v3.26.1
Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2026
Fair Value of Financial Instruments [Abstract]  
Fair Value of Financial Instruments
(2)
Fair Value of Financial Instruments
 
The Company applies a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:
 
Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
 
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model‑based valuation techniques for which all significant assumptions are observable in the market.
 
Level 3 – Valuation is generated from model‑based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions market participants would use in pricing the asset or liability.
 
Certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable and other liabilities approximate their fair value because of the short‑term maturity of these financial instruments.
On April 29, 2026, following shareholder approval permitting the issuance of shares underlying the Conversion Option and Warrants in excess of the Nasdaq 19.99% limitation (see Note 8b), the limitation that had previously prevented the Conversion Option and Warrants from meeting the equity classification criteria under ASC 815-40 was eliminated. Accordingly, the Company reassessed the instruments under ASC 815-40 and determined that the Conversion Option and Warrants met the criteria for equity classification. The derivative liabilities were reclassified to additional paid-in capital and warrant equity, respectively, at their fair values on the April 29, 2026 reclassification date. Following the reclassification, the instruments are no longer remeasured at fair value on a recurring basis. Prior to their reclassification to equity on April 29, 2026, the Conversion Option liability and Warrants liabilities were classified within Level 3 of the fair value hierarchy.
 
The fair value of the Any Market Purchase Agreement (“AMPA,” see Note 9) was measured as of the June 30, 2026 reporting period using Level 3 inputs. The fair value was determined to be de minimis as of the June 30, 2026 reporting period.
 
The fair values of the Conversion Option liability and Warrants liabilities related to the 2025 Notes (see Note 8b) were measured as of December 31, 2025 and immediately prior to their reclassification on April 29, 2026. During the period, the Company recognized changes in fair value resulting from the March 19, 2026 modification of the Conversion Option and Warrants which were partially offset by the issuance of the Series D-1 Warrants, and from subsequent remeasurement through the April 29, 2026 reclassification date. The changes in fair value between the periods were recognized as gains in other income (expense), net in the condensed statements of operations and comprehensive loss. Activity during the period is summarized below:
 
 
 
Fair Value of
Conversion Option Liability
 
 
Fair Value
of
Warrants
Liabilities
 
Balance at December 31, 2025
 
$
2,014,000
 
 
$
4,943,000
 
Change in fair value other than modification
 
 
(1,112,413
)
 
 
(4,084,000
)
Change in fair value related to March 19, 2026 modification
 
 
(401,000
)
 
 
(1,801,000
)
Issuance of Series D-1 Warrants
 
 
—
 
 
 
2,202,000
 
Conversion of convertible note
 
 
(12,587
)
 
 
—
 
Change in fair value other than modification
 
 
(219,000
)
 
 
(545,000
)
Reclassification to equity upon April 29, 2026 shareholder approval
 
 
(269,000
)
 
 
(715,000
)
Balance at April 29, 2026 reclassification
 
$
—
 
 
$
—
 
 
The fair values of the Conversion Option liability and Warrants liabilities were estimated using the Black-Scholes option pricing model with Level 3 inputs, with the following assumptions immediately prior to the reclassification on April 29, 2026:
 
 
 
Conversion
Option
Liability
 
 
Warrants
Liabilities
 
Expected term (in years)
 
 
2.52
 
 
 
2.52
 
Risk‑free interest rate
 
 
3.8
%
 
 
3.8
%
Dividend yield
 
 
—
%
 
 
—
%
Expected volatility
 
 
30
%
 
 
30
%
Exercise price
 
$
14.60
 
 
 
$11.60-22.00
 
Stock price
 
$
7.40
 
 
$
7.40
 
 
 
 
 
 
 
 
 
 
Black-Scholes value
 
$
0.26
 
 
 
$0.04-0.56
 
 
The valuations of the Conversion Option liability and Warrants liabilities prior to reclassification in April 2026 (see Note 8b) were calibrated such that the aggregate change in fair value of the outstanding Conversion Option and Warrants equaled the fair value of the Series D-1 Warrants issued on the modification date. This calibration resulted in an expected volatility assumption of 30%, which was also the volatility assumption used to value the Conversion Option liability and Warrants liabilities as of April 29, 2026. If the Company used the historical volatility of its common stock as the expected volatility assumption, the estimated value of the Conversion Option liability and Warrants liabilities would be higher. The expected terms of the Conversion Option and Warrants as of April 29, 2026, were consistent with the terms used as of December 31, 2025, as adjusted for additional time lapsed, which were based on the Company’s option to mandate conversion of the Notes upon achieving certain milestones (see Note 8b) as well as the expectation that the Warrants will be exercised upon a significant increase in the price of the Company’s common stock. If the Company used the contractual term of the Conversion Option and Warrants as the expected term, the estimated value of the Conversion Option liability and Warrants liabilities would be higher.
We review the fair value hierarchy classification of our applicable assets and liabilities on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. During the quarter ended June 30, 2026, there were no transfers between Level 1, Level 2 and Level 3, other than derecognition of the Conversion Option liability and Warrants liabilities from Level 3.
 
The carrying amounts of cash and cash equivalents, accounts receivable, customer deposits, accounts payable and accrued expenses approximate fair value due to their short-term nature. As of June 30, 2026, the fair value of the 2025 notes (excluding the conversion option, see Note 8b), calculated using a discounted cash flow analysis with Level 3 inputs, was approximately $3.8 million.