Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Notes to Financial Statements

Note 3.Summary of Significant Accounting Policies

Accounting for Share-Based Payments.  The Company follows the provisions of ASC Topic 718, which establishes the accounting for transactions in which an entity exchanges equity securities for services and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company uses the Black-Scholes option pricing model in determining fair value. Accordingly, compensation cost has been recognized using the fair value method and expected term accrual requirements as prescribed, which resulted in employee stock-based compensation expense for the three and six months ended June 30, 2011 of $10,000 and $17,950, respectively and $7,950 and $30,992 for the three and six months ended June 30, 2010, respectively.

Black Scholes Option Pricing Model.  The Company will determine a risk-free interest rate on the date of grant, will use a dividend yield of 0%, and will use its common stock volatility in its Black-Scholes calculations for 2011.

Earnings per Share.  The Company computes net income (loss) per common share in accordance with ASC Topic 260. Net income (loss) per share is based upon the weighted average number of outstanding common shares and the dilutive effect of common share equivalents, such as options and warrants to purchase common stock, convertible preferred stock and convertible notes, if applicable, that are outstanding each year. Basic and diluted earnings per share were the same at the reporting dates of the accompanying financial statements, as all common stock equivalents outstanding for the three months ended June 30, 2011 were deemed to be anti-dilutive; moreover, including common stock equivalents in the calculation of diluted earnings per share would have been anti-dilutive for the six months ended June 30, 2011.  As of June 30, 2011, the Company had (i) outstanding options exercisable for 570,500 shares of common stock with a weighted average exercise price of $1.63 per share and an average remaining term of 3.64 years; (ii) outstanding warrants exercisable into 8,432,971 shares of common stock with a weighted average exercise price of $0.73 per share and average remaining term of 2.80 years; and (iii) 20,416,228 shares of Series B Preferred Stock convertible into shares of common stock.

As of June 30, 2010, the Company had outstanding options exercisable for 570,500 shares of its common stock, warrants exercisable for 11,716,346 shares of its common stock, and debt securities convertible into 17,916,228 shares of its common stock.  The above options, warrants, and convertible debt securities were deemed to be anti-dilutive for the three and six months ended June 30, 2010.

Fair Value.  The Company has adopted ASC Topic 820, “Fair Value Measurements and Disclosures” for both financial and nonfinancial assets and liabilities. The Company has not elected the fair value option for any of its assets or liabilities.

Reclassifications. Certain reclassifications have been made in the presentation of the financial statements for the three months ended June 30, 2010 to conform to the presentation of the financial statements for the three months ended June 31, 2011.

Use of Estimates.  The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.