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WARRANTS AND EMBEDDED DERIVATIVES

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The following table summarizes the Company’s liability under warrant and compound embedded derivative agreements as of June 30, 2015 and December 31, 2014:

	June 30, 2015					December 31, 2014
	Number of					Number of
	Shares ⁽²⁾		Liability ⁽²⁾			Shares		Liability

Warrants		258,953,833	$	65,625			113,520,880	$	123,898
Embedded derivatives in convertible debt⁽¹⁾		37,682,111		1,809			64,575,762		40,091
Total		296,635,944		67,434			178,096,642		163,989
Less current portion				(1,809	)				(82,426	)

Long-term portion			$	65,625				$	81,563

⁽¹⁾

Certain of the debt instruments summarized in Note 7 contain features that permit the holders to elect conversion of the debt to shares of the Company’s Common Stock. The Company bifurcates the conversion features from the related debt instruments and accounts for each component at its estimated fair value with updated valuations performed at the end of each calendar quarter.

⁽²⁾

As of June 30, 2015, the Company has 300,000,000 common shares authorized of which 70,482,486 were issued and outstanding. The Company would need approximately 330,000,000 common shares to accommodate the exercise and conversion of all of the common stock options, warrants, convertible debt, and unvested restricted stock presently outstanding, and would not be able to accommodate all such exercise and conversion requests through the remaining unissued common shares. Accordingly, the Company could be required to settle a portion of its warrants and derivative liabilities in cash which requires that they continue to be classified as liabilities rather than equity instruments.

Fair Value of Warrant Liability

As of June 30, 2015 and December 31, 2014, the following table presents the exercise prices, number of shares issuable, and the fair value of the Company’s liability under warrant agreements:

		Exercise Price						Number of Shares				Fair Value of Liability
Original Issue	Year of	June 30,			December 31,			June 30,		December 31,		June 30,		December 31,
Date	Expiration	2015			2014			2015		2014		2015		2014

April 2015	2022	$	0.45		$	-			176,198,571		-	$	46,481	$	-
June 2015	2022		0.45			-			30,000,000		-		7,953		-
January 2015	2020		1.01			-			14,193,715		-		3,021		-
Jan. to Mar. 2015	2020		0.69	⁽¹⁾		-			9,339,572		-		1,954		-
Jan. to Mar. 2015	2020		0.89	⁽¹⁾		-			7,901,234		-		1,556		-
Feb. & Mar. 2015	2020		0.45			-			3,842,553		-		920		-
February 2014	2019		0.45			0.75			4,444,444		21,400,000		846		23,433
February 2014	2019		0.75			0.75			2,774,694		5,888,333		627		6,443
March 2015	2020		0.75			-			3,000,000		-		597		-
March 2015	2020		0.45			-			1,744,427		-		393		-
May to Jun. 2014	2019		0.37			0.75			1,556,304		822,399		362		908
July 2014	2019		0.37			0.75			1,336,980		1,111,699		314		1,241
Apr. to May 2014	2019		0.75			0.75			970,135		8,369,724		224		9,223
May 2015	2020		1.01			-			666,667		-		148		-
March 2015	2020		0.45			-			369,446				84		-
March 2015	2020		0.45						355,393		-		82		-
April 2015	2020		0.37			-			103,991		-		23		-
June 2014	2019		0.45			0.75			54,167		304,217		12		336
July 2014	2019		0.75			10.00			25,641		25,641		10		-
January 2015	2020		0.75			-			41,026		-		9		-
July 2014	2019		0.37			10.00			28,206		28,206		8		11
December 2013	2018		-			0.75			6,667		39,934,773		1		43,174
January 2014	2019		-			0.75			-		15,100,000		-		16,480
April to May 2014	2019		-			0.75			-		11,246,664		-		12,344
August 2014	2019		-			0.75			-		6,234,667		-		6,916
December 2014	2019		-			0.75			-		2,000,000		-		2,233
April 2014	2019		-			0.75			-		1,046,656		-		1,152
July 2014	2019		-			6.75			-		7,901		-		4

Totals		$	0.51	⁽¹⁾	$	0.75	⁽¹⁾		258,953,833		113,520,880	$	65,625	$	123,898

⁽¹⁾

Represents the weighted average exercise price for this group of warrants.

A summary of changes in the Company’s outstanding warrants for the six months ended June 30, 2015 is as follows:


	Number of Warrants			Warrant Liability

Balances, beginning of period		113,520,880		$	123,898
Issuance of warrants:
Term loans		226,523,972			116,166
Stand-alone warrants		28,440,817			34,519
Anti-dilution adjustments ⁽¹⁾		19,919,457			4,511
Modifications of warrants
Cancellations		(138,410,133	)		(168,239	)
Replacements		38,944,789			59,665
Exercise of warrants		(29,985,949	)		(24,634	)
Periodic fair value adjustments		-			(80,261	)

Balances, June 30, 2015		258,953,833		$	65,625

⁽¹⁾

Some of the Company’s warrant agreements previously included anti-dilution adjustments whereby the exercise price and number of shares would reset to a lower price and additional shares (a “Reset Event”). Upon a Reset Event, the fair value of the warrant liability was adjusted and a loss was recognized. As of June 30, 2015, the warrant agreements have been amended whereby substantially all anti-dilution features have been eliminated.

A binomial model is used to compute the fair value of the warrants. As of June 30, 2015, significant assumptions include the risk-free interest rate ranging from 0.13% to 2.07% and historical volatility of the Company’s common stock price of 135.0%. As these assumptions are revised in the future, it can cause significant adjustments to future valuation results. The risk-free interest rate is based on the yield of U.S. treasury bonds over the expected term. The expected share price volatility is based on historical common stock prices for the Company and comparable publicly traded companies over a period commensurate with the life of the instrument.

Fair Value of Embedded Derivatives for Convertible Debt

As of June 30, 2015, the following table presents the conversion prices, number of shares issuable, and the fair value of the Company’s liability under compound embedded derivative agreements:

	Original	As of June 30, 2015
	Date of	Principal		Net Carrying		Conversion		Shares		Derivative
	Financing	Balance		Value		Price		Issuable		Liability

15% Notes:
Former 15% Notes	January 2014	$	6,857	$	6,857	$	0.75		9,142,667	$	346
Former 15% Notes	February 2014		12,100		12,100		0.75		16,133,333		878
Former 15% Notes	February 2014		500		500		0.45		1,111,111		36
5% OID Notes:
Original Issuance	December 2014		998		946		0.45		2,217,778		88
Original Issuance	January 2015		1,053		988		0.45		2,340,000		91
Original Issuance	January 2015		263		254		0.60		438,333		7
Original Issuance	February 2015		263		251		0.60		438,333		8
Exchanged Notes:
2014 15% Notes	Feb. to Mar. 2015		1,779		838		0.60		2,965,000		101
Exchanged Notes	April 2015		1,456		1,279		0.60		2,426,667		175
Former Demand Note	February 2015		211		201		0.45		468,889		79

Total convertible debt		$	25,480	$	24,214				37,682,111	$	1,809