v3.26.1
Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2026
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

Note 5 — Fair Value of Financial Instruments

The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820, “Fair Value Measurement” (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and establishes disclosures about fair value measurements.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

•
Level 1 — Quoted prices available in active markets for identical assets or liabilities.
•
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quotable 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 valuation techniques that use significant unobservable inputs.

The carrying amounts of the Company’s financial instruments such as cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to the short-term nature of these instruments. Cash equivalents consist of money market funds that limit their investments to only short-term U.S. Treasury Securities and repurchase agreements related to these securities. Short-term investments primarily consist of commercial paper and U.S. Treasury Bills and are carried on the condensed consolidated balance sheets at amortized cost which approximates fair value.

The Company considers all investments with an original maturity of greater than three months to be short-term investments. Short-term investments are carried on the consolidated balance sheets at fair value. Short-term investments as of June 30, 2026 and December 31, 2025 consisted of U.S. Treasury Bills, which are classified as available for sale, agency bonds and commercial paper totaling approximately $2,233,100 and $4,261,800, respectively. The Company determines the appropriate balance sheet classification of its investments at the time of purchase and evaluates the classification at the date of purchase. Unrealized gains and losses on short-term investments are recorded to accumulated other comprehensive income on the condensed consolidated balance sheets and other comprehensive income (loss) on the condensed consolidated statements of comprehensive loss. Once unrealized gains and losses become realized, they are reclassified from other comprehensive gains and losses to other (income) expense.

Cash equivalents and short-term investments measured at fair value on a recurring basis at June 30, 2026 were as follows:

 

 

 

In Active
Markets for
Identical Assets
or Liabilities
(Level 1)

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

 

Total

 

Money market funds

 

$

8,531,419

 

 

$

—

 

 

$

—

 

 

$

8,531,419

 

Short-term investments

 

 

—

 

 

 

2,233,141

 

 

 

—

 

 

 

2,233,141

 

Warrant liability

 

 

—

 

 

 

—

 

 

 

1,127,498

 

 

 

1,127,498

 

Compound derivative liability

 

 

—

 

 

 

—

 

 

 

1,882,511

 

 

 

1,882,511

 

 

Cash equivalents and short-term investments measured at fair value on a recurring basis at December 31, 2025 were as follows:

 

 

 

In Active
Markets for
Identical Assets
or Liabilities
(Level 1)

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

 

Total

 

Money market funds

 

$

10,234,433

 

 

$

—

 

 

$

—

 

 

$

10,234,433

 

Commercial paper

 

 

—

 

 

 

1,645,442

 

 

 

—

 

 

 

1,645,442

 

Short-term investments

 

 

—

 

 

 

4,261,782

 

 

 

—

 

 

 

4,261,782

 

Warrant liability

 

 

—

 

 

 

—

 

 

 

999,418

 

 

 

999,418

 

Compound derivative liability

 

 

—

 

 

 

—

 

 

 

1,649,929

 

 

 

1,649,929

 

 

The following table presents the fair value reconciliation of Level 3 liabilities measured at fair value during the periods ended June 30, 2026 and December 31, 2025, respectively:

 

 

 

Warrant Liability

 

 

Compound
Derivative Liability

 

 

Total

 

Balance – December 31, 2025

 

$

999,418

 

 

$

1,649,929

 

 

$

2,649,347

 

Change in fair value of derivative liabilities

 

 

(280,878

)

 

 

(558,186

)

 

 

(839,064

)

Balance – March 31, 2026

 

$

718,540

 

 

$

1,091,743

 

 

$

1,810,283

 

Change in fair value of derivative liabilities

 

 

408,958

 

 

 

790,768

 

 

 

1,199,726

 

Balance – June 30, 2026

 

$

1,127,498

 

 

$

1,882,511

 

 

$

3,010,009

 

 

Compound derivative liability is presented in long term debt, net of discount on the Condensed Consolidated Balance sheets as of June 30, 2026 and December 31, 2025.

 

Valuation assumptions utilized in the valuations of Level 3 liability under the Monte Carlo model for warrants as of June 30, 2026 and December 31, 2025 were as follows:

 

 

 

June 30, 2026

 

December 31, 2025

Risk-free interest rate

 

4.13%

 

3.68%

Stock price

 

1.04

 

$0.91

Initial exercise price - Warrants

 

$0.96

 

$0.96

Volatility

 

100.49%

 

95.21%

Dividend yield

 

0.0%

 

0.0%

Remaining term - Warrants

 

4.35

 

4.84

 

The expected stock price volatility for the Company’s warrant liability was based on the Company's historical volatility. Risk free interest rates were obtained from U.S. Treasury rates for the applicable periods. The expected term used is the contractual life of the instrument being valued. The Company has historically not paid any dividends and does not have any intention to do so in the future.

The valuation assumptions for the compound derivative liability under the Monte Carlo model are based on determining the fair value of the debt, excluding warrants with and without the derivative features, which include the conversion option for a portion of the debt, the default interest provision and acceleration of the debt upon an event of default. Key inputs for the valuation of the debt include a credit spread of 22.39% and an issuance date annualized risk-free rate of 3.72%.

 

 

 

June 30, 2026

 

December 31, 2025

Remaining term - loan

 

2.92

 

3.42

Credit spread

 

22.39%

 

22.39%

Implied debt yield

 

26.11%

 

26.11%

Annualized risk-free rate

 

3.72%

 

3.72%