DERIVATIVE INSTRUMENTS

12 Months Ended

Dec. 31, 2015

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

11. DERIVATIVE INSTRUMENTS

        Certain warrants issued to investors and the placement agent warrants in the fourth quarter of 2010 had provisions that included anti-dilution protection and, under certain conditions, granted the right to the holder to require the Company to repurchase the warrant. Accordingly through March 2013, these warrants were accounted for as derivative liabilities. In the quarter ended March 31, 2013, $476 was reclassified from Derivative warrant liability to Additional paid-in capital related to warrants exercised. In May 2013 outstanding investor warrants totaling 11,726,343 warrants, were exercised and the fair value of $25,241was reclassified from Derivative warrant liability to Additional paid-in capital.

        On May 17, 2013, the Company completed its offer to exchange certain of its outstanding warrants to purchase shares of the Company's common stock (the "Eligible Warrants") for new warrants (the "New Warrants") with the same terms except (i) the expiration date of the New Warrants was extended two years and (ii) weighted average anti-dilution provisions were removed from the New Warrants (the "Offer"). The Eligible Warrants consisted of (i) warrants to purchase common stock dated October 26, 2010, issued in connection with the closing of a merger (the "Merger Warrants") and (ii) warrants to purchase common stock issued to the placement agent as compensation for services in connection with each closing of a private placement which occurred on October 26, 2010, November 10, 2010 and December 3, 2010 (the "Placement Agent Warrants"). In connection with the Offer, Merger Warrants to purchase 255,000 shares of the Company's common stock and Placement Agent Warrants to purchase 3,064,091 shares of the Company's common stock were tendered and accepted for exchange for New Warrants to purchase an aggregate of 3,319,091 shares of the Company's common stock. Due to the modification of the terms, the Eligible Warrants were revalued prior to modification and immediately after modification as of May 17, 2013. This resulted in a non-cash charge of $765 which was recorded in Other expense as Loss from modification of warrants. Since the New Warrants are not accounted for as derivative liabilities, the fair value of these warrants after modification of $7,738 was reclassified from Derivative warrant liability to Additional paid-in capital.

        The warrants issued in connection with the May 2014 public offering to purchase 1,750,156 shares of the Common Stock (see Note 10) have anti- dilution protection provisions and, under certain conditions, grant the right to the holder to require the Company to re-price the warrant. Accordingly these warrants are accounted for as derivative warrant liabilities. The Company used a Binomial Lattice option pricing model and assumptions that consider, among other factors, the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments. Changes in fair value of the derivative financial instruments are recognized currently in the Company's consolidated statement of operations as a derivative gain or loss. The warrant derivative losses are non-cash expenses and for the 12 months ended December 31, 2015, 2014 and 2013, a loss of $10,804, $376 and $18,871, respectively, were included in other income (expenses) in the Company's consolidated statement of operations.

        The Company uses the Binomial Lattice option pricing model and assumptions that consider among other factors the fair value of the underlying stock, risk-free interest rate, volatility, expected life and dividend rates in estimating fair value for the warrants considered to be derivative instruments. The fair value of these derivative instruments at December 31, 2015 and 2014 was $1,907 and $7,224, respectively, and was included as a derivative warrant liability, a current liability. Changes in fair value of the derivative financial instruments are recognized currently in the consolidated statement of operations as a derivative gain or loss.

        The assumptions used principally in determining the fair value of warrants were as follows:

	Year Ended December 31,
	2015	2014	2013
Risk free interest rate	0.65%	1.47%	NA
Expected dividend yield	0%	0%	NA
Contractual term	3.4 years	4.4 years	NA
Expected volatility	100%	119%	NA

        The primary underlying risk exposure pertaining to the warrants is the change in fair value of the underlying Common Stock for each reporting period.

        The table below presents the changes in derivative warrant liability during the years ended December 31, 2015, 2014, and 2013:

	Year Ended December 31,
	2015			2014		2013
Balance at beginning of year	$	7,224		$	—	$	14,585
Issuance of warrants		—			6,848		—
Increase (decrease) in the fair value of the warrants		10,804			376		18,871
Fair value of derivative warrant liability reclassified to additional paid in capital		(16,121	)		—		(33,456	)
Balance at end of year	$	1,907		$	7,224	$	—