FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 28, 2019

Financial instruments are categorized as Level 1, Level 2 or Level 3 based upon the method by which their fair value is computed. An investment is categorized as Level 1 when its fair value is based on unadjusted quoted prices in active markets for identical assets that the Company has the ability to access at the measurement date. An investment is categorized as Level 2 if its fair market value is based on quoted market prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, based on observable inputs such as interest rates, yield curves, or derived from or corroborated by observable market data by correlation or other means. An investment is categorized as Level 3 if its fair value is based on assumptions developed by the Company about what a market participant would use in pricing the assets.

The following table details the fair value measurements of the Company’s financial assets:



			Fair Value Measurement September 28, 2019 Using:
	Total		Level 1		Level 2		Level 3
Cash and Cash Equivalents	$	8,757,699	$	8,757,699	$	—	$	—
U.S. Government Securities	9,299,420		—		9,299,420		—
Corporate Debt	7,959,084		—		7,959,084		—
Equity Investments	9,029,417		325,317		—		8,704,100
	$	35,045,620	$	9,083,016	$	17,258,504	$	8,704,100

			Fair Value Measurement December 29, 2018 Using:
	Total		Level 1		Level 2		Level 3
Cash and Cash Equivalents	$	14,326,347	$	14,326,347	$	—	$	—
U.S. Government Securities	12,810,923		—		12,810,923		—
Corporate Debt	10,107,093		—		10,107,093		—
Equity Investments	5,853,525		288,026		—		5,565,499
	$	43,097,888	$	14,614,373	$	22,918,016	$	5,565,499

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. During the nine months ended September 28, 2019, there were no transfers between levels of the fair value hierarchy. Changes in Level 3 investments were as follows:



	December 29, 2018		Net unrealized gains		Purchases, issuances and settlements		Transfers in and or out of Level 3		September 28, 2019
Equity Investments	$	5,565,499	$	638,601	$	2,500,000	$	—	$	8,704,100

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of their short-term nature. If accrued liabilities were carried at fair value, these would be classified as Level 2 in the fair value hierarchy.

Marketable Debt Securities

The corporate debt consists of floating rate notes with a maturity that is over multiple years but has interest rates that are reset every three months based on the then-current three-month London Interbank Offering Rate ("three-month Libor"). The Company validates the fair market values of the financial instruments above by using discounted cash flow models, obtaining independent pricing of the securities or through the use of a model that incorporates the three-month Libor, the credit default swap rate of the issuer if applicable and the bid and ask price spread of the same or similar investments which are traded on several markets.

Equity Investments

The Company adopted the measurement alternative for equity investments without readily determinable fair values (often referred to as cost method investments). As a result, equity investments will be revalued upon occurrence of an observable price change for similar investments and for impairments.

The Company acquired an equity interest in a company in the first quarter of 2018. The Company made a $1.0 million capital contribution during the three months ended March 31, 2018. The Company also contributed certain intellectual property. During the three and nine months ended September 28, 2019, the Company recorded $0.1 million of unrealized loss on this equity investment due to a fluctuation in the foreign exchange rate. As of September 28, 2019, the Company owned an 11.4% interest in this investment and the fair value of this equity investment was $3.5 million at September 28, 2019.

The Company acquired an equity interest in a customer by exercising a warrant in the second quarter of 2018 for up to 15% of the customer's Series A equity offering as part of the licensing of technology to the customer. The Company used the customer's capital structure, pricing of the shares being offered and the warrant from the customer's Series A financing round in determining the value upon exercising the warrant. In addition, the Company acquired 368,732 shares of the customer's Series B equity valued at $2.5 million based on the fair value of the Series B at the closing in May 2019. During the nine months ended September 28, 2019, the Company recognized a $0.8 million gain based on an observable price change for the Series A shares by using the customer's Series B capital structure, pricing of the shares being offered and the liquidation preference of Series B. As of September 28, 2019, the Company's total fair value in Series A and Series B equity investments was $5.2 million.

On September 30, 2019 the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Solos Technology Limited (the “Buyer”). Pursuant to the Purchase Agreement, the Company sold and licensed to the Buyer certain assets of our Solos^TM (“Solos”) product line and Whisper^TM Audio (“Whisper”) technology. As consideration for the transaction the Company received 1,172,000 common shares representing a 20.0% equity stake in the Buyer’s parent company, Solos Incorporation (“Solos Inc.”). The Company's 20.0% equity stake will be maintained until Solos Inc. has raised a total of $7.5 million in equity financing. The Company will also receive a royalty in the single digits on the net sales amount of Solos products for a four-year period, after commencement of commercial production. The Company's Hong Kong employees have been offered employment with the Buyer and most are expected to transition to the Buyer. If the employees do not join the Buyer or are terminated within 90 days of joining the Buyer, the Company will be liable for their statutory severance payment. Under the terms of the Purchase Agreement, the Company also has a non-exclusive, limited, fully paid-up, royalty-free worldwide license, including modification of or improvement or enhancement to the Whisper technology, for enterprise and military customers.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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