Note 8. FAIR VALUE MEASUREMENTS

The Company analyzes all financial instruments with features of both liabilities and equity under the FASB accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The three levels of the hierarchy and the related inputs are as follows:

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts and other receivables, prepaid and other current assets, accounts payable, accrued expenses, and note payable, are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

Warrants

The Company issued liability classified warrants in connection with the issuance of the May 2025 warrants. The warrants were liability classified as a result of certain terms in the May 2025 warrant agreement, and the terms were amended during September 2025 to trigger an equity classification on the date of the reverse stock split. The Company uses a Black-Scholes model to estimate the fair value of the warrants. Changes in the fair value of the warrants are recognized in “Change in fair value of warrants issued” for each reporting period in the condensed consolidated statements of operations.

The Company notes there were no liabilities as of September 30, 2025 and December 31, 2024. The Company remeasured the warrant liability three times prior to converting the liability classification to equity classification. The Company initially recorded a warrant liability of $2.9 million as a result of the May 2025 public offering. The Company revalued and recognized an aggregate of $3.8 million in change in fair value of warrants issued before adjusting the warrant liability to equity classified warrants.