8.	RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

(a)

Fair value

The carrying values of cash, accounts payable and accruals and promissory note payable approximate their fair values due to the short-term maturity of these financial instruments.

The convertible debenture was recognized initially at fair value and, thereafter, has been accounted for at amortized cost. The derivative financial liability is carried at fair value, and any gains or losses thereon are recognized in the consolidated statement of operations.

(b)

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company's financial asset that is exposed to credit risk consists of cash, which is placed with US and Canadian financial institutions.

Concentration of credit risk exists with respect to the Company's cash as certain amounts are held at US and Canadian financial institutions. The maximum exposure is as follows:

	2012		2011

Cash (US institution) – Non-FDIC insured	$	160,188	$	49,624
Cash (CDN institution)		11,985		11,741

	$	172,173	$	61,365

(c)

Interest rate risk

The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary current assets and current liabilities. The Company is exposed to interest rate price risk to the extent that market interest rates differ from the fixed rate of interest of its convertible debenture (note 5) and promissory note (note 6). In 2012, a 0.38% change would have a $1,000 (2010 - $nil) impact on the Company's net loss and comprehensive loss.

(d)

Currency risk

The Company translates the results of non-US transactions into US dollars using rates of exchange on the date of the transaction. The exchange rate varies from time to time. This risk is considered nominal as the Company does not incur significant transactions in currencies other than US dollars.

(e)

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due. The Company's approach to managing liquidity risk is to provide reasonable assurance that it will have sufficient funds to meet liabilities when due. The Company manages its liquidity risk by forecasting cash flows required for operations and anticipated investing and financing activities.

At June 30, 2012 the Company's cash totalled $172,173 (2011 - $61,365), accounts payable and accruals of $2,032,309 (2011 - $775,747), a convertible debenture of $93,356 (2011 - $nil) and a promissory note payable of $123,696 (2011 - $nil). The accounts payable are due in the first fiscal quarter of 2013. The convertible debenture is payable in common shares of the entity and due during the third fiscal quarter of 2013. The promissory note payable is due December 30, 2012.

The Company requires significant additional funding to meet its administrative overhead costs and maintain its research and development program in fiscal 2013.

Financing transactions may include the issuance of equity securities, obtaining additional credit facilities or other financing mechanisms. However, the trading price of the Company's common stock and the downturn in the United States stock markets could make it more difficult to obtain financing.

(f)

Classification of financial instruments

At June 30, 2012, the Company's financial instruments measured at fair value on a recurring basis are cash classified as a "Level 1" financial instrument and derivative financial instrument classified as a "Level 3" financial instrument.