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Fair Value Measurements
 12 Months Ended
Dec. 31, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 8 – Fair Value Measurements

 

In connection with the October 2024 Offering, we sold units comprised of common stock, Series A Warrants and a Series B Warrants (collectively referred to as the “Warrants”) (see Note 9). The Series A and B Warrants were deemed to be derivative liabilities due to variability in the ultimate settlement of the Series A and B Warrants caused by various settlement provisions embedded within the Warrants. Therefore, these Warrants meet the definition of a derivative liability requiring the Warrants to be reported at fair value upon issuance and subsequently at each reporting period.

 

The following tables present information about the Company’s derivative liabilities that are measured at fair value on a recurring basis as of December 31, 2024 and October 1, 2024 (Issuance) and indicate the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:

 

   (Level 1)   (Level 2)   (Level 3)   Total 
   Fair Value Measurements at October 1, 2024 (Issuance) 
   Quoted Prices in Active Markets for Identical Assets   Other Observable Inputs   Significant Unobservable Inputs     
   (Level 1)   (Level 2)   (Level 3)   Total 
Derivative liabilities - warrants  $—   $—   $19,494,000   $19,494,000 
Total  $—   $—   $19,494,000   $19,494,000 

 

   (Level 1)   (Level 2)   (Level 3)   Total 
   Fair Value Measurements at December 31, 2024 
   Quoted Prices in Active Markets for Identical Assets   Other Observable Inputs   Significant Unobservable Inputs     
   (Level 1)   (Level 2)   (Level 3)   Total 
Derivative liabilities - warrants  $—   $—   $16,400,000   $16,400,000 
Total  $—   $—   $16,400,000   $16,400,000 

 

The fair value of the warrants was determined using a Black-Scholes pricing model and the following assumptions:

 

   December 31, 2024   October 1, 2024 
Exercise price  $1.9445   $12.00 - $25.00 
Stock price  $3.47   $7.91 
Expected term   4.75    5.00 
Volatility   133.00%   108.00%
Risk-free rate   4.28%   3.45%
Dividend yield   0.00%   0.00%
Probability of capital raise below exercise price   100%   100%

 

As of December 31, 2024 and Issuance, the Company measured the Warrants using significant unobservable inputs that are based on little or no verifiable market data, which is Level 3 in the fair value hierarchy, resulting in a fair value estimate of approximately $13.1 million.  Inherent in a Black Scholes options pricing model are assumptions related to expected share-price volatility, expected term, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero. The probability of a capital raise below the Warrants’ current exercise price is a significant unobservable input based on management’s estimate factoring in the Company’s capital needs and the Company’s stock price, which is volatile. Fluctuations to this estimate could significantly impact the fair value.

 

 

AGEAGLE AERIAL SYSTEMS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

 

Note 8 – Fair Value Measurements- Continued

 

The initial fair value of the warrant liabilities of $19,494,000 exceeded the net proceeds received in the October 2024 Offering (see Note 9). Therefore, we recognized a loss in equity financing of $15,305,761 comprised of the following:

 

   Amount 
Gross proceeds  $6,466,500 
Less: placement agent and legal fees   (778,261)
Net proceeds   5,688,239 
Less: Series F issued for Alpha consent   (1,500,000)
Less: Fair value of warrant liabilities at Issuance   (19,494,000)
Loss on equity financing  $(15,305,761)

 

During the year ended December 31, 2024, we recognized a fair value gain on the warrant liabilities of $3,094,000 for the change in fair value between issuance and year end. A reconciliation of the warrant liabilities is below:

 

   Amount 
Balance, beginning of the year  $— 
Warrant liabilities at issuance   19,494,000 
Change in fair value of warrant liabilities   (3,094,00)
Balance, end of the year  $16,400,000