6. SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2014

Subsequent Events [Abstract]

8. SUBSEQUENT EVENTS

Subsequent to March 31, 2014, the Company sold two Notes totaling $810,000 to UBP on the same terms as previously sold Notes.  The Notes will mature on November 14, 2016.

On May 8, 2014, the Company entered into the Seventh Amendment to Convertible Secured Subordinated Note Purchase Agreement (the “Seventh Amendment”) and the Fifth Amendment to Convertible Secured Subordinated Promissory Notes (the “Fifth Amendment”), with the holders of a majority of the aggregate outstanding principal amount of the Notes issued by the Company under the Note Purchase Agreement (collectively, the “Noteholders”). The Seventh Amendment and the Fifth Amendment apply to all $28,205,000  in principal amount of Notes outstanding as of May 8, 2014 and all future Notes.  As amended, the Notes have the following terms:

● a maturity date of the earlier of (i) November 14, 2016, (ii) a Change of Control (as defined in the Note Purchase Agreement), or (iii) when, upon or after the occurrence of an Event of Default (as defined in the Note Purchase Agreement) such amounts are declared due and payable by a Noteholder or made automatically due and payable in accordance with the terms of the Note Purchase Agreement;

 ● an interest rate of 8% per year;

 ● a total borrowing commitment of $33.3 million;

 ● a conversion price that is fixed at $1.43; and

 ● optional conversion upon Noteholder request, provided that if at the time of any particular requested conversion the Company does not have a sufficient number of shares of its common stock authorized to allow for such conversion as well as the issuance of the maximum amount of common stock permitted under the Company’s 2004 Equity Compensation Plan, the Noteholder may request that the Company call a special meeting of the stockholders specifically for the purpose of increasing the number of shares of common stock authorized to cover the remaining portion of the Notes outstanding as well as the maximum issuances contemplated pursuant to the Company’s 2004 Equity Compensation Plan.