Nauticus Robotics, Inc. General form of registration statement for all companies including face-amount certificate companies

General form of registration statement for all companies including face-amount certificate companies

Fair Value Measurements

Fair Value Measurements

6 Months Ended

12 Months Ended

Jun. 30, 2023

Jun. 30, 2022

Dec. 31, 2022

Dec. 31, 2021

Fair Value Measurements [Line Items]

FAIR VALUE MEASUREMENTS

17. Fair Value Measurements

The Company measures and reports certain financial and non-financial assets and liabilities on a fair value basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels related to fair value measurements are as follows:

Level 1 –

Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2 –

Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

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. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

The estimated fair values of accounts receivable, contract assets, accounts payable, accrued expenses, and indebtedness with unrelated parties approximate their carrying amounts due to the relatively short maturity or time to maturity of these instruments. Notes payable with related parties may not be arms-length transactions and therefore may not reflect fair value. The estimated fair value of the Debentures approximates their carrying amount due to their recent issuance.

The Company’s non-financial assets measured at fair value on a recurring basis include SPA Warrants and Private Warrants. These are considered Level 3 measurements as they involve significant unobservable inputs.

In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company’s financial liabilities that are required to be measured at fair value on a recurring basis and the related activity for the periods presented:

	Fair Value as of June 30, 2023
	Carrying Value		Level 1		Level 2		Level 3
Financial liabilities:
Warrant liability - Public Warrants	$	1,921,650	$	1,921,650	$	-	$	-
Warrant liability - Private Warrants		1,677,025		-		-		1,677,025
Warrant liability - SPA Warrants		2,248,382		-		-		2,248,382
Total	$	5,847,057	$	1,921,650	$	-	$	3,925,407

The following table sets forth a summary of the changes in fair value of the Company’s financial liabilities:

	Warrant
	Liability
Balance, December 31, 2022	$	32,688,341
Loss on repricing of warrants		590,266
Change in fair value of warrant liabilities		(27,431,550	)
Balance, June 30, 2023	$	5,847,057

15. Fair Value Measurements

Level 1	—	Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2	—	Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

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. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The estimated fair values of accounts receivable, contract assets, accounts payable and accrued expenses approximate their carrying amounts due to the relatively short maturity or time to maturity of these instruments. Notes payable with related parties may not be arms-length transactions and therefore may not reflect fair value. The estimated fair value of the Debentures approximates their carrying amount due to their recent issuance.

	Fair Value as of December 31, 2022
	Carrying Value		Level 1		Level 2		Level 3
Financial liabilities:
Warrant liability – Public Warrants	$	2,276,136	$	2,276,136	$	—	$	—
Warrant liability – Private Warrants		1,934,588		—		—		1,934,588
Warrant liability – SPA Warrants		28,477,618		—		—		28,477,618
Total	$	32,688,342	$	2,276,136	$	—	$	30,412,206

The following table sets forth a summary of the changes in fair value of the Company’s financial liabilities:

	Warrant Liability
Balance, December 31, 2021	$	—
Assumption of Public and Private Warrants in Business Combination		5,278,145
SPA Warrants from Convertible Note		20,949,110
Change in fair value of warrant liabilities		6,461,087
Balance, December 31, 2022	$	32,688,342

CleanTech Acquisition Corp [Member]

Fair Value Measurements [Line Items]

FAIR VALUE MEASUREMENTS

NOTE 10. FAIR VALUE MEASUREMENTS

The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

Description	Amount at Fair Value		Level 1		Level 2		Level 3
June 30, 2022
Assets
Investments held in Trust Account:
Money Market investments	$	174,483,243	$	174,483,243	$	—	$	—
Liabilities
Warrant liabilities – Public Warrants	$	2,760,000	$	2,760,000	$	—	$	—
Warrant liabilities – Private Placement Warrants	$	2,296,000	$	—	$	—	$	2,296,000
December 31, 2021
Assets
Investments held in Trust Account:
Money Market investments	$	174,230,428	$	174,230,428	$	—	$	—
Liabilities
Warrant liabilities – Public Warrants	$	5,175,000	$	5,175,000	$	—	$	—
Warrant liabilities – Private Placement Warrants	$	2,798,250	$	—	$	—	$	2,798,250

The Company utilized a Monte Carlo simulation model for the initial valuation of the Public Warrants, and the publicly-traded value for the subsequent valuation of the Public Warrants. The measurement of the Public Warrants as of June 30, 2022 and December 31, 2021 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker CLAQW. The quoted price of the Public Warrants was $0.32 and $0.60 per warrant as of June 30, 2022 and December 31, 2021, respectively.

The Company utilizes a Black-Scholes Option Pricing Model to value the Private Placement Warrants at each reporting period, with changes in fair value recognized in the condensed consolidated statements of operations. The estimated fair value of the warrant liability is determined using Level 3 inputs. Inherent in a Black-Scholes Option Pricing Model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. For the initial valuation, the Company estimated volatility based on research on comparable companies with the same type of warrants along with the implied volatilities shortly after they start trading. Significant increases (decreases) in the expected volatility in isolation would result in a significantly higher (lower) fair value measurement. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.

Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement in September 2021 after the Public Warrants were separately listed and traded.

The following table provides the significant inputs to the Black-Scholes Option Pricing Model fair value of the Private Placement Warrants:

	As of June 30, 2022			As of December 31, 2021
Stock price	$	10.07		$	9.96
Strike price	$	11.50		$	11.50
Probability of completing a Business Combination		38.0	%		*
Dividend yield		—	%		—	%
Term (in years)		4.1			4.6
Volatility		11.2	%		8.7	%
Risk-free rate		3.0	%		1.2	%
Discount for lack of marketability		—	%		—	%
Fair value of warrants	$	0.32		$	0.39

The probability of completing a Business Combination is considered within the volatility implied by the traded price of the Public Warrants which is used to value the Private Placement Warrants.

The following table provides a summary of the changes in the fair value of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis:

Fair value as of December 31, 2020	$	—
Initial measurement of Public Warrants and Private Placement Warrants at July 19, 2021		7,980,000
Initial measurement of over-allotment warrants		1,071,000
Transfer of Public Warrants to Level 1 measurement		(5,175,000	)
Change in fair value		(1,077,750	)
Fair value as of December 31, 2021		2,798,250
Change in fair value		(861,000	)
Fair value as of March 31, 2022		1,937,250
Change in fair value		358,750
Fair value as of June 30, 2022	$	2,296,000

The Company recognized gains in connection with the change in the fair value of warrant liabilities of $503,750 and $0 in the unaudited condensed consolidated statements of operations for the three months ended June 30, 2022 and 2021, respectively. The Company recognized gains in connection with the change in the fair value of warrant liabilities of $2,917,250 and $0 in the unaudited condensed consolidated statements of operations for the six months ended June 30, 2022 and 2021, respectively.

NOTE 10. FAIR VALUE MEASUREMENTS

The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

Description	Amount at Fair Value		Level 1		Level 2		Level 3
December 31, 2021
Assets
Investments held in Trust Account:
Money Market investments	$	174,230,428	$	174,230,428	$	—	$	—
Liabilities
Warrant liabilities – Public Warrants	$	5,175,000	$	5,175,000	$	—	$	—
Warrant liabilities – Private Placement Warrants	$	2,798,250	$	—	$	—	$	2,798,250

The Company did not have any assets or liabilities measured at fair value as of December 31, 2020.

The Company utilized a Monte Carlo simulation model for the initial valuation of the Public Warrants, and the publicly-traded value for the subsequent valuation of the Public Warrants. The measurement of the Public Warrants as of December 31, 2021 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker CLAQW. The quoted price of the Public Warrants was $0.60 per warrant as of December 31, 2021.

The Company utilizes a Black-Scholes Option Pricing Model to value the Private Placement Warrants at each reporting period, with changes in fair value recognized in the statement of operations. The estimated fair value of the warrant liability is determined using Level 3 inputs. Inherent in a Black-Scholes Option Pricing Model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. For the initial valuation, the Company estimated volatility based on research on comparable companies with the same type of warrants along with the implied volatilities shortly after they start trading. Significant increases (decreases) in the expected volatility in isolation would result in a significantly higher (lower) fair value measurement. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero.

The following table provides the significant inputs to the Black-Scholes Option Pricing Model fair value of the Private Placement Warrants:

	As of December 31, 2021
Stock price	$	9.96
Strike price	$	11.50
Probability of completing a Business Combination		100.0	%
Dividend yield		—	%
Term (in years)		4.6
Volatility		8.7	%
Risk-free rate		1.2	%
Fair value of warrants	$	0.39

The following table provides a summary of the changes in the fair value of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis:

Fair value as of December 31, 2020	$	—
Initial measurement of Public Warrants and Private Placement Warrants at July 19, 2021		7,980,000
Initial measurement of over-allotment warrants		1,071,000
Transfer of Public Warrants to Level 1 measurement		(5,175,000	)
Change in fair value		(1,077,750	)
Fair value as of December 31, 2021	$	2,798,250

The Company recognized gains in connection with the change in the fair value of warrant liabilities of $1,077,750 in the consolidated financial consolidated statements of operations during the year ended December 31, 2021.

- 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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