Quarterly report [Sections 13 or 15(d)]

Fair Value Measurements

v3.25.1
Fair Value Measurements
 3 Months Ended
Mar. 31, 2025
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, 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 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 March 31, 2025, the following assumptions were used in order to estimate the fair value of the November 2024 Debentures: stock price of $0.92, a risk free rate of 3.97%, implied volatility of 177% and a remaining term of 1.44 years.
The fair value of the Public, Private and SPA Warrants are measured at each reporting date in accordance with ASC 820-10. The Public Warrants were valued based on their publicly-traded price. The Private and SPA Warrants are considered Level 3 measurements as they involve significant unobservable inputs.
In connection with the acquisition of SeaTrepid on March 20, 2025, the Company measured the identifiable assets acquired and liabilities assumed at fair value in accordance to ASC 820-10. The fair value of land and buildings acquired were measured using the market approach and considered Level 2 measurements as observable inputs from comparable sales were used. Machinery and equipment acquired were measured using cost approach and considered Level 3 measurements due to the use of unobservable inputs. The fair value of the earnout shares related to the acquisition were measured using the Monte Carlo simulation model. The model incorporates Level 3 inputs, including stock price of $1.14, stock price volatility of 99.9%, revenue volatility of 101.4%, risk free rate of 4.15% and a remaining term of 0.78 years.
The fair value of notes payable acquired approximated their carrying values at the acquisition date as the Company plans to pay off the notes in the short term. The fair values of working capital items, including cash, accounts receivable, accounts payable, and accrued expenses, approximated their carrying values at the acquisition date due to their short-term nature. These items are not presented in the table below.
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 March 31, 2025 Fair Value as of December 31, 2024
Carrying Value Level 1 Level 2 Level 3 Carrying Value Level 1 Level 2 Level 3
Financial liabilities:
November 2024 Debentures $ 3,307,758  $ -  $ -  $ 3,307,758  $ 2,583,832  $ -  $ -  $ 2,583,832 
Public Warrants $ 20,343  $ 20,343  $ -  $ -  $ 9,080  $ 9,080  $ -  $ - 
Private Warrants 12,861  -  -  12,861  7,884  -  -  7,884 
 SPA Warrants 97,821  -  -  97,821  164,949  -  -  164,949 
Total warrant liability $ 131,025  $ 20,343  $ -  $ 110,682  $ 181,913  $ 9,080  $ -  $ 172,833 
Non-recurring fair value instruments:
Series A Preferred Stock $ 110,300,391  $ -  $ -  $ 110,300,391 
Fair Value as of March 20, 2025
 Fair Value as of December 31, 2024
Carrying Value Level 1 Level 2 Level 3 Carrying Value Level 1 Level 2 Level 3
SeaTrepid Acquisition:
Land $ 444,435  $ -  $ 444,435  $ -  $ -  $ -  $ -  $ - 
Buildings $ 970,904  $ -  $ 970,904  $ -  $ -  $ -  $ -  $ - 
Machinery and equipment $ 4,753,964  $ -  $ -  $ 4,753,964  $ -  $ -  $ -  $ - 
Earnout shares $ 6,864,729  $ -  $ -  $ 6,864,729  $ -  $ -  $ -  $ - 
The following table sets forth a summary of the changes in fair value of the Company’s financial liabilities categorized within Level 3:
November 2024 Debentures Warrant
Liability
Balance, December 31, 2024 $ 2,583,832  $ 172,833 
Change in fair value of November 2024 Debentures 723,926  - 
Change in fair value of warrant liabilities -  (62,151)
Balance, March 31, 2025 $ 3,307,758  $ 110,682