10. Derivative Financial Instruments

Effective January 1, 2009, the Company adopted provisions of ASC Topic 815-40, “Derivatives and Hedging: Contracts in Entity’s Own Equity” (“ASC Topic 815-40”). ASC Topic 815-40 clarifies the determination of whether an instrument issued by an

entity (or an embedded feature in the instrument) is indexed to an entity’s own stock, which would qualify as a scope exception under ASC Topic 815-10.

Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, Synergy has determined that certain warrants issued in connection with sale of its common stock must be classified as derivative instruments. In accordance with ASC Topic 815-40, these warrants are also being re-measured at each balance sheet date based on estimated fair value, and any resultant changes in fair value is being recorded in the Company’s statement of operations. The Company estimates the fair value of certain warrants using the Black-Scholes option pricing model in order to determine the associated derivative instrument liability and change in fair value described above. The range of assumptions used to determine the fair value of the warrants during each period was:

	Year Ended	Year Ended	Year Ended
	December 31, 2015	December 31, 2014	December 31, 2013
Fair value of Synergy common stock	$ 5.67	$ 3.05	$ 5.55
Expected warrant term	2.2 years	0.49-3.9 years	1.8-4.4 years
Risk-free interest rate	1.18%	0.08%-1.32%	0.26%-1.76%
Expected volatility	50%-80%	52%-60%	60%
Dividend yield	—	—	—

The fair value of stock is the closing market price of the Company’s common stock on the date of warrant issuance and at the end of each reporting period when the derivative instruments are marked to market. Expected volatility is a management estimate of future volatility, over the expected warrant term, based on historical volatility of Synergy’s common stock. The warrants have a transferability provision and based on guidance provided in SAB 107 for instruments issued with such a provision, Synergy used the full contractual term as the expected term of the warrants. The risk free rate is based on the U.S. Treasury security rates for maturities consistent with the expected remaining term of the warrants at the date of grant or quarterly revaluation.

The following table sets forth the components of changes in the Synergy’s derivative financial instruments liability balance for the quarterly periods indicated:

				Derivative
				Instrument
				Liability
Date	Description	Warrants		(in thousands)
12/31/2013	Balance of derivative financial instruments liability	858,469		1,534

3/31/2014	Fair value of new warrants issued during the quarter	—		—
3/31/2014	Change in fair value of warrants during the quarter	—		(223		)
6/30/2014	Fair value of new warrants issued during the quarter	—		—
6/30/2014	Change in fair value of warrants during the quarter	—		(756		)
9/30/2014	Fair value of new warrants issued during the quarter	—		—
9/30/2014	Change in fair value of warrants during the quarter	—		(425		)
12/31/2014	Fair value of new warrants issued during the quarter	—		—
12/31/2014	Change in fair value of warrants during the quarter	—		42

12/31/2014	Balance of derivative financial instruments liability	858,469		172

3/31/2015	Change in fair value of warrants during the quarter	—		268
6/30/2015	Change in fair value of warrants during the quarter	—		1,541
6/30/2015	Expiration of warrants	(324,000	)	—
9/30/2015	Change in fair value of warrants during the quarter	—		(1,445		)
9/30/2015	Exercise of warrants	(30,000	)	—
9/30/2015	Expiration of warrants	(2,469	)	(3		)

9/30/2015	Balance of derivative financial instruments liability	502,000		533

12/31/2015	Change in fair value of warrants during the quarter	—		30
12/31/2015	Exercise of warrants	—		—
12/31/2015	Expiration of warrants	(292,000	)	(241		)

12/31/2015	Balance of derivative financial instruments liability	210,000		$	322