9.	Fair Value Measurements

We follow FASB ASC 820, "Fair Value Measurements and Disclosures" (“ASC 820”), in connection with assets and liabilities measured at fair value on a recurring basis subsequent to initial recognition. The guidance applies to our derivative liabilities. We had no assets or liabilities measured at fair value on a non-recurring basis for any period reported.

ASC 820 requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories. We measure the fair value of applicable financial and non-financial assets based on the following fair value hierarchy:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The hierarchy noted above requires us to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value.

The fair value of our recorded derivative liabilities is determined based on unobservable inputs that are not corroborated by market data, which is a Level 3 classification. We record derivative liabilities on our balance sheet at fair value with changes in fair value recorded in our consolidated statements of operations.

The table below sets forth a summary of changes in the fair value of our Level 3 financial instruments for the nine months ended October 31, 2014 (in thousands):

			Change in estimated			Change in estimated
			fair value recognized			fair value recognized
	February 1,		in results of			in equity due to			October 31,
Description	2014		operations			replacement			2014

Broadwood warrants	$	2,426	$	(132	)	$	(2,294	)	$	-
Elkhorn conversion features		94		(94	)		-			-
	$	2,520	$	(226	)	$	(2,294	)	$	-

On August 13, 2014, the Company entered into an Amendment and Release Agreement that canceled of the Broadwood warrants. The derivative liability associated with the Broadwood warrants was reversed on the cancellation date.The replacement warrants qualified for classification as equity and added to additional paid – in capital.

On June 3, 2014, the Company repaid the Elkhorn Loan in full and as a result, the discount to the loan payable and related derivative liability were extinguished and charged to earnings.

The table below sets forth a summary of changes in the fair value of our Level 3 financial instruments for the nine months ended October 31, 2013 (in thousands):

	February 1, 2013		Recorded New Derivative Liabilities		Change in estimated fair value recognized in results of operations			October 31, 2013

Derivative liabilities	$	2,466	$	624	$	(271	)	$	2,819