v2.3.0.15
DERIVATIVE INSTRUMENTS:
6 Months Ended12 Months Ended
Jun. 30, 2011
Dec. 31, 2010
DERIVATIVE INSTRUMENTS:
10.  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 June 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 0.10% to 2.61%, and an expected life ranging from 0.63 to 6.05 years, the closing price of the Company’s common stock of $0.38 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 June 30, 2011, respective issuance dates and as of December 31, 2010 is as follows:
 
   
June 30,
    
At 2011
    
December 31,
  
   
2011
    
Grant Date
    
2010
  
Conversion features:
                  
First quarter 2010 issuance
   $ 839,624     $ -     $ 301,955  
Second quarter 2010 issuance
     450,340       -       141,522  
Third quarter 2010 issuance
     310,788       -       126,095  
Total conversion features
     1,600,752       -       569,572  
                         
Warrants:
                        
First quarter 2010 issuance
     37,983       -       87,958  
Second quarter 2010 issuance
     14,246       -       32,988  
Third quarter 2010 issuance
     9,497       -       21,994  
2007 debentures - penalty warrants
     4,871       1,084       10,810  
Total warrants
     66,597       1,084       153,750  
                         
Dilution warrants:
                        
May 4, 2011 issuance
     395,697       187,416       -  
March 31, 2011 issuance
     593,545       624,835       -  
March 4, 2011 issuance
     19,607       42,309       -  
September 16, 2010 issuance
     86,658       -       200,702  
November 16, 2010 issuance
     29,856       -       69,122  
Total anti-dilution warrants
     1,125,363       854,560       269,824  
Commitments to issue common shares in excess of amount authorized
     -       -       125,377  
    $ 2,792,712     $ 855,644     $ 1,118,523  
 
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.
10.  DERIVATIVE INSTRUMENTS:

The Company generally uses the Black-Scholes pricing model to estimate the fair values of its derivative instruments.  As of December 31, 2010, the Company used the following inputs in this model as appropriate for each derivative instrument:  no dividend yield, an expected volatility ranging from 111% to 318%, a risk-free interest rate ranging from 0.29% to 2.71%, and an expected life ranging from 1.13 to 6.55 years, the closing price of the Company’s common stock at December 31, 2010 of $0.0044 per share, and a conversion price or an exercise price ranging from $0.0033 to $0.004.  A summary of the fair values of the Company’s derivative instruments based on this model as of December 31, 2010, the 2010 grant date for such derivative instruments and December 31, 2009, is as follows:

         
2010
        
   
2010
    
Grant Date
    
2009
  
Conversion features:
                  
First quarter 2010 issuance
   $ 301,955     $ 940,593     $ -  
Second quarter 2010 issuance
     141,522       281,251       -  
Third quarter 2010 issuance
     126,095       271,894       -  
Total conversion features
     569,572       1,493,738       -  
Warrants:
                        
First quarter 2010 issuance
     87,958       311,488       -  
Second quarter 2010 issuance
     32,988       93,746       -  
Third quarter 2010 issuance
     21,994       54,997       -  
2007 debentures - penalty warrants
     10,810       9,787       21,124  
Total warrants
     153,750       470,018       21,124  
Dilution warrants:
                        
September 16, 2010 issuance
     200,702       410,592       -  
November 16, 2010 issuance
     69,122       72,274       -  
Total anti-dilution warrants
     269,824       482,866       -  
    $ 993,146     $ 2,446,622     $ 21,124  

Effective May 13, 2010, the Company committed to issue more common shares than authorized by its Article of Incorporation.  If the Company would have been required to settle all of its outstanding warrants and liabilities (including contingent liabilities to be settled with equity not previously recorded) with common shares as of May 13, 2010, the Company would have been required to issue up to 377,460,076 common shares over its authorized amount of 2,500,000,000 common shares, assuming all targets and contingencies were met, representing 1,200,000 shares for the settlement of warrants and 376,260,076 shares for the settlement of liabilities including contingent liabilities not previously recorded (of which all but 26,978,022 shares have been recorded as liabilities).  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 1,200,000 common shares with a fair value of $3,862 and recognized contracts to be settled with common stock (previously considered contingent liabilities not meeting recognition criteria) for 26,978,022 shares with a fair value of $337,225, from additional paid in capital to derivative liabilities.  Subsequent to May 13, 2010 through December 31, 2010, the Company committed to issue an additional 507,712,302 shares and warrants above the amount authorized of which all but 2,240,657 had been recorded as liabilities.  The fair value of the 2,240,657 shares on the day the Company committed to issue the additional shares was $15,719 (shares prior to our 200-to-1 reverse split).
 
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. As of December 31, 2010, if the Company would be required to settle all of its outstanding warrants and liabilities (including contingent liabilities to be settled with equity) with common shares, the Company would be required to issue up to 885,172,378 common shares beyond the amount authorized as of December 31, 2010 of 2,500,000,000 common shares.  As of December 31, 2010, liabilities and derivative liabilities have been recorded for all 885,172,378 shares.  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.