Derivative Liabilities

12 Months Ended

Jun. 30, 2014

Notes to Financial Statements

Note 6 - Derivative Liabilities

As of February 7, 2014 and June 30, 2014, there were 2,965,705 and 2,810,599 (post 1 for 100 Reverse Split) outstanding derivative warrants, respectively with 1,482,852 and 1,405,299 common shares issuable upon exercise, respectively. The warrants qualify as derivative liabilities due to the existence of reset provisions which cause the instruments to no longer be indexed to the Company’s own stock under FASB ASC 815.  These figures have been reflected at the post 1 for 100 Reverse Split figures.

As of February 7, 2014 and June 30, 2014, the Company estimated the fair value of the outstanding derivative warrants using a probability-weighted scenario analysis model. As February 7, 2014 and June 30, 2014, the fair value of the derivative warrants was determined to be $1,150,455 and $2,365,315, respectively resulting in a loss on the change in the fair value of derivative liabilities of $1,214,860 for the year ended June 30, 2014.

The following is a summary of the key assumptions used in the probability-weighted scenario analysis model to estimate the fair value of the warrants as of February 7, 2014 and June 30, 2014:

	February 7, 2014		June 30, 2014
Common stock issuable upon exercise of warrants		1,482,852		1,410,389
Exercise price		$3.00	$0.90 and $1.10
Market price of the Company’s common stock		$0.79		$1.75
Risk free interest rate		0.34% - 0.69%		0.47%
Dividend yield		0.00%		0.00%
Volatility		365.22% - 381.90%		278.08%
Expected term	1.89-3.12 years		1.48-2.04 years

See Note 7 for fair value hierarchy of the derivative liabilities.