Note 5 - Warrant Liability

Description of Warrants and Fundamental Transaction

On July 21, 2021, the Company issued 1,031,250 Common Stock Purchase Warrants (the “July 2021 Warrants”) to institutional investors. The July 2021 Warrants have an exercise price of $6.15 per share.

The July 2021 Warrant agreements contained a “Fundamental Transaction” provision stating that upon a merger, change in control, or sale of all or substantially all of the Company’s assets, holders could elect to receive a cash payment equal to the Black-Scholes value of their July 2021 Warrants.

On September 11, 2025, the Company completed the sale of its CloudFirst division (see Note 3, “Discontinued Operations”). This transaction constituted a Fundamental Transaction, which triggered the cash-settlement provision for all outstanding July 2021 Warrants.

Accounting Policy

Prior to September 11, 2025, the July 2021 Warrants were classified as equity, as the cash-settlement provision was contingent and not probable of being triggered.

The triggering of the cash-settlement provision on September 11, 2025, required the July 2021 Warrants to be reclassified from equity to a liability at their fair value. The Company recognized an initial warrant liability of $2,461,663, which was recorded as a component of the gain on sale of discontinued operations.

The warrant liability is subject to remeasurement at fair value at each subsequent reporting period. For the period from the September 11, 2025 reclassification date through September 30, 2025, the change in the liability's fair value was determined by management to be immaterial.

Fair Value Measurement

The fair value of the warrant liability is measured using the Black-Scholes-Merton option-pricing model, which requires the use of subjective assumptions. These inputs are considered Level 3 inputs within the fair value hierarchy.

The key assumptions used in the Black-Scholes-Merton model to value the outstanding warrant liability as of September 30, 2025, were as follows:

Warrant Liability Roll-Forward

The following table provides a roll-forward of the warrant liability, which is measured at fair value on a recurring basis:

During the three and nine months ended September 30, 2025, holders of 517,500 July 2021 Warrants elected to receive cash settlements totaling $1,236,825.