NOTE 17 – NOTES PAYABLE – CONVERTIBLE

On July 15^th, 2011 the Company received $125,000 from a shareholder in exchange for a one year original issue discount convertible note with detachable warrants. The face value of the note is $137,500. The $12,500 original issue discount is expensed as interest over the term of the note. The convertible note payable is convertible into 1,375,000 shares of the Company’s common stock at a conversion rate of $0.10 per share. The Company has valued the beneficial conversion feature attached to the note using the intrinsic method at $62,500. The five-year warrants to purchase 1,250,000 shares of the Company’s common stock at an exercise price of $0.10 were valued at their relative fair value of $62,500 using the Black-Scholes pricing model assuming a dividend yield of 0%, an expected volatility of 277.10%, and a risk free interest rate of 1.46%. The beneficial conversion feature and the relative fair value of the warrants are recorded as an increase to additional paid in capital and a discount to the note. The net value of the note at December 31, 2011 is $63,664.

On July 18^th, 2011 the Company received $125,000 from a shareholder in exchange for a one year original issue discount convertible note with detachable warrants. The face value of the note is $137,500. The $12,500 original issue discount is expensed as interest over the term of the note. The convertible note payable is convertible into 1,375,000 shares of the Company’s common stock at a conversion rate of $0.10 per share. The Company has valued the beneficial conversion feature attached to the note using the intrinsic method at $62,500. The five-year warrants to purchase 1,250,000 shares of the Company’s common stock at an exercise price of $0.10 were valued at their relative fair value of $62,500 using the Black-Scholes pricing model assuming a dividend yield of 0%, an expected volatility of 277.10%, and a risk free interest rate of 1.46%. The beneficial conversion feature and the relative fair value of the warrants are recorded as an increase to additional paid in capital and a discount to the note. The net value of the note at December 31, 2011 is $63,287.