3. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. ASC 820, Fair Value Measurement and Disclosures, establishes a hierarchy whereby inputs to valuation techniques used in measuring fair value are prioritized, or the fair value hierarchy. There are three levels to the fair value hierarchy based on reliability of inputs, as follows:

The Company’s money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The carrying values of cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities as of March 31, 2026 and December 31, 2025 approximated their fair values due to the short-term nature of these items.

The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them for each reporting period, utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The determination requires significant judgments to be made by the Company.

The fair value of the Contingent Earnout Liability (as defined in Note 7), liabilities associated with the Registered Direct Offering Warrants (as defined in Note 7), the derivative liability associated with the JDRF Agreement Disposition Payment (as defined in Note 10), Loan Agreement Warrants liability (as defined in Note 7), and Loan Agreement conversion derivative liability (as defined in Note 7) are based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. The fair values of the Private Placement Warrants liability (as defined in Note 7), Loan Agreement Warrants liability (as defined in Note 7), and the liabilities associated with the Registered Direct Offering Warrants (as defined in Note 7) are included in common stock warrant liabilities on the condensed consolidated balance sheets. The fair values of the Loan Agreement conversion derivative liability and the derivative liability associated with the JDRF Agreement Disposition Payment are included in other long-term liabilities on the condensed consolidated balance sheets.

Common Stock Purchase Agreement

The Company evaluated the Common Stock Purchase Agreement and determined that the agreement should be accounted for in accordance with ASC 815-40, “Derivatives and Hedging—Contracts on an Entity’s Own Equity.” Accordingly, the Company recorded a derivative asset with an initial fair value based on the 115,705 shares of Common Stock issued to Lincoln Park as consideration for its irrevocable commitment to purchase up to $50.0 million in shares of Common Stock. The initial fair value of $0.7 million was based on the closing price of the Common Stock on September 24, 2024, which was $6.12 per share, and the derivative asset is reported as a component of long-term assets on the condensed consolidated balance sheets. Subsequent changes in the fair value of the derivative asset are dependent upon, among other things, changes in the closing share price of Common Stock, the quantity and purchase price of the shares purchased by Lincoln Park during the reporting period and the unused capacity under the Common Stock Purchase Agreement. The Common Stock Purchase Agreement is subsequently remeasured at each reporting date with changes in fair value recorded within Change in fair value of derivatives in the condensed consolidated statements of operations and comprehensive (loss) income. There was no change in fair value of the derivative asset between December 31, 2025 and March 31, 2026, and the fair value of the Commitment Shares (as defined in Note 7) as of both March 31, 2026 and December 31, 2025 was $0.7 million.

Contingent Earnout Liability

In determining the fair value of the Contingent Earnout Liability, the Company used the Monte Carlo simulation value model using a distribution of potential outcomes on a monthly basis over a 10-year period prioritizing the most reliable information available. The assumptions utilized in the calculation were based on the achievement of certain stock price milestones, including the expected volatility and expected term, as well as certain data inputs, including the Company’s common stock price, risk-free interest rate, and expected dividend yield (see Note 7). Contingent earnout payments involve certain assumptions requiring significant judgment and actual results can differ from assumed and estimated amounts.

Contingent Derivative Liability

The debt pursuant to the Purchase Agreement, as defined in Note 5, contained an embedded derivative related to the Put Option, as defined in Note 5, requiring bifurcation as a single compound derivative instrument. The Company estimated the fair value of the derivative liability using a “with-and-without” methodology. The “with-and-without” methodology involves valuing the whole instrument on an as-is basis and then valuing the instrument without the individual embedded derivative. The difference between the entire instrument with the embedded derivative compared to the instrument without the embedded derivative was the fair value of the derivative liability at issuance and each subsequent reporting period.

In determining the fair value of the Contingent derivative liability, the Company used the Monte Carlo simulation value model using a distribution of potential outcomes on a monthly basis over a 10-year period. The estimated probability and timing of underlying events triggering the exercisability of the Put Option contained within the Purchase Agreement, forecasted cash flows and the discount rates are significant unobservable inputs used to determine the estimated fair value of the entire instrument with the embedded derivative.

In December 2025, the Purchase Agreement, including the embedded Put Option, was terminated in connection with the extinguishment of the Purchase Agreement (as defined in Note 5), and the Contingent derivative liability was derecognized. Prior to termination, the Contingent derivative liability was measured at fair value, with changes in fair value recognized in other income (expense) in the condensed consolidated statements of operations and comprehensive (loss) income and classified within Change in fair value of derivatives.

As of March 31, 2025, the discount rates used to calculate the value of the contingent derivative liability were 13.8% to calculate the present-value of the revenue forecast and 12.6% to calculate the present-value of the payoff of the Put Option.

The following table presents a summary of the changes in the fair value of the Contingent derivative liability:

Registered Direct Offering Warrants Liabilities

In determining the fair values of the Registered Direct Offering Warrants liabilities, the Company used the Black-Scholes valuation model to estimate fair value utilizing significant assumptions for expected volatility and expected term and data inputs including the current Common Stock price, risk-free rate, and expected dividend yield (see Note 7).

Private Placement Warrants Liability

The Private Placement Warrants were valued using a Black-Scholes valuation model as of March 31, 2026 and December 31, 2025. For the comparable prior-year interim period, the Private Placement Warrants were valued using a Monte Carlo simulation model. In determining the fair value of the Private Placement Warrants liability, the Company utilized significant assumptions for expected volatility and expected term and data inputs including the current Common Stock price, risk-free rate, and expected dividend yield (see Note 7).

Loan Agreement Warrants Liability

In determining the fair value of the Loan Agreement Warrants liability (as defined in Note 7), the Company used the Black-Scholes valuation model to estimate fair value utilizing significant assumptions for expected volatility and expected term and data inputs including the current Common Stock price, risk-free rate, and expected dividend yield (see Note 7).

Loan Agreement Conversion Derivative Liability

In determining the fair value of the Loan Agreement conversion derivative liability (as defined in Note 7), the Company used the Black-Scholes valuation model to estimate fair value utilizing significant assumptions for expected volatility and expected term and data inputs including the current Common Stock price, risk-free rate, and expected dividend yield (see Note 7).