NOTE 6 — LONG-TERM DEBT, NET OF CURRENT PORTION

Long-term debt consists of the following as of December 31 (amounts in thousands):


	2011			2010
Note holders unrelated to the Company:
7¹/2% convertible subordinated debentures due April 2010, interest payable semi-annually in April and October (1)	$	549		$	579
10% senior promissory notes due April 2012, interest payable semi-annually in April and October (2)		1,738			1,727
8¹/2% convertible note due August 2011, interest payable monthly (3)		—			200
10% note due in equal monthly principal installments plus interest (3)		430			—
14% convertible notes due February 2013, interest payable quarterly (4)		1,800			—
14% convertible notes due May 2013, interest payable quarterly (5)		700			—
14% convertible notes due June 2013, interest payable quarterly (6)		100			—
Capitalized lease obligations (7)		343			498

		5,660			3,004

Related party note holders:
14% note due May 2013, interest payable quarterly (8)		1,000			—
Less unamortized discount		(290	)		(523	)

		6,370			2,481
Less current portion		(2,467	)		((965	)

	$	3,903		$	1,516

(1)

Represents our 7¹/2% convertible subordinated debentures that matured on April 15, 2010 and had not been repaid or exchanged for senior notes. These remaining outstanding debentures are convertible into 12,470 shares of common stock at a conversion price of $44.02 per share. Except for their classification among current liabilities, we are not able to estimate the financial effect resulting from the state of default with respect to the debentures held by the remaining bond holders (Note 7b).

(2)

During 2010 and 2011 we issued senior promissory notes in exchange for certain of our subordinated debentures that had matured on April 15, 2010 but were not repaid. We also issued warrants to purchase our common stock in conjunction with the notes. The senior promissory notes bear interest at 10%, payable semiannually each April 15 and October 15 through April 15, 2012, the maturity date of the senior promissory notes. The warrants allow for the purchase of an aggregate of approximately 7.0 million shares of our common stock at an exercise price of $0.25 per share. All of the warrants have five year terms and are currently exercisable.

(3)

In August 2011, we entered into an agreement with the note holder to combine two loan amounts: $250,000 and $200,000 described in paragraph (6) of Note 5. The combined loan amount is due to be repaid in equal monthly installments commencing November 2011 of $10,000 in principal, plus interest at 10%.

(4)	Interest on these notes is payable quarterly, and the entire principal is due in February 2013. The note holders also received five-year warrants to purchase an aggregate of 900,000 shares of our common stock at $0.44 per share. The warrants were vested and exercisable at issuance.

(5)

In November 2011, we issued convertible promissory notes to one entity and one individual in exchange for aggregate proceeds of $700,000. The notes bear interest at the rate of 14% per annum, payable quarterly and the principal is due in May 2013. At any time during the term of the notes, the lenders may elect to convert the principal and unpaid interest to our common stock at an exercise price of $0.25 per share. The lenders also received warrants to purchase an aggregate of 350,000 shares of our common stock at $0.44 per share. The warrants, which were vested at issuance, have five year terms.

(6)

14% convertible promissory note issued in December 2011 payable in quarterly installments of interest only until June 2013 when all principal comes due. During the term of the note, the holder may elect to convert the principal and unpaid interest to our common stock at an exercise price of $0.25 per share. In connection with this note, we also issued a five-year warrant to purchase 50,000 shares of our common stock at $0.44 per share. The warrant was vested at issuance.

(7)	Capital leases were used to finance the acquisition of certain computer and telephone equipment and currently require future minimum lease payments as follows:


2012	$	234
2013		127
2014		34

		395
Less amount representing interest		52

	$	343

(8)	Represents an eighteen-month promissory note issued in November 2011 to a major stockholder for a $1,000,000 loan due May 2013. The note bears interest at the rate of 14% per year.