Note 8 – Fair Value Measurements

In connection with the October 2024 Offering, we sold units comprised of common stock, Series A Warrants and a Series B Warrants  ( the Series A and B Warrants are collectively referred to as the “Warrants”) (see Note 9). At issuance, the Warrants were deemed to be derivative liabilities due to variability in the ultimate settlement of the Series A and B Warrants caused by various settlement provisions embedded within the Warrants. Therefore, the Series A and B Warrants met the definition of a derivative liability requiring the Warrants to be reported at fair value upon issuance and subsequently at each reporting period. 

On  April 2, 2025, the Company and the majority holder of the Series B warrants, executed an Amendment to the Series B Warrant to Purchase Common Stock and Exchange Agreement (the "Series B Amendment"). The Series B Amendment amended the contractual terms of the Series B warrants by removing Section 3.2 of the original warrant agreement in its entirety (the "Share Combination Event"). Pursuant to the Share Combination Event, if a share split, share dividend, share combination recapitalization or other similar transaction involving common stock occurred after the issuance date of the Series B warrants, the exercise price of the Series B warrants would be adjusted to the lowest volume weighted average price during the five days prior and after such a Share Combination Event if less than the exercise price in effect.  The Company reassessed the classification of the Series B warrants after the execution of the Series B Amendment and concluded that the Series B warrants were no longer precluded from being classified within stockholders' equity (deficit).  On  April 2, 2025, we reclassified the fair value of the outstanding Series B warrants of $7,766,000 from warrant liability to additional paid-in capital. See Note 9 for further disclosures regarding the Series A and B warrants.  The Series A warrants remain liability classified as the terms include an alternate cashless exercise provision that allows the holder to exercise the Series A with no consideration and receive two shares of common stock. 

The following tables present information about the Company’s derivative liabilities that are measured at fair value on a recurring basis as of  December 31, 2025 and 2024 and October 1, 2024 (Issuance) and indicate the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:

The fair value of the warrants was determined using a Black-Scholes pricing model and the following assumptions:

As of  December 31, 2025  and 2024 and Issuance, the Company measured the Warrants using significant unobservable inputs that are based on little or no verifiable market data, which is Level 3 in the fair value hierarchy.  Inherent in a Black Scholes option pricing model are assumptions related to expected share-price volatility, expected term, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero. The probability of a capital raise below the Warrants’ current exercise price is a significant unobservable input based on management’s estimate factoring in the Company’s capital needs and the Company’s stock price, which is volatile. Fluctuations to this estimate could significantly impact the fair value.

The initial fair value of the warrant liabilities of $19,494,000 exceeded the net proceeds received in the October 2024 Offering (see Note 9). Therefore, we recognized a loss in equity financing of $15,305,761 during the year ended December 31, 2024, comprised of the following:

During the year ended December 31, 2025 and 2024, we recognized a change in fair value gain on the warrant liabilities of $8,584,000 and $3,094,000, respectively.  A reconciliation of the warrant liabilities for the years ended December 31, 2025 and 2024 is below: