RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2011

RELATED PARTY TRANSACTIONS

14. RELATED PARTY TRANSACTIONS

During the year ended December 31, 2011, the Investor Group, consisting of a director of the Company and two other parties received a $360,000 consulting fee for their assistance in the troubled debt reorganization and financing performed by the Company. The $360,000 fee, payable in common stock, is recorded in Common Stock Subscribed in the Balance Sheet. The fee has been reported net of gain incurred in connection with troubled debt restructuring on the Statement of Operations.

In May 2009, the current holders of an aggregate of $2,700,000 principal amount of senior debt secured by the assets of the Company (“Senior Secured Notes”) threatened foreclose on the Senior Secured Notes as a result of the Company’s default under the terms of the Senior Secured Notes. The perfected first lien and security interest securing the Senior Secured Notes were superior to all other liens, claims, judgments and other security interests in the Company. In May, 2009, a group of three investors, including Ken Sadowsky, a director of the Company, Leon Frenkel and Seahorse Enterprises (collectively, the “Creditor Investors”), purchased all of the Senior Secured Notes. By purchasing the Notes, the Creditor Investors relieved the Company of the difficulties associated with the previous holders of the Senior Secured Notes and the threat of immediate foreclosure. Also, the Creditor Investors provided an additional $924,000 in financing to the Company, enabling the Company to fund the manufacturing and production of products to fulfill outstanding key customer purchase orders. In November 2009, the Creditor Investors converted all of the above debt into 32.2 Units in the Private Placement. The E Preferred converted into shares of Common Stock on March 15, 2010.

As part of the debt restructuring discussed in “ Note 8”., in November 2009, the Company granted management an aggregate of 15,500 shares of E Preferred (the “Performance Shares”), which represented such number of E Preferred that are convertible into common stock equal to 10% of the fully diluted common shares following December 15, 2009, the final closing date (the “Final Closing Date”) of the Private Placement. Pursuant to these management grants, Mark C. Mirken received 12,150 shares of E Preferred, Frank Guarino received 1,500 shares of E Preferred and Carl Germano received 1,500 shares of E Preferred. All of the foregoing shares of E Preferred automatically converted into shares of Common Stock on March 15, 2010 at the rate of 10,000 shares of Common Stock for each share of E Preferred. In the event that the gross revenue of our subsidiary, Millennium Biotechnologies, Inc., for the 13 month period immediately following the Final Closing Date (the “Target Period”) is less than $15 million (the “Target Revenue”), the number of Performance Shares shall be reduced by 10% for each $1 million under the Target Revenue and such number of reduced Performance Shares shall be issue to the purchasers of the Units in the Private Placement based upon the percentage of Units purchased by each such purchaser. The Target Period shall commence when the Company and/or the subsidiary have received at least $1,000,000 in working capital from any sources including from the net proceeds of the Private Placement. The right to so reduce and reallocate any portion of the Performance Shares is dependent on the Target Period commencing within 60 days of the Final Closing Date. Notwithstanding any of the foregoing, the Performance Shares shall not be reduced by more than 50% of the total Performance Shares issued. In November 2010 all of the shares were returned back to the Company valued at $1,298,000.

During 2011 and 2010, the Company also issued restricted stock awards to certain officers and directors, as follows:

Mr. Custodio received 125,000 shares of restricted Common Stock in 2011for consideration of his director’s fees. Mr. Custodio received $40,000 in cash compensation and 200 shares of E Preferred which were converted into 2,000,000 common shares, as a director’s fee in 2010.

Mr. Sadowsky received 125,000 shares of restricted Common Stock in 2011 for consideration of his director’s fees.

Michael C. James received 100 shares of E Preferred which converted into 1,000,000 common shares, as a director’s fee. In addition, in 2010, Mr. James purchased one Unit (100 shares of F Preferred and a Unit Note in the principal amount of $100,000) for $100,000. Under the Summary of Debt Reorganization and Financing Agreement dated July 14, 2011, The accrued salary of $100,000 owed Mr. James as of December 31, 2010 was converted into common stock at the conversion rate of $0.20 per share or 500,000shares of common stock. Mr. James also received a bonus of $25,000 in common stock upon the completion of debt conversion completed September 13, 2011 at the conversion rate of $0.20 per share or 125,000 shares of common stock. The shares of stock were issued in February 2012.

Refer to Note 8 for related party debt transactions.