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4. NOTES PAYABLE
 3 Months Ended
Jun. 30, 2012
Notes Payable  
Debt Disclosure

Notes payable consist of the following:

 

   June 30, 2012  March 31, 2012
   Principal Balance  Accrued Interest  Principal Balance  Accrued Interest
12% Notes payable, past due  $185,000   $305,250   $185,000   $298,312 
10% Note payable, past due   5,000    5,500    5,000    5,375 
IP Law Firm Note, past due   –    –    29,610    986 
Law Firm Note   –    –    75,000    104 
Tonaquint Note   300,000    6,382    360,186    1,835 
Total  $490,000   $317,132   $654,796   $306,612 

 

During the three month period ended June 30, 2012, we recorded interest expense of $13,029 related to the contractual interest rates of our notes payable.

 

12% NOTES

 

From August 1999 through May 2005, we entered into various borrowing arrangements for the issuance of notes payable from private placement offerings (the "12% Notes"). On April 21, 2010, a holder of $100,000 of the 12% Notes converted his principal balance and $71,758 of accrued interest into 687,033 shares of common stock at an agreed conversion price of $0.25 per share. We incurred a loss upon this conversion of $68,703 since the closing price of our common stock was $0.35 at the date of conversion. At June 30, 2012, 12% Notes with a principal balance of $185,000 are outstanding, all of which are past due, in default, and bearing interest at the default rate of 15%. At June 30, 2012, interest payable on the 12% Notes totaled $305,250.

 

10% NOTES

 

At June 30, 2012, one 10% Note in the amount of $5,000, which is past due and in default, remained outstanding. At June 30, 2012, interest payable on this note totaled $5,500.

 

Management's plans to satisfy the remaining outstanding balance on these 12% and 10% Notes include converting the notes to common stock at market value or repayment with available funds.

 

IP LAW FIRM NOTE

 

On August 2, 2011, we entered into a Promissory Note with our intellectual property law firm for the amount of $49,610, which represented the amount we owed to that firm. The Promissory Note called for monthly payments of $5,000 from August 2011 through December 2011 and bore interest at 10% per annum.  We paid off this note and related accrued interest with cash in April 2012.

 

LAW FIRM NOTE

 

On March 22, 2012, we entered into a Promissory Note with our corporate law firm for the amount of $75,000, which represented the majority of the amount we owed to that firm. The Promissory Note has a maturity date of December 31, 2012 and bears interest at five percent per annum. The note is convertible at the option of the holder into shares of our common stock at a 10% discount to the market price of the common stock on the date prior to conversion with a floor price on such conversions of $0.08 per share.  This ability of the holder to convert became exercisable upon the next amendment of the Articles of Incorporation increasing the authorized shares of our common stock to a number greater than 250,000,000.  As that increase in the authorized number of shares of our common stock was approved by our stockholders at a Special Stockholders Meeting on June 4, 2012, this note was reclassified to a convertible note as of June 30, 2012 (See Note 5).   

 

TONAQUINT NOTE

 

On June 28, 2011, we entered into a Termination Agreement with Tonaquint, Inc. (See Note 5) under which both parties agreed that in consideration of the termination of a warrant, the waiving of all fees, penalties, the creation of the selling program and other factors, we agreed to issue an unsecured non-convertible promissory note (the "New Note") in the principal amount of $360,186, which provides for annual interest at a rate of 6%, payable monthly in either cash or our stock, at our option. The New Note originally had a maturity date of April 30, 2012.  We subsequently extended the note to July 31, 2012 and converted $60,186 of the principal of the note into common stock (See Note 6). We recorded a loss on conversion of $24,978 on that partial conversion. At June 30, 2012, the balance of this note was $300,000 and accrued interest totaled $6,382. We are currently in discussions to further extend this note.