Note 11. Subsequent Events

On August 31, 2016, the Company announced that it recently closed on a $3 million credit line with its largest shareholder. The credit line, whose terms include a 12% per annum interest rate on drawn funds and a 2% per annum interest rate on undrawn funds, will extend through August 2019. The Company initially drew down $750,000 under the line, of which approximately $248,000 was used to repay a secured line of credit with a bank. Additionally, the Company paid a 2% origination fee and issued 750,000 common-stock warrants at an exercise price of $0.20 per share, which are redeemable by the Company if the closing price of its common stock averages at least $0.25 per share for 10 consecutive trading days.

In September 2016, the Company’s Chief Executive Officer extended $1,300,000 of notes payable to May 5, 2018 from February 2017.

On September 13, 2016, the Company extended approximately 5 million options that were expiring in 2017. The new expiration dates were extended three years. The cost associated with these extensions is approximately $150,000, which represents the difference between the fair value of the options before the modification and the fair value immediately after the modification. These extended options will vest over three year periods beginning with the respective extension periods.

Effective September 14, 2016, Mr. Paul Schneier resigned as a director. The Company agreed to vest all of his outstanding options.