6.         Fair Value of Financial Instruments
 
There were no level 1 or 2 assets or liabilities at December 31, 2025 or 2024.
 
Level 3 assets and liabilities measured and recorded at fair value on a recurring basis at December 31, 2025 and 2024 were as follows:
 
         
 
 
December 31,
2025
 
 
December 31,
2024
 
Derivative Liability – Contingent Interest April Note
 
$
1,680,000
 
 
$
47,000
 
Derivative Liability – Contingent Interest September Note
 
$
924,000
 
 
$
94,000
 
Derivative Liability – Contingent Interest December Note
 
$
1,358,000
 
 
$
275,000
 
 
The April 2021 Note derivative liability – contingent interest was valued using a Monte Carlo Geometric Brownian Stock Path Model. The key assumptions used in the model at December 31, 2025 and 2024 are as follows:
 
         
   
December 31,
 2025
   
December 31,
2024
 
Stock Price
 
$
4.16
   
$
1.29
 
Conversion Price of conversion feature
 
$
5.00
   
$
5.00
 
Term
 
 1.5 years
   
0.29 years
 
Risk Free Interest Rate
   
3.48
%
   
4.37
%
Credit Adjusted Discount Rate
   
12.03
%
   
12.43
%
Volatility
   
113
%
   
152
%
Dividend Rate
   
0
%
   
0
%
 
The roll forward of the April 2021 Note derivative liability – contingent interest is as follows:
 
     
Balance – December 31, 2023
 
$
431,000
 
Fair Value Adjustment
 
 
(384,000
)
Balance – December 31, 2024
 
 
47,000
 
Fair Value Adjustment
 
 
1,633,000
 
Balance – December 31, 2025
 
$
1,680,000
 
 
The September 2021 Note derivative liability – contingent interest was valued using a Monte Carlo Geometric Brownian Stock Path Model. The key assumptions used in the model at inception, and at December 31, 2025 and 2024 are as follows:
 
         
 
 
December 31,
2025
 
 
December 31,
2024
 
Stock Price
 
$
4.16
 
 
$
1.29
 
Conversion Price of conversion feature
 
$
8.64
 
 
$
8.64
 
Term
 
1.5 years
 
 
0.72 years
 
Risk Free Interest Rate
 
 
3.48
%
 
 
4.16
%
Credit Adjusted Discount Rate
 
 
12.03
%
 
 
12.43
%
Volatility
 
 
113
%
 
 
111
%
Dividend Rate
 
 
0
%
 
 
0
%
 
The roll forward of the September 2021 Note derivative liability – contingent interest is as follows:
 
     
Balance – December 31, 2023
 
$
169,000
 
Fair Value Adjustment
 
 
(75,000
)
Balance – December 31, 2024
 
 
94,000
 
Fair Value Adjustment
 
 
830,000
 
Balance – December 31, 2025
 
$
924,000
 
The December 2021 Note derivative liability – contingent interest was valued using a Monte Carlo Geometric Brownian Stock Path Model. The key assumptions used in the model at inception, and at December 31, 2025 and 2024 are as follows:
 
         
   
December 31,
2025
   
December 31,
2024
 
Stock Price
 
$
4.16
   
$
1.29
 
Conversion Price of conversion feature
 
$
5.43
   
$
5.43
 
Term
 
1.5 years
   
0.97 years
 
Risk Free Interest Rate
   
3.48
%
   
4.16
%
Credit Adjusted Discount Rate
   
12.03
%
   
12.43
%
Volatility
   
113
%
   
102
%
Dividend Rate
   
0
%
   
0
%
 
The roll forward of the December 2021 Note derivative liability – contingent interest is as follows:
 
     
Balance – December 31, 2023
 
$
404,000
 
Fair Value Adjustment
 
 
(129,000
)
Balance – December 31, 2024
 
 
275,000
 
Fair Value Adjustment
 
 
1,083,000
 
Balance – December 31, 2025
 
$
1,358,000
 

Historical Timeline

Fiscal YearFiled
2025Mar 31, 2026Showing above
2024Mar 31, 2025
2023Mar 29, 2024
2022Mar 30, 2023
2021Mar 31, 2022

About Fair Value Disclosures

Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.

Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.