11. Long-Term Debt

12 Months Ended

Mar. 31, 2012

11. Long-Term Debt

In September 2010 the Company entered into an agreement with BCA Mezzanine Fund LLP (“BCA”) to loan the Company $2.5 million in the form of a Promissory Note (“the “Note”). The Company incurred expenses of $541,604 in connection with this loan, including legal fees, investment banking fees and other transaction fees. These expenses are included as deferred debt expense in the accompanying balance sheets, and these expenses are being amortized over the term of the loan. For the years ended March 31, 2012 and 2011, the Company recorded amortization of debt expense in the amount of $108,321 and $60,178, respectively. As of March 31, 2012, the Company had unamortized deferred debt expense in the amount of $373,105 of which $108,321 is classified as a current asset and $264,784 as long-term. As of March 31, 2011, the Company had unamortized deferred debt expense in the amount of $481,426 of which $108,321 is classified as a current asset and $373,105 as long-term.

In connection with the warrants issued in conjunction with this debt the Company recorded a debt discount of $267,848. The debt discount is being amortized over the life of the loan. For the years ended March 31, 2012 and 2011, the Company recorded amortization of debt discount in the amount of $53,570 and 29,761, respectively. As of March 31, 2012 and 2011, the Company had unamortized discount of $184,518 and $238,087, respectively, and are classified as a reduction of long-term debt in the accompanying balance sheets.

The features of the note are as follows:

1. The Note has a term of five (5) years with an annual interest rate of 14% on the outstanding principal amount. Payments for the first year are interest only and amounted to $28,762 monthly, and after the first year the Company will make monthly payments of approximately $69,000 for the remaining term of the loan.

2. The Company issued BCA a nine-year warrant for 136,090 shares, based upon 4.5% of the fully –diluted outstanding shares of the Company’s common stock at $6.70 per share, the average closing price over the three days preceding the loan closing on the NYSE-Amex Exchange. In the event of specific major corporate events or the maturity of the five-year loan, BCA can require the Company to purchase the warrant and warrant shares at the higher of the then Exchange market price less the share exercise price, in the case of the warrant, or five times operating income per share. In connection with the warrant issued in conjunction with this debt, the Company recorded a debt discount (see above) and warrant liability, which will be marked to fair value at the end of each period (see Note 19 to Notes to the Consolidated Financial Statements). The debt discount is being amortized over the life of the loan.

3. Loan provisions also contain customary representations and warranties.

4. BCA has a lien on all of the Company’s assets. In February 2011, BCA agreed to release part of its lien on Company assets to the U.S. Government to allow for progress billings up to $1,000,000.

5. The Company may prepay a portion of the principal amount provided that (i) any such prepayment shall be applied in the inverse order of the maturity of the principal amount of the Note, (ii) the Company shall pay to BCA an additional amount equal to (A) 3% of the outstanding principal amount being prepaid if such prepayment is made during the first loan year, and (B) 2% of the outstanding principal amount then being prepaid if such prepayment is being made during the second loan year. Each payment must be not less than $25,000 or multiples of $25,000 in excess thereof.

6. Upon the occurrence of a Change of Control or within five (5) Business Days of an O’Hara Life Insurance Realization Event, the Company shall, in each case at the election of BCA, prepay by wire transfer the entire outstanding principal amount of the Note in accordance with the redemption prices (the “Mandatory Redemption Prices”) set forth below (expressed as a percentage of the outstanding principal amount being prepaid and shall pay 103% in the first loan year, 102% in the second loan year, and 100% thereafter), together with (x) Interest, if any, accrued and unpaid on the outstanding principal amount of the Note so prepaid through the date of such prepayment, (y) all reasonable out-of-pocket costs and expenses (including reasonable fees, charges and disbursements of counsel), if any, associated with such prepayment, and (z) all other costs, expenses and indemnities then payable under this Agreement (such amounts, collectively the “Mandatory Redemption Payment”). If a Change of Control or O’Hara Life Insurance Realization Event shall occur during any Loan Year set forth below, the

Mandatory Redemption Price shall be determined based upon the percentage indicated above for such Loan Year multiplied by the principal amount which is being prepaid. At the election of BCA, all or any portion of the Mandatory Redemption Payment may be paid in the form of Marketable Securities in lieu of cash and to the extent available and to the extent not restricted by any SBIC Regulations. In the event BCA makes the election contemplated by the immediately preceding sentence, the Issuer shall issue to Purchaser that number of shares having an aggregate Current Market Price as of such issuance date equal to that portion of the Mandatory Redemption Payment subject to such election.

7. The BCA notes contain a number of affirmative and negative covenants which could restrict our operations. For the quarter ended March 31, 2012, the Company was not in compliance with five covenants related to EBITDA and maintaining agreed upon financial ratios for fixed charges, total leverage, and debt service as well as a requirement for capital expenditures. However, in July 2012 the Company received a waiver from BCA for each of the above mentioned covenants.

8. The Company and BCA have amended certain provisions to ease some restrictions.

The annual maturities of long-term debt for the five fiscal years subsequent to March 31, 2012 are as follows:

2013	$	542,382
2014		624,582
2015		719,238
2016		331,000

Total	$	2,217,202