Note 3. Pledged Assets, Line-of-Credit and Long-Term Debt

During 2011, the Company maintained a line of credit with Monroe Bank + Trust, or the Bank, up to $400,000 bearing interest at the Wall Street Journal Prime Rate (3.25% at December 31, 2011) plus 0.75%, but in no event less than 5.00%, and secured by a first lien on all our assets (except equipment), with a new maturity date of August 15, 2012. Two certificates of deposit totaling $141,430 from the Bank are held as a condition of maintaining the line of credit. At December 31, 2011, we had $100,000 of borrowing capacity under the credit facility.

Long-term debt at December 31, 2011 and 2010 is as follows:

	2011	2010
Notes payable - banks	$209,527	$365,703
Notes payable - equipment vendors	279,379	203,027
Convertible debentures, net of discount of $24,553 in 2011 and $52,326 in 2010	430,447	667,674
	919,353	1,236,404
Less current maturities	367,190	1,005,473

	$552,163	$230,931

During 2011, the Company borrowed a total of $163,853 from two lenders to purchase insurance policies for general, property and directors & officers' insurance coverage during the year. A total of two term notes were issued, ranging from 6% to 6.6% interest for a term not more than one year, monthly payments totaling $16,844 and each are unsecured. The total amount owed on these notes as of December 31, 2011 was approximately $46,200 and these notes are expected to be paid in full on the applicable maturity date, the last of which is August 2012.

From the beginning of 2006 through 2011, the Company borrowed a total of $1,677,100 from ten lenders to purchase processing and automotive equipment. As of December 31, 2011, a total of thirteen term notes are outstanding, ranging from 6.2% to 10.9% interest for terms ranging three to five years, monthly payments totaling approximately $26,000 and all secured by equipment. The total amount owed on all equipment-secured notes as of December 31, 2011 was approximately $442,000 and all notes are expected to be paid in full on the applicable maturity date, the last of which is in March 2016.

In 2009 the Company approved an offering of up to $1,000,000 of Convertible Debentures (the “Debentures”), convertible at any time into the Company's unregistered common stock at $2.00 per share. The Debentures are issuable in $5,000 denominations, are unsecured and have a stated interest rate of 8%, payable quarterly to holders of record. The Company has timely paid all accrued interest due to all Debenture holders of record as of each quarter-end date starting in July 2009. At any time, the Company may redeem all or a part of the Debentures at face value plus unpaid interest.

During 2009 the Company issued $765,000 of Debentures to a total of twenty-three accredited investors, and one investor converted $10,000 of Debentures into unregistered common stock. During 2010 the Company issued $55,000 of Debentures, and three investors converted a total of $90,000 of Debentures into unregistered common stock. The Debentures matured at June 30, 2011, however fifteen investors holding Debentures totaling $365,000 elected to replace them with new ones that now mature at June 30, 2013. All other features of the “expired” Debentures remained the same in the replacement ones, except for the new maturity date. Of the four investors totaling $355,000 who did not replace their existing Debentures with new ones, two investors totaling $215,000 had their Debentures repaid; one investor converted $50,000 into unregistered common stock (at June 30, 2011) and one holding $90,000 of Debentures has not made a final decision. As of December 31, 2011, the Company held $455,000 of Debentures.

Because the fair market value of the Company's common stock (the underlying security in the Debentures) may have been above the conversion price of $2.00 per share at the date of issuance, the Company was required under GAAP to record a discount given for certain (now) “expired” Debentures sold, which totaled $184,975. The discount was then required to be amortized as a period expense over the periods the Debentures were scheduled to be outstanding, which averaged 20 months, through the maturity date of June 30, 2011. For the year ended December 31, 2011 and 2010, amortization expense on the “expired” Debentures amounted to $52,326 and $108,334, respectively.

For periods subsequent to June 30, 2011, the Company is required under GAAP to record a discount totaling $32,737 for certain Debentures replaced, and a gain on debt modification during the quarter ended June 30, 2011. The discount is required to be amortized as a period expense over the next eight quarters the Debentures are scheduled to be outstanding. For the six months ended December 31, 2011 these “replacement” debentures have been outstanding, amortization expense amounted to $8,184.

Approximate aggregate maturities of long-term debt for the years ending December 31 are as follows: 2012 - $567,000; 2013 - $460,000; 2014 - $59,000; 2015 - $27,000; 2016 - $6,000.