Notes Payable

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 7. Notes Payable

Convertible Notes Payable. During the three months ended June 30, 2011, the Company issued promissory notes to certain investors resulting in gross proceeds to the Company of $105,000 (the “Notes”).  The Notes accrued interest at the rate of 3% annually, and were due and payable on or before November 19, 2011.  On November 19, 2011 these Notes were cancelled and reissued in the original principal amount plus $1,373 of accrued interest, under the terms of the Notes described below.

Concurrently with this debt financing commitment, the lender agreed to surrender and cancel 2,069,000 warrants held by it, and in consideration therefore the Company issued the lender 2,069,000 shares of common stock valued at $62,070.

During the three months ended March 31, 2012, the Company issued additional Notes to certain investors resulting in gross proceeds of $45,000. The Notes accrue interest at the rate of 6% annually. The Notes are due and payable or before June 30, 2012.   Pursuant to the terms of the Notes, the Company issued 50,000 shares of its common stock for each $10,000 loaned to the Company under the terms of the Notes.  

In connection with the issuance of all Notes, the Company has recorded debt discount and expenses of the beneficial conversion feature of $70,658 and $22,028, respectively.  The Company will amortize these expenses over the life of the Notes.  As of December 31, 2011, the Company recorded interest expense related to the debt discount of $21,905 and $3,777 related to the beneficial conversion feature. During the three months ended March 31, 2012, the Company recorded interest expense related to the debt discount of $48,753 and $18,751 related to the beneficial conversion feature.