FAIR VALUE MEASUREMENTS AND INVESTMENT SECURITIES

3 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS AND INVESTMENT SECURITIES

FAIR VALUE MEASUREMENTS AND INVESTMENT SECURITIES

Fair Value of Financial Instruments

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy has been established that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

These inputs are classified into the following hierarchy:

Level 1 Inputs - quoted prices (unadjusted) in active markets for identical assets that the reporting entity has the ability to access at the measurement date;

Level 2 Inputs - inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly; and

Level 3 Inputs - unobservable inputs for the assets.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The Company believes the recorded values of its financial instruments, including cash and cash equivalents, accounts payable, and accrued liabilities approximate their fair values due to the short-term nature of these instruments.

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 March 31, 2022 and December 31, 2021:

	Fair Value at March 31, 2022						Fair Value at December 31, 2021
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds	$	34,999	$	—	$	—	$	42,487	$	—	$	—
Total cash equivalents	$	34,999	$	—	$	—	$	42,487	$	—	$	—

As of March 31, 2022 and December 31, 2021, an additional $1.5 million of restricted cash on the Company's balance sheet is held in a money market fund and would be considered a level 1 measurement.

Money market funds 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 prior to its derecognition in December 2021. 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 values of the warrant derivative liability and the private placement option liability, prior to its derecognition in December 2021, 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. On December 4, 2021, the Company entered into a Securities Purchase Agreement (the “2021 Securities Purchase Agreement”), pursuant to which certain of the investors irrevocably waived the right to cause the Company

to conduct the “First Closing” and “Second Closing” under the private placement option contained in the 2019 Securities Purchase Agreement (each term as defined in the 2019 Securities Purchase Agreement). The Company derecognized the private placement option liability of $2.8 million during the fourth quarter of 2021, out of which $2.6 million was recorded as gain on change in the fair value in the accompanying statements of operations and comprehensive loss, and $0.2 million was recorded as additional paid-in capital in the accompanying balance sheets.

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

	March 31, 2022	December 31, 2021
Risk-free interest rate	2.40%	1.22%
Volatility	92.00%	94.00%
Expected term (years)	4.38	4.64

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

	Fair Value at March 31, 2022						Fair Value at December 31, 2021
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Warrant derivative liability	$	—	$	—	$	4,410	$	—	$	—	$	2,773
Total fair value	$	—	$	—	$	4,410	$	—	$	—	$	2,773

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.