Annual report pursuant to Section 13 and 15(d)

DEBT

DEBT

12 Months Ended

Dec. 31, 2013

NOTE 9 – DEBT

In June 2011, we issued an unsecured promissory note to a third party in the amount of $40,000 (the “June 2011 Note”) bearing interest at a rate of 10% per annum and a three year warrant to purchase 13,000 shares of our common stock at an exercise price of $1.00 per share. In addition, a second note payable, to the same third party, in the amount of $25,000 plus $3,000 of accrued interest was also converted into the June 2011 Note, resulting in a new principal balance of $68,000. Principal payments were due beginning November 2011 and the June 2011 Note is in default as of December 31, 2013 and 2012, as no payments have been made to date. We valued the warrant at $170 using the Black-Scholes model and recorded this amount as a debt discount. The debt discount was fully amortized during 2011.

The Company entered into a loan agreement evidenced by a convertible secured promissory note with Advanced Technology Materials, Inc. on February 14, 2012. The amount of the convertible secured promissory note is $225,000. The loan agreement allows for an additional $225,000 to be borrowed upon meeting certain defined milestones and stipulates the Company provide the lenders, among other things, a security agreement which also identifies the collateral, a development agreement, and use the loan proceeds for projects and transactions contemplated in the term sheet and development agreement. The registration rights agreement has not been executed by the parties to the loan. The note bears interest at 5 percent per annum. The entire loan and/or unpaid balance of the loan and accrued interest can be converted into the Company’s common stock at $0.50 per share at any time at the option of the holder. However, if the lender does not convert any of the principal or interest into common stock, then $112,500 of principal plus accrued interest will be due on demand on or after December 31, 2014.

Debt as of December 31, 2013 and 2012, was comprised of the following:

	2013			2012

June 2011 Note (See above)	$	68,000		$	68,000

Note payable dated February 2012, interest at 5% per annum, $112,500 is due December 31, 2014, convertible in whole or in part to common stock at $.50 per share.		225,000			225,000

Promissory note dated April 2008, secured by certain of our assets, bearing interest at 6.65% per annum; 60 monthly payments of $14,276, maturing April 2013.		—			70,200

Promissory note dated December 2009, unsecured, bearing interest at 6% per annum, six monthly payments ranging from $10,000 to $25,000 commencing February 2010, balloon payment for outstanding balance due July 2010. The promissory note was in default as of December 31, 2013 and 2012. (Note 18)		104,200			104,200

Promissory note dated November 2010, unsecured, bearing interest at 8% per annum, balloon payment for outstanding balance due October 2011. The promissory note was in default as of December 31, 2012 and was repaid in 2013.		—			25,000

Capital lease obligations, secured by certain assets, maturing September 2011 through August 2016		155,600			109,000
Total notes payable and capital lease obligations		552,800			601,400
Less: current portion, including debt discount		(504,700	)		(319,800	)
Notes payable and capital lease obligations, long-term	$	48,100		$	281,600

Debt maturities as of December 31, 2013 are as follows:

Year:
2014	$	504,700
2015		46,500
2016		1,600
	$	552,800

Future minimum lease payments under capital leases, which include bargain purchase options, are as follows at December 31, 2013:

2014	$	110,900
2015		55,200
2016		600
Total minimum lease payments		166,700
Amount representing interest		(11,100	)
Present value of lease payments		155,600
Less current portion		(107,500	)
Non-current portion	$	48,100

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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