014, October 23, 2014, October 30, 2014, December 3, 2014, June 12, 2015, August 13, 2015, and August 21, 2015 respectively) whereby the maturity date for each note was extended to April 3, 2017. The company executed an amendment to the 14% nonconvertible subordinated secured notes due December 23, 2016 whereby the maturity date was extended to April 3, 2017. 8 4 2 2 2 P2Y P2Y P2Y P2Y P2Y P2Y P2Y P2Y P2Y P90D P2Y P2M P2M P2M P2M P2M P2M P2M P2M P6M P6M P12M P12M P1Y P1Y P1Y P1Y P1Y P1Y P1Y P1Y P1Y P1Y P1Y P1Y P2Y6M P2Y6M P24M 1257000 1257000 200000 200000 300000 300000 12567 75000 19000 264000 624866 624866 19000 19000 19000 19000 75000 264000 200000 300000 200000 300000 200000 300000 2.25 2.25 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.25 1.25 21266 256342 P90D P90D P90D P90D P90D P90D P90D P90D P90D P90D 96590 284844 40335 20844 19491 20844 264000 85000 85000 70000 30000 12000 25000 150000 500000 500000 500000 100000 100000 100000 100000 100000 50000 100000 50000 100000 100000 500000 50000 50000 500000 300000 100000 996000 996000 56000 56000 56000 35000 996000 0.189 0.189 0.05 0.05 0.05 0.015 P30D 742833 131043 371421 0.0130 1.19 2.79 Assuming the probability for an event of default occurring 0% of the time and increasing by 0.0% per month. 150000 150000 249635 3749259 117642 180824 25369 517018 55334490 38888147 0.00005 0.175 P2Y 6067931 3020134 71429 71429 285716 71429 71429 96590 96590 192308 192308 576924 192308 576924 192308 192308 192308 1006711 1006711 3020134 1006711 2013423 30000 30000 30000 12959660 122986 52752869 53097601 0.0298 4 3 3 0.25 <div>These stock options vest 25% on date of grant and 25% every 90, 180 and 270 days subsequent to the grant date and expire ten years after the date of the grant.</div> 4610179 Mr. Kahn was to receive an additional grant of fully-vested common stock, such additional grants each representing 0.75% of the Company's shares of common stock on a fully diluted basis as of May 1, 2017 and May 1, 2018, respectively. The Company expensed $23,268 in the year ended December 31, 2016 for the stock compensation grant related to the May 1, 2017 and May 1, 2018 additional grants. The Company will expense a portion of this compensation quarterly until the grants are made at their respective due dates. 5000000 260000 5500000 125000 5500000 18750 6250 62500 50000 50000 1010000 1040000 20000000 4.00 0.125 0.125 0.0400 0.125 0.125 0.125 0.125 0.125 0.125 0.125 0.125 8.64 3.64 8.56 8.56 8.56 8.56 8.56 8.56 500000 75000 25000 250000 200000 200000 20025 12500 71125 71125 60885 1 1 1 1 1 1 1 1 1 1 1 1 1 1 260000 0.1693 351314 96590 10084 4873 5211 5211 71211 86317 41712 44606 44606 609566 826806 36705 17737 18968 18968 259208 351586 40335 19491 20844 20844 284844 P5Y P5Y 10681 628012 715500 48060 48060 13990 2225600 946400 11103275 10111023 8718308 4012386 1392715 8600956 8600956 8718308 0.78 0.53 0.50 0.29 0.03 0.88 0.66 0.61 0.61 0.50 0.01 1.51 3.01 1.50 3.00 5.00 8718308 7221774 1496534 P4Y6M P5Y3M19D P9M19D 0.50 0.26 1.67 8718308 7221774 1496534 50957780 6750000 -57707780 0.52 0.64 0.53 0.00 0.00 1006711 30000 0.0298 3020134 These stock options vest 25% on date of grant and 25% every 90, 180 and 270 days subsequent to the grant date and expire ten years after the date of the grant. 0 122805 4610178 0.46 0.09 0.07 0.09 0.58 3 2 44000 10681 2015-07-14 2015-10-14 70168 53916 17972 0.088 15800 15800 360000 200000 102000 30000 30000 Less than $300 60000 60000 60000 60000 500000 750000 450000 250000 250000 150000 250000 250000 250000 0.8452 0.8199 0.8199 1.0465 1.0465 2.0110 0.0107 0.0085 0.0085 0.016 0.016 5000 21226 5000 31868774 6023022 1600000 900000 71211 10084 5211 4873 5211 P365D P365D P365D P365D P365D P365D P365D P365D The Kahn Employment Agreement will continue until June 30, 2019 (subject to automatic one year extensions), unless earlier terminated pursuant to its terms. Pursuant to the Kahn Employment Agreement, Mr. Kahn's annual base salary will be $200,000 per year from the Effective Date through December 31, 2016 and $225,000 beginning January 1, 2017. Mr. Kahn will also be eligible to participate in Company's annual incentive compensation program (the "Annual Incentive Program"), with a target annual bonus equal to 100% of his annual base salary and a maximum annual bonus each year equal to 200% of his base salary. Mr. Kahn's annual bonus for the 2016 calendar year will be prorated based on the number of days served during 2016. The Kahn Employment Agreement, Mr. Kahn's annual base salary will be $200,000 per year from the Effective Date through December 31, 2016 and $225,000 beginning January 1, 2017. Mr. Kahn will also be eligible to participate in Company's annual incentive compensation program (the "Annual Incentive Program"), with a target annual bonus equal to 100% of his annual base salary and a maximum annual bonus each year equal to 200% of his base salary. Mr. Kahn's annual bonus for the 2016 calendar year will be prorated based on the number of days served during 2016. Grant date fair value equal to 100% of Mr. Kahn's base salary and a maximum annual equity award for each year in which Mr. Kahn participates in the equity incentive compensation program equal to 250% of Mr. Kahn's base salary. 6067931 0.00005 Mr. Kahn pursuant to the Equity Award will equal at least 3.5% of the Company's shares of Common Stock on a fully diluted basis until April 30, 2016, 4.25% until April 30, 2018, and 5.0% thereafter. For purposes of the Kahn Employment Agreement, an "Equity Issuance Date" is any date on which the Company consummates the sale of or issuance of (i) more than 1% of the Company's shares of Common Stock on a fully diluted basis; or (ii) any instrument that is convertible into more than 1% of the Company's shares of Common Stock on a fully diluted basis. Such amount representing 3.5% of the Company's shares of Common Stock on a fully diluted basis as of the Effective Date. In addition, on each of May 1, 2017 and May 1, 2018, respectively, Mr. Kahn will receive an additional grant of fully-vested Company Common Stock, such additional grants each representing 0.75% of the Company's shares of Common Stock on a fully diluted basis as of May 1, 2017 and May 1, 2018, respectively (together with the 6,067,931 shares granted on the Effective Date, the "Equity Award"). 160001 64000 64000 19000 12567 75000 264000 4 300000 200000 48040 16230 23000 20000 20000 59230 50000 80000 2.25 416695 826806 609566 86317 44606 41712 44606 351586 259208 36705 18968 17737 18968 15800000 360000 The Term Sheet is for a proposed convertible preferred stock financing relating to the potential issuance by the Company of shares of up to $6,000,000 but not less than $4,000,000 of a newly-created series of preferred stock of the Company. As proposed, such newly-created preferred stock would be convertible into up to a maximum of 75% of the Company's equity (on a fully-diluted basis) and would be entitled, as a class, to designate three of the five directors of the Company. 4798 0