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FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2025
FAIR VALUE MEASUREMENTS  
FAIR VALUE MEASUREMENTS

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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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September 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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$

(5,715)

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$

(5,715)

Series B-1 Convertible Notes

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—

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—

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(4,210)

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(4,210)

Total current liabilities recorded at fair value

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$

—

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$

—

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$

(9,925)

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$

(9,925)

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The fair value of the 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, and unobservable inputs related to potential changes in the Company’s future stock prices based on a binomial lattice pricing model.  Changes in those unobservable inputs could significantly impact the estimated fair value of the Convertible Notes.

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The estimated fair value of the Convertible Notes as of September 30, 2025, were computed using the following assumptions:

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September 30, 2025

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Series A-1 Convertible Notes

    

Series B-1 Convertible Notes

Expected volatility

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84.0%

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81.0%

Expected dividend rate

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—

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—

Risk-free interest rate

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3.62%

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3.61%

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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 nine month period ending September 30, 2025 and 2024.

The remaining principal balance for each of the Convertible Notes as of September 30, 2025, was $3.3 million, respectively. For the nine months ended September 30, 2025, the fair value of the outstanding balance of the Series A-1 and Series B-1 Convertible Notes were approximately $5.7 million and $4.2 million, respectively.  

The net carrying amounts of the liability are summarized as follows:

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Balances,

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For the Three Months Ended September 30, 2025

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Balances,

(thousands of dollars)

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June 30, 2025

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Issuances

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Conversions

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Change in Fair Value

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September 30, 2025

Series A-1 Convertible Notes

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$

(5,000)

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$

—

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$

1,700

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$

(2,415)

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$

(5,715)

Series B-1 Convertible Notes

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—

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(5,000)

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1,700

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(910)

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(4,210)

Total

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$

(5,000)

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$

(5,000)

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$

3,400

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$

(3,325)

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$

(9,925)

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Losses on Convertible Notes related to both conversions and changes in fair value were recognized as other expense within the Condensed Consolidated Statement of Operations for the three and nine months ending September 30, 2025, as the losses were unrelated to instrument specific credit risk (see Note 11 Other Expense, Net for more details). During the three months ending September 30, 2025, the Company issued 6.8 million shares of the Company’s Common Stock to settle $3.4 million of net carrying amount related to the Convertible Notes.