NET LOSS PER SHARE OF COMMON STOCK

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

NET LOSS PER SHARE OF COMMON STOCK

NOTE 6: NET LOSS PER SHARE OF COMMON STOCK.

Basic loss per share was computed using the weighted average number of outstanding common shares. Diluted loss per share includes the effect of dilutive common stock equivalents from the assumed exercise of options, warrants, convertible preferred stock and convertible notes. Common stock equivalents were excluded in the computation of diluted loss per share since their inclusion would be anti-dilutive.

In accordance with ASC 260 “Earnings per Share”, the Company has given effect to the issuance of 847,461 warrants exercisable at $0.001 issued by the Company.  These warrants have been included in computing the basic net loss per share for the three months period ended March 31, 2011.

Total shares issuable upon the exercise of warrants and conversion of preferred stock and convertible promissory notes for the three months ended March 31, 2012 and 2011 were as follows:

	March 31,
	2012		2011
Warrants		27,612,087		27,705,817
Convertible promissory notes		22,204,371		11,702,778
Convertible preferred stock		1,545,760		1,545,760
Total		51,362,218		40,954,355

Fair Value

ASC 820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements.  As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Standard clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date and emphasizes that fair value is a market-based measurement and not an entity-specific measurement.

ASC 820 establishes the following hierarchy used in fair value measurements and expands the required disclosures of assets and liabilities measured at fair value:

● Level 1 – Inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

● Level 2 – Inputs use other inputs that are observable, either directly or indirectly. These inputs include quoted prices for similar assets and liabilities in active markets as well as other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

● Level 3 – Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair measurements requires judgment and considers factors specific to each asset or liability.

Liabilities measured at fair value on a recurring basis at March 31, 2012 are as follows:

	Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at March 31, 2012
Embedded conversion feature	$	--	$	--	$	63,400	$	63,400
Warrant liability		--		--		326,500		326,500
Balance at March 31, 2012	$	--	$	--	$	389,900	$	389,900

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The Company’s Level 3 liabilities consist of derivative liabilities associated with convertible debt that contains an indeterminable conversion share price and the tainted warrants as the Company cannot determine if it will have sufficient authorized common stock to settle such arrangements.  

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets measured at fair value on a recurring basis using significant unobservable inputs during the three months ended March 31, 2012.

					Conversion		Preferred
		Warrants			Feature		Stock			Total
Balance at - January 1, 2012	$	446,400		$	68,000		$          800		$	$    515,200
Included in other income expense		(125,100	)		(119,000	)	(400	)		(244,500	)
Included in liabilities (debt discount)		--			114,000		--			114,000
Included in stockholder's equity		5,200			--		--			5,200
Transfers in and /or out of Level 3		--			--		--			--
Balance at March  31, 2012		$       326,500			$        63,000		$            400			$     389,900