Nauticus Robotics, Inc. Quarterly report [Sections 13 or 15(d)]

Quarterly report [Sections 13 or 15(d)]

Fair Value Measurements

Fair Value Measurements

3 Months Ended

Mar. 31, 2024

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 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. At March 31, 2024 the following assumptions were used in to estimate the fair value of the New Convertible Debentures: stock price of $0.3195, a risk free rate of 4.51%, implied volatility of 123% and a remaining term of 2.44 years.

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, 2024								Fair Value as of December 31, 2023
	(As Restated)
	Carrying Value		Level 1		Level 2		Level 3		Carrying Value		Level 1		Level 2		Level 3
Financial liabilities:
New convertible debentures	$	94,691,365	$	-	$	-	$	94,691,365	$	-	$	-	$	-	$	-

Public Warrants	$	251,850	$	251,850	$	-	$	-	$	451,088	$	451,088	$	-	$	-
Private Warrants	212,476		-		-		212,476		380,531		-		-		380,531
SPA Warrants	8,262,577		-		-		8,262,577		17,544,561		-		-		17,544,561
Total warrant liability	$	8,726,903	$	251,850	$	-	$	8,475,053	$	18,376,180	$	451,088	$	-	$	17,925,092

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		Warrant liability
Balance December 31, 2023	$	-	$	18,376,180
Fair value on issuance of new convertible debentures	99,195,791		-
Exercise of warrants	-		(1,339,654)
Change in fair value of new convertible debentures	(4,504,426)		-
Change in fair value of warrant liabilities	-		(8,309,623)
Balance March 31, 2024	$	94,691,365	$	8,726,903

- 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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