12. DERIVATIVE INSTRUMENTS

The 2014 warrants issued in connection with the Company’s May 2014 public offering had anti-dilution protection provisions and, under certain conditions, required the Company to automatically reprice the 2014 warrants (Note 15). Accordingly, the 2014 warrants have been accounted for as derivative warrant liabilities. Through the date of the warrant exchange (Note 11), 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 2014 warrants considered to be derivative instruments. As of March 31, 2018 and December 31, 2017, the derivative warrant liability was insignificant. 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 three-month periods ended March 31, 2018 and 2017, a loss of $12 and $241, respectively, were included in other income (expense) in the Company’s consolidated statement of operations

The fair value of these derivative instruments at March 31, 2018 and December 31, 2017 was $2 and $4, respectively, and was included as a derivative warrant liability in current liabilities on the balance sheet. The assumptions used principally in determining the fair value of the 2014 warrants were as follows:


	March 31,		December 31,
	2018		2017
Risk free interest rate	2.09	%	1.91	%
Expected dividend yield	—	%	—	%
Contractual term (in years)	1.1		1.4
Expected volatility	109	%	82	%

The primary underlying risk exposure pertaining to the 2014 warrants is the change in fair value of the underlying common stock for each reporting period.

The table below presents the changes in the derivative warrant liability during the three-month periods ended March 31, 2018 and 2017:



	Three Months Ended March 31,
	2018		2017
Balance at December 31,	$	4	$	1,314
Increase in derivative liability prior to warrant exchange		—		—
Repurchase of warrants		(14)		—
Increase (decrease) in the fair value of warrants		12		(241)
Balance at March 31,	$	2	$	1,073