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FAIR VALUE MEASUREMENTS
 6 Months Ended
Jun. 30, 2025
FAIR VALUE MEASUREMENTS  
FAIR VALUE MEASUREMENTS

7. FAIR VALUE MEASUREMENTS

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Fair Value Measurements

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The Company follows FASB’s Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”), which defines “fair value” as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes a fair-value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):

●Level 1 – Inputs based on unadjusted quoted market prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
●Level 2 – Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.
●Level 3 – Prices or valuation techniques requiring inputs that are both significant to the fair-value measurement and unobservable. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are both unobservable for the asset and liability in the market and significant to the overall fair value measurement.

An asset’s or a liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Assets and liabilities measured at fair value are based on one or more of the following techniques noted in ASC 820:

●Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
●Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost).
●Income approach: Techniques to convert future amounts to a single present value amount based upon market expectations (including present value techniques, option pricing, and excess earnings models).

Recurring Fair Value Measurements

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The following table sets forth by level, within the fair value hierarchy, the Company’s liabilities measured at fair value on a recurring basis.  

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June 30, 2025

(thousands of dollars)

    

Level 1

    

Level 2

    

Level 3

    

Total

Current liabilities

 

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Series A-1 Convertible Notes

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$

—

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$

—

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$

(5,000)

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$

(5,000)

Total current liabilities recorded at fair value

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$

—

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$

—

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$

(5,000)

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$

(5,000)

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The fair value of the Series A-1 Convertible Notes is considered Level 3 as the Company considers unobservable inputs related to the probability of the occurrence of certain contingent redemption features in its determination of fair value.  While the probability of those features occurring did not significantly change from June 13, 2025 to June 30, 2025, future changes in those probabilities could significantly impact the fair value of the Series A-1 Convertible Notes.

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The Company did not make any transfers into or out of Level 3 of the fair value hierarchy during the three or six month period ending June 30, 2025 and 2024.

There were no conversions or settlements made during the three and six month period ending June 30, 2025.  The Company’s carrying value and fair value for the Series A-1 Convertible Notes was $5.0 million as of June 30, 2025.

The change in fair-value related to the Series A-1 Convertible Notes from inception on June 13, 2025, to the period ending June 30, 2025, was immaterial and therefore no gain or loss was recognized within Net Loss or Other Comprehensive Income for the three and six months ending June 30, 2025.