COMMON STOCK WARRANTS

12 Months Ended

Dec. 31, 2011

7. COMMON STOCK WARRANTS

Investors in the 2011 Convertible Debenture plus Series A Warrants acquired 18,475,927 common stock purchase warrants, in an amount equal to one hundred percent (100%) of the shares of common stock that would be issued upon conversion of the Debentures upon issue. The Warrants expire on December 31, 2016 and bear strike prices ranging from $0.063 to $0.109.

Investors in the 2011 Convertible Debenture plus Series B Warrants acquired 8,961,614 common stock purchase warrants, in an amount equal to fifty percent (50%) of the shares of common stock that would be issued upon conversion of the Debentures upon issue. The Warrants expire on December 31, 2016 and bear strike prices of $0.10.

In March 2011, the Company offered its employees a ninety day voluntary salary deferral plan while the Convertible Debenture Series 2011 funding was finalized. As an incentive to participate, each employee received a five year warrant to buy common stock at $.20 equal to the amount of their deferral. A total of 192,645 warrants were issued. The deferred salaries were repaid in June 2011.

Investors in the Convertible Debentures Series 2010 plus Series B Warrants acquired 1,535,160 common stock purchase warrants, designated by the Company as Class B Warrants, in an amount equal to fifty percent (50%) of the shares of common stock that would be issued upon conversion of the Debentures upon issue. The Warrants expire on December 31, 2015 and bear strike prices ranging from $0.26180 to $0.32972. In 2011, eleven of the original fifteen investors elected to convert their investment to the convertible Debenture Series 2011 plus Series A Warrant, and as a result 1,191,569 of these warrants were cancelled and 343,591 remaining outstanding.

The investors in the 2009 debenture financing are awarded warrants with a $0.10 exercise price in an amount equal to their staged investment and with an expiration date of July 30, 2014. A total of 7,292,637 warrants were issued in 2010.

The Company engaged a financial advisory firm in 2011 and three of their associates received warrants to purchase an aggregate of 1,050,000 shares of common stock at a strike price of $.115. The warrants have a five year life and will expire October 31, 2015. The Company engaged an investment banking firm to provide financial advisory services in 2010. As a retainer, six of their financial advisors received warrants to purchase an aggregate of 600,000 shares of common stock at a strike price of $0.05. The warrants have a five year life and will expire by July 7, 2015.

In September 2011, the company placed a $100,000 credit facility with a bank, secured by the personal guarantee on one direct. In exchange for the guaranty, the director received a warrant to purchase 1,000,000 shares of common stock at a strike price of $0.10. The warrant has five year life and will expire on September 30, 2015. In September 2010, the Company placed a $200,000 credit facility with a bank, secured by the personal guarantees of two company directors. In exchange for the guarantees, each director a warrant to purchase 1,000,000 shares of common stock at a strike price of $0.10. The warrants have a five year life and will expire on September 30, 2015.

The following table summarizes information about outstanding warrants at December 31, 2011:

Year Issued	Number Outstanding		Remaining Contractual Life in Years		Number Currently Exercisable		Weighted Average Exercise Price
2007		166,680		.1		166,680	$	0.60
2008		-		-		-		-
2009		27,682,372		2.4		27,682,372	$	0.10
2010		10,236,227		3.1		10,236,227	$	0.10
2011		29,680,086		4.7		29,680,086		0.10
Total		67,765,365		3.3		67,765,365	$	0.10