v3.26.1
Stockholders’ Equity
 6 Months Ended
Jun. 30, 2026
Equity [Abstract]  
Stockholders’ Equity Stockholders’ Equity
The number of authorized, issued and outstanding stock, were as follows:
June 30, 2026
Authorized
Shares		Issued Shares
Preferred Stock22,915,032 — 
Series B Preferred Stock12,000,000 4,948,854 
Series C Preferred Stock11,502 11,502 (1)
Class A Common Stock448,384,199 2,401,275 (2)
Class B Common Stock4,429,688 45 
(1) As of June 30, 2026, all 11,502 issued shares of Series C Preferred Stock were held for the benefit of AIXC, a consolidated subsidiary, and are accounted for as the contra-equity, Series C Convertible Preferred Stock and additional paid-in capital in the Company’s consolidated financial statements. Accordingly, no shares of Series C Preferred Stock were outstanding for consolidated financial reporting purposes as of June 30, 2026.
(2) As of June 30, 2026, 2,401,275 Class A Common Stock was issued and 2,388,454 Class A Common Stock was outstanding for consolidated financial reporting purposes. Difference between the issued and outstanding shares was in relation to the Class A Common Stock held for the benefit of AIXC.
December 31, 2025
Authorized
Shares		Issued Shares
Preferred Stock5,931,000 1 
Series B Preferred Stock12,000,000 7,184,760 
Class A Common Stock228,041,297 1,327,538 
Class B Common Stock4,429,688 45 
Amendments to the Company’s Certificate of Incorporation
The Company has amended its Certificate of Incorporation multiple times since the Business Combination. The most recent amendment increased the number of shares of Preferred Stock that may be issued to 34,926,534. The Preferred Stock shall have such designations, rights and preferences as may be determined from time to time by the Board. The Board is empowered, without stockholder approval, to issue the Preferred Stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of Common Stock; provided that any issuance of preferred stock with more than one vote per share will require the prior approval of the holders of a majority of the outstanding shares of Class B Common Stock.
Increase in Authorized Shares (May 2025)
On May 29, 2025, the Company filed a Seventh Certificate of Amendment to its Third Amended and Restated Certificate of Incorporation with the Delaware SOS. This amendment was adopted in accordance with Section 242 of the Delaware General Corporation Law, following stockholder approval at the special meeting held on May 24, 2025.
The amendment increased the number of authorized shares of Class A Common Stock from 124,815,625 to 162,815,625 and authorized 4,429,688 shares of Class B Common Stock, bringing the total number of authorized Common Stock shares to 167,245,313. It also increased the number of authorized shares of Preferred Stock from 10,000,000 to 12,900,000 and eliminated the Series A Preferred Stock designation. The increase in Preferred Stock authorization supports the Company’s outstanding and future preferred equity issuances.
Increase in Authorized Shares (September 2025)
On September 23, 2025, the Company filed an amendment to the Third Amended and Restated Certificate of Incorporation with the Delaware SOS to effect (i) an increase in the number of authorized shares of common stock from 167,245,313 to 232,470,985 shares, and (ii) an increase in the number of authorized shares of preferred stock, from 12,900,000 to 17,931,000 shares.
Increase in Authorized Shares (February 2026)
On February 18, 2026, the Company filed an amendment to the Third Amended and Restated Certificate of Incorporation with the Delaware SOS to effect (i) an increase in the number of authorized shares of common stock, par value $0.0001 per share, from 232,470,985 to 312,285,439 shares, and (ii) an increase in the number of authorized shares of preferred stock, par value $0.0001 per share, from 17,931,000 to 24,087,265 shares, increasing the total number of authorized shares of Common Stock and Preferred Stock from 250,401,985 shares to 336,372,704 shares.
Increase in Authorized Shares (May 2026)
On May 27, 2026, the Company filed a Tenth Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect (i) an increase in the number of authorized shares of common stock, par value $0.0001 per share, from 312,285,439 shares to 452,813,887 shares, and (ii) an increase in the number of authorized shares of preferred stock, par value $0.0001 per share, from 24,087,265 shares to 34,926,534 shares, increasing the total number of authorized shares of Common Stock and Preferred Stock from 336,372,704 shares to 487,740,421 shares.
Reverse Stock Split (July 2026)
On July 23, 2026, the Company filed the Twelfth Amendment to its Third Amended and Restated Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware to effect a reverse stock split of its Class A
common stock and Class B common stock, each par value $0.0001 per share (collectively, the "Common Stock"), at a ratio of 1-for-150. At 5:00 p.m. Eastern Time on July 24, 2026 (the "Effective Time"), every 150 issued and outstanding shares of Common Stock were automatically combined and converted into one share of Common Stock of the same class, without any change in par value per share. No fractional shares were issued; each stockholder otherwise entitled to a fractional share received one whole share in lieu thereof. The number of authorized shares of Common Stock remained unchanged.
The Company’s Class A Common Stock began trading on a split-adjusted basis on the Nasdaq Capital Market at the opening of trading on July 24, 2026 under the symbol “FFAI” with a new CUSIP number (307359 869).
All share and per-share amounts in the accompanying Unaudited Condensed Consolidated Financial Statements and related notes have been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented. Proportionate adjustments were also made to the number of shares reserved for issuance and subject to outstanding awards under the Company's equity incentive plans (see Note 14, Stock-Based Compensation), and to the number of shares of Class A Common Stock issuable upon exercise or conversion of the Company's outstanding convertible debt securities and warrants, together with the related exercise and conversion prices. The conversion price of the Company's Series C Convertible Preferred Stock was proportionately adjusted for the Reverse Stock Split. the number of shares of Series C Convertible Preferred Stock issued was not affected. The Company's Public Warrants and Private Warrants, which were outstanding as of June 30, 2026 and are reflected on a split-adjusted basis in the periods presented, expired in accordance with their terms on July 21, 2026, prior to the Effective Time.
Preferred Stock
Series A Preferred Stock
On January 28, 2025, in connection with a purchase agreement entered into with Mr. Aydt, the Company’s then Global Chief Executive Officer, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock (the “Series A COD”) with the Delaware SOS. The Series A COD designated one share of the Company’s Preferred Stock as Series A preferred stock, par value $0.0001 per share (the “Series A Preferred”) and established the preferences, rights and limitations thereof. The closing of the sale and purchase of the shares of the Series A Preferred was completed on January 28, 2025 for a purchase price of $100.00.
The Series A Preferred was redeemed on March 7, 2025, for a redemption price of $100.00, following the annual meeting of stockholders.
On April 17, 2025, in connection with a purchase agreement entered into with Mr. Aydt, the Company’s then Global Chief Executive Officer, the Company filed the Series A COD with the Delaware SOS. The Series A COD designated one share of the Company’s Preferred Stock, par value $0.0001 per share and established the preferences, rights and limitations thereof. The closing of the sale and purchase of the shares of the Preferred was completed on April 17, 2025 for a purchase price of $100.00.
The Series A Preferred Stock was redeemed on May 28, 2025, for a redemption price of $100.00, following the annual meeting of stockholders. On May 29, 2025, the Company filed a Certificate of Elimination with the Delaware SOS to cancel the designation of the Series A Preferred.
The share of Series A Preferred Stock, each time it was designated and issued, had no voting rights except with respect to certain share authorization proposals. In the Share Authorization Proposals in the Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock dated August 6, 2025 the outstanding share of Series A Preferred Stock had 5,000,000,000 votes with respect to the Share Authorization Proposal.
On August 6, 2025, in connection with a purchase agreement entered into with Mr. Aydt, the Company’s then Global Co-CEO, the Company filed a COD of Series A Preferred Stock with the Delaware SOS. The Series A COD designates one share of the Company’s preferred stock as Series A Preferred Stock, and establishes and designates the preferences, rights and limitations thereof. The closing of the sale and purchase of the share of Series A Preferred Stock was completed on August 6, 2025 for a purchase price of $100.00.
On September 23, 2025, the Company filed a Certificate of Elimination with the Delaware SOS with respect to the Company’s Series A Preferred Stock, following the automatic redemption of all outstanding shares of FFAI Series A Preferred Stock after the conclusion of the Company’s Special Meeting. The Certificate of Elimination cancelled the previous designation of one share of FFAI Series A Preferred Stock from the Charter.
On December 22, 2025, the Company entered into a purchase agreement with Matthias Aydt, pursuant to which the Company agreed to issue and sell one share of the Company’s newly designated Series A Preferred Stock, par value $0.0001 per share, for a purchase price of $100.00. The share of Series A Preferred Stock will have 7,000,000,000 votes, but has the right to vote only on the share authorization proposal.
The share of Series A preferred stock have no voting rights except with respect to the share authorization proposal. Upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up of the Company, whether voluntarily or involuntarily, pursuant to which assets of the Company or consideration received by the Company are to be distributed to the stockholders, the holder of Series A preferred stock shall be entitled to receive, before any payment is made to the holders of Common Stock by reason of their ownership thereof, an amount of $100.00. The share of Series A preferred stock are not entitled to receive dividends.
On February 18, 2026, the Company filed a Certificate of Elimination with the Delaware SOS with respect to the Company’s Series A Preferred Stock, following the automatic redemption of all outstanding shares of FFAI Series A Preferred Stock after the conclusion of the Company’s Special Meeting. The Certificate of Elimination cancelled the previous designation of one share of FFAI Series A Preferred Stock from the Charter.
Series B Preferred Stock
On April 3, 2025, in connection with the initial closing under the 2025 March Unsecured SPA, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series B Preferred Stock (the “Series B COD”) with the Delaware SOS, as amended on April 9, 2025. The Series B COD authorized 9,000,000 shares of the Company’s preferred stock as Series B Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”), and established the preferences, rights, and limitations thereof.
The Series B Preferred Stock does not carry dividend rights and is generally non-transferable without the prior written consent of the Board of Directors. Each share entitles the holder to one vote and votes together with the Common Stock as a single class on all matters submitted to stockholders, except where a separate class vote is required by law.
In the event of any liquidation, dissolution, or winding up of the Company, each share of Series B Preferred Stock is entitled to receive a priority distribution equal to the then-effective conversion price under the related convertible notes. Upon the conversion of a holder’s convertible notes into Class A Common Stock, an equal number of Series B Preferred shares are automatically redeemed and retired without any additional consideration.
On July 14, 2025, prior to the initial closing under the 2025 July Unsecured SPA, the Company filed an amendment to the COD of Preferences, Rights and Limitations of Series B Preferred Stock to designate additional 3,000,000 shares of the Company’s authorized and unissued preferred stock as Series B Preferred Stock. The qualifications, restrictions, and limitations relating to the Series B Preferred Stock remain unchanged.
During the six months ended June 30, 2026 — there were no shares of Series B Preferred Stock issued in connection with 2025 March Unsecured SPA Notes and 2025 July Unsecured SPA Notes. During the same period 2,235,906 shares were cancelled upon conversion of 2025 March Unsecured SPA Notes and 2025 July Unsecured SPA Notes with an aggregate principal amount of $24.5 million.
The Company evaluated these Series B Preferred Stock in connection with the March 2025 SPA Notes and the July 2025 SPA Notes and determined that such Series B Preferred Stocks are not freestanding based on the specific terms associated therewith. As such, no economic value was assigned to the issuance of these Series B Preferred Stock.
Series C Preferred Stock
On April 15, 2026, in connection with the amended and restated securities purchase agreement with Gold King Arthur Holding Limited, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the “Series C COD”) with the Delaware SOS. The Series C COD authorized 11,502 shares of the Company’s preferred stock as Series C Convertible Preferred Stock, par value $0.0001 per share (the “Series C Preferred Stock”), and established the preferences, rights, and limitations thereof.
Each share of Series C Preferred Stock has a stated value of $1,000 and is convertible, at the option of the holder, into shares of the Company’s Class A Common Stock at an initial conversion price of $39.00 per share,as adjusted for the Reverse Stock Split, subject to adjustment and the limitations set forth in the Series C COD, including limitations relating to exchange cap requirements, beneficial ownership and the availability of authorized and unreserved shares. The number of shares of Class
A Common Stock issuable upon conversion of each share of Series C Preferred Stock is determined by dividing the stated value by the conversion price then in effect. In addition, the holder may elect to convert at an alternate conversion price equal to the lower of (i) the conversion price then in effect and (ii) the greater of a floor price of $19.50, as adjusted for the Reverse Stock Split, and 100% of the closing price of the Class A Common Stock on the trading day immediately preceding the conversion. The conversion price is also subject to full-ratchet anti-dilution adjustment upon certain issuances of Class A Common Stock or common stock equivalents below the conversion price then in effect, and the holder may elect to substitute the price of certain variable-priced securities issued by the Company for the conversion price. The Series C COD provides that, upon an alternate conversion, if the number of shares of Class A Common Stock deliverable is limited by the floor price, the Company is required to pay the holder a cash amount determined by reference to the shortfall. If the Company does not have a sufficient number of authorized, unissued and unreserved shares of Class A Common Stock available to effect a conversion, such conversion may not be effected.
The Series C Preferred Stock ranks senior to the Company’s common stock and other junior stock, on parity with the Company’s Series B Preferred Stock,and junior to any senior preferred stock, in each case with respect to distributions upon a liquidation, dissolution or winding up of the Company. Upon a liquidation, dissolution or winding up of the Company, each share of Series C Preferred Stock is entitled to receive in cash, in preference to junior stock and pari passu with parity stock, the greater of (i) 125% of the Conversion Amount and (ii) the amount such holder would receive had the share been converted into Class A Common Stock immediately prior to the liquidation event.
Except as otherwise required by law, the holders of Series C Preferred Stock vote together with the holders of Class A Common Stock as a single class on an as-converted basis, subject to the beneficial ownership and exchange cap limitations set forth in the Series C COD.
The Series C Preferred Stock is not entitled to a stated dividend. The holders are, however, entitled to participate in dividends and other distributions made to holders of Class A Common Stock, and in certain purchase rights granted to holders of Class A Common Stock, on an as-converted basis.
The Series C Preferred Stock is not mandatorily redeemable, has no fixed or determinable redemption date, and is not redeemable at the option of the holder. The Company may, at its option, redeem all (but not less than all) of the outstanding shares of Series C Preferred Stock in cash at a redemption price equal to the greater of (i) 110% of the Conversion Amount and (ii) an amount determined by reference to the greatest closing sale price of the Class A Common Stock over a specified measurement period. Neither the Company nor any successor entity is required to redeem, repurchase or pay cash with respect to the Series C Preferred Stock in connection with a fundamental transaction or change of control, except pursuant to the holder's conversion rights; any redemption occurs solely at the Company's election.
On April 15, 2026, the Company issued 11,502 shares of Series C Preferred Stock to Gold King Arthur Holding Limited pursuant to the Securities Purchase Agreement, dated January 30, 2026, as amended on April 15, 2026. During the three and six months ended June 30, 2026, the Company issued 11,502 shares of Series C Preferred Stock. As of June 30, 2026, 11,502 shares of Series C Preferred Stock remained issued with an aggregate stated value of $11.5 million, but no shares outstanding for consolidated financial-reporting purposes as of either date.
Common Stock
Voting
The holders of Class A Common Stock and Class B Common Stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders until the occurrence of a Qualifying Equity Market Capitalization, following which holders of Class B Common Stock shall be entitled to ten votes per share and shall continue to be entitled to ten votes per share regardless of whether the Qualifying Equity Market Capitalization shall continue to exist or not thereafter.
Conversion
Shares of Class B Common Stock have the right to convert into shares of Class A Common Stock at any time at the rate of one share of Class A Common Stock for each share of Class B Common Stock. Class A Common Stock does not have the right to convert into Class B Common Stock.
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of the shares of the Common Stock shall
be entitled to receive all the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of the Common Stock held by them.
Warrants
FFAI Warrants
The number of shares of Class A Common Stock issuable upon exercise of the Company’s outstanding warrants as of June 30, 2026 was as follows:
Shares of Class A Common Stock Issuable Upon ExerciseExercise PriceExpiration Date
Public Warrants⁽¹⁾
17 $16,560,000.00July 21, 2026
Private Warrants⁽¹⁾
1 $16,560,000.00July 21, 2026
Ares Warrants⁽¹⁾
43,963 $152.42August 5, 2027
SPA Warrants⁽¹⁾
53 
$32.01 or $58.23
Various through April 14, 2033
Junior SPA Warrants⁽¹⁾
3,499 $152.61Various through September 30, 2029
2024 Unsecured SPA Warrants⁽¹⁾
19,171 $157.20Various through January 21, 2030
2025 March Unsecured SPA Warrants(2)
46,659 
$219.60
Various through June 30, 2031
2025 July Unsecured SPA Warrants⁽¹⁾
27,621 $157.20August 22, 2030
140,984
1Classified as equity.
2
Classified as liability. See Note 15 — Fair Value of Financial Instruments.
The number of shares of Class A Common Stock issuable upon exercise of the Company’s outstanding warrants as of December 31, 2025 was as follows:
Shares of Class A Common Stock Issuable Upon ExerciseExercise PriceExpiration Date
Public Warrants(1)
17 $16,560,000.00July 21, 2026
Private Warrants(1)
1 $16,560,000.00July 21, 2026
SPA Warrants(1)
50 $174.00Various through November 25, 2032
Junior Secured SPA Warrants(1)
3,499$174.00Various through September 30, 2029
2024 Unsecured SPA Warrants(1)
41,240 $183.00Various through January 21, 2030
2025 March Unsecured SPA Warrants(2)
34,526 
 (a) 208.80 or (b) 219.00
Various through December 31, 2030
2025 July Unsecured SPA Warrants(1)
27,621$302.40August 22, 2030
Ares warrants(1)
38,512 $174.00August 5, 2027
145,466 
1Classified as equity.
2
Of the total 34,526 shares of Class A Common Stock issuable upon exercise of the 2025 March Unsecured SPA Warrants, approximately, 20,864 warrants were liability classified, pending formal closing and are measured at fair value. See Note 15 — Fair Value of Financial Instruments.
Ratchet Anti-dilution Price Protection
The above Ares warrants and SPA Portfolio Note warrants contain full ratchet anti-dilution price protection that requires the exercise price to be adjusted if the Company sells shares of Common Stock below the current exercise price.
During the three and six months ended June 30, 2026, conversions of certain convertible notes constituted Dilutive Issuances under the anti-dilution provisions of the Company’s outstanding SPA Portfolio warrants. As a result, the exercise prices of Junior Secured and 2024 Unsecured and 2025 March Unsecured SPA warrants were reduced to their respective minimum exercise price floors of $152.61 and $157.20, per share, as adjusted for the Reverse Stock Split. The exercise price of the equity-classified March 2025 Unsecured SPA warrants was similarly reduced to its minimum exercise price floor of $157.20 per share, as adjusted for the Reverse Stock Split, during the period; such warrants are no longer outstanding as of June 30, 2026. The liability-classified March 2025 Unsecured SPA warrants were not subject to anti-dilution adjustment and retain their original exercise price of $219.60 per share; as adjusted for the reverse Stock Split, these warrants remained outstanding as of June 30, 2026. The SPA Warrants do not contain a minimum exercise price floor. During the three and six months ended June 30, 2026, conversions of certain convertible notes at prices below the then-current exercise prices constituted dilutive issuances under the anti-dilution provisions of these warrants. As a result, the exercise prices of warrants issued prior to the instruments whose conversions constituted a dilutive issuance were reduced to $32.01 or $58.23 per share, as adjusted for the Reverse Stock Split, while warrants issued thereafter were not subject to this adjustment.
On May 15, 2026, the Company issued the 2026 May Convertible SPA Notes with a conversion price of $58.23, as adjusted for the Reverse Stock Split. The issuance constituted a dilutive issuance under the anti-dilution provisions of certain outstanding warrants and triggered full ratchet anti-dilution adjustments for instruments with then-existing exercise prices above the effective conversion price of the 2026 May Convertible SPA Notes .As a result, the exercise price of the SPA Warrants, which were not yet subject to the adjustment and 2025 July Unsecured SPA warrants was adjusted to $58.23 and Ares warrants to $152.42, each as adjusted for the Reverse Stock Split. The Company accounted for the reductions in exercise price of equity classified warrant instruments as a deemed dividend (the “Deemed Dividend”). The total value of the Deemed Dividend to warrant holders during the three and six months ended June 30, 2026 was $0.1 million and $0.2 million, respectively. The Deemed Dividend was measured as the increase in fair value of the Ares warrant and equity classified SPA Portfolio Note warrants immediately after the triggering events compared to their fair value immediately before such events. The Company recognized the payment of the Deemed Dividend in Additional paid-in capital in the Company’s Consolidated Balance Sheets due to the Company’s accumulated deficit.
During three and six months ended June 30, 2026, certain holders voluntarily cancelled 35,731 warrants, as adjusted for the Reverse Stock Split, issued in connection with the Company’s SPA financings. Because the cancelled warrants were classified within stockholders' equity, the cancellations did not result in the recognition of any gain, loss, or other adjustment in the condensed consolidated financial statements.
AIXC Warrants
As a result of the business acquisition of AIXC, as described in Note 3 Goodwill Associated with Business Acquisition, the Company consolidates AIXC warrants, and the number of outstanding warrants to purchase AIXC’s Class A Common Stock as of June 30, 2026 was as follows:
Number of WarrantsExercise PriceExpiration Date
Preferred Warrants - AIXC(1)
107 $1,270.25Various through 2027
Other Warrants - AIXC(1)
72,004 
(a) $5.82 or (b) $6.50
Various in 2028-2029
2024 Pre-funded Warrants - AIXC(2)
51,199 $0.05Indefinite
2024 Placement Agent Warrants - AIXC(2)
16,019 $7.80September 2029
2025 Placement Agent Warrants - AIXC(1)
1,087,266 $2.47September 2030
1,226,595
1Classified as equity.
2 Liability classified and are measured at fair value. See Note 15
The number of outstanding warrants to purchase AIXC’s Class A Common Stock as of December 31, 2025 was as follows:

Number of WarrantsExercise PriceExpiration Date
Preferred Warrants - AIXC(1)
160 $1,270.25Various through 2027
Other Warrants - AIXC(1)
72,004 
(a) $5.82 or (b) $6.50
Various in 2028-2029
2024 Pre-funded Warrants - AIXC(2)
51,199 $0.05Indefinite
2024 Placement Agent Warrants - AIXC(2)
16,019 $7.80September 2029
2025 Placement Agent Warrants - AIXC(1)
1,087,266 $2.47September 2030
1,226,648
1Classified as equity.
2 Liability classified and are measured at fair value. See Note 15
Ratchet Anti-dilution Price Protection
Certain AIXC warrants contain full-ratchet anti-dilution price protection that requires the exercise price to be adjusted if AIXC sells shares of common stock below the current exercise price. Liability-classified AIXC warrants are measured at fair value on a recurring basis, with changes in fair value recognized in change in fair value of notes payable, warrant liabilities, and derivative in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. These warrants were initially recognized at their respective fair values on the date the Company obtained control of AIXC, and any gains or losses related to changes in fair value prior to that date were recorded in AIXC’s standalone statements of operations. The liability-classified AIXC warrants are included in the warrant liability fair value rollforward presented in Note 15 Fair Value of Financial Instruments.
Insufficient Authorized Shares
From time to time, certain of the Company’s equity-linked financial instruments may be classified as derivative liabilities under ASC 815, Derivatives and Hedging, due to the Company having insufficient authorized and unissued shares to fully settle such instruments in shares. In assessing whether it has sufficient authorized and unissued shares available for share settlement, the Company evaluates the maximum number of shares that could be required to be issued under the instrument being assessed, together with the maximum potential shares issuable under all other existing commitments that may require the issuance of shares, including convertible debt, stock options, warrants, share-based payment awards, and other equity-linked instruments, in accordance with ASC 815-40. The Company also considers instruments with legally enforceable share reserve provisions as having priority in the allocation of available shares.
If the Company determines that it does not have sufficient authorized and unissued shares to settle an equity-linked instrument in shares, the Company applies a sequencing policy under ASC 815-40, Contracts in Entity’s Own Equity, whereby, if reclassification of contracts from equity to assets or liabilities is necessary because the Company cannot demonstrate that it has sufficient authorized and unissued shares to settle the equity-linked financial instrument in shares, the Company reclassifies contracts based on a systematic and consistently applied framework that considers contractual terms, settlement timing, and the relative priority of instruments, including any legally enforceable share reservation provisions. Contracts reclassified to derivative liabilities are recognized at fair value, with changes in fair value recognized in earnings, until the conditions giving rise to such derivative liability classification are resolved or the Company has sufficient authorized and unissued shares to settle such contracts in shares. The Company applies the same sequencing policy to share-based compensation arrangements when it may not have sufficient authorized and unissued shares available to settle such arrangements in shares.