Note 5 - Notes Payable

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Note 5 - Notes Payable

NOTE 5 – NOTES PAYABLE

Notes payable consists of the following as of:

	March 31, 2012		December 31, 2011
Note payable to W-Net Fund I, L.P. (“W-Net”), secured by substantially all of our assets and three trademarks. The note, including interest at the per annum rate of 12%, is due on August 12, 2012. As additional consideration for the note, W-Net Fund received a warrant to acquire 1,748,953 shares of common stock. The warrants are exercisable for 5 years at an exercise price of $0.10 per share (1). On March 16, 2012, principal and interest due under this note of $427,531 were exchanged for a 6% Secured Convertible Note (See Note 6).	$	—	$	359,402

Revolving Promissory Note payable to W-Net. Under the terms of the Revolving Note, W-Net agreed to advance to us, from time to time and at W-Net’s discretion, amounts up to an aggregate of $150,000 pursuant to requests made by us until December 31, 2012. All advances shall be paid on or before December 31, 2012 and interest shall accrue from the date of any advance on any principal amount withdrawn, and on accrued and unpaid interest thereon, at the rate of twelve percent (12%) per annum, compounded annually. The Company’s obligations under the Revolving Note will accelerate, upon written notice from W-Net, upon a bankruptcy event with respect to the Company, any default in the Company’s payment obligations or the Company’s breach of any provision of any material agreement between the Company and W-Net. Upon an event of default, the Revolving Note will bear interest at the rate of 15% per annum, compounded annually (1).  On March 16, 2012, principal and interest due under this note of $37,305 were exchanged for a 6% Secured Convertible Note (See Note 6)		38,457		75,000
Note payable to Europa International, Inc., secured by substantially all of our assets and three trademarks. The note, including interest at the per annum rate of 12%, is due on August 12, 2012. As additional consideration for the note, Europa received a warrant to acquire 500,000 shares of common stock. The warrants are exercisable for 5 years at an exercise price of $0.10 per share (1).  On March 16, 2012, principal and interest due under this note of $205,293were exchanged for a 6% Secured Convertible Note (See Note 6)		—		102,663
Note payable to Brian B. Sagheb, our former Chief Financial Officer. As of December 31, 2010, this note was unsecured, non-interest bearing and due on demand. On August 23, 2011, the note was modified to provide interest at the per annum rate of 12% and payments of principal and interest in the amount of $4,000 per month. All unpaid amounts are due on August 22, 2012. The note is secured by three trademarks and substantially all of our assets.		22,491		37,694
Notes Payable		60,947		574,759
Debt Discount (1)		—		(98,579	)
Total	$	60,947	$	476,180

(1) The aggregate fair value of the warrants issued to W-Net and Europa discussed above was determined to be $132,791. The Company recorded the fair value of the warrants as debt discount upon issuance, and was amortizing the cost over the life of the notes. The balance of the valuation discount at December 31, 2011 was $98,579. The Company recorded amortization of the remaining balance of $98,579 upon exchange of the Notes on March 16, 2012 (See Note 6)

(2)

For the purposes of balance sheet presentation notes payable have been grouped as follows:

	March 31, 2012		December 31, 2011
Notes payable - current	$	60,947	$	37,694
Notes payable – long term		—		438,486
	$	60,947	$	476,180