On May 19, 2015 (the “Closing Date”), the Company entered into a Securities Purchase Agreement (“SPA”) with Redwood Management, LLC (the “Investor” or “Redwood”) pursuant to which the Investor committed to lend to the Company up to $6,500,000 (the “Financing”).

During the year ended December 31, 2015, the Company issued four tranches of convertible promissory notes in the aggregate principal amount of $1,785,000 to the Investor and other third parties who were assigned rights by the Investor to participate in the Financing. During the first quarter of 2016, the Company repaid all obligations under the SPA and has no intention of seeking further capital from the Investor, or any other investor(s) in the Financing. Activity under the SPA during 2015 and the first quarter of 2016 are described below.

The Company’s borrowings and conversions under the SPA for the year ended December 31, 2015 is summarized in the table below:

The Company’s obligations under the Financing were secured by substantially all of the Company’s assets. On the Closing Date, the Company issued to the Investor a 10% Senior Secured Promissory Note (the “Initial Note”) in the principal amount of $510,000, in exchange for payment by the Investor of the total sum of $500,000. The principal sum of the Initial Note reflects the amount invested, plus a 2% Original Issue Discount (“OID”). On June 12, 2015, the Company issued to the Investor a promissory note for the second tranche of the Financing in the principal amount of $510,000, in exchange for payment by the Investor of the total sum of $500,000 (“Note 2”). The principal sum of Note 2 reflects the amount invested, plus a 2% OID.

On July 24, 2015, Redwood entered into separate assignment agreements (each, an “Assignment Agreement”) with each of the BOU Trust (“BOU”), Old Main Capital, LLC (“Old Main Capital”) and Blue Marina Investments (“Blue Marina” and together with BOU and Old Main Capital, the “New Investors” and, together with Redwood, the “Investors”) pursuant to which Redwood assigned certain of its rights under the SPA, to each New Investor, specifically the right to purchase a specified amount of the 10% Senior Secured Convertible Promissory Notes issuable by the Company to Redwood pursuant to the terms of the SPA and the rights related thereto under the Transaction Documents (as defined below). In consideration for such assignment, the New Investors each agreed to be bound by the provisions of the Transaction Documents that apply to the “Purchasers” (as defined in the SPA).

Pursuant to the Financing, on July 24, 2015, and pursuant to the terms of the SPA and the Assignment Agreements, the Company issued to Redwood a third 10% Senior Secured Convertible Promissory Note in the principal amount of $204,000 (the “Redwood Note 3”), in exchange for payment by Redwood of the sum of $200,000. The principal sum of Redwood Note 3 reflects the amount invested plus the OID.

Pursuant to the Financing, on July 24, 2015, and pursuant to the terms of the SPA and the Assignment Agreements, the Company issued to: (i) BOU a 10% Senior Secured Convertible Promissory Note in the principal amount of $51,000, in exchange for payment by BOU of the sum of $50,000; (ii) Old Main Capital a 10% Senior Secured Convertible Promissory Note in the principal amount of $204,000, in exchange for payment by Old Main Capital of the sum of $200,000; and (iii) Blue Marina a 10% Senior Secured Convertible Promissory Note in the principal amount of $51,000, in exchange for payment by Blue Marina of the sum of $50,000 ((i), (ii) and (iii) collectively, the “New Investor Notes”). Out of the proceeds of Redwood Note 3 and the New Investor Notes, the Company paid Chardan brokerage commissions equal to $25,000, resulting in net proceeds to the Company of $475,000. Redwood Note 3 and the New Investor Notes are referred to herein collectively as “Note 3”.

On September 16, 2015, the Company and the Investor entered into an Amendment No. 1 to the SPA (the “Amendment”) pursuant to which the parties amended the terms of the fourth tranche of funding to provide that as of the date of the Amendment, the Investor is irrevocably bound, subject to the equity conditions, discussed below, to fund the fourth tranche of the Financing and that such tranche shall have a conversion price equal to 60% of the lowest traded price in the 30 days prior to conversion, as further discussed below. The parties further agreed that the fourth tranche would be broken into two sub-tranches – each in the amount of $250,000. Pursuant to the Financing, on September 16, 2015, and pursuant to the terms of the SPA, the Company issued to the Investor a promissory note for the first half of the fourth tranche in the principal amount of $255,000, in exchange for payment by the Investor of the total sum of $250,000 (“Note 4”). The principal sum of Note 4 reflects the amount invested, plus a 2% OID. The Investor did not fund the second sub-tranche of the fourth tranche.

In connection with the Financing, and in addition to the SPA and the Initial Note, on the Closing Date, the Company and the Investor entered into a Security Agreement, an Intellectual Property Security Agreement and a Registration Rights Agreement, and each of our subsidiary companies entered into a Subsidiary Guarantee (the “Transaction Documents”).

On September 16, 2015, the Company and the Investor also entered into an Amendment No. 1 to the promissory notes (the “Notes Amendment”) pursuant to which the parties amended the terms of the Initial Note, Note 2 and Redwood Note 3 to provide that each such promissory note shall have a conversion price for amortization payments equal to 60% of the lowest traded price in the 15 days prior to conversion, as further discussed below.

Pursuant to the Financing, and provided the Company was not in default under the terms of any of the Transaction Documents, the Investor was to provide additional funding in the aggregate amount of $4,750,000 in exchange for delivery of additional 10% Senior Secured Convertible Promissory Notes (each, a “Note” and together with the Initial Note, Note 2, Note 3 and Note 4, the “Notes”). The Company has not received any such additional funding in connection with the Financing and does not intend to further utilize the Financing to receive any additional funding.

The Notes were scheduled to mature in 12 months, and were convertible at the option of the Investor at any time into shares of the Company’s common stock at a conversion price equal to the lowest Volume Weighted Average Price (“VWAP”) in the 15 trading days prior to the Closing Date (the “Fixed Conversion Price”). Amortization payments under the Notes commenced on the five-month anniversary of the issuance of a Note, and 1/15^th of the principal amount and accrued interest were payable in bi-weekly installments until the maturity of such Note; provided, however, that pursuant to the terms of the Notes Amendment, the Company had a thirty (30)-day extension to make the first amortization payment under the Initial Note, Note 2 and Redwood Note 3. The Company could choose in its discretion to make amortization payments under the Notes in common stock, at a conversion price equal to the lower of (a) 70% of the VWAP for the 15 consecutive trading days prior to conversion, or (b) the Fixed Conversion Price (the lower of (a) and (b), the “Amortization Conversion Price”); provided, that if the average daily dollar volume of the Company’s common stock for the previous 20 days prior to payment was less than $50,000, then the conversion price would be equal to 60% of the lowest traded price in the 30 days prior to conversion; and provided, further, that pursuant to the terms of the Amendment and the Notes Amendment, the conversion price under the Initial Note, Note 2 and Redwood Note 3 and the promissory notes issued in connection with the fourth tranche (including without limitation Note 4) would have a conversion price equal to 60% of the lowest traded price in the 15 days prior to conversion. The Company could only make amortization payment in common stock, in lieu of cash, if no event of default had occurred under the Notes and it met certain financial and non-financial covenants as defined in the Transaction Documents. As of December 31, 2015, the Company was in compliance with all such covenants.

During the year ended December 31, 2015, the Company issued 5,716,230 shares of its common stock to the Investors in connection with the conversion of Note 1 and partial conversion of Note 2 in the aggregate principal amount of $765,000 and $13,373 of accrued interest. The total of $778,373 was allocated to common stock and additional paid in capital as a result of the conversion.

In connection with the Financing, the Company incurred debt issuance costs of $364,504, which will be amortized over the entire term of the Financing term. Debt issuance costs of $264,699 were amortized to interest expense during the year ended December 31, 2015.

Due to the 60% conversion feature described above, the Company recorded a beneficial conversion feature amount of $612,500 as a debt discount associated with the Notes. During the year ended December 31, 2015, the Company recorded an expense of $574,108 for amortization of the beneficial conversion feature amount.

The following table presents the range of assumptions used by the Company for calculating the fair value of the beneficial conversion feature of the Notes using the Monte Carlo simulation valuation model issued during the year ended December 31, 2015:

The risk-free interest rates are based on the implied yield available on U.S. Treasury constant maturities with remaining terms equivalent to the respective expected terms of the options. The Company estimates the expected term for beneficial conversion feature to be six months, corresponding to the applicable conversion date for the Notes. Expected volatility is calculated based on the Company’s peer group, consisting of eight other companies in our industry, and the Company.

During the first quarter of fiscal year 2016, the Company repaid the remaining principal balance of the Notes in full as further described below.

In connection with the conversion of the remaining principal amount of $255,000 of Note 2, the Company issued 3,062,535 shares of its common stock to the Investors.

The Company repaid $357,000 of the aggregate principal amount of Note 3 plus interest in the amount of $148,944 in cash to the Investors. The Company issued 2,500,000 shares of its common stock to the Investors in connection with the conversion of the remaining principal amount of $153,000 of Note 3.

The Company repaid the entire principal amount of Note 4 in the amount of $255,000 plus interest in the amount of $93,075 in cash to the Investors.