The Company has outstanding convertible debentures as follows:

Convertible debentures as of June 30, 2013, are as follows:

Origination Date	Maturity Date	Interest Rate			Origination Principal Balance		Origination Discount Balance		Period End Principal Balance		Period End Discount Balance		Period End Debenture, Net Balance		Ref.
10/4/2010	4/4/2011		5	%	$	20,635	$	(20,635)	$	-	$	-	$	-	(1)
11/27/2010	5/27/2011		10	%		125,000		(53,571)		58,750		-		58,750	(2)
1/7/2011	11/11/2011		5	%		76,000		(32,571)		48,000		-		48,000	(3)
2/10/2011	1/14/2011		8	%		42,500		(42,500)		-		-		-	(4)
9/12/2011	6/14/2012		8	%		37,500		(37,500)		-		-		-	(4)
3/9/2011	3/9/2012		10	%		50,000		(34,472)		-		-		-	(5)
5/3/2011	5/5/2012		5	%		300,000		(206,832)		300,000		-		300,000	(6)
8/31/2011	8/31/2013		5	%		10,000		(4,286)		10,000		(358)		9,642	(7)
9/8/2011	9/20/2011		10	%		39,724		(17,016)		-		-		-	(8)
2/10, 5/18, 7/17, 11/8/2012	2/10, 5/18, 7/17, 11/8/2014		10	%		42,750		-		-		-		-	(9)
3/14/2012	2/10/2014		10	%		5,500		-		472		-		472	(10)
12/19/2011	9/21/2012		8	%		37,500		(37,500)		-		-		-	(4)
2/7/2012	2/7/2014		10	%		16,000		-		-		-		-	(11)
2/10/2012	2/10/2014		10	%		39,724		-		2,743		-		2,743	(11)
3/9/2012	3/9/2014		10	%		56,250		-		-		-		-	(11)
4/19, 8/17, 11/7/2012	4/4/2011, 2/10, 4/14/2014		5%, 10	%		39,847		-		-		-		-	(12)
7/2/2012	4/5/2013		8	%		78,500		(35,268)		-		-		-	(4)
8/8/2012	5/2/2013		8	%		42,500		(27,172)		33,500		-		33,500	(4)
10/31/2012	8/2/2013		8	%		78,500		(50,189)		78,500		(5,574)		72,926	(4)
1/18/2013	1/18/2014		10	%		84,500		(58,720)		84,500		(32,196)		52,304	(13)
1/18/2013	1/18/2014		10	%		30,500		-		-		-		-	(13)
1/18/2013	1/18/2014		10	%		95,000		-		72,946		-		72,946	(13)
4/8/2013	4/14/2013		9.9	%		20,000		(13,333)		20,000		(10,000)		10,000	(14)
Totals									$	709,411			$	661,283

Reference numbers in right hand column of table entitled Ref. refer to paragraphs with corresponding number that immediately follow the next paragraph, which discuss derivative liability.

During the first quarter of 2013, the Company determined based on closing market price of $.0005 (pre-reverse stock split), and based on terms of convertible debt, its convertible and/or committed shares were in excess of its authorized common stock of 5,000,000,000. Most of the Company’s convertible debentures have conversion rates at substantial discount to market price; therefore, a decline in market price impacts the number of shares convertible. As a result, the Company recorded a derivative liability of $565,689, which represented the amount of shares convertible or committed in excess of the shares authorized at $.0005 per share, the closing market price at March 30, 2013, and as valued according to the Black-Scholes valuation model. On July 15, 2013, the Company effectuated a reverse stock split (1 -for- 1,350), which was applied retroactively. See Note 18. CHANGE IN CAPITAL STRUCTURE. Accordingly, this transaction resulted in significant shares authorized in excess of those committed, and the full derivative liability of $565,689 was reversed.

(1)

The Company converted an accounts payable for legal services to a convertible debenture. At the option of the lender, the principal amount of the note plus any accrued interest may be converted in whole or in part into Common Stock at the conversion price per share of $.001 by written notice. The lender will be limited to maximum conversion of 4.99% of the outstanding Common Stock of the Company at any one time. The debenture and the shares referenced within the debenture may be assignable in whole or in part to a third party at any time during the term. The Company valued the beneficial conversion feature (BCF) of the convertible debenture at $20,635, the “ceiling” of its intrinsic value. The Company accreted the discount to the convertible debenture and recognize interest expense through its maturity. On the maturity date of the debenture, the lender sold and assigned the debenture to an unrelated third party for the face value of the debenture. See Note 17. COMMITMENT AND CONTINCIES regarding dismissal of lawsuit complaint filed by this party against the Company and the original lender. Because the original lender asserted default against this party, the original lender re-assigned the debenture to another party. See Ref. (12) for assignment of the debenture as well as accounting treatment of the assignment.

(2)

The Company purchased exclusive rights for license of certain intellectual property from an unrelated party. The parties agreed to a royalty of 2.5% of net revenues generated from the sale, sub-license or use of the technology or a reasonable negotiated rate based on similar invention. The debenture is convertible to common shares of the Company at May 27, 2011, along with accrued interest at the option of the lender. Conversion price per share is 30% discount as determined from the weighted average of the preceding 12 trading days’ closing market price. The Company valued the BCF of the convertible debenture at $53,517, its intrinsic value. The Company accreted the discount to the convertible debenture and will recognize interest expense through repayment in full or conversion. Because there is no assurance of success and the invention is still in design and pre-prototype phase, the Company recorded the initial net value of the debenture, $71,483, as research and development expense in during the year ended 2010. Both parties have agreed to confidentiality regarding the invention during the pre-prototype stage. In addition, the Company has agreed to provide the licensor with design services, as well as assist in completing the prototype and initial production at the Company’s prevailing wholesale rate for comparable services.

On February 10, 2012, the holder of this debenture entered into an agreement with a third party to sell/assign the $125,000 principal balance, plus accrued interest. The purchase will be in installments with transfer/assignment of the debenture upon payment, referred to as “Closings”. The First Closing was on or about February 15, 2012 for $7,500, with that amount assigned/transferred. The Second Closing, occurred 90 days after the first closing for $11,750 paid/assigned. All subsequent closing’s will be for $11,750 and occur in 30 day increments after the Second Closing. This will continue until the full principal balance of $125,000, plus accrued interest has been purchased/assigned. See Ref. (9) for discussion of new terms on the assigned portions of the debenture.

(3)

The Company ratified a technology and license agreement with commitment for purchase of inventory related to an agreement signed in 2010, which set pricing for products if minimum quantity purchases were met. Since the Company did not purchase the minimum quantities, but desired to maintain the technology and licensing rights along with the pricing, it agreed to purchase the 2010 balance shortage in 2011, as well as the 2011 minimum quantities. The agreement required the Company issue a convertible debenture for $76,000, and $38,000 of restricted common stock. The lender at their option may convert all or part of the note plus accrued interest into common stock at a price of thirty percent (30%) discount as determined from the average four (4) highest closing bid prices over the preceding five (5) trading days. The Company valued the BCF of the convertible debenture at $32,571. The Company accreted the discount to the convertible debenture and will recognize interest expense through paid in full or converted. The Company repaid $28,000 of this debenture in 2011. See Note 17. COMMITMENTS AND CONTINGENCIES for discussion of litigation involving the technology and license agreement.

(4)

In 2011, the Company borrowed $42,500, $37,500, and $37,500, respectively, in exchange for three convertible debentures from a lender. The Company valued the related beneficial BCF at $42,500, $37,500 and $37,500, respectively. On February 7, 2012, the lender sold/assigned all rights and interest on the first debenture having net book value of $11,000 plus accrued interest of $3,328. On March 9, 2012, the lender sold/assigned all rights and interest on the second debenture having a net book value of $24,500, plus $1,448 of accrued interest. See reference (11) which discusses the terms and conditions surrounding the new debentures issued upon extinguishment of the two originals as well as accounting treatment of the transactions. During the third quarter of 2012, the lender converted to stock the third convertible debenture with $37,500 principal and $1,500 accrued interest outstanding in full satisfaction of the convertible debenture. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

On July 2, 2012, the Company borrowed $78,500 from this same lender in exchange for a convertible debenture maturing on April 5, 2013. Beginning 180 days after the date of the debenture, lender may convert the note to common shares at a 39% discount of the “Market Price” of the stock based on the average of the lowest three (3) closing bid prices on the date prior to the notice of conversion. In addition, if the Company grants a lower price for common stock purchase or conversion to anyone else during the term of this agreement, the lender’s conversion price will be adjusted downward to the same. The lender cannot convert an amount greater than 4.99% of the outstanding common stock at any one time. The Company may prepay the debenture at any time before maturity at graduated amounts depending on the date of prepayment ranging from 130% to 150% of the debenture balance plus accrued and unpaid interest. There is a $2,000 per day penalty for not timely delivering shares upon conversion notice. The Company is also required to maintain a reserve of shares sufficient to cover the lender’s conversion to common stock of the total amount of the debenture. The Company valued the BCF of the convertible debenture at $35,268. Accordingly, the $78,500 debenture was discounted by the amount of the BCF and accreted to the convertible debenture through its maturity, and interest was recognized until converted. During the six months ended June 30, 2013, the lender converted $78,500 principal plus accrued interest on the convertible debenture in full satisfaction of the debt. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

On August 8, 2012, the Company borrowed $42,500 from this same lender in exchange for a convertible debenture maturing on May 10, 2013. Beginning 180 days after the date of the debenture, lender may convert the note to common shares at a 39% discount pursuant to the same terms and conditions discussed in preceding paragraph. The Company valued the BCF of the convertible debenture at $27,172. Accordingly, the $42,500 debenture is discounted by the amount of the BCF. The Company accreted the discount to the convertible debenture through its maturity and will recognize interest expense until paid in full or converted. During the six months ended June 30, 2013, the lender converted $9,000 principal on the convertible debenture. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

On October 31, 2012, the Company borrowed $78,500 from this same lender in exchange for a convertible debenture maturing on August 2, 2013. Beginning 180 days after the date of the debenture, lender may convert the note to common shares at a 39% discount pursuant to the same terms and conditions discussed in two paragraphs preceding this one. The Company valued the BCF of the convertible debenture at $50,189. Accordingly, the $78,500 debenture is discounted by the amount of the BCF. The Company is accreting the discount to the convertible debenture through its maturity and will recognize interest expense until paid in full or converted.

(5)

The Company borrowed $50,000 in exchange for a convertible debenture. The lender may at any time convert any portion of the debenture to common shares at a 30% discount of the “Market Price” of the stock based on the average of the previous ten (10) days weighted average closing prices on the date prior to the notice of conversion. The Company may prepay the debenture plus accrued interest at any time before maturity. In addition, as further inducement for loaning the Company the funds, the Company granted the lender 50,000 and 100,000 warrants at $.25 and $.35 per share (before restatement for 1,350 for 1split) , respectively. As a result, the Company allocated fair market value (“FMV”) to both the BCF and to the warrants, or $34,472, which was recorded as a discount against the debenture. The Company accreted the discount to the convertible debenture through its maturity and recognized interest expense until both the debenture and accrued interest were converted to stock in full satisfaction of amounts due, in the first and second quarter of 2012, respectively. Before discount, the Company determined the FMV of the warrants as $7,500 using the Black-Scholes valuation model.

(6)

The Company borrowed $300,000 in exchange for a convertible debenture. The Debenture bears 10% interest per annum. The lender may at any time convert any portion of the debenture to common shares at a 30% discount of the “Market Price” of the stock based on the average of the previous ten (10) days weighted average closing prices on the date prior to the notice of conversion. The Company may prepay the debenture plus accrued interest at any time before maturity. In addition, as further inducement for loaning the Company the funds, the Company granted the lender 300,000 and 600,000 warrants at $.25 and $.35 per share (before restatement for 1,350 for 1split), respectively. As a result, the Company allocated fair market value (“FMV”) to both the BCF and to the warrants, or $206,832, which was recorded as a discount against the debenture. The Company accreted the discount to the convertible debenture through maturity and will recognize interest expense until paid in full or converted. Before discount, the Company determined the FMV of the warrants as $45,000 using the Black-Scholes valuation model.

(7)

The Company borrowed $10,000 in exchange for a convertible debenture. The lender at their option may convert all or part of the note plus accrued interest into common stock at a price of thirty percent (30%) discount as determined from the average four (4) highest closing bid prices over the preceding five (5) trading days. The Company valued the BCF of the convertible debenture at $4,286. The Company is accreting the discount to the convertible debenture and will recognize interest expense until paid in full or converted.

(8)

The Company converted a note payable and related accrued interest of $39,724 into a convertible debenture. The lender at their option may convert all or part of the note plus accrued interest into common stock at a price of thirty percent (30%) discount as determined from the average four (4) highest closing bid prices over the preceding five (5) trading days. The Company valued the BCF of the convertible debenture at $17,025. Because the debenture was issued and matured in the third quarter of 2011, the full amount of the discount, $17, 025 was accreted and recognized as interest expense during the period.

On February 10, 2012, the lender sold/assigned all rights and interest on the debenture having a net book value of $39,724, plus $1,552 of accrued interest. See reference (11) which discusses the terms and conditions surrounding the new debenture issued upon extinguishment of the original as well as accounting treatment of the transaction.

(9)

The Company entered a new debenture agreement upon sale/assignment of the original lender under the debenture as discussed in reference (2) above. Because the stated terms of the new debenture agreement are significantly different from the original debenture, including analysis of value of the beneficial conversion feature at the assignment/purchase date, the transaction is treated as extinguishment of the old debenture and recording of the new for accounting purposes. Because the debenture is being assigned/sold in installments, the Company is calculating and recognizing gain or loss on the extinguishment as it occurs. On February 10, 2012, the new holder (lender) purchased $7,500 of the original $125,000 principal balance, and based on this transaction, the Company recorded a $4,286 loss on extinguishment. On May 18, 2012, the lender purchased another $11,750, and the Company recorded a $6,714 loss on extinguishment related to this transaction. On July 17, 2012, the lender purchased another $11,750, and the Company recorded a $6,714 loss on extinguishment related to this transaction. On November 8, 2012, the lender purchased another $11,750, and the Company recorded a $6,714 loss on the extinguishment related to this transaction.

The Company may prepay at any time in an amount equal to 150% of the principal and accrued interest. The conversion price under the debenture is $.000275 per share, or $.37125 adjusted for 1 for 1,350 split, and the lender may convert at any time until the debenture plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 4.99% of the outstanding Common Stock of the Company at any one time. The debenture and the shares referenced within the debenture may be assignable in whole or in part to a third party at any time during the term.

As of June 30, 2013, the lender had assigned $5,500 under the debenture to four separate parties, and $23,500 to another party. See reference (10) and (12), respectively, related to the assignments.

(10)

This line is comprised of the assignment of $5,500 of the convertible debenture from reference (9) above with the same stated terms and conditions equally to four separate parties. Due to the smaller transaction amounts, these four debenture holders have been combined for presentation purposes.

(11)

The Company entered into three new debenture agreements upon sale/assignment of the original lenders under the debentures as discussed in references (4) and (8) above. Because the stated terms of the new debenture agreement and principal amounts were significantly different from the original debenture, including analysis of value of the beneficial conversion feature at the assignment/purchase date, the transactions are treated as extinguishment of the old debentures and recorded as new for accounting purposes. As a result of these three transactions, the Company recognized a combined loss on extinguishment of $71,577.

The new debentures were issued with the same following terms and conditions: The Company may prepay at any time in an amount equal to 150% of the principal and accrued interest. The conversion price under the debentures is $.000275 per share, or $.37125 adjusted for 1 for 1,350 split, and the lender may convert at any time until the debenture plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 4.99% of the outstanding Common Stock of the Company at any one time. During the six months ended June 30, 2013, the lender converted $3,211 of the debenture with original principal balance of $39,724 to stock. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

On January 18, 2013, the lender sold/assigned all rights and interest on one of its three debentures having net book value of $16,000 plus accrued interest of $1,512. On the same day, the lender sold/assigned all rights and interest on another of its three debentures having a net book value of $56,250, plus $4,825 of accrued interest. See reference (13) which discusses the terms and conditions surrounding the new debentures issued upon extinguishment of the two originals as well as accounting treatment of the transactions. The lender still held the third debenture with original principal balance of $39,724 with net book value of $2,743 at June 30, 2013.

(12)

On April, 19, 2012, the original lender discussed in ref (1) above re-assigned the debenture to another party asserting default against the first assignee. The amount of assignment was the balance remaining per the original lender’s records, or $16,347. The Company recognized a $3,700 loss on this transaction. Terms of the assigned debenture are the same as the original debenture as stated in ref (1). During the year ended December 31, 2012, the new holder converted $16,347 of the debenture principal plus $162 of accrued interest in fully satisfaction.

During the year ended December 31, 2012, the lender accepted assignment of $23,500, of a convertible debenture from the lender discussed in (9) above. See reference (2) for terms surrounding the original convertible debenture. In addition, the Company converted $2,125 of the assignments to stock during the six months ended June 30, 2013, plus $202 of accrued interest in full satisfaction of the amount due this lender under the assignments. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

(13)

On January 18, 2013, the Company entered into three new debenture agreements: one new lending and two upon sale/assignment of two debentures as discussed in reference (11). Because the stated terms of the new debenture agreements and principal amounts are significantly different from the original debentures that were sold/assigned, including analysis of value of the beneficial conversion feature at the assignment/purchase date, the sale/assignment transactions are treated as extinguishment of the old debentures and recorded as new for accounting purposes. As a result of the sale/assignment transactions, the Company recognized a combined loss on extinguishment of $93,826. Principal balances on these two new debentures was $30,500 and $95,000, respectively. The Company is also required to maintain a reserve of shares sufficient to cover the lender’s conversion to common stock of the total amount of the debentures.

The Company borrowed $84,500, the third debenture referred to above with this lender. The interest rate on the debenture is 10% per annum, and the conversion price is 59% of the lowest closing bid price per share in the ten trading days prior to the conversion notice. The lender will not convert an amount that would cause it or any of its affiliates to beneficially own in excess of 4.99% of the Company. The Company may prepay the debenture within 90 days after the effective date at 140% multiplied by outstanding principal and accrued interest. The Company is also required to maintain a reserve of shares sufficient to cover the lender’s conversion to common stock of the total amount of the debenture. The Company valued the BCF of the convertible debenture at $58,720, its intrinsic value. Accordingly, the $84,500 debenture is discounted by the amount of the BCF. The Company is accreting the discount to the convertible debenture through its maturity and will recognize interest expense until paid in full or converted. Further, the denture agreement provides for post-closing expenses, which the lender has noted is $1,000 per conversion and approximately one time $700 in other fees per debenture. The Company will accrue these fees on each debenture and per conversion. Any events of default defined in the agreement shall result in 150% of balances due immediately.

The $95,000 and $30,500 debentures contain the same terms and conditions as the $84,500 debenture except there is no prepayment clause and the conversion price is 44% of the lowest closing bid price per share in the ten trading days prior to the conversion notice. During the six months ended June 30, 2013, the Company converted $30,500 plus $191 of accrued interest in full satisfaction of the $30,500 debenture, and $22,500 toward the $95,000 debenture. The stock was issued without restrictive legend pursuant to Rule 144, as the holder acquired convertible note issued by the Company more than six months prior to the date of conversion and did not pay any additional consideration for the shares.

(14)

On April 8, 2013, the Company borrowed $20,000 in exchange for a convertible debenture. The lender at their option may convert all or part of the note plus accrued interest into common stock at a price of forty percent (40%) discount as determined from the lowest trading price for the 5 trading days prior to the conversion notice. The Company valued the BCF of the convertible debenture at $13,333 and is accreting the discount to the convertible debenture, and will recognize interest expense until paid in full or converted.

Convertible debentures as of December 31, 2012, are as follows:

Origination Date	Maturity Date	Interest Rate			Origination Principal Balance		Origination Discount Balance		Period End Principal Balance		Period End Discount Balance		Period End Debenture, Net Balance		Ref.
10/4/2010	4/4/2011		5	%	$	20,635	$	(20,635)	$	-	$	-	$	-	(1)
11/27/2010	5/27/2011		10	%		125,000		(53,571)		58,750		-		58,750	(2)
1/7/2011	11/11/2011		5	%		76,000		(32,571)		48,000		-		48,000	(3)
2/10/2011	1/14/2011		8	%		42,500		(42,500)		-		-		-	(4)
9/12/2011	6/14/2012		8	%		37,500		(37,500)		-		-		-	(4)
3/9/2011	3/9/2012		10	%		50,000		(34,472)		-		-		-	(5)
5/3/2011	5/5/2012		5	%		300,000		(206,832)		300,000		-		300,000	(6)
8/31/2011	8/31/2013		5	%		10,000		(4,286)		10,000		(1,427)		8,573	(7)
9/8/2011	9/20/2011		10	%		39,724		(17,016)		-		-		-	(8)
2/10, 5/18, 7/17, 11/8/2012	2/10, 5/18, 7/17, 11/8/2014		10	%		42,750		-		-		-		-	(9)
3/14/2012	2/10/2014		10	%		5,500		-		472		-		472	(10)
12/19/2011	9/21/2012		8	%		37,500		(37,500)		-		-		-	(4)
2/7/2012	2/7/2014		10	%		16,000		-		16,000		-		16,000	(11)
2/10/2012	2/10/2014		10	%		39,724		-		12,643		-		12,643	(11)
3/9/2012	3/9/2014		10	%		56,250		-		56,250		-		56,250	(11)
4/19, 8/17, 11/7/2012	4/4/2011, 2/10, 4/14/2014		5%, 10	%		39,847		-		2,125		-		2,125	(12)
7/2/2012	4/5/2013		8	%		78,500		(35,268)		78,500		(11,754)		66,746	(4)
8/8/2012	5/2/2013		8	%		42,500		(27,172)		42,500		(12,856)		29,644	(4)
10/31/2012	8/2/2013		8	%		78,500		(50,189)		78,500		(39,036)		39,464
Totals									$	703,740			$	638,667