LETTER OF CREDIT

6 Months Ended

Jun. 30, 2012

LETTER OF CREDIT [Abstract]

LETTER OF CREDIT

NOTE 6 - LETTER OF CREDIT

On October 17, 2011, Z Trim Holdings, Inc. (the "Company") entered into a Custom Processing Agreement (the "Agreement") with AVEKA Nutra Processing, LLC ("ANP"), part of the Aveka Group, in order to provide the Company with a partner for future manufacturing initiatives.  

 The Agreement provides that ANP will perform certain services related to the Company's dietary fiber product, including manufacturing, processing, packaging and storage/warehousing for an initial term of three years.  The Agreement automatically renews at the end of the initial term for an additional two year term unless either party provides written notice to the other within the specified time frame.  Production pursuant to the Agreement is anticipated to begin no later than August 31, 2012.  Once production commences, the Agreement provides for minimum production volumes of 40,000 lbs per month and average volumes of 100,000 lbs. per month with the ability to increase future production volume to potentially as much as 1,000,000 lbs. per month.

In addition, the Company has agreed to make available to ANP a $500,000 line of credit (which includes $10,000 that the Company loaned ANP to assist it with the purchase of its Waukon, Iowa facility) at an interest rate of 5.5%.  The line of credit is only permitted to be used by ANP for operating costs which excludes capital expenditures of equipment in excess of $5,000.   The loan is to be paid back to the Company in the form of discounts on production pricing commencing either two years after the first draw by ANP on the line of credit (other than the $10,000 the Company loaned ANP to assist it with the purchase of its Waukon, Iowa facility) or the first month after the Company has ordered 80,000 lbs. of product for three consecutive months, whichever shall occur first.  All of ANP's obligations under the line of credit, as well as the Agreement, are specifically guaranteed by its parent company, Aveka Inc.  As of June 30, 2012 we loaned a total of $500,000 and accrued interest on the advance was $9,287.

The foregoing description of the Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement, which is attached as Exhibit 10.1 to the Company's Report on Form 8-K filed on October 17, 2011 and is incorporated by reference herein.