Derivative Liability |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Liability | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Liability | 8. Derivative Liability The Company assessed the Series A Preferred Stock features to determine whether any features are required to be bifurcated and separately accounted for as an embedded derivative. The Company concluded that certain conversion and redemption features meet the requirements to be separately accounted for as a bifurcated derivative. The Series A Preferred Stock was accounted for as mezzanine equity in accordance with ASC 480 and the embedded conversion and redemption features were separated from the host instrument and recognized as derivative liabilities with change in fair value at each reporting period end recognized in the condensed consolidated statements of operations and comprehensive loss. The Company performed a “with-and-without” scenario analysis to determine the fair value of the derivative liability by comparing the value of the Series A Preferred Stock including the bifurcated embedded derivatives to the value of the Series A Preferred Stock excluding them. The Company utilized an option pricing valuation with the expected life of Series A Preferred Stock, expected volatility, and discount rate as significant inputs as well as probability-weighted outcomes. Assumptions used in the valuation also take into account the contractual terms as well as the quoted price of the Common Stock in an active market. Significant changes in any of those inputs in isolation would result in significant changes to the fair value measurement. The following table presents changes in Level 3 liabilities measured at fair value for the six months ended June 30, 2026 (in thousands):
The option pricing valuation used to determine the fair value, used the following assumptions:
Each of these inputs is subjective and generally requires significant judgment and estimation by management: Expected Term — The expected term represents the estimated time until the conversion or redemption events are achieved. Expected Volatility — The Company derives volatility over the expected term using its own historical stock price volatility. Risk-Free Interest Rate — The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of the remeasurement and all thereafter for zero-coupon U.S. Treasury notes with maturities commensurate with the remaining term. Expected Dividend Yield — The expected dividend yield is zero as the Company has not paid, and the Company does not anticipate paying, any dividends on the Common Stock in the foreseeable future. Market Discount Rate – The Company utilizes the S&P corporate yield curve with a tenor commensurate with the expected term to estimate a discount rate applicable to the Company’s credit risk. Fair Value of Common Stock — The Company utilizes the price of its publicly-traded Common Stock as an input in determining the fair value of the derivative. |