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.

Due to the down-round financing provisions included in the terms of the warrant, 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 are recognized in earnings for each subsequent reporting period. At September 30 and March 31, 2013, the fair value of the 2011 Warrants was included in the balance sheet under the caption Warrant liability of $4,761,789 and $795,374, respectively. For the three months ended September 30, 2013 the Company recorded a loss on the change in the value of the 2011 Warrants of $3,352,252; for the three months ended September 30, 2012, the Company recorded a gain on the change in the value of the 2011 Warrants of $162,607. For the six months ended September 30, 2013 the Company recorded a loss on the change in the value of the 2011 Warrants of $3,799,503; for the six months ended September 30, 2012, the Company recorded a gain on the change in the value of the 2011 Warrants of $71,279.

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:

	September 30, 2013			March 31, 2013
Stock price	$	0.76		$	0.31
Risk-free interest rate		0.63	%		0.36	%
Expected option life in years		2.75			3.25
Expected stock price volatility		51	%		40	%
Expected dividend yield		0	%		0	%

2011 Warrants exercised – In the six months ended September 30, 2013, holders of 2011 Warrants exercised 778,948 2011 Warrants and received shares of common stock. The Company received $296,015 in cash upon the exercise of these warrants.