Note 11 - Convertible Notes Payable

3 Months Ended

Mar. 31, 2012

Debt Disclosure [Text Block]

NOTE 11. CONVERTIBLE NOTES PAYABLE

In March 2008, the Company completed a financing transaction under which an investor made an investment in the Company by purchasing a convertible promissory note in the principal amount of $3.0 million, with a warrant to purchase 375,000 shares of common stock at an exercise price of $2.50 per share.  The promissory note matured in March 2012, was convertible into common stock at a price of $2.00 per share and had a stated interest rate of 10% per annum.  Using professional standards, the relative fair value of the warrant was calculated using the Black-Scholes Option Valuation Model.  The Company also recorded an additional debt discount for the beneficial conversion feature of the instrument.  These amounts, totaling approximately $791,000, have been recorded as a debt discount that will be charged to interest expense over the life of the promissory note.  The Company repaid this note in March 2012.

In June 2008, the Company completed a financing transaction under which the same investor made an additional investment in the Company by purchasing a convertible promissory note in the principal amount of $3.0 million, with a warrant to purchase 468,750 shares of common stock at an exercise price of $2.00 per share.  The promissory note matures in June 2012, is convertible into common stock at a price of $1.60 per share and has a stated interest rate of 10% per annum.  Under professional standards, the relative fair value of the warrant was calculated using the Black-Scholes Option Valuation Model.  The Company also recorded an additional debt discount for the beneficial conversion feature of the instrument.  These amounts, totaling approximately $789,000, have been recorded as a debt discount that will be charged to interest expense over the life of the promissory note.

In March 2012, the Company completed a transaction under which the Company issued a $3.3 million convertible promissory note, of which $3.1 million was received prior to March 31, 2012 and $200,000 in April 2012.  The note bears interest at 6% per annum.  The note matures on the earlier of 1) 10 business days after delivery by the holder of the note of a notice to maturity-which may not be issued prior to December 31, 2012, or 2) March 31, 2015, provided that the Company completes a restructuring of its capital in manner satisfactory to the holder.  This note is convertible into 66,000 shares of the Company’s Series E Preferred Stock.  Upon conversion, the holder will also receive 6,600,000 warrants, exercisable at $0.50 per share of the Company’s common stock. (See Note 15)

The following table summarizes convertible notes payable at March 31, 2012 and September 30, 2011:

	March 31,			September 30,
	2012			2011
10% convertible notes payable	$	3,000,000		$	6,000,000
6% convertible note payable		3,100,000			-
Less: Debt discount		(49,000	)		(247,000	)
	$	6,051,000		$	5,753,000

The Company incurred interest expense related to its convertible notes of approximately $150,000 for each of the six-month periods ended March 31, 2012 and 2011 respectively.