Note 13 - Financial Instruments

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. The fair value hierarchy ranks the inputs used in measuring fair value as follows:

The Company uses fair value measurements to record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. Methodologies used to determine fair value might be highly subjective and judgmental in nature; therefore, valuations may not be precise. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period.

If the Company determines that a change in valuation technique is necessary, the change is assumed to have occurred as of the end of the respective reporting period.

Recurring Fair Value Measurements

The Company’s financial liabilities measured at fair value on a recurring basis consist of warrant liabilities, valued using Level 1 (quoted market prices) or Level 3 (internally developed option-pricing models) inputs. The Company holds no Level 2 instruments. The following table presents these liabilities by level of the fair value hierarchy as of June 30, 2026 and December 31, 2025.:

 Schedule of Liabilities Recorded at Fair Value 

Nearly all warrant values declined from December 31, 2025 to June 30, 2026, reflecting a decline in the Company’s share price over the period, as further discussed below.

Nonrecurring Fair Value Measurements

During the three months ended June 30, 2026, two new loans were added to the indemnified CRB loan portfolio, resulting in new stand-ready guarantee liabilities initially recognized at an aggregate fair value of $0.01 million, using the Level 3 insurance-pricing methodology described below. No other nonrecurring assets or liabilities were fair-valued during the period.

The Company recognized a stand-ready guarantee liability under ASC 460 in connection with the Second Amended CAA with PCCU, initially at inception on October 1, 2025. The liability is measured at fair value once, at inception, and is not subsequently remeasured; it is reduced through systematic amortization as the Company is progressively released from risk on the underlying loan portfolio. As of December 31, 2025, the carrying amount of this liability was $2.1 million. The Company determined fair value using an insurance-pricing approach, representing the premium a third-party surety or insurer would charge to assume the same obligation.

Schedule of Non-Recurring Fair Value Measurement

Fair Value of Financial Instruments

The following tables present the carrying amounts and fair values of the Company’s financial instruments, by level of the fair value hierarchy, as of June 30, 2026 and December 31, 2025. In each case, carrying value approximates fair value.

 Schedule of Carrying Amount and Fair Value of Financial Instruments

Changes in Level 3 Liabilities

The following tables present the changes in the Company’s Level 3 liabilities measured at fair value on a recurring basis for the six months ended June 30, 2026 and June 30, 2025. All changes during each period were attributable to fair value adjustments, with no purchases, issuances, or settlements:

 Schedule of Fair Value Assets Measured on Recurring Basis

Quantitative Information About Level 3 Fair Value Measurements

The PIPE warrants, private placement warrants, and Abaca warrants are valued using the Black-Scholes-Merton option pricing model. The following tables present the significant unobservable inputs used in these valuations as of June 30, 2026 and December 31, 2025:

 Schedule of Level 3 Fair Value Measurements Inputs

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during either period presented

Assets and liabilities measured at fair value on a nonrecurring basis

The Company’s only asset subject to fair value measurement on a nonrecurring basis is its right-of-use asset associated with its office lease, which is tested for impairment when indicators are present. No impairment indicators were identified during the six months ended June 30, 2026.

The Company also recognizes a stand-ready guarantee liability under ASC 460 in connection with the Second Amended CAA with PCCU. A new stand-ready guarantee liability is initially recognized at fair value each time a new loan is added to the indemnified CRB loan portfolio, using the Level 3 insurance-pricing methodology described above, consistent with the market participant framework of ASC 820-10-35-9. Once recognized, each liability is not subsequently remeasured to fair value; it is instead reduced through systematic amortization as the Company is progressively released from risk on the underlying loan. During the three months ended June 30, 2026, two new loans were added to the indemnified portfolio resulting in new stand-ready guarantee liabilities measured at fair value of $0.01 million.

Level 3 Measurement - Significant Unobservable Inputs

The ASC 460 Guarantee liability was classified as Level 3 because its fair value was determined using significant unobservable inputs for which there is no active market. The following table summarizes the valuation methodology and significant unobservable inputs used in the Level 3 measurement for those loans indemnified at October 1, 2025:

 Schedule of Valuation Methodology and Significant Unobservable Inputs 

For loans entered into subsequent to October 1, 2025 (the inception date), management evaluates the stand-ready guarantee on a specific identification basis, separate from the pooled tranche inputs presented above. Loans originated under this methodology are evaluated using the tranche-specific assumptions determined at each loan’s origination date, as follows:

 Schedule of Financial Instruments