| FAIR VALUE MEASUREMENTS |
NOTE 15: FAIR VALUE MEASUREMENTS The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities, including financial liabilities for which the Company has elected the fair value option, measured and recorded at fair value on a recurring basis as of December 31, 2024: | | | | | | | | | | | | | | | | Level I | | Level II | | Level III | | Total | | Assets | | | | | | | | | | | | | | Forward purchase agreement | | $ | — | | $ | — | | $ | 1,471,000 | | $ | 1,471,000 | | Total assets | | $ | — | | $ | — | | $ | 1,471,000 | | $ | 1,471,000 | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | Derivative liabilities | | $ | — | | $ | — | | $ | 4,229,478 | | $ | 4,229,478 | | Contingent consideration | | | — | | | — | | | 434,174 | | | 434,174 | | Convertible debt | | | — | | | — | | | 8,542,323 | | | 8,542,323 | | Total liabilities | | $ | — | | $ | — | | $ | 13,205,975 | | $ | 13,205,975 | |
The following table sets forth by level, within the fair value hierarchy, the Company’s liabilities, including financial liabilities for which the Company has elected the fair value option, measured and recorded at fair value on a recurring basis as of December 31, 2023: | | | | | | | | | | | | | | | | Level I | | Level II | | Level III | | Total | | Liabilities | | | | | | | | | | | | | | Convertible notes payable | | $ | — | | $ | — | | $ | 2,178,685 | | $ | 2,178,685 | | Total liabilities | | $ | — | | $ | — | | $ | 2,178,685 | | $ | 2,178,685 | |
The Company did not have any assets measured and recorded at fair value on a recurring basis as of December 31, 2023. The Company did not make any transfers into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2024 and 2023. The following table provides a reconciliation of our assets and liabilities measured at fair value using Level 3 inputs: | | | | | | | | | | | | | | | Forward purchase agreement | | Derivative liabilities | | Contingent consideration | | Convertible debt | Balance, December 31, 2023 | | $ | — | | $ | — | | $ | — | | $ | (2,178,685) | Conversion to shares of Legacy ConnectM's common stock | | | — | | | — | | | — | | | 3,779,223 | Assumed from Business Combination | | | (27,189,660) | | | — | | | — | | | (3,680,000) | Additions | | | — | | | (4,042,050) | | | (575,690) | | | (4,940,000) | Change in fair value | | | (8,254,390) | | | (187,428) | | | (59,723) | | | (1,707,747) | Reclass out of Level 3 | | | | | | | | | 201,239 | | | | Gain from modification | | | 1,572,236 | | | — | | | — | | | — | Releases of Recycled Shares as consideration for Forward Purchase Agreement modification | | | (385,000) | | | — | | | — | | | — | Day one gain on issuance | | | — | | | — | | | — | | | 134,886 | Cash payments | | | 36,727,814 | | | — | | | — | | | 50,000 | Less: cash received | | | (1,000,000) | | | — | | | — | | | — | Ending balance, December 31, 2024 | | $ | 1,471,000 | | $ | (4,229,478) | | $ | (434,174) | | $ | (8,542,323) |
Convertible Notes Payable (fair value option) The Company’s carrying value and fair value for the convertible notes payable for which the Company elected the fair value option is as follows: | | | | | | | | | | | | | | | December 31, 2024 | | December 31, 2023 | | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | Amended 2022 Convertible Notes | | $ | — | | $ | — | | $ | 1,350,000 | | $ | 1,369,734 | 2023 Convertible Notes | | | — | | | — | | | 900,000 | | | 808,951 | 2024 Convertible Notes | | | 2,440,000 | | | 2,547,209 | | | — | | | — | Assumed 2024 Note | | | 3,630,000 | | | 3,630,000 | | | — | | | — | SEPA Convertible Note | | | 2,500,000 | | | 2,365,114 | | | — | | | — | | | $ | 8,570,000 | | $ | 8,542,323 | | $ | 2,250,000 | | $ | 2,178,685 |
The change in fair value on convertible debt resulted in a loss of approximately $1,708,000 and a gain of approximately $25,000 for the years ended December 31, 2024 and 2023, which was recorded as a component of other income on the accompanying consolidated statements of operations and comprehensive loss. Amended 2022 Convertible Notes, 2023 Convertible Notes, and 2024 Convertible Notes: The Amended 2022 Convertible Notes, 2023 Convertible Notes, and 2024 Convertible Notes are re-measured to fair value at each reporting period using the following relevant assumptions: | | | | | | | | | | | | | | | | | | | | | | December 31, 2024 | | December 31, 2023 | | Discount rate | | | | | | | | | 20.0 | % | | 15.0 | % | Probability of conversion at maturity scenario | | | | | | | | | 70.0 - 100.0 | % | | 15.0 | % | Probability of voluntary conversion scenario | | | | | | | | | 0.0 - 30.0 | % | | N/A | | Probability of automatic conversion scenario | | | | | | | | | N/A | | | 85.0 | % | Remaining term for conversion at maturity scenario | | | | | | | | | 0.01 - 0.28 years | | | 0.88 - 1.38 years | | Remaining term for voluntary conversion scenario | | | | | | | | | 0.01 - 0.03 years | | | N/A | | Remaining term for automatic conversion scenario | | | | | | | | | N/A | | | 0.50 years | |
Assumed 2024 Note: The fair value of the Assumed 2024 Note is re-measured to fair value at each reporting period using unobservable inputs, the most significant of which was the expected average volume weighted average price for a share of the Company’s common stock for the five-business day period preceding the maturity date of the Company at the maturity date. SEPA Convertible Note: The fair value of the SEPA Convertible Note was determined utilizing a Monte Carlo simulation considering the following relevant assumptions: | | | | | | | | | | | | | | | | | | | | | | December 31, 2024 | | December 17, 2024
(issuance) | | Remaining term | | | | | | | | | 0.97 years | | | 1.00 years | | Volatility | | | | | | | | | 88.0 | % | | 88.0 | % | Risk-free rate | | | | | | | | | 4.3 | % | | 4.3 | % | Drift term | | | | | | | | | 4.2 | % | | 4.2 | % | Conversion price for payments to be made through issuance of Company's common stock | | | | | | | | $ | 0.41 | | $ | 0.41 | | Payments to be made through issuance of shares of Company's common stock | | | | | | | | | 11.1 | % | | 11.1 | % | Payments to be made in cash | | | | | | | | | 88.9 | % | | 88.9 | % |
Forward Purchase Agreement The change in fair value on the forward purchase agreement resulted in a net loss of approximately $8,254,390 and a gain on modification of the forward purchase agreement was approximately $1,572,236 for the year ended December 31, 2024, which was recorded as a component of other income on the accompanying consolidated statements of operations and comprehensive loss. The fair value of the FPA was re-measured to fair value at assumption and immediately prior to the modification utilizing a Black-Scholes option pricing model that utilizes the following relevant assumptions: | | | | | | | | | | | | | | | | | | | | | | August 2, 2024 (modification) | | July 12, 2024 (assumption) | | Expected term | | | | | | | | | 2.94 years | | | 3.0 years | | Price per share of Company's common stock | | | | | | | | $ | 0.78 | | $ | 3.54 | | Exercise price | | | | | | | | $ | 13.36 | | $ | 13.36 | | Volatility | | | | | | | | | 80.0 | % | | 46.0 | % | Risk-free interest rate | | | | | | | | | 3.7 | % | | 4.2 | % | Dividend rate | | | | | | | | | 0.0 | % | | 0.0 | % | Probability of completing the Business Combination | | | | | | | | | N/A | | | 100.0 | % |
The FPA Amendment provide two settlement options whereby the 2024 FPA can be settled either at maturity if shares of the Company’s common stock are trading above $2.00 per share (the “Maturity Settlement Scenario”) or at the Company’s request for a prepayment short-fall whereby the Company requests Meteora to sell shares (the “Prepayment Shortfall Scenario”). The Second FPA Amendment also provides a Maturity Settlement Scenario and a Prepayment Shortfall Scenario, with a revised definition for the Prepayment Shortfall Scenario (see Note 14). The fair value of the 2024 FPA was re-measured to fair value at each subsequent reporting period and immediately prior to its modification in December 2024 and the fair value of the Amended 2024 FPA was measured at fair value immediately subsequent to the modification in December 2024 and each subsequent reporting period utilizing a Monte Carlo simulation model that applies a probability of occurrence to the present value of each settlement scenario. as follows: | | | | | | | | | | | | | | | | | | | Amended 2024 FPA | | 2024 FPA | | | | | | | December 31, 2024 | | December 16, 2024
(modification) | | December 16, 2024
(modification) | | Probability of maturity settlement scenario | | | | | | 15.0 | % | | 15.0 | % | | 15.0 | % | Probability of prepayment shortfall settlement scenario | | | | | | 85.0 | % | | 85.0 | % | | 85.0 | % | Recycled Shares held by Meteora | | | | | | 1,703,890 | | | 1,703,890 | | | 2,203,890 | | Price per share of Company's common stock | | | | | $ | 1.21 | | $ | 0.77 | | $ | 0.77 | | Remaining term | | | | | | 2.53 years | | | 2.57 years | | | 2.57 years | | Risk-free interest rate | | | | | | 4.3 | % | | 4.2 | % | | 4.2 | % | Drift term | | | | | | 4.2 | % | | 4.1 | % | | 4.1 | % | Volatility | | | | | | 85.0 | % | | 81.0 | % | | 81.0 | % | Forecasted price per share of Company's common stock at maturity | | | | | | 2.30 | | | 0.37 | | $ | 0.37 | | Expected margin from Meteora's sale of Recycled Shares | | | | | | 76.9 | % | | 76.9 | % | | 83.3 | % |
Contingent consideration obligation The change in fair value of the contingent consideration obligation resulted in a loss of approximately $60,000 for the year ended December 31, 2024, which was recorded as a component of other income on the accompanying consolidated statements of operations and comprehensive loss. The fair value of the contingent consideration obligation was measured to fair value at inception and re-measured at each reporting period utilizing a Monte Carlo simulation considering the following relevant assumptions: | | | | | | | | | | | | | | | | | | | | | | December 31, 2024 | | August 5, 2024
(acquisition) | | Operating leverage | | | | | | | | | 150.0 | % | | 150.0 | % | Revenue volatility | | | | | | | | | 20.1 | % | | 20.0 | % | EBITDA volatility | | | | | | | | | 50.2 | % | | 50.0 | % | Earnout risk free rate | | | | | | | | | 4.5 | % | | 3.7 | % | Long-term risk-free rate | | | | | | | | | 4.9 | % | | 4.2 | % | Weighted average cost of capital | | | | | | | | | 18.0 | % | | 13.9 | % | Correlation between revenue and EBITDA | | | | | | | | | 0.65 | | | 0.73 | | Discount rate | | | | | | | | | 6.0 | % | | 9.2 | % | Term to payment | | | | | | | | | 0.1 - 7.1 years | | | 0.5 - 7.5 years | |
Derivative Liabilities The change in fair value of the derivative liabilities resulted in a loss of approximately $187,000 and a day one gain on the issuance of the SEPA was approximately $135,000 for the year ended December 31, 2024, which were recorded as a component of other income on the accompanying consolidated statements of operations and comprehensive loss. Debt conversion share adjustment obligations: The fair value of the derivative liabilities issued in connection with the September 2024 debt conversion agreements were determined using Monte Carlo simulations considering the following relevant assumptions at the date of issuance and each subsequent reporting period: | | | | | | | | | | | | | | | | | | | December 31, 2024 | | September 24, 2024
(issuances) | | September 12, 2024
(issuances) | | Price per share of Company's common stock | | | | | $ | 1.21 | | $ | 1.26 | | $ | 1.09 | | Equity volatility | | | | | | 89.0 - 93.0 | % | | 85.0- 91.0 | % | | 85.0 | % | Reset price floor | | | | | $ | 1.25 | | $ | 1.25 | | $ | 1.25 | | Reset price ceiling | | | | | $ | 2.00 | | $ | 2.00 | | $ | 2.00 | | Remaining term - First Reset Date | | | | | | 0.19 - 0.62 years | | | 0.50 - 0.89 years | | | 0.50 years | | Forecasted per share of Company's common stock - Reset Date | | | | | $ | 1.12 | | | 1.08 | | $ | 0.93 | | Risk-fee rate - Reset Date | | | | | | 4.4 | % | | 4.4 | % | | 4.7 | % | Drift term - Reset Date | | | | | | 4.3 | % | | 4.3 | % | | 4.6 | % | Forecasted five day VWAP per share of Company's common stock - First Reset Date | | | | | $ | 0.96 | | $ | 0.91 | | $ | 0.94 | | Risk-fee rate - First Reset Date | | | | | | 4.2 | % | | 4.0 | % | | N/A | | Drift term - First Reset Date | | | | | | 4.1 | % | | 3.9 | % | | N/A | | Remaining term - Second Reset Date | | | | | | 1.04 years | | | 1.31 years | | | N/A | | Forecasted five day VWAP per share of Company's common stock - Second Reset Date | | | | | $ | 0.81 | | $ | 0.77 | | $ | N/A | | Risk-fee rate - Second Reset Date | | | | | | 4.2 | % | | 3.8 | % | | N/A | | Drift term - Second Reset Date | | | | | | 4.1 | % | | 3.7 | % | | N/A | |
November 2024 Consideration Adjustment Derivative Liabilities: The fair value of the November 2024 Consideration Adjustment Derivative Liabilities was determined using a Monte Carlo simulation considering the following relevant assumptions at the date of issuance and each subsequent reporting period: | | | | | | | | | | | | | | | | | | | | | | December 31, 2024 | | November 13, 2024
(issuance) | | Remaining term | | | | | | | | | 0.29 years | | | 0.25 years | | Price per share of Company's common stock | | | | | | | | $ | 1.21 | | $ | 0.84 | | Volatility | | | | | | | | | 88.0 | % | | 77.0 | % | Risk-free rate | | | | | | | | | 4.4 | % | | 4.6 | % | Drift term | | | | | | | | | 4.3 | % | | 4.5 | % | Forecasted per share of Company's common stock - Reset Date | | | | | | | | $ | 1.10 | | $ | 0.79 | |
December 2024 Consideration Adjustment Derivative Liability: The fair value of the December 2024 Consideration Adjustment Derivative Liability was determined using a Monte Carlo simulation considering the following relevant assumptions at the date of issuance and each subsequent reporting period: | | | | | | | | | | | | | | | | | | | | | | December 31, 2024 | | December 27, 2024
(issuance) | | Remaining term | | | | | | | | | 0.25 years | | | 0.25 years | | Price per share of Company's common stock | | | | | | | | $ | 1.21 | | $ | 1.20 | | Volatility | | | | | | | | | 88.0 | % | | 86.0 | % | Risk-free rate | | | | | | | | | 4.4 | % | | 4.3 | % | Drift term | | | | | | | | | 4.3 | % | | 3.2 | % | Forecasted per share of Company's common stock - Sale Dates | | | | | | | | $ | 1.08 - 1.10 | | $ | 1.08 - 1.10 | |
SEPA Derivative Liability: The fair value of the SEPA Derivative Liability was determined using a Monte Carlo simulation considering the following relevant assumptions at the date of issuance and each subsequent reporting period: | | | | | | | | | | | | | | | | | | | | | | December 31, 2024 | | December 17, 2024
(issuance) | | Remaining term | | | | | | | | | 0.97 years | | | 1.00 years | | Volatility | | | | | | | | | 88.0 | % | | 88.0 | % | Risk-free rate | | | | | | | | | 4.3 | % | | 4.3 | % | Drift term | | | | | | | | | 4.2 | % | | 4.2 | % | Conversion price for payments to be made through issuance of Company's common stock | | | | | | | | $ | 0.41 | | $ | 0.41 | | Payments to be made through issuance of shares of Company's common stock | | | | | | | | | 11.1 | % | | 11.1 | % | Payments to be made in cash | | | | | | | | | 88.9 | % | | 88.9 | % | Prepayment premium | | | | | | | | | 107.0 | % | | 107.0 | % |
|