Quarterly report [Sections 13 or 15(d)]

Fair Value Measurements

v3.25.2
Fair Value Measurements
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 5 - Fair Value Measurements

 

The Company uses the fair value hierarchy to measure the value of its financial instruments. The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The basis for fair value measurements for each level within the hierarchy is described below:

 

● Level 1 – Quoted prices for identical assets or liabilities in active markets.
   
● Level 2 – Quoted prices for identical or similar assets and liabilities in markets that are not active; or other model-derived valuations whose inputs are directly or indirectly observable or whose significant value drivers are observable.
   
● Level 3 – Valuations derived from valuation techniques in which one or more significant inputs to the valuation model are unobservable and for which assumptions are used based on management estimates.

 

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as counterparty credit risk in its assessment of fair value.

 

The carrying amounts of cash equivalents, current portion of restricted cash, prepaid expenses and other current assets, accounts payable, current portion of lease liabilities and accrued expenses approximate fair value due to the short-term nature of these instruments.

 

The Company did not have any financial assets or liabilities that were carried at fair value using the hierarchy as of either June 30, 2025 or December 31, 2024.

 

The table below presents a summary of changes in fair value of the warrant liability that was measured at fair value on a recurring basis:

 

    Warrant Liability  
Balance at January 31, 2025     —  
Issuance of warrants reported at fair value     2,942  
Change in fair value     3,161  
Reclassification to equity     (6,103 )
Balance at June 30, 2025     —  

 

On February 13, 2025, the Company entered into a securities purchase agreement with certain investors and, pursuant to an initial and second closing under the agreement, issued and sold to the investors an aggregate of (i) 3,300 shares of convertible preferred stock and (ii) warrants (the “Warrants”) to purchase up to 11,262,808 shares of the Company’s common stock (see Note 9).

 

 

The Company classified the Warrants as a liability upon issuance. Accordingly, proceeds from the transaction were first allocated to the Warrants which were recorded at fair value at issuance, and any residual value allocated to preferred stock. Subsequent changes in fair value of the Warrants were recognized in the Company’s condensed consolidated statements of operations and comprehensive loss.

 

On June 26, 2025, the terms of the Warrants were amended to remove the provision that provided for a potential adjustment to the Warrants that did not meet the indexation requirements. The Company determined that the Warrants now satisfy the conditions to be accounted for as equity instruments. The change in fair value of the Warrants until June 26, 2025 was recorded in the income statement and fair value of the Warrants on June 26, 2025, was reclassified to equity. There will be no subsequent measurement for the equity classified Warrants as long as the indexation and equity classification criteria continue to be met.

 

For each reporting period during which the Warrants were classified as a liability, the Company’s warrant liability was measured at fair value utilizing a Monte Carlo simulation model, which required assumptions including the value of the stock on the measurement date, exercise price, expected term, expected volatility, and the risk-free interest rate. Certain assumptions, including the expected term and expected volatility, were subjective and require judgment to develop.

 

The warrant liabilities were valued on the various measurement dates during the six months ended June 30, 2025 using the following range of assumptions:

 

Expected volatility     54.0% - 61.0 %
Risk-free interest rate     3.77% – 4.39 %
Stock price on valuation date   $ 0.52 - 0.94  
Exercise price   $ 0.64  
Dividend yield     0.00 %
Expected term     4.8 - 5.0 years