Quarterly report pursuant to Section 13 or 15(d)

Derivative Liabilities

v3.22.2.2
Derivative Liabilities
9 Months Ended
Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Liabilities Derivative Liabilities
Warrants to purchase shares of common stock outstanding at September 30, 2022 are as follows:

Warrants Exercise Price Expiration Date
496,415 $3.120 12/22/2023
510,204 $3.430 3/12/2026
424,242 $4.125 3/12/2026
127,273 $6.875 3/12/2026

Fair Value of Warrants

The Company utilized the Monte Carlo simulation model to calculate the fair value of the Powerscourt Warrant and Wilmington Warrant (collectively, the "Warrant Agreements"). Significant observable and unobservable inputs include stock price, conversion price, risk-free rate, term, likelihood of an event of contractual conversion and expected volatility. The Monte Carlo simulation is a Level 3 valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators. The Warrant Agreements contain terms and features that give rise to derivative liability classification.

In measuring the warrant liabilities, the Company used the following inputs in its Monte Carlo model.
September 30, 2022
December 31, 2021
Common Stock price $1.30 $1.94
Weighted average contractual term to maturity 2.7 years 3.5 years
Range of expected market volatility %
64.58% - 85.99%
70.12% - 81.00%
Range of risk free interest rate
4.09% - 4.20%
0.72% - 1.16%

Fair Value of Conversion Features Related to Convertible Notes

The Company identified certain embedded derivatives related to the conversion features of the Convertible Notes. In accordance with ASC 815-40, Derivatives and Hedging Activities, the embedded conversion options contained within the Convertible Notes were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through each reporting date. The Company utilized a multinomial lattice model to calculate the fair value of the embedded derivatives. Significant observable and unobservable inputs include, conversion price, stock price, dividend rate, expected volatility, risk-free rate and term. The multinomial lattice model is a Level 3 valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators.

In measuring the embedded derivative liability, the Company used the following inputs in its multinomial lattice model:

September 30, 2022
December 31, 2021
Conversion price $6.25 $6.25
Common Stock price $1.30 $1.94
Contractual term to maturity 9.3 years 10.1 years
Expected market volatility % 195.00% 80.00%
Risk-free interest rate 3.82% 1.51%
Traded WHLRL price, % of par 119.45% 113.96%

The following table sets forth a summary of the changes in fair value of the Company's derivative liabilities, which include both the warrant liabilities and embedded derivative liability (in thousands, unaudited):
Nine Months Ended September 30, 2022
Year Ended December 31, 2021
Balance at the beginning of period $ 4,776  $ 594 
Issuance of Wilmington Warrant —  2,018 
Issuance of embedded derivative —  5,932 
Changes in fair value 2,533  (3,768)
Balance at ending of period $ 7,309  $ 4,776