Note 12 - Related Party Transactions

12 Months Ended

Dec. 31, 2012

Related Party Transactions Disclosure [Text Block]

NOTE 12:             RELATED PARTY TRANSACTIONS

Guus van Kesteren, a member of our Board of Directors, is a consultant to Noesis International Holdings.  Noesis International Holdings has acted as a placement agent for the sale of our securities in various offerings since 1999.  Mr. van Kesteren is a holder of greater than 5% of our securities on a fully diluted basis as measured under Section 13 of the Securities Act of 1934.

In December 2008, the Company issued a promissory note for $197,500 that included $112,500 in accrued expenses associated with financial services provided by Noesis Capital Corp., the Company’s Placement Agent for several equity and debt transactions since 1999.  The amount was borrowed under a promissory note bearing interest at 9% per annum payable with a maturity date of January 31, 2011.  Included in the principal amount due under this promissory note is $85,000 that was originally owed under a $185,000 principal amount promissory note with a maturity date of January 1, 2009.  The remaining $100,000 in principal amount owed was converted into a Convertible Note dated December 16, 2008.  The Company repaid $60,000 in principal on this promissory note during the year ended December 31, 2010.   The promissory note was extended and now has a maturity date of January 1, 2015.  We incurred $16,149 in interest expense on the note payable to Noesis Capital Corp., the Placement Agent for the Company during the year ended December 31, 2011 and $16,545 for the year ended December 31, 2012.

On December 16, 2010, we issued a promissory note with a principal amount of $20,000 to our Chairman and Chief Technology Officer, Randall G. Smith.  On December 31, 2011, the Company extended the promissory note that had matured on that date.  The promissory note bears interest at 12% per annum with interest payable monthly. Mr. Smith extended the maturity date of his promissory note until January 1, 2016

As of December 31, 2012, we have an aggregate of $13,126,879 principal amount of convertible debentures and promissory notes outstanding to Cornelis Wit, our Chief Executive Officer and a director, and have issued certain warrants to Mr. Wit, as follows:

•  On February 14, 2008, $150,000 principal amount promissory note. This note was convertible at the option of the holder into any New Securities (“New Securities”) we issue before maturity of this promissory note on the same terms and conditions of the sale of the New Securities. This convertible note carried an interest rate of 10% per annum and was due on December 31, 2009.  On December 16, 2008, Mr. Wit agreed to convert this convertible note into a private placement of convertible debentures, which convertible debentures were due on December 16, 2010.  Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a secured convertible debenture financing the Company completed in September 2009.  In addition, Mr. Wit agreed to extend the maturity date of the convertible debenture he was issued by three years to December 16, 2013.  On February 22, 2013, Mr. Wit agreed to extend the maturity date of the convertible debenture until January 1, 2016.  The expiration date of the warrants associated with the convertible debenture has been extended to January 1, 2016.

•  On June 10, 2008, $210,000 principal amount convertible note and common stock purchase warrants to purchase an aggregate of 264,706 shares of our common stock.   We received net proceeds of $210,000.  This note was convertible at the option of the holder into any securities we issue (“New Securities”) before maturity of the convertible debenture on the same terms and conditions of the sale of the New Securities.  This convertible debenture, which carried an interest rate of 10% per annum, was due on June 10, 2009.  On August 29, 2008, Mr. Wit agreed to convert this convertible debenture into a private placement of convertible debentures that originally matured on August 29, 2010.  Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a secured convertible debenture financing the Company completed in September 2009.   On February 22, 2013, Mr. Wit agreed to extend the maturity date of the convertible debenture until January 1, 2016.  The expiration date of the warrants associated with the convertible debenture has been extended to January 1, 2016.

•  On June 10, 2008, $300,000 principal amount convertible note. This note was convertible at the option of the holder into any New Securities (“New Securities”) we issue before maturity of this promissory note on the same terms and conditions of the sale of the New Securities. This convertible note carried an interest rate of 10% per annum and was originally due on June 30, 2010.  On August 29, 2008, Mr. Wit agreed to convert this convertible note into a private placement of convertible debentures, which convertible debentures that originally matured on August 29, 2010.  Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a secured convertible debenture financing the Company completed in September 2009.   On February 22, 2013, Mr. Wit agreed to extend the maturity date of the convertible debenture until January 1, 2016.  The expiration date of the warrants associated with the convertible debenture has been extended to January 1, 2016.

•  During August 2008, $1,260,000 principal amount convertible note that is part of a private placement of Convertible Debentures that originally matured in August 29, 2010.   Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a Secured Convertible Debenture financing the Company completed in September 2009.   On February 22, 2013, Mr. Wit agreed to extend the maturity date of the convertible debenture until January 1, 2016.  The expiration date of the warrants associated with the convertible debenture has been extended to January 1, 2016.

•  From September 2008 to December 2008, $4,200,000 principal amount convertible notes. These notes were convertible at the option of the holder into any New Securities (“New Securities”) we issue before maturity of the Convertible Note on the same terms and conditions of the sale of the New Securities. These convertible notes carried an interest rate of 12% per annum and were due on December 31, 2009.  On December 16, 2008, Mr. Wit agreed to convert these convertible notes into a private placement of convertible debentures, which convertible debentures originally matured on December 16, 2010.  Mr. Wit waived his anti-dilution rights relating to the outstanding debenture and warrants issued in this transaction as part of the terms and conditions of a secured convertible debenture financing the Company completed in September 2009.   On February 22, 2013, Mr. Wit agreed to extend the maturity date of the convertible debenture until January 1, 2016.  The expiration date of the warrants associated with the convertible debenture has been extended to January 1, 2016.

•  From July to September 2009, Mr. Wit invested $1,100,000 which amount was aggregated under the terms of one convertible note dated September 30, 2009.  This note was convertible at the option of the holder into any new securities we issue before maturity of this promissory note on the same terms and conditions of the sale of any new securities issued. This convertible note carried an interest rate of 12% per annum and was due on December 31, 2009.  On September 30, 2009, Mr. Wit agreed to convert this Convertible Note into a private placement of secured convertible debentures bearing interest at a rate of 12% per annum, which Secured Convertible Debentures were due on March 30, 2011 which were convertible into 4,400,000 shares of common stock and received 4,400,000 warrants to purchase common stock of the Company. On March 30, 2011, Mr. Wit extended the maturity date of his convertible note until April 1, 2013 in accordance with the terms of Amendment Number One To Securities Purchase Agreement.  The Company also extended the expiration date of the 4,400,000 warrants issued with convertible note by two years to September 30, 2015.  On February 22, 2013, Mr. Wit extended the maturity date of his convertible note until January 1, 2016 in accordance with the terms of Amendment Number Two To Securities Purchase Agreement.  The Company also extended the expiration date of the 4,400,000 warrants issued with convertible note until January 1, 2016.

•  From October to December 2009, Mr. Wit invested $1,440,000 which amount was aggregated under the terms of one convertible note dated December 31, 2009. This note was convertible at the option of the holder into any new securities we issued before the maturity of this promissory note on the same terms and conditions of the sale of any new securities issued. This convertible note carried an interest rate of 12% per annum and was due on December 31, 2009. On December 31, 2009, Mr. Wit agreed to convert this Convertible Note into a private placement of unsecured convertible debentures bearing interest at a rate of 12% per annum, which Convertible Debentures were due on June 30, 2011. Mr. Wit extended the maturity date of his convertible note until October 1, 2013 in accordance with the terms of Amendment Number One To Securities Purchase Agreement.  The Company also extended the expiration date of the 5,760,000 warrants issued with convertible note by two years to December 31, 2015.  On February 22, 2013, Mr. Wit extended the maturity date of his convertible note until January 1, 2016 in accordance with the terms of Amendment Number Two To Securities Purchase Agreement.  The Company also extended the expiration date of the 5,760,000 warrants issued with convertible note until January 1, 2016.

•  On April 13, 2010, $450,000 principal amount promissory note with a maturity date of December 31, 2011. This note carries an interest rate of 12% per annum.

•  On June 29, 2010, $115,000 principal amount promissory note with a maturity date of December 31, 2011.  This note carries an interest rate of 12% per annum.

•  On September 30, 2010, $1,000,000 principal amount promissory note with a maturity date of December 31, 2011.  This note carries an interest rate of 12% per annum.  The promissory note was comprised of the following amounts received on the following dates: (i) principal amount of $50,000 received on July 6, 2010, (ii) principal amount of $65,000 received on July 14, 2010, (iii) principal amount of $175,000 received on July 15, 2010, (iv) principal amount of $140,000 received on July 30, 2010, (v) principal amount of $400,000 received on August 12, 2010, (vi) principal amount of $90,000 received on August 27, 2010, and (vii) principal amount of $80,000 received on  August 31, 2010.  On November 30, 2010, the note was converted by Mr. Wit into 250,000 shares of the Company’s Series D Preferred Stock.

•  On September 30, 2010, $695,000 principal amount promissory note with a maturity date of December 31, 2011. This note carries an interest rate of 12% per annum.  The promissory note was comprised of the following amounts received on the following dates: (i) principal amount of $120,000 received on  August 31, 2010, (ii) principal amount of $50,000 received on September 7, 2010, (iii) principal amount of $200,000 received on September 15, 2010, (iv) principal amount of $90,000 received on September 22, 2010, (v) principal amount of $200,000 received on September 29, 2010, and (vi) principal amount of $35,000 received on September 30, 2010.

•  On December 31, 2010, $1,197,500 principal amount promissory note with a maturity date of December 31, 2011.  The note carries an interest rate of 12% per annum.   The promissory note is comprised of the following amounts received on the following dates: (i) principal amount of $150,000 received on October 15, 2010, (ii) principal amount of $140,000 received on October 26, 2010, (iii) principal amount of $200,000 received on October 28, 2010, (iv) principal amount of $43,500 received on November 2, 2010, (v) principal amount of $200,000 received on November 10, 2010, (vi) principal amount of $32,000 received on November 22, 2010, (vii) principal amount of $37,000 received on November 29, 2010, (viii) principal amount of $160,000 received on November 30, 2010, (ix) principal amount of $25,000 received on December 2, 2010, (x) principal amount of $50,000 received on December 8, 2010, (xi) principal amount of $10,000 received on December 9, 2010, (xii) principal amount of $40,000 received on December 15, 2010, and (xiii) principal amount of $110,000 received on December 16, 2010.

•  On December 31, 2010, $409,379 principal amount promissory note with a maturity date of December 31, 2011.  The note carries an interest rate of 12% per annum.  The note is comprised of accrued and unpaid interest owed as of December 31, 2010 on various notes held by Mr. Wit that were converted into the principal amount owed under this note payable.

On March 31, 2011, the Company issued a note payable in the principal amount of $2,866,879 and warrants to purchase 11,467,517 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of March 31, 2016 to our Chief Executive Officer and Director, Cornelis F. Wit.  The note accrues interest at a rate of 12% per annum and has a maturity date of April 1, 2014.

The Promissory Note replaced the following Promissory Notes that had been previously issued:

i.  Promissory Note issued on April 13, 2010 for $450,000 with a maturity date of December 31, 2011.

ii.  Promissory Note issued on June 29, 2010 for $115,000 with a maturity date of December 31, 2011.

iii.  Promissory Note issued on September 30, 2010 for $695,000 with a maturity date of December 31, 2011.

iv.  Promissory Note issued on December 31, 2010 for $1,197,500 with a maturity date of December 31, 2011.

v.  Promissory Note issued on December 31, 2010 for $409,379 with a maturity date of April 01, 2012.

On March 30, 2011, the Company extended a convertible note in the principal amount of $1,100,000 held by our Chief Executive Officer and Director, Cornelis F. Wit that had matured on that date.  The convertible note which was originally issued on September 30, 2009, bears interest at 12% per annum with interest payable monthly. Mr. Wit extended the maturity date of his convertible note until April 1, 2013 in accordance with the terms of Amendment Number One To Securities Purchase Agreement.  We also extended the expiration date of the 4,400,000 warrants issued with convertible note by two years to September 30, 2015. On February 22, 2013, Mr. Wit extended the maturity date of his convertible note until January 1, 2016 in accordance with the terms of Amendment Number Two To Securities Purchase Agreement.  The Company also extended the expiration date of the 4,400,000 warrants issued with the convertible note until January 1, 2016.

On May 13, 2011, the Company issued a note payable in the principal amount of $96,000 to our Chief Executive Officer and Director, Cornelis F. Wit.  The note accrues interest at a rate of 12% per annum and has a maturity date of January 1, 2013.  This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000.

On June 30, 2011, the Company extended a convertible note in the principal amount of $1,440,000 held by our Chief Executive Officer and Director, Cornelis F. Wit that had matured on that date.  The convertible note which was originally issued on December 31, 2009, bears interest at 12% per annum with interest payable monthly. Mr. Wit extended the maturity date of his convertible note until October 1, 2013 in accordance with the terms of Amendment Number One To Securities Purchase Agreement.  We also extended the expiration date of the 5,760,000 warrants issued with convertible note by two years to December 31, 2015. On February 22, 2013, Mr. Wit extended the maturity date of his convertible note until January 1, 2016 in accordance with the terms of Amendment Number Two To Securities Purchase Agreement.  The Company also extended the expiration date of the 5,760,000 warrants issued with the convertible note until January 1, 2016.

On September 2, 2011, the Company issued a note payable in the principal amount of $50,000 to our Chief Executive Officer and Director, Cornelis F. Wit.  The note bore interest at a rate of 12% per annum and had a maturity date of January 1, 2013.  This note was repaid in full on September 7, 2011.

On September 30, 2011, the Company issued a promissory note in the principal amount of $342,000 to our Chief Executive Officer and Director, Cornelis F. Wit.  The note carries an interest rate of 12% per annum and is due on April 1, 2014.  The promissory note consolidates the principal amounts owed under the following promissory notes originally issued during 2011.

i.  Promissory Note issued on August 16, 2011 for $80,000 with a maturity date of January 01, 2013.

ii.  Promissory Note issued on August 19, 2011 for $15,000 with a maturity date of January 01, 2013.

iii.  Promissory Note issued on August 25, 2011 for $35,000 with a maturity date of January 01, 2013.

iv.  Promissory Note issued on September 02, 2011 for $32,000 with a maturity date of January 01, 2013.

v.  Promissory Note issued on September 15, 2011 for $80,000 with a maturity date of January 01, 2013.

vi.  Promissory Note issued on September 28, 2011 for $100,000 with a maturity date of January 01, 2013.

On October 5, 2011, the Company issued a note payable in the principal amount of $130,000 to our Chief Executive Officer and Director, Cornelis F. Wit.  The note accrues interest at a rate of 12% per annum and had a maturity date of April 1, 2014.  This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000.

On October 28, 2011, the Company issued a note payable in the principal amount of $123,000 to our Chief Executive Officer and Director, Cornelis F. Wit.  The note accrues interest at a rate of 12% per annum and had a maturity date of April 1, 2014.  This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000.

On October 31, 2011, the Company issued a note payable in the principal amount of $82,000 to our Chief Executive Officer and Director, Cornelis F. Wit.  The note accrues interest at a rate of 12% per annum and had a maturity date of April 1, 2014.  This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000.

On November 23, 2011, the Company issued a note payable in the principal amount of $60,000 to our Chief Executive Officer and Director, Cornelis F. Wit.  The note accrues interest at a rate of 12% per annum and had a maturity date of January 1, 2013.  This note was consolidated on December 31, 2011 into a new note with a principal amount of $1,600,000.

On December 1, 2011, the Company issued a note payable in the principal amount of $150,000 to our Chief Executive Officer and Director, Cornelis F. Wit.  The note bore interest at a rate of 12% per annum and had a maturity date of January 1, 2013.  This note was repaid in full on December 27, 2011.

On December 31, 2011, the Company issued a promissory note in the principal amount of $1,600,000 and warrants to purchase 6,400,000 shares of common stock of the Company at an exercise price of $0.25 per share with an expiration date of December 31, 2015 to our Chief Executive Officer and Director, Cornelis F. Wit.  The note carries an interest rate of 12% per annum and is due on January 1, 2015.  The promissory note consolidates the amounts owed as detailed below:

i.  Promissory Note issued on May 13, 2011 for $96,000 with a maturity date of January 01, 2013;

ii.  Promissory Note issued on September 30, 2011 for $342,000 with a maturity date of April 01, 2014;

iii.  Promissory Note issued on October 05, 2011 for $130,000 with a maturity date of April 01, 2014;

iv.  Promissory Note issued on October 28, 2011 for $123,000 with a maturity date of April 01, 2014;

v.  Promissory Note issued on October 31, 2011 for $82,000 with a maturity date of April 01, 2014;

vi.  Promissory Note issued on November 23, 2011 for $60,000 with a maturity date of January 1, 2013; and

vii.  Accrued and unpaid interest in the amount of $767,000.

For the years ended December 31, 2012 and December 31, 2011 we incurred $2,108,749 and $1,459,456, respectively, in interest expense payable to related parties.