4. NOTES PAYABLE

9 Months Ended

Dec. 31, 2012

Notes Payable

NOTES PAYABLE

Notes payable consist of the following:

	December 31, 2012				March 31, 2012
	Principal Balance		Accrued Interest		Principal Balance		Accrued Interest
12% Notes payable, past due	$	185,000	$	319,125	$	185,000	$	298,312
10% Note payable, past due		5,000		5,750		5,000		5,375
IP Law Firm Note, past due		–		–		29,610		986
Law Firm Note		–		–		75,000		104
Tonaquint Note		180,025		2,083		360,186		1,835
Total	$	370,025	$	326,958	$	654,796	$	306,612

During the nine month period ended December 31, 2012, we recorded interest expense of $47,447 related to the contractual interest terms 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, 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 December 31, 2012, interest payable on the 12% Notes totaled $319,125 and we are recording interest at the default rate of 15%.

10% NOTES

At December 31, 2012, one 10% Note in the amount of $5,000, which is past due and in default, remained outstanding. At December 31, 2012, interest payable on this note totaled $5,750 and we are recording 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.

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 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 initially to July 31, 2012 and then to July 31, 2013 and subsequently to August 31, 2013 (see Note 14) and converted $100,572 of the principal and $19,614 of the accrued interest related to the note into common stock (see Note 6). We also recorded into principal $2,500 of the lender’s legal fees related to documentation of the extension agreement. We recorded a loss on conversion of $50,262 on those partial conversions. At December 31, 2012, the balance of this note was $180,025 and accrued interest totaled $2,083.