11. EQUITY

6 Months Ended

Jun. 30, 2011

Stockholders' Equity Note Disclosure [Text Block]

11. EQUITY

Common Stock

During the six months ended June 30, 2011, the Company had the following issuances of common stock:

The Company issued 6,471,033 shares of common stock for the conversion of $21,000 of principal and $11,355 of accrued interest of a convertible note payable.    

The Company cancelled 4,000,000 shares that were issued in error by the transfer agent which resulted in duplication of shares of common stock issued to a note holder in a prior period.

Treasury Stock

During the six months ended June 30, 2011, the Company purchased 15,200 shares of the Company’s outstanding common stock.  The purchase price was $99, and the Company recorded the transaction at cost to Treasury stock.

Warrants

The following table summarizes the significant terms of warrants outstanding at June 30, 2011. These warrants may be settled in cash or via cashless conversion into shares of the Company’s common stock at the request of the warrant holder. These warrants were granted as part of a financing agreement:

Range of exercise prices		Number of warrants outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price of outstanding warrants		Number of warrants exercisable		Weighted average exercise price of exercisable warrants
$	0.0050		179,700,000		1.17	$	0.0050		179,700,000	$	0.0050
$	0.0110		18,500,000		0.80	$	0.0110		18,500,000	$	0.0110
$	0.0120		1,000,000		2.21	$	0.0120		-	$	-
$	0.0115		74,000,000		1.18	$	0.0115		74,000,000	$	0.0115
			273,200,000		1.15	$	0.0072		272,200,000	$	0.0072

Transactions involving warrants are summarized as follows:

	Number of		Weighted Average
	Warrants		Exercise Price
Warrants exercisable at December 31, 2010		273,200,000	$	0.007
Granted		-		-
Exercised		-		-
Cancelled / Expired		-		-
Warrants outstanding at June 30, 2011		273,200,000	$	0.007
Exercisable		272,200,000	$	0.007
Not exercisable		1,000,000	$	0.012

Options

The following table summarizes the changes outstanding and the related prices for the options to purchase shares of the Company’s common stock issued by the Company: 

						Weighted				Weighted
				Weighted		average				average
				average		exercise				exercise
Range of		Number of		remaining		price of		Number of		price of
exercise		options		contractual		outstanding		options		exercisable
prices		outstanding		life (years)		options		exercisable		options
$	0.0050		15,000,000		0.36	$	0.0050		15,000,000	$	0.0050
$	0.0070		22,000,000		1.91	$	0.0070		22,000,000	$	0.0070
$	0.0076		6,625,000		3.75	$	0.0076		6,625,000	$	0.0076
$	0.0090		6,625,000		4.25	$	0.0090		6,625,000	$	0.0090
$	0.0095		6,625,000		4.00	$	0.0095		6,625,000	$	0.0095
$	0.0096		6,625,000		4.51	$	0.0096		6,625,000	$	0.0096
			63,500,000		3.14	$	0.0073		63,500,000	$	0.0073

Transactions involving stock options are summarized as follows:

	Number of		Weighted Average
	Shares		Exercise Price
Options outstanding  at December 31, 2010		63,500,000	$	0.007
Granted		-		-
Exercised		-		-
Cancelled / Expired		-		-
Options outstanding at June 30, 2011		63,500,000	$	0.007

Aggregate intrinsic value of options outstanding and exercisable at June 30, 2011 and 2010 was $69,650 and $19,500, respectively. Aggregate intrinsic value represents the difference between the Company's closing stock price on the last trading day of the fiscal period, which was $0.008 and $0.0079 as of June 30, 2011 and 2010, respectively, and the exercise price multiplied by the number of options outstanding. During the three months ended June 30, 2011 and 2010, the Company charged $0 and  $50,541, respectively, to operations related to recognized stock-based compensation expense for employee stock options. During the six months ended June 30, 2011 and 2010, the Company charged $0 and  $79,442, respectively, to operations related to recognized stock-based compensation expense for employee stock options.

Accounting for warrants and stock options

The Company accounts for the issuance of common stock purchase warrants, stock options, and other freestanding derivative financial instruments in accordance with the provisions of FASB ASC 815-40-15. Based on the provisions of ASC 815-40-15, the Company classifies, as equity, any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contract that (i) require net-cash settlement or (ii) give the counterparty a choice of net-cash settlement in shares (physical or net-share settlement). At June 30, 2011 and December 31, 2010, the Company has no freestanding derivative financial instruments that require net cash settlement or give the counterparty a choice of net cash settlement or settlement in shares.

The fair value of these warrants and stock options is determined utilizing the Black-Scholes valuation model. Through August 2005, these warrants were accounted for by the equity method, whereby the fair value of the warrants was charged to additional paid-in capital. During September, 2005, the number of shares of the Company's common stock issued and issuable exceeded the number of shares of common stock the Company had authorized. As the Company no longer had sufficient shares authorized to settle all of our outstanding contracts, this triggered a change in the manner in which the Company accounts for the warrants and stock options. The Company began to account for these warrants and stock options utilizing the liability method. Pursuant to ASC 815-40-15, “If a contract is reclassified from permanent or temporary equity to an asset or a liability, the change in fair value of the contract during the period the contract was classified as equity should be accounted for as an adjustment to stockholders' equity." Accordingly, during the year ended December 31, 2005, the Company charged the amount of $10,374,536 to stockholders' equity. At the same time, the Company changed the way in which it accounts for the beneficial conversion feature of convertible notes payable (see note 8).

The accounting guidance states that the warrants and stock options which are a derivative liability should be revalued each reporting period. The recorded value of such warrants and stock options can fluctuate significantly based on fluctuations in the market value of the underlying securities of the issuer of the warrants and stock options, as well as in the volatility of the stock price during the term used for observation and the term remaining for warrants. During the three months ended June 30, 2011 and 2010, the Company recognized a gain of $154,789 and a loss of $143,164 respectively, for the change in the fair value of the warrant liability and recorded the gain/loss in operations during the three months ended June 30, 2011 and 2010.  During the six months ended June 30, 2011 and 2010, the Company recognized a gain of $299,468 and a loss of $157,664, respectively, for the change in the fair value of the warrant liability and recorded the gain/loss in operations during the six months ended June 30, 2011 and 2010.

The Company valued warrants and options using the Black-Scholes valuation model utilizing the following variables:

	June 30,			December 31,
	2011			2010
Volatility		92.52 - 110.66.	%		119.60-336.00	%
Dividends	$	-		$	-
Risk-free interest rates		0.10-0.18	%		0.19-0.20	%
Term (years)		0.48-4.75			0.15 - 5.00

Insufficient Authorized but Unissued Shares of Common Stock

The Company has a potential obligation to issue 775,811,224 and  814,550,200 shares  of common stock upon the conversion of convertible notes and accrued interest, warrants and penalty shares issuable at June 30, 2011, and 2010, respectively.  The Company  had 218,856,136 and 210,981,103 shares  of common stock outstanding at June 30, 2011,  and 2010, respectively, and  500,000,000 shares  of common stock authorized at June 30, 2011,  and 2010.   The Company has potentially exceeded its shares authorized by 494,667,360 and 525,531,303 shares at June 30, 2011 and 2010, respectively.