NOTE 9 - DERIVATIVE WARRANT LIABILITY

On May 27, 2008 and on May 30, 2008, the Company issued warrants to purchase 1,250,000 shares of common stock at $2.80 per share and warrants to purchase 300,000 shares of common stock at $2.98 per share, respectively, exercisable for a period of three years. These warrants were never exercised and expired on May 27, 2011. If the Company had issued shares of common stock or common stock equivalents at a price per share less than the exercise price, the exercise price would have been multiplied by a fraction, the numerator of which would have been the number of shares of common stock outstanding immediately prior to such issuance plus the number of shares of common stock which the offering price for such shares of common stock or common stock equivalents would have purchased at the closing price of the common stock on that date, and the denominator of which would have been the sum of the number of shares of common stock outstanding immediately prior to such issuance plus the number of shares of common stock so issued or issuable. Simultaneously with any adjustment to the exercise price, the number of shares of common stock that could have been purchased upon exercise of the warrants was increased or decreased proportionately, so that after such adjustment the aggregate exercise price payable for the adjusted number of shares would have been the same as the aggregate exercise price in effect immediately prior to such adjustment.

The Company used a Lattice valuation model to measure the fair value of the warrants, and based on the following assumptions, the fair values were as follows:

	December 31,		December 31,
	2011		2010
Risk free interest rate		-		2.93	%
Expected life, in years		-		0.41
Expected dividend rate		-		0	%
Volatility		-		67.21	%
Fair value		-	$	934,260

Changes to the warrant derivative liability are recognized in the results of operations and resulted in derivative gains of $934,260 and $1,588,888 for the years ended December 31, 2011 and 2010, respectively.