BRAND HOUSE COLLECTIVE, INC. Fair Value Disclosure
Note 4 — Fair Value Measurements
Fair value of the Non-Convertible Term Loan, the Convertible Term Loan and the Collaboration Agreement fees, which were entered into on October 21, 2024, are determined on a non-recurring basis, which results are summarized as follows (in thousands):
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February 1, 2025 |
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Fair Value Hierarchy |
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Carrying Value (1) |
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Fair Value |
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Non-Convertible Term Loan (2) |
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Level 2 |
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$ |
5,531 |
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$ |
7,980 |
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Convertible Term Loan (2) |
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Level 2 |
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6,676 |
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7,003 |
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Collaboration Agreement fees (3) |
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Level 3 |
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3,995 |
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5,439 |
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(1) See “Note 5 — Long-Term Debt” for further discussion of the carrying values, which is shown on a net basis herein of unamortized debt discount and issuance costs.
(2) The fair value was estimated using available market information for debt instruments with similar maturities and credit risk.
(3) The fair value estimate uses the Company’s estimated future revenue projections over the term of the Collaboration Agreement discounted using current market rates for debt investments with similar maturities and credit risk.
The Company measures certain assets at fair value on a non-recurring basis, including the evaluation of long-lived assets for impairment using Company-specific assumptions, including forecasts of projected financial information that would fall within Level 3 of the fair value hierarchy. The Company uses market participant rents (Level 2 input) to calculate the fair value of right-of-use assets and discounted future cash flows of the asset or asset group using a discount rate that approximates the cost of capital of a market participant (Level 2 input) to quantify fair value for other long-lived assets. See “Note 11 — Impairment” for further discussion.
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.