Note 3:  Accrued Liabilities

Accrued but unpaid salaries and vacation benefits total $787,302 and $516,083 as of June 30, 2013 and December 31, 2012, respectively.   Debenture Interest accrued and unpaid is $45,716 at both June 30, 2013 and December 31, 2012.  Other accrued liabilities totaling $331,524 and $496,662 as of June 30, 2013 and December 31, 2102 are as follows:

The Company recognized a derivative liability for the conversion feature and warrants for the $1.0 million senior secured debenture issued on June 27, 2012 as an embedded derivative. It was valued on the respective transaction dates of June 27, 2012 for issuance of the debentures and the period ended June 30, 2013 using a Black-Scholes pricing model. The conversion feature may be exercised at any time and are thus reported as current liabilities. Warrants to purchase 5,000,000 shares of common stock were issued to Hillair as part of the debenture and 380,952 warrants to purchase shares of common stock were issued to National Securities Corporation and several of its employees, who acted as placement agent to the Company in connection with the Debenture. These warrants have a cashless exercise provision effective six months after the issuance date. In accordance with ASC 815-10-25, we measured the subsequent derivative valuation using a Black-Scholes pricing model on December 31, 2012 and recorded the additional derivative liability as of that date. See Note 6: Stockholders’ Equity for additional information on the warrants issued. At the end of each quarterly reporting date the values are evaluated and adjusted to current market value. The amount recorded as of June 30, 2013 and December 31, 2012 was $58,205 and $68,962, respectively.

Derivative liability activity for the six months ending June 30, 2013 was as follows:

Fair market values of the Company's derivatives as of June 30, 2013 were based on the Black Scholes valuation using the following assumptions:                        

The Company recorded a gain on the derivative valuation for the debenture in the amounts of $10,757 and $0 for the six months ended June 30, 2013 and 2012, respectively.