Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE LIABILITIES

v3.24.3
DERIVATIVE LIABILITIES
 9 Months Ended
Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE LIABILITIES
 9. DERIVATIVE LIABILITIES
The following table summarizes the change in the Company’s derivative liabilities for the nine months ended September 30, 2024.
Total Derivative Liabilities (1)
Balance as of January 1, 2024 $ 2,638 
Derivative warrants issued (2)
6,765 
Fair value changes (2,840)
Balance as of September 30, 2024 $ 6,563 
(1)Refer to Note 10 - Equity for the change in number of warrants during the nine months ended September 30, 2024.
(2)Represents the fair value of 19,400,000 derivative warrants issued in connection with the Term Loans in July 2024. Refer to Note 8 - Debt for more information.
The Company’s derivative liabilities are primarily comprised of derivative warrants (“Derivative Warrants”). These are warrants to purchase SVS of the Company and were issued in connection with the 10% senior secured notes, and the Term Loans. The Derivative Warrants may be net share settled. As of September 30, 2024 there were 57,262,922 Derivative Warrants outstanding, which consisted of (i) 29,972,000 warrants with exercise price of $1.25 per warrant and expiration date in December 2024, (ii) 5,890,922 warrants with exercise price of $1.00 per warrant and expiration date of December 2024, (iii) 2,000,000 warrants with an exercise price of $2.086 per warrant and expiration date in December 2026, and (iv) 19,400,000 warrants with an exercise price of $1.00 per warrant and expiration date in July 2029. As of December 31, 2023, there were 37,862,922 Derivative Warrants outstanding, which consisted of (i) 29,972,000 warrants with exercise price of $1.25 per warrant and expiration date in December 2024, (ii) 5,890,922 warrants with exercise price
of $1.00 per warrant and expiration date of December 2024, and (iii) 2,000,000 warrants with an exercise price of $2.086 per warrant and expiration date in December 2026.
Derivative Warrants are considered derivative financial liabilities measured at fair value with all gains or losses recognized in profit or loss as the settlement amount for the Derivative Warrants may be adjusted during certain periods for variables that are not inputs to standard pricing models for forward or option equity contracts, i.e., the “fixed for fixed” criteria under ASC 815-40. The estimated fair value of the Derivative Warrants is measured at the end of each reporting period and an adjustment is reflected in fair value changes in derivatives in the consolidated statements of operations and comprehensive income (loss). These are Level 3 recurring fair value measurements. The estimated fair value of the Derivative Warrants was determined using the Black-Scholes model with stock price based on the OTCQX closing price of the Derivative Warrants issue date as of September 30, 2024 and December 31, 2023.

The assumptions used in the fair value calculations as of the balance sheet dates presented include the following:
July 2024 (New Issuances) (unaudited) September 30, 2024 (unaudited) December 31, 2023
Stock price $0.57 $0.53 $0.46
Risk-free annual interest rate 3.97%
3.58% - 4.77%
4.01% - 4.79%
Range of estimated possible exercise price $1.00
$1.00 - $2.086
$1.00 - $2.086
Weighted average volatility 88% 91% 101%
Remaining life 5 years
0.23 - 4.84 years
1.00 - 2.90 years
Forfeiture rate
 0% 0% 0%
Expected annual dividend yield 0% 0% 0%
Volatility was estimated by using a weighting of the Company’s historical volatility. The risk-free interest rate for the expected life of the Derivative Warrants was based on the yield available on government benchmark bonds with an approximate equivalent remaining term. The expected life is based on the contractual term. If any of the assumptions used in the calculation were to increase or decrease, this could result in a material or significant increase or decrease in the estimated fair value of the derivative liability. For example, the following table illustrates an increase or decrease in certain significant assumptions as of the balance sheet dates:
As of September 30, 2024 As of December 31, 2023
(unaudited)
Input Effect of 10% Increase Effect of 10% Decrease Input Effect of 10% Increase Effect of 10% Decrease
Stock price $ 0.53 $ 973  $ (910) $ 0.46 $ 637  $ (574)
Volatility 91  % 745  (772) 101  % 680  (643)