CEA Industries Inc.BNC
CEA Industries Inc. Fair Value Disclosure
Note 8 — Fair Value Measurement
The carrying values and fair values of the Company's assets or liabilities recorded at fair value on a recurring or non-recurring basis, as well as other financial instruments for which fair value is disclosed, at April 30, 2026 and April 30, 2025 were as follows:
| Fair Value | |||||||||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
April 30, 2026 (Successor) | |||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 3,061 | $ | 3,061 | $ | — | $ | — | $ | 3,061 | |||||||||||||||||||
Digital assets | 319,622 | 319,622 | — | — | 319,622 | ||||||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||
Related party note payable | 1,083 | — | — | 1,083 | 1,083 | ||||||||||||||||||||||||
Other current related party liabilities, at fair value | 558 | — | — | 558 | 558 | ||||||||||||||||||||||||
Warrants | 22,031 | — | — | 22,031 | 22,031 | ||||||||||||||||||||||||
Related party note payable | 753 | — | — | 753 | 753 | ||||||||||||||||||||||||
$ | 347,108 | $ | 322,683 | $ | — | $ | 24,425 | $ | 347,108 | ||||||||||||||||||||
April 30, 2025 (Predecessor) | |||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 2,149 | $ | 2,149 | $ | — | $ | — | $ | 2,149 | |||||||||||||||||||
$ | 2,149 | $ | 2,149 | $ | — | $ | — | $ | 2,149 | ||||||||||||||||||||
Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value.
The Company's liabilities measured at fair value on a recurring basis using Level 3 inputs changed as follows:
| Liabilities | |||||||||||
| Warrants | Cash Incentive Award(A) | ||||||||||
June 7, 2025 | $ | — | $ | — | |||||||
Transfers(B) | |||||||||||
Transfers to Level 3 | — | — | |||||||||
Transfers from Level 3 | — | — | |||||||||
Gains (losses) included in net income(C) | |||||||||||
Gain on change in fair value of warrant liability | (282,920) | — | |||||||||
Other affiliate operating expenses | — | 558 | |||||||||
Issuance | 304,951 | — | |||||||||
April 30, 2026 | $ | 22,031 | $ | 558 | |||||||
A.See Note 10 for information regarding this affiliate agreement.
B.Transfers are assumed to occur at the beginning of the respective period.
C.Increases in the fair value of liabilities represent losses included in net income.
Liabilities Carried at Fair Value on a Recurring Basis
Stapled Warrants
The Company equally weights observed market pricing data of publicly-traded Stapled Warrants with a Monte-Carlo option pricing model to estimate their fair value, using the following inputs:
| April 30, 2026 | |||||
Stock price | $ | 3.11 | |||
Expected volatility | 95.0 | % | |||
Risk-free interest rate | 3.9 | % | |||
Dividend yield | — | % | |||
Holding period (years) | 2.3 | ||||
Cash Incentive Award
The Company values the Cash Incentive Award with a Monte-Carlo option pricing model to estimate their fair value, using the following inputs:
| April 30, 2026 | |||||
Stock price | $ | 3.11 | |||
Expected volatility | 85.0 | % | |||
Risk-free interest rate | 3.7 | % | |||
Dividend yield | — | % | |||
Holding period (years) | 0.3 | ||||
Assets and Liabilities Carried at Fair Value on a Non-Recurring Basis
Identified Intangibles
In connection with the Company's tradename impairment assessment (Note 2), the Company estimates the cash flows that it doesn't need to pay to use a tradename to generate revenues using an estimated, market-based percentage of expected revenues. If the carrying amount of the intangible asset is higher than those aggregate, undiscounted cash flows, the Company impairs the intangible asset to its estimated fair value equal to those discounted cash flows.
The Company initially records identified intangibles at fair value at initial measurement and on the date of impairment, if any, else the Company reports finite-lived identified intangibles at its amortized cost basis, which may be different from its estimated fair value at a reporting date.
Goodwill
In connection with the Company's goodwill impairment assessment (Note 2), the Company valued its Fat Panda reporting unit using a weighted valuation methodology, which incorporated (a) an income approach using a discounted cash flow analysis and (b) a market approach using publicly-traded companies similar to the Company. The Company records goodwill at its fair value at initial measurement and on the date of impairment, if any, else the Company reports goodwill at its lowest, last known fair value, which may be different from its estimated fair value at a reporting date.
Assets and Liabilities for which Fair Value Only Disclosed
Debt Obligations
The Company determined the carrying value of current notes payable approximates fair value given the short-term nature of the borrowings. Further, Company estimates that the fair value of the Convertible Promissory Note materially approximates its carrying amount.
Equity-based Compensation
Options
The fair value of each option grant is estimated as of the grant date using the Black-Scholes option-pricing model. The following table summarizes the assumptions used to estimate the grant‑date fair value of options issued during the period from June 7, 2025 through April 30, 2026:
Stock price | $ | 7.74 | |||
Expected volatility | 132.4 | % | |||
Risk-free interest rate | 4.4 | % | |||
Dividend yield | — | % | |||
Holding period (years) | 1.0 | ||||
Warrants
While the Company valued the Strategic Advisor Warrants based on the fair value of the underlying shares of its common stock given a nominal exercise price, it valued the Asset Manager Warrants with a Black-Scholes option-pricing model using the following inputs:
Stock price | $ | 17.77 | |||
Exercise price | $ | 10.23 | |||
Expected term (in years)(A) | 5.0 | ||||
Risk-free interest rate | 3.8 | % | |||
Expected volatility(B) | 110.0 | % | |||
Expected dividend yield | — | % | |||
A.Expected term equals the contractual term since the warrant holders are nonemployees and expected to hold the warrants to expiration to maximize their value.
B.The Company estimates volatility based on the historical volatility of the guideline public companies over a period approximately equal to the expected term.
RSUs
The Company values RSU awards at the fair value of the underlying shares of the Company's common stock as such awards are entitled to dividends and are only subject to time-based vesting.
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About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.