NOTE 7 – LOAN PAYABLE – RELATED PARTY

In April of 2010, the Company entered into a line of credit agreement with Christopher Maggiore, a significant shareholder.  Under the terms of the line of credit agreement, the shareholder agreed to advance, upon request, a maximum of $675,000 as needed.   This Line of credit Agreement terminated, by its terms, April 24, 2011.  The advances are to be repaid on or before April 24, 2012 with interest accrued at the rate of 7% annually.  During 2010 the Company received advances totaling $373,600, and accrued interest totaling $4,209.  During the quarter ended December 31, 2010, the Company issued an aggregate of 1,940,000 shares of common stock to Mr. Maggiore as follows:  (i) 838,986 shares were issued upon exercise of outstanding warrants at an average exercise price of $.23 per share (the shareholder paid the exercise price by forgiving $188,898 in indebtedness owing to the shareholder) and (ii) 1,101,014 shares (valued at $374,344) were issued in full satisfaction of the approximately $110,000 in remaining principal amount plus accrued interest owing to this related party in connection with advances made to the Company.  In connection with this loan repayment the Company incurred finance charges of $259,293.  As of December 31, 2010 there is a balance due of $12,000.

During 2011, Mr. Maggiore paid expenses of $164,675 on behalf of the Company that were repaid as follows: on November 1, 2011, the Company issued 664,848 shares of common stock and warrants to purchase 997,272 shares of common stock at an exercise price of $.125 per share in repayment of $83,106, and recognized finance costs of $88,380.  On December 1, 2011, the Company issued 652,550 shares of common stock and warrants to purchase 978,825 shares of common stock at an exercise price of $.125 per share in repayment of $81,568 and recognized finance costs of $90,158.  As of December 31, 2011 there is no balance due.