Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.22.2.2
Fair Value Measurements
 9 Months Ended
Oct. 03, 2022
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value MeasurementsFair values of financial instruments are estimated using public market prices, quotes from financial institutions, and other available information. The fair values of cash equivalents, receivables, net, accounts payable and short-term debt approximate their carrying amounts due to their short duration.
The following tables summarize the fair values of financial instruments measured at fair value on a recurring basis as of October 3, 2022 and December 31, 2021.

Items Measured at Fair Value at October 3, 2022
(in thousands) Quoted prices in active market for identical assets (liabilities) (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3)
Redeemable preferred stock $ —  $ 50,416  $ — 
Related party note —  9,107  — 
Warrant liability —  —  656 
Total $ —  $ 59,523  $ 656 

Items Measured at Fair Value at December 31, 2021
(in thousands) Quoted prices in active market for identical assets (liabilities) (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3)
Redeemable preferred stock $ —  $ 47,525  $ — 
Related party note —  8,724  — 
Warrant liability —  —  2,706 
Total $ —  $ 56,249  $ 2,706 

The fair value of the preferred stock was determined using a discounted cash flow methodology. The expected future redemption payment was forecasted based on the contractual PIK (payment in kind) interest and estimated redemption date of December 31, 2024.

The fair value of the related party note is determined based on the present value of the underlying cash flows discounted at our incremental borrowing rates.

The fair value of non-financial assets measured at fair value on a non-recurring basis, classified as Level 2 in the fair value hierarchy, is determined based on third-party market appraisals. The fair value of our warrant liability is measured at fair value on a non-recurring basis, classified as Level 3 in the fair value hierarchy. The fair value of the private placement warrants, private warrants, and working capital warrants was determined using the publicly-traded price of our common stock on the valuation dates of $2.48 on October 3, 2022 and $5.67 on December 31, 2021 and was estimated using a Dynamic Black-Scholes model. This process relies upon inputs such as shares outstanding, estimated stock prices, strike price, risk free interest rate and volatility assumptions. The calculated warrant price for private warrants was $0.18 and $0.75 on October 3, 2022 and December 31, 2021.

The input variables for the Black-Scholes are noted in the table below:

October 3, 2022 December 31, 2021
Risk-free interest rate 4.02  % 1.11  %
Expected life in years 3.21 3.96
Expected volatility 57.2  % 41.8  %
Expected dividend yield —  % —  %

Assets and liabilities that are measured at fair value on a non-recurring basis include our long-lived assets and definite-lived intangible assets which are adjusted to fair value upon impairment. In determining fair value, we used an income-based approach. As a number of assumptions and estimates were involved that are largely unobservable, they are classified as Level 3 inputs within the fair value hierarchy. Assumptions used in these forecasts are consistent with internal planning,
and include revenue growth rates, royalties, gross margins, and operating expense in relation to the current economic environment and the Company’s future expectations.