NOTE 5   COMMITMENTS AND CONTINGENCIES Derivative Liability In connection with the change in control of the Company which occurred in February 2010, the Company entered into an equity agreement with a term of three years from the date the company consummates a merger. The warrant s expected term is 5 years from the time of issuance in February 2010. The additional two years is reflective of management s estimate of the time to consummate a merger. The warrants are exercisable for a number of shares of Company s common stock equal to 0.005 times the total outstanding shares of common stock of the Company immediately following a reverse merger or similar transaction and each subsequent financing in the form of a public offering or private placement which occurs within (6) months of the reverse merger. The Company has accrued a loss contingency associated with this agreement because it is both probable that a liability had been incurred and the amount of the loss can reasonably be estimated. The fair value of this liability is closely linked to whether the Company enters into a reverse merger, initiates a public offering of stock or engages in a similar transaction. The Company believes that the realization of one or more of these events in the near future is probable and when realized, it could have a material effect on the value of the derivative liability recorded. The main factors that will affect the fair value of the derivative are the number of the Company s shares outstanding post acquisition or post offering and the resulting market capitalization. In order to estimate a range for the potential contingent liability, the Company estimated the future number of surviving shares and resulting market cap from a reverse merger based on a sample of reverse mergers completed by OTC BB companies during 2010 and 2011. As of September 30, 2011 and December 31, 2010, the estimated fair value of this derivative was $75,046. The Company revalues the derivative each reporting period and no material change in value has occ