Derivative Liability

9 Months Ended

Sep. 30, 2022

Derivative Liability

Derivative Liability

7. Derivative Liability

The unsecured senior subordinated convertible notes (the “2026 Convertible Notes”) (Note 8) contains an embedded conversion option that meets the criteria to be bifurcated and accounted for separately (the “Derivative Liability”) from the 2026 Convertible Notes. The Derivative Liability was recorded at fair value upon the issuance of the 2026 Convertible Notes and is subsequently remeasured to fair value at each reporting period.  The Derivative Liability is valued using a “with-and-without” method. The “with-and-without” methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the embedded conversion option. The difference between the entire instrument with the embedded conversion option compared to the instrument without the embedded conversion option is the fair value of the derivative, recorded as the Derivative Liability in the Company’s condensed consolidated balance sheet.

The estimated fair value of the 2026 Convertible Notes was $42,721 at September 30, 2022. The fair value of the 2026 Convertible Notes on an as-is basis is estimated utilizing a binomial lattice model which requires the use of Level 3 unobservable inputs. The main inputs when determining the fair value are the common stock price and bond yield which are updated each period to reflect the yield of a comparable instrument issued as of the valuation date. The estimated fair value presented is not necessarily indicative of an amount that could be realized in a current market exchange. The use of alternative inputs and estimation methodologies could have a material effect on these estimates of fair value. The main inputs to valuing the 2026 Convertible Notes with the conversion option are as follows:

		As of
	September 30,			December 31,
	2022			2021
Company's stock price	$	4.15		$	6.97
Volatility		100.3	%		82.6	%
Bond yield		17.1	%		12.6	%

A roll-forward of the derivative liability is as follows:

	As of
	September 30, 2022
Balance at December 31, 2021	$	20,192
Change in fair value		(8,598)
Balance at September 30, 2022	$	11,594