| 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):
| Schedule of assumptions |
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Level in |
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December 31,
2021 |
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December 31,
2020 |
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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 |
|
|
$ |
62,937 |
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|
$ |
62,937 |
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|
$ |
18,196 |
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|
$ |
18,196 |
|
| Restricted cash |
|
1 |
|
|
|
185 |
|
|
|
185 |
|
|
|
422 |
|
|
|
422 |
|
| Cash and investment in severance benefit accounts |
|
1 |
|
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|
3,687 |
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|
3,687 |
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|
3,567 |
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|
3,567 |
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| Liabilities: |
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| Subordinated term loan(a) |
|
2 |
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37,991 |
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28,376 |
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34,756 |
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24,327 |
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| 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 |
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| Convertible debt |
|
2 |
|
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41,343 |
|
|
|
44,494 |
|
|
|
— |
|
|
|
— |
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| Long-term debt |
|
2 |
|
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|
— |
|
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|
— |
|
|
|
2,087 |
|
|
|
2,087 |
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| Public Warrants |
|
1 |
|
|
|
8,510 |
|
|
|
8,510 |
|
|
|
— |
|
|
|
— |
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| Warrants(b) |
|
3 |
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|
1,317 |
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|
1,317 |
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7,632 |
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|
7,632 |
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(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 |
|
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Private
Placement
Warrants |
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| Assumptions: |
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| Stock price |
|
$ |
3.79 |
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|
$ |
3.79 |
|
| Exercise price |
|
$ |
12.50 - $17.50
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|
$ |
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:
| Schedule of assumptions |
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December 31,
2021 |
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|
Issuance Date |
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| Assumptions: |
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| Stock price |
|
$ |
3.79 |
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|
$ |
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 |
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| Contingent put inputs and assumptions: |
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| Probability of fundamental change |
|
|
25 |
% |
|
|
25 |
% |
The following table presents a roll-forward of the Level 3 instruments:
| Schedule of warrants |
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| (in thousands) |
|
Warrants
(a) |
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|
Conversion option derivative |
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|
Call and contingent put derivative |
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| Beginning balance, December 31, 2020 |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| Warrants assumed in Business Combination |
|
|
2,996 |
|
|
|
|
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| 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 |
|
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(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.
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