Quarterly report [Sections 13 or 15(d)]

Fair Value Measurements

v3.25.1
Fair Value Measurements
 6 Months Ended
Jun. 30, 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, 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 June 30, 2024 the following pre-reverse stock split assumptions were used in to estimate the fair value of the New Convertible Debentures: stock price of $0.1361, a risk free rate of 4.67%, implied volatility of 132% and a remaining term of 2.19 years. The fair value of the new convertible debentures converted during the second quarter of 2024 was estimated using Monte Carlo simulations with the following pre-reverse stock split assumptions: stock price between $0.1380 and $0.2309, a risk free rate of between 4.63% and 4.81%, implied volatility of between 123% and 133% and a remaining term of between 2.23 years and 2.26 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 June 30, 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 $ 83,797,224  $ -  $ -  $ 83,797,224  $ -  $ -  $ -  $ - 
Public Warrants $ 258,750  $ 258,750  $ -  $ -  $ 451,088  $ 451,088  $ -  $ - 
Private Warrants 224,862  -  -  224,862  380,531  -  -  380,531 
 SPA Warrants 709,081  -  -  709,081  17,544,561  -  -  17,544,561 
Total warrant liability $ 1,192,693  $ 258,750  $ -  $ 933,943  $ 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  - 
Fair value conversion of new convertible debentures to common stock (3,485,645) - 
Change in fair value of new convertible debentures (11,914,729) - 
Other 1,807 
Exercise of warrants —  (4,451,163)
Change in fair value of warrant liabilities -  (12,732,324)
Balance June 30, 2024 $ 83,797,224  $ 1,192,693