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Fair Value Measurements
 6 Months Ended
Jun. 30, 2024
Fair Value Measurements [Abstract]  
Fair Value Measurements

Note 8 – Fair Value Measurements

 

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The Company’s financial instruments are classified as either Level 1, Level 2 or Level 3. These tiers include:

 

  ● Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;

 

  ● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

 

  ● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

The following tables present information about the Company’s assets and liabilities that are measured at fair value on June 30, 2024 and December 31, 2023, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

 

   June 30,  
2024		   Quoted
Prices In
Active
Markets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Other
Unobservable
Inputs
(Level 3)		 
Assets:                
Cash and marketable securities held in trust  $8,476,424   $8,476,424   $
—
   $
—
 
Liabilities:                    
Warrant liabilities – Public Warrants  $521,813   $
—
   $521,813   $
—
 
Warrant liabilities – Private Placement Warrants   404,113    
—
    
—
    404,113 
Warrant liabilities – Representative’s Warrants   31,308    
—
    
—
    31,308 
Convertible promissory note   1,527,001    
—
    
—
    1,527,001 
Total  $2,484,235   $8,476,424   $521,813   $1,962,422 

 

   December 31,
2023		   Quoted
Prices In
Active
Markets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Other
Unobservable
Inputs
(Level 3)		 
Assets:                
Cash and marketable securities held in trust  $10,873,406   $10,873,406   $             —   $
—
 
Liabilities:                    
Warrant liabilities – Public Warrants  $85,388   $85,388   $
—
   $
—
 
Warrant liabilities – Private Placement Warrants   66,128    
—
    
—
    66,128 
Warrant liabilities – Representative’s Warrants   5,123    
—
    
—
    5,123 
Convertible promissory note   944,118    
—
    
—
    944,118 
Total  $1,100,757   $85,388   $
—
   $1,015,369 

 

The Public Warrants, the Private Placement Warrants and the Representative’s Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within liabilities on the consolidated balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the condensed consolidated statements of operations.

 

The Company utilized a Monte Carlo simulation model for the initial valuation of the Public Warrants. The subsequent measurement of the Public Warrants at June 30, 2024 was classified as Level 2 due to the lack of an active market. At December 31, 2023, the Public Warrants was classified as Level 1 due to the use of an observable market quote in an active market. As of June 30, 2024 and December 31, 2023, the aggregate value of Public Warrants was $521,813 and $85,388, respectively.

 

The Company uses a Monte Carlo simulation model to value the Private Placement Warrants and the Representative’s Warrants. The Company allocated the proceeds received from (i) the sale of Units (which is inclusive of one shares of Common Stock and one-half of one Public Warrant) and (ii) the sale of Private Placement Warrants, first to the warrants based on their fair values as determined at initial measurement, with the remaining proceeds allocated to Common Stock subject to possible redemption (temporary equity) based on their relative fair values at the initial measurement date. The Private Placement Warrants and the Representative’s Warrants were classified within Level 3 of the fair value hierarchy at the measurement dates due to the use of unobservable inputs. Inherent in pricing models are assumptions related to expected share-price volatility, expected life and risk-free interest rate. The Company estimates the volatility of its common stock based on historical volatility that matches the expected remaining life of the warrants. 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 key inputs into the Monte Carlo simulation model for the warrant liabilities were as follows at June 30, 2024 and December 31, 2023:

 

   June 30,
2024		   December 31,
2023		 
Input        
Risk-free interest rate   5.11%   5.06%
Expected term (years)   0.96    0.71 
Expected volatility   De minimis%   De minimis%
Exercise price  $11.50   $11.50 
Fair value of Common stock  $11.50   $11.16 

 

The key inputs into the Monte Carlo simulation model for the convertible promissory note were as follows at June 30, 2024 and December 31, 2023:

 

   June 30,
2024		   December 31,
2023		 
Input        
Risk-free interest rate   5.41%   5.48%
Expected term (years)   0.36    0.19 
Expected volatility   De minimis%   De minimis%
Exercise price  $11.50   $11.50 
Fair value of Common stock  $11.50   $11.16 

 

The following table provides a summary of the changes in the fair value of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis for the three and six months ended June 30, 2024 and 2023:

 

   Private
Placement
Warrants		   Representative’s
Warrants		   Warrant
Liability		 
Fair value at December 31, 2023  $66,128   $5,123   $71,251 
Change in fair value of warrant liabilities   213,077    16,509    229,586 
Fair value at March 31, 2024   279,205    21,632    300,837 
Change in fair value of warrant liabilities   124,908    9,676    134,584 
Fair value at June 30, 2024  $404,113   $31,308   $435,421 

 

   Private
Placement
Warrants		   Representative’s
Warrants		   Warrant
Liability		 
Fair value at December 31, 2022  $377,857   $29,274   $407,131 
Change in fair value of warrant liabilities   246,681    19,112    265,793 
Fair value at March 31, 2023   624,538    48,386    672,924 
Change in fair value of warrant liabilities   (433,503)   (33,585)   (467,088)
Fair value at June 30, 2023  $191,035   $14,801   $205,836 

 

   Convertible Promissory Note 
Fair value at December 31, 2023  $944,118 
Principal proceeds   378,185 
Change in fair value of convertible promissory note   (60,077)
Fair value at March 31, 2024  $1,262,226 
Proceeds received through convertible promissory note   330,796 
Change in fair value of convertible promissory note   (66,021)
Fair value at June 30, 2024  $1,527,001 

  

Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period. There was a transfer out of Level 3 to Level 1 for the fair value of the Public Warrants when they began to trade separately from the Units during the three and six months ended March 31, 2022.

 

The fair value of the Company’s working capital loan is valued using a compound option formula on the convertible feature and a present value of the host contract. The valuation technique requires inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumption about the assumptions a market participant would use in pricing the working capital loan.

 

The convertible promissory note was classified within Level 3 of the fair value hierarchy at the measurement dates due to the use of unobservable inputs. Inherent in pricing models are assumptions related to expected share-price volatility, expected life and risk-free interest rate. The Company estimates the volatility of its common stock based on historical volatility that matches the expected remaining life of the note. 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 note. The expected life of the note is assumed to be equivalent to their remaining contractual term. As of June 30, 2024 and December 31, 2023, the aggregate value of the convertible promissory note was $1,527,001 and $944,118, respectively.