NOTE 7 – Finance Receivables. Finance receivables, net, consisted of the following:

On March 22, 2013, BZL entered into a Factoring and Security Agreement (the “Factoring Agreement”) with Midland American Capital Corporation (“Midland”) pursuant to which Midland will provide up to $1,500,000 of financing, on a discretionary basis, against the Company’s accounts receivable.

Under the Factoring Agreement, Midland has agreed to purchase certain accounts receivables of the Company and the Company has agreed to pay Midland an initial fee of 2.5% of the face amount of an account (subject to certain adjustments) plus 0.833% of the face amount of an account (subject to certain adjustments) for each 10 day period following the first 30 days of financing. If the receivable is not paid within 75 days of the purchase of the account, Midland can chargeback the receivable to the Company, unless the debtor became insolvent, subject to certain exceptions. In addition, Midland may chargeback the receivable to the Company in the case of an event of default or upon termination of the Factoring Agreement. The Factoring Agreement provides for certain customary covenants of the Company and the Company is subject to penalties in the event of a misdirected fee, a missing notation of Midland on an invoice and late charges on any monies owed to Midland. The term of the Factoring Agreement is one year and is subject to termination by either party upon sixty days prior written notice subject to certain exceptions. MSLP has agreed to assume the Factoring Agreement and acquire the accounts receivable. We agreed to guarantee that collections of the accounts receivable were at least equal to the assumed liability under the Factoring Agreement.

In connection with the execution of the Factoring Agreement, the Company entered into a Purchase Money Rider (the “Purchase Money Rider”) with Midland pursuant to which Midland will provide to the Company, on a discretionary basis, financing to procure raw materials for the manufacture of the Company’s goods. The financing under the Purchase Money Rider may be made via direct payment to the Company’s suppliers or issuance of letters of credit. The Company will be required to pay Midland an initial purchase fee of 2.95% of the amount financed plus a purchase money fee of 0.933% of the amount financed for each 10 day period following the first 30 days of financing.

As collateral security for all of the Company’s obligations under the Factoring Agreement and Purchase Money Rider, BZL granted Midland a security interest in all of its assets. To further secure the Company’s obligations under the Factoring Agreement and Purchase Money Rider, the Company and Baker Cummins Corp., a subsidiary of the Company, executed a Guarantee and Security Agreement pursuant to which each of them agreed to guaranty the Company’s obligations owed by Midland secured by a security interest in all of their assets.

In addition, in connection with the execution of the Factoring Agreement and Purchase Money Rider, Elliot Maza, the Chief Executive Officer, Chief Financial Officer and Secretary of the Company and Brian Keller, the President and Chief Scientific Officer of the Company executed a Validity Guaranty pursuant to which each of these persons has agreed to indemnify Midland from any loss incurred in the event of breach of certain representations and warranties made to Midland or any misstatement, fraud or criminal act on the part of any officer or agent of the Company. Furthermore, certain note holders holding notes in the aggregate principal amount of $2,300,000 entered into inter-creditor agreements, whereby such note-holders agreed to subordinate to Midland their security interest in certain assets of the Company.