Annual report pursuant to Section 13 and 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS and FAIR VALUE MEASUREMENTS

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DERIVATIVE FINANCIAL INSTRUMENTS and FAIR VALUE MEASUREMENTS
 12 Months Ended
Jun. 30, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
NOTE 12 - DERIVATIVE FINANCIAL INSTRUMENTS and FAIR VALUE MEASUREMENTS
 
Derivative Financial Instruments:
 
The Company applies the provisions of ASC Topic 815-40, Contracts in Entity’s Own Equity (“ASC Topic 815-40”), under which convertible instruments and warrants, which contain terms that protect holders from declines in the stock price (reset provisions), may not be exempt from derivative accounting treatment. As a result, warrants are recorded as a liability and are revalued at fair value at each reporting date. If the fair value of the warrants exceeds the face value of the related debt, the excess is recorded as change in fair value in operations on the issuance date. The Company has 3,000,000 warrants with repricing options outstanding at June 30, 2014.
 
The Company calculates the estimated fair values of the liabilities for warrant derivative instruments using the Black Scholes (BSM) option pricing model. The closing price of the Company’s common stock at September 30, 2013 was $0.20, while the closing price of the Company’s common stock at June 30, 2014 was $0.09. Volatility, expected term and risk free interest rates used to estimate the fair value of derivative liabilities at June 30, 2014, are indicated in the table that follows. The volatility was based on comparative company’s methods since the Company’s stock is very thinly traded, the expected term is equal to the remaining term of the warrants and the risk free rate is based upon rates for treasury securities with the same term.
 
Warrants
 
 
 
Initial Valuation
September 30,
2013
 
 
June 30,
2014
 
Volatility
 
53
%
 
134
%
Expected Term
 
2.25
 
 
1.5
 
Risk Free Interest Rate
 
0.4
%
 
0.47
%
Expected dividend yield
 
none
 
 
none
 
 
Fair Value Measurements:
 
We currently measure and report at fair value the liability for warrant derivative instruments. The fair value liabilities for price adjustable warrants have been recorded as determined utilizing the BSM option pricing model. The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2014:
 
 
 
 
 
Quoted Prices
 
Significant
 
 
 
 
 
Balance at
 
in Active
 
Other
 
Significant
 
 
 
June 30,
 
Markets for
 
Observable
 
Unobservable
 
 
 
2014
 
Identical Assets
 
Inputs
 
Inputs
 
 
 
 
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
 
 
 
 
 
 
 
 
 
 
Fair value of liability for warrant derivative instruments
 
$
158,244
 
$
—
 
$
—
 
$
158,244
 
 
The following is a roll forward for the year ended June 30, 2014 of the fair value liability of price adjustable warrant derivative instruments:
 
 
 
Fair Value of
 
 
 
Liability for
 
 
 
Warrant
 
 
 
Derivative
 
 
 
Instruments
 
 
 
 
 
Balance at June 30, 2013
 
$
-
 
Initial fair value recording of warrant derivative liability as debt discount
 
 
144,241
 
Effects of foreign currency exchange rate changes
 
 
(2,519)
 
Change in fair value included in statements of operations
 
 
16,522
 
Balance at June 30, 2014
 
$
158,244