NOTES PAYABLE

6 Months Ended

Oct. 31, 2011

Notes to Financial Statements

NOTES PAYABLE

The following table summarizes our outstanding notes payable as of October 31, 2011 and April 30, 2011:

	October 31, 2011			April 30, 2011
Current portion of notes payable	$	—		$	36,100
Current portion of convertible notes payable		7,195			7,195
Current portion of notes payable, net	$	7,195		$	43,295
Long-term portion of notes payable	$	8,001,600		$	6,881,600
Less: Unaccreted premium		(2,367,574	)		(2,417,965	)
		5,634,026			4,463,635
Long-term portion of convertible notes payable	$	4,900,001		$	—
Less: Unamortized discount		(4,355,557	)		—
		544,444			—
Long-term portion of notes payable, net	$	6,178,470		$	4,463,635

Note Purchase Agreement

On October 12, 2010 the Company entered into a Note Purchase Agreement with Vatea Fund whereby it agreed to issue and sell to Vatea Fund an aggregate of $5,000,000 of senior unsecured promissory notes (the “Vatea Notes”) on or before December 31, 2010. The Vatea Notes will mature on October 31, 2013, unless the holders of a majority of the Vatea Notes consent in writing to a later maturity date. Interest does not accrue on the outstanding principal balance of the Vatea Notes (other than following the maturity date or earlier acceleration). Instead, on the maturity date, the Company must pay the holders of the Vatea Notes a final payment premium aggregating $3,000,000, in addition to the principal balance then otherwise outstanding under the Vatea Notes. The Vatea Notes provide that the Company has the option, at its sole discretion and without penalty, to prepay the outstanding balance under the Vatea Notes plus the amount of the final payment premium prior to the maturity date. In addition, the holders of majority of the Vatea Notes may request that the Company prepay the Vatea Notes in an amount equal to the proceeds of any subsequent closings under the Securities Purchase Agreement with Vatea Fund, dated June 8, 2009, and subsequently amended. The following table summarizes the activity under the Note Purchase Agreement during the three months ended October 31, 2011.

Date issued	Note principal		Final payment premium		Effective interest rate
May 9, 2011		400,000		240,000		18.83	%
May 20, 2011		100,000		60,000		19.06	%
May 23, 2011		200,000		120,000		19.12	%
	$	700,000	$	420,000

Interest accreted on these notes was $243,146 and $0 for the three months ended October 31, 2011 and 2010, respectively.

Interest accreted on these notes was $470,391 and $0 for the six months ended October 31, 2011 and 2010, respectively.

Convertible Note

On June 16, 2011, the Company entered into a Convertible Note and Warrant Purchase Agreement with an institutional investor pursuant to which the Company agreed to issue and sell to the Purchaser in a private placement a subordinated convertible promissory note (the "Note") with a principal amount of $4.6 million and warrants (the "Warrants") to purchase 2,039,911 shares of the Company's common stock, par value $0.0001 (the “Common Stock”). On June 29, 2011, the Company increased the offering by approximately $0.3 million and additional warrants to purchase 133,038 shares of common stock; for a total offering size of approximately $4.9 million (the "Offering") and warrants to purchase an aggregate of 2,172,949 shares of common stock.

Interest on the Notes accrues at a rate of 15% annually and will be paid in quarterly installments commencing on the third month anniversary of issuance. The Notes will mature 36 months from the date of issuance. The Note may be converted into shares of Common Stock at a conversion price of $2.255 per share (subject to adjustment for stock splits, dividends and combinations, recapitalizations and the like) (the "Conversion Price") at any time, in whole or in part, at any time at the option of the holders of the Notes. The Notes also will automatically convert into shares of Common Stock at the Conversion Price at the election of a majority-in-interest of the holders of notes issued under the purchase agreement or upon the acquisition or sale of all or substantially all of the assets of the Company. The Company may make each applicable interest payment or payment of principal in cash, shares of Common Stock at the Conversion Price, or any combination thereof. The Company may elect to prepay all or any portion of the Note without prepayment penalties only with the approval of a majority-in-interest of the note holders under the Purchase Agreement at the time of the election.   The Notes contain various events of default such as failing to timely make any payment under the Note when due, which may result in all outstanding obligations under the Note becoming immediately due and payable. The Warrants were issued in three approximately equal tranches, with exercise prices of $2.15, $2.60 and $2.85, respectively, per share of Common Stock (in each case subject to adjustment for stock splits, dividends and combinations, recapitalizations and the like). The Warrants are exercisable on or after the date of issuance and expire on the earlier to occur of the five year anniversary of the date of issuance or an acquisition or sale of all or substantially all of the assets of the Company. The exercise prices of shares of Common Stock underlying the Warrants are subject to adjustment in the event of future issuances of Common Stock or equivalents by the Company at a price less than the applicable exercise price, but in no event shall a Warrant exercise price be adjusted to less than $2.255 per share (subject to adjustment for stock splits, dividends and combinations, recapitalizations and the like) of Common Stock.

On June 29, 2011, the Company issued a Note with a principal amount of approximately $300,000 and Warrants to purchase 133,038 shares of Common Stock. On July 1, 2011, the Company issued a separate Note with a principal amount of $4,600,000 and Warrants to purchase 2,039,911 shares of Common Stock. The aggregate gross proceeds to the Company from the Offering were approximately $4.9 million, excluding any proceeds from the exercise of any Warrants. The aggregate placement agent fees were $297,000 and legal fees associated with the offering were $88,839. These costs have been capitalized as debt issue costs and will be amortized as interest expense over the life of the Note. The total value allocated to the warrants was approximately $1,960,497 and was recorded as a debt discount against the proceeds of the notes.  In addition, the beneficial conversion features related to the notes were determined to be approximately $2,939,504.  As a result, the aggregate discount on the notes totaled $4.9 million, and is being amortized over term of the notes.  

The Company recorded interest expense of $628,569 and $836,648 for the three and six months ended October 31, 2011, respectively. These amounts include amortization of the associated debt issue costs of $32,154 and $42,872 and amortization of the debt discount of $408,333 and $544,444 for the three and six months ended October 31, 2011, respectively.