Fair Value Measurements

12 Months Ended

Dec. 31, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 6 – Fair Value Measurements

Certain of the Company’s assets and liabilities are carried at fair value and measured on either a recurring or nonrecurring basis. Per ASC Topic 820, Fair Value Measurements and Disclosures, fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market–based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

The GAAP fair value valuation hierarchy categorizes assets and liabilities measured at fair value into one of three levels depending on the observability of the inputs used in determining fair value. The three levels of the fair value hierarchy are as follows:

● Level 1 valuations – Consist of observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date.

● Level 2 valuations – Consist of observable market–based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1 that are either directly or indirectly observable as of the reporting date.

● Level 3 valuations – Consist of unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.

The classification of an asset or liability within the fair value hierarchy is based on the lowest level input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement of an asset or liability requires judgment and may affect the valuation of the fair value asset or liability and its placement within the fair value hierarchy. There have been no transfers between fair value hierarchy levels.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, other current assets, accounts payable, and other current liabilities on the consolidated balance sheets approximate fair value because of their short–term nature.

Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes the Company’s liabilities which were measured at fair value on a recurring basis as of December 31, 2024 and their classification within the fair value hierarchy:

	Fair Value Measurement as of December 31, 2024
	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities:
Commodity derivative contracts	$	4,395	$	—	$	4,395	$	—
SEPA		790		—		—		790
Senior convertible note		12,555		—		—		12,555
Subordinated note – related party		4,609		—		4,609		—
Subordinated note warrants – related party		4,159		—		—		4,159

Commodity derivative contracts. The fair values of the Company’s derivative instruments are measured on a recurring basis using a third-party industry-standard pricing model that considers various inputs such as quoted forward commodity prices, discount rates, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant data. These significant inputs are observable in the current market or can be corroborated by observable active market data and are therefore considered Level 2 inputs within the fair value hierarchy. As of December 31, 2024, the fair value of the Company’s commodity derivative contracts is a liability of $4.4 million, $2.4 million of which is considered a current liability.

The Company has elected the fair value option for the financial instruments listed below, as such, it reflects these financial instrument liabilities at their fair value on its consolidated balance sheet and reflects the changes in the fair values of the liabilities as loss on adjustment to fair value – debt and warrants on its consolidated statements of operations and consolidated statement of cash flows. The following table presents the changes in the Company’s financial instruments presented at fair value for the periods presented:

	December 31, 2024			December 31, 2023
	(In thousands)
SEPA, at the beginning of the period	$	—		$	—
Loss on adjustment to fair value		790			—
SEPA, at the end of the period	$	790		$	—
Senior convertible note, at the beginning of the period	$	—		$	—
Borrowing		14,250			—
Repayments		(3,748	)		—
Loss on adjustment to fair value		2,053			—
Senior convertible note, at the end of the period	$	12,555		$	—
Subordinated note – related party, at the beginning of the period	$	—		$	—
Borrowing		5,000			—
Repayments		(1,786	)		—
Loss on issuance of debt		281			—
Loss on adjustment to fair value		1,114			—
Subordinated note – related party, at the end of the period	$	4,609		$	—
Subordinated note warrants – related party, at the beginning of the period	$	—		$	—
Loss on issuance of debt		2,758			—
Loss on adjustment to fair value		1,401			—
Subordinated note warrants – related party, at the end of the period	$	4,159		$	—
AR debentures, at the beginning of the period	$	—		$	—
Borrowing		—			1,981
Conversion to Common Stock		—			(5,771	)
Loss on adjustment to fair value		—			3,790
AR debentures, at the end of the period	$	—		$	—
Obligation shares, at the beginning of the period	$	—		$	—
Obligation, at merger		—			530
Issuance of Common Stock		—			(2,007	)
Loss on adjustment to fair value		—			1,477
Obligation shares, at the end of the period	$	—		$	—
Reclassified warrant liabilities, at the beginning of the period	$	—		$	—
Reclassification from equity to liabilities		—			67,682
Reclassification from liabilities back to equity		—			(107,480	)
Loss on adjustment to fair value		—			39,798
Reclassified warrant liabilities, at the end of the period	$	—		$	—

The following table presents the face value and fair value of each financial instrument presented at fair value on the Company’s consolidated balance sheet as of December 31, 2024:

	December 31, 2024
	Face Value		Fair Value
	(In thousands)
SEPA	$	—	$	790
Senior convertible note		11,252		12,555
Subordinated note – related party		3,214		4,609
Subordinated note warrants – related party		—		4,159

Standby Equity Purchase Agreement. On September 30, 2024, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, LTD., a Cayman Islands exempt limited company (“Yorkville”), whereby, subject to certain conditions, the Company has the right, not the obligation, to sell to Yorkville shares up to $40.0 million shares of Common Stock, at any time and in the amount as specified in the Company’s request (“Advance Notice”), during the commitment period commencing on September 30, 2024 (the “SEPA Effective Date”) and terminating on September 30, 2026. The Company’s right to sell shares to Yorkville under the SEPA was contingent upon the Company having an effective registration statement, which was declared effective by the SEC on December 20, 2024. The Company has determined that the SEPA represents a derivative instrument pursuant to ASC 815, which should be recorded at fair value at inception and remeasured at fair value each reporting period with changes in the fair value recognized in earnings.

As of December 31, 2024, the fair value of the SEPA was determined by a third-party using a Monte Carlo simulation model and the significant inputs listed below, which are based on unobservable market data and are therefore considered Level 3 inputs within the fair value hierarchy.

SEPA – Monte Carlo Simulation Model	Key Inputs
Time to termination (years)		1.75
Stock price – as of December 31, 2024	$	6.92
Risk-free rate		4.13	%
Equity volatility rate		85.0	%

As of December 31, 2024, the fair value of the SEPA is $0.8 million, which resulted in corresponding loss on adjustment to fair value – debt and warrants of $0.8 million on the Company’s consolidated statement of operations and consolidated statement of cash flows for the year ended December 31, 2024. Refer to Note 10 – Debt for a further discussion of the SEPA.

Senior Convertible Note. Additionally, on September 30, 2024, Yorkville advanced an initial $15.0 million (the “Pre-Paid Advance”) to the Company and the Company issued a convertible promissory note (the “Senior Convertible Note”), with an interest rate of 8.00% and a maturity date of September 30, 2025. The Company has determined that certain features of the Senior Convertible Note require bifurcation and separate accounting as embedded derivatives. As such, the Company has elected the fair value option to account for the Senior Convertible Note; therefore, in accordance with ASC 815, the Company recorded the Senior Convertible Note at fair value and will remeasure the fair value each reporting period with changes in fair value recognized in earnings.

As of December 31, 2024, the fair value of the Senior Convertible Note was determined by a third-party using a Monte Carlo simulation model and the significant inputs listed below, which are based on unobservable market data and are therefore considered Level 3 inputs within the fair value hierarchy.

Convertible Note – Monte Carlo Simulation Model	Key Inputs
Stock price – as of December 31, 2024	$	6.92
Risk-free rate		4.11	%
Equity volatility rate		90.0	%
Market yield – as of December 31, 2024		14.6	%

As of December 31, 2024, the fair value of the Senior Convertible Note is $12.6 million, which resulted in a loss on adjustment to fair value – debt and warrants of $2.1 million on the Company’s consolidated statement of operations and consolidated statement of cash flows for the year ended December 31, 2024. Refer to Note 10 – Debt for a further discussion of the Senior Convertible Note.

Subordinated Promissory Note. On September 30, 2024, the Company entered into a subordinated promissory note (the “Subordinated Note”) with First Idea Ventures LLC and The Hideaway Entertainment LLC (together, the “Noteholders”), in a principal amount of $5.0 million, with a maturity of December 31, 2025. The Subordinated Note has an interest rate of 10.00% and the Noteholders are entitled to a minimum return on capital of up to 2.0x upon the repayment, prepayment or acceleration of the obligations, or the occurrence of certain other triggering events under the Subordinated Note. The Company has determined that certain features of the Subordinated Note require bifurcation and separate accounting as embedded derivatives. As such, the Company has elected the fair value option to account for the Subordinated Note; therefore, in accordance with ASC 815, the Company recorded the Subordinated Note at fair value and will remeasure the fair value each reporting period with changes in fair value recognized in earnings.

As of December 31, 2024, the fair value of the Subordinated Note was determined by a third-party using a credit default valuation model using the significant inputs listed below, which are considered unobservable inputs which are corroborated by market data and are therefore considered Level 2 inputs within the fair value hierarchy.

Subordinated Note – Credit Default Valuation	Key Inputs
Quarterly default rate		5.234	%
Moody’s Investor debt recovery rate – Senior convertible note		54.80	%
Moody’s Investor debt recovery rate – Subordinated note		37.60	%
Risk-free rate		4.18 % - 4.79	%
Discount factor		0.903

As of December 31, 2024, the fair value of the Subordinated Note is $4.6 million, which resulted in a loss on adjustment to fair value – debt and warrants of $1.1 million on the Company’s consolidated statement of operations and consolidated statement of cash flows for the year ended December 31, 2024. Refer to Note 10 – Debt for a further discussion of the Subordinated Note.

Subordinated Note Warrants. As discussed in Note 10 – Debt below, pursuant to the terms of the Subordinated Note, the Company issued to the Noteholders warrants (the “Subordinated Note Warrants”) to purchase up to 1,141,552 shares of Common Stock, vesting in tranches based on the date of repayment of the Subordinated Note. The Company has determined that the Subordinated Note Warrants should be accounted for as a liability pursuant to ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”). In accordance with ASC 815, the Company recorded the Subordinated Note Warrants at fair value and will remeasure the fair value each reporting period with changes in fair value recognized in earnings.

The fair value of the Subordinated Note Warrants was determined by a third-party using a Monte Carlo simulation model using the significant inputs listed below, which are based on unobservable market data and are therefore considered Level 3 inputs within the fair value hierarchy.

Subordinated Note Warrants – Monte Carlo Simulation Model	Key Inputs
Time to termination (years)		4.75
Stock price – as of December 31, 2024	$	6.92
Exercise price	$	8.89
Risk-free rate		4.27	%
Equity volatility rate		75.0	%
Market yield – as of December 31, 2024		14.6	%

As of December 31, 2024, the fair value of the Subordinated Note Warrants was $4.2 million compared to $2.8 million as of September 30, 2024, the date of the Subordinated Note Warrants issuance. The Company recognized the $1.4 million change in fair value as loss on adjustment to fair value – debt and warrants on its consolidated statement of operations and consolidated statement of cash flows for the year ended December 31, 2024. Refer to Note 15 – Common Stock Options and Warrants for a further discussion of the Subordinated Note Warrants.

AR Debentures. Through September 2023, the fair value of the Company’s AR Debentures was based on a widely accepted valuation methodology that utilizes (i) the Company’s Common Stock price, (ii) value of the debt component, and (iii) the value of the equity component.

The key unobservable inputs in the valuation model listed below could change significantly and result in significantly higher or lower fair values at different measurement dates; therefore, they are considered Level 3 inputs within the fair value hierarchy.

AR Debentures – Valuation Model	Key Inputs
Equity volatility rate		75.0	%
Market yield – as of May 3, 2023, the date of the Merger		20.06	%

The AR Debentures were converted in October 2023; therefore, the Company stopped remeasuring the change in fair value at that time. The fair value at conversion was determined using the Company’s Common Stock price. On October 11, 2023, the date that the AR Debentures were fully converted, the fair value of the AR Debentures was $5.8 million, compared to $2.0 million at the date of the Merger. The Company recognized the $3.8 million change in fair value as loss on adjustment to fair value – debt and warrants on its consolidated statement of operations and consolidated statement of cash flows for the year ended December 31, 2023. Refer to Note 10 – Debt for a further discussion of the AR Debentures.

Common Stock Obligation Shares. As discussed in Note 14 – Common Stock, as a result of the Merger and related transactions, the Company had the obligation to issue 205,970 shares of Common Stock (the “Obligation Shares”). The fair value of the Obligation Shares was based on the quoted price of the Company’s Common Stock and, as such, was considered a Level 1 input within the fair value hierarchy. The underlying shares were fully issued on September 7, 2023, therefore, the Company stopped remeasuring the change in the fair value of the obligation at that time.

On September 7, 2023, the date that the underlying shares were fully issued, the fair value of the Obligation Shares was $1.5 million. The Company recognized the $1.5 million change in fair value as loss on adjustment to fair value – debt and warrants on its consolidated statement of operations and consolidated statement of cash flows for the year ended December 31, 2023. Refer to Note 14 – Common Stock for a further discussion of the Obligation Shares.

Reclassified Warrant Liabilities. In September 2023, pursuant to ASC 815, the Company adopted a sequencing policy to determine how to allocate authorized and unissued shares among commitments to deliver shares. The sequence was based upon reclassifying securities with the latest maturity date first. Refer to Note 14 – Common Stock for a discussion of the share sequencing. This sequencing and the lack of sufficient authorized shares required the Company to reclassify a portion of the Series D A Warrants and all of the Series E A Warrants to liabilities at various dates throughout the year ended December 31, 2023 (collectively, the “Reclassified Warrant Liabilities”).

The fair values of the Reclassified Warrant Liabilities at their respective reclassification dates throughout the year ended December 31, 2023 were determined by a third-party using Black-Scholes option-pricing models and the key inputs listed below, which are based on unobservable market data and are therefore considered Level 3 inputs within the fair value hierarchy.

Reclassified Warrant Liabilities – Black-Scholes Option Pricing Model	Key Inputs
Stock price range	$	6.71 - $14.71
Option exercise price	$	6.00
Expected term range (years)		4.56 – 6
Equity volatility rate		75.0	%
Discount rate range		4.27% - 4.58	%

At the time of the reclassification, the total fair value of the Reclassified Warrant Liabilities reclassified to liabilities was $25.9 million. The total fair value of the Reclassified Warrant Liabilities at the time they were transferred back to equity was $65.9 million. The Company recognized the $39.8 million change in fair value as loss on adjustment to fair value – debt and warrants on its consolidated statement of operations and consolidated statement of cash flows for the year ended December 31, 2023. Refer to Note 14 – Common Stock for a further discussion of the Reclassified Warrant Liabilities.

Assets and Liabilities Measured at Fair Value on a Non–Recurring Basis

Acquisition and merger–related assets and liabilities. The fair values of assets acquired and liabilities assumed in an acquisition or merger are measured on a non–recurring basis on the acquisition or merger date. If the assets acquired and liabilities assumed are current and short–term in nature, the Company uses their approximate carrying values as their fair values, which is considered a Level 1 input in the fair value hierarchy. If the assets acquired are not short–term in nature, then the fair value is determined using the estimated replacement values of the same or similar assets and, as such, are considered Level 3 inputs in the fair value hierarchy. Refer to Note 2 – Acquisitions and Merger for a further discussion of the Company’s acquisitions and merger.