NOTE 4 – NOTES PAYABLE – RELATED PARTIES

The Company’s notes payable to related parties classified as current liabilities consist of the following as of September 30, 2014 and December 31, 2013:

On August 30, 2012 a company that is majority owned by a foreign investor and personal friend of the Company’s President and CFO, entered into an arrangement with the Company to loan up to $100,000 (subsequently increased to $300,000) based on purchase orders or invoices that have not been previously factored on a revolving basis at a rate of 2.5% per month (1.5% interest plus 1% penalty fee on the outstanding balance when interest is accrued). The initial deposit for this loan came from the Company’s President and CFO pursuant to the investor, who is a foreign national, setting up an appropriate entity to handle further transactions. Further, the Company’s President and CFO continues to personally guarantee the loan. On May 14, 2014, the investor agreed and the Board voted by Unanimous Consent, to convert the original note of $100,000 to stock and warrants based on the Company’s existing PPM based on converting the amount in to stock at the rate of $0.012 per share for 8,333,333 shares and receiving 6,250,000 5-year warrants based on 75% of the amount of shares to be issued at a strike price of $0.012. The investor agreed to this conversion on the condition that the shares would be issued without a restrictive legend and that the investor was able to deposit them in a brokerage account within 90 days. On August 1, 2014, the investor notified the Company that they were successful in depositing the shares into a brokerage account and the Company was credited a principal and interest payment of $100,000 allocated $47,445 and $57,555 respectively. At September 30, 2014 and December 31, 2013 there was outstanding principal balance of $264,212 and $274,078, respectively. Accrued interest and fees at September 30, 2014 and December 31, 2013 was $10,589 and $17,923, respectively.

On June 27, 2012 an individual whom the Company’s President and COO has significant influence over, loaned the Company $10,000 at an interest rate of 1.5% per month payable monthly. Between July 13, 2012 and July 24, 2012 the related party advanced an additional $15,000 (the 2012 advances) due on demand. On January 1, 2013, the Company received $19,400 from this related party in exchange for forty-five day original issue discount note with a face value of $20,000 and a maturity date of February 15, 2013 (the 2013 note). The original discount interest rate was 2% per month. On May 30, 2014 a principal payment was made to the related party in the amount of $5,000. At September 30, 2014 and December 31, 2013 there was an outstanding principal balance of $15,000 and $20,000, respectively. Accrued interest at September 30, 2014 and December 31, 2013 was $336 and $0.

During the second quarter of 2012, the Company reclassified $30,265 of accounts payable balances due to the CEO, to Notes payable – related parties. These balances were a result of Company expenses charged to the CEO’s personal credit cards. The Company was previously paying the credit card companies directly for these expenses incurred. During the third quarter 2012 the company recorded accrued payroll of $54,682 for this officer. These amounts are non-interest bearing and are on demand. The Company pays these loans as sufficient funds become available. On January 3, 2014 a payment was made in the amount of $3,000 and an additional payment of $608 was made on January 10, 2014. At September 30, 2014 and December 31, 2013 this officer had an outstanding loan balance of $30,826 and $36,009, respectively.