DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2011

DERIVATIVE FINANCIAL INSTRUMENTS [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

(6) DERIVATIVE FINANCIAL INSTRUMENTS

        Derivative financial instruments are recognized as a liability on the Consolidated Balance Sheet and measured at their current fair value.

        At September 30, 2011 and December 31, 2010, the Company had outstanding warrants to purchase 12,478,197 and 10,336,292 shares of its Common Stock, respectively. Included in these outstanding warrants at September 30, 2011 are warrants to purchase 745,974 shares that are considered to be derivative financial instruments, because the warrant agreements contain “down round” provisions whereby the number of shares covered by the warrants is subject to change in the event of certain future dilutive stock issuances. The fair value of these derivative instruments at September 30, 2011 was approximately $1,561,244 and is included in the Derivative Warrant Liability, a current liability, on the Consolidated Balance Sheet. Changes in the fair value of the derivative financial instruments are recognized in the Consolidated Statement of Operations as a Derivative Warrant Gain or Loss. The Derivative Warrant Gain for the three months ended September 30, 2011 was approximately $893,000. The Derivative Warrant Loss for the nine months ended September 30, 2011 was approximately $2,259,000.  The Derivative Warrant Gain for the three and nine months ended September 30, 2010 was approximately $329,000 and $1,001,000, respectively.

       The primary underlying risk exposure pertaining to the warrants is the change in fair value of the underlying Common Stock for each reporting period. For the nine months ended September 30, 2011, holders exercised warrants with “down round” provisions to purchase 632,318 shares which resulted in a reclassification of $2,242,000 from the Derivative Warrant Liability to Additional Paid-in Capital.