v3.26.1
Note 4 - Fair Value Measurements
 6 Months Ended
Jun. 30, 2026
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

4. Fair Value Measurements

 

The Company measures and discloses the fair value of its financial assets and liabilities in accordance with ASC Topic 820, Fair Value Measurement. 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 at the measurement date. ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value as follows:

 

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

 

Level 3 — Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the asset or liability.

 

A financial instrument's categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company recognizes transfers between levels, if any, as of the end of the reporting period in which the transfer occurs. There were no transfers between levels during the periods presented.

 

Recurring Fair Value Measurements

 

The following tables present the Company's assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of June 30, 2026 and December 31, 2025:

 

June 30, 2026

 

Level 1

  

 

Level 2

  

 

Level 3

  

 

Total

 

Assets:

                

Money market funds

 $15,277,843  $—  $—  $15,277,843 

Total assets at fair value

 $15,277,843  $—  $—  $15,277,843 

Liabilities:

                

Contingent consideration

 $—  $—  $4,117,000  $4,117,000 

Total liabilities at fair value

 $—  $—  $4,117,000  $4,117,000 

 

December 31, 2025

 

Level 1

  

 

Level 2

  

 

Level 3

  

 

Total

 

Assets:

                

Money market funds

 $4,853,920  $—  $—  $4,853,920 

Total assets at fair value

 $4,853,920  $—  $—  $4,853,920 

 

Money market funds are classified within cash and cash equivalents on the condensed consolidated balance sheets and are valued using quoted prices in active markets (Level 1). The Company held no liabilities measured at fair value on a recurring basis as of December 31, 2025.

 

The contingent consideration liability relates to the earn-out arising from the Terrasoul acquisition and is presented as a separate “Contingent consideration” line item within current liabilities on the condensed consolidated balance sheet. See Note 2, Business Combinations, for additional information regarding the earn-out arrangement.

 

Changes in Level 3 Fair Value Measurements

 

The following table presents a reconciliation of the contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2026:

 

Contingent consideration liability

 

Amount

 

Balance at December 31, 2025

 $— 

Contingent consideration recognized in connection with the Terrasoul acquisition

  4,070,000 

Change in fair value recognized in earnings

  47,000 

Balance at June 30, 2026

 $4,117,000 

 

Changes in the fair value of the contingent consideration liability are recognized in other income (expenses) within the condensed consolidated statements of operations. For the three and six months ended June 30, 2026, the Company recognized a loss of $47,000 related to the change in fair value of the contingent consideration liability.

 

Valuation Technique and Significant Unobservable Inputs

 

The fair value of the contingent consideration was estimated using a probability-weighted scenario analysis, under which possible outcomes for the Company's 2026 Contribution Profit (as defined in Note 2) were assigned probabilities and the resulting earn-out payments were discounted to present value. The following table summarizes the significant unobservable inputs used in the Level 3 measurement as of June 30, 2026:

 

Valuation technique

Unobservable input

Input value

Probability-weighted scenario analysis

Discount rate

6.0%

 

Projected 2026 Contribution Profit

$11.3M – 12.2M+

 

Scenario probabilities

10% – 60%

 

The fair value measurement of the contingent consideration is sensitive to changes in the significant unobservable inputs, principally the projected 2026 Contribution Profit and the probabilities assigned to each scenario. A significant increase (decrease) in projected 2026 Contribution Profit, or in the probability weighting assigned to higher-outcome scenarios, would result in a significantly higher (lower) fair value of the contingent consideration liability, subject to the contractual maximum of $5,000,000.

 

Nonrecurring Fair Value Measurements

 

Assets acquired and liabilities assumed in a business combination are measured at fair value on a nonrecurring basis as of the acquisition date. The identifiable intangible assets, inventory, property and equipment, and lease-related assets and liabilities recognized in connection with the Terrasoul acquisition were measured using significant unobservable inputs (Level 3). See Note 2, Business Combinations, for further information.

 

Other Financial Instruments

 

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued expenses approximate their fair values due to the short-term nature of these instruments. The Company had no borrowings outstanding under any credit facility as of June 30, 2026 or December 31, 2025.