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. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:

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.

The estimated fair value of the CVRs as of December 31, 2024 and 2023 was $312,080 and $1,691,072, respectively, as noted above. The Company recorded a $522,257 gain on the fair value remeasurement of the CVRs in 2024 and a $2,674,966 gain on the fair value remeasurement of the CVRs in 2023. The Company paid $856,736 and $3,036,676 in CVR distributions during the 2024 and 2023, respectively.

The estimated fair value of earnout consideration related to the acquisition of SUNation as of December 31, 2024 and 2023 was $2,500,000 and $3,500,000, respectively. The $2,500,000 balance at December 31, 2024 is related to the first earnout period recorded in current liabilities. See further discussion within Note 17, Subsequent Events on the subsequent payment of this liability. The estimated fair value is now considered a Level 2 measurement now that the earnout amounts have been established and there is no longer a reliance on unobservable inputs. The fair value was considered a Level 3 measurement at December 31, 2023 and 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 $1,000,000 and a remeasurement loss of $1,350,000 during the years ended December 31, 2024 and 2023, respectively.

The estimated fair value of the PIPE warrants was $0 as of both December 31, 2024 and 2023, respectively. As noted in Note 12, 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 loss of $974,823 and $0 during the years ended December 31, 2024 and 2023, respectively.

The estimated fair value of the embedded derivative liability was $82,281 and $0 as of December 31, 2024 and 2023, respectively. As a result of the fair value remeasurement, the Company recorded a remeasurement loss of $65,617 and $0 during the years ended December 31, 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 income (expense) in the 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 year ended December 31, 2024, other than the earnout consideration that was transferred from Level 3 to Level 2.