Fair Value Measurements

12 Months Ended

Dec. 31, 2011

Fair Value Measurements

Note 4 - Fair Value Measurements

We define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.  We report assets and liabilities that are measured at fair value using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.  This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs.  The three levels of inputs used to measure fair value are as follows:

· Level 1 — Quoted prices in active markets for identical assets or liabilities.

· Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

· Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  At each reporting period, we perform a detailed analysis of our assets and liabilities that are measured at fair value.  All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

We have segregated our financial assets and liabilities that are measured at fair value into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below.  We have no non-financial assets and liabilities that are measured at fair value at December 31, 2011.

	As of December 31, 2011
	Level 1		Level 2		Level 3		Balance
Liabilities
Derivatives	$	-	$	-	$	1,886,652	$	1,886,652

	As of December 31, 2010
	Level 1		Level 2		Level 3		Balance
Liabilities
Derivatives	$	-	$	-	$	8,362,995	$	8,362,995

The following table sets forth a summary of changes in the fair value of our Level 3 liabilities for the years ended December 31, 2011 and 2010:

Description	Balance as of December 31, 2010		New Liabilities		Unrealized (Gains)			Balance as of December 31, 2011
Stock purchase warrants	$	8,362,995	$	668,640	$	(7,144,983	)	$	1,886,652

Description	Balance as of December 31, 2009		New Liabilities		Unrealized Losses		Balance as of December 31, 2010
Stock purchase warrants	$	835,299	$	2,070,146	$	5,457,550	$	8,362,995

The gains on the derivative instruments are classified in other income (expenses) as the change in market value of derivative instruments in our consolidated statements of operations.  The fair value of our stock purchase warrants and conversion option is determined based on the Black-Scholes option pricing model.  Use of the Black-Scholes option-pricing model requires the use of unobservable inputs such as the expected term, anticipated volatility and expected dividends.