v3.26.1
Fair Value Measurement
 3 Months Ended
Mar. 31, 2026
Fair Value Disclosures [Abstract]  
Fair Value Measurement

Note 9 – Fair Value Measurement

 

The aggregate fair value of the Convertible Notes and Warrant Liabilities issued and sold pursuant to the Securities Purchase Agreement on February 27, 2026 was equal to $1,344,000. Generally, the fair value of instruments sold in an arm’s length transaction equals total proceeds, however, in rare circumstances in which freestanding instruments are issued and liability classified, the aggregate fair value of such instruments may exceed total proceeds resulting in a day-1 gain or loss recorded in non-operating other income or loss. As such, the Company recognized a day-one fair value option loss on convertible notes of $344,000, which represents the excess of fair value over total proceeds, in non-operating other expense in the Company’s statement of operations during the three months ended March 31, 2026. Issuance costs in connection with the Securities Purchase Agreements in aggregate of $51,791 were expensed as incurred during the three months ended March 31, 2026.

 

Convertible Notes

 

The Company determined that the Convertible Notes should be accounted for as Level 3 FVO-elected liabilities and carried at their fair value computed using a combination of the Probability Weighted Expected Return Method (PWERM) and Monte-Carlo simulations that consider three scenarios: a Qualified Offering occurring by August 27, 2026, a Qualified Offering occurring by February 27, 2027, and no Qualified Offering occurring. The Convertible Notes are therefore classified within Level 3 of the fair value hierarchy because the inputs include significant unobservable credit risk inputs used in the PWERM, and summarized in the table below:

 

   February 27,
2026		   March 31,
2026		 
   As of 
   February 27,
2026		   March 31,
2026		 
Selected credit rating  CCC   CCC 
Selected credit spread   9.56%   9.95%
Private placement premium   0.50%   0.50%
Security-specific risk premium   25.00%   25.00%

 

 

ZYVERSA THERAPEUTICS, INC.

 

Notes to Condensed Consolidated Financial Statements

 

During the three months ended March 31, 2026, the Company did not record any amounts in other comprehensive income (loss) attributable to instrument-specific credit risk. Additional significant unobservable inputs used in the Monte-Carlo simulations are summarized in the table below:

 

   February 27,
2026		   March 31,
2026		 
   As of 
   February 27,
2026		   March 31,
2026		 
Risk-free interest rate   3.48%   3.62%
Expected term (years)   1.00    0.91 
Expected volatility   40.00%   40.00%
Market yield (discount rate)   38.50%   39.00%

 

The following table sets forth a summary of the changes in the fair value of Level 3 Convertible Notes that are measured at fair value on a recurring basis during the three months ended March 31, 2026:

 

      
Beginning balance as of February 27, 2026  $1,200,000 
Change in fair value of convertible notes   - 
Ending balance as of March 31, 2026  $1,200,000 

 

Warrant Liabilities

 

The Company determined that the Warrant Liabilities should be accounted for as Level 3 ASC 480 liabilities and carried at their fair value computed using a Monte Carlo simulation that considered a Qualified Offering scenario and a no Qualified Offering scenario. The Warrant Liabilities are therefore classified within Level 3 of the fair value hierarchy because the inputs include significant unobservable inputs used in the Monte Carlo simulations, summarized in the table below:

  

  

February 27,

2026

  

March 31,

2026

 
   As of 
  

February 27,

2026

  

March 31,

2026

 
Risk-free interest rate   3.51%   3.78%
Expected term (years)   5.00    4.91 
Expected volatility   40.00%   40.00%
Market yield (discount rate)   38.50%   39.00%

 

The following table sets forth a summary of the changes in the fair value of Level 3 Warrant Liabilities that are measured at fair value on a recurring basis during the three months ended March 31, 2026:

  

      
Beginning balance as of February 27, 2026  $144,000 
Change in fair value of warrant liabilities   (16,000)
Ending balance as of March 31, 2026  $128,000