Change in Fair Value of Warrant Liability

6 Months Ended

Jun. 30, 2013

Notes to Financial Statements

Note 10 - Change in Fair Value of Warrant Liability

The Company has accounted for certain warrants in accordance with ASC 815-10, Derivatives and Hedging (ASC 815-10). ASC 815-10 provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. This applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative under ASC 815-10, including any freestanding financial instrument that is potentially settled in an entity’s own stock.

Due to certain adjustments that may be made to the exercise price of the warrants issued in December 2007, January 2008 and August 2008 if the Company issues or sells shares of its common stock at a price which is less than the then current warrant exercise price, these warrants have been classified as a liability as opposed to equity in accordance with the Derivatives and Hedging Topic of the FASB ASC 815-10-15 as it was determined that these warrants were not indexed to the Company’s stock. As a result, the fair market value of these warrants was remeasured on January 1, 2009 and marked to market at each subsequent financial reporting period. The change in fair value of the warrants is recorded in the statement of operations and is estimated using the Black-Scholes option-pricing model with the following assumptions:

	For the Three Months Ended June 30, 2012			For the Six Months Ended June 30, 2012
Exercise price	$	0.25		$	0.25
Market value of stock at end of period	$	0.10		$	0.10
Expected dividend rate		0	%		0	%
Expected volatility		183% - 191	%		183% - 191	%
Risk-free interest rate		0.16	%		0.16	%

All warrants issued by the Company other than the above noted warrants are classified as equity. For the three months ended June 30, 2013 and 2012, the Company recognized a change in the fair value of the warrant liability of $0 and $911,922, respectively. For the six months ended June 30, 2013 and 2012, the Company recognized a change in the fair value of the warrant liability of $0 and $1,499,852, respectively.