NOTE 7 – SHORT-TERM BORROWINGS TO UNRELATED PARTIES

On July 17, 2015, the Company completed a sale and leaseback transaction with Fordham Capital. In the transaction the Company sold all of its production equipment, furniture and fixtures for $514,707. From the proceeds of the sale, the company repaid outstanding borrowings of $200,000 due to Fordham Capital plus accrued interest of $3,112, franchise taxes of $96,542 and a security deposit of $15,800 related to the equipment lease.

On September 29, 2015, the Company issued a 14% nonconvertible senior unsecured note to an accredited investor in the principal amount of $250,000. The note initially matured in six months (March 26, 2016) and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash. On December 23, 2015, the company executed an amendment whereby the maturity date was extended to July 1, 2016. On June 29, 2016, the company executed an amendment whereby the maturity date was extended to October 1, 2016.

On March 11, 2016, the Company issued a 14% senior unsecured note to an accredited investor in the principal amount of $100,000. The Company recognized $3,189 and amortized $194 of discount as of June 30, 2016. The note matures in one year (March 11, 2017) and bears interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued a warrant to acquire 400,000 shares of the Company’s common stock, at an exercise price of $0.64 per share to the accredited investor. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

On April 7, 2016, the Company issued 14% senior unsecured notes to two accredited investors in the total principal amount of $100,000. The Company recognized $3,924 and amortized $181 of discount as of June 30, 2016. The notes mature in one year (April 7, 2017) and bear interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued warrants to acquire a total of 400,000 shares of the Company’s common stock at an exercise price of $0.64 per share to the two accredited investors. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

On April 8, 2016, the Company issued a 14% senior unsecured note to an accredited investor in the principal amount of $500,000. The Company recognized $15,342 and amortized $697 of discount as of June 30, 2016. The note matures in one year (April 8, 2017) and bears interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued a warrant to acquire 2,000,000 shares of the Common Stock, at an exercise price of $0.64 per share to the accredited investor. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

Below is a summary of the principal and interest activity for the period ended June 30, 2016:

	Principal			Interest
Balance at December 31, 2015	$	750,000		$	10,442
Principal advances and accrued interest		800,000			106,195
Reclassification of notes to related	$	(600,000	)	$	(39,507	)
Principal payments and interest		-			-
Balance at June 30, 2016	$	950,000		$	77,130

Less debt discount		(21,138	)		-

Balance at June 30, 2016	$	928,862		$	77,130