Annual report pursuant to section 13 and 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
 12 Months Ended
Jun. 30, 2013
FAIR VALUE MEASUREMENTS [Abstract]  
FAIR VALUE MEASUREMENTS
NOTE 9  – FAIR VALUE MEASUREMENTS

The Company adopted  ASC 820, Fair Value Measurements and Disclosures, for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. FASB ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  FASB ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.

FASB ASC 820 also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. FASB ASC 820 establishes and prioritizes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Inputs that are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2013
 
 
  
   
2013
    
   
   
2012
    
 
 
  
Carrying
    
   
   
Carrying
    
   
 
 
  
Value
    
Level 1
    
Level 2
    
Value
    
Level 1
    
Level 2
  
Financial Liabilities
  
   
   
   
   
   
 
Convertible notes payable (2)
  
$
7,831,785
      
-
    
$
7,757,621
    
$
7,155,493
      
-
    
$
6,985,595
  
Total financial liabilities
  
$
7,831,785
      
-
    
$
7,757,621
    
$
7,155,493
      
-
    
$
6,985,595
  
 
(1) Cash Equivalents
 
      The Company's cash equivalents include short-term investments, which are money market funds. Since these are short-term highly liquid investments with original maturities of three months or less at the date of purchase, they present negligible risk of changes in value due to changes in interest rates. These short-term investments are recorded at fair value on the Company's balance sheet based on quoted market prices and observable market inputs.
 
(2) Convertible Notes Payable
 
         As fully described in Note 8, the Company's convertible notes payable are long-term debts with fixed interest rates and the conversion rates at market at the time the funds were received.  In addition, most of these notes are collateralized by the Company's assets and revenues. Further, the debt holders are major shareholders and an officer. The Company estimates the fair value of the convertible notes for disclosure purposes by discounting the future cash flows using rates of debts that management believes are similar in terms and maturity.  The Company's short-term convertible note payable is approximate market value.