Note 9 – Debt

Debt is comprised of the following:

(in thousands)	December 31,
	2012		2011

Pennsylvania Machinery and Equipment Loan
Short-term	$	69	$	66
Long-term		148		224
Total		217		290

Capitalized Leases
Short-term		–		2
Long-term		–		–
Total		–		2

Total Short-term		69		68
Total Long-term		148		224
Total	$	217	$	292

For the years ended December 31, 2012, 2011 and 2010, we incurred interest expense of $13,000, $20,000 and $357,000, respectively, on our outstanding debt obligations. Interest expense for 2010 included interest expense of $0.3 million associated with a loan from PharmaBio Development Inc (Pharma Bio), the former strategic investment subsidiary of Quintiles Transnational Corp., of which $0.2 million was related to amortization of deferred financing costs for warrants issued to PharmaBio in 2006 in consideration for restructuring the loan. All of our obligations related to the loan with PharmaBio were paid in full in 2010.

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 October 31, 2013 to come into compliance with the Jobs Covenant and has waived any interest adjustment until that date.

See also, Note 17 – Subsequent Events.