Note 9 – Debt

Equipment Loans

Our equipment loan liabilities as of December 31, 2011 and 2010 are as follows:

(in thousands)	2011		2010

Pennsylvania Machinery and Equipment Loan
Short-term	$	66	$	63
Long-term		224		296
Total		290		359

Capitalized Leases
Short-term		2		22
Long-term		–		5
Total		2		27

GE Business Financial Services, Inc.
Short-term		–		51
Long-term		–		–
Total		–		51

Total Short-term		68		136
Total Long-term		224		301
Total	$	292	$	437

For the years ended December 31, 2011 and 2010, we incurred interest expense associated with our equipment loans of $20,000 and $56,000, respectively.

Pennsylvania Machinery and Equipment Loan Fund (MELF)

We entered into a Loan Agreement and Security Agreement with the Commonwealth of Pennsylvania, Department of Community and Economic Development (Department), effective September 8, 2008, pursuant to which the Department made a loan to us from the Machinery and Equipment Loan Fund in the amount of $500,000 (MELF Loan) to fund the purchase and installation of new machinery and equipment and the upgrade of existing machinery and equipment at our analytical and development laboratory in Warrington, Pennsylvania. Principal and interest on the MELF Loan is payable in equal monthly installments over a period of seven years. Interest on the principal amount accrues at a fixed rate of five percent (5.0%) per annum. We may prepay the MELF Loan at any time without penalty.

In addition to customary terms and conditions, the MELF Loan requires us to meet certain job retention and job creation goals in Pennsylvania within a three-year period (Jobs Covenant). If we fail to comply with the Jobs Covenant, the Department, in its discretion, may change the interest rate on the Promissory Note to a fixed rate equal to two percentage points above the current prime rate for the remainder of the term. As of September 30, 2011, the end of the three-year Jobs Covenant period, due to our efforts to conserve resources while we focused on securing approval for SURFAXIN®, we had not complied with the Jobs Covenant. In response to a request that we filed with the Department for a waiver, the Department granted us an extension through August 31, 2012 to come into compliance with the Jobs Covenant and has waived any interest adjustment until that date.

Equipment Financing Facility with GE Business Financial Services Inc.

In May 2007, we entered into a Credit and Security Agreement (Credit Agreement) with GE Business Financial Services Inc. (GE, formerly Merrill Lynch Business Financial Services Inc), as Lender, pursuant to which GE agreed to provide us a $12.5 million facility (Facility) to fund our capital programs. The right to draw under this Facility expired and we have not received any new funding since November 2008. As of December 31, 2011, all outstanding amounts under the Facility were paid in full and all related security interests satisfied and released. Advances to finance the acquisition of property and equipment were amortized over a period of 36 months and all other equipment and related costs were amortized over a period of 24 months. The advance to prepay our prior facility was amortized over a period of 27 months. Interest on each advance accrued at a fixed rate per annum equal to one-month LIBOR plus 6.25%, determined on the funding date of such advance.

Loan Payable – PharmaBio Development Inc.

On April 28, 2010, we restructured our $10.6 million loan with PharmaBio Development Inc (Pharma Bio), the former strategic investment subsidiary of Quintiles Transnational Corp. The related Payment Agreement and Loan Amendment dated April 27, 2010 (PharmaBio Agreement) provided for payment in cash of (a) an aggregate of $6.6 million, representing $4.5 million in outstanding principal and $2.1 million in accrued interest, and (b) of the remaining $4 million principal amount under the loan, $2 million of which became due and were paid on each of July 30, 2010 and September 30, 2010. All related security interests satisfied and released. Also under the PharmaBio Agreement, PharmaBio surrendered to us for cancellation warrants to purchase an aggregate of 159,574 shares of our common stock that we had issued previously to PharmaBio in connection with the PharmaBio loan and a previous offering of securities.

As of December 31, 2010, all of our obligations related to the loan with PharmaBio were paid in full.

For the year ended December 31, 2010, we incurred interest expense associated with the PharmaBio loan of $0.3 million. Interest expense for the year ended December 31, 2010 included $0.2 million, of amortization of deferred financing costs for warrants issued to PharmaBio in 2006 in consideration for restructuring the loan.