Note 10. Warrant Liabilities

Warrants acquired in connection with the reverse merger, contain provisions that protect holders from a decline in the issue price of our common stock (or "down-round" provisions) or that contain net settlement provisions. The Company accounts for these warrants as liabilities instead of equity. Down-round provisions reduce the exercise or conversion price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise or conversion price of those instruments or issues new warrants or convertible instruments that have a lower exercise or conversion price. Net settlement provisions allow the holder of the warrant to surrender shares underlying the warrant equal to the exercise price as payment of its exercise price, instead of physically exercising the warrant by paying cash. The Company evaluates whether warrants to acquire its common stock contain provisions that protect holders from declines in the stock price or otherwise could result in modification of the exercise price and/or shares to be issued under the respective warrant agreements based on a variable that is not an input to the fair value of a "fixed-for-fixed" option.

On April 3, 2014, the Company issued 30,136,713 warrants with an exercise price of $0.0001 in connection with the $10,180,000 14% Senior Secured Promissory Note. As the note contained a variable share settlement provision, these warrants are recognized as a liability recorded at fair value.

The Company recognizes these warrants as liabilities at their fair value and remeasures them at fair value on each reporting date.

The assumptions used in connection with the valuation of warrants issued were as follows:


	June 30,	April 3,	April 2,
	2014	2014	2014
Number of shares underlying the warrants	77,862,807	30,136,713	47,726,094
Exercise price	$0.0001 - $0.80	$0.0001	$0.595 - $0.80
Volatility	111.17% - 199.57%	183.30%	134% - 158%
Risk-free interest rate	0.09% - 1.07%	0.11%	0.28% - 1.73%
Expected dividend yield	0.00%	0.00%	0.00%
Expected warrant life (years)	0.75 - 3.38	1	1.42 - 3.63
Stock price	$0.06	$0.08	$0.09


			Acquisition
			Measurement				Increase
			Date				(Decrease)
	December 31,		April 2,		Initial		in			June 30,
	2013		2014		Measurement		Fair Value			2014
2011 Unit Offering	$	-	$	1,242,333	$	-	$	(899,807	)	$	342,526
2011 Unit Offering Placement Agent		-		156,367		-		(113,254	)		43,113
2012 Bridge Warrant		-		20,690		-		(2,988	)		17,702
2012 Bridge Warrant Placement Agent		-		4,138		-		(598	)		3,540
2012 Unit Offering		-		137,178		-		(45,283	)		91,895
2012 Unit Offering Placement Agent		-		96,481		-		(34,436	)		62,045
2013 Merger related notes converted		-		11,608		-		(3,738	)		7,870
2014 Senior Note Purchase		-		-		2,407,930		(602,737	)		1,805,193
	$	-	$	1,668,795	$	2,407,930	$	(1,702,841	)	$	2,373,884

The approximate $1,703,000 decrease in fair value of warrants is recognized as a gain in the Other (Income) Expense section of the Condensed Consolidated Statement of Operations. The gain is also recognized within the Corporate segment's results of operations.

Number of Warrants Subject to Remeasurement


	Number of Warrants
			April 2,
	December 31,		2014		Warrant				June 30,
	2013		Acquisition		Additions		Reductions		2014
2011 Unit Offering		-		33,277,837		-		-		33,277,837
2011 Unit Offering Placement Agent		-		4,726,891		-		-		4,726,891
2012 Bridge Warrant		-		1,137,735		-		-		1,137,735
2012 Bridge Warrant Placement Agent		-		227,546		-		-		227,546
2012 Unit Offering		-		6,300,213		-		-		6,300,213
2012 Unit Offering Placement Agent		-		1,561,544		-		-		1,561,544
2013 Merger related notes converted		-		494,328		-		-		494,328
2014 Senior Note Purchase		-		-		30,136,713		-		30,136,713
		-		47,726,094		30,136,713		-		77,862,807