Quarterly report [Sections 13 or 15(d)]

Fair Value Measurements

v3.26.1
Fair Value Measurements
 3 Months Ended
Mar. 31, 2026
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
The Company measures and reports certain financial and non-financial assets and liabilities on a fair value basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three levels related to fair value measurements are as follows:
Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.
The estimated fair values of accounts receivable, contract assets, accounts payable and accrued expenses approximate their carrying amounts due to the relatively short maturity or time to maturity of these instruments. Notes payable with related parties may not be arm's-length transactions and therefore may not reflect fair value.
The Company elected to measure the November 2024 Debentures at fair value under the fair value option in accordance with ASC 825-10, Financial Instruments - Fair Value Option. The fair value of the November 2024 Debentures are measured at each reporting date in accordance with ASC 820-10, Fair Value Measurement, using a Monte Carlo simulation model. This model incorporates Level 3 inputs, including, current stock price, stock price volatility (historical and implied), risk free interest rate (U.S. Treasury rates), and expected term to maturity. The fair value measurement is classified as Level 3 in the fair value hierarchy due to the use of unobservable inputs. At March 31, 2026, the following assumptions were used in order to estimate the fair value of the November 2024 Debentures: stock price of $4.00, a risk free rate of 3.72%, implied volatility of 196% and a remaining term of 0.44 years.
The fair value of the Public, Private and SPA Warrants are measured at each reporting date in accordance with ASC 820-10. The Public Warrants were valued based on their publicly-traded price. The Private and SPA Warrants are considered Level 3 measurements as they involve significant unobservable inputs.
The fair value of notes payable acquired approximated their carrying values at the acquisition date as the Company plans to pay off the notes in the short-term. The fair values of working capital items, including cash, accounts receivable, accounts payable, and accrued expenses, approximated their carrying values at the acquisition date due to their short-term nature. These items are not presented in the table below.
The Company measures the derivative liability associated with the EPFA at fair value on a recurring basis. The fair value of the derivative liability is classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs. The fair value of the derivative liability was estimated using a Probability Weighted Expected Return Model ("PWERM") valuation model that incorporates probability-weighted scenarios regarding the Company’s expected utilization of the EPFA. The valuation model incorporates both observable and unobservable inputs at March 31, 2026 including stock price of $4.00, discount rate of 9.17%, expected timing and frequency of potential draws under the EPFA and probability of utilization. The probability of utilization represents a significant unobservable input and reflects management’s assessment of the likelihood that the Company will access the EPFA during its term. As of March 31, 2026, this probability increased compared to December 31, 2025, primarily due to increased liquidity needs and declines in the Company’s stock price, which resulted in a corresponding increase in the fair value of the derivative liability.
The fair value of the 2,023 Series C Preferred Stock was measured on the exchange date of March 27, 2026 in accordance with ASC 820-10, Fair Value Measurement, using a Monte Carlo simulation model. This model incorporates Level 3 inputs, including, current stock price, stock price volatility (historical and implied), risk free interest rate (U.S. Treasury rates), and expected term to maturity. The fair value measurement is classified as Level 3 in the fair value hierarchy due to the use of unobservable inputs. The following assumptions were used in order to estimate the fair value of the Series C
Preferred Stock at March 27, 2026: stock price of $4.24, risk free rate of 3.77%, implied volatility of 152%, and remaining term of 1.01 years.
In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company’s financial liabilities that are required to be measured at fair value on a recurring and non-recurring basis and the related activity for periods presented:
Fair Value as of March 31, 2026 Fair Value as of December 31, 2025
Carrying Value Level 1 Level 2 Level 3 Carrying Value Level 1 Level 2 Level 3
Financial liabilities:
November 2024 Debentures $ 1,298,728  $ -  $ -  $ 1,298,728  $ 163,672  $ -  $ -  $ 163,672 
Derivative liability $ 515,827  $ -  $ -  $ 515,827  $ -  $ -  $ -  $ - 
Public Warrants $ 1,769  $ 1,769  $ -  $ -  $ 1,612  $ 1,612  $ -  $ - 
Private Warrants $ 647  $ -  $ -  $ 647  $ 589  $ -  $ -  $ 589 
 SPA Warrants $ 5,846  $ -  $ -  $ 5,846  $ 9,080  $ -  $ -  $ 9,080 
Total warrant liability $ 8,262  $ 1,769  $ -  $ 6,493  $ 11,281  $ 1,612  $ -  $ 9,669 
Non-recurring fair value instruments:
Series C Preferred Stock at March 27, 2026 $ 3,659,502  $ -  $ -  $ 3,659,502 
The following table sets forth a summary of the changes in fair value of the Company’s financial liabilities categorized within Level 3:
November 2024 Debentures Warrant
Liability 		Derivative Liability
Balance, December 31, 2024 $ 2,583,832  $ 172,833  $ - 
Change in fair value of November 2024 Debentures 723,926  -  - 
Change in fair value of warrant liabilities -  (62,151) - 
Balance March 31, 2025 $ 3,307,758  $ 110,682  $ - 
Balance, December 31, 2025 $ 163,672  $ 9,669  $ - 
Issuance of November 2024 Debentures 2,960,000  -  - 
Fair value conversion of November 2024 Debentures to Common Stock (283,790) -  - 
Exchange of November 2024 Debentures to Series C Preferred Stock (2,729,994) -  - 
Change in fair value of November 2024 Debentures 1,188,840  -  - 
Change in fair value of warrant liabilities -  (3,176) - 
Change in fair value of derivative liability -  -  515,827 
Balance, March 31, 2026 $ 1,298,728  $ 6,493  $ 515,827