Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.22.2.2
Fair Value Measurements
9 Months Ended
Sep. 30, 2022
Fair Value Disclosures [Abstract]  
Fair Value Measurements

11. Fair Value Measurements

The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable, and accrued expenses approximate their respective fair values due to the short-term nature of such instruments.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. The following table summarizes the conclusions reached as of September 30, 2022 and December 31, 2021 for financial instruments measured at fair value on a recurring basis (in thousands):

 

 

 

 

 

Fair Value Hierarchy Classification

 

 

 

Balance

 

 

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs (Level 3)

 

September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

(59

)

 

$

(59

)

 

 

 

 

 

 

Restricted cash

 

 

218

 

 

 

218

 

 

 

 

 

 

 

Money market funds

 

 

68,679

 

 

 

68,679

 

 

 

 

 

 

 

Total assets

 

$

68,838

 

 

$

68,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liabilities

 

$

27,730

 

 

 

 

 

 

 

 

$

27,730

 

Derivative liability

 

 

238

 

 

 

 

 

 

 

 

 

238

 

Total liabilities

 

$

27,968

 

 

 

 

 

 

 

 

$

27,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

310

 

 

$

310

 

 

 

 

 

 

 

Restricted cash

 

 

218

 

 

 

218

 

 

 

 

 

 

 

Money market funds

 

 

104,187

 

 

 

104,187

 

 

 

 

 

 

 

Total assets

 

$

104,715

 

 

$

104,715

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liabilities

 

$

18,062

 

 

 

 

 

 

 

 

$

18,062

 

Derivative liability

 

 

1,358

 

 

 

 

 

 

 

 

 

1,358

 

Total liabilities

 

$

19,420

 

 

 

 

 

 

 

 

$

19,420

 

 

The Company measures cash equivalents at fair value on a recurring basis. The fair value of cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets.

Level 3 financial liabilities consist of the warrant liabilities for which there is no current market such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. The Company uses the Black-Scholes option valuation model to value the Level 3 warrant liabilities at inception and on subsequent valuation dates. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as volatility. The unobservable input for all of the Level 3 warrant liabilities includes volatility. The historical and implied volatility of the Company, using its closing common stock prices and market data, is utilized to reflect future volatility over the expected term of the warrants. At September 30, 2022, the range and weighted average of the Level 3 volatilities utilized in the Black-Scholes model to fair value the warrant liabilities were 81.7% to 84.8% and 84.7%, respectively. The Company utilizes a probability assessment to estimate the likelihood of vesting for the remaining Loan Agreement warrants and allocated the probability of occurrence percentage to the fair values calculated.

The Company uses the binomial lattice valuation model to value the Level 3 derivative liabilities at inception and on subsequent valuation dates. This model incorporates transaction details such as the Company’s stock price, contractual terms, dividend yield, risk-free rate, adjusted equity volatility, credit rating, market credit spread, and estimated effective yield. The unobservable inputs associated with the Level 3 derivative liabilities are adjusted equity volatility, market credit spread, and estimated yield. As of September 30, 2022, these inputs were 65.7%, 1,544 basis points, and 19.7%, respectively. The senior

convertible notes are initially fair valued using the binomial lattice model and with the straight debt fair value calculated using the discounted cash flow method. The residual difference represents the fair value of the embedded derivative liabilities and the fair value of the embedded derivative liabilities are reassessed using the binomial lattice valuation model on a quarterly basis.

A reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows (in thousands):

 

 

 

Warrant Liabilities

 

Balance – December 31, 2021

 

 

$

18,062

 

April 2022 Public Offering warrant issuance

 

 

 

24,704

 

Loan Agreement warrants

 

 

 

(71

)

Gain adjustment to fair value

 

 

 

(14,965

)

Balance – September 30, 2022

 

 

$

27,730

 

 

 

 

 

 

 

 

 

Derivative Liability

 

Balance – December 31, 2021

 

 

$

1,358

 

Gain adjustment to fair value

 

 

 

(1,120

)

Balance – September 30, 2022

 

 

$

238