The Company has two notes payable to shareholders for $20,000 and $19,500, which it assumed under the May 26 Blu Vu asset purchase agreement. These notes are due on May 28, 2011 and bear interest at 5.0%. Both notes are convertible into shares of the Company’s common stock at a conversion discount of 70% of the stocks bid price but in no event shall the conversion price be less than par value of $0.001. Both of these notes were converted during the current quarter into 70,904,100 and 69,452,067 shares, respectively.

The Company had ten notes payable to shareholders for a total of $136,000. These notes are due ranging from September 17, 2010 to March 28, 2011 all bearing interest at 5.0%. All ten notes are convertible into shares of the Company’s common stock at a conversion discount of 70% of the stocks bid price but in no event shall the conversion price be less than par value of $0.001. None of these notes are considered derivatives. Six of these notes have been fully converted and one partially converted as of June 30, 2011, leaving a balance due of $58,500 as of June 30, 2011. These notes are currently in default and the Company has extended or is in the process of extending these for six months.

In May and June 2011, the Company issued four notes to related parties for $5,100, $5,000, $15,000 and $5,000. The notes are due in six months all bearing interest at 5.0%. All four notes are convertible into shares of the Company’s common stock at a conversion discount of 70% of the stocks bid price but in no event shall the conversion price be less than par value of $0.001.

In October, November and December 2010, the Company entered into securities purchase agreements with an investor and issued three 10% convertible promissory notes with face amounts of $35,000, $30,000 and $12,500 respectively and received cash proceeds of $77,500. The Notes mature in eight months from the date of issuance, and provide for nominal interest at the rate of ten (10%) percent per annum. The Notes may be converted into unregistered shares of the Company’s common stock, par value $0.001 per share, at the Conversion Price, as defined below, in whole, or in part, at any time beginning 180 days after the date of the Notes, at the option of the holder. The Conversion Price shall be equal to 50% multiplied by the Variable Conversion Rate which is equal to the average of the three (3) lowest closing bid prices of the common stock during the ten (10) trading day period prior to the date of conversion. During the current quarter, the October note for $35,000 was fully converted and $25,000 of the $30,000 November note was also converted into 92,857,143 and 75,757,575 shares, respectively, leaving a balance due on these three notes of $17,500 as of June 30, 2011. The Company recorded a derivative liability of $19,251 as of June 30, 2011 related to reaming balance. In July 2011, the remaining balance of $17,500 was converted into 64,814,815 shares of the Company’s common stock.

In January 2011, the Company entered into securities purchase agreements with an investor and issued 8% convertible promissory notes with a face amount of $50,000 and received cash proceeds of $50,000. The note matures in ten months from the date of issuance, and provide for nominal interest at the rate of eight (8.0%) percent per annum. The note may be converted into unregistered shares of the Company’s common stock, par value $0.001 per share, at the Conversion Price, as defined below, in whole, or in part, at the option of the holder. The Conversion Price shall be equal to 50% multiplied by the Variable Conversion Rate which is equal to the average of the three (3) lowest closing bid prices of the common stock during the ten (10) trading day period prior to the date of conversion. At June 30, 2011, the Company recored a derivative liability of $75,055.

In February 2011, the Company purchased technology from an unrelated party for $3,150,000 by issuing a 5% convertible promissory note. The note is due on demand, but not sooner than six months from the date of issuance, and provides for nominal interest at the rate of five (5.0%) percent per annum. The note may be converted into unregistered shares of the Company’s common stock, par value $0.001 per share at the Conversion Price, as defined below, in whole, or in part, at any time beginning 180 days after the date of the notes, at the option of the holder. The Conversion Price shall be equal to 30% multiplied by the Variable Conversion Rate which is equal to the average of the three (3) lowest closing bid prices of the Common Stock during the ten (10) trading day period prior to the date of conversion. This note is payable to the note holder regardless of the company’s ability to successfully file a patent for such technology or to generate revenues from the sale or implementation of such technology.

The Company issued financial instruments in the form of convertible notes payable. These instruments have variable conversion rates. The conversion features were analyzed for derivative liabilities under GAAP and the Company has determined that they meet the definition of a derivative liability due to the contracts obligations. Derivative instruments shall also be measured at fair value at each reporting period with gains and losses recognized in current earnings. The Company calculated the fair value of these instruments using the Black-Scholes Model due to the short duration of the conversion option (less than one year). The significant assumptions used in the calculation of the instrument’s fair value are detailed in the table below.

During the nine months ended June 30, 2011, the Company recorded a derivative liability of $95,639 for the issuance of convertible notes payable. During the nine months ended June 30, 2011, none of these instruments were converted into common stock of the Company. The Company performed a final mark-to-market adjustment for the derivative liability related to the convertible notes and the carrying amount of the derivative liability related to the conversion feature was $94,306. During the nine months ended June 30, 2011, the Company recognized other expense of $33,349 based on the change in fair value (mark-to market adjustment) of the derivative liability associated with the embedded conversion features in the accompanying statement of operations. The value of the derivative liability associated with the embedded conversion features was $94,306 at June 30, 2011.

These instruments were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. The instruments do not qualify for hedge accounting, and as such, all future changes in the fair value will be recognized currently in earnings until such time as the instruments are exercised, converted or expire. The following assumptions were used to determine the fair value of the derivative liabilities for the period ended of June 30, 2011:

Weighted- average volatility		69.9%
Expected dividends		0.0%
Expected term	0.5 year
Risk-free rate	0.07% to 0.57%

As of June 30, 2011, the Company had authorized unissued common stock of 8,559,420,018 shares, which is sufficient to cover shares to be issued upon conversion of all convertible notes.