FAIR VALUE MEASUREMENTS

6 Months Ended

Jul. 01, 2023

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 13 – FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurements and Disclosures, establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

· Level 1 - Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

· Level 2 - Observable inputs other than quoted prices in active markets that are either directly or indirectly observable.

· Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company measures the fair value of its warrants to purchase up to 3,971,000 shares of the Company’s common stock issued in connection with the RDO Purchase Agreement using a Black-Scholes model, which requires the use of several inputs, including the underlying stock price, exercise price, risk free rate, expected volatility, and time to expiration. The inputs used in the Black-Scholes model are classified as Level 2 inputs in the fair value hierarchy.

The following table provides a summary of the assumptions used in the Black-Scholes model to estimate the fair value of the warrants at issuance date of February 6, 2023:

Assumptions used:	Total
Stock price	$	0.87
Exercise price	$	0.95
Risk free rate		3.65	%
Annualized volatility		107.89	%
Time to expiration		5.50

The Company considers these assumptions to be reasonable, based on the historical performance of the underlying stock and other market factors. However, actual results may differ from these estimates. We recorded the $2.8 million fair value of the warrants in additional paid-in capital on the issuance date. As the warrants are classified in equity, remeasurement is not required unless reclassification from equity is required. The warrant contract is reassessed at each balance sheet date for the appropriate classification.