Note 7 - Derivative

12 Months Ended

Dec. 31, 2012

Notes

Note 7 - Derivative

Note 7 – Derivative

The Company’s convertible debt issued in November 2012 with a face value of $42,500 provides for conversion of the note into the Company’s common stock at a conversion rate equal to the average of the lowest three trading prices during the ten trading days immediately preceding the conversion date.  Because of the uncertainty regarding the number of common shares that may be issuable upon the conversion of the convertible debt, the embedded conversion option is required to be accounted for separately and presented as a derivative liability on the Company’s balance sheet, with subsequent changes in fair value reported in the Company’s statement of operations.  The Company determined the fair value of derivative liabilities using Monte Carlo simulations.  The Company used the following assumptions in estimating the fair value of the derivative liabilities on the issuance date and as of December 31, 2012.

	Issuance Date	December 31, 2012
Expected Volatility	51.08%	52.67%
Expected Term	0.75 Years	0.6 Years
Risk Free Interest Rate	0.19%	0.16%
Dividend Rate	0%	0%

The Company recorded an initial derivative liability of $32,622 with an offsetting discount against the convertible debt to be amortized into interest expense through the maturity of the convertible debt.  From the dates of issuance to December 31, 2012, the fair value of the derivative liability did not change and no expense or income was recognized for the change in fair value of the derivative liability.