NOTE 2

SHORT-TERM DEBT

The Company has short term loans with two banks in Asia. The loans bear interest from 3.24% to 5.82% and are due in September and December of 2013. The Company has chosen not to use its excess cash to pay off these loans early since the interest rate is relatively low and they are due in the near future.

Note Payable, 10% interest per annum, maturing on December 7, 2013	$	77,000
Note Payable, 10% interest per annum, maturing on December 20, 2013		10,000
Short-term bank loans		352,052
Total Short-Term Debt	$	439,052

The holder of the $77,000 note is entitled to subscribe for a purchase 7,000 warrant shares at an exercise price of $1.50 per share. The holder of the $10,000 note is entitled to subscribe for a purchase 909 warrant shares at an exercise price of $1.50 per share.

During the quarter, the $50,000 debenture was converted at a price of $1 per share, and a loss on conversion of debt was recorded totaling $27,500.

During the first quarter, the $45,000 note was extinguished, with $15,000 being paid in cash and $30,000 being converted at a price of $1.