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4. NOTES PAYABLE
 9 Months Ended
Dec. 31, 2013
Debt Disclosure [Abstract]  
NOTES PAYABLE

Notes payable consist of the following:

 

    December 31, 2013     March 31, 2013  
    Principal Balance     Accrued Interest     Principal Balance     Accrued Interest  
12% Notes payable, past due   $ 185,000     $ 346,875     $ 185,000     $ 326,062  
10% Note payable, past due     5,000       6,250       5,000       5,875  
Tonaquint Note     –       –       131,381       1,629  
Directors’ Notes     200,000       9,516       –       –  
Total   $ 390,000     $ 362,641     $ 321,381     $ 333,566  

 

During the nine month periods ended December 31, 2013 and 2012, we recorded interest expense of $47,838 and $47,447, respectively, 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 December 31, 2013, the 12% Notes were past due, in default, and bearing interest at the default rate of 15%.

 

10% NOTES

 

At December 31, 2013, one 10% Note in the amount of $5,000, which is past due and in default, remained outstanding and it bears interest at the default rate of 15%.

 

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.

 

TONAQUINT NOTE

 

On June 28, 2011, in conjunction with our satisfying all balances owed under a convertible note, we entered into a Termination Agreement with Tonaquint, Inc. 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 initially to July 31, 2012 and then to July 31, 2013 and subsequently to August 31, 2013. We also recorded into principal $12,500 of the lender’s legal fees related to documentation of the extension agreement.

 

During the nine months ended December 31, 2013, we issued 1,540,426 shares of common stock to convert $136,060 of principal and accrued interest (see Note 6). As a result of those conversions, the Tonaquint Note was paid off in full during the September 2013 quarter. We recorded a loss on conversion of $40,256 on those conversions over the nine months ended December 31, 2013.

 

The following table shows the conversions into principal of the Tonaquint Note by fiscal year:

 

Activity in Tonaquint Note
Initial principal balance   $ 360,186  
Lender’s legal fees     12,500  
Conversions during the fiscal year ended March 31, 2013     (241,307 )
Conversions during the nine months ended December 31, 2013     (131,379 )
Balance as of December 31, 2013   $ –  

 

Directors’ Notes

 

In July 2013, we borrowed $400,000 from two of our directors under two 90 day notes for $200,000 each bearing 10% interest (the “Notes”). The Notes allow at the discretion of the holders if we did not pay back those loans by October 9, 2013 (i) to convert their principal and accrued interest into shares of common stock at $0.088 per share (the “Conversion Price”) and (ii) receive warrants to purchase common stock equal to 50% of the principal converted under the Notes, with an exercise price of $0.132 per share. Additionally, there was a provision for a penalty interest rate of 12%.

 

That potential conversion price and warrant exercise price were based on the same pricing mechanism that we have used in prior equity unit financings since March 2012 (see Note 6) which are based on 80% of the then current market price of our common stock and with the warrant exercise price based on 120% of the same then current market price. We initially reserved 6,931,818 shares of common stock to support the conversion in full of the Notes and accrued interest as well as the exercise in full of the warrants (should such conversion and/or issuance occur).

 

We subsequently paid back one of those loans in December 2013 along with all accrued interest in the amount of $9,367. That repayment extinguished all potential common stock and warrant issuance provisions of that Note.

 

The holder of the second Note agreed to extend the expiration date of his Note to July 31, 2014.