5. Notes Payable

3 Months Ended

Mar. 31, 2012

Debt Disclosure [Text Block]

5. Notes Payable

Notes payable consists of the following at:

	March 31, 2012			December 31, 2011
Note payable – distributor settlement	$	202,000		$	202,000
Note payable – trademark settlement		100,000			100,000
Notes payable – bridge loans		50,000			50,000
Notes payable – other		150,000			150,000
Subtotal		502,000			502,000
Less current portion		(502,000	)		(502,000	)
Long-term portion	$	—		$	—

Note Payable – Distributor Settlement

This note payable arose from a February 1, 2008 settlement agreement with Christopher Wicks (“Wicks”) and Defiance U.S.A., Inc., under which the Company agreed to pay Wicks the sum of $252,000 under a payment schedule detailed therein, with the final payment due February 2010.  Interest was to accrue at 5% per annum beginning in August 2008.  The Company has made payments totaling $50,000 and is currently in default for non-payment.  As of March 31, 2012 and December 31, 2011, the outstanding balance of $202,000 at the end of each period was classified as a current liability in the accompanying balance sheet.

Note Payable – Trademark Settlement

This note payable arose from a March 4, 2009 settlement agreement with Who’s Ya Daddy, Inc. (“Daddy”) concerning an alleged infringement on a trademark of Daddy.   The settlement amount totaled $125,000 and called for $25,000 to be paid immediately with additional payments of $10,000 to be made every 60 days, beginning April 30, 2009, until the obligation was fully paid.  The payment of $25,000 was paid through an advance by a former officer.  The note payable contains no provision for interest.  As of March 31, 2012 and December 31, 2011, the Company was in default for non-payment and the outstanding balance of $100,000 at the end of each period was classified as a current liability in the accompanying balance sheet.

Notes Payable – Bridge Loans

On April 18, 2011, we issued two notes with face value totaling $50,000 together with 500,000 shares of common stock with a market value of $0.06 per share on the date of issuance.  We calculated the relative fair market value to the debt and equity components and recorded discount on the notes of $17,949.  The notes, which are secured by all of our assets, had a maturity date of 60 days, and as a result, the discount on the notes was fully amortized to interest expense during 2011.  The notes bear no interest; however, upon non-repayment at maturity, a late fee in the amount of 2% per month, or portion of a month, on the unpaid principal is also payable until all amounts due under the notes are paid in full.

On August 30, 2011, one of our shareholders transferred 200,000 free-trading shares of our common stock to the holders of these notes as additional interest.  The transfer of the shares, which were valued at $9,000 based on the closing price of the stock on August 30, 2011, was accounted for as a capital contribution by the shareholder, and we recorded an interest expense during the year ended December 31, 2011 in connection with this transfer of shares.  As of March 31, 2012 and December 31, 2011, no principal payments have been made on the notes and they are in default.

On April 26, 2012, the holders of both notes agreed to cancel the notes and enter into new notes payable agreements directly with FITT.  See Note 10.

Notes Payable – Other

This category consists of notes payable to two individuals.  The notes, in the amounts of $100,000 and $50,000, bear interest of 10% and 6%, respectively.  As of March 31, 2012 and December 31, 2011, the Company was in default for non-payment and the outstanding balance of the two notes totaling $150,000 at the end of each period was classified as a current liability in the accompanying balance sheet.