4. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Inputs used to measure fair value are prioritized within a three-level fair value hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Recurring Fair Value Measurements

As of June 30, 2026, a summary of the Company’s assets and liabilities measured at fair value on a recurring basis is as follows, in thousands:

Valuation Techniques

As the remaining balances on the convertible notes issued April 19, 2024 and October 1, 2024 have identical terms and maturity dates, the Company grouped them together. The Company measures the April 19, 2024 and October 1, 2024 convertible notes, and April 19, 2024 private placement warrants using a Monte Carlo simulation valuation model and applying the following assumptions as of June 30, 2026:

The Company measures the April and October private placement warrants using a Monte Carlo simulation valuation model and applying the following assumptions as of June 30, 2026:

The following table presents changes of the convertible notes measured at fair value with significant unobservable inputs (Level 3) as of June 30, 2026. As the terms of the notes are mostly identical the Company has combined the amounts as shown below:

Refer to Note 10 for a description of the fair value methodology and assumptions applied to determine the fair value of the OID Convertible and Other OID Notes measured at fair value.

The following table presents changes in fair value of warrants issued with significant unobservable inputs (Level 3) as of June 30, 2026, in thousands:

Warrants Issued in April 2025:

On April 28, 2025 the Company issued warrants, as contractually adjusted due to the 2025 Stock Split, to purchase up to 1,199,295 shares of the Company’s common stock at an exercise price of $0.85 per share. The warrants are exercisable immediately and will expire on October 28, 2030. The warrants may be exercised on a cashless basis in the event of a fundamental transaction involving the Company or if the resale of the shares of Common Stock underlying the warrants are not covered by a registration statement. The exercise price is subject to full ratchet antidilution protection, subject to certain price limitations and certain exceptions, upon any subsequent transaction at a price lower than the exercise price then in effect and standard adjustments in the event of certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate changes. The 1,199,295 warrants issued to 3i contain features that independently and collectively require it to be classified as a derivative liability. As a result, the warrants must be measured at fair value at issuance and remeasured to fair value at each reporting date, with changes in value recorded in earnings. Because the warrants were issued in connection with an amendment to the 3i convertible notes which are accounted for using the fair value option, the Company initially recognized a finance charge of $753,004 the upon issuance. Periodic changes after the initial issuance are recognized through earnings.

As of June 30, 2026 and December 31, 2025 the Company had warrants outstanding permitting holders to purchase a total of 4,135,911 shares of the Company's common stock at exercise prices between $0.85 and $57,500 per share. The fair value of these warrants was $0 as of both June 30, 2026 and December 31, 2025.

The fair values of these Level 3 liabilities are sensitive to unobservable inputs used in the Monte Carlo simulation valuation model, including discount rates, expected term, expected volatility, path dependency parameters and estimates of various payout outcomes. Changes to these inputs could result in significantly higher or lower fair value measurement.

Put Option issued on March 27, 2026:

In connection with the sale of 2,150 shares of Series D Convertible Preferred Stock ("Series D") to an accredited investor for proceeds of $1 million ($0.9 million net after deducting issuance costs) on March 27, 2026, the Company entered into a separate agreement requiring the Company to repurchase up to 1,150 of the Series D at a purchase price of $1,000 per share (i.e., up to a maximum purchase price of $1.15 million) that only becomes exercisable by the investor in the event the Company successfully closes a private investment ("PIPE") yielding the Company gross proceeds of at least $8,000,000 (i.e., the investor "Put Option"). If the PIPE trigger is achieved, the Put Option will remain exercisable through March 27, 2027.

The Company determined that the Put Option represents a derivative financial instrument which is not clearly and closely related to the Series D equity host instrument. As a result, the Company is required to account for the Put Option as a separate liability in the Company's consolidated balance sheet with periodic changes in the fair value recognized in earnings. As of the issuance date and June 30, 2026, the fair value of the Put Option was $0.06 million. The Put Option was valued by the Company with the assistance of a third party valuation firm using a Monte Carlo simulation and the following primary assumptions:

Non-recurring Fair Value Measurements

During the three and six months ended June 30, 2026, the Company had the following issuances of Convertible Preferred Stock (see Note 14):

These convertible preferred stock issuances were initially measured at their fair values on the issuance date. Because the Company’s convertible preferred stock is not subsequently remeasured to fair value after initial recognition, this represents a nonrecurring fair value measurement.

The 240 shares of Series C and 750 shares of Series F issued in April and June 2026, respectively, were issued together with hybrid debt instruments and were recorded at $0 because the entire proceeds from the respective transactions were allocated to the fair value of the hybrid debt instruments accounted for under the FVO election (i.e., the financial instrument issued in the transactions which require future remeasurement to fair value). 

The estimated fair values of the Series C, D, and E Convertible Preferred Stock was classified as a Level 3 measurement within the fair value hierarchy.

The Company utilized a Monte Carlo simulation to estimate the fair value of its Convertible Preferred Stock by applying the following inputs and assumptions as of the respective issuance dates of each of the Series (see Note 14):

The fair value of the Company’s Convertible Preferred Stock is particularly sensitive to changes in certain of these assumptions. For example, increases in probability of liquidation and in the discount for lack of marketability (“DLOM”) will decrease the estimated fair value.