CEVE Ceres Ventures Inc (CE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

  NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Ceres Ventures, Inc. (“Ceres Ventures”, the “Company”), together with its wholly-owned subsidiary, BluFlow Technologies, Inc. (“BluFlow”), is focused on the research, development, and eventual commercialization of emerging next-generation clean technologies for the remediation of polluted water, soil, and air in an environmentally friendly and cost effective manner.

Ceres Ventures, formerly known as PhytoMedical Technologies, Inc., was incorporated in the State of Nevada on July 25, 2001, under the name Enterprise Technologies, Inc. BluFlow was incorporated on October 14, 2010 under the laws of the State of Delaware.

Ceres Ventures Name Change and Reverse Split

On November 21, 2011, PhytoMedical Technologies, Inc. changed its name to Ceres Ventures, Inc. and implemented a one-for-fifty reverse stock split (the “Reverse Split”). The par value and total number of authorized shares were unaffected by the Reverse Split. All shares and per share amounts in these financial statements and notes thereto have been retrospectively adjusted to all periods presented to give effect to the reverse stock split. The Reverse Split was declared effective by the Financial Industry Regulatory Authority on December 12, 2011.

Reverse Merger

On December 29, 2011, Ceres Ventures, a public shell company, and BluFlow entered into an agreement and plan of merger pursuant to which BluFlow became a wholly-owned subsidiary of Ceres Ventures. The merger was accounted for as a reverse-merger and recapitalization and BluFlow is considered the acquirer for accounting purposes and Ceres Ventures the acquired company. The business of BluFlow became the business of Ceres Ventures.

Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles (“GAAP”) in the United States (“U.S.”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Therefore, this information should be read in conjunction with Ceres Ventures, Inc. financial statements and notes contained in its 2011 Annual Report on Form 10-K. The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany accounts and transactions. The information furnished herein reflects all adjustment that are, in the opinion of management, necessary for the fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the nine month period ended September 30, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

Applicable Accounting Guidance

Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative non-governmental United States GAAP as found in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”).

Going Concern

As of September 30, 2012, the Company had cash of $4,809. The Company is a development stage company and does not currently have any commercial products and there is no assurance that it will successfully be able to design, develop, manufacture, or sell any commercial products in the future. The Company has not generated any revenue since inception. The Company had a working capital deficit of $337,060, reported an accumulated deficit of $960,265 as of September 30, 2012, and does not have positive cash flows from operating activities.

During the nine month period ended September 30, 2012, the Company raised $67,000 from the sale of its equity securities. The Company is seeking additional financing but has no commitments to obtain any such financing, and there can be no assurance that financing will be available in amounts or on terms acceptable to the Company, if at all. If adequate funds are not available on reasonable terms or at all, it would result in a material adverse effect on the Company’s business, operating results, financial condition and prospects. In particular, the Company may be required to delay, reduce the scope of or terminate its research programs, and/or sell rights to its BluFlow ^TM Treatment System, BluFlow ^TM Nanoparticles or BluFlow ^TM AUT.

In view of these conditions, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon the Company obtaining necessary financing to fund ongoing operations. These consolidated financial statements do not give effect to any adjustments which will be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements.

Development Stage Company

The Company is a development stage company. The Company is still devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced. All losses accumulated since inception have been considered as part of the Company’s development stage activities.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period.

The Company’s significant estimates and assumptions include the fair value of financial instruments; the carrying value, recoverability and impairment, if any, of long-lived assets, including the values assigned to and the estimated useful lives of intangible assets; income tax rate, income tax provision, deferred tax assets and the valuation allowance of deferred tax assets; and the assumption that the Company is a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

Management bases its estimates on experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, their experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from these estimates.

Fair Value

The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities. The Company has no assets or liabilities valued with Level 1 inputs.

Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. The Company has no assets or liabilities valued with Level 2 inputs.

Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no assets or liabilities valued with Level 3 inputs.

Fair Value of Financial Instruments

The carrying value of cash, accounts payable, accrued interest, accrued payroll liabilities, approximate their fair value because of the short-term nature of these instruments and their liquidity. Due to conversion features and other terms, it is not practical to estimate the fair value of notes payable and convertible notes payable. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. As of September 30, 2012 and December 31, 2011, the Company had no cash equivalents.

Intangible Assets

Intangible assets include license agreements and related patent costs. The Company has entered into a license agreement whereby it has been assigned the exclusive rights to certain licensed materials used in its products. The Company capitalizes the rights to the licensed materials and amortizes such costs over their estimated useful life which is consistent with the life of the patents underlying the license agreements.

As of September 30, 2012, the Company had $73,755 of intangible assets on the Consolidated Balance Sheet representing the costs for a license agreement, patent usage rights and patent filing costs. These costs were not subject to amortization as the patents are pending.

Impairment of Long-Lived Assets

Intangible assets are evaluated and reviewed for impairment annually or more frequently whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company recognizes impairment of long-lived assets in the event the carrying amount exceeds the fair value of the assets. An impairment loss is recognized equal to the amount to that excess. Such analyses necessarily involve significant judgment.

The Company determined there was no impairment of long-lived assets for the period ended September 30, 2012, and the year ended December 31, 2011.

Research and Development Costs

Research and development costs are charged to expense when incurred. Research and development includes costs such as contracted research and license agreement fees with no alternative future use, supplies and materials, salaries and employee benefits, equipment depreciation, allocation of various corporate costs, and amortization of intangible assets.

Stock-Based Compensation

The Company measures all employee stock-based compensation awards using a fair value method on the date of grant and recognizes such expense in its consolidated financial statements over the requisite service period. The Company uses the Black-Scholes pricing model to determine the fair value of stock-based compensation awards on the date of grant. The Black-Scholes pricing model requires management to make assumptions regarding option lives, expected volatility, and risk free interest rates.

Loss Per Share

The computation of basic net income (loss) per common share is based on the weighted average number of shares that were outstanding during the year. The computation of diluted net income (loss) per common share is based on the weighted average number of shares used in the basic net income (loss) per share calculation plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares outstanding using the treasury stock method. See “Note 2. Loss Per Share” for further discussion.

Income Taxes

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more than likely not be realized.

The Company recognizes income taxes on an accrual basis based on tax positions taken or expected to be taken in the Company’s tax returns. A tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (i.e., likelihood of greater than 50%), based on technical merits, that the position would be sustained upon examination by taxing authorities. Tax positions that meet the more likely than not threshold are measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Should they occur, the Company’s policy is to classify interest and penalties related to tax positions as interest expense. Since the Company’s inception, no such interest or penalties have been incurred.

Recently Issued and Adopted Accounting Pronouncements

Accounting Standards Update 2012-02: Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment

In July 2012, the FASB issued Accounting Standards Update ("ASU") 2012-02, "Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment," allowing entities to make a qualitative evaluation about the likelihood of impairment of an indefinite-lived intangible asset to determine whether the quantitative test is required, as opposed to required annual quantitative impairment testing. The update is effective for interim and annual impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company has elected to not adopt this guidance early. The implementation of this guidance is not expected to affect the Company's financial condition, results of operations, or cash flows.

NOTE 2. LOSS PER SHARE

Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common and dilutive common equivalent shares outstanding during the period.

The computation of loss per share for the three and nine month periods ended September 30, 2012 and 2011, excludes the following potentially dilutive securities because their inclusion would be anti-dilutive: 360,000 and nil, respectively of stock options; 6,750,000 and 4,582,500, respectively, of warrants outstanding; and 3,815,909 and nil, respectively, of shares of common stock (equivalent common shares) from convertible notes payable and accrued interest issued.

The loss per share is as follows:

NOTE 3. SPONSORED RESEARCH AGREEMENT

Applied Power Concepts, Inc.

On July 7, 2011, the Company entered into a services agreement (the “Services Agreement”) with Applied Power Concepts, Inc. (“APC”) and additional ancillary agreements pursuant to which APC assists the Company in the development of the patent pending BluFlow ^TM Treatment System, which incorporates the BluFlow ^TM Nanoparticles and BluFlow ^TM AUT, as well as research and development to determine additional applications for the BluFlow ^TM Nanoparticles. Pursuant to the terms of the Services Agreement any technologies developed by APC for the Company, including any patents arising therefrom, belong to the Company. Pursuant to SEC Rule 24b-2, certain portions of this agreement have been granted confidential treatment and therefore have not been disclosed.

Payment under the Services Agreement is based upon time and materials and includes a bonus of stock options to purchase the Company’s common stock with vesting based on performance milestones. The Services Agreement can be terminated at any time by either party.

NOTE 4. CONVERTIBLE NOTE PAYABLE

On May 20, 2011, Ceres Ventures issued a one year convertible promissory note in the amount of $100,000 to Mr. Jeet Sidhu (the “Sidhu Convertible Note”), one of Ceres Ventures’ non-employee directors. The Sidhu Convertible Note bears interest at the rate of 8.5% per annum, which interest is accrued and payable on the maturity date of the Sidhu Convertible Note. As long as the Sidhu Convertible Note remains outstanding and not fully paid, the holder has the right, but not the obligation, to convert all or any portion of the aggregate outstanding principal amount of the Sidhu Convertible Note, together with all or any portion of the accrued and unpaid interest into that number of shares, subject to certain terms and conditions, of the Company’s common stock equal to the amount of the converted indebtedness divided by $0.50 per share (after giving effect to the Reverse Split). In the event of default, as defined in the Sidhu Convertible Note agreement, the annual interest rate increases to 10% and is due on demand. Certain events of default will result in all sums of principal and interest then remaining unpaid immediately due and payable, upon demand of the holder. The issuance of the Sidhu Convertible Note did not result in a beneficial conversion feature.

Pursuant to an amendment dated December 29, 2011, the Sidhu Convertible Note is payable as follows: (a) $50,000 plus accrued and unpaid interest thereon on or before January 31, 2012 and (b) the balance of $50,000 plus accrued and unpaid interest thereon on or before April 30, 2012. On January 31, 2012, the Company made the first $50,000 installment payment plus accrued interest on that amount according to the terms of the amended agreement for a total payment of $53,086. On April 29, 2012, the Company and Mr. Sidhu entered into Amendment No. 3 related to the Sidhu Convertible Note modifying the principal and interest payment date from April 30, 2012 to June 30, 2012. At June 30, 2012, the Company did not have the cash on hand to pay the outstanding principal of $50,000 and accrued interest of $4,518. In accordance with the terms of the promissory note, the interest rate increased to 10% per annum beginning July 1, 2012.

For the three and nine month ended September 30, 2012, the Company recorded $1,260 and $2,624 for interest expense related to this convertible note payable.

NOTE 5. CONVERTIBLE PROMISSORY NOTES

S&C Convertible Note

On June 30, 2012, the Company entered into a debt restructuring agreement (the “S&C Restructuring Agreement”) with Sierchio & Company, LLP (“S&C”), to restructure the $225,688 owed to S&C for legal services rendered to the Company from inception through June 30, 2012, and issued a convertible promissory note in the amount of $225,688 to S&C (the “S&C Convertible Note”). The S&C Convertible Note bears interest at the rate of 4% per annum, which interest is accrued and payable on the maturity date of the S&C Convertible Note, December 31, 2013. As long as the S&C Convertible Note remains outstanding and not fully paid, the holder has the right, but not the obligation, to convert all or any portion of the aggregate outstanding principal amount of the S&C Convertible Note, together with all or any portion of the accrued and unpaid interest into that number of shares, subject to certain terms and conditions, of the Company’s common stock equal to the amount of the converted indebtedness divided by $0.10 per share. In the event of default, as defined in the S&C Convertible Note agreement, the annual interest rate increases to 10% and is due on demand. Certain events of default will result in all sums of principal and interest then remaining unpaid immediately due and payable, upon demand of the holder.

Pursuant to the terms of the S&C Restructuring Agreement, the Company issued S&C a Series E Stock Purchase Warrant (the “Series E Warrant”) allowing the holder to purchase up to 1,000,000 shares of the Company’s common stock at a purchase price of $0.10 per share through December 31, 2016. The Series E Warrant includes a “cashless exercise” provision.

Mr. Joseph Sierchio, a non-employee director and a major shareholder of the Company, is the managing partner of S&C.

The Company first allocated the fair value of the liability between the S&C Convertible Note and the Series E Warrants based upon their relative fair values. The estimated fair value of the Series E Warrants issued with the note of $97,869 was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $0.10 per share; estimated volatility - 216.5%; risk free interest rate - 0.72%; expected dividend rate - 0% and expected life - 4.5 years. This resulted in allocating $68,266 to the Series E Warrants and $157,422 to the S&C Convertible Note.

The intrinsic value of the beneficial conversion feature was computed as the difference between the fair value of the common stock issuable upon conversion of the note and the total price to convert based on the effective conversion price. The calculated intrinsic value was $68,266. The resulting $68,266 discount to the note is being accreted over the 18 month term of the note using the effective interest method.

During the three and nine months ended September 30, 2012, the Company recognized $2,226 and $2,243, respectively, of interest expense related to this S&C Convertible Note and $11,370 and $11,412, respectively, of accretion related to the debt discount. The remaining debt discount of $125,120 will be amortized through December 31, 2013.

Strategic Convertible Note

On June 30, 2012, the Company entered into a debt restructuring agreement (the “Strategic Restructuring Agreement”) with Strategic Edge, LLC (“Strategic”), to restructure the $145,000 owed to Strategic for consulting services rendered to the Company from January 1, 2011 through June 30, 2012, and issued a convertible promissory note in the amount of $145,000 to Strategic (the “Strategic Convertible Note”). The Strategic Convertible Note bears interest at the rate of 4% per annum, which interest is accrued and payable on the maturity date of the Strategic Convertible Note, December 31, 2013. As long as the Strategic Convertible Note remains outstanding and not fully paid, the holder has the right, but not the obligation, to convert all or any portion of the aggregate outstanding principal amount of the Strategic Convertible Note, together with all or any portion of the accrued and unpaid interest into that number of shares, subject to certain terms and conditions, of the Company’s common stock equal to the amount of the converted indebtedness divided by $0.10 per share. In the event of default, as defined in the Strategic Convertible Note agreement, the annual interest rate increases to 10% and is due on demand. Certain events of default will result in all sums of principal and interest then remaining unpaid immediately due and payable, upon demand of the holder.

Pursuant to the terms of the Strategic Restructuring Agreement, the Company issued Strategic a Series E Warrant allowing the holder to purchase up to 1,000,000 shares of the Company’s common stock at a purchase price of $0.10 per share through December 31, 2016. The Series E Warrant includes a “cashless exercise” provision.

Mr. Meetesh Patel, the Company’s President and Chief Executive Officer, an employee director and a major shareholder of the Company, is the sole shareholder of Strategic.

The Company first allocated the fair value of the liability between the Strategic Convertible Note and the Series E Warrants based upon their relative fair values. The estimated fair value of the Series E Warrants issued with the Strategic Convertible Note of $97,869 was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $0.10 per share; estimated volatility - 216.5%; risk free interest rate - 0.72%; expected dividend rate - 0% and expected life - 4.5 years. This resulted in allocating $58,431 to the Series E Warrants and $86,569 to the Strategic Convertible Note.

The intrinsic value of the beneficial conversion feature was computed as the difference between the fair value of the common stock issuable upon conversion of the Strategic Convertible Note and the total price to convert based on the effective conversion price. The calculated intrinsic value was $58,431. The resulting $58,431 discount to the Strategic Convertible Note is being accreted over the 18 month term of the Strategic Convertible Note using the effective interest method.

During the three and nine months ended September 30, 2012, the Company recognized $1,430 and $1,439, respectively, of interest expense related to the Strategic Convertible Note and $9,733 and $9,768, respectively, of accretion related to the debt discount. The remaining debt discount of $107,091 will be amortized through December 31, 2013.

NOTE 6. STOCKHOLDERS’ DEFICIT

Common Stock

From February through June 2012, the Company conducted a private placement of units of its securities at a purchase price or $0.20 per unit. Each unit consists of: (i) one share of its common stock, $0.00001 par value per share; and (ii) one-half of one Series D Stock Purchase Warrant (the “Series D Warrants”). Each full Series D Warrant entitles the holder thereof to purchase one additional share of common stock at a price of $0.30 for a period commencing on the date of issuance and terminating on December 31, 2013. As of the termination date of the offering, the Company sold 335,000 units for gross proceeds of $67,000. The Company issued 335,000 shares of its common stock, and Series D Warrants to purchase up to 167,500 shares of common stock at an exercise price of $0.30 per share to the investors having subscribed for the units. The relative fair value of the warrants was not significant. This offering was conducted in reliance upon exemptions afforded to the Company by, but not limited to, the provisions of Section 4(2) of the 1933 Act and Regulation D as promulgated by the SEC under the 1933 Act.

Warrants

On December 29, 2011, the date of the merger, Ceres Ventures had Series B Stock Purchase Warrants (the “Series B Warrants”) outstanding to purchase 400,000 shares of common stock at an exercise price of $1.50 per share. All the Series B Warrants expired on May 19, 2012, unexercised.

As part of the November 2010 - May 2011 private placement, BluFlow issued a total of 4,582,500 Series C Warrants.

As part of the February - June 2012 private placement, Ceres Ventures issued a total of 167,500 Series D Warrants.

On June 30, 2012, pursuant to the terms of the S&C Restructuring Agreement and Strategic Restructuring Agreement, both as discussed further in “Note 5: Convertible Promissory Notes”, the Company issued to each of S&C and Strategic a Series E Warrant allowing each of the holders to purchase up to 1,000,000 shares of the Company’s common stock at a purchase price of $0.10 per share through December 31, 2016. The Series E Warrant includes a “cashless exercise” provision.

The Company estimated the fair value of the warrants on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

* As a newly formed entity it is not practicable for it to estimate the expected volatility of its share price. The Company selected two comparable public companies listed on OTC Markets Group Inc. QB tier engaged in similar activities to calculate the expected volatility. The Company calculated the comparable companies’ historical volatility over the expected life and averaged them as its expected volatility.

The following table summarizes warrant activity during the nine months ended September 30, 2012:

NOTE 7. SHARE BASED COMPENSATION

On December 29, 2011, the Company approved the 2011 Long-Term Stock Incentive Plan (the “2011 Plan”), pursuant to which the Board is authorized to grant up to 10,000,000 shares of the Company’s common stock, which have been reserved for issuance. The 2011 Plan has not yet been approved by the Company’s stockholders.

In accordance with the 2011 Plan, shares issued may be either authorized but unissued shares, treasury shares or any combination of these shares. Additionally, the 2011 Plan permits the reuse or reissuance of shares of common stock which were canceled, expired, forfeited or, in the case of stock appreciation rights (“SARs”), paid out in the form of cash. Awards include non-qualified and incentive stock options, stock appreciation rights, restricted stock, other stock-based awards, and performance-based compensation awards, any or all of which may be subject to time-based or performance-based vesting requirements. The compensation committee has the discretionary authority to determine the type, vesting requirements, and size of an award with a maximum of 2,000,000 shares to be granted to any participate in any plan year. As of September 30, 2012, 9,505,000 shares remain available for issuance pursuant to the 2011 Plan.

The table below summarizes the Company’s stock option activities through September 30, 2012:

The Company recorded $870 ($261) and $1,966 ($261) in stock option compensation expense for the three and nine month period ended September 30, 2012 and 2011, respectively, as research and development expenses. An estimated $838 will be expensed over the remaining vesting period of 1 year.

The Company recorded $1,696 ($3,133) and $4,318 ($9,599) in restricted stock compensation expense for the three and nine month periods ended September 30, 2012 and 2011, respectively. An estimated $5,081 will be expensed over the remaining vesting period of .69 years.

NOTE 8. RELATED PARTY TRANSACTIONS

The Company was provided legal services by a law firm of which one of the Company’s directors and major shareholders is a managing partner. The Company recorded $24,000 ($112,100) and $72,000 ($136,100) for these services for the three and nine month periods ended September 30, 2012 and 2011, respectively.

On June 30, 2012, the Company entered into a debt restructuring agreement (the “S&C Restructuring Agreement”) with Sierchio & Company, LLP (“S&C”), to restructure the $225,688 owed to S&C for legal services rendered to the Company from inception through June 30, 2012, and issued a convertible promissory note in the amount of $225,688 to S&C (the “S&C Convertible Note”). The S&C Convertible Note bears interest at the rate of 4% per annum, which interest is accrued and payable on the maturity date of the S&C Convertible Note, December 31, 2013. For further details see “Note 5 - Convertible Promissory Notes”.

On June 30, 2012, the Company entered into a debt restructuring agreement (the “Strategic Restructuring Agreement”) with Strategic Edge, LLC (“Strategic”), to restructure the $145,000 owed to Strategic for consulting services rendered to the Company from January 1, 2011 through June 30, 2012, and issued a convertible promissory note in the amount of $145,000 to Strategic (the “Strategic Convertible Note”). The Strategic Convertible Note bears interest at the rate of 4% per annum, which interest is accrued and payable on the maturity date of the Strategic Convertible Note, December 31, 2013. For further details see “Note 5 - Convertible Promissory Notes”.