VEEA INC. Fair Value Disclosure
14 - FAIR VALUE MEASUREMENTS
Recurring Fair Value Measurements
The Company’s initial value of the warrant liability was based on a valuation model utilizing management judgment and pricing inputs from observable and unobservable markets with less volume and transaction frequency than active markets and classified as level 3. The subsequent measurement of the Private Warrants is classified as Level 2 because these warrants are economically equivalent to the Public Warrants, based on the terms of the Private Warrant agreement, and as such their value is principally derived by the value of the Public Warrants. Significant deviations from these estimates and inputs could result in a material change in fair value. For the year ended December 31, 2024, there were no transfers amongst level 1, 2, and 3 values during the period.
The conversion feature of the September 2024 Notes is measured at fair value using a Monte Carlo model that fair values the conversion option.
The following table presents fair value information as of December 31, 2024 and 2023 of the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
| December 31, 2024 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets | ||||||||||||||||
| Money Market Funds | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Private warrant liability | 840,995 | 840,955 | ||||||||||||||
| Convertible note option liability | 60,000 | 60,000 | ||||||||||||||
| Earn-out Share Liability | 15,560,000 | 15,560,000 | ||||||||||||||
| Total | $ | 16,460,995 | $ | $ | 840,995 | $ | 15,620,000 | |||||||||
| December 31, 2023 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets | ||||||||||||||||
| Money Market Funds | $ | 120,000 | $ | 120,000 | $ | $ | ||||||||||
Convertible Note Option Liability
The Company established the initial fair value for the Convertible Note Option Liability as of September 13, 2024, which was the date of the Financing Closing . On December 31, 2024, the fair value was remeasured using an option pricing model. The option pricing model was used to value the Convertible Note Option liability for the initial period and subsequent measurement periods.
The Convertible Note Option liability was classified within Level 3 of the fair value hierarchy at the initial measurement date and as of and December 31, 2024, due to the use of unobservable inputs. The key inputs into the option pricing model for the Convertible Note Option liability were as follows at September 13, 2024 initial value and at December 31, 2024:
| December 31, 2024 | September 13, 2023 | |||||||
| Stock Price | $ | 3.81 | $ | 12.00 | ||||
| Expected term (years) | 1.2 | 1.5 | ||||||
| Volatility | 75.0 | % | 70.0 | % | ||||
| Risk-Free Rate | 4.18 | % | 3.79 | % | ||||
| Interest rate | 6.49 | % | 7.33 | % | ||||
| Year
ended December 31, 2024 | ||||
| Balance at January 1, 2024 | $ | |||
| Initial value, September 13, 2024 | 900,933 | |||
| Change in fair value | (607,067 | ) | ||
| Balance at December 31, 2024 | $ | 293,866 | ||
Earn-out Share Liability
Following the closing of the Business Combination, holders of certain capital stock of Private Veea immediately prior to the closing will have the contingent right to receive up to 4.5 million additional shares of the Company’s common stock if certain trading-price based milestones of the Company’s common stock are achieved or a change of control transaction occurs during the ten-year period following the Closing. The Company’s obligation to issue the earnout shares is recorded as a contingent liability (the “Earn-Out Share Liability”) in the Company’s financial statements. The initial value of the contingent earnout share liability of $53.6 million is recorded as a transaction cost within operating expenses for the year ended December 31, 2024. The fair value of the Earn-out Share Liabilities was estimated using Monte Carlo simulation utilizing assumptions related to the contractual term of the instruments, estimated volatility, the price of our common stock, and the risk-free rate. A significant driver of the value of the Earn-out Share Liability at the close of the Business Combination was our closing stock price on September 13, 2024, which was $12.00.
The following table presents the changes in fair value of the earnout liabilities:
| Year ended December 31, 2024 | ||||
| Liability at January 1, 2024 | $ | |||
| Initial value, September 13, 2024 | 53,600,000 | |||
| Change in fair value | (38,040,000 | ) | ||
| Balance as of December 31, 2024 | $ | 15,560,000 | ||
The key inputs for the Earn-out Share Liability were as follows at September 13, 2024 initial value, and at December 31, 2024:
| December 31, 2024 | September 13, 2024 | |||||||
| Stock Price | $ | 6.50 | $ | 12.00 | ||||
| Expected term (years) | 10 | 10 | ||||||
| Volatility | 75.0 | % | 70.0 | % | ||||
| Risk-Free Rate | 3.81 | % | 3.66 | % | ||||
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.