v3.26.1
FAIR VALUE MEASUREMENTS
 6 Months Ended
Jun. 30, 2026
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS

NOTE 11. 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 June 30, 2026:

 

   Level 1   Level 2   Level 3   Total 
Prime institutional money market fund  $5,169,126   $     -   $-   $5,169,126 
U.S. Treasury Bills – under 90 days   1,999,800    -    -    1,999,800 
U.S. Treasury Bills – over 90 days   12,866,651    -    -    12,866,651 
Anti-dilution liability   -    -    (19,552,529)   (19,552,529)
Derivative liabilities   -    -    (89,000)   (89,000)
Total  $20,035,577   $-   $(19,641,529)  $394,048 

 

Level 1 inputs consist of quoted prices in active markets for identical assets. The Company’s derivative liability and anti-dilution liability are classified within Level 3 of the fair value hierarchy because the valuations incorporate significant unobservable inputs.

 

 

The following table sets forth a summary of the change in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:

 

   Series I   Series H-7   Series J Anti-dilution   Total 
Balance – December 31, 2025  $19,000   $-   $-   $19,000 
Change in fair value, three months ended March 31, 2026   6,000    -    -    6,000 
Change in fair value, April 1, 2026 through Omnibus Amendment Date   14,000    -    -    14,000 
Settlement of derivative liability upon Omnibus Amendment   (39,000)   -    -    (39,000)
Issuance of derivative liability upon Omnibus Amendment   124,000    22,000    -    146,000 
Issuance of Series J Preferred Stock   -    -    16,379,662    16,379,662 
Issuance of shares in settlement of anti-dilution provisions   -    -    (4,871,467)   (4,871,467)
Change in fair value   -    -    8,044,334    8,044,334 
Change in fair value, Omnibus Amendment date through June 30, 2026   (35,000)   (22,000)   -    (57,000)
Total  $89,000   $-   $19,552,529   $19,641,529 

 

During the three months ended June 30, 2026 and 2025, the Company recorded a gain of $43,000 and $1,130,000, 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.

 

During the six months ended June 30, 2026 and 2025, the Company recorded a gain of $37,000 and $2,661,000, 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 $89,000 and $19,000 fair value of the bifurcated embedded derivative at June 30, 2026 and December 31, 2025, respectively, using a Monte Carlo simulation model, with the following inputs:

 

   June 30,   December 31, 
   2026   2025 
Volatility   100.0%   130.0%
Time to maturity   1.33    1.18 
Discounted market interest   29.33%   7.5%
Dividend rate   7.0%   7.0%
Penalty dividend rate   15.0%   15.0%
Probability of default   6.0%   9.0%

 

The Company measures the anti-dilution liability associated with the Series J Preferred Stock at fair value on a recurring basis (see Note 8. Stockholders’ Equity). The liability is classified within Level 3 of the fair value hierarchy because the valuation incorporates significant unobservable inputs, including the number of potential shares issuable under the anti-dilution provisions, the $50 million cap on cash issuances, and the outstanding options, warrants and preferred stock.

 

During the three and six months ended June 30, 2026, the Company recorded a loss of $8,044,334 related to the change in fair value of the anti-dilution liability, which is recorded in other income (expense), net on the unaudited condensed consolidated statements of operations.

 

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.