DERIVATIVE LIABILITIES

9 Months Ended

Sep. 30, 2013

DERIVATIVE LIABILITIES [Abstract]

DERIVATIVE LIABILITIES

NOTE 10 – DERIVATIVE LIABILITIES

Certain of 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 $131,158 at September 30, 2013 from $8,025,381 at December 31, 2012.  The decrease in fair value during the nine months ended September 30, 2013 was $906,791 as compared to an increase of $15,216,422 for the nine months ended September 30, 2012.

During the nine months ended September 30, 2013, additional paid in capital increased by $6,719,773 as a result of the March 2013 conversion of the Series II Convertible Preferred Stock by Brightline and the exercise of warrants in 2013.  The change attributable to the conversion of the preferred stock was $2,761,688 and the change associated with the exercise of warrants was $4,225,744.

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

	9/30/2013			12/31/2012
Common stock warrants	$	131,158		$	6,626,255
Embedded conversion features for convertible debt or preferred shares		-			1,399,126
Total	$	131,158		$	8,025,381
Beginning balance	$	8,025,381		$	11,031,432
Bifurcated amount		-			-
Change in derivative liability valuation		(906,791	)		1,514,156
Change in derivative liability - settlements		(6,987,432	)		(4,520,207	)
Total	$	131,158		$	8,025,381