DERIVATIVE LIABILITIES

12 Months Ended

Dec. 31, 2012

DERIVATIVE LIABILITIES [Abstract]

DERIVATIVE LIABILITIES

NOTE 11 –DERIVATIVE LIABILITIES

The Company's warrants, preferred stock, and its Convertible 8% Senior Secured Notes issued in 2010, 2009, and 2008 have reset provisions to the exercise price and conversion price if the Company issues equity or notes at a price less than the exercise price set forth in such warrants and notes. This ratchet provision results in a derivative liability in our financial statements.

Our derivative liabilities decreased from $11,031,432 at December 31, 2011 to $8,025,381 at December 31, 2012.  For the year ended December 31, 2012, the change in fair value was a negative $1,514,156. The change in fair value during the year ended December 31, 2011 resulted in a gain of $3,396,298

The following tabular presentation reflects the components of derivative financial instruments on the Company's balance sheet at December 31, 2012 and December 31, 2011:

	12/31/2012			12/31/2011
Common stock warrants	$	6,626,255		$	8,829,215
Embedded conversion features for convertible debt or preferred shares		1,399,126			2,202,217
Total	$	8,025,381		$	11,031,432
Beginning balance	$	11,031,432		$	13,528,355
Bifurcated amount		-			3,386,697
Change in derivative liability valuation		1,514,156			(3,396,298	)
Change in derivative liability - settlements		(4,520,207	)		(2,487,322	)
Total	$	8,025,381		$	11,031,432

During 2012, the Company issued 689,087 shares of common stock as a result of the exercise of warrants both on a cash and cashless basis. The impact of these issuances to the related embedded derivative liabilities was a decrease to the derivative liability and increase to additional paid in capital for $1,021,913 on the exercise dates. Also during 2012, the Company issued 1,658,979 shares of common stock as a result of the conversion of the remaining 2008 and 2010 notes payable, including accrued interest. The impact of these conversions to the related embedded derivative liabilities was a decrease to the derivative liability and increase to additional paid in capital for $48,619 on the conversion dates. Finally, the Company issued 5,493,912 shares of common stock as a result of the conversion of Series I Preferred Stock and accrued dividends. The impact of these conversions to the related embedded derivative liabilities was a decrease to the derivative liability and increase to additional paid in capital for $3,449,675 on the conversion dates.

For the year ended December 31, 2011, the Company issued 56,489 shares of common stock as a result of the exercise of warrants for cash. The impact on paid in capital was an increase of $3,350 and the change to the derivative liability was $34,388. Also during 2011, the Company issued 5,294,029 shares of common stock as a result of the conversion of the 2008, 2009 and 2010 notes payable, including accrued interest. The impact on paid in capital was an increase of $5,343,321 and a change to the derivative liability of $2,410,865. Finally, the Company issued 126,440 shares of common stock as a result of the conversion of Series I Preferred Stock and accrued dividends. The impact on paid in capital was an increase of $126,434 and the change to the derivative liability as a result of the settlement was $42,069.