SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Oct. 31, 2011

Notes to Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company has prepared the accompanying interim financial statements in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these financial statements and accompanying notes do not include all of the information and disclosures required by GAAP for complete financial statements. The financial statements include all adjustments (consisting of normal recurring adjustments) that management believes are necessary for the fair statement of the balances and results for the periods presented. These interim financial statement results are not necessarily indicative of the results to be expected for the full fiscal year or any future interim period.

Reclassification

For comparability purposes, certain figures for prior periods have been reclassified, where appropriate, to conform to the financial statement presentation used in fiscal year 2012. These reclassifications had no effect on the reported net loss.

Derivative financial instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible promissory note instruments are reviewed to determine whether or not they contain embedded derivative instruments that are required under FASB ASC 815 “Derivatives and Hedging” (“ASC 815”) to be accounted for separately from the host contract, and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results.

Freestanding warrants issued by the Company in connection with the issuance or sale of debt and equity instruments are considered to be derivative instruments, and are evaluated and accounted for in accordance with the provisions of ASC 815. Pursuant to ASC 815, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as equity or as a derivative liability.

Beneficial conversion and warrant valuation

In accordance with FASB ASC 470-20, “Debt with Conversion and Other Options” the Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt that have conversion features at fixed rates that are in-the-money when issued and the fair value of warrants issued in connection with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to warrants, based on their relative fair value, and as a reduction to the carrying amount of the convertible debt equal to the intrinsic value of the conversion feature. The discount recorded in connection with the BCF and warrant valuation is recognized as non-cash interest expense and is being amortized over the life of the convertible note.

Fair Value Measurements

The Company's balance sheet includes the following financial instruments: cash and cash equivalents, short-term and long-term notes payable and convertible debentures. The Company considers the carrying amount of its cash and cash equivalents and short-term notes payable to approximate fair value due to the short-term nature of these instruments. It is not practicable for the Company to estimate the fair value of its convertible debentures as such estimates cannot be made without incurring excessive costs, but management believes the difference between fair value and carrying value to not be material.The significant terms of the Company's convertible debentures are described in Note 5. At October 31, 2011 the debentures had a gross carrying value of $4.9 million with unamortized discounts totaling approximately $4.4 million.

Net Loss per Share

Basic loss per share, which excludes antidilutive securities, is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding for that particular period. In contrast, diluted loss per share considers the potential dilution that could occur from other equity instruments that would increase the total number of outstanding shares of common stock. Such amounts include shares potentially issuable under outstanding options, warrants and convertible debentures. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share follows.

	Three months ended October 31,						Six months ended October 31,
	2011			2010			2011			2010
Historical net loss per share:
Numerator
Net loss, as reported	$	(2,929,923	)	$	(2,051,937	)	$	(5,798,992	)	$	(5,054,236	)
Less: Effect of amortization of interest expense on convertible notes		(4,637,024	)		—			(4,637,024	)		—
Net loss attributed to common stockholders (diluted)		(7,566,947	)		(2,051,937	)		(10,436,016	)		(5,054,236	)
Denominator
Weighted-average common shares outstanding		23,805,323			23,387,979			23,604,502			23,301,844
Effect of dilutive securities		2,174,891			—			1,477,166			—
Denominator for diluted net loss per share		25,980,214			23,387,979			25,081,668			23,301,844
Basic net loss per share	$	(0.12	)	$	(0.09	)	$	(0.25	)	$	(0.22	)
Diluted net loss per share	$	(0.29	)	$	(0.09	)	$	(0.42	)	$	(0.22	)

The following outstanding options, convertible note shares and warrants were excluded from the computation of basic and diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect.  

	Six months ended October 31,
	2011		2010
Options to purchase common stock		721,015		976,233
Convertible note shares outstanding		—		1,942
Warrants to purchase common stock		4,983,855		4,199,466

Recent Accounting Pronouncements

On May 1, 2011, the Company adopted ASU 2011-04, Fair Value Measurement (Topic 820). The guidance requires the disclosure of roll forward activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The adoption of ASU 2011-04 did not have a material impact on its financial statements.

On May 1, 2011, the Company adopted ASU 2010-17, Revenue Recognition—Milestone Method (Topic 605). The guidance establishes a revenue recognition model for contingent consideration that is payable upon the achievement of an uncertain future event, referred to as a milestone. The scope of the ASU is limited to research or development arrangements and requires an entity to record the milestone payment in its entirety in the period received if the milestone meets all the necessary criteria to be considered substantive. The adoption of ASU 2010-17 did not have a material impact on its financial statements.