Derivative Liability |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Liability [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DERIVATIVE LIABILITY | 11. DERIVATIVE LIABILITY
The Company accounts for the embedded conversion feature of its Convertible debentures and certain warrants as derivative liabilities. Derivative liabilities are measured at fair value at each reporting date, with changes in fair value recognized in earnings.
Embedded Conversion Derivative
The Arena convertible debentures contain a variable-price conversion feature based on the market price of the Company’s common stock. The Company determined that the conversion feature requires bifurcation from the debt host and separate accounting as a derivative liability under ASC 815.
In April 2026, in connection with the Amended and Restated Forbearance Agreement described in Note 10, the Company accounted for the revised debt terms as an extinguishment of the existing debt and recognition of replacement convertible debt. Immediately prior to extinguishment, the existing conversion derivative was remeasured to fair value of approximately $798,365 and derecognized with the existing debt. The conversion derivative associated with the replacement debt was initially recognized at fair value of approximately $820,171. As of June 30, 2026, the fair value of the embedded conversion derivative was approximately $746,915. The change in fair value from initial recognition of the replacement derivative through June 30, 2026 was recognized in earnings.
Forbearance Warrants
In connection with the April 2026 forbearance arrangements, the Company issued warrants to the Arena Investors to purchase an aggregate of 250,000 shares of common stock at an exercise price of $2.00 per share. Based on the settlement provisions of the warrants, the Company classified the warrant as liabilities.
The warrants had an aggregate initial fair value of approximately $677,250. As of June 30, 2026, the warrant liability had a fair value of approximately $351,000. The decrease in fair value of approximately $326,250 was recognized as a gain in earnings during the three months ended June 30, 2026.
Fair Value Measurement
The Company estimated the fair value of the embedded conversion derivative using a Monte Carlo simulation model and the fair value of the warrant liability using a Black-Scholes-Merton option pricing model. The principal assumptions as of June 30, 2026 were as follows:
The fair value measurements use significant unobservable inputs and are classified within Level 3 of the fair value hierarchy. |
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