Note 7. Long-Term Debt and Lease Obligations

The Company had the following long-term debt at September 30, 2012 and December 31, 2011:

Crestpark LP, Inc.

On June 30, 2011, the Company entered into a debt conversion agreement with Crestpark, pursuant to which Crestpark converted $7,891,086 of the Fixed Tranche and the outstanding balance of $5,000,000 of the Floating Tranche, along with $540,978 of related accrued interest into 1,221,097 shares of the Company's Series D 8% Cumulative, Compounding Exchangeable Preferred Stock (the "Series D Preferred Stock").

As of December 31, 2011, the Company had outstanding a Note Payable (“Note”) with Crestpark for $2,000,000, under a Credit and Security Agreement originally dated December 18, 2007 and subsequently amended. Outstanding borrowings were due and payable on the earlier of (i) January 1, 2015 or (ii) the first date on which the Company either issues equity securities or arranges for additional indebtedness (other than trade indebtedness incurred in the ordinary course of business) in a transaction or series of transactions which generates aggregate net proceeds to the Company of not less than the then current principal amount outstanding under this Note, plus all accrued but unpaid interest. The Company could prepay the Note at any time without premium or penalty.

The Note provided, among other things, that the borrowings thereunder shall bear interest at 9.5% per annum and that such interest will be due and payable at maturity of the Note. Accrued interest on the Note was $97,111 at December 31, 2011. At September 30, 2012, there was no accrued interest on the Note.

The borrowings under the Note are secured by a first priority security interest in all of the assets of the Company except that Crestpark’s security interest in certain monitoring equipment is subordinate to the interest of AHK Leasing, LLC under its sale leaseback arrangements and to the interest of Access Bank under the December 29, 2011 Line of Credit.

This note was sold to Holdings on August 29, 2012 as outlined in Note 2.

IST Holdings, LLC

Holdings is a Nebraska based limited liability whose principals are two shareholders who also serve as directors of the Company. As described in Note 2, on September 28, 2012, the Company entered into a Conversion Agreement with Holdings under which all but $525,000 of the $2,000,000 principal balance of the promissory note dated December 31, 2010 plus the interest accrued thereon of $241,722 through September 30, 2012 was converted into 156,066 shares of the Company’s Series D Preferred Stock.

Under the Conversion Agreement, the $525,000 remaining principal balance of the Original Note has been exchanged by Holdings for a new promissory note in the principal amount of $525,000 (the “Substitute Note”) carries a fixed rate of 6.0% per annum. The Substitute Note provides for monthly payments of interest only for twelve months and then requires monthly amortizing payments of principal and interest through maturity of the Substitute Note on March 31, 2017. In all other respects, the indebtedness evidenced by the Substitute Note remains subject to the terms and conditions of that certain Credit and Security Agreement originally entered into by and between the Company and Crestpark dated October 29, 2007, as subsequently amended including a first priority security interest in the assets of the Company granted thereby.

The borrowings under the Substitute Note are secured by a first priority security interest in all of the assets of the Company except that Holdings’ security interest in certain monitoring equipment is subordinate to the interest of AHK Leasing, LLC under its sale leaseback arrangements and to the interest of Access Bank under the December 29, 2011 Line of Credit.

Capital Leases - AHK Leasing, LLC.

AHK Leasing, LLC (“AHK”) is a company controlled by three stockholders, one of which is a current director. These loans were in the form of capital leases with 36 month terms and bearing interest at a rate of 8.50% to 10.25% per annum and mature between December 2012 and August 2016. There was no accrued interest payable to AHK at September 30, 2012.

Total interest expense, including unused commitment fees, for the three months and nine months ended September 30, 2012 and September 30, 2011 is as follows: 

Interest expense paid during the three and nine months ended September 30, 2012 and 2011 was $33,325 and $112,548, respectively, as compared to $34,955 and $203,322 for the same periods of 2011.