SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2011

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 17. SUBSEQUENT EVENTS

We have evaluated, for potential recognition and disclosure, subsequent events that have occurred after the balance sheet date but before the financial statements were available to be issued, which we consider to be the date of filing with the Securities and Exchange Commission.

On July 28, 2011, we completed a $125,000 convertible debt financing with Kerry P. Gray, the Company's Chairman, President, and Chief Executive Officer (the “July 2011 Debt Offering”).  The convertible note will bear interest at the rate of 10.0% per annum, with annual payments of interest commencing on July 1, 2012.  The full amount of principal and any unpaid interest will be due on July 28, 2014.  The outstanding principal balance of the note may be converted into shares of the Company's common stock, at the option of the note holder and at any time, at a conversion price of $1.08 per share or 115,741 shares of common stock.  The Company may force conversion of the convertible note if our common stock trades for a defined period of time at a price greater than $2.16.  The convertible note is secured by the grant of a security interest in the inventory, accounts receivables and capital equipment held by the Company.  As part of the convertible debt financing, Mr. Gray also received a warrant to purchase up to 34,722 shares of the Company's common stock.  The warrant has an exercise price of $1.08 per share and is exercisable at any time until July 28, 2016.