NOTE 10 —WARRANTS

The warrants issued in connection with the June 2011 private placement of the Company’s Series A Preferred Stock (the “2011 Warrants”) have an exercise price of $0.38 per share, subject to adjustment, and are exercisable for a period of five years. The exercise price of the 2011 Warrants is equal to 125% of the conversion price of the Series A Preferred Stock.

The Company accounted for the 2011 Warrants issued in June 2011 in the consolidated financial statements as a liability at their initial fair value of $487,022 and accounted for the 2011 Warrants issued in October 2011 as a liability at their initial fair value of $780,972. Changes in the fair value of the 2011 Warrants will be recognized in earnings for each subsequent reporting period. At June 30 and March 31, 2013, the fair value of the 2011 Warrants was included in the balance sheet under the caption Warrant liability of $1,242,625 and $795,374, respectively. For the three months ended June 30, 2013 and 2012, the Company recorded a charge for the change in the value of the 2011 Warrants of ($447,251) and ($91,328), respectively.

The fair value of the warrants is a Level 3 fair value under the valuation hierarchy and was estimated using the Black-Scholes option pricing model utilizing the following assumptions:

	June 30, 2013			March 31, 2013
Risk-free interest rate		0.66	%		0.36	%
Expected option life in years		3.00			3.25
Expected stock price volatility		40	%		40	%
Expected dividend yield		0	%		0	%