Note 4 - Warrant Derivative Liability

12 Months Ended

Dec. 31, 2012

Notes

Note 4 - Warrant Derivative Liability

NOTE 4 – WARRANT DERIVATIVE LIABILITY

As part of the warrants to be issued for common stock in Note 3, the nature of the warrant requires the Company to record a Warrant Derivative Liability in the amount of $903,142 and $11,128,157 at December 31, 2012 and 2011, respectively.  The valuation of the derivative is determined using the lattice model.  The lattice model is based on the price the stock is trading on the day the warrants are issued and again at the end of each quarter and year end.  Due to the stock price having large swings, the warrant derivative liability has large swings also, which create large losses and gains.

COMMON STOCK WARRANTS

The Company has issued and outstanding warrants of a total of 8,330,000 shares of its common stock.

Warrants Beginnig Balance at 2010	Warrants Issued During 2011	Warrants Expired During 2011	Warrants Exercised During 2011	Warrants Ending Balance at 2011	Warrants Issued During 2012	Warrants Expired During 2012	Warrants Exercised During 2012	Warrants Ending Balance at 2012
6,100,000	2,461,000	-	611,000	7,950,000	380,000	-	-	8,330,000

Warrants – We have granted outstanding warrants for the purchase of a total of 8,330,000 shares of our common stock, all of which are exercisable anytime until their respective expiration dates

Date of issuance		Stock price at valuation date of December 31, 2012		Exercise price	Term	Risk free rate	Volatility		Value	# of Warrants
March 2, 2012	$	0.11	$	1.00	5 Year	0.83%	261%	$	-	380,000
October 28, 2011	$	0.11	$	1.00	5 Year	0.83%	261%	$	-	1,900,000
December 30, 2010	$	0.11	$	0.50	5 Year	0.83%	261%	$	-	1,600,000
December 9, 2010	$	0.11	$	.00	5 Year	0.83%	261%	$	-	450,000
July 27, 2010	$	0.11	$	0.14	5 Year	0.83%	261%	$	-	4,000,000
Total								$	-	8,330,000

The following is a summary of the Company’s stock warrants outstanding as of December 31, 2012, adjusted for any changes in the exercise price of the stock warrants:

Warrants Outstanding				Warrants Exercisable
Range of exercise price	Number Oustanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$0.14 to $1.00	8,330,000	3.26 years	$          0.49	8,330,000	$    0.49
	Exercise Price		$0.14 to $1.00
	Term		5 years
	Volatility		261%
	Dividends		0%