Note 13.      Subsequent Events

Reverse Stock Split

Effective July 20, 2016, we conducted a one for five reverse stock split of our issued and outstanding common stock (see Note 10).

NASDAQ Hearings Panel Decision

On July 27, 2016, a Nasdaq Hearings Panel issued its decision letter to the Company and granted the Company’s request for continued listing of the Company’s common stock on the Nasdaq Capital Market, subject to the following:

1. On or before August 2, 2016, the Company shall have evidenced a closing bid price of $1.00 or more for a minimum of the ten prior consecutive trading days. This condition was met on at the market close on August 2, 2016.

2. On or before August 15, 2016, the Company shall have publicly announced and informed the Panel that as a result of its preferred stock transaction, it has equity of over $2.5 million. On that date, the Company shall also provide updated financial projections with underlying assumptions (including the status of the events and plans discussed at the hearing), through the third quarter of 2017.

In order to fully comply with the terms of this exception, the Company must be able to demonstrate compliance with all requirements for continued listing on The Nasdaq Stock Market. In the event the Company is unable to do so, its securities may be delisted from The Nasdaq Stock Market.

Close of GIH Preferred Stock Offering

On August 2, 2016, the Company closed on its GIH Offering of $2.8 million of the Company’s Series A Preferred Stock (see Note 10). At the closing, Mr. Xingping Hou, the president of the Purchaser, joined the Board of Directors of the Company as co-Chairman.

Aspire Option Agreement

On August 10, 2016, the Company entered into an Option Agreement (the “Option Agreement”) with Aspire Capital, pursuant to which Aspire Capital granted to the Company the right at any time or times prior to December 31, 2019 to require Aspire Capital to enter into up to two common stock purchase agreements, each having a term of up to 36 months and collectively requiring Aspire Capital to purchase up to $20 million in the aggregate of the Company’s common stock (or such lesser amount as the Company may determine) on an ongoing basis when required by the Company.

As consideration for Aspire Capital entering into the Option Agreement, the Company issued warrants to purchase 500,000 shares of its common stock to Aspire Capital in lieu of commitment shares. The Company is under no obligation to issue any additional warrants or commitment shares to Aspire Capital upon entering into a common stock purchase agreement pursuant to the terms of the Option Agreement. The warrants have an exercise price of $0.01 per share, which amount is subject to customary anti-dilution and other adjustments. The warrants are exercisable upon issuance and will expire five years after issuance.