Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Note 11.Commitments and Contingencies

Lease Commitments. The Company currently leases its office and research and development lab space under an operating lease that expires September 30, 2011.  In December 2010, the Company canceled its Doylestown, PA operating lease for a payment of approximately $11,000 and forfeiture of its security deposit of approximately $10,000.  In connection with its existing facility lease, the Company has made a security deposit of $5,000 which is included in long-term assets on the balance sheet.  In December 2010, the existing operating lease was amended to reduce the rent payments for February 2011 to September 2010 from $3,950 per month to $2,000 per month, accruing deferred rent that will be due immediately in the case of default on the lease, or to be negotiated in the lease renewal for a minimum of three years.  This lease contains a termination option subject to a fee equal to the total deferred rent of $15,600.  Deferred rent at June 30, 2011 was $9,750.

Rent expense is recognized on a straight-line basis over the initial lease term. Leasehold improvements have been included in fixed assets.  Rent expense related to operating leases was approximately $14,400 and $23,858 for the three and six months ended June 30, 2011 and $32,795 and $66,467 for the three and six months ended June 30, 2010, respectively. In connection with facility leases, the Company has made security deposits totaling $6,093, which are included in long-term assets in the balance sheet.

Professional Services Agreement. On May 16, 2011, the Company entered into a Consulting Agreement with BHA, pursuant to which BHA will provide certain business, corporate development, litigation support, financial and strategic consulting services to the Company for and in consideration of the payment to BHA of $12,000 per month; provided, however, such amount shall not be paid, and shall accrue, until the earlier to occur of such time as the Company's cash balance exceeds $1.5 million, or twenty-four months from the date of execution.  For each month in which payment of the cash component is deferred, BHA shall be issued a warrant exercisable for 200,000 shares of the Company's common stock at an exercise price of the higher of $.20 per share or 105% of the closing price on the date of issuance.  The term of the Consulting Agreement is 18 months, and the term of the warrants is five years.  At June 30, 2011, the Company had issued warrants to purchase 400,000 shares of common stock under this agreement with an aggregate fair value of $13,738.