[1]

The Company purchased in exchange for convertible debenture 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 was 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 beneficial conversion feature (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 was no assurance of success and the invention was still in design and pre-prototype phase, the Company recorded the initial net value of the debenture, $71,483, as research and development expense during the year ended 2010. Both parties agreed to confidentiality regarding the invention during the pre-prototype stage. In addition, the Company 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 was to 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 Closings were to be for $11,750 and occur in 30 day increments after the second Closing. This was to continue until the full principal balance of $125,000, plus accrued interest is purchased/assigned. See Ref. (6) for discussion of new terms on the assigned portions of the debenture.

[2]

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 shares of restricted common stock. The lender at their option could 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 recognized interest expense through settlement. The Company repaid $28,000 of this debenture in 2011. See Note 16. COMMITMENTS AND CONTINGENCIES for discussion of litigation involving the technology and license agreement that was settled/dismissed on July 1, 2014. Associated with the dismissal, the Company reversed in the third quarter of 2014, related prepaid inventory and convertible debenture resulting in a loss on settlement of $14,850.

[3]

On August 8, 2012, the Company borrowed $42,500 from lender in exchange for a convertible debenture maturing on May 10, 2013. Beginning 180 days after the date of the debenture, lender could 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. The Company valued the BCF of the convertible debenture at $27,172. Accordingly, the $42,500 debenture was discounted by the amount of the BCF. The Company accreted the discount to the convertible debenture through its maturity and recognized interest expense until full conversion. The lender fully converted this debenture to shares of common stock with $34,055 converted during the year ended December 31, 2013, and $8,445 converted during the year ended December 31, 2014. In addition, $1,700 accrued interest on the convertible debenture was converted to stock in the first quarter of 2014. The stock was issued without restrictive legend pursuant to Rule 144, since 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 could have converted the note to common shares at a 39% discount pursuant to the same terms and conditions discussed in the paragraph above. The Company valued the BCF of the convertible debenture at $50,189, and accordingly, discounted the $78,500 debenture by this amount. The Company accreted the discount to the convertible debenture through its maturity and recognized interest expense until full conversion. During the year ended December 31, 2014, the lender converted $73,820 of the convertible debenture to shares of common stock, and during the first quarter of 2015 converted the remaining $4,680 balance to shares of common stock. In addition, the lender converted $6,820 accrued interest on the convertible debenture to stock in the first quarter of 2015 in full satisfaction of the balance due. 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.

[4]

On May 3, 2011, 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 $337.50 and $472.50 per share (after restatement for 1 for -1,350- reverse stock split), 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 accrue 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.

[5]

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 accreted the discount to the convertible debenture and will recognize interest expense until paid in full or converted.

[6]

The Company entered a new debenture agreement upon sale/assignment of the original lender under the debenture as discussed in reference (1) above. Because the stated terms of the new debenture agreement were significantly different from the original debenture, including analysis of value of the beneficial conversion feature at the assignment/purchase date, the transaction was 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. Since that date the lender has not purchased or converted any shares pursuant to the sale/assignment agreement. 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 $.37125, 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, 2015 and December 31, 2014, the lender had assigned a cumulative $5,500 under the debenture to four separate parties, and $23,500 to another party. See reference (7) and (8), respectively, related to the assignments.

[7]

This line is comprised of the assignment of $5,500 of the convertible debenture from reference (6) 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.

[8]

On February 12, 2014 the Company entered into new debenture agreement for $39,724 upon sale/assignment of the original lender. 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 transaction was treated as extinguishment of the old debenture with recording of the new for accounting purposes. Conversion price under the debenture is $.37125, 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 is limited to maximum conversion of 4.99% of the outstanding Common Stock of the Company at any one time. During the year ended December 31, 2013, the lender converted $3,211 of the debenture to stock. The stock was issued without restrictive legend pursuant to Rule 144, since 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.

[9]

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 thirty 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. During the year ended December 31, 2014, the lender converted $20,000 in full satisfaction of the convertible debenture to shares of common stock. In addition, during the year ended 2014, the Company converted all the accrued interest on the debenture, or $2,302, to shares of common stock. The debenture and interest conversion stock was issued without restrictive legend pursuant to Rule 144, since 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.