CVRx, Inc. Fair Value Disclosure
4. | Fair value measurements |
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:
| ● | Level 1 — Inputs are quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2 — Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. |
| ● | Level 3 — Inputs are unobservable for the asset or liability. |
The following table sets forth the Company’s liabilities that were measured at fair value on a recurring basis by level within the fair value hierarchy. There was no convertible preferred stock warrant liability as of December 31, 2021.
(in thousands) | ||||||||||||
Balance as of December 31, 2020 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Liabilities: |
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Convertible preferred stock warrant liability | $ | — | $ | — | $ | 3,911 | $ | 3,911 | ||||
Total liabilities | $ | — | $ | — | $ | 3,911 | $ | 3,911 | ||||
The convertible preferred stock warrant liability related to warrants issued in connection with loan and security agreements entered into in September 2014, as amended in July 2015, in May 2016 and in September 2019. These warrants were originally issued to purchase shares of Series F-2 convertible preferred stock and Series G convertible preferred stock (“Series G Preferred Shares”). In connection with the closing of the initial public offering (“IPO”), these convertible preferred stock warrants became warrants to purchase 108,406 shares of common stock and were reclassified to equity.
The convertible preferred stock warrant liability also related to a warrant issued to Biosense Webster, Inc. (“BWI”), an affiliate of Johnson & Johnson Innovation — JJDC, Inc., to purchase Series G Preferred Shares with an exercise price of $0.01 per share. In connection with the closing of the IPO, the BWI warrant to purchase Series G Preferred Shares became exercisable to purchase 607,725 shares of common stock at an exercise price of $0.16 per share.
The Company’s recurring fair value measurements using significant unobservable inputs (Level 3) related solely to the Company’s convertible preferred stock warrant liability. The convertible preferred stock warrant liability was remeasured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss. In connection with the closing of the IPO, all of the outstanding convertible preferred stock warrants were converted to common stock warrants. The related liability was remeasured at the time of the IPO and reclassed to additional paid-in capital.
The following table sets forth a summary of changes in the estimated fair value of the Company’s convertible preferred stock warrants during the years ended:
December 31, | ||||||
(in thousands) |
| 2021 |
| 2020 | ||
Beginning of the period | $ | 3,911 | $ | 3,540 | ||
Change in fair value |
| 13,294 |
| 371 | ||
Conversion to common stock warrants | (17,205) | — | ||||
End of the period | $ | — | $ | 3,911 | ||
There were no transfers in or out of Level 1, Level 2 or Level 3 fair value measurements during the periods ended December 31, 2021 and 2020.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.