| FAIR VALUE MEASUREMENTS |
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12. |
FAIR VALUE MEASUREMENTS |
The Company’s assets and liabilities recorded at fair value are categorized based upon a fair value hierarchy that ranks the quality and reliability of the information used to determine fair value.
The Company has certain non-financial assets that are measured at fair value on a non-recurring basis when there is an indicator of impairment, and they are recorded at fair value only when impairment is recognized. These assets include property, plant and equipment, goodwill and intangible assets, net. The Company did not record impairment to any non-financial assets in the three and nine months ended September 30, 2022 and 2021. The Company does not have any non-financial liabilities measured and recorded at fair value on a non-recurring basis.
Financial Disclosures about Fair Value of Financial Instruments
The table below sets forth information related to the Company’s condensed consolidated financial instruments (in thousands):
| Schedule of assumptions |
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Level in |
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September 30,
2022 |
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December 31,
2021 |
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Fair Value |
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Carrying |
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Fair |
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Carrying |
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Fair |
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Hierarchy |
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Amount |
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Value |
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Amount |
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Value |
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| Assets: |
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| Cash and cash equivalents |
|
1 |
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|
$ |
27,265 |
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$ |
27,265 |
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$ |
62,937 |
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$ |
62,937 |
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| Restricted cash |
|
1 |
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|
|
43 |
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|
43 |
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|
185 |
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|
185 |
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| Cash and investment in severance benefit accounts |
|
1 |
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3,146 |
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3,146 |
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3,687 |
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3,687 |
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| Liabilities: |
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| Subordinated term loan(a) |
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2 |
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$ |
40,607 |
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$ |
23,743 |
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$ |
37,991 |
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$ |
28,376 |
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| Subordinated debt(a) |
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2 |
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10,981 |
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|
6,820 |
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|
10,577 |
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|
7,674 |
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| Senior term loan(a) |
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2 |
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|
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40,791 |
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|
36,410 |
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41,063 |
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43,276 |
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| Convertible debt |
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2 |
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43,258 |
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43,046 |
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41,343 |
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44,494 |
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| Public Warrants |
|
1 |
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2,070 |
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|
2,070 |
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|
8,510 |
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|
8,510 |
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| Warrants(b) |
|
3 |
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|
240 |
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|
240 |
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|
1,317 |
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|
1,317 |
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(a) |
As of September 30, 2022 and December 31, 2021, the fair value of the subordinated term loan, subordinated debt and senior term loan considered the senior status of the senior term loan under the Fortress Credit Agreement, followed by the junior status of the subordinated term loan and subordinated debt. The implied yields of the subordinated term loan, subordinated debt and senior term loan were 27.52%, 28.98% and 23.30%, respectively, as of September 30, 2022 and 17.16%, 16.83% and 13.8%, respectively, as of December 31, 2021. |
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(b) |
As of September 30, 2022 and December 31, 2021, the fair value of warrants outstanding that are classified as liabilities are included in other long-term liabilities in the Company’s condensed consolidated balance sheets. The key inputs to the valuation models that were utilized to estimate the fair value of the Post-Combination Warrants and Private Placement Warrants as of September 30, 2022 were as follows: |
| Schedule of assumptions |
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Post- Combination
Warrants |
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Private Placement
Warrants |
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| Assumptions: |
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| Stock price |
|
$ |
2.02 |
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$ |
2.02 |
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| Exercise price |
|
$ |
12.50 – 17.50
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$ |
11.50 |
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| Risk free rate |
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|
3.94 |
% |
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|
4.05 |
% |
| Expected volatility |
|
|
89.7 |
% |
|
|
62.1 |
% |
| Dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
The conversion option derivative and call and contingent put derivative are considered a Level 3 measurement due to the utilization of significant unobservable inputs in the valuation. The Company utilized a binomial model to estimate the fair value of the embedded derivative features requiring bifurcation associated with the Convertible Notes payable at the issuance date and as of the September 30, 2022 reporting date. The key inputs to the valuation models that were utilized to estimate the fair value of the convertible debt derivative liabilities include:
| Schedule of assumptions |
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September 30,
2022 |
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Issuance
Date |
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| Assumptions: |
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| Stock price |
|
$ |
2.02 |
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|
$ |
9.75 |
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| Conversion strike price |
|
$ |
8.00 |
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$ |
12.50 |
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| Volatility |
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|
76.00 |
% |
|
|
25.00 |
% |
| Dividend yield |
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|
0.00 |
% |
|
|
0.00 |
% |
| Risk free rate |
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|
4.14 |
% |
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|
0.51 |
% |
| Debt discount rate |
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23.30 |
% |
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|
12.80 |
% |
| Coupon interest rate |
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|
7.00 |
% |
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|
7.00 |
% |
| Face amount (in thousands) |
|
$ |
50,000 |
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$ |
50,000 |
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| Contingent put inputs and assumptions: |
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| Probability of fundamental change |
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|
33.00 |
% |
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|
25.00 |
% |
The following table presents a roll-forward of the Level 3 instruments:
| Schedule of warrants |
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| (in thousands) |
|
Warrants |
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Conversion option
derivative |
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Call and contingent put
derivative |
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| Beginning balance, December 31, 2021 |
|
$ |
1,317 |
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$ |
1,343 |
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$ |
1,651 |
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| Change in fair value |
|
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(1,077 |
) |
|
|
4,122 |
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|
|
378 |
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| Ending balance, September 30, 2022 |
|
$ |
240 |
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|
$ |
5,465 |
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$ |
2,029 |
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The fair value of the Company’s cash and cash equivalents and restricted cash approximate the carrying value because of the short-term nature of these accounts.
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