CONVERTIBLE DEBT

3 Months Ended

Mar. 31, 2012

As of March 31, 2012 the bridge notes payable totaled $961,000. The bridge notes payable were offered by the company during 2011 and 2012. The bridge notes payable consist of $325,000 of convertible debt and $636,000 of demand notes bearing interest at rates varying from 5.00% to 6.50% per annum. A total of $416,000 of the demand notes were issued to related parties (See Note 5)

The convertible debt payable was issued by the Company as follows:

On February 22, 2011 the Company issued convertible debt totaling $175,000, bearing a rate of 8% simple interest per annum. On December 14, 2011, $100,000 was repaid plus accrued interest of $6,466.The remaining Convertible debt of $75,000 in addition to accrued unpaid interest shall be due and payable on April 15, 2012. The principal amount and all unpaid interest accrued on this debt maybe converted by the greater of $0.25 per share or 50% of the average closing bid price of the Common stock on the OTC Bulletin Board, for the 10 trading days ending 5 days before the conversion date. On April 14, 2012, the maturity date was extended to June 15, 2012 and the conversion factor was adjusted to $0.05 per share

On June 22, 2011 the Company issued a convertible debt totaling $20,000, bearing a rate of 8.0% simple interest per annum. During December 2011, the principle was repaid in the amount of $20,000 plus $758 of accrued interest.

On August 17, 2011, the Company issued a convertible debt in amount of $100,000. The convertible debt bears a rate of 6.5% simple interest per annum. The principal and accrued unpaid interest shall be due and payable on April 15, 2012. As further inducement for the lender to advance the loan, the company granted the convertible debt holder the amount of 250,000 shares Common Stock. The principal amount and all unpaid interest accrued on this debt maybe converted by the greater of $0.05 per share or 50% of the average closing bid price of the Common stock on the OTC Bulletin Board, for the 10 trading days ending 5 days before the conversion date. On April 14, 2012, the maturity date was extended to June 15, 2012 and the conversion factor was adjusted to $0.05 per share.

On October 31, 2011, the Company issued a convertible debt in amount of $100,000. The convertible debt bears a rate of 6.5% simple interest per annum. The principal and accrued unpaid interest shall be due and payable on April 15, 2012. As further inducement for the lender to advance the loan, the company granted the convertible debt holder the amount of 250,000 shares Common Stock. The principal amount and all unpaid interest accrued on this debt maybe converted by the greater of $0.05 per share or 50% of the average closing bid price of the Common stock on the OTC Bulletin Board, for the 10 trading days ending 5 days before the conversion date. On April 14, 2012, the maturity date was extended to June 15, 2012 and the conversion factor was adjusted to $0.05 per share.

The following table illustrates the carrying value of the demand notes payable and convertible debt:

	March 31, 2012

Convertible Notes	$	275,000
Notes with a six month maturity		220,000
Demand Notes		466,000
Discount on Convertible Note		(0)
Convertible Note, Net		961,000
Less: Current portion of convertible debt		(961,000	)
Long term portion of convertible debt	$	-

The following tables illustrate the fair value adjustments that were recorded related to the derivative financial instruments associated with the convertible debenture financings:

	Three months ended March 31, 2012
Derivative income (expense):	Inception			Fair Value Adjustments			Redemptions		Total

Convertible debt	$	(178,070	)	$	(351,209	)	$	-	$	(529,279	)
	$	(178,070	)	$	(351,209	)	$	-	$	(529,729	)

The following table illustrates the components of derivative liabilities:

Balance at December 31, 2011	$	178,070
Change in fair value of derivative liability due to beneficial conversion feature		351,209
Debt redemption		-
Balance at March 31, 2012	$	529,279

Face Up Entertainment Group, Inc. 10-Q