v3.26.1
WARRANT LIABILITY
 3 Months Ended
Mar. 31, 2026
Warrant Liability  
WARRANT LIABILITY

8. WARRANT LIABILITY

 

On February 3, 2025, the Company entered into a new Securities Purchase Agreement (the “2025 Purchase Agreement”) with an institutional investor. In exchange for $8.0 million, the Holder agreed to purchase 5,750,225 shares of common stock (the “closing shares”) and warrants to purchase up to 5,750,225 shares of common stock at an exercise price of $1.57 per share (the “warrants”). On February 4, 2025, the 2025 Purchase Agreement closed for net proceeds of approximately $7.8 million, inclusive of all fees and expenses related to the transaction. The warrants were exercisable beginning August 4, 2025 and expire on August 4, 2030.

 

The warrants are accounted for as a liability under ASC 480, Distinguishing Liabilities from Equity. Both the closing shares and the warrants are initially recorded at their fair values of $9.0 million and $6.3 million, respectively. The warrant liability is subsequently remeasured and reported at fair value each reporting period, with the changes in fair value recorded as an unrealized gain or loss and recognized in earnings.

 

The fair value of warrants is as follows:

  

   March 31,   December 31, 
(in thousands)  2026   2025 
Warrant liability  $1,271   $1,875 
Total  $1,271   $1,875 

 

Unrealized gains and losses associated with warrants are as follows:

  

   March 31,   March 31, 
(in thousands)  2026   2025 
Unrealized gain on warrant liability  $604   $1,761 
Total  $604   $1,761 

 

Interest expense of $7.3 million representing the discount on the transaction was recorded on the condensed consolidated financial statements for the three months ended March 31, 2025.

 

The valuation inputs hierarchy classification for liabilities measured at fair value on a recurring basis are summarized below as of March 31, 2026 and December 31, 2025 (in thousands). See Note 6. Investment Securities, Available-For-Sale and Fair Value Measurements, for discussion of the fair value level hierarchy.

  

As of March 31, 2026  Level 1   Level 2   Level 3 
Warrant liability  $-   $-   $1,271 
Total  $-   $-   $1,271 

 

As of December 31, 2025  Level 1   Level 2   Level 3 
Warrant liability  $-   $-   $1,875 
Total  $-   $-   $1,875 

 

Activity related to the warrant liability during the three months ended March 31, 2026 and 2025 is as follows:

   March 31,    March 31,  
   2026    2025  
Beginning balance  $1,875    $ -  
Initial valuation associated with the warrants   -      6,297  
Change in fair value during the period   (604)     (1,761 )
Ending balance  $1,271    $ 4,536  

 

 

The fair value of the warrants is measured using the Black-Scholes option pricing model as of the measurement dates. The table below lists the inputs and assumptions for the Company’s valuations as of March 31, 2026 and December 31, 2025:

  

   March 31,   December 31, 
   2026   2025 
Expected term (years)   4.3    4.6 
Risk-free interest rate   3.88%   3.69%
Dividend yield   0%   0%
Volatility   65.37%   62.27%