Lambda’s purchase of the Lambda Note was part of a private placement by the Company of Series A Notes in which three other investors purchased Series A Notes having an aggregate principal amount of $2,676,500 (the “Private Placement”). In connection with the Private Placement, the Company entered into an Exchange Agreement dated September 19, 2007 (the “Exchange Agreement”) with the holders of the Company’s 6% Secured Convertible Notes due 2012 (the “Old Notes”) pursuant to which such holders agreed to exchange the principal and accrued but unpaid interest in an aggregate amount of approximately $5.6 million due under the Old Notes for new Series B 10% Secured Convertible Notes due 2008 in an aggregate principal amount of $5.3 million (the “Series B Notes” and, together with the Series A Notes, the “Notes”). In connection with the Private Placement and the transactions consummated pursuant to the Exchange Agreement (the “Closing”), the Company, Lambda and the other holders of Notes entered into an Investor Rights Agreement dated September 19, 2007 (the “Investor Rights Agreement”).

The principal and accrued interest due under each Series A Note is convertible into (i) shares of Common Stock at a conversion price per share of Common Stock equal to $0.706, and (ii) Class D Warrants (the “Warrants”) for the purchase of shares of Common Stock in an amount equal to 50% of the number of shares of Common Stock issued upon conversion of the Series A Note. The exercise price for the Warrants is $0.90 per share of Common Stock, and the Warrants may be exercised at any time after issuance for a period of 5 years. The principal and accrued interest due under each Series B Note is convertible into shares of Common Stock at a conversion price per share of Common Stock equal to $0.706. All of the Notes will automatically convert on the twenty-first (21^st) day after the Company sends or gives its stockholders a definitive Schedule 14C information statement relating to certain actions taken by stockholders of the issuer by written consent (the “Automatic Conversion Date”). Pursuant to the Subscription Agreement and the Exchange Agreement, the Company is obligated to file a preliminary Schedule 14C information statement with the Securities and Exchange Commission (the “Commission”) no later than October 4, 2007 and to file a definitive Schedule 14C information statement (the “Definitive Schedule 14C”) with the Commission no later than the second business day after receiving confirmation that the Commission has no further comments on the preliminary Schedule 14C information statement.

Item 4. Purpose of Transaction

The Reporting Persons consider the acquisition and ownership of the Lambda Note and the Common Stock and Warrants to be received upon the conversion thereof to be an investment.

In satisfaction of a condition to the Closing, four of the Company’s seven directors, including the Company’s Executive Chairman, resigned on September 19, 2007. Also on September 19, 2007, Arthur Amron, a Partner and the Secretary of Wexford Capital and a Vice President and Assistant Secretary of Lambda, and Dr. Paul Mieyal, an employee of Wexford Capital, were appointed to the Board in satisfaction of a condition to the Closing. The Company currently plans to elect an additional director to increase its board size to six members. Wexford Capital and Lambda will be involved in such election; however, it is expected that the person to be elected will not be an affiliate of Wexford Capital or Lambda.

To permit the issuance of the Common Stock issuable upon the conversion of the Notes and the exercise of the Warrants (the “Subject Securities”), the Company is in the process of amending its Certificate of Incorporation to increase its number of authorized shares of Common Stock from 40,000,000 shares to 60,000,000 shares (the “Certificate Amendment”). As a condition to the Closing, the Company was required to obtain written consents of stockholders of the Company sufficient to approve the Certificate Amendment and the issuance of the Subject Securities; however, such written consents will not become effective until 20 days after the Definitive Schedule 14C is given or sent to the Company’s stockholders. The Certificate Amendment is expected to become effective on or before the Automatic Conversion Date.

As part of the Closing, the Company entered into a Registration Rights Agreement with the holders of the Notes (the “Registration Rights Agreement”) pursuant to which the Company agreed to register the Subject Securities for resale under the Securities Act of 1933. Pursuant to the Registration Rights Agreement, the Company is obligated to file a registration statement for such purpose within 60 days after the date on which the Definitive Schedule 14C is filed and to use its commercially reasonable best efforts to cause such registration statement to become effective within 180 days after the date on which the Definitive Schedule 14C is filed. The Company is obligated to pay all expenses in connection with such registration. If the Company is unable to register all of the Subject Securities on a single registration statement, the Company is obligated to file successive registration statements and cause such registration statements to become effective until all of the Subject Securities have been registered, all in accordance with the rules of the Commission.

Page 7 of 12 Pages