Quarterly report pursuant to sections 13 or 15(d)

Note 4: Notes Payable and Accrued Interest - Related Parties

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Note 4: Notes Payable and Accrued Interest - Related Parties
 9 Months Ended
Sep. 30, 2011
Related Party Transactions Disclosure [Text Block]
Note 4:  Notes Payable and Accrued Interest - Related Parties

As of September 30, 2011 and December 31, 2010, the Company had the following notes payable and accrued interest balances outstanding:

   
9/30/2011
   
12/31/2010
 
Related Party Note Payable to Company
  $ 136,840     $ 360,840  
Accrued Interest on Related Party Note
    31,785       22,142  
Officer Loans to Company
    226,083       311,988  
Subordinated Officer Loans to Company
    1,620,137       1,620,137  
Accrued Interest on Subordinated Loans
    97,914       24,090  
Total Notes Payable and Accrued Interest
    2,112,759       2,339,197  
Less: Current Portion
    -       -  
Long Term Portion
  $ 2,112,759     $ 2,339,197  

On February 1, 2008, Isabel Moeller, sister of our Chief Executive Officer, Klaus Moeller, loaned $310,000 to the Company at an interest rate equal to 8% per annum as a short term note payable.  The funds were borrowed from Ms. Moeller in order to reduce outstanding obligations due to Genius Products at that time.  In August 2008, the note was amended to require payment of all principal and accrued interest on September 30, 2009.  Subsequent agreements extended the maturity date to December 31, 2010 and reduced the stated interest rate to six (6%) percent per annum.  On September 30, 2010, Ms. Moeller agreed to accept a new note with a maturity date of December 31, 2012 resulting in the reclassification of the total amount outstanding, including principal and accrued interest, as long term debt.   Payments were made on the outstanding principal in the amount of $14,000 and $10,000 on February 9, 2011 and April 27, 2011, respectively.  On April 1, 2011, Ms. Moeller converted $200,000 of the outstanding principle to 1,000,000 shares of the Company’s common stock.  The amount due to Ms. Moeller as of September 30, 2011 and December 31, 2010 includes $31,785 and $22,142 in accrued but unpaid interest, respectively.

Notes were issued in favor of four of the Officers for loans to the Company at various times during the years 2007 through 2009.  The term of the notes issued in 2009 and 2008 called for payment on December 31, 2009 and had a stated interest rate of 1.63%.  The notes issued in 2007 were payable upon demand and had a stated interest rate of 6% per annum until paid in full.  On February 13, 2009, the Officers agreed to an extension of the maturity date of all outstanding notes to December 31, 2009 at the stated interest rate of the original note.  On December 31, 2009, the Officers agreed to issue new note agreements for the outstanding balances, including accrued but unpaid interest, with a maturity date of December 31, 2010 and a stated interest rate of 6% per annum.  Repayments in the aggregate amount of $60,654 were made on August 11, 2010.  On September 30, 2010, the Officers agreed to extend the maturity date of the loans to December 31, 2012 resulting in the outstanding balances, including principle and accrued interest, to be reclassified as long term debt.  On October 12, 2010 repayments were made in the aggregate amount of $40,707. Additional repayments were made on February 2, 2011 and April 27, 2011 in the aggregate amounts of $66,000 and $30,000, respectively.  The amount due to the Officers on these notes includes accrued but unpaid interest in the amounts of $31,919 and $20,824 as of September 30, 2011 and December 31, 2010, respectively.

On September 30, 2010, four of the Officers agreed to convert accrued but unpaid salaries through September 30, 2010 to subordinated long term notes payable.  In February 2011, as a result of an agreement by each of the four Officers to retroactively decrease the amount of the annual salary for 2010 from $125,000 per annum per Officer to $80,000,  the amount of the notes were reduced to an aggregate of $1,620,137.  The notes have a maturity date of December 31, 2012 and a stated interest rate of six percent (6%) per annum, said interest accruing from October 1, 2010 on the unpaid balance of principal and interest.  There is no prepayment penalty.  As of September 30, 2011 and December 31, 2010, the accrued but unpaid interest totals $97,914 and $24,090, respectively.