Annual report pursuant to Section 13 and 15(d)

FAIR VALUE MEASUREMENTS

v3.22.1
FAIR VALUE MEASUREMENTS
12 Months Ended
Dec. 31, 2021
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS

 

14. 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, 2021 and 2020. 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):

 

                                     
    Level in     December 31,
2021
    December 31,
2020
 
    Fair Value     Carrying     Fair     Carrying     Fair  
    Hierarchy     Amount     Value     Amount     Value  
Assets:                              
Cash and cash equivalents   1     $ 62,937     $ 62,937     $ 18,196     $ 18,196  
Restricted cash   1       185       185       422       422  
Cash and investment in severance benefit accounts   1       3,687       3,687       3,567       3,567  
                                       
Liabilities:                                      
Subordinated term loan(a)   2       37,991       28,376       34,756       24,327  
Subordinated debt(a)   2       10,577       7,674       10,065       6,624  
Senior term loan(a)   2       41,063       43,276       36,834       37,948  
Convertible debt   2       41,343       44,494              
Long-term debt   2                   2,087       2,087  
Public Warrants   1       8,510       8,510              
Warrants(b)   3       1,317       1,317       7,632       7,632  

 

 

(a) As of December 31, 2021 and 2020, 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 13.8%, 17.16% and 16.83%, respectively, as of December 31, 2021. As of December 31, 2020, the senior term loan face value was adjusted for $4.7 million of original issue discounts and $1.4 million of fair value of Series H warrants issued to lenders pursuant to the Fortress Credit Agreement, resulting in the fair value of the senior term loan totaling $37.9 million, with a 12.8% implied yield. The implied yields of the subordinated term loan and subordinated debt were 17.0% and 16.6%, respectively, as of December 31, 2020.
(b) As of December 31, 2021 and 2020, 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, 2021:

 

    Post-Combination
Warrants
    Private
Placement
Warrants
 
Assumptions:                
Stock price   $ 3.79     $ 3.79  
Exercise price   $ 12.50 - $17.50     $ 11.50  
Risk free rate     0.60 %     1.20 %
Expected volatility     67.6 %     62.4 %
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, 2021 reporting date. The key inputs to the valuation models that were utilized to estimate the fair value of the convertible debt derivative liabilities include:

 

               
    December 31,
2021
    Issuance Date  
Assumptions:                
Stock price   $ 3.79     $ 9.75  
Conversion strike price   $ 12.50     $ 12.50  
Volatility     51.00 %     25.00 %
Dividend yield     0.00 %     0.00 %
Risk free rate     0.97 %     0.51 %
Debt discount rate     13.80 %     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     25 %     25 %

 

The following table presents a roll-forward of the Level 3 instruments:

 

                       
(in thousands)   Warrants
(a)
    Conversion option derivative     Call and contingent put derivative  
Beginning balance, December 31, 2020   $ -     $ -     $ -  
Warrants assumed in Business Combination     2,996                  
Issuance of convertible note payable derivative liabilities     -       7,473       639  
Change in fair value     (1,679 )     (6,130 )     1,012  
Ending balance, December 31, 2021   $ 1,317     $ 1,343     $ 1,651  

 

 
(a) The $7,632 thousand of Series D-1 and Series H warrants were converted as part of the Business Combination. Refer to Note 16 for a roll-forward.

 

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.

 

The estimated fair value of long-term debt approximated its carrying amount because based on the arrangement of the financing of the debt and pursuant to the terms of the CARES ACT, the Company applied for this debt to be forgiven by the SBA in whole or in part.