|9 Months Ended|
Sep. 30, 2022
|Derivative Instruments and Hedging Activities Disclosure [Abstract]|
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 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 are 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 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, 2021 to September 30, 2022 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, 2021 to September 30, 2022 has remained consistent. The value of these features was determined to be approximately $133,710 at December 31, 2021 and September 30, 2022, which resulted in no expense recognized in the first nine months of 2022. 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 nine months ended September 30, 2022 is presented below.
The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef