The holders of the Convertible Notes have the right at any time and from time to time to convert all or part of the outstanding principal amount into shares of the Company's common stock at a conversion price of $2.124 per share. The Convertible Notes mature on the earlier of (i) the first anniversary of the closing date and (ii) the date the Company issues any securities in an offering registered under the Securities Act with the United States Securities and Exchange Commission (the "Maturity Date"); provided, however, in the event that the net proceeds received by the Company from such registered offering are insufficient to repay the sum of (A) all of the principal and interest due to the Company's senior secured lender (the "Senior Lender Obligations") and (B) the amount owed under the Convertible Notes due to the fact that the Company did not have a sufficient number of shares of common stock available for issuance in such registered offering, then the Company shall use its best efforts to obtain stockholder approval for an increase of its authorized shares of common stock and the Maturity Date shall be the earlier of (i) one year following the date of issuance of the Convertible Notes and (ii) ninety days following the closing of the registered offering. The Convertible Notes provide that the holders are guaranteed to receive at least six months of interest regardless of the Maturity Date or the Company's prepayment of the Notes. The Convertible Notes are subordinated in all respects to the Senior Lender Obligations and are unsecured obligations of the Company. However, in the event the Company fails to pay any obligations outstanding under the Convertible Notes on the Maturity Date, or if prior to the Maturity Date the Senior Lender Obligations have been repaid in full and any portion of the Convertible Notes remain outstanding, the Company will grant the holders of the Convertible Notes a security interest on substantially all of the Company's assets and pledge the Company's ownership interests in its subsidiaries to secure such outstanding obligations. Any such security interest and pledge will be junior to any Senior Lender Obligations that remain outstanding at such time. The Convertible Notes provide for the following events of default: (i) termination of existence of the Company; (ii) appointment of a receiver who is not dismissed within 30 days; (iii) the filing against the Company of a petition under the U. S. Bankruptcy Code or similar law that is not dismissed within 60 days; (iv) the commencement of a voluntary proceeding under the U. S. Bankruptcy Code or similar law; (v) the failure to pay interest on the Convertible Notes within three (3) business days of when due; or (vi) the assignment by the Company for the benefit of creditors. The foregoing description of the Convertible Notes is qualified by reference to the complete terms of such Convertible Notes, the form of which is filed herewith as Exhibit 10.2.

The exercise price for the Investor Warrants is $2.60 per share. The Investor Warrants are not exercisable for six months and permit cashless exercise unless the resale of the shares underlying the Investor Warrants has been registered under the Securities Act, in which case, they must be exercised for cash. In the event that the Company at any time prior to the first anniversary date of the issuance of the Investor Warrant issues any shares of its common stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangable for shares of the Company's common stock at a price per share that is less than the exercise price for the Investor Warrants then in effect, the exercise price for the Investor Warrant will be adjusted to that lower price. The foregoing description of the Investor Warrants is qualified by reference to the complete terms of such Investor Warrants, the form of which is filed herewith as Exhibit 10.3.

The Company and Investors also entered into a Registration Rights Agreement pursuant to which the Company agreed to file a registration statement within 30 calendar days of the final closing (the "Required Filing Date") to register the resale of the shares of common stock issuable upon conversion of the Convertible Notes and exercise of the Investor Warrants. The Company also agreed to use its best efforts to cause the registration statement to be declared effective within 60 days of the Required Filing Date (the "Required Effective Date"). In the event the Company fails to file the registration statement by the Required Filing Date, then the Company agreed to pay the Investors as compensation for such delay an amount equal to 1.5% of the gross proceeds received from the sale of the Convertible Notes. If the registration statement is not declared effective by the Required Effective Date, then the Company agreed to pay the Investors as compensation for such delay an amount equal to 1.5% of the gross proceeds for each 30-day period or portion thereof until the registration statement is declared effective; provided, however, the maximum aggregate amount that the Company will be obligated to pay the Investors under the Registration Rights Agreement cannot, under any circumstances, exceed 12% of the gross proceeds from the sale of the Convertible Notes. The foregoing description of the Registration Rights Agreement is qualified by reference to the complete terms of such agreement, the form of which is included herewith as Exhibit 10.4.

The Company paid its placement agent a cash fee of $233,955 for its services as placement agent in the offering.

The Convertible Notes, Investor Warrants, and shares of common stock issuable upon conversion of the Convertible Notes and exercise of the Investor Warrants (collectively, the "Securities") have not been registered under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements under the Securities Act or any applicable state securities laws.

As a result of the transaction described above, the anti-dilution provision contained in warrants issued by the Company on October 27, 2006 (the "October 2006 Warrants") was triggered. The exercise price for the October 2006 Warrants was reset from $2.92 to $2.124 and the number of shares subject to the October 2006 Warrants was increased from 968,992 to 1,332,135.