v3.26.1
FAIR VALUE MEASUREMENTS
 3 Months Ended
Mar. 31, 2026
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS

NOTE 9. FAIR VALUE MEASUREMENTS

 

The Company measures certain assets and liabilities at fair value on a recurring basis in accordance with ASC 820, Fair Value Measurements.

 

The following table presents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2026:

 

   Level 1   Level 2   Level 3   Total 
Prime institutional money market fund  $450,115   $-   $-   $450,115 
U.S. Treasury Notes – under 90 days   1,992,740    -    -    1,992,740 
U.S. Treasury Notes – over 90 days   2,966,360    -    -    2,966,360 
Derivative liabilities   -         -    (25,000)   (25,000)
Total  $5,409,215   $-   $(25,000)  $5,384,215 

 

Level 1 inputs consist of quoted prices in active markets for identical assets. The Company’s derivative liabilities are classified within Level 3 of the fair value hierarchy because the valuation incorporates significant unobservable inputs.

 

The following table sets forth a summary of the change in the fair value of the derivative liability, which is considered a Level 3 investment, that is measured at fair value on a recurring basis:

 

Balance on December 31, 2025  $19,000 
Change in fair value of derivative liability   6,000 
Balance on March 31, 2026  $25,000 

 

During the three months ended March 31, 2026 and 2025, the Company recorded a loss of $6,000 and $1,531,000, respectively, related to the change in fair value of the derivative liability which is recorded in other income (expense), net on the unaudited condensed consolidated statements of operations.

 

The Company estimated the $25,000 and $19,000 fair value of the bifurcated embedded derivative at March 31, 2026 and December 31, 2025, respectively, using a Monte Carlo simulation model, with the following inputs:

 

   March 31,   December 31, 
   2026   2025 
Volatility   115.0%   130.0%
Time to maturity   0.85    1.18 
Discounted market interest   9.91%   7.5%
Dividend rate   7.0%   7.0%
Penalty dividend rate   15.0%   15.0%
Probability of default   9.0%   9.0%

 

 

The valuation of the Company’s Level 3 financial instruments is inherently subjective, as it requires the use of significant unobservable inputs. Changes in these inputs could result in materially different fair value measurements. In particular, increases in the Company’s stock price, expected volatility, or expected term, as well as decreases in the discount rate or probability of default, would generally result in a higher fair value of the derivative and warrant liabilities, while decreases in these inputs would generally result in a lower fair value. The Company evaluates the sensitivity of its fair value measurements to changes in significant unobservable inputs as part of its valuation process.