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Fair Value Measurements

6 Months Ended

Jun. 30, 2022

Note 5. Fair Value Measurements

The Company’s cash equivalents and restricted cash equivalents are measured at fair value on recurring basis and is classified as Level 1 input. Cash equivalents and restricted cash equivalents are a money market account that the Company opened in August 2020. The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy.


	Fair Value Measurements as of
	June 30, 2022
	Level 1		Level 2		Level 3
Assets
Cash equivalents	$	74,375	$	—	$	—
Restricted cash equivalents		1,943		—		—
Total	$	76,318	$	—	$	—

The Company did not have any financial instruments measured at fair value on a recurring basis as of June 30, 2022.

The change in the fair value of the derivative liabilities and convertible notes accounted for at fair value is summarized below.


	June 30, 2021
Fair value at beginning of the period	$	24,694
Initial fair value of instruments issued		—
Change in fair value of instruments and accrued interest, net		288
Extinguishment of instruments held at fair value		(24,982	)
Fair value at end of the period	$	—

In order to determine the fair value of the convertible notes issued in December 2020, (the “2020B Notes”), the Company utilized the probability-weighted expected return method (“PWERM”). The PWERM relies on a forward-looking analysis to determine the fair value. Under this method, discrete future outcomes, including an IPO and non-IPO scenarios, are weighted based on the estimated probability of each scenario. The PWERM is used when discrete future outcomes can be predicted with reasonable certainty based on a probability distribution. The fair value estimate relied upon in the PWERM scenario was based on likelihood of achieving four liquidity events, (i) an initial public offering, (ii) merger or acquisition of the Company given prevailing market conditions, (iii) change of control, (iv) maturity of the convertible notes. Estimates and assumptions impacting the fair value measurement include future value under the various conversion scenarios, discount rate, discount period, discount factor and probability of occurrence of each scenario, as best estimated by management. The estimated future value of the notes for each scenario is then discounted to present value using a discount rate. The future value was determined based on the estimated term to the event from valuation date as determined by management. The exit value in an IPO scenario was based on banker indications as well as an analysis of guideline companies that went public within the past few years that are broadly comparable to the Company. The exit value of an M&A scenario is determined by management with an estimated premium applied to the IPO value estimate. The discount rate, discount period, and probability of the occurrence of liquidity scenarios are estimates made by the management.

The convertible notes were measured at fair value upon extinguishment on February 9, 2021 in connection with the Company’s IPO.

- 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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