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FAIR VALUE MEASUREMENTS AND INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2021

FAIR VALUE MEASUREMENTS AND INVESTMENT SECURITIES

Investment Securities

The following table presents the Company’s investment securities (including, if applicable, those classified on the Company’s balance sheet as cash equivalents) that are measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020:


	Fair Value at September 30, 2021						Fair Value at December 31, 2020
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds and treasury bills	$	12,481	$	—	$	—	$	27,463	$	—	$	—
Total cash equivalents	$	12,481	$	—	$	—	$	27,463	$	—	$	—

As of September 30, 2021 and December 31, 2020, $1.5 million of restricted cash on the Company's balance sheet is held in a money market fund.

Money market funds, U.S. Treasury, U.S. government agency-backed securities, corporate debt securities and municipal bonds are valued based on various observable inputs such as benchmark yields, reported trades, broker/dealer quotes, benchmark securities and bids.

Warrant Derivative Liability and Private Placement Option Liability

The Company's financial liabilities recorded at fair value on a recurring basis include the fair values of the warrant derivative liability and the private placement option liability. As of September 30, 2021, the fair values of the warrant derivative liability and the private placement option liability are classified as current liabilities in the accompanying condensed consolidated balance sheets. These liabilities will be shown as current liabilities on the balance sheet when it is deemed more probable than not by management to be exercised within one year.

Inputs used to determine estimated fair value (Level 3) of the warrants include the fair value of the underlying stock relative to the warrant exercise price at the valuation measurement date, volatility of the price of the underlying stock, the expected term of the warrants, and risk-free interest rates.

The fair value of the warrants has been estimated with the following weighted-average assumptions, including the most sensitive input, volatility:


	September 30, 2021	December 31, 2020
Risk-free interest rate	0.95%	0.46%
Volatility	95.00%	90.00%
Expected term (years)	4.89	5.64

Inputs used to determine estimated fair value (Level 3) of the private placement option include the fair value of the underlying stock relative to the preferred share conversion price and warrant exercise price at the valuation measurement date, volatility of the price of the underlying stock, the expected term of the call option on the preferred shares and expected term of the warrants, and risk-free interest rates.

The fair value of the private placement option has been estimated with the following weighted-average assumptions, including the most sensitive input, volatility:


	September 30, 2021		December 31, 2020
Risk-free interest rate	1.33	%	0.77	%
Volatility	95.00	%	90.00	%
Expected term (years)	7.00		7.00

The following table provides the warrant derivative and private placement option reported at fair value and measured on a recurring basis:


	Fair Value at September 30, 2021						Fair Value at December 31, 2020
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Warrant derivative liability	$	—	$	—	$	7,842	$	—	$	—	$	10,345
Private placement option liability	—		—		2,800		—		—		7,803
Total fair value	$	—	$	—	$	10,642	$	—	$	—	$	18,148

The ending balance of the Level 3 financial instruments presented above represents the Company's best estimate of valuation and may not be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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