CONVERTIBLE NOTES PAYABLE

12 Months Ended

Dec. 31, 2011

On November 24, 2011, the Company completed a non-brokered private placement unit offering that raised $180,000 in gross proceeds, $50,000 of which were received from related parties. Each $1,000 unit consisted of one 8.5% unsecured convertible note and 2,000 shares of the Company’s common stock. The notes have a 12-month term and are convertible into common shares of the Company at a price of $0.10 per share at any time prior to the maturity date, which is November 23, 2012. The notes require interest only payments on a quarterly basis.

The convertible notes contain provisions that will allow the Company to force conversion, if the lowest daily closing bid price of the Company’s Common Shares for each of the sixty-five (65) trading days immediately preceding the redemption notice is not less than $1.50 per such Common Share; or the Company completes one or more offerings of its Common Shares or securities convertible into Common Shares at a price or conversion price, as the case may be, of not less than $1.50 per such Common Share and the gross proceeds from such offering(s) total not less than $5,000,000. At December 31, 2011, the lenders had advanced $180,000 under this financing agreement, $50,000 of which were received from related parties.

The intrinsic value of the beneficial conversion feature and the debt discount associated with the equity issued in connection with the convertible debts were recorded based on the relative fair value of the equity in relation to the debt in accordance with ASC 470. The total initial beneficial conversion feature recorded for the convertible notes and on the equity equaled $125,874 and $54,126, respectively. As of December 31, 2011, the Company has amortized $18,245 of the total debt discount leaving an amortized debt discount of $161,755.

On December 8, 2011, the Company executed a convertible promissory note in the amount of $52,500. The note bears interest at a rate of 8.0% per annum and has a maturity date of September 12, 2012. Any amount of principal or interest not paid in full at maturity will bear an interest rate of 22 percent. The convertible promissory note may be converted in whole or in part, at the option of the holder, to shares of common stock at any time following 180 days after the issuance date of the note. The conversion price under the note is 59 percent multiplied by the market price (representing a 41 percent discount rate).

The components of convertible notes payable are summarized in the table below:

	December 31,
	2011			2010
Notes payable to a unrelated parties, bearing interest at 8.5%, unsecured, convertible into shares of common stock, due on November 23, 2012	$	130,000		$	-
Note payable to a related party, bearing interest at 8.5%, unsecured, convertible into shares of common stock, due on November 23, 2012		50,000			-
Note payable to an unrelated party, bearing interest at 8%, secured by the common stock of the Company, convertible into shares of common stock, due on September 12, 2012		52,500			-
Unamortized beneficial conversion feature on issuance of convertible debt		(161,755	)		-

Total	$	70,745		$	-

- 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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