DERIVATIVE LIABILITY

9 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

10.           DERIVATIVE LIABILITIES

In April 2008, the FASB issued ASC 815 which provides guidance on determining what types of instruments or embedded features in an instrument held by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. This pronouncement was effective for financial statements issued for fiscal years beginning after December 15, 2008. The adoption of these requirements can affect the accounting for warrants and many convertible instruments with provisions that protect holders from a decline in the stock price (or “down-round” provisions). For example, warrants with such provisions will no longer be recorded in equity. Down-round provisions reduce the exercise price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or convertible instruments that have a lower exercise price. We evaluated whether warrants to acquire stock of the Company contain provisions that protect holders from declines in the stock price or otherwise could result in modification of the exercise price under the respective warrant agreements. We determined that the warrant issued to Nordic in April 2008 (the “Nordic Warrant”), contained such provisions, thereby concluding it was not indexed to the Company’s own stock and was reclassified from equity to derivative liabilities. 

In accordance with ASC 815, the Company estimated the fair value of the Nordic Warrant as of January 1, 2009 to be $22,222 by recording a reduction in additional paid-in capital of $150,000 and a decrease in deficit accumulated during the development stage of $127,778. The effect of this adjustment was recorded as a cumulative effect of change in accounting principle in our statements of stockholders’ equity (deficiency).

We also determined that the Convertible 12% Note Payable issued in 2009, the warrants issued in connection with the Convertible 12% Note Payable, the warrants issued in connection with the 2010 Equity Financing and the amended warrants associated with the Secured 12% Notes contained such provisions and therefore are derivatives.  We determined the fair value based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 815.  The fair values of these derivatives are as follows:

	December 31, 2010		Purchases, sales,  issuances and  settlements			Change in Fair Value During Nine  Months Ended September 30, 2011			September 30, 2011
Nordic Warrant	$	71,429	$	(71,429	)	$	-		$	-
Warrants issued with Convertible 12% Notes		15,644		-			(1,125	)		14,519
Warrants issued in 2010 Equity Financing		447,773		-			(106,012	)		341,761
Amended warrants associated with the 12% Secured Notes		-		115,000			67,550			182,550
Total	$	534,846	$	43,571		$	(39,587	)	$	538,830

In accordance with ASC 815, the fair values of these derivatives were recorded in the accompanying condensed consolidated balance sheets as of September 30, 2011 and December 31, 2010, as a component of a current liability, derivative liability.  The changes in fair value during the nine months ended September 30, 2011 and 2010 were $(39,587) and $(2,696,900), respectively and are reported as a non-cash charge in the accompanying condensed consolidated statements of operations as a component of other (income) expense.