NOTE 11: DERIVATIVE LIABILITY

9 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 11   DERIVATIVE LIABILITY

In accordance with ASC 815, the Company evaluates whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock by assessing the instrument’s contingent exercise provisions and settlement provisions.  Instruments not indexed to their own stock fail to meet the scope exception of ASC 815 “Derivative and Hedging” and should be classified as a liability and marked-to-market.  The statement is effective for fiscal years beginning after December 15, 2008 and is to be applied to outstanding instruments upon adoption with the cumulative effect of the change in accounting principle recognized as an adjustment to the opening balance of retained earnings.

ASC 815-40 mandates a two-step process for evaluating whether an equity-linked financial instrument or embedded feature is indexed to the entity’s own stock.  As disclosed in Note 7, during summer 2009, the Company entered into short term convertible loans with attached warrants, which contain a strike price adjustment feature.  The warrants trigger liability treatment.  During the nine months ended September 30, 2011, the liability was adjusted for the change in fair value of the warrants in the amount of $108,339.  In accordance with ASC 815-40, a derivative liability of $131,851 related to the loan conversion feature and warrants is included in our unaudited condensed consolidated balance sheet as of September 30, 2011.