From January through May 11, 2023, the Company issued convertible debt, Subordinated Convertible Promissory Notes (the “Convertible Notes),” for an aggregate $47.1 million in principal amount, $21.5 million of which were issued to related parties. On May 9, 2024, the Company and the holders of the Convertible Notes executed an Omnibus Amendment to Notes and Warrants (the “2024 Amendment”). The Convertible Notes accrued interest on an annual basis at the rate of 6% per annum, and the outstanding principal amount and any unpaid accrued interest would be due and payable upon request on or after July 27, 2025. The holders of the Convertible Notes could have elected to convert the Convertible Notes into shares of Series D Preferred Stock at a conversion price equal to $22.9653, with the shares issued to be calculated by dividing the outstanding principal and unpaid accrued interest by the conversion price. Voluntary conversion could have been elected on or after the maturity date, upon an equity financing event in which the Company received cash in exchange for the sale of equity securities, upon a change in control of the Company, or upon an initial public offering. In the event of either a change in control of the Company or an initial public offering occurring after December 31, 2024, but before the maturity of the Convertible Notes, the noteholders could have elected for the Company to pay two and one half times (2.5x) the aggregate principal amount of such note plus all unpaid accrued interest.

In connection with the issuance of the Convertible Notes in 2023 and the 2024 Amendment, the Company also issued to each of the noteholders a warrant to purchase shares of Series D Preferred Stock for $0.01 per share (the “Series D Warrants”), with each warrant being exercisable for the number of shares of Series D Preferred Stock determined by dividing the principal Convertible Note amount by the Series D original issue price of $22.9653 per share. Warrants were issued for an aggregate 3,076,358 of Series D Preferred Stock, comprised of 2,050,909 warrants with the original issuance of the Convertible Notes and 1,025,449 warrants in connection with the 2024 Amendment. The warrants would not be exercisable until July 27, 2025, and would be terminated upon the earliest to occur of (a) 60 days following July 27, 2025, (b) immediately prior to the closing of an initial public offering, (c) immediately prior to the effective time of an acquisition or change in control of the Company, or (d) immediately prior to the closing of an equity financing in which the Convertible Notes convert.

The Company analyzed the embedded features of the Convertible Notes for derivative accounting considerations in accordance with ASC 815-10, Derivatives and Hedging. The embedded cash redemption features that allowed the noteholders to elect to contingently receive 2.5x the aggregate principal amount of the note plus all unpaid accrued interest were determined to be embedded derivatives because the economic characteristics and risks are not clearly and closely related to the host contract, the hybrid instrument is not measured at fair value, and it allowed the contract to be net settled outside of the Company’s control. Therefore, the Company bifurcated the embedded feature from the convertible notes and recorded an embedded derivative liability on the condensed consolidated balance sheets. The Company measured the fair value of the embedded derivative liability at issuance by determining the fair value in accordance with ASC 820 and re-measured the fair value at each reporting period, with any changes recorded to other expense, net as fair value adjustments.

The Series D Warrants issued were determined to be freestanding financial instruments as they were legally detachable and separately exercisable, and therefore were evaluated independently of the related Convertible Notes. The Series D Preferred Shares were contingently redeemable outside of the Company’s control and therefore, the warrants were classified as a liability on the condensed consolidated balance sheets. The Company measured the value of the warrants at the date of issuance by determining the fair value in accordance with ASC 820 and re-measures the fair value at each reporting period, with any changes recorded to other expense, net as fair value adjustments.

The Convertible Notes were originally recorded at face value upon issuance and the warrant value and embedded derivative value as a discount on the carrying value of the debt. As the terms of the 2024 Amendment were not substantially different than the terms of the Convertible Notes prior to the 2024 Amendment, the 2024 Amendment was accounted for as a debt modification. Accordingly, the fair value of the new warrants issued as part of the 2024 Amendment were treated as an incremental discount on the carrying value of debt. The Company recognized accrued interest and accretion of the warrant and embedded derivative liability discount as interest expense using the effective interest method over the life of the debt.

On April 1, 2025, the Company and the holders of the Convertible Notes executed an Omnibus Amendment and Note Conversion Agreement (the “Note Conversion Amendment”). The terms of the Note Conversion Amendment provided that an aggregate principal amount of $23.1 million of the Convertible Notes (plus accrued and unpaid interest) would convert into a number of shares of the Company’s Class A common stock at closing of the IPO (the “First Convertible Notes Conversion”) at a ratio based on the First Conversion Price. The “First Conversion Price” was (a) with respect to the conversion of the principal amount of such Convertible Notes, an amount equal to the lesser of (x) 40.0% of the IPO Price and (y) $9.18612 and (b) with respect to the conversion of the interest on such Convertible Notes, an amount equal to the lesser of (x) the IPO Price and (y) $22.9653. In addition, the remaining Convertible Notes would, with respect to the principal amount of $24.0 million, (x) be repaid in cash, plus accrued and unpaid interest, (the “Second Conversion Repayment”) and (y) convert into a number of shares of our Class A common stock (the “Second Convertible Notes Conversion” and, together with the First Convertible Notes Conversion, the “Convertible Notes Conversions”) at a ratio based on the Second Conversion Price. The “Second Conversion Price” is the lower of (a) 66.6667% of the IPO Price and (b) $15.3102.

Additionally, pursuant to the terms of the Note Conversion Amendment, certain holders of the Convertible Notes converting in connection with the First Convertible Notes Conversion irrevocably elected to cause the Company to purchase an aggregate principal amount of $8.9 million of shares of Class A common stock at the lower of (a) the IPO Price and (b) $22.9653 (the “Share Purchase”).

The terms of the Note Conversion Amendment were determined to be substantially different than the terms of the Convertible Notes prior to the Note Conversion Amendment, and as such, in accordance with ASC 470, Debt, the modification was accounted for as a debt extinguishment, with the difference between the fair value of the modified Convertible Notes and the net carrying amount of the extinguished Convertible Notes, including the fair value of the embedded derivative liability on date of extinguishment, recognized as a loss on extinguishment within other expense, net on the condensed consolidated statements of operations.

As the modified Convertible Notes were treated as a new financial instrument, the Company elected to apply the fair value measurement option on the date that the Company first recognized the modified Convertible Notes on April 1, 2025. The fair value measurement option election was made to align the accounting for the modified Convertible Notes with the Company’s financial reporting objectives. The Company acknowledges that its election to apply the fair value option is irrevocable. As a result of adopting the fair value option no embedded derivatives should be bifurcated from the Convertible Notes. The Company recorded interest expense related to these Convertible Notes as a change in fair value within interest (income) expense, net in the condensed consolidated statements of operations. Remaining changes in fair value are recorded within other expense, net in the condensed consolidated statements of operations and changes in fair value related to instrument specific credit risk are recorded in other comprehensive loss.

A reconciliation of the carrying value of the Convertible Notes immediately prior to extinguishment, fair value of the modified Convertible Notes recorded on the condensed consolidated balance sheets as of April 1, 2025, and the resulting loss on extinguishment recorded during the six months ended June 30, 2025 is as follows (in thousands):


Gross carrying value of Convertible Notes	$	47,100
Unamortized Debt Discount	(1,685)
Accrued interest	5,901
Net carrying value of Convertible Notes prior to extinguishment	51,316
Fair value of embedded derivative liability prior to extinguishment	41,505
Total value prior to extinguishment	$	92,821
Fair value of modified Convertible Notes as of April 1, 2025	$	119,257
Loss on extinguishment of Convertible Notes	$	(26,436)

Immediately prior to the settlement, the Convertible Notes were marked to fair value of $124.0 million with the change in fair value recorded within other expense, net. Additionally, the Series D Warrants terminated immediately prior to the closing of the IPO and were marked to fair value of $0 with the change in fair value recorded within other expense, net. As of June 30, 2025, the Convertible Notes had no outstanding balance as all principal and accrued interest was fully settled in connection with the Company’s IPO.

The Company recognized $0.4 million and $2.0 million in effective interest for the three and six months ended June 30, 2025, respectively, using an annual effective interest rate of 19.90%. The effective interest was inclusive of $0.4 million and $1.1 million of stated interest for the three and six months ended June 30, 2025, respectively, and accretion of the debt discount of $0 and $0.9 million for the three and six months ended June 30, 2025, respectively.

In connection with a bank loan facility extension on April 5, 2018, the Company issued a warrant to a lender to purchase 267,194 shares of common stock, along with an option for an additional 267,194 shares as a result of the Company not achieving a $4.5 million minimum capital raise requirement by June 30, 2018. Immediately upon issuance of the warrants, all 534,388 shares were vested and exercisable at an exercise price of $0.01 per share with an expiration date of April 5, 2028. In the event of an acquisition in which the consideration received by the Company’s stockholders consists solely of cash and/or marketable securities (a “Cash/Public Acquisition”), and in which the fair market value of one share would be greater than the exercise price in effect, the warrants would be automatically settled through a cashless exercise. In the event of a Cash/Public Acquisition where the fair market value of one share would be less than the warrant price in effect, the warrants would expire. In the event of any other acquisition, the warrant holder may have required the Company to purchase the warrant for $0.5 million. As a result of this conditional obligation for the Company to repurchase the warrant shares, the Common Stock Warrants were classified as liabilities and carried at fair value at date of issuance with decreases or increases in fair value at each reporting date recorded within other expense, net in the condensed consolidated statements of operations. During the quarter ended September 30, 2025, all 534,388 Common Stock Warrants were exercised on a cashless basis resulting in 534,196 shares of Class A common stock being issued.