On October 15, 2009, we issued $3,001,033 of convertible notes. The convertible notes set a maturity date on October 15, 2011 and have a stated annual interest rate of 10%. The principal is payable at maturity but interest is paid quarterly beginning January 15, 2010. The Company incurred interest expense of $75,026 and $150,052, respectively for the three-month and six-month periods ending September 30, 2011 and September 30, 2010. In addition, the notes are convertible at any time into restricted shares of the Company’s common stock at $0.50 per share.

Related party investors as of September 30, 2011 and September 30, 2010 accounted for $430,000 and $180,000, respectively of the aggregate amount of convertible debt funds collected. The $250,000 increase is due to the appointment in June 2011 of two members to the Company’s Board of Directors, Mr. Philip Tracy and Mr. William Gore, who hold October 2009 convertible debt notes in the amounts of $100,000 and $150,000, respectively. Mr. Gore and Mr. Tracy were elected to the Company’s Board of Directors in September 2011.

On March 28, 2011, the convertible note agreements were amended to reduce the conversion price to $0.40 per share upon a change in control of the Company. This change in the conversion feature was evaluated under ASC 815-40. As a result of the new provision, the conversion feature now qualifies for derivative accounting pursuant to ASC 815. (see Note 8)

In June 2011, the Company contacted the holders of the Company’s 2009 Convertible Promissory Note to extend the note’s maturity date from October 15, 2011 to October 15, 2013. As of October 4, 2011, the Company had received signed amendment agreements from 100% of the note holders.

As per accounting standards, this change in the maturity date was evaluated under ASC 470 “EITF 96-19” “Debtor’s Accounting for Modification or Exchange of Debt Instruments.” As a result of the maturity date extension amendment, the convertible debt notes now qualify as a debt extinguishment and therefore are treated as if the Company settled the debt prior to the maturity date and then entered into an entirely new debt agreement after the amendment. (see Note 8)

In connection with the offering, we incurred cash fees of $265,103 and issued 700,000 shares of restricted common stock, valued at $203,000 based on the grant-date fair value of our common stock. These fees were included in the deferred financing costs in our consolidated balance sheet and were being amortized over the original term of the convertible notes using the effective interest rate method. During the six-month period ended September 30, 2011 and the six-month period ended September 30, 2010, we amortized $73,314 and $124,397, respectively, of deferred financing cost. During the three-month period ended September 30, 2011, due to the extinguishment of the debt in June 2011, we did not amortize any expenses. During the three-month period ended September 30, 2010 we expensed $62,198.

On June 24, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liability (using the BWMS closing share price of $0.55) and recorded a net “non-cash” loss of $115,378, which represents the change in the fair value of the derivative from March 31, 2011 through June 24, 2011.

Per the applicable accounting standards, the amendment of the convertible debt notes was required to be treated as an extinguishment of the original convertible debt notes and related accounts, as of June 24, 2011. Therefore, we wrote off and expensed the remainder of the unamortized deferred financing asset of $61,449 and decreased the derivative liability of $820,800. These transactions resulted in a net “non-cash” gain of $759,351.

Additionally as per ASC 470, we evaluated the fair value of the derivative related to the amended convertible debt notes as of June 24, 2011 (using the BWMS closing share price of $0.55) and recorded a new derivative liability of $2,870,987. This amount was recorded as a discount to the debt and will be amortized over the new remaining life of the notes, until October 15, 2013.

On June 30, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liability again (using the BWMS closing share price of $0.51) and recorded a net “non-cash” gain of $269,895.

On September 30, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liability again (using the BWMS closing share price of $0.45) and recorded a net “non-cash” gain of $457,886.

For the six-month period ended September 2011, these transactions resulted in a net “non-cash” gain of $1,371,754 due to fair value changes in the derivative liability of the 2009 convertible debt notes and the extinguishments of the financing charges and prior derivative liability.

As a result of the First Amendment to the Credit Agreement with JPMorgan Chase Bank (“JPM”), the maturity and conversion dates of the convertible debt notes issued pursuant to the Company’s September 2009 Convertible Debt Offering were to be extended by certain intervals. As of June 24, 2011, the maturity and conversion dates have been extended until October 15, 2013 but still do not meet the maturity date of September 30, 2014, as requested by JPM.

On March 31, 2010, we issued $1,750,000 of convertible notes. The convertible notes set a maturity date on March 31, 2012 and have a stated annual interest rate of 10%. The principal is payable at maturity but interest is paid quarterly beginning June 30, 2010. The Company incurred interest expense of $43,750 and $87,500, respectively for the three-month and six-month periods ending September 30, 2011 and September 30, 2010. In addition, the notes are convertible at any time into restricted shares of the Company’s common stock at $0.50 per share.

Related party investors as of September 30, 2011 and September 30, 2010 accounted for $245,000 and $70,000, respectively of the aggregate amount of convertible debt funds collected. The $175,000 increase is due to the appointment in June 2011 of two members to the Company’s Board of Directors, Mr. Philip Tracy and Mr. Gore, who hold March 2010 convertible debt notes in the amount of $100,000 and $75,000, respectively. Mr. Gore and Mr. Tracy were elected to the Company’s Board of Directors in September 2011.

On March 28, 2011, the convertible note agreement was amended to reduce the conversion price to $0.40 per share upon a change in control of the Company. This change in the conversion feature was evaluated under ASC 815-40. As a result of the new provision, the conversion feature now qualifies for derivative accounting pursuant to ASC 815. (see Note 8)

In June 2011, the Company contacted the holders of the Company’s 2010 Convertible Promissory Note to extend the note’s maturity date from March 31, 2012 to September 30, 2013. As of October 4, 2011, the Company had received signed amendment agreements from 100% of the note holders.

As per accounting standards, this change in the maturity date was evaluated under ASC 470. As a result of the maturity date extension amendment, the convertible debt notes now qualify as a debt extinguishment and therefore are treated as if the Company settled the debt prior to the maturity date amendment and then entered into an entirely new debt agreement after the amendment. (see Note 8)

In connection with the offering, we incurred cash fees of $164,750 and issued 659,000 shares of restricted common stock, valued at $171,340 based on the grant-date fair value of our common stock. These fees were included in the deferred financing costs in our consolidated balance sheet and were being amortized over the original term of the convertible notes using the effective interest rate method. During the six-month period ended September 30, 2011 and the six-month period ended September 30, 2010, we amortized $49,878 and $90,074, respectively, of deferred financing cost. During the three-month period ended September 30, 2011, due to the extinguishment of the debt in June 2011, we did not amortize any expenses. During the three-month period ended September 30, 2010 we expensed $45,037.

On June 24, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liability (using the BWMS closing share price of $0.55) and recorded a net “non-cash” loss of $78,371, which represents the change in the fair value of the derivative from March 31, 2011 through June 24, 2011.

Per the applicable accounting standards, the amendment of the convertible debt notes was required to be treated as an extinguishment of the original convertible debt notes and related accounts, as of June 24, 2011. Therefore, we wrote off and expensed the remainder of the unamortized deferred financing asset of $130,271 and decreased the derivative liability of $770,860. These transactions resulted in a net “non-cash” gain of $640,589.

Additionally as per ASC 470, we evaluated the fair value of the derivative related to the amended convertible debt notes as of June 24, 2011 (using the BWMS closing share price of $0.55) and recorded a new derivative liability of $1,645,253. This amount will be amortized over the new remaining life of the notes, until September 30, 2013.

On June 30, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liability again (using the BWMS closing share price of $0.51) and recorded a net “non-cash” gain of $148,829.

For the six-month period ended September 2011, these transactions resulted in a net “non-cash” gain of $963,726 due to fair market changes in the derivative liability of the 2010 convertible debt notes and the extinguishments of the financing charges and prior derivative liability.

In summary, during the six-month period ending September 30, 2011, the Company recorded a net “non-cash” gain of $2,335,480 related to the 2009 and 2010 Notes; approximately $1,400,000 due to the extinguishment of the original convertible debt notes and deferred financing charges; and $935,540 related to changes in the fair market value of the convertible debt notes derivative liabilities.

The future minimum payments related to our JPM credit facilities and convertible notes as of September 30, 2011, for the next five years and the total amount thereafter are as follows, assuming none of the convertible notes are converted: