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v2.4.0.6
DERIVATIVE FINANCIAL INSTRUMENTS
12 Months Ended
Dec. 31, 2011
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS

7.  DERIVATIVE FINANCIAL INSTRUMENTS

 

In October 2010, in connection with a subscription agreement, the Company issued 2,231,250 warrants to an investor (see Note 11).  The warrants have a term of three years.  Per the terms of the subscription agreement, in the event the Company, at any time while all or any portion of these warrants is outstanding, sells any shares of common stock per share, or issue common stock equivalents at a conversion price, less than the warrant exercise price, the warrant price will be adjusted accordingly.  In accordance with the provisions of ASC 815-40, these warrants are subject to derivative accounting treatment under ASC 815-10 and are recorded as a liability which is revalued at fair value each reporting date.  Any change in fair value was recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date.  The Company reassesses the classification at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. The Company uses the Black-Scholes valuation method to value the derivative instruments at inception and on subsequent valuation dates, which approximates the fair value measured using Binomial Lattice Model.  Weighted average assumptions used to estimate fair values are as follows:

 

 

 

Issuance

 

December 31, 2011

 

December 31, 2010

Expected volatility

 

100%

 

150%

 

100%

Risk free interest rate

 

0.73% to 1.03%

 

0.25%

 

0.73% to 1.03%

Expected life (years)

 

3

 

1.88

 

3

 

For the years ended December 31, 2011 and 2010, the Company recognized a change in derivative liability of $564,100 and $0 in other expense related to the warrant derivative instruments.