Warrants

In connection with the credit agreement guarantees, on July 30, 2014, the Company issued to the guarantors warrants to purchase an aggregate of 800,000 shares of common stock of the Company at $3.15 per share, which is in excess of the closing market price on July 30, 2014. The warrants vest immediately and are exercisable any time prior to their expiration on October 30, 2019.

These stock warrants issued by the Company are considered equity-linked financial instruments that contain a strike price adjustment feature. As a result of this feature, we calculated the fair value of the warrants using the Monte Carlo valuation model. As of the warrant issue date of July 30, 2014, the fair value established was $2.11 per share representing a long term warrant liability and a corresponding deferred financing costs of $1.7 million, respectively. The deferred financing costs are being amortized over the life of the guarantee due to expire on June 1, 2016. During the quarter ended September 30, 2014 we recorded unrealized gains on the warrant liability of approximately $130,000 related to the change in fair value of the warrants and amortized deferred financing cost of approximately $154,000.

The assumptions used in the Monte Carlo valuation model were as follows:



	September 30, 2014			July 30, 2014
Stock price	$	2.95		$	3.14
Volatility	60.4		%	61.5		%
Risk-free interest rate	1.80		%	1.83		%
Exercise price	3.15			3.15
Expected life (years)	5.08			5.25
Number of warrants	800,000			800,000
Common shares per warrant	1.0			1.0