CONVERTIBLE NOTES PAYABLE

3 Months Ended

Mar. 31, 2012

CONVERTIBLE NOTES PAYABLE

3. CONVERTIBLE NOTES PAYABLE

On January 9, 2012, the holder of the $661,683 Convertible Note Payable elected to convert the entire principal in the amount of $661,683 into 22,056,100 shares of common stock. On that date, the unamortized discount related to this principal was $618,583. This amount was immediately amortized to interest expense. The principal amount of $661,683 was recognized as an increase in stockholders’ equity as a result of this conversion. There was no gain or loss on the conversion, because it was effected in accordance with the terms of the convertible note agreement.

On January 12, 2012, the holder of the $517,673 Convertible Note Payable assigned principal in the amount of $270,000 to six entities ($45,000 each). The new holders of the $517,673 Convertible Note Payable elected to convert principal in the amount of $270,000 into 9,000,000 shares of common stock. On that date, the unamortized discount related to this principal was $253,872. This amount was immediately amortized to interest expense. The converted principal amount of $270,000 was recognized as an increase in stockholders’ equity as a result of this conversion. There was no gain or loss on the conversion, because it was effected in accordance with the terms of the convertible note agreement.