On February 14, 2008, the Company issued to RBFSC Inc. (RBFSC), a related party, a convertible promissory note (the 2008 Note) in the principal amount of $3.0 million with an interest rate of 8% per annum, which was subsequently amended on June 27, 2008 (the 2008 Amended Note). In connection with the issuance of the 2008 Amended Note, the Company issued a five-year warrant to purchase 750,000 shares of the Company’s common stock at an exercise price of $1.00 per share (2008 Warrant). The 2008 Amended Note, which was due and payable on July 1, 2011, included a call option which gave the holder the right to demand repayment in the case of default and a put option which allowed the Company to prepay the unpaid balance of the 2008 Amended Note and related accrued interest at any time and without penalty.

In 2009, the Company issued to accredited investors convertible promissory notes in an aggregate principal amount of $3.47 million (the 2009 Notes) and five-year warrants to purchase an aggregate of 868,500 shares of the Company’s common stock at an exercise price of $1.00 per share (the 2009 Warrants). The 2009 Notes bore interest at the rate of 8% per annum and were due and payable on July 1, 2011. The 2009 Notes also included a call option giving the holders the right to demand repayment in the case of default and a put option allowing the Company to prepay the unpaid balance of the 2009 Notes and accrued interest at any time and without penalty.

The Company determined the relative fair value of the 2009 Warrants to be $218,862 and recorded this amount as a discount to the 2009 Notes, to be amortized over the life of the 2009 Notes.

Holders of the 2009 Notes included three related parties: 1) two members of the Company’s Board of Directors who each purchased a convertible note in the principal amount of $100,000 and received a warrant to purchase 25,000 shares of the Company’s common stock and 2) Cardinal Court LLC which purchased a convertible note in the principal amount of $2.0 million and received a warrant to purchase 500,000 shares of the Company’s common stock. The Vice President and Treasurer of Cardinal Court LLC is Frank T. Nickell, who is also the President and a director of RBFSC and owns an interest that allows him to exercise significant influence.

Over the first half of 2010, the Company issued to accredited investors convertible promissory notes in an aggregate principal amount of $3.2 million (2010 Notes) and five-year warrants to purchase an aggregate of 800,000 shares of the Company’s common stock at an exercise price of $0.80 per share (2010 Warrants). The 2010 Notes bore interest at the rate of 8% per annum and were due and payable on July 1, 2013. The 2010 Notes also included a call option giving the holders the right to demand repayment in the case of default (which included a default under the 2008 Amended Note or the 2009 Notes), and a put option allowing the Company to prepay the unpaid balance of the 2010 Notes and accrued interest at any time and without penalty.

The Company determined the relative fair value of the 2010 Warrants to be an aggregate of approximately $77,000 and recorded this amount as a discount to the 2010 Notes, to be amortized over the life of these notes.

The holders of the 2010 Notes included three related parties: 1) two members of the Company’s Board of Directors who purchased convertible notes in an aggregate principal amount of $450,000 and received warrants to purchase an aggregate of 112,500 shares of the Company’s common stock and 2) RBFSC which purchased a convertible note in the principal amount of $2,200,000 and received a warrant to purchase 550,000 shares of the Company’s common stock.

(i)

amended and converted $3,665,425 of aggregate principal amount and accrued interest due on the 2008 Amended Note into 6,109,041 shares of the Company’s common stock at a conversion price of $0.60 per share;

(ii)

amended and converted $2,326,334 of aggregate principal amount and accrued interest due on its 2010 Note into 3,877,223 shares of the Company’s common stock at a conversion price of $0.60 per share;

(iii)

amended and exercised the 2008 Warrant to purchase 1,500,000 shares of the Company’s common stock at an exercise price of $0.50 per share for a total of $750,000; and

(iv)

amended and exercised its 2010 Warrant to purchase 1,100,000 shares of the Company’s common stock at an exercise price of $0.40 per share for a total of $440,000.

(i)

RBFSC amended and exercised its warrant issued on March 3, 2006 for 300,000 shares of the Company’s common stock at an exercise price of $0.50 per share for a total of $150,000; and

(ii)

the Company agreed to comply with the requirements for “qualified small business stock” under Section 1202 of the Internal Revenue Code of 1986, as amended.

(i)

$3,877,164 of aggregate principal amount and accrued interest of the 2009 Notes was converted into 6,461,921 shares of the Company’s common stock at a conversion price of $0.60 per share;

(iii)

$1,060,099 of aggregate principal amount and accrued interest of the 2010 Notes was converted into 1,766,827 shares of the Company’s common stock at a conversion price of $0.60 per share;

(iv)

certain of the 2009 Warrants were exercised for an aggregate of 1,452,000 shares of the Company’s common stock at an exercise price of $0.50 per share for a total of $726,000; and

(v)

the 2010 Warrants were exercised for an aggregate of 500,000 shares of the Company’s common stock at an exercise price of $0.40 per share for a total of $200,000.

The per share fair value of the Company’s common stock immediately prior to the RBFSC’s note conversion on November 22, 2010 and the note conversions on December 27, 2010 pursuant to the Tender Offer was estimated at $0.61 and $0.57, respectively. In aggregate, the value of the common stock issued in connection with the conversion of the convertible notes payable in the fourth quarter of 2010 in excess of the carrying amount of the principal and accrued interest on the convertible notes payable was $3,806,966. This amount was charged to debt conversion inducement expense in the accompanying statements of operations for the year ended December 31, 2010.

On December 31, 2010, the Company issued to seven accredited investors an aggregate of 999,731 shares of the Company’s common stock at a purchase price of $0.60 per share for an aggregate purchase price of $599,839. Participants in the December 2010 equity financing included RBFSC which acquired 500,000 shares of the Company’s common stock for a total of $300,000.