You should read the following discussion and analysis together with the financial statements and the related notes to those statements included in "Item
8 - Financial Statements and Supplementary Data." This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under "Risk Factors" and elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.

Results of operations- Comparison of the year ended April 30, 2012 and 2011

The following table sets forth our condensed statement of operations data and presentation of that data as amount of change from period-to-period.

                                               Year ended April 30,           Increase/        % Increase/
                                               2012             2011          (Decrease)       (Decrease)

Wholesale & retail revenue                 $     74,519     $    101,582     $    (27,063 )             (27 ) %
Distibutor revenue                               26,000          220,767         (194,767 )             (88 ) %
Product revenue                                 100,519          322,349         (221,830 )             (69 ) %
Cost of sales                                    51,253          219,182         (167,929 )             (77 ) %
Gross profit                                     49,266          103,167          (53,901 )             (52 ) %

Government grant revenue                        314,515                -          314,515                 -   %
Total net revenue                               363,781          103,167          260,614               253   %

Operating expenses:
Sales and Marketing                             393,922          926,411         (532,489 )             (57 ) %
General and administrative                    5,697,884        6,755,676       (1,057,792 )             (16 ) %
Research and development                      2,462,638        2,681,713         (219,075 )              (8 ) %
Loss on impairment of long-lived assets          29,534          302,044         (272,510 )             (90 ) %
Total Operating expenses                      8,583,978       10,665,844       (2,081,866 )             (20 ) %

Net operating loss                            8,220,197       10,562,677       (2,342,480 )             (22 ) %

Interest expense                              7,412,054          171,563        7,240,491             4,220 %
Other expense (income)                           80,159         (285,944 )        366,103              (128 ) %

Revenue

Product Revenue and Gross Profit

We generate revenue through the sale of Dermacyte through on-line retailers,
physician and medical spa facilities, and through distribution agreements with
unrelated companies. Product revenue and percentage changes for the years ended
April 30, 2012 and 2011, respectively, are as follows:

                               Year ended April 30,         Increase/       % Increase/
                                2012           2011        (Decrease)       (Decrease)
Wholesale & retail revenue   $    74,519     $ 101,582     $   (27,063 )             (27 )%
Distibutor revenue                26,000       220,767        (194,767 )             (88 )%
Product revenue                  100,519       322,349        (221,830 )             (69 )%
Cost of sales                     51,253       219,182        (167,929 )             (77 )%
Gross profit                      49,266       103,167         (53,901 )             (52 )%

Product revenue decreased approximately $222,000 for the year ended April 30, 2012 compared to the prior year. During the year ended April 30, 2012, we suspended our existing marketing program and focused our efforts on reformulating and repackaging our existing retail products.

Gross profit as a percentage of revenue was 49% and 32% for the years ended April 30, 2012 and 2011, respectively. The increase for the year ended April 30, 2012 was due to a greater proportion of total sales through wholesale and retail channels versus sales through distributors in the current year.

Government Grant Revenue

We earn revenues through a cost-reimbursement grant sponsored by the United States Army, or Grant Revenue. Grant Revenue is recognized as milestones under the Grant program are achieved. Grant Revenue is earned through reimbursements for the direct costs of labor, travel, and supplies, as well as the pass-through costs of subcontracts with third-party CROs.

Year ended April 30, Increase/ % Increase/ 2012 2011 (Decrease) (Decrease) Government grant revenue $ 314,515 $ - $ 314,515 - %

For the year ended April 30, 2012, we recorded approximately $315,000 in revenue under the grant program. In addition to the revenue earned, we have recorded approximately $244,013 in deferred revenue associated with the grant. Deferred revenue under the grant represents pass-through costs that have been reimbursed in advance of performing the studies underlying the subcontracts.

Marketing and Sales Expenses

Marketing and sales expenses consisted primarily of personnel-related costs, including salaries commissions, and the costs of marketing programs aimed at increasing revenue, such as advertising, trade shows, public relations and other market development programs. Marketing and sales expenses and percentage changes for the years ended April 30, 2012 and 2011, respectively, are as follows:

Year ended April 30, Increase/ % Increase/ 2012 2011 (Decrease) (Decrease) Marketing and sales expense $ 393,922 $ 926,411 $ (532,489 ) (57 ) %

The decrease in marketing and sales expenses for the year ended April 30, 2012 compared to the prior year were driven primarily by our decision to suspend our existing marketing program and focus our efforts on reformulating and repackaging our existing retail products.

Costs incurred for direct marketing and advertising were approximately $138,000 and $515,000 during the years ended April 30, 2012 and 2011, respectively. These costs include attendance at trade shows and conferences, fees paid to a third party public relations firm, the costs of product samples distributed to potential customers, and the costs of direct print and online advertisements. The $377,000 reduction in costs during the current year was primarily due to our decision to focus our sales and marketing efforts to specific regions and eliminate nationwide print advertising, consulting firms, and trade shows.

Costs incurred for compensation were approximately $213,000 and $320,000 during the years ended April 30, 2012 and 2011, respectively. The $107,000 reduction in costs during the current year was due to the elimination of 3 full-time marketing and sales positions.

Costs incurred for travel were approximately $43,000 and $91,000 during the years ended April 30, 2012 and 2011, respectively. The $48,000 reduction in costs during the current year was directly correlated to the reduction in personnel described above.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation for executive, finance, legal and administrative personnel, including stock-based compensation. Other general and administrative expenses include facility costs not otherwise included in research and development expenses, legal and accounting services, other professional services, and consulting fees.

The following table sets forth the components of general and administrative costs, and percentage changes, for the years ended April 30, 2012 and 2011, respectively.

                                              Year ended April 30,          Increase/            %
                                              2012            2011          (Decrease)       Increase/
Personnel costs                            $ 1,747,055     $ 3,358,590     $ (1,611,535 )           (48 ) %
Legal and professional fees                  3,086,350       2,149,046          937,304              44   %
Facilities                                     284,694         330,078          (45,384 )           (14 ) %
Other costs                                    414,204         658,918         (244,714 )           (37 ) %
Depreciation and amortization                  165,581         259,044          (93,463 )           (36 ) %

Personnel costs:

Personnel costs decreased approximately $1,611,000 for the year ended April 30, 2012 compared to the prior year. The decrease was due primarily to the elimination of three executive positions during the current fiscal year and the accrual for the contingent liability from potential 409A expenses recorded in the prior year.

Legal and professional fees:

Legal and professional fees increased approximately $937,000 for the year ended April 30, 2012 compared to the prior year. This increase was primarily due to increases of $980,000 and $121,000 in legal and accounting fees and consulting fees, respectively; partially offset by a decrease of $157,000 in investor relations costs. The increase in legal and accounting costs was primarily related to the closing of the Series A Convertible Preferred Stock offering in December 2011 and the costs to defend the Tenor matter. The increase in consulting fees was primarily related to Board of Director recruiting fees. The decrease in investor relations costs was the result of terminating existing agreements with Swiss-based public relations firms and the decision to delist from the SIX exchange.

Facilities:

Facilities include costs paid for rent and utilities at our corporate headquarters in North Carolina. The $45,000 reduction during the year ended April 30, 2012 compared to the prior year was the result of our relocation from Durham, NC to Morrisville, NC in March 2011.

Other costs:

Other costs include costs incurred for travel, supplies, insurance and other miscellaneous charges. The $245,000 reduction in other costs was due primarily to a $250,000 reduction in administrative travel costs partially offset by increases in insurance premiums and taxes paid.

Depreciation and Amortization:

The $93,000 decrease in depreciation and amortization costs for the year ended April 30, 2012 compared to the prior year was primarily due to the impairment charges of approximately $302,000 recorded against the carrying value of certain patents in the prior year; partially offset by increased depreciation costs on fixed assets placed in service during the current year.

Research and Development Expenses

Research and development expenses include, but are not limited to, (i) expenses incurred under agreements with CROs and investigative sites, which conduct our clinical trials and a substantial portion of our preclinical studies; (ii) the cost of manufacturing and supplying clinical trial materials; (iii) payments to contract service organizations, as well as consultants; (iv) employee-related expenses, which include salaries and benefits; and (v) facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and equipment, depreciation of leasehold improvements, equipment, laboratory and other supplies. All research and development expenses are expensed as incurred. Research and development expenses and percentage changes for the years ended April 30, 2012 and 2011, are as follows:

The following table sets forth the components of research and development costs, and percentage changes, for the years ended April 30, 2012 and 2011, respectively.

                                             Year ended April 30,          Increase/            %
                                             2012           2011          (Decrease)        Increase/
Personnel costs                            $ 947,374     $   883,018     $      64,356               7 %
Consulting                                   382,374         154,882           227,492             147 %
Clinical and preclinical development         814,646       1,301,584          (486,938 )           (37 ) %
Facilities                                   181,248         157,611            23,637              15 %
Other costs                                   95,900         132,636           (36,736 )           (28 ) %
Depreciation                                  41,096          51,982           (10,886 )           (21 ) %

Personnel costs:

Personnel costs increased approximately $64,000 for the year ended April 30, 2012 compared to the prior year primarily due to the addition of two chemists and a project manager in the California lab facility.

Consulting fees:

Consulting fees increased approximately $227,000 for the year ended April 30, 2012 compared to the prior year primarily due to the consulting and separation agreement for our former President and COO.

Clinical and preclinical development:

The decrease of approximately $487,000 in clinical and preclinical development costs for the year ended April 30, 2012 compared to the prior year was primarily due to a decrease of $756,000 is costs associated with the Phase II-b trials; partially offset by increases of $190,000 and $75,000 in development costs incurred for Oxycyte and Dermacyte, respectively.

Facilities:

The increase of approximately $24,000 in facilities costs for the year ended April 30, 2012 compared to the prior year was primarily due to costs incurred for repairs and maintenance on Oxycyte manufacturing equipment.

Other costs:

The decrease of approximately $37,000 in other costs for the year ended April 30, 2012 compared to the prior year was primarily due to a $47,000 reduction in travel and conference fees; partially offset by an increase in lab supplies costs.

Depreciation:

Depreciation expense remained relatively consistent for the years ended April 30, 2012 and 2011.

Conducting a significant amount of research and development is central to our business model. Product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development, primarily due to the significantly increased size and duration of clinical trials. We plan to incur substantial research and development expenses for the foreseeable future in order to complete development of our most advanced product candidate, Oxycyte, and to conduct earlier-stage research and development on our topical applications.

The process of conducting preclinical studies and clinical trials necessary to obtain FDA approval is costly and time consuming. The probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among other things, the quality of the product candidate's early clinical data, investment in the program, competition, manufacturing capabilities and commercial viability. As a result of the uncertainties discussed above, uncertainty associated with clinical trial enrollment and risks inherent in the development process, we are unable to determine the duration and completion costs of current or future clinical stages of our product candidates or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates. Development timelines, probability of success and development costs vary widely. We are currently focused on developing our most advanced product candidate, Oxycyte, and our topical dermatologic indications; however, we will need substantial additional capital in the future in order to complete the development and potential commercialization of Oxycyte and other product candidates.

Other income and expense

                                   Year ended April 30,       Increase/       % Increase/
                                 2012            2011        (Decrease)       (Decrease)
Other expense (income), net   $   80,159      $ (285,944 )   $   366,103                 - %

During the year ended April 30, 2012, Other expense (income) increased approximately $366,000 compared to the prior year. The increase in Other expense (income) was primarily due to a decrease in other income of approximately $278,000 and an increase in Other expense of approximately $88,000.

Other income:

Other income was decreased approximately $278,000 for the year ended April 30, 2012. This decrease was primarily due to the $244,000 award received in the prior year under the Patient Protection and Affordable Care Act of 2010 (the "PPACA") as well as a reduction of $34,000 in sublease revenue during the current year.

Other expense:

Other expense increased approximately $88,000 for the year ended April 30, 2012. This increase was primarily due to our write-off of an uncollectible receivable of approximately $93,000 for reimbursable patent costs related to our terminated license agreement with Glucometrics, Inc. partially offset by a reduction in foreign currency losses.

Interest expense

                        Year ended April 30,       Increase/       % Increase/
                       2012           2011        (Decrease)       (Decrease)
Interest expense   $  7,412,054     $ 171,563     $ 7,240,491              4220 %

During the year ended April 30, 2012, interest expense increased approximately $7.2 million compared to the same period in the prior year.

Long-term notes payable:

Interest expense for our long-term notes payable was approximately $2.8 million and $163,000 for the years ended April 30, 2012 and 2011, respectively. The increase in interest expense for the current year was primarily due to recognition of approximately $2.4 million in unaccreted interest due upon prepayment of the notes in November 2011.

Convertible notes payable:

Interest expense on our outstanding convertible notes was approximately $2.1 million for the year ended April 30, 2012. The recorded interest was comprised of $620,915 for quarterly interest payable, approximately $1.4 million in amortization of debt discounts and $107,180 in amortization of debt issue costs. No convertible notes were outstanding in the year ended April 30, 2011.

Series A Convertible Preferred Stock:

Interest expense on our outstanding Preferred Stock was approximately $2.4 million for the year ended April 30, 2012. The recorded interest was comprised of approximately $1.2 million for the calculated fair value of the warrants issued with the Preferred Stock, $530,942 for the excess of the fair-value of the shares issued upon conversion over the fair value of the Preferred Stock and $678,672 for the fair value adjustment to the remaining Preferred Stock outstanding at April 30, 2012. No Preferred Stock was outstanding in the year ended April 30, 2011.

Preferred Stock Dividends:

Interest expense recorded for the payment of dividends on the Preferred Stock was approximately $103,369 for the year ended April 30, 2012. No Preferred Stock was outstanding in the year ended April 30, 2011.

Liquidity, capital resources and plan of operation

We have incurred losses since our inception and as of April 30, 2012 we had an accumulated deficit of approximately $108 million. We will continue to incur losses until we generate sufficient revenue to offset our expenses, and we anticipate that we will continue to incur net losses for at least the next several years. We expect to incur increased expenses related to our development and potential commercialization of Oxycyte and other product candidates and, as a result, we will need to generate significant net product sales, royalty and other revenues to achieve profitability.

Liquidity

We have financed our operations since September 1990 through the issuance of debt and equity securities and loans from stockholders. We had $2,631,032 and $1,632,211of total current assets and working capital of $(495,838) and $(551,033) as of April 30, 2012 and April 30, 2011, respectively. Our practice is to invest excess cash, where available, in short-term money market investment instruments.

Based on our working capital at April 30, 2012 and funds received from the June 2012 Preferred Stock closing, we believe we have sufficient capital on hand to continue to fund operations through December 31, 2012.

Clinical and Preclinical Product Development

We are in the preclinical and clinical trial stages in the development of our product candidates. We are currently conducting Phase II-b clinical trials for the use of Oxycyte in the treatment of severe traumatic brain injury. Even if we are successful with our Phase II-b study, we must then conduct a Phase III clinical study and, if that is successful, file with the FDA and obtain approval of a Biologics License Application to begin commercial distribution, all of which will take more time and funding to complete. Our other product candidates must undergo further development and testing prior to submission to the FDA for approval to initiate clinical trials, which also requires additional funding. Management is actively pursuing private and institutional financing, as well as strategic alliances and/or joint venture agreements to obtain the necessary additional financing and reduce the cost burden related to the development and commercialization of our products though we can give no assurance that any such initiative will be successful. We expect our primary focus will be on funding the continued testing of Oxycyte, since this product is the furthest along in the regulatory review process. Our ability to continue to pursue testing and development of our products beyond December 31, 2012 depends on obtaining license income or outside financial resources. There is no assurance that we will obtain any license agreement or outside financing or that we will otherwise succeed in obtaining the necessary resources.

Convertible Note Offering

On June 29, 2011 and July 1, 2011we closed a convertible note offering pursuant to which we sold to certain investors, including JP SPC 3 obo OXBT FUND, SP, notes convertible into 2,172,949 shares of common stock at $2.255 per share and warrants to purchase 724,317 shares of common stock with an exercise price of $2.15 per share, warrants to purchase 724,316 shares of common stock with an exercise price of $2.60 per share, and warrants to purchase 724,316 shares of common stock with an exercise price of $2.85 per share. The financing provided approximately $4.5 million in net proceeds to us after deducting the placement agent fee and offering expenses.

Series A Convertible Preferred Stock Offering

On December 8, 2011, we entered into a Securities Purchase Agreement with certain institutional investors, consisting of an aggregate $7.5 million of Preferred Stock and warrants to purchase approximately 1,689,192 shares of common stock. The 2011 Offering is scheduled to fund in multiple installments. The first installment of the Offering was completed on December 12, 2011. At closing, the investors purchased $3.5 million of newly issued Preferred Stock and related warrants. In June 2012, an additional $2.5 million of the offered securities were purchased. The remainder of the 2011 Offering, which may be up to $1.5 million, is currently scheduled to be completed in an additional closing in September 2012. However, the final closing is subject to various conditions, including conditions that are outside of our control, including, but not limited to, a minimum stock price prior to the final closing and a minimum trading volume limitation.

Potential Section 409A Liability

As a result of our review of option grants made by us between February 1998 and April 2009, we have determined that certain options granted in prior years may have been non-compliant with Section 409Aof the IRC, or Section 409A, including options granted with an exercise price below fair market value on the date of grant and options that were modified such that they may have become non-compliant with Section 409A.

The primary adverse tax consequence of Section 409A non-compliance is that the holders of non-compliant options are taxed on the value of such options as they vest, and annually thereafter until they are exercised. In addition to ordinary income taxes, holders of non-compliant options are subject to a 20% penalty tax under Section 409A (and, as applicable, similar excise taxes under state laws). Because virtually all holders of stock options granted by us were not involved in or aware that the pricing and/or modification of their options raised these issues, we intend to take actions to address certain of the adverse tax consequences that may apply to these holders. In addition, on March 17, 2011 we entered into indemnification agreements with our executive officers that indemnify those officers from potential Section 409A tax liabilities arising from their prior option awards. As of July 20, 2012, none of the potentially non-compliant options have expired or been forfeited unexercised.

As of April 30, 2012, we have accrued approximately $550,000, which represents our best estimate of the potential liability, in other current liabilities for the contingent liability.

Cash Flows

The following table shows a summary of our cash flows for the periods indicated:

                                              For the year ended April 30,
                                                 2012                2011
Net cash used in operating activities            (8,278,366 )      (8,403,142 )

Net cash used in investing activities              (261,146 )        (463,939 )

Net cash provided by financing activities         9,467,440         9,186,319

Net cash used in operating activities. Net cash used in operating activities was approximately $8.3 million for the year ended April 30, 2012 compared to net cash used in operating activities of $8.4 million for the year ended April 30, 2011. The decrease in cash used for operating activities compared to the prior year was due primarily to an increase in cash received from customers and reductions in cash paid to employees and suppliers; partially offset by a reduction in other operating cash receipts and an increase in cash paid for operating expenses.

- Cash collected from customers was approximately $766,000 and $245,000 for the years ended April 30, 2012 and 2011, respectively. The $521,000 increase in cash collected from customers in the current year was due primarily to $523,000 received under our research grant and an increase of $35,000 in cash received from cosmetic sales during the current year; partially offset by a decrease of $38,000 in cash received from subleasing unused lab space in . . .