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Fair value of financial instruments | 9 Months Ended
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Feb. 23, 2025
Fair Value Disclosures [Abstract] |
Fair value of financial instruments | Fair value of financial instruments The following table presents the carrying value and fair value of financial liabilities:
| February 23, 2025 |  | May 26, 2024
| Carrying value |  | Fair value |  | Carrying value |  | Fair value
Term loan credit facility with related party | $ | 109,865 |  |  | $ | 128,600 |  |  | $ | 94,442 |  |  | $ | 124,700 |
Debt derivative liability | 23,900 |  |  | 23,900 |  |  | 25,400 |  |  | 25,400 |
Leaseback liability with related party | 6,571 |  |  | * |  | 7,150 |  |  | *
Contract liability, related party | 4,971 |  |  | * |  | 4,703 |  |  | *
Customer deposit | 4,140 |  |  | * |  | 4,576 |  |  | *
* Fair value approximates carrying value All fair value measurements presented in the table above were level 3 measurements. Cash and cash equivalents Cash and cash equivalents represent cash in banks and highly liquid short-term investments that have maturities of three months or less when acquired. These highly liquid short-term investments are both readily convertible to known amounts of cash and so near to their maturity that they present insignificant risk of changes in value due to changes in interest rates. All of our cash is deposited in the United States with a single financial institution, almost all of which exceeds amounts covered by Federal Deposit Insurance Corporation. Term Loan Credit Facility and debt derivative liability The Term Loan Credit Facility (as defined in note 10) contains various features that meet the definition of an embedded derivative and require bifurcation. These features, which were necessary for the Company to accept in order for Alcon to agree to provide the term loan financing, comprise three options for early prepayment of the term loans at stated premiums above par in the event of certain future scenarios occurring, as described more fully in note 10. These embedded derivatives were initially recorded at fair value as a noncurrent liability (“debt derivative liability”) offset by a discount to the carrying value of the Term Loan Credit Facility that is being amortized to interest expense over the term of that facility. The debt derivative liability is being subsequently remeasured at fair value every reporting period with changes in fair value recognized as a component of other expense, net. The fair value of the debt derivative liability is estimated using a discounted cash flow model that includes annually weighted probabilities that certain call and put premiums contained in the Term Loan Credit Facility are exercised upon qualifying events of default or changes in control. The key inputs to the valuation model are (i) the probability and timing of a change in control event occurring over the remaining term of the debt; and (ii) the discount rate for the valuation of that scenario, which can be influenced by changes in the risk-free rate and the credit spread, which in turn can be influenced by the Company's credit rating as well as changes in the credit market. Factors that can affect the estimate of fair value at each reporting date, and therefore the amount of gain or loss recorded for a particular period, include imprecision in estimating unobservable market inputs and the selection of particular methodologies and assumptions used to determine the fair value. During the second quarter of 2025, we adjusted certain key assumptions by increasing the probability of a 2028 change in control and lowering the discount rate due to an improvement in the Company's credit rating. Revolving Credit Facility Outstanding borrowings under the Company's Revolving Credit Facility are carried at cost, which approximates their fair value as of February 23, 2025 and May 26, 2024, due to their short duration and variable rates of interest. Contract liability with related party and customer deposit Alcon, a related party, and another significant customer of the Company each agreed to provide upfront deposits due back after a certain number of years in order to finance the initial working capital requirements of their amended commercial supply agreements. Management determined that the Alcon deposit represents a noncurrent contract liability that includes a significant financing component while the other deposit represents an ordinary noncurrent liability. The deposits were initially recorded at fair value, and the resulting discounts are being amortized to interest expense through the contractual repayment date. Conversion ratio improvement provided to preferred stockholders During the three months ended November 24, 2024, we performed a non-recurring fair value measurement to record the value of a conversion ratio improvement provided to preferred stockholders as a result of the October 3, 2024 Securities Purchase Agreement referenced in note 11. The fair value of the conversion feature was recorded as $2,132 adjustment to loss attributable to common stockholders. The fair value was calculated using an as-converted method based on the contractual conversion ratio of the preferred shares and the closing price of our common stock, a level 1 measurement. The following table summarizes the fair value of the Company’s balance sheet components that are measured at fair value on a recurring and non-recurring basis:
| Type of measurement |  | Measurement date |  | Type of measurement
|  |  | Level 1 |  | Level 2 |  | Level 3
Liabilities |  |  |  |  |  |  |  |  |
Debt derivative liability | Recurring |  | February 23, 2025 |  | — |  |  | — |  |  | 23,900 |
Debt derivative liability | Recurring |  | May 26, 2024 |  | — |  |  | — |  |  | 25,400 |
Key inputs used to develop the discount rate for the fair value measurements at the balance sheet dates were as follows:
| February 23, 2025 |  | May 26, 2024
Probability of change in control event | 80 | % |  | 80 | %
Weighted average discount rate | 18.0 | % |  | 21.4 | %
The weighted average discount rate was calculated based on the individual discount rate used for each future payment and weighted by both the present value of the future payments and the probability of each scenario. The following table reflects the roll forward reconciliation of Level 3 recurring fair value measurements:
| Three months ended |  | Nine months ended
| February 23, 2025 |  | February 25, 2024 |  | February 23, 2025 |  | February 25, 2024
Balance at beginning of period | $ | 23,300 |  |  | $ | 44,000 |  |  | 25,400 |  |  | $ | 64,900 |
Change in fair value | 600 |  |  | (21,000) |  |  | (1,500) |  |  | (41,900) |
Balance at end of period | $ | 23,900 |  |  | $ | 23,000 |  |  | $ | 23,900 |  |  | $ | 23,000 |
(1) For the three and nine months ended February 23, 2025 and February 25, 2024, the decreases in fair value are recorded in the “Change in fair value of debt derivative liability, related party” line within the condensed consolidated statement of operations.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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