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FAIR VALUE MEASUREMENTS
 3 Months Ended
Mar. 28, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS

4. FAIR VALUE MEASUREMENTS

 

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 March 28, 2020 Using: 
   Total   Level 1   Level 2   Level 3 
Cash and Cash Equivalents  $8,333,603   $8,333,603   $-   $- 
U.S. Government Securities   3,038,100    -    3,038,100    - 
Corporate Debt   6,269,859    -    6,269,859    - 
Equity Investments   4,346,642    244,194    -    4,102,448 
   $21,988,204   $8,577,797   $9,307,959   $4,102,448 

 

       Fair Value Measurement at December 28, 2019 Using: 
   Total   Level 1   Level 2   Level 3 
Cash and Cash Equivalents  $6,029,247   $6,029,247   $-   $- 
U.S. Government Securities   8,296,870    -    8,296,870    - 
Corporate Debt   7,456,127    -    7,456,127    - 
Equity Investments   4,537,159    386,711    -    4,150,448 
   $26,319,403   $6,415,958   $15,752,997   $4,150,448 

 

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. Changes in Level 3 investments were as follows:

 

 

   December 28, 2019   Net unrealized losses   Purchases, issuances and settlements   Transfers in and or out of Level 3   March 28, 2020 
Equity Investments  $4,537,159   $(190,517)  $-   $      -   $4,346,642 

 

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 and the bid and ask price spread of the same or similar investments which are traded on several markets.

 

Equity Investments

 

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 months ended March 28, 2020, the Company recorded a $0.1 million unrealized loss on this equity investment due to a fluctuation in the foreign exchange rate. As of March 28, 2020, the Company owned an 11% interest in this investment and the fair value of this equity investment was $3.5 million at March 28, 2020.

 

 

In 2017 the Company had a warrant to acquire up to 15% of the next round of equity offered by a customer as part of the licensing of technology to the customer. The Company used the pricing and terms of the qualified financing round by the customer in determining the value of its Series A warrant and recorded a gain of $2.0 million. The Company acquired an equity interest in the customer by exercising the Series A warrant into Series A shares in the second quarter of 2018 and recorded a loss of less than $0.1 million. In addition, the Company acquired shares of the customer’s Series B shares valued at $2.5 million based on the fair value of the Series B at the closing in May 2019. During the second quarter of 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. In the fourth quarter of 2019 the Company reviewed the financial condition and other factors of the customer and as a result, recorded an impairment charge of $5.2 million to reduce our investment in the customer to zero.

 

On September 30, 2019 the Company entered into an Asset Purchase Agreement (the “Solos Purchase Agreement”) pursuant to which the Company sold and licensed certain assets of our SolosTM (“Solos”) product line and WhisperTM Audio (“Whisper”) technology. As consideration for the transaction the Company received a 20.0% equity stake in Solos Incorporation (“Solos Inc.”). The Company did not have an observable price change for similar investments of its equity investments and recorded no impairment charges on its equity investments during the three months ended March 28, 2020.