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NOTE 5. NOTES PAYABLE
 6 Months Ended
Jun. 30, 2011
Short-term Debt [Text Block]
5.
NOTES PAYABLE

Summary:

As of June 30, 2011, the following summarizes amounts owed under notes payable:

               
Convertible
 
               
Notes Payable,
 
   
Amount
   
Discount
   
net of discount
 
Gemini Master Fund
  $ 58,319     $ 2,035     $ 56,284  
KPFF
  $ 145,017     $ -     $ 145,017  
Note to Former Officer
  $ 34,246     $ -     $ 34,246  
    $ 237,582     $ 2,035     $ 235,547  

Gemini Note

On April 22, 2010, the Company entered into a new non-secured note with Gemini Master Fund, LTD, Note No. 2010-3, for $50,000.  The new note bears interest at 12% per annum, payable in quarterly installments of the accrued and unpaid interest, beginning July 1, 2010, with the note originally maturing on August 20, 2010. In the event a quarterly payment is late, it incurs a late fee of 20%.  On December 31, 2010, the Company entered into a revised agreement to extend the maturity date of the note to December 31, 2011.  As a part of this agreement, all accrued and unpaid interest amounting to $4,247 was capitalized into the note balance along with an extension fee of $4,069.  Such extension fee, recorded as debt discount, is being amortized to interest expense over the remaining term of the note.  At June 30, 2011, the note had a total balance outstanding of $58,319, and a balance, net of discount, of $56,284.  The interest on the note continues to accrue at a rate of 12%.

KPFF Note

On June 1, 2010, the Company entered into a Promissory Note with one of its vendors in exchange for the vendor cancelling its open invoices to the Company. Total outstanding payables recorded by the Company at the time of conversion were $179,695. The loan amount was for $160,633 and bears interest at 10%. The Company recorded a gain on the conversion of $19,062.  The note can be converted only at the option of the Company, at any time, into common stock with a conversion price of $0.33 per share. The note, plus the accrued interest is all due and payable on December 31, 2011.  In May, 2011, the Company made a partial conversion of this note into 100,000 shares of common stock.  The Company recorded a payment of interest of $17,384, a reduction of outstanding debt of $15,616 and a loss on the settlement of debt of $2,000 related to this transaction.  As of June 30, 2011, the note had a remaining balance due of $145,017. See note 7.

Note to Former officer

As of June 30, 2011, the Company owed one of the Company’s stockholders and former officer $34,246.  The note bears interest at 5% and was due and payable with accrued interest on or before December 31, 2009.  The note was not paid at maturity, and as of June 30, 2011, this note was in default for payment of principal and interest.  Prior to 2011, this note was classified as Note payable – related party.