NOTE 2

SHORT-TERM DEBT

The Company has short term loans with two banks in Asia that bear interest from 3.24% to 5.82% During the third quarter, all short-term bank loans were paid off.

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
Total Short-Term Debt	$	87,000

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 three months ended June 30, 2013, a $50,000 debenture was converted into shares of the Company’s common stock at a price of $1.00 per share. As a result, the Company recorded a loss on conversion of debt totaling $27,500.

During the three months ended March 31, 2013, a $45,000 note was extinguished, with $15,000 of principal being paid in cash and $30,000 of principal being converted into shares of the Company’s common stock at a price of $1.00. As a result, the Company recorded a loss from conversion of debt totaling $16,500.