DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Since 2013, the Company has issued five tranches of common stock purchase warrants to secure financing, remediate covenant violations and provide consideration for amendments with respect to a credit facility extinguished in 2015.

The Company accounts for derivative financial instruments in accordance with FASB ASC 815-40, Derivative and Hedging – Contracts in Entity’s Own Equity, pursuant to which instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company’s warrants are classified as liability instruments due to an anti-dilution provision that provides for a reduction to the exercise price of the warrants if the Company issues additional equity or equity linked instruments in the future at an effective price per share less than the exercise price then in effect.

The warrants are re-measured at each balance sheet date based on estimated fair value. Changes in estimated fair value are recorded as non-cash adjustments within other income (expenses), net, in the Company’s accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). The Company recorded a gain on the change in the estimated fair value of warrants of $1.3 million for the three months ended March 31, 2017, and a gain on the change in the estimated fair value of warrants of $14.3 million for the three months ended March 31, 2016.

The Company calculated the fair value of the warrants using the Black-Scholes Model as of March 31, 2017 and the Monte Carlo Simulation as of December 31, 2016, using the following assumptions:



	March 31, 2017			December 31, 2016
Fair value of common stock	$	18.46		$	18.93
Remaining life of the warrants (in years)	.9 - 2.8 years			1.2 - 3.0 years
Risk-free interest rate	1.0 - 1.4%			.89 - 1.48%
Expected volatility	45 - 61%			55 - 75%
Dividend yield	—		%	—		%

Expected volatility is based on an analysis of the Company’s volatility. The risk free interest rate is based on the U.S. Treasury security rates for the remaining term of the warrants at the measurement date.