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Redeemable Preferred Stock, Mezzainine Equity and Warrant Liability

12 Months Ended

Dec. 31, 2025

Redeemable Preferred Stock, Mezzainine Equity and Warrant Liability [Abstract]

REDEEMABLE PREFERRED STOCK, MEZZAININE EQUITY AND WARRANT LIABILITY

NOTE 8 — REDEEMABLE PREFERRED STOCK, MEZZAININE EQUITY AND WARRANT LIABILITY

Securities Purchase Agreement

On December 24, 2024, the Company entered into the Purchase Agreement with various institutional and accredited investors. The Company completed the initial closing on December 31, 2024 and sold an aggregate of 1,512,500 immediately separable units (the “Units”), each Unit consisting of (i) one share of the Company’s Series A Preferred Stock, and (ii) a Warrant to purchase one share of common stock, at a price per Unit of $4.00. The Warrant has an exercise price of $4.40 per share, subject to adjustment therein, and a term of five years from the date stockholder approval of the common stock issuances contemplated by the Purchase Agreement is obtained. The gross proceeds from the initial closing to the Company, before deducting transaction fees and other estimated expenses, was $6,050,000. On January 14, 2025 the Company sold and issued an additional 263,250 Units. The gross proceeds from the second closing to the Company, before deducting transaction fees and other estimated expenses, was $1,053,000.

Based on the terms of the Series A Preferred Stock and the Company’s Certificate of Designation, and in accordance with ASC 480, the Series A Preferred Stock is accounted for as mezzanine equity due to the redemption feature upon a deemed liquidation event: (i) a merger or consolidation, or (ii) the sale, lease, transfer or other disposition of substantially all the assets of the Company. $1,971,975 of the initial cash proceeds of $6,050,000 were allocated to the Warrants and $4,078,025 of the residual proceeds were allocated to the Series A Preferred Stock. $330,781 of the additional cash proceeds of $1,053,000 were allocated to the Warrants and $722,219 of the residual proceeds were allocated to the Series A Preferred Stock from the January 14, 2025 settlement, with all the same terms as the first settlement above.

From April 9, 2025 through December 31, 2025, Mezzanine Equity converted into 4,939,808 shares of common stock. Of the original 1,775,750 shares of Series A Preferred Stock, 273,750 and 1,383,250 shares were converted during the three- and nine-month periods ended December 31, 2025, respectively. As of December 31, 2025, 392,500 shares of Series A Preferred Stock remain outstanding, convertible into 1,401,786 shares of common stock.

Based on the terms of the Warrants and in accordance with ASC 815, the Warrants are accounted for as a liability due to the variable exercise price subject to adjustment. Currently, there is not an observable market for this type of derivative. Due to the lack of relevant and market reflective Level 1 and Level 2 inputs, the Company valued the Warrant liability using Level 3 inputs, which require significant judgment and estimates on behalf of management in developing model assumptions. The Company determined the value of the Warrant liability using a Binomial Simulation, which takes into consideration the fair market value of the Company’s stock, the variable nature of the exercise price, the estimated exercise period, the volatility of its common stock, and the risk-free interest rate.

The following assumptions were made as of December 31, 2024 in the model: (1) a variable exercise price with a floor of $4.40 per share, (2) current common stock price of $4.28 per share December 31, 2024, (3) discount rate of 4.38%, and (4) expected stock price volatility of 24.90%. As of December 31, 2024, the carrying value of the Warrant liability in aggregate was $1,971,975 on December 31, 2024. The following assumptions were made as of January 14, 2025 in the model: (1) a variable exercise price with a floor of $4.40 per share, (2) current common stock price of $4.16 per share on January 14, 2025, (3) discount rate of 4.59%, and (4) expected stock price volatility of 25.77%. As of January 14, the carrying value of the 263,250 issued warrants was $330,781.

The following assumptions were made as of April 9, 2025 based on stockholder approval in the model for the aggregate warrants: (1) a fixed exercise price of $1.12 per share, which automatically reset and resulted in a reclassification of the warrant liability on April 9, 2025 to equity per ASC 815; (2) then-current common stock price of $1.34 per share on April 9, 2025; (3) discount rate of 4.06%; and (4) expected stock price volatility of 23.26%.

As of December 31, 2025, the carrying value of the Warrant liability in aggregate was $0. For the year ended December 31, 2025, the Company recorded a gain on the change in fair value of the Warrant Liability in the amount of $1,424,603 and a $878,153 deduction due to reclassification to equity. As of December 31, 2025 and December 31, 2024, the carrying value of the Warrant liability in aggregate was $0 and $1,971,975, respectively.

The Series A Preferred Stock and Warrants were issued in a basket transaction. When two or more instruments are issued in a basket transaction and some instruments will be remeasured at fair value, the proceeds are first allocated to the instruments recorded at their fair value. Next, the residual method is used to allocate the proceeds to the instrument(s) that are not remeasured at fair value. In this case, the Warrant is subsequently measured at fair value, and the Series A Preferred Stock instrument is measured at initial carrying value. The Company will first allocate the proceeds to the Warrant liability, with the residual allocated to the Series A Preferred Stock liability. The following tables reflect the allocation of the cash proceeds and changes in Warrant Liability in the consolidated statement of operations as of and for the period from December 31, 2024 to December 31, 2025.

	As of December 31, 2025
Cash proceeds	$	7,103,000
Fair value of Warrant liability		(2,302,756	)
Residual value allocated to Series A Preferred Stock		(4,800,244	)
Unallocated cash proceeds	$	-

	For the year ended December 31, 2025
Warrant Liability as of December 31, 2024	$	1,971,975
Additional Warrant Liability on January 14, 2025		330,781
Gain on the change in fair value of Warrant Liability as of March 31, 2025		(1,122,561	)
Warrant Liability as of March 31, 2025		1,180,195
Gain on the change in fair value of Warrant Liability as of April 9, 2025		(302,042	)
Stockholder approval on April 9, 2025 - warrants turn into Equity		(878,153	)
Warrant Liability as of December 31, 2025	$	—