Derivative Liabilities

3 Months Ended

Sep. 30, 2014

Notes to Financial Statements

Note 6 - Derivative Liabilities

As of September 30, 2014 and June 30, 2014, there were 2,823,128 and 2,820,778 outstanding derivative warrants, respectively, with 1,411,564 and 1,410,389 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.

The Company estimated the fair value of the outstanding derivative warrants using a probability-weighted scenario analysis model. As of September 30, 2014 and June 30, 2014, the fair value of the derivative warrants was determined to be $2,283,712 and $2,365,315, respectively resulting in a gain on the change in the fair value of derivative liabilities of $81,603 for the three month period ended September 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 September 30, 2014 and June 30, 2014:

	September 30, 2014			June 30, 2014
Common stock issuable upon exercise of warrants		1,411,564			1,410,389
Exercise price	$	1.10		$0.90 and $1.10
Market price of the Company’s common stock	$	1.70		$	1.75
Risk free interest rate		0.58	%		0.47	%
Dividend yield		0.00	%		0.00	%
Volatility		336.01	%		278.08	%
Expected term	1.23-1.79 years			1.48-2.04 years

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