NOTE 10. FAIR VALUE MEASUREMENTS

Fair value measurements discussed herein represent management’s best estimate of fair value as of and during the year ended December 31, 2025 and 2024. The fair value of the bifurcated embedded derivative related to the convertible preferred stock was estimated using a Monte Carlo simulation model, which uses as inputs the fair value of the Company’s common stock and estimates for the equity volatility and traded volume volatility of the Company’s common stock, the time to maturity of the convertible preferred stock, the risk-free interest rate for a period that approximates the time to maturity, dividend rate, a penalty dividend rate, and the Company’s probability of default. The fair value of the warrant liability was estimated using the Black Scholes Model which uses as inputs the following weighted average assumptions, as noted above: dividend yield, expected term in years, equity volatility, and risk-free interest rate.

The Company determines the fair value of its financial instruments in accordance with ASC 820, “Fair Value Measurement.” The fair value hierarchy, which prioritizes the inputs used in measuring far value, is described in Note 3. Summary of Significant Accounting Policies.

Fair Value on a Recurring Basis

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. The estimated fair value of marketable securities and money market accounts represents a Level 1 measurement. The estimated fair value of the warrant liability and bifurcated embedded derivatives represent Level 3 measurements.

Level 3 financial instruments are valued using significant unobservable inputs and require the use of judgment and estimates by management.

The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis as of December 31, 2025 and 2024, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

The following table sets forth a summary of the Company’s assets and liabilities that are measured at fair value on a recurring basis:

 SCHEDULE OF FAIR VALUE, ASSETS AND LIABILITIES MEASURED ON RECURRING BASIS

The following table sets forth a summary of the change in the fair value of the warrant liability, which is considered a Level 3 investment, which is measured at fair value on a recurring basis:

 SCHEDULE OF CHANGE IN FAIR VALUE WARRANT LIABILITY

During the year ended December 31, 2025, the Company recorded a loss of $11,627,100, respectively, related to the change in fair value of the Series H-7 and I Warrant liability which is recorded in other income (expense) on the consolidated statements of operations. During the year ended December 31, 2024, the Company recorded a gain of $10,956,900 related to the change in fair value of the Series H-7 Warrant liability which is recorded in other income (expense) on the consolidated statements of operations.

These fair value measurements are classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs.

The fair value of the Series H-7 Warrants and Series I Warrants of $0 and $2,362,900 were estimated at December 31, 2025 and 2024, respectively, utilizing the Black Scholes Model, with the following inputs:

 SCHEDULE OF BLACK SCHOLES MODEL INPUTS AND VALUATION TECHNIQUES

The following table sets forth a summary of the change in the fair value of the derivative liability, which is considered a Level 3 investment, that is measured at fair value on a recurring basis:

 SCHEDULE OF CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITY

During the years ended December 31, 2025 and 2024, the Company recorded income of approximately $2,654,000 and $6,739,000, respectively, related to the change in fair value of the derivative liability which is recorded in other income (expense) on the consolidated statements of operations.

These fair value measurements are also classified within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs.

The Company estimated the $19,000 and $2,661,000 fair value of the bifurcated embedded derivative at December 31, 2025 and December 31, 2024, respectively, using a Monte Carlo simulation model, with the following inputs:

 SCHEDULE OF MONTE CARLO SIMULATION MODEL INPUTS AND VALUATION TECHNIQUES

The valuation of the Company’s Level 3 financial instruments is inherently subjective, as it requires the use of significant unobservable inputs. Changes in these inputs could result in materially different fair value measurements. In particular, increases in the Company’s stock price, expected volatility, or expected term, as well as decreases in the discount rate or probability of default, would generally result in a higher fair value of the derivative and warrant liabilities, while decreases in these inputs would generally result in a lower fair value. The Company evaluates the sensitivity of its fair value measurements to changes in significant unobservable inputs as part of its valuation process.