Notes Payable

6 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Notes Payable

Notes Payable owed by Morris consisted of the following:
	September 30, 2011		March 31, 2011
Notes payable to Daimler Truck Financial, payable in monthly installments ranging from $569 to $5,687 including interest, through May 2013, with interest rates ranging from 5.34% to 8.07%, secured by equipment	$	835,600	$	1,191,577
Notes payable to GE Financial, payable in monthly installments ranging from $2,999 to $7,535 including interest, through April 2013, with interest rates ranging from 6.69% to 8.53%, secured by equipment		840,710		450,942
Note payable to Chrysler Credit, payable in monthly installments of $5,687 including interest, through November 2011, with interest at 6.9%, secured by equipment		—		50,298
Note payable to Wells Fargo Bank, payable in monthly installments  of $4,271 including interest, through October 2011, with interest at 6.59%, secured by equipment		75,441		92,606
Note payable to Mack Financial Services, payable in monthly
installments of $8,359.96 including interest, through May 2016,
with interest at 7.19% secured by equipment		393,279		—
Note payable to Mack Financial Services, payable in monthly
installments of $2,105.68 including interest, through May 2016,
with interest at 7.19% secured by equipment		99,642		—
Note payable to Volvo Financial Services, payable in monthly
installments of $6,637.49 including interest, through October
2016, with interest at 7.50% secured by equipment		201,981		—
Note payable to a local dealer, payable in monthly installments
of $499.83 though April 2013		13,720		—
Totals	$	2,460,374	$	1,785,423

Notes payable owed by Smith consisted of the following:
	September 30, 2011		March 31, 2011
Notes payable to bank,  payable in monthly installments of $60,000 including interest,  through December 2012, with interest at 9%, collateralized by substantially all of Smith assets	$	1,549,671	$	1,803,578
Notes payable to bank,  payable in monthly instaments including interest, through June 2011, with interest at 6.5%, collateralized by substantially all of Smith assets		1,508,220		1,530,191
Note payable to Platte Valley National Bank, payable in monthly installments of $1,471 with interest, through  May 2011, with interest at 6.75%, collateralized by vehicle		11,417		19,689
Note payable to Floyds, payable in monthly installments of $2,084, through November 2012, with interest at 8%, secured by a vehicle		25,638		37,062
Note payable to Nissan Motors, payable in monthly installments of $505 including interest, through June 2011, with interest at 5.6%, secured by a vehicle		—		1,225
Note payable to Ally, payable in monthly installments of $599 including interest, through December 2015, with interest at 6%, secured by a vehicle		27,256		30,113
Unsecured, non-interest bearing note payable to Colorado Holdings Valley Bank, payable in monthly installments of $5,000, through 2023		677,000		686,999
Total	$	3,799,202	$	4,108,857

Notes payable owed by Cross Creek consisted of the following:
	September 30, 2011
Notes payable to All Points Capital, payable in monthly installments ranging from $1,495 to $9,912 including interest, through December 2012, with interest rates ranging from 5.84% to 8.45%, secured by equipment	$	184,303
Notes payable to Edison Financial, payable in monthly installments ranging from $2,058 to $11,411 including interest, through April 2014, with interest rates ranging from 8.09% to 11.50%, secured by equipment		339,288
Notes payable to FCC Equipment Financing, payable in monthly installments ranging from $654 to $17,078 including interest, through April 2014, with interest rates ranging from 6.43% to 8.69%, secured by equipment		—
Notes payable to GE Capital, payable in monthly installments ranging from $1,885 to $14,476 including interest, through May 2014, with interest rates ranging from 6.90% to 8.74%, secured by equipment		691,020
Note payable to Zion Credit Corporation, payable in monthly installments  of $16,789 including interest, through March 2012, with interest at 7.35%, secured by equipment		146,574
Note payable to Capital One Bank, payable in monthly installments  of $7,406 including interest, through September 2014, with interest at 5.65%, secured by equipment		255,887
Notes payable to Double Dee Finance, payable in monthly installments ranging from $1,615 to $7,760 including interest, through May 2013, with interest rates ranging from 10.00% to 12.00%, secured by equipment		238,250
Notes payable to Ford Motor Credit, payable in monthly installments ranging from $434 to $946 including interest, through July 2015, with interest rates ranging from 0.00% to 9.15%, secured by vehicles		94,217
Notes payable to Daimler Chrysler Financial, payable in monthly installments ranging from $2,264 to $15,529 including interest, through January 2014, with interest rates ranging from 5.26% to 8.12%, secured by equipment		1,528,781
Notes payable to Cascade Sierra Solutions, payable in monthly installments currently totaling $8,010 including interest, through January 2015, with interest rates ranging from 5.01% to 7.50%, secured by equipment		193,928
Total	$	3,672,248

Notes payable owed by IFC consisted of the following:

	September 30, 2011			March 31, 2011
Various notes payable with maturity dates ranging from 05/10/10 to 12/28/11.  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	$	1,059,476		$	1,160,476
Note payable to Ford Credit, payable in monthly installments of $885 including interest, through Octber 2013, with interest at 16.84% , collateralized by a truck, used by an executive		20,504			25,141
Note payable to Ally, payable in monthly installments of $715 including interest, through October 2016, with interest at 7.74%, collateralized by a truck, used by former executive		36,365			38,821
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, through March 2012 and a final payment of $222,640 on June 30, 2012, with interest at 7.50%, secured by 1,056,300 shares of Integrated Freight Corporation stock		382,000			—
Convertible promissory notes with an investment firm, simple interest
of 8%, due in May 2012, convertible at the option of the holder at
prices as defined		156,500
Promissory notes with an investment firm, simple interest of % per
month, due in November 2011, secured by assets of The Company as		400,000
defined
Original Issue Discount Senior Debenture with an investment firm, due
April 2012, secured by Equipment		178,200
Less: unamortized discount on notes payable		(72,486	)		(219,480	)
Totals	$	2,205,674		$	1,050,073

	IFC		Morris		Smith		Cross Creek		Total
Current portion of notes payable  & other	$	2,205,674	$	1,024,338	$	576,039	$	3,373,777	$	7,179,828
Notes payable, net of current portion		—		1,436,036		3,223,163		298,471		4,957,670
Total as of September 30, 2011	$	2,205,674	$	2,460,374	$	3,799,202	$	3,672,248	$	12,137,498
Current portion of notes payable	$	1,001,284	$	1,115,818	$	592,009	$	—	$	2,709,111
Notes payable, net of current portion		48,789		669,605		3,516,848		—		4,235,242
Total as of March 31, 2011	$	1,050,073	$	1,785,423	$	4,108,857	$	—	$	6,944,353

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.

The Company maintains debt obligations in which the maturity dates have passed. 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.

During the three months ended September 30, 2011, the Company entered into convertible notes (the “Agreements”) with an investor (the “Investor”) pursuant to which the Investor purchased an aggregate principal amount of $156,500 (the “Convertible notes”). The convertible notes bear interest at 15% and maturity dates of nine months from the date of issuance. The convertible notes are convertible at the option of the holder at any time into shares of common stock, at a conversion price equal to $0.30.

The conversion price of the convertible note is subject to full ratchet and anti-dilution adjustment for subsequent lower price issuances by the Company, as well as customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like.

As a result of the convertible note, the Company has determined that the conversion feature of the convertible notes and the warrants issued with the convertible debentures 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 September 30, 2011 and March 31, 2011 was $124,352 and $513,471, respectively and are reflected on the Consolidated Balance Sheets.  During the six months ended September 30, 2011 the change in fair value of $389,119 was comprised of $208,000 of stock issued in payment of previously described “full ratchet” provisions and $181,119 change in fair value reflected on the Consolidated Statements of Operations.