DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2014

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

12. DERIVATIVE INSTRUMENTS

The warrants issued in connection with May 2014 public offering to purchase 7,000,625 shares of the Common Stock (see Note 9) have anti-dilution protection provisions and, under certain conditions, grant the right to the holder to require the Company to repurchase the warrant. Accordingly, through June 2014, these warrants were accounted for as derivative liabilities. The Company used the Black-Scholes 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 in the Company’s consolidated statement of operations as a derivative gain or loss. The warrant derivative gains (losses) are non-cash income (expenses); and for the six months ended June 30, 2014 and 2013, a gain (loss) of $1,127,000 and $(18,871,000), respectively, were included in other income (expense) in the Company’s consolidated statement of operations.

	June 30, 2014
Risk-free interest rate	1.17	%
Expected dividend yield	0.00	%
Expected term (in years)	4.83
Expected volatility	119.4	%

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

Changes in the derivative warrant liability for the six months ended June 30 are as follows (in thousands):

	Six Months Ended June 30
	2014			2013
Balance at December 31,	$	—		$	14,585
Fair value of warrants issued	6,848			—
Reduction in derivative liability due to exercise and modification of warrants	—			(33,456		)
Increase (decrease) in the fair value of warrants	(1,127		)	18,871
Balance at June 30,	$	5,721		$	—