10. Subordinated Notes - Related Party

12 Months Ended

Mar. 31, 2012

Related Party Transactions Disclosure [Text Block]

10.                   Subordinated Notes – Related Party

On February 22, 2010 the Company borrowed $250,000 in exchange for issuing Subordinated Notes to each of two Executive Officers and Directors in the amount of $125,000. Each officer and director also received 5,000 stock options at $8.00 per share, the market price at the date of grant. In September 2010, these officers/directors entered into an Intercreditor and Subordination agreement which subordinated their loans to the BCA Loan Agreement (see Note 11 to Notes to Consolidated Financial Statements).  The notes were to become due April 1, 2011 with an interest rate of 1% per month, payable on a monthly basis within 14 days of the end of each month. The Intercreditor  and Subordination Agreement amongst the parties precludes the payment of principal or interest under these subordinated notes unless and until the Senior Obligations have been paid in full or without the express written consent of Senior Lender.  The Subordinated Note Holders agree that the Company’s failure to pay the monthly interest amounts pursuant to the terms of the February 22, 2010 Subordinated Notes will not constitute an event of default on the Notes if the Company is precluded from making these payments pursuant to the limitations included in the loan agreement with BCA. During fiscal year 2012, the Company’s Chairman, at the time, passed away. His surviving spouse has retained this Subordinated Note and continues to acknowledge the terms. Interest expense amounted to $31,964 and $28,036 for the years ended March 31, 2012 and 2011, respectively.

In connection with the stock options issued in conjunction with this debt the Company recorded a debt discount of $25,000. For the years ended March 31, 2011, the Company recorded amortization of debt discount in the amounts of $23,077. No amortization of debt discount was recognized for the year ended March 31, 2012. As of March 31, 2012 and 2011, the Company had unamortized discount of $-0-.