DERIVATIVE LIABILITY

6 Months Ended

Jun. 30, 2015

Derivative Liability

DERIVATIVE LIABILITY

(6)  DERIVATIVE LIABILITIES

Derivative warrant liability:

As a result of having warrants which are outstanding, issued in connection with a 2012 Credit Facility (which was terminated in October 2014), we are required to record the changes in the value of these derivative warrants through their expirations in November 2017. The table below presents the changes in the derivative warrant liability, which is measured at fair value on a recurring basis and classified as Level 3 in fair value hierarchy:

	2015		2014
Derivative warrant liability as of January 1	$	208,155	$	1,119,155
Loss (gain) on revaluation		7,845		(533,000	)
Derivative warrant liability as of June 30	$	216,000	$	586,155

None of the derivative warrants were exercised in 2015 or 2014 pursuant to cashless exercise provisions.

Derivative financing liability:

In December 2014, the Company reached agreement with investors to provide $4,000,000 of installment financing in exchange for Series F Preferred Stock and warrants. The deal was priced at $1.50 per share or the stock price in effect, if lower. At June 30, 2015, installments totaling $500,000 still remained to be paid by investors, potentially representing 333,333 shares of Series F Preferred to be issued in the future with warrants to purchase the same number of common shares at the agreed exercise price of $3.00. Our closing market price at June 30, 2015 of $1.70 per share was $0.20 above the deal price of $1.50. As a result of the market price being higher than the stated deal price, the Company was required to record a charge to financing expense and a corresponding credit to derivative liability representing the potential value to be provided in excess of the potential cash proceeds calculated as follows:

Excess of Market share price over deal share price ($1.70 vs. $1.50)	$	0.20
Potential future share issuance		333,333
	$	66,667
Fair value of warrants utilizing Black-Scholes model		352,333
	$	419,000

As the Company receives subsequent cash installments, the derivative liability will increase or decrease depending on the fair value of the shares and warrants on the date the installments are made.