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NOTES PAYABLE

9 Months Ended

Sep. 30, 2012

NOTE 5 NOTES PAYABLE

Notes Payable – Related Parties

Funds are advanced to the Company from various related parties, including from Mr. Robert Lutz. Other shareholders fund the Company as necessary to meet working capital requirements and expenses. The following is a summary of amounts due to related parties, including accrued interest separately recorded, as of September 30, 2012:

Related party	Nature of relationship	Terms of the agreement	Principal amount	Accrued Interest
Lutz, Investments LP	Mr. Lutz is the CEO of the Company	Convertible note payable due March 31, 2012. The note is convertible at $0.19 per share. As of September 30, 2012 the note has not been converted and is past due.	$200,000	$9,511

Mr. Robert Lutz	Mr. Lutz is the CEO of the Company	Unsecured $25,000 line of credit with interest accrued at 10% per annum, due on demand. Available line as of September 30, 2012 is $25,000.	$0	$4

MAH Holding, LLC	MAH Holding, LLC has provided previous lines of credit to affiliates of WMT.	Unsecured note with interest accrued at 10% per annum, due on demand.	$91,920	$5,586

Total			$291,920	$15,101

Notes Payable

The following is a summary of amounts due to unrelated parties, including accrued interest separately recorded, as of September 30, 2012:

Note Payable	Terms of the agreement	Principal Amount	Discount	Principal Net of Discount	Accrued Interest
March 4, 2011 Note Payable	$223,500 note payable (i) interest accrues at 13% per annum; (ii) maturity date of September 4, 2011; (iii) $20,000 fee due at maturity date with a $1,000 per day fee for each day the principal and interest is late. This note is currently the subject of litigation (see Note 3 "Significant Transaction - Litigation")	223,500	-	223,500	22,114

Purchase Order Financing Agreement	$50,000 note payable (i) interest accrues at 10% per annum; (ii) proceeds used to purchase inventory; (iii) lender will be reimbursed $25 per gram as the inventory is sold. As of September 30, 2012 the lender is due $3,325 of sales proceeds.	50,000	-	50,000	1,556

August 3, 2012 Note Payable	$75,000 note payable; (i) interest accrues at 10% per annum; (ii) the principal is due and payable as follows: (a) $10,000 each on August 15, 2012, August 30, 2012, September 15, 2012, September 30, 2012 and October 15, 2012; and (b) $25,000 on October 30, 2012 the maturity date; (iii) the Company will issue to Lender five-year warrant to purchase a total of 200,000 shares of common Stock at a price of $0.15 per share. This note is paid in full as of October 31, 2012.	45,000	-	45,000	150

Third Quarter Secured Subordinated Promissory Notes	Eighteen notes in the aggregate principal amount of $1,075,000; (i) 5% interest due on maturity date; (ii) maturity date of October 12, 2012; (iii) after the maturity date interest shall accrue at 18% per annum and the company shall pay to the note holders on a pro rata basis, an amount equal to twenty percent of the sales proceeds received by the Company and its subsidiary, WCI, from the sale of surgical powders, until such time as the note amounts have been paid in full. As of October 12, 2012 these notes remain due.	1,075,000	-	1,075,000	12,685

June 21, 2011 Note	Convertible promissory note in the principal amount of $560,000 (i) interest accrues at 12% per annum; (ii) maturity date of June 2 1, 2015; (iii) upon closing the Company issued to the lender 100,000 shares of Common Stock valued at $60,000 and two warrants to purchase 250,000 shares of common stock each, with exercise prices of $0.50 $1.00; (iv) the debt is convertible at a 30% discount on the fair market value of the stock. The Company measured the fair value of the warrants and the beneficial conversion feature of the note and recorded a discount against the principal of the note. (see Note 3 "Significant Transaction - Forbearance Agreement")	200,000	(4,822)	195,178	-

May 10, 2012 Convertible Note	Convertible note payable in the principal amount of $53,000 accrues interest at 8% per annum. The note is convertible into Common Stock at a conversion price per share equal to 50% of the average of the three lowest closing prices for the 10-day trading period before conversion. The note matures February 14, 2013.	53,000	(22,881)	30,119	1,673

March 2012 Convertible Notes	Three convertible notes in the principal amount of $25,000, $50,000 and $100,000 respectively; (i) issued between March 3 and March 22, 2012; (ii) convertible at $0.19 per share; (iii) interest accrues at 5% per annum; (iv) interest accrues at 9% per annum after the due dates between March 31 and June 30, 2012. As of the date of this filing these notes are past due.	175,000	-	175,000	7,256

Second Quarter 2012 Convertible Notes	Two $25,000 notes; (i) issued on April 3 and April 23, respectively; (ii) convertible at $0.19 per share; (iii) interest accrues at 5% per annum; (iv) interest accrues at 9% per annum after the due dates of April 30 and June 30, 2012, respectively. On September 20, 2012, 222,420 shares of Common Stock were issued in conversion of the April 23 note. As Of the date of this filing the April 3 note is past due.	25,000	-	25,000	1,722

May 30, 2012 Convertible Note	Note in the principal amount of up to $275,000 including an approximate original issue discount of 10%; (i) maturity date one year from the effective date (ii) convertible at the lesser of $0.19 or a 30% discount on the fair market value of the Company's common stock; (iv) one time interest charge of 5% will be applied if the note is not repaid with in the first 90 days.	55,000	(14,717)	40,283	2,750

Total		1,901,500	(42,420)	1,859,080	27,791

Debentures

On March 30, 2010, the Company entered into a Securities Purchase Agreement and, pursuant to this agreement, a total of $1,000,000 in principal amount of convertible debentures (the “Debentures”), with a maturity date of March 2013, may be sold to investors. The Debentures may be converted into shares of Common Stock at a conversion price equal to seventy percent (70%) of the lowest closing bid price per share for the twenty (20) trading days immediately preceding the date of conversion; provided that no holder may convert Debentures into, nor shall the Company issue to such holder, shares of Common Stock to the extent that the conversion would result in a holder and its affiliates together beneficially owning more than 4.99% of the then issued and outstanding shares of Common Stock. This ownership restriction may be waived, however, by a holder upon sixty-one (61) days prior written notice.

The Debentures may be redeemed by the Company at any time or from time to time at a price equal to (x) one hundred twenty percent (120%) of the principal amount of the Debenture if the Debenture is called for redemption prior to the expiration of six months from the issuance date, or one hundred thirty one percent (131%) if called for redemption thereafter, plus (y) interest accrued through the day immediately preceding the date of redemption.

During 2010, the Company issued Debentures in the aggregate principal amount of $695,000. In accordance with ASC Topic No. 470-20-25-4, a discount in the amount of $297,857 was calculated as the total value of the beneficial conversion feature, which is being amortized over the term of the debt. In April of 2012, 4 million shares of common stock were issued in conversion of $588,000 of these debentures and a pro-rata share of the related interest receivable.

On March 27, 2012, the Company entered into a Securities Purchase Agreement and sold $400,000 of convertible debentures with a maturity date of March 27, 2015, to an unrelated party for $360,000. The Debentures may be converted into Common Stock at a conversion price equal to seventy percent (70%) of the lowest closing bid price per share for the twenty (20) trading days immediately preceding the date of conversion; provided that no holder may convert Debentures into, nor shall the Company issue to such holder, shares of common stock to the extent that the conversion would result in a holder and its affiliates together beneficially owning more than 4.99% of the then issued and outstanding shares of Common Stock. Additionally, the Securities Purchase Agreement entitled the purchaser to 200,000 shares of Common Stock

In accordance with ASC Topic No. 470-20-25-4, a discount in the amount of $171,429 was calculated as the total value of the beneficial conversion feature, which is being amortized over the term of the debt. Additionally, a discount of $35,676 was allocated to 200,000 shares of Common Stock based on the relative fair market value of the stock and convertible debt at the time of the agreement.

The unamortized discount balance of all debentures outstanding at September 30, 2012 is $219,431. At September 30, 2012, the total debenture balance, net of discount is $287,569. In addition, total debt issuance costs of $115,350 have been deferred and are being amortized over the term of the debt. The unamortized balance of deferred loan costs at September 30, 2012 is $15,320. Interest expense on the debentures accrues at 6% per annum. The balance of accrued interest payable at September 30, 2012 is $31,222.