KUSTOM ENTERTAINMENT, INC. Fair Value Disclosure

NOTE 11. FAIR VALUE MEASUREMENT

 

In accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a business.

 

ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

●	Level 1 — Quoted prices in active markets for identical assets and liabilities
●	Level 2 — Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities)
●	Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining the fair value)

 

The following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2025 and December 31, 2024:

 SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS

		December 31, 2025
		Level 1				Level 2				Level 3				Total
Liabilities:
Warrant derivative liabilities		$	—			$	—			$	852,844			$	852,844
		$	—			$	—			$	852,844			$	852,844

 

		December 31, 2024
		Level 1				Level 2				Level 3				Total
Liabilities:
Warrant derivative liabilities		$	—			$	—			$	4,554,640			$	4,554,640
		$	—			$	—			$	4,554,640			$	4,554,640

 

 

The following table represents the change in Level 3 tier value measurements for warrant derivative liabilities:

 SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS

		Year Ended December 31, 2025
Balance, December 31, 2024		$	4,554,640
Issuance of pre-funded warrant derivative liabilities in February 2025 public equity offering			1,803
Issuance/Activation of Series A Warrants issued in connection with the February 2025 public equity offering			1,340,214
Issuance/Activation of Series B Warrants issued in connection with the February 2025 public equity offering			5,406,408
Issuance of derivative liabilities in connection with the 2025 Senior Secured Convertible Notes			852,675
Transition of warrant derivative liability to equity due to exercise of pre-funded warrant derivative liabilities in February 2025 public equity offering			(1,803	)
Transition of warrant derivative liability to equity due to exercise of Series B common stock purchase warrants issued in June 2024 Private Placement			(1,989,806	)
Transition of warrant derivative liability to equity due to exercise of Series B common stock purchase warrants issued in February 2025 Public Equity Offering			(5,406,320	)
Transition of warrant derivative liability to equity due to elimination of net cash settlement provisions relative to the Series A common stock purchase warrants issued in February 2025 Public Equity Offering			(530,101	)
Change in fair value of bifurcated embedded derivative liabilities			(43,250	)
			2,075,300
			454,150
			(584,955)
Change in fair value of warrant derivative liabilities			(3,331,616	)
Balance, December 31, 2025		$	852,844

 

		Year Ended December 31, 2024
Balance, December 31, 2023		$	1,369,738
Issuance of Series A and pre-funded warrant derivative liabilities in June 2024 Private Placement			2,075,300
Issuance of Series B warrant derivative liabilities in June 2024 Private Placement upon Stockholder Approval			454,150
Transition of warrant derivative liability to equity due to exercise of common stock purchase warrants			(584,955	)
Change in fair value of warrant derivative liabilities			1,240,407
Balance, December 31, 2024		$	4,554,640