Fair Value of Financial Instruments

3 Months Ended

Apr. 30, 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 April 30, 2012.

The carrying amounts and fair values of the Company's financial instruments are presented below as of April 30, 2012:

	Carrying Amount			Fair Value (a)
Level 3 Liabilities
Derivative liability	$		(a)	$	544,188
Warrant liability			(a)		105,000
	$	89,454		$	649,188
(a) No cost is associated with these liabilities (see Note 9)

The following summarizes the activity of Level 3 inputs measured on a recurring basis for the three months ended April 30, 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		-			-			-
Adjustment resulting from change in fair value recognized in earnings (1)		(108,838	)		(15,000	)		(123,838	)
Balance at April 30, 2012	$	544,188		$	105,000		$	649,188

(1) The amount of total gains or losses for the period attributable to the change in unrealized gains or losses relating to liabilities held at the reporting date. The unrealized gain is recorded in unrealized gain on change in fair value of warrant and derivative liabilities in the accompanying condensed and consolidated statement of operations.