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DERIVATIVE INSTRUMENTS
3 Months Ended
Mar. 31, 2015
DERIVATIVE INSTRUMENTS  
DERIVATIVE INSTRUMENTS

12.DERIVATIVE INSTRUMENTS

 

The warrants issued in connection with the Company’s May 2014 public offering have anti-dilution protection provisions that allow for the reduction in the exercise price of the warrants if the Company subsequently issues equity securities, including common stock or any security convertible or exchangeable for shares of common stock, for no consideration or for consideration less than the exercise price of the warrants. Accordingly, through March 2015, 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 three months ended March 31, 2015 and 2014 a gain (loss) of $(10,286) and $0, respectively, were included in other income (expense) in the Company’s consolidated statement of operations.

 

 

 

March 31,
2015

 

Risk-free interest rate

 

1.15 

%

Expected dividend yield

 

0.00 

%

Expected term (in years)

 

4.11 

 

Expected volatility

 

116.99 

%

 

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 three months ended March 31 are as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2015

 

2014

 

Balance at December 31,

 

$

7,224

 

$

 

Fair value of warrants issued

 

 

 

Reduction in derivative liability due to exercise and modification of warrants

 

(4,866

)

 

Increase (decrease) in the fair value of warrants

 

10,286

 

 

Balance at March 31,

 

$

12,644

 

$