Note 4 – Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1 – This level consists of quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2 – This level consists of directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

Level 3 – This level consists of unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

In determining the fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the unobservable inputs to the extent possible, as well as considers counterparty credit risk in its assessments of fair value.

Fair Value of Liabilities – The following tables represent the Company’s financial liabilities according to the fair value hierarchy, measured at fair value (in thousands):

The Company’s warrant liabilities consisted of warrants issued in connection with certain preferred stock financings and warrants issued in connection with the Company’s Loan and Security Agreement with Horizon Technology Finance Corporation (“Horizon”). The warrant liabilities were categorized within Level 3 of the fair value hierarchy because their valuation included significant inputs that were not observable in active markets. The classification of a financial instrument within the fair value hierarchy is based on the lowest-level input that is significant to the fair value measurement.

Prior to the IPO, the fair value of the warrant liability was estimated using the option-pricing model based on the Black-Scholes-Merton model with the following inputs:

The Company estimated volatility based upon analysis of the historical volatility of peer public companies as well as factors specific to the Company, including, but not limited to, size, expected growth and relative risk. The expected life assumption was based on the remaining contractual terms of the warrants. The risk-free rate as of December 31, 2025 was based on the 1.5 year U.S. Treasury bond yield. The expected dividend yield used is zero, because the Company has no present intention to pay cash dividends.

Immediately prior to the IPO, the fair value of the warrant liability was estimated by multiplying the number of equivalent common shares by the difference between the common stock offering price and the exercise price. All of the redeemable convertible preferred stock warrants were exercised or expired upon the completion of the IPO.

As of June 30, 2026, the Company’s warrant liability consisted solely of warrants issued in connection with the Loan and Security Agreement with Horizon Technology Finance Corporation (the “Horizon Warrants”). The fair value of the Horizon Warrants was estimated by multiplying the number of equivalent common shares by the difference between the Company’s closing stock price and the exercise price.

Changes in the fair value of the warrant liabilities were recognized within Other income (expense), net in the condensed statements of operations.

In January and February 2026, the Company issued convertible promissory notes in an aggregate principal amount of $40.0 million (the “Convertible Notes”). The Company elected the fair value option under ASC 825 for the Convertible Notes. At issuance, the fair value of the Convertible Notes was determined based on the transaction price, which the Company concluded represented an orderly transaction between market participants. Prior to the Company’s IPO, subsequent fair value measurements were determined using a scenario-based valuation model that incorporates probability-weighted outcomes across multiple potential scenarios, including an initial public offering, financing, change of control, maturity, and default. The model incorporated discounted cash flow techniques and option-pricing methodologies to reflect the embedded conversion features, and was calibrated to the transaction price at issuance and was updated at the pre-IPO measurement date. Significant unobservable inputs included discount rate (including a company-specific credit spread), equity volatility, and the probability and timing of potential liquidity events. Accordingly, the Convertible Notes are recurring Level 3 liabilities measured under the ASC 825 fair value option.

As of issuance, key assumptions included a discount rate of approximately 21.2%, equity volatility of approximately 85%, and expected term of 1.0 – 2.0 years. As of March 31, 2026, key assumptions included a discount rate of approximately 21.5%, equity volatility of approximately 80% and expected timing of liquidity events of 0.8 – 1.5 years. At issuance and as of March 31, 2026, the estimated probability of an initial public offering was 40% and a change of control was 20%.

In May 2026, all of the Convertible Notes were converted into an aggregate of 3,333,324 shares of common stock upon the Company’s IPO. Immediately prior to conversion, the Convertible Notes had an estimated fair value of $44.9 million. The estimated fair value reflected the $15.00 per share IPO price, adjusted for a 10.3% discount for lack of marketability associated with the 180-day contractual restriction on the shares issued upon conversion. The discount for lack of marketability was estimated using an option-pricing model that incorporated the contractual restriction period and expected equity volatility. No Convertible Notes remained outstanding as of June 30, 2026.