XML 50 R19.htm IDEA: XBRL DOCUMENT

Derivative Financial Instruments

3 Months Ended

Sep. 30, 2012

13. Derivative Financial Instruments

The Company accounted for the June 2012 Warrants issued to investors under the June 11, 2012 Securities Purchase Agreement (see Note 12 above) in accordance with ASC 815-10, Derivatives and Hedging (ASC 815-10). ASC 815-10 provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. This applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative under ASC 815-10, including any freestanding financial instrument that is potentially settled in an entity’s own stock.

Due to certain adjustments that may be made to the exercise price of the June 2012 Warrants, if the Company issues or sell shares of its common stock at a price which is less than the then current warrant exercise price, the June 2012 Warrants have been classified as a liability as opposed to equity in accordance with ASC 815-10 as it was determined that the June 2012 Warrants were not indexed to the Company’s stock. As a result, the fair value of the June 2012 Warrants were remeasured on September 30, 2012 and will be remeasured at each subsequent financial reporting period. The change in fair value of the

June 2012 Warrants is recorded in the statement of operations and comprehensive income and is estimated using the Lattice option-pricing model using the following assumptions:

Inputs into Lattice model for warrants:	September 30, 2012
Equivalent Volatility		96.92	%
Equivalent Interest Rate		0.33	%
Estimated stock price	$	0.8039
Floor	$	1.1500
Greater of estimated stock price or floor	$	1.1500
Probability price < Strike		84.41	%
FV of put	$	1.0767
Probability of Fundamental Transaction occuring		5	%

All warrants issued by the Company other than the above noted June 2012 Warrants are classified as equity.

The warrant liabilities are considered a recurring Level 3 fair value measurement, with a fair value of $991,512 at September 30, 2012. The following table summarizes the activity of Level 3 inputs measured on a recurring basis for the quarter ended September 30, 2012:

	September 30, 2012
	Warrant Liability
July 1, 2012		1,087,296
Change in fair value of warrant liability		(95,784	)
September 30, 2012		991,512

- Definition

Disclosure of accounting policy for derivatives entered into for trading purposes and those entered into for purposes other than trading including where and when derivative financial instruments and derivative commodity instruments and their related gains or losses are reported in the entity's statements of financial position, cash flows, and results of operations.

+ References+ Details