XML 20 R9.htm IDEA: XBRL DOCUMENT

Financial Instruments and Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Financial Instruments and Fair Value Measurements

Financial Instruments and Fair Value Measurements

3. Financial Instruments and Fair Value Measurements

Financial assets and liabilities measured at fair value are summarized below:


		As of September 30, 2021
								Significant
		Quoted Priced in			Significant Other			Unobservable
		Active Markets			Observable Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)			Total
Assets:
Money market funds		$	7,252		$	—		$	—		$	7,252
Total assets		$	7,252		$	—		$	—		$	7,252
Liabilities:
Simple Agreements for Future Equity		$	—		$	—		$	10,918		$	10,918
Total liabilities		$	—		$	—		$	10,918		$	10,918


		As of December 31, 2020
								Significant
		Quoted Priced in			Significant Other			Unobservable
		Active Markets			Observable Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)			Total
Assets:
Money market funds		$	2,853		$	—		$	—		$	2,853
Total assets		$	2,853		$	—		$	—		$	2,853
Liabilities:
Derivative liability		$	—		$	—		$	2,209		$	2,209
Total liabilities		$	—		$	—		$	2,209		$	2,209

The following table sets forth a summary of the changes in fair value of the Level 3 liabilities for the nine months ended September 30, 2021 and 2020:


		Nine Months Ended September 30, 2021
					Derivative
		SAFE			Liability			Total
Balance at December 31, 2020		$	—		$	2,209		$	2,209
Change in the fair value of the warrant liability			—			—			—
Fair value recognized upon the issuance of SAFE			8,942			—			8,942
Change in the fair value of the liability			1,976			(2,209)			(233)
Balance at September 30, 2021		$	10,918		$	—		$	10,918

		Nine Months Ended September 30, 2020
		Warrant			Derivative
		Liability			Liability			Total
Balance at December 31, 2019		$	181		$	1,493		$	1,674
Change in the fair value of the warrant liability			—			—			—
Fair value recognized upon the issuance of Convertible Notes			—			718			718
Change in the fair value of the liability			(33)			(135)			(168)
Balance at September 30, 2020		$	148		$	2,076		$	2,224

Derivative Liability — The Company recognizes derivative liabilities as a result of the issuance of the convertible notes that contain conversion and redemption features that are required to be bifurcated. The fair value measurement of the derivative liability is classified as Level 3 under the fair value hierarchy as it has been valued using certain unobservable inputs. These inputs include: (1) probability of occurrence of future events (such as a qualified financing or a sale), and (2) discount rate for implied return required by investor. Significant increases or decreases in any of those inputs in isolation could result in a significantly lower or higher fair value measurement.

The fair value of the derivative liability was determined by calculating the fair value of the notes with the conversion and redemption features as compared to the fair value of the notes without such features, with the difference representing the value of the conversion and redemption features, or the derivative liability. The conversion and redemption features are measured at fair value as of each reporting date and the change in the fair value for the period is recorded in the consolidated statements of operations as a change in the fair value of the derivative liability. The fair value of the derivative liability is based on Level 3 unobservable inputs. Changes in fair value are recognized as a gain or loss within other income (expense) on the consolidated statements of operations and comprehensive loss. The derivative liability expired unexercised upon the conversion of the convertible notes into Series B-1 Convertible Preferred Stock in May of 2021 (Note 7).

Warrant Liability — The Company issued 180,724 Series A-1 preferred stock warrants in December 2010. The Company recorded a change in fair value adjustment of $1 and $33 in the consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2020, respectively. The warrants expired unexercised in October 2020.

Simple Agreements for Future Equity — On March 25, 2021, the Company entered into SAFEs with existing investors, pursuant to which the Company received gross proceeds in an aggregate amount equal to $8,942. The fair value of the SAFE liability is estimated using a fair value model that includes inputs such as: (1) probability of occurrence of future events (such as a change of control or public offering), and (2) discount rate for implied return required by investor. The Company recorded a change in fair value adjustment of $932 and $1,976 in the consolidated statement of operations and comprehensive loss for the three and nine months ended September 30, 2021, respectively.

The fair value of the SAFEs was determined using a probability weighted expected return method (PWERM), in which the probability and timing of potential future events is considered in order to estimate the fair value of the SAFEs as of each valuation date. Management determined the fair value of the SAFEs using the following significant unobservable inputs:


				March 25,
		September 30,		2021
		2021		(Issuance)
Expected term (in years)		0.02		0.35
Discount upon conversion		20.0%		20.0%
Discount upon implied return		18.9%		18.9%
Probability of initial public offering occurrence		90.0%		45.0%
Probability of dissolution event occurrence		2.0%		15.0%
Probability of equity financing occurrence		7.0%		37.0%
Probability of change of control occurrence		1.0%		3.0%

In addition, the Company recorded the Series B-1 convertible preferred stock within mezzanine equity at fair value on the date of issuance, May 1, 2021 (Note 7). This non-recurring fair value measure was based on level 3 unobservable inputs.

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.

+ References + Details