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NOTES PAYABLE AND CAPITAL LEASE OBLIGATION

12 Months Ended

Dec. 31, 2011

Note 5. NOTES PAYABLE AND CAPITAL LEASE OBLIGATION

Notes payable and capital lease obligations at December 31, 2011 and 2010 consisted of the following:

	2011		2010
Short-term Notes	$	-	$	100,000
Capital lease obligation		6,176		8,247
Total notes payable and capital lease obligation		6,176		108,247
Less current portion of notes payable and capital lease obligation		2,288		102,071
Notes Payable and capital lease obligation, net of current portion	$	3,888	$	6,176

2010 Short-term Notes

Short-term Notes – In September 2010, the Company issued $250,000 of short-term notes, maturing in 90 days. In lieu of interest, the note holders were issued 2,000 unregistered shares of the Company’s common stock, $0.01 par value, for every $10,000 of principal loaned. A total of 50,000 shares with a fair value of approximately $48,500 were issued in September 2010 pursuant to these short-term notes. The fair value of the stock was amortized over the 90 day term. One short-term note in the amount of $100,000 was extended for one month on December 23, 2010 in exchange for 5,000 shares of common stock issued in January 2011 with a fair value of $10,500. In January 2011, the Company repaid $75,000 in cash on the extended note and the remaining $25,000 was used to purchase Common Stock and warrants to purchase Common Stock (see Note 8). Non-cash interest expense on the extended note for the year ended December 31, 2011 was approximately $6,200. Non-cash interest expense for the 2010 short-term notes was approximately $35,200. Unamortized interest cost of approximately $1,600 and $12,000 was recognized as a loss on extinguishment of debt in 2011 and 2010, respectively.

Capital Lease — In July 2009, the Company entered into a five-year lease of an office copier which is included with the Office and Laboratory Equipment. The value of the equipment capitalized was approximately $11,000. The lease payments of $234 per month, payable in arrears, reflect a 10% interest rate. Accumulated depreciation on the leased copier as of December 31, 2011 and 2010 was approximately $5,500 and $3,300, respectively. During the years ended December 31, 2011 and 2010, interest expense related to the capital lease obligation was approximately $700 and $900, respectively.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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