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7. Derivative liability | 12 Months Ended
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Dec. 31, 2013
Derivative Liability [Abstract] |
7. Derivative liability | In June 2010, the FASB issued authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. Under the authoritative guidance, effective January 1, 2010, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The FASB’s guidance requires the fair value of these liabilities be re-measured at the end of every reporting period. In 2009 and 2010, in connection with certain convertible note offerings, the Company granted an aggregate of 8,522,500 warrants, exercisable at $0.30 per share which contains exercise prices that may fluctuate based on the occurrence of future offerings or events. As a result, these warrants were not considered indexed to the Company’s own stock. The Company characterized the fair value of these warrants as derivative liabilities upon issuance and re-measured every reporting period with the change in value reported in the accompanying statement of operations. During the year ended December 31, 2011, the Company recorded a gain of $2,021,536 due to the change in the fair value of the derivative liability. As of December 31, 2011, a total fair value of the derivative liability amounted to $1,643,139 representing 8,322,500 warrants that are still outstanding. During the year ended December 31, 2012, the Company recorded a loss of $4,023,094 due to the change in the fair value of the derivatives. Furthermore, the Company recognized a gain of $2,445,095 due to the extinguishment of the derivative liabilities resulting from the expiration of 220,000 warrants and exercise of 3,690,000 warrants to shares of common stock. At December 31, 2012, the Company determined the fair value of these derivative liabilities to be $3,221,138 representing 4,412,500 warrants that are still outstanding. From January 1 up to 15, 2013, 4,112,500 warrants were exercised and the remaining 300,000 warrants expired unexercised at which time the warrants had a fair value of $3,441,752, which resulted in a loss of $220,614 due to the change in the fair value of the derivative liability. As a result of the exercise and expiration of these warrants, the Company recorded a gain of $3,441,752 due to the extinguishment of the corresponding derivative liability. The derivative liabilities were valued using a probability weighted average series of Black-Scholes Option Pricing models as a valuation technique, which approximates the Monte Carlo and other binominal valuation techniques with the following assumptions:
|  | Fair Value of Warrants |
|  | January 15, |  |  | December 31, |  |  | December 31, |
|  | 2013 |  |  | 2012 |  |  | 2011 |
Risk-free interest rate |  |  | 0.12% |  |  |  | 0.02% |  |  |  | 0.02% |
Expected volatility |  |  | 92% |  |  |  | 165% |  |  |  | 165% |
Expected life (in years) |  |  | 0.75 - 1.00 |  |  |  | 0.04 |  |  |  | 0.04 |
Expected dividend yield |  |  | 0% |  |  |  | 0% |  |  |  | 0% |
Fair Value: |  |  |  |  |  |  |  |  |  |  |  |
2009 Summer Warrants |  | $ | – |  |  | $ | – |  |  | $ | 332,998 |
2009 Wellfleet Warrants |  |  | – |  |  |  | – |  |  |  | 17,807 |
2009 Fall Warrants |  |  | 3,441,752 |  |  |  | 3,221,138 |  |  |  | 1,292,334 |
Total Fair Value |  | $ | 3,441,752 |  |  | $ | 3,221,138 |  |  | $ | 1,643,139 |
The risk-free interest rate is based on the yield available on U.S. Treasury securities. The Company estimates volatility based on the historical volatility of its common stock. The expected life warrants are based on the expiration date of the related warrants. The expected dividend yield was based on the fact that the Company has not paid dividends to stockholders in the past nor is it expected to pay any dividends in the foreseeable future.

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- Definition Tabular disclosure of derivative liabilities at fair value. + References No definition available. + Details
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