CONVERTIBLE NOTES PAYABLE

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

8. CONVERTIBLE NOTES PAYABLE

The Company has issued convertible notes payables to the following individuals:

	March 31, 2013		December 31, 2012
Three notes payable to Robert Chlipala or assigns dated June 4, 1998, July 10, 1999 and December 11, 1999, interest rate at 10.5%, 10.5% and 0% respectively principle and interest payable on demand, convertible to common stock at $0.05 per share.		133,000		133,000
One note payable to Gerald Rau or assigns, dated 4/1/2000, interest rate at 8.75%, past due and convertible to common stock at $0.05 per share		101,500		101,500
Three notes payable to Les Smyth or assigns, dated September 15, 1998, June 14, 1999 and June 14, 1999, interest rates at 14%, past due and convertible to common stock at $0.05 per share		50,000		50,000
Total convertible notes		284,500		284,500

The Company acquired the above notes as of the date of merger, May 24, 2004.  In the negotiations, the original notes were modified to include a conversion feature, in exchange for indefinitely extending the payment date.  At the time of the debt modification, the conversion rate was based on the then fair market value of the stock.  The Company examined the agreement and based on calculations determined that there was no beneficial conversion at that time, as the face value was equivalent to the conversion.  The Conversion feature was extended to interest accrued, through the date of the modification only.

The loans are convertible into shares of common stock at a rate of $.05 per share, the then fair market value of the shares. The total original amount of the loans still outstanding at March 31, 2013 is $284,500 plus previously accrued interest of $222,655, through the date of modification. The total common shares, if converted, would be approximately 10,143,000 shares as of March 31, 2013.

As of March 31, 2013 and December 31, 2012, the above notes had accrued interest payable of $618,989 and $612,034, respectively.