Note 9. Debt

6 Months Ended

Jun. 30, 2011

Debt Disclosure [Text Block]

Note 9. Debt

Debt consisted of the following:

	June 30, 2011			December 31, 2010
Short term:
Unsecured convertible notes payable with annual interest rate of 5%1	$	-		$	259,800
Unsecured convertible notes payable with annual interest rate of 10%2		64,954			64,954
Unsecured convertible notes payable with annual interest rate of 8%3		125,000			50,000
Convertible note payable with interest payable quarterly4		650,000			750,000
Long-term:
Unsecured convertible notes payable  - annual interest of 10%2		320,000			-
Discount on convertible notes from derivative valuation		(208,591	)		(265,152	)
Total convertible notes		951,363			859,602
Unsecured related party notes payable5		350,803			631,103
Common Stock payable6		-			150,000
Notes payable on capital equipment7		63,042			87,592
Long term unsecured related party note payable with 5% annual interest8		3,615,624			3,750,000
Total Debt	$	4,980,832		$	5,478,297

1 Notes bear 5% interest and become due in 2011. No interest payments are required and the note can be converted to common stock by the note holder or the company. The note holder can convert the note into common stock at 50% of the average closing bid price of the Common Stock for the ten days prior to the date of conversion. All notes have been converted to stock as of April 13, 2011. There was no accrued interest expense payable at June 30, 2011.

2 Convertible notes bear 10% interest, payable in stock upon conversion. The note includes a conversion feature whereby the holder can convert the note at any time into common stock at 80% of the average price per share over the last fiscal quarter. There is no accrued interest at June 30, 2011. There was $6,071 of accrued interest payable at June 30, 2011. Notes are due on demand.

3 Convertible notes bear 8% interest, payable in stock upon conversion. The note holder can convert the note after six months into common stock at 45% of the average price per share over the last fiscal quarter. Notes are due from September 30, 2011 to January 25, 2012, and there was $4,497 in accrued interest payable at June 30, 2011.

4 The note bears 8% annual interest that is payable quarterly. The note originally came due on April 9, 2011 but was extended to December 31, 2011. Note may be converted to common stock by note holder. The note holder can convert the note into common stock at 80% of most recent public trading value anytime before note becomes due.  During the second fiscal quarter of 2011, the noteholder sold $100,000 of the note to a third party that converted the debt into 100 million shares of common stock. There was $10,475 of accrued interest at June 30, 2011.

5 Balance primarily consists of note for $500,000 to Debbie Werner of which $340,000 remains due at June 30, 2011. The note is due December 31, 2011 and bears 5% interest. During the second fiscal quarter of 2011, Ms Werner sold $100,000 of the note to a third party that converted the debt into 100 million shares of common stock. There was $34,713 of accrued interest at June 30, 2011. Remaining balance of $10,803 consists of related party debt bearing no interest.

6 Balance consists $150,000 of common stock due to Debbie Werner. The payable was part of the acquisition agreement dated January 1, 2010. Stock was paid in February 2011.

7 Balance consists of four notes payable on capital equipment. The average interest rate is 9%. $41,423 is current and due in 2011. $21,619 is long term and due beyond 2011. There was no accrued interest at June 30, 2011.

8 Balance primarily consists of note to Jeff Turnbull. This note was extended from April 9, 2010 to December 31, 2010 in exchange for increasing balance of the note from $3,750,000 to $4,000,000. The $250,000 increase was booked as finance fee expense in the first quarter of 2010. During the quarter ended September 30, 2010, Jeff Turnbull converted $250,000 of note payable into 500 million shares of common stock. The balance was reduced to $3,750,000 in July, 2010 when Mr. Turnbull converted $250,000 of the debt into 500 million shares of USOG common stock. In the first six months of 2011, Mr. Turnbull sold an additional $300,000 of the debt to third parties who converted the debt into 233 million shares of common stock. In December, 2010, the note term was extended to December 31, 2012. The note earns 2% interest in 2011 and 10% interest in 2012. Note balance at June 30, 2011 was $3,450,000. There was $34,559 of accrued interest at June 30, 2011. The remaining balance of $165,624 at June 30, 2011 is unsecured note payable with zero interest to related party. The amount of imputed interest was immaterial to the financial statements.

Minimum principal payments of debt in subsequent years:

2011	$	1,397,804
2012		3,410,000
2013		49,690
2014		11,929
2015		320,000

Interest expense on the notes payable totaled $94,451 for the six months ended June 30, 2011 and $61,501 for the six months ended June 30, 2010. Interest expense on the notes payable totaled $47,515 for the three months ended June 30, 2011, and $28,499 for the three months ended June 30, 2010. Accretion expense for the six months ended June 30, 2011 and the six months ended June 30, 2010 was $308,447 and $81,990, respectively. Accretion expense for the three months ended June 30, 2011, and the three months ended June 30, 2010, was $84,628 and $14,624, respectively.