Note 7 - Notes Payable

The recorded value of our notes payable for the three months ended March 31, 2014 and year ended December 31, 2013 was as follows:

	December 31, 2013			March 31, 2014

2012 Secured Convertible Notes	$	4,225,000		$	4,308,700
Unsecured Convertible Note		1,000,000			1,000,000
Unsecured Interest Note		20,000			20,000
Total		5,245,000			5,328,700
Less Current Portion		(5,425,000	)		(5,328,700	)
Total Long-term	$	--		$	--

2012 Secured Convertible Notes

We engaged Philadelphia Brokerage Corporation to raise funds through the issuance of convertible promissory notes. We anticipated issuing promissory notes with an aggregate principal amount of up to $5,000,000 ("2012 Convertible Debt Offering"). As of March 31, 2014 we have issued notes having an aggregate principal value of $4,308,700 as explained below. The notes were due and payable on or before December 31, 2013. The principal and accrued interest due remain unsatisfied as of the current date. We are currently in discussions with the note holders regarding the conversion rate and extension of the due date to accommodate the closing of the Wireless Ronin merger.The notes bear interest at 12% per annum and may convertible to common stock at a $.25 per share conversion price. We also granted holders of the notes warrants with a five year life to acquire up to 200,000 shares of our common stock for each $100,000 of principal amount of the convertible notes. The notes are secured by all of our assets.

In July 2012, we entered into a note and warrant purchase and security agreement with individual investors and broke escrow on the initial funding under the 2012 Convertible Debt Offering, the principal amount of which was $1,900,000, which included the conversion of $900,000 of previously issued short term debt and issued warrants to acquire 3,800,000 shares of our common stock.

In August 2012, we increased our 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $900,000 and issued warrants to acquire 1,800,000 shares of our common stock.

In December 2012, we increased our 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $250,000, issued warrants to acquire 500,000 shares of our common stock to one member of our Board of Directors.

In January 2013, we increased our 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $425,000, issued warrants to acquire 850,000 shares of our common stock to; (i) one member of our Board of Directors, (ii) three individuals and (iii) two companies.

In August 2013, we converted the $750,000 principal balance of 2013 Accounts Receivable Purchase Agreement into our 2012 Convertible Debt Offering through the issuance of short term debt. No warrants were issued with respect to this transaction.

In March 2014 we increased our 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $83,700 to one member of our Board of Directors. No warrants were issued with respect to this transaction.

The notes and warrants mentioned above were issued with price protection provisions and were accounted for as derivative liabilities and valued on the dates issued using a Black-Scholes pricing model.

We recorded an aggregate derivative liability of $179,300 as of March 31, 2013, related to the conversion feature of the note. A derivative valuation loss of $89,700 was recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012. The aggregate derivative liability of $179,300 was calculated as follows using a Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.07%, (ii) expected life (in years) of 0.30; (iii) expected volatility of 175.61%, (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.10.

Additionally, we recorded an aggregate derivative liability of $33,523 and $345,800 as of March 31, 2014 and 2013, respectively related to the warrant reset provision. A derivative valuation loss of $30,869 and $119,500 was recorded to reflect the change in value of the aggregate derivative liability from December 31, 2013 and 2012, respectively. The aggregate derivative liability of $33,523 was calculated as follows using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.93%, (ii) expected life (in years) of 3.30; (iii) expected volatility of 125.67%, (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.015.

The principal value of the secured convertible note was being accreted over the amended term of the obligation for which $308,968 was included in interest expense for the three months ended March 31, 2013. The note bears a 12% annual interest rate and for the three months ended March 31, 2014 and 2013, $125,014 and $98,861, respectively were included in interest expense.

Unsecured Convertible Note

On September 29, 2006, we entered into a letter of understanding with Triage Capital Management, or Triage. The letter of understanding provided that Triage loan $1,000,000 to us in a convertible note securities agreement.On December 24, 2010 we closed on a Debt Restructuring as mentioned above, In connection with that Debt Restructuring the Company amended the note with the holder of a $1.0 million unsecured convertible note, pursuant to which the maturity date of the note was extended to December 31, 2013. The principal and accrued interest due remain unsatisfied as of the current date. We are currently in discussions with the note holder regarding the conversion rate and extension of the due date to accommodate the closing of the Wireless Ronin merger.

We recorded an aggregate derivative liability of $99,800 as of March 31, 2013 related to the conversion feature of the note. A derivative valuation loss of $53,400 was recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012. The aggregate derivative liability of $99,800 for the conversion feature of the note was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.14%, (ii) expected life (in years) of 0.8; (iii) expected volatility of 142.68%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.10.

In connection with the amendment mentioned above, the principal value of the note was accreted due to the difference in the value of the conversion feature before and after the amendment. The principal value of $1,000,000 of the unsecured convertible note was accreted over the amended term of the obligation, for which $83,334 was included in interest expense for the three months March 31, 2013. The note bears an 8% annual interest rate payable semi-annually, and for each the three months ended March 31, 2014 and 2013, $20,000, was included in interest expense.

Unsecured Interest Note

On April 17, 2013, we entered into a promissory note with the holder of our Unsecured Convertible Note in the amount of $20,000. The note was to satisfy unremitted interest due the holder on our Unsecured Convertible Note at that time. The note bears a 12 % per annum interest rate and was due on December 31, 2013. The principal and accrued interest due remain unsatisfied as of the current date.

Accounts Receivable Purchase Agreements

During the year ended December 31, 2010 we entered into two Accounts Receivable Purchase Agreements with one individual for an aggregate amount of $775,000. During the year ended December 31, 2011 we remitted $100,000 of the principal balance and converted the remaining $675,000 of principal balance plus accrued and unpaid interest into 1,307,153 shares of our common stock and warrants to purchase an additional 653,576 shares of our common stock. The warrants contain anti-dilution price protection provisions in the event the Company issues stock or convertible debt with a purchase price or conversion price less than $1.00 per share. The current exercise price has been reset to $0.725 per share due to subsequent financings.

We recorded an aggregate derivative liability of $1,373 and $13,400 as of March 31, 2014 and 2013, respectively, related to the warrant reset provision. A derivative valuation loss of $1,345 and $7,500, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2013 and December 31, 2012, respectively. The aggregate derivative liability of $1,373 was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.45%, (ii) expected life (in years) of 2.0; (iii) expected volatility of 152.63%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.015.

2011 Bridge Loan

On December 28, 2011 we entered into a Note and Warrant Purchase and Security Agreement with seven individuals for an aggregate of $1,300,000 ("Bridge Loan") to be used as working capital. The note bore an annual interest rate of 18%, payable monthly in cash. Additionally, we granted to the holders of the Bridge Loan warrants with a five year term to purchase an aggregate of 357,500 shares of our common stock at an exercise price of $0.65 which has been subsequently reset to $0.50. The note was originally due on February 28, 2012, but was extended and satisfied as described below. In consideration of the extension of the maturity date of the Bridge Loan, we granted the holders of the Bridge Loan warrants with a six year term to purchase 247,500 shares of our common stock at an exercise price of $0.35 which has been subsequently reset to $0.25 per share. In connection with the Bridge Loan we issued warrants to purchase 65,000 shares of our common stock at an exercise price of $0.65 which has been subsequently reset to $0.50 per share, to our investment banker for services in completing the above transaction.

On March 26, 2012, we closed on the 2012 Equity Financing and under the terms of the associated securities purchase agreement, two of the above described bridge lenders converted the principal balance of their portion of the bridge loan in the amount of $400,000 to common stock and warrants as part of and on the same terms as the 2012 Equity Financing, reducing the outstanding principal balance to $900,000. On July 13, 2012 the $900,000 principal balance was retired and was included as part of the 2012 Secured Convertible Note (as described above).

All warrants mentioned above were issued with price protection provisions and were accounted for as derivative liabilities and valued using a Black Scholes pricing model.

We recorded an aggregate derivative liability of $1,324 and $13,000 as of March 31, 2014 and 2013, respectively, related to the reset provision for the original and placement warrants issued. A derivative valuation loss of $1,280 and $5,600, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2013 and December 31, 2012, respectively. The aggregate derivative liability of $1,324 for the reset provision of the warrants was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.93%, (ii) expected life (in years) of 2.7; (iii) expected volatility of 136.22%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.015.

We recorded an aggregate derivative liability of $1,127 and $10,800 as of March 31, 2013 and 2012, respectively, related to the reset provision for the warrants issued for an extension of the maturity date. A derivative valuation loss of $1,068 and $3,600, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2013 and December 31, 2012, respectively. The aggregate derivative liability of $1,127 for the reset provision of the warrants was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.93%, (ii) expected life (in years) of 2.7; (iii) expected volatility of 136,22%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.015.