Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v3.23.1
Fair Value Measurements
12 Months Ended
Jan. 02, 2023
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Fair 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 January 2, 2023 and December 31, 2021.
Items Measured at Fair Value at January 2, 2023
(in thousands) Quoted prices in active market for identical assets (liabilities) (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3)
Warrant liability   195   
Total $   $ 195  $  
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)
Warrant liability —  2,706 
Total $ —  $ —  $ 2,706 

The fair value of non-financial assets measured at fair value on a non-recurring basis, classified as Level 3 in the fair value hierarchy, is determined based on the income approach or third-party market appraisals.

In estimating our fair value disclosures for financial instruments, we use the following methods and assumptions:
Cash and cash equivalents: The carrying amount reported in the Consolidated Balance Sheets for these items approximates fair value due to their liquid nature.
Accounts receivable, inventory, other current assets, accounts payable, accrued expenses and other current liabilities: The carrying value reported on the consolidated balance sheets for these items approximates their fair value, which is the likely amount for which the receivable or liability with short settlement periods would be transferred from/to a market participant with a similar credit standing as the Company’s.
Long-term borrowings: The fair value of the Company’s long-term borrowings under the Credit Agreement approximates $53.2 million and it’s carrying value was $58.5 million. The fair value is estimated using Level 2 inputs based on quoted prices for those or similar instruments. Refer to Note 9, “Debt,”for further discussion.

The fair value of the Company warrant liability is measured at fair value on a recurring basis, classified as Level 2 in the fair value hierarchy. The fair value of the private placement warrants, private warrants, and working capital warrants are determined using the publicly-traded price of its common stock on the valuation dates of $1.26 on January 2, 2023 and $5.67 on December 31, 2021. The fair value is calculated using the Black-Scholes option-pricing model. The Black-Scholes model requires us to make assumptions and judgments about the variables used in the calculation, including the expected term, expected volatility, risk-free interest rate, dividend rate and service period. The calculated warrant price for private warrants was $0.05 and $0.75 on January 2, 2023 and December 31, 2021. The input variables for the Black-Scholes are noted in the table below:

January 2, 2023 December 31, 2021
Risk-free interest rate 4.14  % 1.11  %
Expected life in years 3.0 years 3.96 years
Expected volatility 68.0  % 41.8  %
Expected dividend yield % %
Assets and liabilities that are measured at fair value on a non-recurring basis include the Company’s long-lived assets and definite-lived intangible assets. In determining fair value, the Company uses 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.