Warrant Liability and Fair Value Measurements

12 Months Ended

Dec. 31, 2025

Warrant Liability and Fair Value Measurements

Warrant Liability and Fair Value Measurements

Note 6 – Warrant Liability and Fair Value Measurements

Warrant Liability

The Company accounts for certain warrants as liabilities pursuant to ASC Topic 815, Derivatives and Hedging, because certain provisions of the warrant agreements prevent the warrants from qualifying for permanent equity classification.

Accordingly, the warrants are initially recognized at fair value and subsequently remeasured at fair value at each reporting date, with changes in fair value recognized in earnings.

During 2025, the Company amended its financing arrangements with Corbel Capital Partners SBIC, L.P. ("Corbel"), including amendments to previously issued warrants and the issuance of additional warrants in connection with modifications of the Company's senior secured financing arrangements.

As of December 31, 2025, the Company had warrants outstanding that were classified as liabilities and recorded at fair value.

The following table summarizes activity in the warrant liability:

	Amount
Fair value of warrant liability – January 1, 2025	$	538,822
New warrants issued		483,156
Change in fair value recognized in earnings		(521,978	)
Fair value of warrant liability – December 31, 2025	$	500,000

The change in fair value of the warrant liability is included in the accompanying Consolidated Statements of Operations as "Change in fair value of warrants."

Fair Value Measurements

The Company measures the warrant liability at fair value on a recurring basis in accordance with ASC Topic 820, Fair Value Measurement.

ASC Topic 820 establishes a hierarchy for inputs used in measuring fair value as follows:

·	Level 1 – Quoted prices in active markets for identical assets or liabilities.
·	Level 2 – Observable inputs other than quoted prices included in Level 1.
·	Level 3 – Unobservable inputs supported by little or no market activity.

The Company's warrant liability is classified within Level 3 of the fair value hierarchy because significant valuation inputs are unobservable and require management judgment.

The following table presents the Company's warrant liability measured at fair value on a recurring basis as of December 31:

Fair Value Hierarchy	2025		2024
Level 1	$	—	$	—
Level 2		—		—
Level 3		500,000		538,822
Total Fair Value	$	500,000	$	538,822

Valuation Methodology

The Company utilized a valuation methodology incorporating market participant assumptions and available market evidence. Significant assumptions considered in the valuation included:

·	Market price of the Company's common stock;
·	Contractual exercise prices;
·	Remaining contractual terms;
·	Expected volatility;
·	Risk-free interest rates;
·	Probability of exercise and settlement assumptions; and
·	Other relevant market and contractual factors.

Because significant valuation inputs are not directly observable in active markets, the valuation is classified as a Level 3 measurement.

Level 3 Rollforward

The following table presents a rollforward of the Company's Level 3 warrant liability:

	Amount
Balance at January 1, 2025	$	538,822
New warrants issued		483,156
Fair value adjustments recognized in earnings		(521,978	)
Balance at December 31, 2025	$	500,000

Subsequent Event

Subsequent to December 31, 2025, the Company entered into an agreement with Corbel in connection with the anticipated repayment of the Company's senior secured financing arrangements. Under the terms of the agreement, the Company agreed to acquire and Corbel agreed to surrender certain outstanding warrants for aggregate consideration of $500,000, subject to the conditions set forth in the agreement. Management considered this subsequent agreement in evaluating the fair value of the warrant liability at December 31, 2025.