FAIR VALUE MEASUREMENTS

12 Months Ended

Jan. 01, 2023

The accounting standard for fair value measurements defines fair value and establishes a market-based framework or hierarchy for measuring fair value. The standard is applicable whenever assets and liabilities are measured at fair value. The fair value hierarchy established prioritizes the inputs used in valuation techniques into three levels as follows:

Level 1 - Observable inputs - quoted prices in active markets for identical assets and liabilities;

Level 2 - Observable inputs other than the quoted prices in active markets for identical assets and liabilities - includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets, for substantially the full term of the financial instrument; and

Level 3 - Unobservable inputs - includes amounts derived from valuation models where one or more significant inputs are unobservable and require us to develop relevant assumptions.

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis and the level they fall within the fair value hierarchy:


Amounts Recorded at Fair Value	Financial Statement Classification	Fair Value Hierarchy	January 1, 2023		December 26, 2021

Interest rate swap	Other long-term assets	Level 2	$	—	$	58,331
Convertible note	Convertible note	Level 2	$	4,368,000	$	—
Contingent consideration, net	Contingent consideration, net - current and long-term	Level 3	$	1,081,060	$	2,063,509

The changes in the Level 2 fair value measurements from December 26, 2021 to January 1, 2023 relate to the convertible note of $4.4 million on the Horn acquisition and to the cancellation of the interest rate swap agreement. Key inputs in determining the fair value of the convertible note was the interest rate of 6% and the interest rate swap as of December 26, 2021 were quoted prices from BMO.

The changes in the Level 3 fair value measurements from December 26, 2021 to January 1, 2023 relates primarily to payments of $1.1 million on the Momentum acquisition, partially offset by $0.1 million in accretion. Key inputs in determining the fair

value of the contingent consideration as of January 1, 2023 and December 26, 2021 included discount rates of approximately 9% as well as management's estimates of future sales volumes and earnings before interest, income taxes, depreciation, and amortization (“EBITDA”).