DERIVATIVE INSTRUMENTS

12 Months Ended

Dec. 31, 2016

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

12. DERIVATIVE INSTRUMENTS

The warrants issued in connection with the Company’s May 2014 public offering to purchase 1,750,156 shares of the common stock (see Note 11) have anti-dilution protection provisions and, under certain conditions, require the Company to automatically reprice the warrants. Accordingly, these warrants are accounted for as derivative warrant liabilities. The Company used 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. Changes in the 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 gains or losses are non-cash expenses and for the years ended December 31, 2016, 2015, and 2014, a (gain) loss of $(593),  $10,804 and $376, respectively, were included in other income (expense) in the Company’s consolidated statement of operations.

The fair value of these derivative instruments at December 31, 2016 and 2015 was $1,314 and $1,907, respectively, and was included as a derivative warrant liability in current liabilities. The assumptions used principally in determining the fair value of warrants were as follows:

	Year Ended December 31,
	2016		2015		2014
Risk-free interest rate	1.20	%	0.65	%	1.47	%
Expected dividend yield	0	%	0	%	0	%
Contractual term	2.4	years	3.4	years	4.4	years
Expected volatility	89	%	100	%	119	%

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, 2016,  2015, and 2014:

	Year Ended December 31,
	2016		2015		2014
Balance at beginning of year	$	1,907	$	7,224	$	—
Issuance of warrants		—		—		6,848
(Decrease) increase in the fair value of the warrants		(593)		10,804		376
Fair value of derivative warrant liability reclassified to additional paid in capital		—		(16,121)		—
Balance at end of year	$	1,314	$	1,907	$	7,224