Note 7. Notes Payable

3 Months Ended

Jun. 30, 2014

Notes

Note 7. Notes Payable

Note 7. Notes Payable

Notes Payable owed by Morris consisted of the following:

	June 30, 2014		March 31, 2014
Notes payable to GE Financial, payable in monthly installments ranging from $2,999 to $7,535 including interest, with interest rates ranging from 6.69% to 8.53%, secured by equipment		141,578		149,364
Notes payable to Wells Fargo Bank, payable in monthly installments  ranging from $569 to $5,687 including interest, with interest rates ranging from 7.00% to 7.25%, secured by equipment		478,004		574,547
Note payable to Mack Financial Services, payable in monthly installments of $8,359 including interest, with interest at 7.19% secured by equipment.		180,318		203,348
Note payable to Mack Financial Services, payable in monthly installments of $2,105 including interest, with interest at 7.19% secured by equipment.		53,702		59,096
Notes payable to Volvo Financial Services, payable in monthly installments ranging from $1,884 to $6,408 including interest, with interest rates ranging from 7.00% to 7.50%,  secured by equipment		787,933		859,337
Totals	$	1,641,535	$	1,845,692

Notes payable owed by Smith consisted of the following:

	June 30, 2014		March 31, 2014
Notes payable to bank,  payable in monthly installments of $60,000 including interest, with interest at 9%, collateralized by substantially all of Smith assets	$	861,283	$	977,484
Notes payable to bank,  payable in monthly installments including interest, with interest at 6.5%, collateralized by substantially all of Smith assets		1,432,753		1,447,753
Note payable to Ally, payable in monthly installments of $599 including interest, with interest at 6%, secured by a vehicle.		9,831		11,503
Notes payable to John Deere, payable monthly including interest, secured by equipment		3,595		5,135
Unsecured, non-interest bearing note payable to Colorado Holdings Valley Bank, payable in monthly installments of $5,000, through 2023.		701,570		701,570
Total	$	3,009,032	$	3,143,445

Notes payable owed by Integrated Freight Corporation consisted of the following:

	June 30, 2014		March 31, 2014
Various notes payable, currently payable on demand.  Interest rates ranging from 4.0% to 18%.  Various warrants issued with an exercise price ranging between $0.10 and $0.50 per share.  Various notes contain a conversion feature allowing the holder to convert the debt into shares of common stock at a strike price between $0.30 and $0.50 per share.	$	1,083,101	$	1,083,101
Note payable to a former related party, with interest at 12.00%, a default judgment has been awarded to the holder, the Company intends to comply with the judgment when funds are available.		45,115		45,115
Note payable to Robins Consulting, payable in quarterly installments of  $60,000, currently payable on demand, with interest at 7.50%, secured by 1,056,300 shares of Integrated Freight Corporation stock		572,500		572,500
Convertible promissory notes with an investment firm, simple interest of 8%, currently payable on demand, convertible at the option of the holder at prices as defined.		151,155		151,155
Original Issue Discount Senior Debenture with an investment firm, currently payable on demand, secured by Equipment.		343,200		343,200
Convertible note payable to Wall Street Angel Partners LLC dated August 16, 2012, bearing interest at 8%, currently payable on demand.		23,000		23,000
Totals	$	2,218,071	$	2,218,071

Summary

	IFC		Morris		Smith		Total
Notes payable, current portion	$	2,218,071	$	688,263	$	2,631,911	$	5,538,245
Notes payable, net of current portion		-		953,272		377,121		1,330,393
Total as of June 30, 2014	$	2,218,071	$	1,641,535	$	3,009,032	$	6,868,638

Principal maturities of long term debt for the next five years are as follows	Year Ending
	June 30,	Total
	2015	$	5,538,245
	2016		934,635
	2017		299,144
	2018		88,798
	2019		7,816
	Thereafter		-
			6,868,638

The Company valued the Notes Payable at their face value and calculated the beneficial conversion feature of the warrants using Black Scholes in deriving a discount that is being amortized over the term of the Notes as interest expense using a straight line method.

While there are no defaults of any obligations at the Company's two subsidiaries, the parent company has certain obligations that are in default and currently payable on demand.  The Company is currently in negotiation with these debt holders and intends to extend the terms of the maturity dates or convert the debt into equity.

The Company has determined that the conversion features of convertible notes and warrants issued with convertible notes are embedded derivative instruments pursuant to ASC 815-40-05 "Derivatives and Hedging-Contracts in Entity's Own Equity" and ASC 815-10-05 "Derivatives and Hedging – Overall," the accounting treatment of these derivative financial instruments requires that the Company record the derivatives at their fair values as of the inception date of the note agreements and at fair value as of each subsequent balance sheet date as a liability. Any change in fair value is recorded as non-operating, non-cash income or expense at each balance sheet date.

The fair value of the derivative liability at June 30, 2014 and March 31, 2014 was $7,414 and $8,874, respectively and are reflected on the Consolidated Balance Sheets.