Financing

12 Months Ended

Dec. 31, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 4 – Financing

At December 31, 2011, our financing transactions with YA Global, an accredited investor, included shares of our Series C preferred stock issued in February 2006, Series D preferred stock issued in January 2010, a series of thirty secured convertible debentures issued between August 2006 and December 2011 and various warrants to purchase shares of our common stock. All of our assets are pledged to secure our obligations under these securities. At various times, YA Global has assigned or distributed portions of its holdings of these securities to other holders, including persons who are officers of YA Global and its related entities, as well as to other holders who are investors in YA Global’s funds.

Secured Debentures - The underlying agreements for each of the thirty debentures are essentially the same, except in regard to the interest rate, varying conversion prices per share, and the number of warrants that were issued in conjunction with each of the debentures. The debentures are convertible into our common stock, at the option of the holder, at the lower of a fixed conversion price per share or a percentage of the lowest volume-weighted average price (“VWAP”) for a specified number of days prior to the conversion (the “look-back period”). The conversion is limited such that the holder cannot exceed 9.99% ownership, unless the holder waives their right to such limitation. All of the debentures are secured according to the terms of a Security Pledge Agreement dated August 23, 2006, which was entered into in connection with the first convertible debenture issued to YA Global and which provides YA Global with a security interest in substantially all of our assets.  The debentures are also secured by a Patent Security Agreement dated July 29, 2008. On August 13, 2010, our wholly owned subsidiary, NeoMedia Europe GmbH, became a guarantor of all outstanding financing transactions between us and YA Global, through pledges of their intellectual property and other movable assets. As security for our obligations to YA Global, all of our Pledged Property, Patent Collateral and other collateral is affirmed through the several successive Ratification Agreements which have been executed in connection with each of the 2010 and 2011 financings.

All debentures with YA Global contain provisions for acceleration of principal and interest upon default. Certain debentures also contain default interest rates and conversion prices, as reflected in the table below.

We evaluated the financing transactions in accordance with FASB ASC 815, Derivatives and Hedging, and determined that the conversion features of the Series C and Series D preferred stock, and the Debentures were not afforded the exemption for conventional convertible instruments due to their variable conversion rates. The contracts have no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification. Accordingly, either the embedded derivative instruments, including the conversion option, must be bifurcated and accounted for as derivative instrument liabilities or, as permitted by FASB ASC 815-15-25-4, Recognition of Embedded Derivatives, the instruments may be carried in their entirety at fair value. We elected not to bifurcate the embedded derivatives in the March 2007, August 2007, April 2008 and May 2008 Debentures and, accordingly, these convertible instruments are being carried in their entirety at their fair values, with the changes in the fair value of the debentures charged or credited to income each period. We bifurcated the embedded derivatives related to the Series C and Series D preferred stock and the remaining debentures. Significant features included in each compound derivative include (i) the embedded conversion feature, (ii) down-round anti-dilution protection features, and (iii) default, non-delivery and buy-in puts, all of which were combined into one compound instrument that is carried at fair value as a derivative liability. Changes in the fair value of the compound derivative liability, including the embedded conversion option, are charged or credited to income each period.

The table below summarizes the significant terms of each debentures that are carried at their amortized cost and for which the compound embedded derivative is bifurcated and accounted for as a derivative liability as of December 31, 2011:

										Conversion Price – Lower of Fixed Price or Percentage of  VWAP for Look-back Period
							Default					Anti-Dilution
Debenture		Face		Interest			Interest			Fixed		Adjusted					Default			Look-Back
Issuance Year		Amount		Rate			Rate			Price		Price		%			%			Period
		(in thousands)
2006		$	7,061		10	%		n/a		$	2.00	$	0.00945		90	%		n/a			125 Days
2008			4,788		14%- 15	%		20%-24	%	$	1.00-$2.00	$	0.00840-$0.00998		80%-95	%		50%-75	%		125 Days
2009			1,983		15	%		20	%	$	2.00	$	0.00998		95	%		50	%		125 Days
2010			3,881		14	%		20	%	$	0.10- $0.30	$	0.00998		95	%		50	%		60 Days
2011			4,725		14	%		20	%	$	0.10	$	0.00998		95	%		50	%		60 Days
	Total	$	22,438

The following table summarizes the significant terms of each of the debentures and for which the entire hybrid instrument is recorded at fair value as of December 31, 2011:

					Conversion Price – Lower of Fixed Price or Percentage of  VWAP for Look-back Period
				Default		Anti-Dilution
Debenture	Face		Interest	Interest	Fixed	Adjusted			Default	Look-Back
Issuance Year	Amount		Rate	Rate	Price	Price		%	%	Period
	(in thousands)
2007	7,682		13%-14%	n/a	$2.00	$	0.0084- $0.00945	80%-90%	n/a	125 days
2008	1,680		15%	24%	$1.00- $1.50	$	0.00840	80%	50%-75%	125 days
Total	$	9,362

Conversions –Our preferred stock and convertible debentures are convertible into shares of our common stock. Upon conversion of any of the convertible financial instruments, the carrying amount of the debt, including any unamortized premium or discount, and the related derivative instrument liability are credited to the capital accounts upon conversion to reflect the stock issued and no gain or loss is recognized.

The following table provides a summary of the preferred stock conversions that have occurred since inception and the number of common shares issued upon conversion.

			Preferred		Preferred		Common
	Preferred shares		shares		shares		shares
	issued		converted		remaining		issued
	(in thousands)
Series C preferred stock		22		17		5		239,213
Series D preferred stock		25		11		14		102,705

The outstanding principal and accrued interest for the debentures as of December 31, 2011 is reflected in the following table in addition to the principal and interest converted since inception and the number of common shares issued upon conversion.

	Outstanding		Principal and
	principal and		accrued interest		Common
	accrued interest at		converted since		shares
	December 31, 2011		inception		issued
			(in thousands)
Debentures	$	39,458	$	2,100	184,988

Extinguishment loss - On January 5, 2010, the terms of all of the debentures issued prior to that date were modified to increase the look-back period used to calculate the variable conversion price per share for all debentures to a period of 125 days and to extend the stated maturity date to July 29, 2012, which increased our future anticipated cash flows related to those instruments.  Because that increase exceeded the threshold prescribed by FASB ASC 470-50, Debt Modifications and Extinguishments, the modification of the amounts due under these instruments was accounted for as an extinguishment. Accordingly, the original convertible debentures were considered extinguished and the revised convertible debentures were recorded at their fair value, resulting in an extinguishment loss of approximately $5.6 million.

Warrants - YA Global holds warrants to purchase shares of our common stock that were issued in connection with the convertible debentures and the Series C and Series D preferred stock. The warrants are exercisable at a fixed exercise price which, from time to time, has been reduced due to anti-dilution provisions when the Company has entered into subsequent financing arrangements with a lower price. The exercise prices may be reset again in the future if we subsequently issue stock or enter into a financing arrangement with a lower price. In addition, upon each adjustment in the exercise price, the number of warrant shares issuable is adjusted to the number of shares determined by multiplying the warrant exercise price in effect prior to the adjustment by the number of warrant shares issuable prior to the adjustment divided by the warrant exercise resulting from the adjustment.

The warrants issued to YA Global do not meet all of the established criteria for equity classification in FASB ASC 815-40, Derivatives and Hedging – Contracts in Entity’s Own Equity, and accordingly, are recorded as derivative liabilities at fair value. Changes in the fair value of the warrants are charged or credited to income each period.

2011 Financing Transactions – During 2011 we entered into nine Securities Purchase Agreements to issue and sell eleven debentures to YA Global in the aggregate principal amount of $4,725,000. The debentures are convertible, at the option of the holder, at a conversion price equal to the lesser of (i) $0.10 or (ii) 95% of the lowest closing bid price of our common stock for the 60 trading days preceding the date of conversion. The debentures bear interest at 14% and mature on July 29, 2012. We have the right to redeem a portion or all amounts outstanding under the debentures at a redemption premium of 10%, plus accrued interest.  We also issued warrants to YA Global in conjunction with the debentures. The warrants were issued with an initial fixed exercise price ranging from $0.10- $0.15 per share; however, as a result of the anti-dilution protection in these warrants, the issuance of subsequent debentures for a lower price resets the fixed exercise price of the warrants to the lower price and adjusts the number of warrant shares issuable. All warrants issued during 2011 have a term of five years. 

The following table provides a summary of the allocation of the components of the new debentures and warrants issued during 2011. The compound derivatives were valued using a Monte Carlo Simulation valuation method and the warrants were valued using a binomial option valuation method. Significant assumptions used to value the compound derivatives and warrants as of inception of the financings are also provided in the table below.

	January 10,			February 8,			March 11,			April 13,			May 31,			June 28,			July 13,
	2011			2011			2011			2011			2011			2011			2011
	issuance			issuance			issuance			issuance			issuance			issuance			issuance
	(in thousands)
Gross proceeds	$	450		$	650		$	450		$	450		$	450		$	250		$	450
Structuring and due diligence fee		(25	)		(40	)		(25	)		(25	)		(25	)		(25	)		(37	)
	$	425		$	610		$	425		$	425		$	425		$	225		$	413
Derivative liabilities:
Investor warrants	$	(144	)	$	(59	)	$	(39	)	$	(18	)	$	(90	)	$	(105	)	$	-
Compound derivative		(573	)		(744	)		(677	)		(284	)		(310	)		(525	)		(1,242	)
Total derivative liabilities		(717	)		(803	)		(716	)		(302	)		(400	)		(630	)		(1,242	)
Day one derivative loss		292			193			291			-			-			405			829
Convertible debenture-initial carrying value	$	-			-			-			(123	)		(25	)		-			-
	$	(425	)	$	(610	)	$	(425	)	$	(425	)	$	(425	)	$	(225	)	$	(413	)
Warrant shares issued (in thousands)		1,250			1,250			1,000			1,000			1,000			3,000			n/a
Initial exercise price of warrants	$	0.1000		$	0.1000		$	0.1000		$	0.1000		$	0.1500		$	0.1500			n/a
Warrant valuation inputs:
Anti-dilution adjusted exercise price	$	0.0480		$	0.0480		$	0.0480		$	0.0180		$	0.1131		$	0.0350			n/a
Expected life		5 years			5 years			5 years			5 years			5 years			5 years			n/a
Estimated volatility		172	%		169	%		185	%		254	%		278	%		271	%		n/a
Risk free rate of return		0.79	%		1.09	%		0.89	%		0.92	%		0.64	%		0.63	%		n/a
Dividend yield		—			—			—			—			—			—			n/a
Compound derivative valuation inputs:
Conversion price	$	0.0665		$	0.0285		$	0.0190		$	0.0152		$	0.0688		$	0.0128		$	0.0128
Equivalent volatility		172	%		151	%		167	%		127	%		122	%		190	%		188	%
Equivalent interest risk		14.00	%		14.00	%		14.00	%		14.00	%		14.00	%		14.00	%		14.00	%
Equivalent credit risk		7.78	%		7.50	%		7.51	%		7.40	%		7.54	%		7.40	%		7.19	%

	August 12,			September 15,			October 25,			December 8,			Summary of
	2011			2011			2011			2011			2011
	issuance			issuance			issuance			issuance			issuances
	( in thousands)
Gross proceeds	$	350		$	450		$	450		$	325		$	4,725
Structuring and due diligence fee		(37	)		(25	)		(25	)		(25	)		(314	)
	$	313		$	425		$	425		$	300		$	4,411
Derivative liabilities:
Investor warrants	$	-		$	(28	)	$	(11	)	$	(12	)	$	(506	)
Compound derivative		(868	)		(303	)		(273	)		(222	)		(6,021	)
Total derivative liabilities		(868	)		(331	)		(284	)		(234	)		(6,527	)
Day one derivative loss		555			-			-			-			2,565
Convertible debenture-initial carrying value		-			(94	)		(141	)		(66	)		(449	)
	$	(313	)	$	(425	)	$	(425	)	$	(300	)	$	(4,411	)
Warrant shares issued (in thousands)		n/a			1,000			1,000			1,000			6,500
Initial exercise price of warrants		n/a		$	0.1500		$	0.1500		$	0.1500		$	0.1500
Warrant valuation inputs:
Anti-dilution adjusted exercise price		n/a		$	0.0280		$	0.0115		$	0.0124		$	0.0124
Expected life		n/a			5 years			5 years			5 years			5 years
Estimated volatility		n/a			290	%		261	%		243	%		243	%
Risk free rate of return		n/a			0.15	%		0.38	%		0.32	%		0.32	%
Dividend yield		n/a			—			—			—			—
Compound derivative valuation inputs:
Conversion price	$	0.0128		$	0.0247		$	0.0115		$	0.0124		$	0.0124
Equivalent volatility		187	%		183	%		185	%		177	%		177	%
Equivalent interest risk		14.00	%		14.00	%		14.00	%		14.00	%		14.00	%
Equivalent credit risk		7.20	%		7.63	%		7.63	%		7.37	%		7.37	%

Fair value disclosures

Bifurcated Embedded Derivative Instruments – Series C and Series D preferred stock and Convertible Debentures - For financings in which the embedded derivative instruments are bifurcated and recorded separately, the compound embedded derivative instruments are valued using a Monte Carlo Simulation methodology because that model embodies certain relevant assumptions (including, but not limited to, interest rate risk, credit risk, and conversion/redemption privileges) that are necessary to value these complex derivatives.

The conversion price in each of the convertible debentures is subject to adjustment for down-round, anti-dilution protection.  Accordingly, if we sell common stock or common share indexed financial instruments below the stated or variable conversion price of the debentures, the conversion price adjusts to that lower amount.

The assumptions included in the calculations are highly subjective and subject to interpretation.  Assumptions used as of December 31, 2011 included exercise estimates/behaviors and the following other significant estimates: remaining term of 0.58 years, equivalent volatility of 172%, equivalent interest rate ranging from 8%- 14%, equivalent credit-risk adjusted rate of 7.37% and anti-dilution adjusted conversion prices ranging from $0.0084 - $0.0102. Equivalent amounts reflect the net results of multiple modeling simulations that the Monte Carlo Simulation methodology applies to underlying assumptions.

Due to the variable component of the conversion price, rapid fluctuations in the trading market price may result in significant variations to the calculated conversion price. For each debenture, we analyze the ratio of the conversion price (as calculated based on the percentage of VWAP for the appropriate look-back period) to the trading market price for a period of time equal to the term of the debenture to determine the average ratio for the term of the note. Each quarter, the ratio in effect on the date of the valuation is compared with the average ratio over the term of the debenture to determine if the calculated conversion price is representative of past trends or if it is considered unrepresentative due to a large fluctuation in the stock price over a short period of time. If the calculated conversion price results in a ratio that deviates significantly from the average ratio over the term of the agreement, the average ratio of the conversion price to the trading market price is then multiplied by the current trading market price to determine the variable conversion price for use in the fair value calculations. This variable conversion price is then compared with the fixed conversion price and, as required by the terms of the debentures, the lower of the two amounts is used as the conversion price in the Monte Carlo Simulation model used for valuation purposes. On December 31, 2011, the fixed conversion price for each of the debentures was equal to or higher than the calculated variable conversion price. Accordingly, the variable conversion price was used in the Monte Carlo Simulation model. This analysis is performed each quarter to determine if the calculated conversion price is reasonable for purposes of determining the fair value of the embedded conversion features (for instruments recorded under FASB ASC 815-15-25-1) or the fair value of the hybrid instrument (for instruments recorded under FASB ASC 815-15-25-4).

The following table reflects the face value of the instruments, their amortized cost carrying value and the fair value of the separately-recognized compound embedded derivative as well the number of common shares into which the instruments are convertible as of December 31, 2011 and 2010.

December 31, 2011								Embedded		Common
		Face		Carrying		Accrued		Conversion		Stock
		Value		Value		Interest		Feature		Shares
		(in thousands)
	Series C preferred stock	$	5,086	$	5,086	$	-	$	554		499,084
	Series D preferred stock	$	1,395	$	1,395	$	-		152		136,899
	Debentures:
	2006	$	7,061	$	7,061	$	3,550		1,554		1,128,515
	2008		4,788		4,788		2,226		932		712,474
	2009		1,983		1,965		736		370		278,427
	2010		3,881		1,426		770		2,692		470,718
	2011		4,725		1,077		376		2,917		436,730
	Total	$	22,438	$	16,317	$	7,658	$	9,171		3,662,847

December 31, 2010								Embedded		Common
		Face		Carrying		Accrued		Conversion		Stock
		Value		Value		Interest		Feature		Shares
		(in thousands)
	Series C preferred stock	$	8,336	$	8,336	$	-	$	6,706		125,348
	Series D preferred stock	$	2,500	$	2,500	$	-		1,918		36,819
	Debentures:
	2006	$	7,500	$	7,500	$	2,816	$	7,509		163,750
	2008		4,788		4,788		1,552		4,840		97,133
	2009		1,983		1,936		454		1,894		36,653
	2010		3,881		336		227		5,225		61,777
	Total	$	18,152	$	14,560	$	5,049	$	28,092		521,480

The terms of the embedded conversion features in the convertible instruments presented above provide for variable conversion rates that are indexed to our common stock price. As a result, the number of indexed shares is subject to continuous fluctuation. For presentation purposes, the number of shares of common stock into which the embedded conversion feature of the Series C and Series D preferred stock was convertible as of December 31, 2011and 2010, was calculated as face value plus assumed dividends (if declared), divided by the lesser of the fixed rate or the calculated variable conversion price using the 125 day look-back period. The number of shares of common stock into which the embedded conversion feature in the convertible debentures was convertible as of December 31, 2011 was calculated as the face value of each instrument divided by the variable conversion price using the appropriate look-back period.

Changes in the fair value of derivative instrument liabilities related to the bifurcated embedded derivative features of convertible instruments not carried at fair value are reported as “Gain (loss) from change in fair value of derivative liability – Series C and Series D preferred stock and debentures” in the accompanying consolidated statements of operations.

The changes in fair value of these derivative financial instruments were as follows:

		Year Ended December 31,
		2011			2010
		(in thousands)
Series C preferred stock	$	668		$	9,361
Series D preferred stock		921			2,633
Debentures:
2006		5,622			14,262
2008		3,908			5,645
2009		1,524			2,430
2010		2,533			(1,331	)
2011		3,104			-
		18,280			33,000
Less: Day-one loss from Series D preferred financing		-			(4,582	)
Less: Day-one loss from debenture financings		(2,565	)		(1,469	)
Gain (loss) from change in fair value of derivative liability	$	15,715		$	26,949

Hybrid Financial Instruments Carried at Fair Value – 2007 and 2008 Convertible Debentures - The March 2007, August 2007, April 2008 and May 2008 convertible debentures are recorded as hybrid instruments in accordance with FASB ASC 815-15-25-4 and the entire hybrid instrument was initially recorded at fair value, with subsequent changes in fair value charged or credited to income each period. Because these debentures are carried in their entirety at fair value, the value of the embedded conversion feature is effectively embodied in those fair values. These financial instruments are valued using the common stock equivalent approach. The common stock equivalent is calculated using the shares indexed to the debentures using the variable conversion price based on the 125 day look-back period, and valued at the market price of our stock and the present value of the coupon from inception of the debentures to the maturity date of July 29, 2012, and the default puts using a credit risk adjusted discount rate, currently 7.37%.

On December 23, 2010 and again on February 18, 2011, we made payments to YA Global of $1.0 million each of accrued interest, related to the March 27, 2007 debenture.

The following table reflects the face value of the instruments, the fair value of the hybrid financial instrument and the number of common shares into which the instruments are convertible as of December 31, 2011 and 2010.

December 31, 2011					Common
		Face		Fair	Stock
		Value		Value	Shares
		(in thousands)
Debentures:
2007	$	7,682	$	13,115	836,428
2008		1,680		3,343	200,001
Total	$	9,362	$	16,458	1,036,429

December 31, 2010						Common
		Face		Fair		Stock
		Value		Value		Shares
Debentures:
2007	$	9,234	$	22,793	$	150,087
2008		1,680		4,691		30,000
Total	$	10,914	$	27,484	$	180,087

Changes in the fair value of convertible instruments that are carried in their entirety at fair value are reported as “Gain (loss) from change in fair value of hybrid financial instruments” in the accompanying consolidated statements of operations. The changes in fair value of these hybrid financial instruments were as follows:

	Year Ended December 31,
	2011		2010
	(in thousands)
2007	$	4,003	$	9,002
2008		1,348		1,930
Gain (loss) from changes in fair value of hybrid instruments	$	5,351	$	10,932

Warrants - The following table summarizes the warrants outstanding, their fair value and their exercise price after adjustment for anti-dilution provisions:

A summary of the common stock warrants outstanding follows:

			December 31, 2011						December 31, 2010
			Anti-Dilution						Anti-Dilution
			Adjusted						Adjusted
	Expiration		Exercise				Fair		Exercise				Fair
	Year		Price		Warrants		Value		Price		Warrants		Value
Warrants issued with preferred stock:					(in thousands)						(in thousands)
Series C preferred stock		2011		n/a		-	$	-		0.056- 1.100		750	$	53
Series D preferred stock		2017		0.00998		225,564		2,535		0.100		2,250		255
Warrants issued with debentures:
2006		2011		n/a		-		-		0.056		2,171		185
2007		2012		0.00998		401,002		1,510		0.056		2,000		194
2008		2015		0.00998		614,662		6,876		0.056- 0.100		5,075		559
2010		2015		0.00998		210,025		2,335		0.100		8,600		967
2011		2016		0.00998		150,376		1,686		n/a		--		--
Total						1,601,629	$	14,942				20,846	$	2,213

The warrants are valued using a binomial option valuation methodology because that model embodies all of the significant relevant assumptions that address the features underlying these instruments. Significant assumptions used in this model as of December 31, 2011 included an expected life equal to the remaining term of the warrants, an expected dividend yield of zero, estimated volatility ranging from 95% to 247%, and risk-free rates of return of 0.01% to 0.33%. For the risk-free rates of return, we use the published yields on zero-coupon Treasury Securities with maturities consistent with the remaining term of the warrants and volatility is based upon our expected stock price volatility over the remaining term of the warrants. As a result of the anti-dilution provisions, the fixed exercise price of the warrants has been reset to the lowest price of any subsequently issued common share indexed instruments with a conversion price below the previously stated exercise price of the warrant.

Changes in the fair value of the warrants are reported as "(Gain) loss from change in fair value of derivative liability - warrants" in the accompanying consolidated statement of operations.

Changes in the fair value of the warrants were as follows:

	Year Ended December 31,
	2011			2010
	(in thousands)
Warrants issued with preferred stock:
Series C preferred stock	$	53		$	660
Series D preferred stock		(2,280	)		2,175
Warrants issued with debentures:
2006		185			1,935
2007		(1,316	)		1,794
2008		(6,317	)		4,533
2010		(1,368	)		518
2011		(1,180	)		-
Total	$	(12,223	)	$	11,615

Reconciliation of changes in fair value – Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. Our derivative financial instruments that are measured at fair value on a recurring basis are all measured at fair value using Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following represents a reconciliation of the changes in fair value of financial instruments measured at fair value using Level 3 inputs and changes in the fair value of hybrid instruments carried at fair value during the year ended December 31, 2011:

	Compound
	Embedded			Warrant		Hybrid
	Derivatives			Derivatives		Instruments			Total
Beginning balance, December 31, 2010:	$	28,092		$	2,213	$	27,484		$	57,789
Issuances:
January 10, 2011		573			144		-			717
February 8, 2011		744			59		-			803
March 11, 2011		677			39		-			716
April 13, 2011		284			18		-			302
May 31, 2011		310			90		-			400
June 28, 2011		525			105		-			630
July 13, 2011		1,242			-		-			1,242
August 12, 2011		868			-		-			868
September 15, 2011		303			28		-			331
October 25, 2011		273			11		-			284
December 8, 2011		222			12		-			234
Fair value adjustments:
Compound embedded derivatives		(18,280	)		-		-			(18,280	)
Warrant derivatives		-			12,223		-			12,223
Hybrid instruments		-			-		(5,351	)		(5,351	)
Payment of interest:		-			-		(1,000	)		(1,000	)
Conversions:
Series C preferred stock		(5,484	)		-		-			(5,484	)
Series D preferred stock		(845	)		-		-			(845	)
August 24, 2006 financing		(333	)		-		-			(333	)
March 31, 2007 financing		-			-		(4,675	)		(4,675	)
Ending balance, December 31, 2011	$	9,171		$	14,942	$	16,458		$	40,571

Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, valuation techniques are sensitive to changes in the trading market price of our common stock, which has a high estimated historical volatility. Because derivative financial instruments are initially and subsequently carried at fair values, our income will reflect the volatility in these estimate and assumption changes.

Subsequent events

Secured convertible debentures in the amount of $400,000, $450,000 and $450,000 were issued on January 11, 2012, February 6, 2012, and March 26, 2012, respectively. The debentures are convertible, at the option of the holder, at a conversion price equal to the lesser of (i) $0.10 or (ii) 95% of the lowest closing bid price of our common stock for the 60 trading days preceding the date of conversion. The stated maturity date of the debentures is July 29, 2012.

Subsequent to December 31, 2011, holders of convertible debentures, other than YA Global converted $1,068,650 of principal and accrued interest on those debentures into 150,298,689 shares of our common stock. Holders of Series C and D preferred stock, other than YA Global converted those securities into 62,963,188 shares of our common stock.