Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE LIABILITY

v3.23.1
DERIVATIVE LIABILITY
3 Months Ended
Mar. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE LIABILITY

15. DERIVATIVE LIABILITY

 

On July 28, 2020, the Company, with its subsidiary, Corbus Pharmaceuticals, Inc., as borrower, entered into a $50,000,000 secured Loan and Security Agreement with K2HV, an unrelated third party (the “Loan and Security Agreement”) and received the first $20,000,000 tranche upon signing. The Company has determined that a prepayment feature and default feature needed to be separately valued and marked to market each reporting period after assessing the agreement under ASC 815.

 

The value of these features is determined each reporting period by taking the present value of net cash flows with and without the prepayment features. The significant assumption used to determine the fair value of the debt without any features is the discount rate which has been estimated by using published market rates of triple CCC rated public companies. All other inputs are taken from the Loan and Security Agreement. The additional significant assumptions used when valuing the prepayment feature is the probability of a change of control event. The Company has determined the probability from December 31, 2022 to March 31, 2023 has stayed consistent. The additional significant assumption used when valuing the default feature is the probability of defaulting on the repayment of loan. The Company has determined the probability from December 31, 2022 to March 31, 2023 has remained consistent. The value of these features was determined to be approximately $36,868 at December 31, 2022 and March 31, 2023 which resulted in no expense recognized in the first three months of 2023. The Company considers the fair value of the derivative liability to be Level 3 under the three-tier fair value hierarchy.

 

A roll forward of the fair value of the derivative liabilities for the three months ended March 31, 2023 is presented below.

 

 

 

March 31, 2023

 

Beginning balance, December 31, 2022

 

$

36,868

 

Change in fair value of derivative liabilities

 

 

 

Ending balance, March 31, 2023

 

$

36,868