Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.24.3
Fair Value Measurements
 9 Months Ended
Sep. 30, 2024
Fair Value Measurements [Abstract]  
Fair Value Measurements NOTE 12 – FAIR VALUE MEASUREMENTS

The accounting guidance establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 – Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date.

Level 2 – Observable inputs such as quoted prices for similar instruments and quoted prices in markets that are not active, and inputs that are directly observable or can be corroborated by observable market data. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, such as treasury securities with pricing interpolated from recent trades of similar securities, or priced with models using highly observable inputs, such as commodity options priced using observable forward prices and volatilities.

Level 3 – Significant inputs to pricing that have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as the complex and subjective models and forecasts used to determine the fair value of financial instruments.

Financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 are summarized below.

September 30, 2024

Level 1

Level 2

Level 3

Total Fair Value

Cash equivalents:

Money market funds

$

1,240,882

$

—

$

—

$

1,240,882

Subtotal

1,240,882

—

—

1,240,882

Liabilities:

Contingent value rights

—

—

(1,212,263)

(1,212,263)

Embedded derivative liability

—

—

(484,993)

(484,993)

Earnout consideration

—

—

(2,700,000)

(2,700,000)

Subtotal

—

—

(4,397,256)

(4,397,256)

Total

$

1,240,882

$

—

$

(4,397,256)

$

(3,156,374)

December 31, 2023

Level 1

Level 2

Level 3

Total Fair Value

Cash equivalents:

Money market funds

$

1,799,357

$

—

$

—

$

1,799,357

Subtotal

1,799,357

—

—

1,799,357

Current Liabilities:

Contingent value rights

—

—

(1,691,072)

(1,691,072)

Earnout consideration

—

—

(3,500,000)

(3,500,000)

Subtotal

—

—

(5,191,072)

(5,191,072)

Total

$

1,799,357

$

—

$

(5,191,072)

$

(3,391,715)

The following tables present reconciliations of recurring fair value measurements that use significant unobservable inputs (Level 3):

Three Months Ended September 30, 2024

Contingent value rights

Warrant liability

Embedded derivative liability

Earnout consideration

Total

June 30, 2024

$

(1,198,212)

$

(9,806,409)

$

(1,055,600)

$

(2,700,000)

$

(14,760,221)

Additions

—

—

(16,664)

—

(16,664)

Fair value adjustments

(14,051)

(1,435,845)

587,271

—

(862,625)

Reclassification to equity

—

11,242,254

—

—

11,242,254

September 30, 2024

$

(1,212,263)

$

—

$

(484,993)

$

(2,700,000)

$

(4,397,256)

Three Months Ended September 30, 2023

Contingent value rights

Earnout consideration

Total

June 30, 2023

$

(6,010,520)

$

(3,080,000)

$

(9,090,520)

Distribution

3,036,677

—

3,036,677

Fair value adjustments

(239,922)

(230,000)

(469,922)

September 30, 2023

$

(3,213,765)

$

(3,310,000)

$

(6,523,765)

Nine Months Ended September 30, 2024

Contingent value rights

Warrant liability

Embedded derivative liability

Earnout consideration

Total

December 31, 2023

$

(1,691,072)

$

—

$

—

$

(3,500,000)

$

(5,191,072)

Reclassification from equity

—

(10,592,220)

—

—

(10,592,220)

Additions

—

—

(16,664)

—

(16,664)

Warrant exercise

—

324,789

—

—

324,789

Fair value adjustments

478,809

(974,823)

(468,329)

800,000

(164,343)

Reclassification to equity

—

11,242,254

—

—

11,242,254

September 30, 2024

$

(1,212,263)

$

—

$

(484,993)

$

(2,700,000)

$

(4,397,256)

Nine Months Ended September 30, 2023

Contingent value rights

Earnout consideration

Total

December 31, 2022

$

(7,402,715)

$

(2,150,000)

$

(9,552,715)

Distribution

3,036,677

—

3,036,677

Fair value adjustments

1,152,273

(1,160,000)

(7,727)

September 30, 2023

$

(3,213,765)

$

(3,310,000)

$

(6,523,765)

The estimated fair value of the CVRs as of September 30, 2024 and December 31, 2023 was $1,212,263 and $1,691,072, respectively, as noted above. The Company recorded a $478,809 gain on the fair value remeasurement of the CVRs during the nine months ended September 30, 2024 and a $1,152,273 gain on the fair value of the remeasurement of the CVRs during the nine months ended September 30, 2023.

The estimated fair value of earnout consideration related to the acquisition of SUNation as of September 30, 2024 and December 31, 2023 was $2,700,000 and $3,500,000, respectively. Included in the $2,700,000 at September 30, 2024 is $2,500,000 related to the first earnout period and $200,000 related to the second earnout period, both recorded in current liabilities. The estimated fair value is considered a Level 3 measurement. In order to update the fair value of the earnout consideration, the Company utilized a Monte Carlo simulation, which included the following significant assumptions: the expected probability and timing of achievement of milestone events. As a result of the fair value remeasurement, the Company recorded a remeasurement gain of $800,000 and a remeasurement loss of $1,160,000 during the nine months ended September 30, 2024 and 2023, respectively.

The estimated fair value of the PIPE warrants was $0 as of both September 30, 2024 and December 31, 2023, respectively. As noted in Note 10, the warrants were classified as a liability during the first quarter of 2024, resulting in a $10,592,202 reclassification from equity. During the third quarter of 2024, the warrants met equity classification requirements upon the shareholder approval of an increase in authorized outstanding shares and reclassified the fair value liability totaling $11,242,254 back to equity. The estimated fair value is considered a Level 3 measurement and the fair value of the warrant liability is determined using a Monte Carlo simulation to model future movement of the stock price.

As a result of the fair value remeasurement, the Company recorded a remeasurement gain of $974,823 and $0 during the nine months ended September 30, 2024 and 2023, respectively.

The estimated fair value of the embedded derivative liability was $484,993 and $0 as of September 30, 2024 and December 31, 2023, respectively. As a result of the fair value remeasurement, the Company recorded a remeasurement loss of $468,329 and $0 during the nine months ended September 30, 2024 and 2023, respectively. The estimated fair value is considered a Level 3 measurement and the fair value of the embedded derivative liability is determined based on a comparison of the present value of cash flows with and without the embedded derivative. This analysis includes management estimates of the likelihood of events of prepayment and default on the Decathlon, MBB and Conduit loans.

The fair value remeasurement related to the SUNation earnout was recorded within operating expenses. The other fair value remeasurements noted above were recorded within other (expense) income in the condensed consolidated statements of operations.

We record transfers between levels of the fair value hierarchy, if necessary, at the end of the reporting period. There were no transfers between levels during the nine months ended September 30, 2024.