Fair Value of Financial Instruments

9 Months Ended

Oct. 31, 2012

10.

Fair Value of Financial Instruments

The fair values of the Company’s financial instruments are measured on a recurring basis. The carrying amount reported in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value because of the short-term maturity of those instruments. The carrying amount for borrowings under the Senior Secured Note and the Convertible Notes approximates fair value. The fair value of the warrant and derivative liability was estimated using the Black-Scholes option valuation model. The Company did not have any assets or liabilities categorized as Level 1 or 2 as of October 31, 2012.

The following summarizes the activity of Level 3 inputs measured on a recurring basis for the nine months ended October 31, 2012:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

	Derivative			Warrant			Total
Balance at January 31, 2012	$	653,026		$	120,000		$	773,026
Additions		-			-			-
Exercises		-			-			-
Reclassification (Note 9)		(5,818,149	)		(808,732	)		(6,626,881	)
Adjustment resulting from change in fair value recognized in earnings		5,165,123			688,732			5,853,855
Balance at October 31, 2012	$	-		$	-		$	-