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CONVERTIBLE NOTES PAYABLE
9 Months Ended
Sep. 30, 2012
CONVERTIBLE NOTES PAYABLE [Abstract]  
CONVERTIBLE NOTES PAYABLE
NOTE 8 – CONVERTIBLE NOTES PAYABLE
 
As of September 30, 2012, the Company had $200,000 worth of convertible notes outstanding, which will mature in 2014.
 
During the first quarter of fiscal 2012, we secured financing from three accredited investors (the "Investors") pursuant to which we sold senior secured convertible promissory notes (each a "Note" and collectively the "Notes") and warrants and received gross proceeds of $200,000.   The Notes have a twenty-four month term and accrue interest at the rate of 8% per annum.  The principal balance of the Notes is convertible at the rate of $1.00 per share into an aggregate of 200,000 shares of our common stock, $.00005 par value (the "Common Stock").  The interest is payable either upon maturity of the Notes or quarterly at the Investors' option in shares of our Common Stock.  Any amount of principal or interest which is not paid when due shall bear interest at a rate of interest equal to the eighteen percent (18%) per annum.  Attached to the Notes are warrants that entitle the Investor to purchase a specified number of shares of common stock of the Company at a price of $1.50 per share within five years.  The warrants value is discounted against the Notes and is being amortized as interest expense using the effective interest method over the term of the Notes. The valuation of the related discount for the warrants was calculated using the Black Scholes model and was equal to $40,508. The key inputs to the model were the number of warrants of 100,000, share prices on the grant dates of $0.59 and $0.70, exercise price of $1.50, terms of 5 years, volatilities of 98.16 and 103.66%, and discount rates of 0.91% and 0.88%. As of September 30, 2012, the amount of debt discount, net of amortization, was $29,192.
 
Amortization on Convertible Notes

For the nine months ended September 30, 2012 and 2011, the Company recorded amortization on debt discounts in the amount of $49,626 and $2,048,812, respectively. The warrants value and the beneficial conversion value are discounted against the Notes and are being amortized as interest expense using the effective interest method over the term of the Notes. The total debt discount as of September 30, 2012 and December 31, 2011, was $29,192 and $38,311, respectively, net of total amortization.