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

13. Fair Value Measurements

The Company’s financial instruments consist of derivatives, convertible notes held at fair value, and warrants. Assets and liabilities measured at fair value on a recurring basis as of March 31, 2026 and December 31, 2025 were as follows:

 

 

March 31, 2026

 

 

December 31, 2025

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

 

(in thousands)

(in thousands)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,738

 

 

$

—

 

 

$

—

 

 

$

512

 

 

$

—

 

 

$

—

 

 

Total

 

$

4,738

 

 

$

—

 

 

$

—

 

 

$

512

 

 

$

—

 

 

$

—

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

$

—

 

 

$

—

 

 

$

1,011

 

 

$

—

 

 

$

—

 

 

$

243

 

 

Series D convertible preferred stock

 

 

—

 

 

 

—

 

 

$

7,859

 

 

 

—

 

 

 

—

 

 

 

—

 

 

Contingent consideration

 

 

—

 

 

 

—

 

 

 

1,613

 

 

 

—

 

 

 

—

 

 

 

—

 

 

Convertible notes

 

 

—

 

 

 

—

 

 

 

4,538

 

 

 

—

 

 

 

—

 

 

 

5,247

 

 

Warrants

 

 

—

 

 

 

—

 

 

 

169

 

 

 

—

 

 

 

—

 

 

 

408

 

 

Total

 

$

—

 

 

$

—

 

 

$

15,190

 

 

$

—

 

 

$

—

 

 

$

5,898

 

 

 

During the three months ended March 31, 2026, there were no transfers between Level 1 and Level 2, nor into and out of Level 3. The carrying values of the Company’s prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

 

The following summarizes the activity for the Company Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2026.

 

Derivatives

 

(in thousands)

 

Class A Incremental Notes Derivative

 

 

 

 

 

Fair value at December 31, 2025

 

$

243

 

Issuance of derivatives

 

 

441

 

Change in estimated fair value of derivatives

 

 

327

 

Fair value at March 31, 2026

 

$

1,011

 

The Company recorded the derivatives as a derivative asset or liability in the Company’s condensed consolidated balance sheet in accordance with FASB ASC 815, Derivatives and Hedging. For the outstanding derivatives as of March 31, 2026 and December 31, 2025, the fair value of the derivatives were determined using a Monte Carlo simulation. The Monte Carlo Simulation valuation model incorporates assumptions as to stock price volatility, discount rate, dividend rate and risk-free interest rate.

The following table outlines the key inputs for the Monte Carlo Simulation models:

 

 

March 31,

 

 

December 31,

 

 

2026

 

 

2025

 

Weighted-average risk-free interest rate

 

3.66% - 3.76%

 

 

3.45% - 3.51%

 

Weighted-average expected term (in years)

 

0.47 - 2.41

 

 

0.72 - 2.65

 

Weighted-average expected volatility

 

 

95.0

%

 

 

95.0

%

Expected dividend yield

 

 

—

%

 

 

—

%

 

Convertible Notes

September 2025 Exchange Note

The Company entered into a convertible note arrangement in February 2024. The Company elected the fair value option for this note under ASC 825, Financial Instruments, with changes in fair value recorded in earnings each reporting period. During the three months ended March 31, 2026, the entire remaining principal and interest balance was converted into shares of Common Stock and the Company recorded a change in fair value for the difference between the $0.9 million fair value as of December 31, 2025 and the fair value of the Common Stock issued.

 

 

Sep-25

 

(in thousands)

 

Exchange Note

 

Fair value at December 31, 2025

 

$

933

 

Conversion to common stock

 

 

(2,059

)

Change in estimated fair value of convertible notes

 

 

1,126

 

Fair value at March 31, 2026

 

$

-

 

 

Remainder Notes

The Company also elected the fair value option for the Remainder Notes (see Note 11). These notes were valued using a Monte Carlo Simulation model using a discount rate of 32%, volatility of 70% and a risk free rate of 3.68% as of March 31, 2026.

(in thousands)

 

Remainder Notes

 

Fair value at December 31, 2025

 

$

4,314

 

Change in estimated fair value of convertible notes

 

 

224

 

Fair value at March 31, 2026

 

$

4,538

 

 

January 2025 Exchange Notes

On February 4, 2025, the Company and the Exchange Agreement Investor entered into an Exchange Agreement (the “Exchange Agreement”), pursuant to which the Company and the Exchange Agreement Investor exchanged the Former Principal Stockholder Notes for five new secured promissory notes of the Company secured by the Company’s assets (the “January 2025 Exchange Notes”). The amendment to the Note represents the addition of a substantive conversion feature and as a result the Company recorded a gain on extinguishment included in condensed consolidated statement of stockholders' equity. The Company elected the fair value option for the January 2025 Exchange Notes under ASC 825, Financial Instruments, with changes in fair value recorded in earnings each reporting period. The fair value of the January 2025 Exchange Notes was determined using a discounted cash flow analysis at a discount rate of 16.3% on February 4, 2025. The January 2025 Exchange Notes, in the aggregate principal amount of $5.4 million were fully converted into 26,428 shares of Common Stock in February 2025.

 

 

 

January 2025

 

(in thousands)

 

Exchange Notes

 

Carrying amount at February 4, 2025

 

$

5,380

 

Conversion to common stock

 

 

(5,391

)

Gain on extinguishment of debt with related party

 

 

(279

)

Change in estimated fair value of convertible notes

 

 

290

 

Fair value at March 31, 2025

 

$

—

 

 

Warrants

The following table summarizes the activity for the Company Level 3 warrant liabilities measured at fair value on a recurring basis for the three months ended March 31, 2026:

 

(in thousands)

 

 

Class A Incremental Notes Warrants

 

Fair value at December 31, 2025

 

 

$

408

 

Issuance of warrants

 

 

 

428

 

Change in estimated fair value of warrants

 

 

 

(667

)

Fair value at March 31, 2026

 

 

$

169

 

 

The following table outlines the key inputs for the Black-Scholes option-pricing models:

 

 

March 31,

 

 

December 31,

 

 

 

2026

 

 

2025

 

 

Weighted-average risk-free interest rate

 

4.0% - 4.06%

 

 

3.7% - 4.2%

 

 

Weighted-average expected term (in years)

 

6.32 - 6.86

 

 

0.26 - 9.52

 

 

Weighted-average expected volatility

 

 

100.0

%

 

 

150.0

%

 

Expected dividend yield

 

 

—

%

 

 

—

%

 

 

 

Series D Convertible Preferred Stock

 

In connection with the acquisition of Ergatta (see Note 23) on March 11, 2026, the Company issued the Series D Convertible Preferred Stock, which was initially valued $7.7 million. The fair value was estimated using a Monte-Carlo simulation model with a risk-free rate of 3.64% and an annual equity volatility of 100%. The following table summarizes the activity for preferred stock measured at fair value on a recurring basis for the three months ended March 31, 2026:

 

(in thousands)

 

Series D Preferred Stock

 

 

 

 

 

Fair value at December 31, 2025

 

$

—

 

Ergatta acquisition

 

 

7,676

 

Change in estimated fair value of preferred stock

 

 

37

 

Stock-based compensation

 

 

146

 

Fair value at March 31, 2026

 

$

7,859

 

 

Accrued Earnout

The Merger Agreement with Ergatta provides for additional cash consideration payable to the sellers on April 30, 2027 of up to $3.5 million based on the excess of 2026 Free Cash Flow (see Note 23) over $1.75 million, multiplied by 2. The fair value of the contingent consideration as of March 31, 2026 was estimated using a Monte-Carlo simulation model under a risk-neutral basis. The following table summarizes the activity for the contingent consideration measured at fair value on a recurring basis for the three months ended March 31, 2026:

(in thousands)

 

Accrued Earnout

 

Fair value at December 31, 2025

 

$

—

 

Ergatta acquistion on March 11, 2026

 

 

1,587

 

Change in estimated fair value of contingent consideration

 

 

26

 

Fair value at March 31, 2026

 

$

1,613