DERIVATIVE LIABILITIES

6 Months Ended

Jun. 30, 2013

DERIVATIVE LIABILITIES [Abstract]

DERIVATIVE LIABILITIES

NOTE 11 – DERIVATIVE LIABILITIES

The Company’s warrants (as well as its formerly outstanding preferred stock and Convertible 8% Senior Secured Notes issued in 2008 and 2010) have reset provisions to the exercise price if the Company issues equity or other derivatives at a price less than the exercise price set forth in such warrants. This ratchet provision results in a derivative liability in our financial statements.

Our derivative liabilities decreased to $2,949,146 at June 30, 2013 from $8,025,381 at December 31, 2012.  The decrease in fair value during the six months ended June 30, 2013 was $497,187 as compared to an increase of $2,887,993 for the six months ended June 30, 2012.

During the six months ended June 30, 2013, additional paid in capital increased by $4,579,048 as a result of the conversion of the Series II Convertible Preferred Stock by Brightline and the exercise of warrants.  The change attributable to the conversion of the preferred stock was $2,761,688 and the change associated with the exercise of warrants was $1,817,360.

The following tabular presentation reflects the components of derivative financial instruments on the Company’s balance sheet at June 30, 2013 and December 31, 2012:

	6/30/13	12/31/12
Common stock warrants	$2,949,146	$6,626,255
Embedded conversion features for
convertible debt or preferred shares	-	1,399,126
Total	$2,949,146	$8,025,381
Beginning balance	$8,025,381	$11,031,432
Bifurcated amount	-	-
Change in derivative liability valuation	(497,187)	1,514,156
Change in derivative liability - settlements	(4,579,048)	(4,520,207)
Total	$2,949,146	$8,025,381