(4) Long-Term Debt

6 Months Ended

Sep. 30, 2011

Debt Disclosure [Text Block]

(4)	Long-Term Debt
	Long-term debt consists of the following as of September 30, 2011 and March 31, 2011:

	September 30, 2011			March 31, 2011
$2,500,000 face value, 12.5% Senior Notes due December 15, 2012	$	2,500,000		$	2,500,000
		2,500,000			2,500,000
Less current portion		(2,500,000	)		(2,500,000	)
Long-term debt	$	—		$	—

The Company issued $2,500,000 face value of Senior Notes on December 15, 2009 in connection with the December 15, 2009 financing described in Note 3.  As described in Note 3, the proceeds from the financing were allocated among multiple financial instruments based on fair values.  Proceeds allocated to the Senior Notes amounted to $1,433,812. The resulting discount was subject to amortization through charges to interest expense over the term to maturity using the effective interest method.  Discount amortization included in interest expense for the three and six months ended September 30, 2010 amounted to $75,096 and $146,797 respectively.  The Company did not incur any amortization of the original interest discount on the Senior Notes for the three and six months end September 30, 2011 as they were fully amortized as of March 31, 2011.

The Senior Notes are secured by substantially all of the Company’s assets; bear interest at a rate of 12.5% per annum payable quarterly; and mature in one installment on December 15, 2012. The Company has the right to prepay the Senior Notes at any time. While the Senior Notes are outstanding, the Company is subject to customary affirmative, negative and financial covenants. The financial covenants include (i) a fixed charge coverage ratio test requiring the Company to maintain a fixed charge coverage ratio of not less than 1.40 to 1.00 at the close of each fiscal quarter, (ii) a minimum EBITDA test, tested at the end of each fiscal quarter, requiring the Company to generate “EBITDA” of at least $3,000,000 over the preceding four fiscal quarters, (iii) a minimum liquidity test requiring the Company to maintain cash and cash equivalents of $500,000 at all times, and (iv) limitations on capital expenditures. The Company was in compliance with these financial covenants as of September 30, 2011.

In May 2010, the Company entered into a First Amendment to Senior Notes (the “Note Amendment”), in connection with the Company’s pledge of $500,000 as cash collateral to Sovereign Bank to secure the Company’s reimbursement obligations under a letter of credit issued on behalf of the Company in favor of American Express Related Services Company, Inc. (“Amex”).  The letter of credit supports the Company’s credit line with respect to Amex credit cards issued to the Company and its employees. Pursuant to the Note Amendment, among other things, the Senior Notes were amended to (i) permit the Company to pledge the cash collateral to Sovereign Bank, and (ii) increase the interest rate thereunder by four percent to 16.5% during the period that the cash is pledged to Sovereign Bank.

On September 12, 2011, Amex released the $500,000 letter of credit it had been issued by Sovereign Bank. Thereafter, on September 15, 2011, Sovereign Bank released to the Company the $500,000 of cash collateral that had been pledged to secure the Company’s reimbursement obligations under the letter of credit, resulting in an automatic reduction in the Company’s interest rate under the Senior Notes from 16.5% to 12.5%.

As described in Note 10, the parties to the derivative lawsuit pending against the Company have entered into a Settlement Agreement, which is subject to court approval.  The terms of the settlement include a commitment by the Company to redeem its Senior Notes.  Accordingly the Company has classified the face value of the Senior Notes as a current liability at March 31, 2011 and June 30, 2011.