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3. NOTES PAYABLE

9 Months Ended

Sep. 30, 2012

As of September 30, 2012, the Company had notes payable totaling $24,289,971. The detail of these notes is as follows:

Note Description	As of September 30, 2012		As of December 31, 2011		Maturity	Rate
IDB credit facility	$	5,000,000	$ 5,000,000		May 2013	Prime, not less than 4.0		%
Insurance premium note		35,674		21,421	July 2012		5.4	%
Various capital leases		154,297		166,469	Various		8.0-18.0	%
Convertible notes		19,100,000		15,475,000	November 2016		8.0	%
Totals		24,289,971		20,662,890
Less current portion of debt		5,053,078		5,037,815
Long–term portion of debt	$	19,236,893	$	15,625,075

Line of Credit

On December 6, 2010, the Company entered into (i) a $6,500,000 Promissory Note (the “IDB Note”), as borrower, and (ii) a Letter Agreement for a $6,500,000 Term Loan Facility, each with Israel Discount Bank of New York (“IDB”), as lender (the "IDB Credit Facility").

The total of all amounts borrowed under the initial IDB Credit Facility had to be drawn by June 10, 2011. As of March 31, 2012, the Company borrowed $5,000,000 during the initial term of the loan, which was originally due May 31, 2012. On May 31, 2012, the Company extended its IDB Credit Facility for an additional one-year period for the $5,000,000 already outstanding, and the Company deposited $250,000 in a Restricted Cash Account held at IDB for future interest payments. The balance in the restricted account as of September 30, 2012 was $198,882 due to the payment of interest as stipulated in the Credit Facility documents. All other terms remain the same.

Convertible Notes

The Company has issued convertible subordinated notes, as amended, (the “Notes”) under the Convertible Secured Subordinated Note Purchase Agreement, dated November 14, 2007 (as amended, the “Note Purchase Agreement”), between the Company and the convertible noteholders, under which the Company is entitled to elect to sell to the convertible noteholder, and the convertible noteholders are obligated to buy the Notes.

Sales of Notes to the convertible noteholders are subject to certain conditions, including the absence of events or conditions that could reasonably be expected to have a material adverse effect on the ability of the Company to perform its obligations under the Note Purchase Agreement.

As of September 30, 2012, the Company had $19.1 million aggregate principal amount of Notes due November 14, 2016 outstanding, after a $200,000 reduction of such current outstanding debt on account of a sale-leaseback of the Company’s equipment with the noteholders in 2009. The Notes have been sold as follows:

	As of September 30, 2012
Note Buyer	Date of Purchase	Amount of Convertible Note			Interest Rate			Due Date
Atlas Capital	Various	$	13,775,000			8	%	11/14/2016
Blueline Fund	November 14, 2007		500,000			8	%	11/14/2016
Crystal Management	Various		750,000			8	%	11/14/2016
HSBC Private Bank (Suisse), SA	November 21, 2008		250,000			8	%	11/14/2016
UBP, Union Bancaire Privee	Various		3,775,000			8	%	11/14/2016
William Furr	November 14, 2007		250,000			8	%	11/14/2016
Less – lease conversion	September 4, 2009		(200,000	)
Total Convertible Notes		$	19,100,000

The Company may sell up to $23.3 million aggregate principal amount of Notes to new convertible noteholders or existing noteholders with an outside maturity date of November 14, 2016. In addition, the maturity date definition for each of the Notes is the date upon which the note is due and payable, which is the earlier of (1) November 14, 2016, (2) a change of control, or (3) if an event of default occurs, the date upon which noteholders accelerate the indebtedness evidenced by the Notes. The conversion price for each outstanding Note and any additional Notes sold in the future is the same and set at the lowest applicable conversion price for all the Notes, determined according to the formula described in Note 6 in the 2011 Annual Report.

On October 1, 2012, the Company sold a Note to UBP, Union Bancaire Privee (“UBP”) in the principal amount of $350,000 due November 14, 2016, upon substantially the same terms and conditions as the previously issued Notes. On October 15, 2012, the Company sold a Note to Atlas Capital SA (“Atlas”) in the principal amount of $200,000 due November 14, 2016, upon substantially the same terms and conditions as the previously issued Notes. On October 31, 2012, the Company sold a Note to UBP in the principal amount of $100,000 due November 14, 2016, upon substantially the same terms and conditions as the previously issued Notes.

On September 7, 2012, the Company and the Bondholder Representative representing a majority of the aggregate principal amount of the Notes outstanding agreed to increase the amount of total borrowings under the Convertible Note Purchase Agreement to $23.3 million. The terms of sale and interest rate remain consistent with the Notes previously sold.