Fair Value Measurements

9 Months Ended

Sep. 30, 2025

NOTE 13 — FAIR VALUE MEASUREMENTS

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Level 1—quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2—observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

Level 3—unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.

The following table presents information about the Company’s liabilities that are measured at fair value as of September 30, 2025 and December 31, 2024 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

			September 30,		December 31,
Description:	Level		2025		2024
Derivative Liabilities:
Forward purchase agreement		3	$	886,000	$	6,404,100
Warrants – Series A		3	$	2,715,900	$	4,955,300
Warrants – Series C and D		3	$	11,706,500	$	13,913,250

Forward purchase agreement

The Company used a Monte Carlo analysis to determine the fair value of the FPA, assuming 191,007 FPA Shares.

The fair value measurement of the FPA at September 30, 2025 and December 31, 2024 was calculated using the following range of weighted average assumptions:

	September 30,			December 31,
	2025			2024
Risk-free interest rate		3.65	%		4.25	%
Stock price	$	4.64		$	35.00
Expected life		1.3 years			2.1 years
Expected volatility of underlying stock		157.5	%		105.0	%
Dividends		0	%		0	%

The model measured the total present value of the Company’s proceeds at approximately $3,777 and the total present value of the Company’s liability at approximately $889,739, resulting in a net liability of approximately $886,000 as of September 30, 2025. As a result, the Company recognized non-cash gain (loss) from changes in the fair value of derivatives of $(133,400) and $5,518,100 for the three and nine months ended September 30, 2025, respectively, compared to $1,413,700 and $17,487,850 for the three and nine months ended September 30, 2024.

Warrants – Series A and B

The Company utilized a Monte Carlo simulation analysis to determine the fair value of the Series A Warrants and Series B Warrants at the date of issuance (March 15, 2024), which included the following assumptions:

	Series A Warrants			Series B Warrants
Expected term (in years)		5.7 years			5.7 years
Stock price	$	87.00		$	87.00
Risk free rate		4.2	%		4.2	%
Expected volatility		82.5	%		82.5	%
Expected dividend rate	$	0.00		$	0.00
Exercise Price	$	37.50		$	0.01

The total fair value of the Series A Warrants and Series B Warrants measured at issuance was $12,656,550 and $82,450, respectively.

The Company utilized a Monte Carlo simulation analysis to determine the fair value of the Series A Warrants at September 30, 2025, which included the following assumptions:

	Series A Warrants
Expected term		4.2 years
Stock price	$	4.64
Risk free rate		3.7	%
Expected volatility		145.0	%
Expected dividend rate	$	0.00
Exercise Price	$	3.10

The fair value of the Series A and Series B Warrants as of September 30, 2025, was $2,715,900 and $0, respectively. The $0 fair value for the Series B Warrants reflects that all Series B Warrants had been exercised by this date. The Company recorded non-cash gain (loss) from changes in the fair value of derivative liabilities related to the Series A and Series B Warrants of $71,850 and $2,239,400 for the three and nine months ended September 30, 2025, respectively, compared to $5,383,585 and $6,093,635 for the three and nine months ended September 30, 2024. As of September 30, 2025, investors had exercised 447,145 Series A Warrants and 114,992 Series B Warrants, resulting in the issuance of 562,137 common shares. As of September 30, 2025, 652,857 Series A Warrants and no Series B Warrants remained outstanding.

Warrants – Series C and D

The Company utilized a Monte Carlo simulation analysis to determine the fair value of the Series C Warrants and Series D Warrants at the date of issuance on August 30, 2024, which included the following assumptions:

	Series C Warrants			Series D Warrants
Expected term		5.6 years			5.6 years
Stock price	$	16.00		$	16.00
Risk free rate		3.7	%		3.7	%
Expected volatility		105.0	%		105.0	%
Expected dividend rate	$	0.00		$	0.00
Exercise Price	$	16.37		$	0.0050

The total fair value of the Series C Warrants and Series D Warrants measured at issuance was $8,114,650 and $1,540,150, respectively.

The Company utilized a Monte Carlo simulation analysis to determine the fair value of the Series C Warrants and Series D Warrants at September 30, 2025, which included the following assumptions:

	Series C Warrants			Series D Warrants
Expected term (in years)		5.6 years			5.6 years
Stock price	$	4.64		$	4.64
Risk free rate		3.7	%		3.7	%
Expected volatility		145.0	%		145.0	%
Expected dividend rate	$	0.00		$	0.00
Exercise Price	$	3.25		$	0.0050

The fair value of the Series C Warrants and Series D Warrants as of September 30, 2025, was $8,684,300 and $3,022,200, respectively. This resulted in non-cash gain (loss) from the change in fair value of derivatives of $(2,175,500) and $2,206,750, for the three and nine months ended September 30, 2025, compared to $435,550 for the three and nine months ended September 30, 2024. As of September 30, 2025, investors have not exercised any Series C and Series D warrants.

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and nine months ended September 30, 2025.

	Fair Value
	Measurement
	Using Level 3
Forward Purchase Agreement	Inputs Total
Balance, December 31, 2024	$	6,404,100
Change in fair value		(5,269,700	)
Balance, March 31, 2025		1,134,400
Change in fair value		(381,800	)
Balance, June 30, 2025		752,600
Change in fair value		133,400
Balance, September 30, 2025		886,000

	Fair Value
	Measurement
	Using Level 3
Warrants – Series A	Inputs Total
Balance, December 31, 2024	$	4,955,300
Change in fair value		(4,265,800	)
Balance, March 31, 2025		689,500
Change in fair value		2,098,250
Balance, June 30, 2025		2,787,750
Change in fair value		(71,850	)
Balance, September 30, 2025		2,715,900

	Fair Value
	Measurement
	Using Level 3
Warrants – Series C and D	Inputs Total
Balance, December 31, 2024	$	13,913,250
Change in fair value		(2,881,950	)
Balance, March 31, 2025		11,031,300
Change in fair value		(1,500,300	)
Balance, June 30, 2025		9,531,000
Change in fair value		2,175,500
Balance, September 30, 2025		11,706,500

HBC earnout shares

The Company utilized a Monte Carlo simulation analysis to determine the fair value of the Earnout Shares at the date of the Merger, which included the following assumptions: stock price of $226.50, risk free rate of 3.98%, volatility of 85%, dividends yield of 0% and duration of 4 years.

Stock-based compensation – Awards with Market-Based Conditions

The Company utilized a Monte Carlo simulation analysis to determine the fair value of the awards with market-based conditions at the date of the Merger, which included the following assumptions: stock price of $226.50, risk free rate of 3.9%, volatility of 72.5%, dividends yield of 0% and duration of 6 years.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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+ Details

Solidion Technology Inc. 10-Q