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Notes Payable
9 Months Ended
Sep. 30, 2011
Notes Payable [Abstract] 
Notes Payable

NOTE F — NOTES PAYABLE

 

On July 19, 2010, we received a net amount of $57,000, after payment of $3,000 in legal expenses, in connection with a Securities Purchase Agreement for the issuance of a Convertible Note in the principal amount of $60,000 due and payable on April 2, 2011, with interest payable at the rate of 8% per annum. The outstanding Note principal can be converted, in whole or in part, into the company's common stock at the election of the Holder from time to time beginning 180 days after the July 2, 2010 issue date. The conversion price is equal to 58% of the average of the three lowest closing bid prices of the company's common stock during a 10 day trading period immediately prior to the date the Holder's conversion notice is sent to the company. We may prepay the principal amount of the Note and all accrued interest at any time beginning on the July 2, 2010 issue date and expiring 180 days thereafter. In the event we elect to prepay within the first 90 days, the repayment amount is 150% of the $60,000 principal amount and outstanding accrued interest and if between the 91st and the 180th day, the repayment amount is 175% of the $60,000 principal amount and outstanding accrued interest. In the event of default, the amount of principal and interest not paid when due bears interest at the rate of 22% per annum and the Note becomes immediately due and payable. The Note agreement contains covenants requiring the Holder's written consent for certain activities not in existence or not committed to by us on the date of issuance as follows: common stock dividend distributions in cash or shares, stock repurchases, borrowings, sale of significantly all assets, certain advances and loans in excess of $100,000 and certain guarantees with respect to third-party liabilities. Due to the prepayment penalty clause in the agreement, we recorded a $30,000 charge to other expense in the Condensed Consolidated Statements of Operations as of September 30, 2010. As of September 30, 2010, the Condensed Consolidated Balance Sheets reflect a liability of $90,000 for the convertible note, consisting of the $60,000 principal and the $30,000 prepayment penalty. In order to prevent conversion of the Note into our common stock at a discount of 42%, on November 22, 2010, we elected to exercise our prepayment right by tendering approximately $106,700 to the Holder, which amount represented the principal of $60,000 and the entire amount of the Optional Prepayment Amount under the Note of $45,000, in addition to accrued interest of approximately $1,700. As a result of such prepayment, the Note was paid in full and the Securities Purchase Agreement is of no further legal effect. Both the prepayment penalty and the interest were recorded as other income / (expense) in the Consolidated Statements of Operations for the quarter and year ended December 31, 2010.

 

In November 2010, we completed a construction project for some additional office space at our leased corporate office facility. The cost of the leasehold improvement was $32,500 and the landlord agreed to finance this cost over the remaining initial term of the lease which expires in May 2013. The monthly payments are approximately $1,100 per month. At December 31, 2010, the outstanding balance on this note was approximately $32,500, of which $19,100 was classified as a non-current liability. At September 30, 2011, the outstanding balance on this note was approximately $22,500, of which $9,000 was classified as a non-current liability.

 

In November 2010, we entered into a capital lease for a copy machine over a 5 year term, with a fair market value buyout. The capitalized value of the lease was approximately $8,900, and the monthly payment is approximately $170. At December 31, 2010, the outstanding balance on this note was approximately $8,700, of which $7,000 was classified as a non-current liability. At September 30, 2011, the outstanding balance on this note was approximately $7,600, of which $5,800 was classified as a non-current liability.

 

In August 2011, we financed the purchase of engineering design software, along with a one-year maintenance agreement, through a three year loan maturing in August 2014, and collateralized by the software. The total cost of the software and the maintenance agreement was approximately $64,800. The monthly payments are approximately $2,100 per month. At September 30, 2011, the outstanding balance on this note was approximately $61,700, of which $41,800 was classified as a non-current liability.