NOTE 8 — DERIVATIVE LIABILITIES AND CONVERTIBLE PROMISSORY NOTES

The Additional Warrants, issued in November 2022, entitle their holders to a share of the Company’s revenues and include a cash redemption feature. Accordingly, they are classified as derivative liabilities and are measured at fair value at each reporting date, with changes in fair value recognized in financial expenses (income), net. The remeasurement of the Additional Warrants resulted in finance income of $129 and $80 for the six months ended June 30, 2026 and 2025, respectively.

The Series A Warrants were issued as part of the Company’s January 2024 registered offering and contain price and share reset provisions that preclude equity classification. Accordingly, they are classified as derivative liabilities and are remeasured at fair value at each reporting date, with changes in fair value recognized in financial expenses (income), net.

The February 2026 Reverse Split triggered an adjustment under the Series A Warrants’ reset mechanism, pursuant to which an additional 100,761 Series A Warrants were issued (see Note 3(g)) and the exercise price of the Series A Warrants was adjusted to $43.63 per ordinary share. The issuance of the additional Series A Warrants and the exercise-price adjustment were reflected in the remeasurement of the warrant liability, with the related change in fair value, in the amount of $4,964, recognized within finance expense.

During the six months ended June 30, 2026, Series A Warrants were exercised into 35,634 ordinary shares, for total consideration of $355, with $376 of the related derivative liability reclassified to additional paid-in capital upon exercise. The total remeasurement of the Series A Warrants resulted in finance income of $4,630 and $4,260 for the six months ended June 30, 2026 and 2025, respectively.

Under the Notes SPA, the Company issued convertible promissory notes in a series of drawdowns: a note issued on June 26, 2025 (the “June 2025 Note”) and a note issued on December 9, 2025 (the “December 2025 Note”), of which the full $500 principal amount of the December 2025 Note was outstanding at December 31, 2025, and $727 of the principal amount of the June 2025 Note remained outstanding at that date following partial conversions during 2025. During the period, the Company issued three additional notes: a note issued on February 18, 2026 with a principal amount of $600 for a purchase price of $540 (the “February 2026 Note”), a note issued on May 10, 2026 with a principal amount of $1,750 for a purchase price of $1,575 (the “May 2026 Note”) and a note issued on June 18, 2026 with a principal amount of $2,000 for a purchase price of $1,800 (the “June 2026 Note” and, collectively with the other notes, the “Notes”).

Each Note matures 28 months from its issuance date, bears interest at an annual rate of 4% (which increases to 14% upon the occurrence and during the continuance of an event of default) and is convertible into ordinary shares, at the option of the holder, at a conversion price equal to the lower of (i) a fixed price determined for each Note ($1,047.20, $50.71, $50.71 and $19.03 for the June 2025 Note, the December 2025 Note, the February 2026 Note and the May 2026 Note, respectively, and $8.07 for the June 2026 Note, in each case as adjusted) and (ii) 88% of the lowest daily volume weighted average price of the ordinary shares during the 20 consecutive trading days immediately preceding the applicable conversion date, subject to a floor price determined for each Note. Each Note is repayable, together with accrued and unpaid interest, in 10 equal monthly payments beginning on the 18-month anniversary of its issuance date, unless earlier repaid by the Company, converted or extended by the holder in accordance with its terms.

During the six months ended June 30, 2026, the holder converted the principal and accrued interest outstanding as of December 31, 2025 under the June 2025 Note, and converted the December 2025 Note, the February 2026 Note and the May 2026 Note in full. As of June 30, 2026, the only Note outstanding is the June 2026 Note.

The Notes contain variable conversion terms and other features that do not qualify for equity classification under ASC 815-40. Accordingly, the Notes are classified as liabilities and are recorded in their entirety at fair value through profit or loss, with changes in fair value recognized in financial expenses (income), net. The proceeds of each Note issued together with a warrant (the February 2026, May 2026 and June 2026 issuances) were allocated between the Note and the warrant based on their relative fair values at issuance. The amounts allocated to the Notes were $274, $893 and $994, respectively, and the amounts allocated to the warrants, which the Company assessed as meeting the equity classification conditions of ASC 815-40 and recorded within additional paid-in capital, were $266, $683 and $806, respectively. The excess of the initial fair value of each Note over the amount allocated to it, in an aggregate amount of $3,748, was recognized as a day-one loss within finance expense. In addition, during the six months ended June 30, 2026 the Company recognized finance income of $509 in respect of the subsequent remeasurement of the Notes, excluding the day-one loss. The initial fair value of each Note at its issuance date is presented in the fair value inputs table below.

Pursuant to the first addendum to the Notes SPA, the Company issued to the holder a warrant to purchase up to 16,269 ordinary shares at an exercise price of $60.83 per share, representing 75% of the maximum number of ordinary shares issuable pursuant to the Notes purchased during the three-month period ended February 28, 2026. Pursuant to the second addendum to the Notes SPA, at each subsequent closing the Company issues a warrant covering 100% of the maximum number of ordinary shares issuable pursuant to the Note purchased at such closing, and accordingly issued warrants to purchase up to 101,736 ordinary shares at an exercise price of $17.20 per share (May 2026) and up to 292,031 ordinary shares at an exercise price of $8.07 per share (June 2026). These warrants have a fixed number of underlying shares and a fixed exercise price, are indexed to the Company’s own stock and meet the equity classification conditions of ASC 815-40. Accordingly, the amounts allocated to them are recorded within shareholders’ equity and they are not subsequently remeasured. All such warrants, other than the warrant issued with the June 2026 Note, were exercised in full during the period (see Note 3(p)).

In addition, the warrant issued in January 2025 together with the convertible promissory note issued in January 2025, which was reclassified from a derivative liability to equity on June 30, 2025, was exercised in full during the six months ended June 30, 2026 (see Note 3(p)).

The Series A Warrants, the Additional Warrants and the Notes are classified within Level 3 of the fair value hierarchy, as their fair values are estimated using valuation models, including binomial option pricing model, with significant unobservable inputs. The revenue forecast over the contractual term of the Additional Warrants is a significant input in their valuation.

The following table presents changes in the fair value of the derivative liabilities during the period.

The following table presents the changes in the principal amount and fair value of the convertible promissory notes issued under the Notes SPA during the period:

The significant inputs used in measuring the fair value of the convertible promissory notes at their respective issuance dates were as follows:

The convertible promissory notes do not have a single fixed exercise price. The conversion price is determined at each conversion as the greater of the floor price and a fixed percentage of recent trading prices, as described above. The valuation model simulate this conversion-price mechanism over the expected life of the Notes, and accordingly no single exercise-price input is presented.

The following tables present the significant unobservable inputs used for the calculation of fair value as of June 30, 2026:

Series A Warrants:

Additional Warrants:

Convertible promissory notes: