Annual report pursuant to Section 13 and 15(d)

Fair Value Measurement

v3.20.4
Fair Value Measurement
12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements FAIR VALUE MEASUREMENTS
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1 — Quoted market prices in active markets for identical assets or liabilities.

Level 2 — Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3 — Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets.

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement. Assets and liabilities measured at fair value and fair value measurement level were as follows:

December 31, 2020 December 31, 2019
Fair Value Level 1 Level 2 Level 3 Fair Value Level 1 Level 2 Level 3
Assets
Investment in LMC $ 330,556,744  $ 330,556,744  $ —  $ —  $ 12,194,800  $ —  $ —  $ 12,194,800 
Total assets at fair value $ 330,556,744  $ 330,556,744  $ —  $ —  $ 12,194,800  $ —  $ —  $ 12,194,800 
Liabilities
Convertible notes $ 197,700,000  $ —  $ —  $ 197,700,000  $ 39,020,000  $ —  $ —  $ 39,020,000 
Warrant liability —  —  —  —  16,335,000  —  —  16,335,000 
Total liabilities at fair value $ 197,700,000  $ —  $ —  $ 197,700,000  $ 55,355,000  $ —  $ —  $ 55,355,000 

Investment in LMC
As of December 31, 2020, the Company's investment in LMC is measured at fair value using Level 1 inputs because it is valued using a quoted price in an active market.
Previously, the Company's investment in LMC was recorded using the measurement alternative at issuance and at each reporting date through September 30, 2020. Under the measurement alternative, we measured the investment at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions in an identical or similar investment in LMC.
Convertible Notes
The Company's convertible notes are measured at fair value using Level 3 inputs on issuance and at each reporting date. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company’s estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. Significant assumptions used in the fair value model include estimates of the redemption dates, credit spreads and the market price and volatility of the Company’s common stock. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values.
The following table sets forth a reconciliation of the convertible notes:
December 31,
2020 2019
Convertible notes, beginning of year $ 39,020,000  $ — 
Convertible notes at issuance 268,925,000  38,520,000 
Conversion of convertible notes into common stock (270,794,684) (481,728)
Change in fair value 160,549,684  981,728 
Convertible notes, end of year $ 197,700,000  $ 39,020,000 

Warrant Liability

On December 31, 2018, the Company entered into a Credit Agreement with Marathon Asset Management, LP. Upon entering into the Credit Agreement, the Company issued a Common Stock Purchase Warrant to purchase 8,053,390 shares of common stock at an exercise price of $1.25 per share (the “Initial Warrants”).

The Credit Agreement and Initial Warrants were determined to be freestanding instruments and were accounted for separately. The Initial Warrants do not qualify for equity classification and were classified as liability instruments. The liability for the Initial Warrants was marked-to-market quarterly in accordance with liability accounting, with a corresponding charge to Interest Expense.

The Company's warrant liability was measured at fair value using Level 3 inputs on issuance and at each reporting date. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company’s estimates are not necessarily indicative of the amounts that the Company, or holders of the instruments, could realize in a current market exchange. Significant assumptions used in the fair value models include estimates of the redemption dates, credit spreads, dividend payments and the market price and volatility of the Company’s common stock. The use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values.

The following table sets forth a reconciliation of the Warrant Liability:
December 31,
2020 2019
Warrant liability, beginning of year $ 16,335,000  $ 1,822,819 
Exercise of warrants (28,511,690) — 
Change in fair value of warrant liability 12,176,690  15,369,253 
Reclassification to additional paid-in capital —  (857,072)
Warrant liability, end of year $ —  $ 16,335,000