Note 6 - Notes and Debentures Payable

6 Months Ended

Jun. 30, 2011

Debt Disclosure [Text Block]

(6)            Notes and Debentures Payable

The following table summarizes note and debenture activity for the six months ended June 30, 2011 (in thousands):

	Balance				Conversion					Balance
	12/31/10		Additions		to Equity		Repayments			6/30/11
Current Notes and Debentures
12% Convertible Debentures –
Mercator assignees	$	60	$	-	$	-	$	-		$	60
4% Note Payable –
Morningtown	$	57	$	-	$	-	$	(16	)	$	41

8% Secured Convertible Notes

On April 4, 2005, we concluded a private placement to five institutional investors of $8,000,000 of Secured 8% Convertible Notes originally due April 3, 2007 (the “Convertible Notes”) and subsequently extended to April 3, 2009. The Convertible Notes provide for quarterly interest to be paid in cash, or subject to certain conditions, by issuing additional Convertible Notes maturing on April 3, 2009 (the “Interest Notes”). From July 4, 2005 through April 3, 2009 we issued Interest Notes in an aggregate face amount of $1,962,000 in payment of quarterly interest.

As discussed in Note 3 in July 2010 we entered into a series of agreements providing for (i) the restructuring of our outstanding indebtedness to Marr and SF Capital (the “Debt Agreement”) and (ii) the transfer of our interests in the two Chinese joint ventures, Beijing Marr and Beijing Calypte, to Kangplus (the “Equity Agreement”). Under the Debt Agreement, the parties agreed to convert $6,393,353 in outstanding indebtedness to 152,341,741 shares of our common stock, and our remaining indebtedness to Marr, totaling $3,000,000 was cancelled. In consideration for such debt restructuring, we transferred our equity interests in Beijing Marr to Kangplus pursuant to the Equity Transfer Agreement and transferred certain related technology to Beijing Marr. We have also agreed to transfer our equity interests in Beijing Calypte to Marr or a designate of its choosing. The transactions contemplated by the Debt Agreement and the Equity Transfer Agreement were subject to Chinese government registration of the transfer of the equity interests; this registration has now been approved (see note 10).  Under the debt agreement with SF Capital, $2,008,259 in outstanding indebtedness was converted to 47,815,698 shares of our common stock.

Interest Expense

The table below summarizes the components of interest expense for the three and six month periods ended June 30, 2011 and 2010 (in thousands):

	Three Months ended June 30,						Six Months ended June 30,
	2011			2010			2011			2010
Interest expense on debt instruments paid or payable in cash	$	-		$	(96	)	$	-		$	(190	)
Non-cash income (expense) composed of:
Accrued interest on 8% Convertible Notes		-			(115	)		-			(231	)
Accrued interest on 4% Note Payable		-			(1	)		(1	)		(3	)
Amortization of discounts associated with March 2007 extension and December 2007 restuctructuring of 8% convertible notes and Marr Credit Facility notes		-			-			-			-
Expense attributable to dividends on mandatorily redeemable Series		(30	)		(30	)		(60	)		(60	)
A preferred stock
Total non-cash items		(30	)		(146	)		(61	)		(294	)
Total interest expense	$	(30	)	$	(242	)		(61	)		(484	)