Derivative Liability

3 Months Ended

Mar. 31, 2020

4. Derivative Liability

The 2026 Convertible Notes (Note 5) contained an embedded conversion option that met the criteria to be bifurcated and accounted for separately from the 2026 Convertible Notes (the "Derivative Liability"). 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 was initially valued and remeasured 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.

The fair value of the 2026 Convertible Notes with and without the conversion option is estimated using a binomial lattice approach. The main inputs to valuing the 2026 Convertible Notes with the conversion option as of March 31, 2020 include the Company’s stock price on the valuation date ($4.95 on March 31, 2020), the expected annual volatility of the Company’s stock (88%) and the bond yield (15.0%), which was derived by making the fair value of the 2026 Convertible Notes equal to the face value on the issuance date. Fair value measurements are highly sensitive to changes in these inputs and significant changes in these inputs would result in a significantly higher or lower fair value.

A roll forward of the derivative liability is as follows:


	As of
	March 31, 2020
Balance at December 31, 2019	$	12,124
Change in fair value		3,404
Balance at March 31, 2020	$	15,528