Annual report [Section 13 and 15(d), not S-K Item 405]

Fair Value Measurements

v3.25.1
Fair Value Measurements
 12 Months Ended
Dec. 31, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements 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 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.
The fair value of the New Convertible Debentures are measured at each reporting date in accordance with ASC 820-10, Fair Value Measurement, using a Monte Carlo simulation model. This model incorporates Level 3 inputs, including, current stock price, stock price volatility (historical and implied), risk-free interest rate (U.S. Treasury rates) and expected term to maturity. The fair value measurement is classified as Level 3 in the fair value hierarchy due to the use of unobservable inputs. See the assumptions used to estimate the fair value of the New Convertible Debentures upon issuance in Note 7. The New Convertible Debentures were exchanged for Series A Preferred Stock during the year and have a fair value of $0 as of December 31, 2024.
The fair value of the November 2024 Debentures are measured at each reporting date in accordance with ASC 820-10, Fair Value Measurement, using a Monte Carlo simulation model. This model incorporates Level 3 inputs, including, current stock price, stock price volatility (historical and implied), risk free interest rate (U.S. Treasury rates), and expected term to maturity. The fair value measurement is classified as Level 3 in the fair value hierarchy due to the use of unobservable inputs. At December 31, 2024 the following post Reverse Stock Split assumptions were used in order to estimate the fair value of the November 2024 Debentures: stock price of $1.55 a risk free rate of 4.22%, implied volatility of 138% and a remaining term of 1.69 years.
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. See Note 12 for more information about the valuation methodologies and assumptions.
The fair value of the Series A Preferred Stock is measured on the exchange dates of December 27, 2024 and December 31, 2024 in accordance with ASC 820-10, Fair Value Measurement, using a Monte Carlo simulation model. This model incorporates Level 3 inputs, including, current stock price, stock price volatility (historical and implied), risk free interest rate (U.S. Treasury rates), and expected term to maturity. The fair value measurement is classified as Level 3 in the fair value hierarchy due to the use of unobservable inputs. The following post Reverse Stock Split assumptions were used in order to estimate the fair value of the Series A Preferred Stock at December 27, 2024 and December 31, 2024: stock price of $2.16 and $1.55, risk free rate of 4.24% and 4.19%, implied volatility of 145% and 148%, and remaining term of 1.34 years and 1.33 years, respectively.
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 and non-recurring basis and the related activity for periods presented:
Fair Value as of December 31, 2024 Fair Value as of December 31, 2023
Carrying Value Level 1 Level 2 Level 3 Carrying Value Level 1 Level 2 Level 3
Financial liabilities:
November 2024 Debentures
 $ 2,583,832  $ -  $ -  $ 2,583,832  $ -  $ -  $ -  $ - 
Public Warrants 9,080  9,080  -  -  451,088  451,088  -  - 
Private Warrants 7,884  -  -  7,884  380,531  -  -  380,531 
 SPA Warrants 164,949  -  -  164,949  17,544,561  -  -  17,544,561 
Total warrant liability
 $ 181,913  $ 9,080  $ -  $ 172,833  $ 18,376,180  $ 451,088  $ -  $ 17,925,092 
Non-recurring fair value instruments:
Series A Preferred Stock
$ 110,300,391  $ -  $ -  $ 110,300,391  $ -  $ -  $ -  $ - 
The following table sets forth a summary of the changes in fair value of the Company’s financial liabilities categorized within Level 3:
New Convertible Debentures
November 2024 Debentures
 Warrant
Liability
Balance, December 31, 2023 $ -  $ -  $ 17,925,092 
Fair value on issuance 99,195,791  2,107,000  - 
Exercise of warrants -  -  (4,635,257)
Fair value conversion of new convertible debentures to common stock (29,741,859) -  - 
Change in fair value of new convertible debentures (7,989,948)
435,864
 - 
Change in fair value of warrant liabilities -  -  (13,117,002)
Exchange of New Convertible Debentures to Series A Preferred Stock
 (61,429,200) -  - 
Other
 (34,784) 40,968  — 
Balance, December 31, 2024 $ -  $ 2,583,832  $ 172,833