Common use of Payment of the Notes Clause in Contracts

Payment of the Notes. The Units, Notes, Warrants, and the common stock (including the common stock which may be issued in payment of interest due under the Notes and into which the Notes may be converted or issuable upon exercise of the Warrants) are and will be “restricted securities.” As restricted securities they may be sold only upon registration under the Securities Act and applicable state securities laws, or upon reliance on an exemption from the registration requirements. Offerees should consider purchasing the Units only as a long-term investment. Offerees may not be able to promptly liquidate their investment at a reasonable price, or for any price, in the event of a personal financial emergency or otherwise. We may not be able to obtain the significant financing that we need to continue to operate and any additional financing may be on terms adverse to your interests. We have recently entered into a number of financing transactions. We are continuing to seek other financing initiatives. We need to raise additional capital to meet our working capital needs, for the repayment of debt and for capital expenditures. Such capital is expected to come from the sale of debt and/or equity securities through private placement offerings and/or the sale of common stock. We believe that if we raise approximately $5.6 million in debt and equity financings we would have sufficient funds to meet our needs for working capital ($1.2 million), repayment of debt (approximately $2.6 million expected to mature from September 30, 2007 to September 30, 2008), accounts payable, accrued expenses and marketing and development (approximately $1.8 million) and for capital expenditures (approximately $0.1 million) over the next twelve months. As of September 30, 2007, we have cash balances in excess of $0.1 million. No assurance can be given that we will be successful in completing any financings at the minimum level necessary to fund our capital equipment, debt repayment or working capital requirements, or at all. If we are unsuccessful in completing these financings, we will not be able to meet our working capital, debt repayment or capital equipment needs or execute our business plan. In such case we will assess all available alternatives including a sale of our assets or merger, the suspension of operations and possibly liquidation, auction, bankruptcy, or other measures. For this and other reasons, there is substantial risk of non-payment of the Notes. We have had limited product sales, a history of operating losses and have been unprofitable since inception. We have had limited sales of our products to date. We incurred net losses of approximately $5.3 million during the year ended December 31, 2006 and approximately $4.3 million for the nine months ended September 30, 2007. We expect to incur substantial additional operating losses in the future. During the year ended December 31, 2006 and the nine months ended September 30, 2007, we generated revenues from product sales in the amounts of approximately $5,278 and $589, respectively. We cannot assure you that we will continue to generate revenues from operations or achieve profitability in the near future or at all. For this and other reasons, there is substantial risk of non-payment of the Notes. We have a working capital loss, which means that our current assets on September 30, 2007 were not sufficient to satisfy our current liabilities. We had a working capital deficit of $6,352,667 at September 30, 2007, which means that our current liabilities exceeded our current assets on September 30, 2007 by $6,352,667. Current assets are assets that are expected to be converted to cash or otherwise utilized within one year and, therefore, may be used to pay current liabilities as they become due. Our working capital deficit means that our current assets on September 30, 2007 were not sufficient to satisfy all of our current liabilities on that date. For this and other reasons, there is substantial risk of non-payment of the Notes.

Payment of the Notes. The Units, Notes, Warrants, and the common stock (including the common stock which may be issued in payment of interest due under the Notes and into which the Notes may be converted or issuable upon exercise of the Warrants) are and will be “restricted securities.” As restricted securities they may be sold only upon registration under the Securities Act and applicable state securities laws, or upon reliance on an exemption from the registration requirements. Offerees should consider purchasing the Units only as a long-term investment. Offerees may not be able to promptly liquidate their investment at a reasonable price, or for any price, in the event of a personal financial emergency or otherwise. We may not be able to obtain the significant financing that we need to continue to operate and any additional financing may be on terms adverse to your interests. We have recently entered into The Units are being sold on a number “best efforts” basis and no assurance can be given that all of financing transactionsthe Units being offered will be sold. We are continuing to seek other financing initiatives. We need to raise additional capital initiatives to meet our working capital needs. Our operating plan seeks to minimize our capital requirements, for the repayment but further commercialization of debt and for capital expenditures. Such capital is expected to come from the sale of debt and/or equity securities through private placement offerings and/or the sale of common stockour products will require additional capital. We believe expect that if product development and operating and production expenses will increase significantly as we raise approximately $5.6 million in debt continue to develop, produce and equity financings we would have sufficient funds to meet our needs for working capital ($1.2 million), repayment of debt (approximately $2.6 million expected to mature from September 30, 2007 to September 30, 2008), accounts payable, accrued expenses and marketing and development (approximately $1.8 million) and for capital expenditures (approximately $0.1 million) over the next twelve months. As of September 30, 2007, we have cash balances in excess of $0.1 millionsell products. No assurance can be given that we will be successful in completing this Offering or any other financings at the minimum level necessary to fund our capital equipment, debt repayment or working capital requirements, current operations or at all. If we are unsuccessful in completing these financingsfinancings at such minimum level, we will not be able to meet fund our working capitalcapital requirements or current expenses. If we are unsuccessful in completing these financings at or near the maximum level or an additional financing, debt repayment or capital equipment needs or execute we will not be able to pursue our business planstrategy. In such case Additional financing may not be available on terms favorable to us or at all. We estimate that we will assess all available alternatives including a sale of our assets or merger, the suspension of operations and possibly liquidation, auction, bankruptcy, or other measures. For this and other reasons, there is substantial risk of non-payment of the Notes. We have had limited product sales, a history of operating losses and have been unprofitable since inception. We have had limited sales of our products to date. We incurred net losses of need approximately $5.3 3.4 million during to continue to operate over the year ended December 31, next 12 months in order to implement our business plan in addition to the remaining proceeds provided from privately placed bridge loans of $2.2 million that closed from April 2006 and approximately $4.3 million for the nine months ended September 30to June 27, 2007. These remaining bridge loan proceeds may not be sufficient to meet our needs until the standby equity distribution agreement described below is available for us to draw on. Our long-term financing needs are expected to be provided from the standby equity distribution agreement we entered into in January 2006 with Cornell Capital Partners, L.P. Pursuant to the standby equity distribution agreement we may, at our discretion, periodically sell to Cornell Capital shares of our common stock for a total purchase price of up to $10 million. We expect will need to incur substantial additional operating losses register under the Securities Act the shares to be issued under the standby equity distribution agreement before such shares can be issued to Cornell Capital in the future. During We have not yet registered such shares with the year ended December 31, 2006 SEC and the nine months ended September 30, 2007, we generated revenues from product sales in the amounts of approximately $5,278 and $589, respectively. We cannot assure you there can be no assurance that we will continue register such shares or draw down funds under the standby equity distribution agreement. In addition, we will not be in a position to generate revenues from operations or achieve profitability in access the near future or at all. For this and other reasons, there is substantial risk of noncapital under the standby equity distribution agreement until our securities are quoted on the Over-payment of the Notes. We have a working capital loss, which means that our current assets on September 30, 2007 were not sufficient to satisfy our current liabilities. We had a working capital deficit of $6,352,667 at September 30, 2007, which means that our current liabilities exceeded our current assets on September 30, 2007 by $6,352,667. Current assets are assets that are expected to be converted to cash or otherwise utilized within one year and, therefore, may be used to pay current liabilities as they become duethe-Counter Bulletin Board. Our working capital deficit means common stock is presently not traded on any public market or securities exchange. There can be no assurance that we will successfully list our current assets securities for quotation on September 30, 2007 were not sufficient to satisfy all of our current liabilities on that datethe Over-the-Counter Bulletin Board. For this and other reasons, there is substantial risk of non-payment of the Notes.

Payment of the Notes. The Units, Notes, Warrants, and the common stock (including the common stock which may be issued in payment of interest due under the Notes and into which the Notes may be converted or issuable upon exercise of the Warrants) are and Warrants will be “restricted securities.” As restricted securities they may be sold only upon registration under the Securities Act and applicable state or other jurisdictions’ securities laws, or upon reliance on an exemption from the registration requirements. Offerees should consider purchasing the Units only as a long-term investment. Offerees may not be able to promptly liquidate their investment at a reasonable price, or for any price, in the event of a personal financial emergency or otherwise. We may not be able to obtain the significant financing that we need to continue to operate and any additional financing may be on terms adverse to your interests. We have recently entered into a number of financing transactions. We are continuing to seek other financing initiatives. We need to raise additional capital to meet our working capital needs, for the repayment of debt and for capital expenditures. Such capital is expected to come from the sale of our debt and/or equity securities through private placement offerings and/or the sale of common stock. We believe that if we raise approximately $5.6 7.7 million in debt and equity financings we would have sufficient funds to meet our needs for working capital ($1.2 1.0 million), repayment of debt (approximately $2.6 5.2 million expected to mature from September 30January 1, 2007 2008 to September 30December 31, 2008), accounts payable, payable and accrued expenses (approximately $1.0 million) and marketing and development (approximately $1.8 million) and for capital expenditures (approximately $0.1 0.5 million) over the next twelve 12 months. As of September 30December 31, 2007, we have had cash balances in excess of approximately $0.1 million36,000. No assurance can be given that we will be successful in completing any financings at the minimum level necessary to fund our capital equipmentworking capital, debt repayment or working capital requirementsother expenses, or at all. If we are unsuccessful in completing these financings, we will not be able to meet our working capital, debt repayment or other capital equipment needs or execute our business plan. In such case we will assess all available alternatives including a sale of our assets or merger, the suspension of operations and possibly liquidation, auction, bankruptcy, or other measures. For this these and other reasons, there is substantial risk of non-payment of the Notes. We have had limited product sales, a history of operating losses and have been unprofitable since inception. We have had limited sales of our products to date. We incurred net losses of approximately $5.3 million during the year ended December 31, 2006 and approximately $4.3 5.4 million for the nine months year ended September 30December 31, 2007. We expect to incur substantial additional operating losses in the future. During the year ended December 31, 2006 and the nine months year ended September 30December 31, 2007, we generated revenues from product sales in the amounts of approximately $5,278 and $5895,309, respectively. We cannot assure you that we will continue to generate revenues from operations or achieve profitability in the near future or at all. For this these and other reasons, there is substantial risk of non-payment of the Notes. We have a working capital loss, which means that our current assets on September 30, 2007 assts were not sufficient to satisfy our current liabilitiesliabilities on December 31, 2007. We had a working capital deficit of $6,352,667 8,398,048 at September 30December 31, 2007, which means that our current liabilities exceeded our current assets on September 30December 31, 2007 by $6,352,6678,398,048. Current assets are assets that are expected to be converted to cash or otherwise utilized within one year and, therefore, may be used to pay current liabilities as they become due. Our Or working capital deficit means that our current assets on September 30December 31, 2007 were not sufficient to satisfy all of our current liabilities on that date. For this these and other reasons, there is substantial risk of non-payment of the Notes.. There is no minimum amount of Units; consummation of the Offering is in multiple closings. There is no minimum amount of Units that must be subscribed for in order for us to close on any Units. We intend to use the proceeds we receive from any Unit subscriptions we accept, when and if received, irrespective of the amount of Unit subscriptions we receive. This offering of Units will be subject to multiple closings, if and when we receive any subscriptions. All subscriptions we receive and accept will be treated exactly the same, irrespective of whether we receive certain subscriptions earlier and a closing was effectuated with respect thereto in advance of our receipt of other subscriptions in this Offering. Accordingly, investors who purchase Units prior to other investors

Payment of the Notes. The Units, Notes, Warrants, and the common stock (including the common stock which may be issued in payment of interest due under the Notes and into which the Notes may be converted or issuable upon conversion of the notes and exercise of the Warrants) are and Warrants will be “restricted securities.” As restricted securities they may be sold only upon registration under the Securities Act and applicable state or other jurisdictions’ securities laws, or upon reliance on an exemption from the registration requirements. Offerees should consider purchasing the Units only as a long-term investment. Offerees may not be able to promptly liquidate their investment at a reasonable price, or for any price, in the event of a personal financial emergency or otherwise. We may not be able to obtain the significant financing that we need to continue to operate and any additional financing may be on terms adverse to your interests. We have recently entered into a number of financing transactions. We are continuing to seek other financing initiatives. We need to raise additional capital to meet our working capital needs, for the repayment of debt and for capital expenditures. Such capital is expected to come from the sale of our debt and/or equity securities through private placement offerings and/or the sale of common stock. We believe that if we raise approximately $5.6 10.2 million in debt and equity financings we would have sufficient funds to meet our needs for working capital ($1.2 1.1 million), repayment of debt (approximately $2.6 7.6 million expected to mature from September July 1, 2008 to June 30, 2007 to September 30, 20082009), accounts payable, payable and accrued expenses (approximately $1.2 million) and balance to be utilized for marketing and development (approximately $1.8 million) and for capital expenditures (approximately $0.1 million) over the next twelve 12 months. As of September June 30, 20072008, we have had cash balances in excess of approximately $0.1 million197,000. No assurance can be given that we will be successful in completing any financings at the minimum level necessary to fund our capital equipmentworking capital, debt repayment or working capital requirementsother expenses, or at all. If we are unsuccessful in completing these financings, we will not be able to meet our working capital, debt repayment or other capital equipment needs or execute our business plan. In such case we will assess all available alternatives including a sale of our assets or merger, the suspension of operations and possibly liquidation, auction, bankruptcy, or other measures. For this these and other reasons, there is substantial risk of non-payment of the Notes. We have had limited product sales, a history of operating losses and have been unprofitable since inception. We have had limited sales of our products to date. We incurred net losses of approximately $5.3 1.2 million during the year quarter ended December 31, 2006 and approximately $4.3 million for the nine months ended September June 30, 20072008. We expect to incur substantial additional operating losses in the future. During the year quarter ended December 31, 2006 and the nine months ended September June 30, 20072008, we generated revenues from product sales in the amounts amount of approximately $5,278 and $589, respectively0. We cannot assure you that we will continue to generate revenues from operations or achieve profitability in the near future or at all. For this these and other reasons, there is substantial risk of non-payment of the Notes. We have a working capital loss, which means that our current assets on September 30, 2007 assts were not sufficient to satisfy our current liabilitiesliabilities on June 30, 2008. We had a working capital deficit of $6,352,667 11,164,933 at September June 30, 20072008, which means that our current liabilities exceeded our current assets on September June 30, 2007 2008 by $6,352,66711,164,933. Current assets are assets that are expected to be converted to cash or otherwise utilized within one year and, therefore, may be used to pay current liabilities as they become due. Our working capital deficit means that our current assets on September 30December 31, 2007 were not sufficient to satisfy all of our current liabilities on that date. For this these and other reasons, there is substantial risk of non-payment of the Notes. No advice is given as to the tax aspects of the Units. Offerees are advised that we are giving no advice as to the tax implications of an investment in the Units. Offerees should obtain their own tax advice prior to making a decision to purchase a Unit. The interest rate and conversion price of the Notes and the exercise price of the Warrants has been arbitrarily set by the Board of Directors. The interest rate and conversion of the Notes and the exercise price of the Warrants have been determined by our Board of Directors, based, in part, on our prospects in the industry, an assessment of our financial condition and other factors deemed relevant by the Board. The interest rate and conversion price of the Notes and the exercise price of the Warrants, however, are not based on our historical earnings, the book value of our common stock, or any other objective criteria and should not be deemed to be an indication of the value of our common stock. THE INVESTOR HAS BEEN ADVISED BY PHT THAT AN INVESTMENT IN PHT WILL INVOLVE AN EXTREMELY HIGH DEGREE OF RISK AND SHOULD ONLY BE MADE IF INVESTOR CAN AFFORD A COMPLETE LOSS OF ITS INVESTMENT.