v2.3.0.15
DERIVATIVE INSTRUMENTS:
9 Months Ended
Sep. 30, 2011
DERIVATIVE INSTRUMENTS:
9.  DERIVATIVE INSTRUMENTS:

The Company generally uses the Black-Scholes pricing model to estimate the fair values of its derivative instruments.  Derivative instruments consist of variable conversion features from debt to common equity and variable exercise prices for warrants.  As of September 30, 2011, the Company used the following inputs in this model as appropriate for each derivative instrument:  no dividend yield, an expected volatility ranging from 130% to 279%, a risk-free interest rate ranging from 0.03% to 1.43%, and an expected life ranging from 0.38 to 5.80 years, the closing price of the Company’s common stock of $0.10 per share, and a conversion price or an exercise price ranging from $0.10 to $200.  At dates of issuance, the Company used input values as of such date.  A summary of the fair values of the Company’s derivative instruments based on this model as of September 30, 2011, respective issuance dates and as of December 31, 2010 is as follows:

   
September 30,
    
At 2011
    
December 31,
    
At 2010
  
   
2011
    
Grant Date
    
2010
    
Grant Date
  
Conversion features:
                        
Lender 1 - $150,000 note
   $ 78,542     $ 102,255     $ -     $ -  
First quarter 2010 issuance
     101,343       -       301,955       940,593  
Second quarter 2010 issuance
     85,241       -       141,522       281,251  
Third quarter 2010 issuance
     59,387       -       126,095       271,894  
Total conversion features
     324,513       102,255       569,572       1,493,738  
Warrants:
                                
First quarter 2010 issuance
     9,991       -       87,958       311,488  
Second quarter 2010 issuance
     3,743       -       32,988       93,746  
Third quarter 2010 issuance
     2,495       -       21,994       54,997  
2007 debentures - penalty warrants
     1,028       1,250       10,810       9,787  
Total warrants
     17,257       1,250       153,750       470,018  
Dilution warrants:
                                
May 4, 2011 issuance
     103,980       187,416       -       -  
March 31, 2011 issuance
     155,970       624,835       -       -  
March 4, 2011 issuance
     5,152       42,309       -       -  
September 16, 2010 issuance
     22,784       -       200,702       410,592  
November 16, 2010 issuance
     7,850       -       69,122       72,274  
Total anti-dilution warrants
     295,736       854,560       269,824       482,866  
Commitments to issue common shares in excess of amount authorized
     -       -       125,377    
various
  
    $ 637,506     $ 958,065     $ 1,118,523     $ 2,446,622  

Effective May 13, 2010, the Company committed to issue more common shares than authorized by its Articles of Incorporation.  Pursuant to ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, the Company’s policy with regard to settling outstanding financial instruments is to settle those with the latest maturity date first, which essentially sets the order of preference for settling the financial instruments.  Therefore, on May 13, 2010, the Company reclassified warrants to purchase common shares and recognized contracts to be settled with common stock from additional paid in capital to derivative liabilities.  Subsequent to May 13, 2010 through February 11, 2011, the Company committed to issue additional shares and warrants above the amount authorized. On December 31, 2010, the fair value of derivative liabilities for contracts to be settled with the Company’s common shares in excess of common share capital authorized aggregated $125,377.  On February 11, 2011, the Company increased the number of authorized shares of its common stock from 2,500,000,000 to 5,000,000,000, and accordingly wrote-off the remaining value of the derivative liability to its consolidated statement of operations.