FAIR VALUE MEASUREMENTS |
|
11. |
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 months ended March 31, 2023 and March 31, 2022.
Financial Disclosures about Fair Value of Financial Instruments
The tables below set forth information related to the Company’s condensed consolidated financial instruments (in thousands):
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.
Schedule of Fair Value of Financial Instruments |
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Level in |
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March 31, 2023 |
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December 31, 2022 |
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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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|
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Cash and cash equivalents |
|
1 |
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$ |
3,282 |
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$ |
3,282 |
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|
$ |
7,253 |
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|
$ |
7,253 |
|
Restricted cash |
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1 |
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|
34 |
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|
|
34 |
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|
|
34 |
|
|
|
34 |
|
Cash and investment in severance benefit accounts |
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1 |
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|
3,102 |
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3,102 |
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3,161 |
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|
3,161 |
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Liabilities: |
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Subordinated term loan – related party(a) |
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2 |
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$ |
42,449 |
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$ |
23,474 |
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$ |
41,528 |
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|
25,503 |
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Subordinated debt(a) |
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2 |
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11,256 |
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|
7,001 |
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|
|
11,119 |
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|
|
7,386 |
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Senior term loan(a) |
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2 |
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|
40,993 |
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|
|
35,188 |
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|
|
40,529 |
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|
|
36,680 |
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Convertible debt |
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2 |
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45,492 |
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45,880 |
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|
|
43,928 |
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|
|
48,249 |
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Public Warrants(b) |
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1 |
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|
575 |
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|
|
575 |
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|
|
345 |
|
|
|
345 |
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Warrants(b) |
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3 |
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|
29 |
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29 |
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|
36 |
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|
36 |
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(a) |
As of March 31, 2023 and December 31, 2022, 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 – related party, subordinated debt and senior term loan were 33.98%, 37.59% and 28.00%, respectively, as of March 31, 2023 and 23.00%, 27.18% and 28.78%, respectively, as of December 31, 2022. |
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(b) |
As of March 31, 2023 and December 31, 2022, 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 March 31, 2023 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 |
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$ |
0.69 |
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$ |
0.69 |
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Exercise price |
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$ |
12.50-17.50
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$ |
11.50 |
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Risk free rate |
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4.78 |
% |
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|
3.66 |
% |
Expected volatility |
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|
101.1 |
% |
|
|
84.20 |
% |
Dividend yield |
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|
0.00 |
% |
|
|
0.00 |
% |
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 March 31, 2023 and December 31, 2022 reporting dates. 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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March 31, 2023 |
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December 31, 2022 |
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Assumptions: |
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Stock price |
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$ |
0.69 |
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$ |
1.31 |
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Conversion strike price |
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$ |
8.00 |
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$ |
8.00 |
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Volatility |
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92.00 |
% |
|
|
94.00 |
% |
Dividend yield |
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|
0.00 |
% |
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|
0.00 |
% |
Risk free rate |
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|
4.12 |
% |
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4.32 |
% |
Debt discount rate |
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28.00 |
% |
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15.10 |
% |
Coupon interest rate |
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|
7.00 |
% |
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|
7.00 |
% |
Face amount (in thousands) |
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$ |
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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50.00 |
% |
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|
33.00 |
% |
The following table presents a roll-forward of the Level 3 instruments:
Schedule of warrants |
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(in thousands) |
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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, 2022 |
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$ |
36 |
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$ |
3,052 |
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$ |
2,301 |
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Change in fair value |
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(7 |
) |
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(2,912 |
) |
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|
2,048 |
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Ending balance, March 31, 2023 |
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$ |
29 |
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$ |
140 |
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$ |
4,349 |
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The warrant liability is included in other long-term liabilities and the derivatives are included in accrued expenses and other current liabilities.
|
15. |
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 years ended December 31, 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 tables below set forth information related to the Company’s consolidated financial instruments (in thousands):
Schedule of Fair Value of Financial Instruments |
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Level in |
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December 31, 2022 |
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December 31, 2021 |
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Fair Value Hierarchy |
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Carrying Amount |
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Fair Value |
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Carrying Amount |
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Fair Value |
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Assets: |
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Cash and cash equivalents |
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1 |
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$ |
7,253 |
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$ |
7,253 |
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$ |
62,937 |
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$ |
62,937 |
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Restricted cash |
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1 |
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|
34 |
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34 |
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|
185 |
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|
185 |
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Cash and investment in severance benefit accounts |
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1 |
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3,161 |
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|
3,161 |
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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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41,528 |
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25,503 |
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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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11,119 |
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7,386 |
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|
10,577 |
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|
7,674 |
|
Senior term loan(a) |
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2 |
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40,529 |
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|
|
36,680 |
|
|
|
41,063 |
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|
|
43,276 |
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Convertible debt |
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2 |
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43,928 |
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48,249 |
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41,343 |
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44,494 |
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Long-term debt |
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2 |
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- |
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- |
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- |
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|
- |
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Public Warrants |
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|
1 |
|
|
|
345 |
|
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|
345 |
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|
8,510 |
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|
8,510 |
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Warrants(b) |
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3 |
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|
36 |
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|
36 |
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|
1,317 |
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|
1,317 |
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(a) |
As of December 31, 2022 and 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 senior term loan, subordinated term loan and subordinated debt were 23.00%, 27.18% and 28.78%, respectively, as of December 31, 2022. The implied yields of the senior term loan, subordinated term loan and subordinated debt were 13.8%, 17.16% and 16.83%, respectively, as of December 31, 2021. |
|
(b) |
As of December 31, 2022 and 2021, the fair value of warrants outstanding that are classified as liabilities are included in other long-term liabilities in the Company’s 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 were as follows as of December 31, 2022: |
Schedule of assumptions |
|
|
|
|
|
|
|
|
Post- Combination Warrants |
|
|
Private Placement Warrants |
|
Assumptions: |
|
|
|
|
|
|
|
Stock price |
|
$ |
1.31 |
|
|
$ |
1.31 |
|
Exercise price |
|
$ |
12.50 - $17.50 |
|
|
$ |
11.50 |
|
Risk free rate |
|
|
4.64 |
% |
|
|
4.02 |
% |
Expected volatility |
|
|
101.10 |
% |
|
|
58.50 |
% |
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
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 issuance date and as of the December 31, 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 |
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
Issuance Date |
|
Assumptions: |
|
|
|
|
|
|
|
|
Stock price |
|
$ |
1.31 |
|
|
$ |
9.75 |
|
Conversion strike price |
|
$ |
8.00 |
|
|
$ |
12.50 |
|
Volatility |
|
|
94.00 |
% |
|
|
25.00 |
% |
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
Risk free rate |
|
|
4.32 |
% |
|
|
0.51 |
% |
Debt discount rate |
|
|
15.10 |
% |
|
|
12.80 |
% |
Coupon interest rate |
|
|
7.00 |
% |
|
|
7.00 |
% |
Face amount (in thousands) |
|
|
50,000 |
|
|
|
50,000 |
|
Contingent put inputs and assumptions: |
|
|
|
|
|
|
|
|
Probability of fundamental change |
|
|
33.00 |
% |
|
|
25.00 |
% |
The following table presents a roll-forward of the Level 3 instruments:
Schedule of warrants |
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Warrants |
|
|
Conversion option derivative |
|
|
Call and contingent put derivative |
|
Beginning balance, December 31, 2021 |
|
$ |
1,317 |
|
|
$ |
1,343 |
|
|
$ |
1,651 |
|
Change in fair value |
|
|
(1,281 |
) |
|
|
1,709 |
|
|
|
650 |
|
Ending balance, December 31, 2022 |
|
$ |
36 |
|
|
$ |
3,052 |
|
|
$ |
2,301 |
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