Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 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.

The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis:

	Fair value measurement at Reporting Date
	(Level 1)	(Level 2)		(Level 3)
As of March 31, 2026
Liabilities:
AMPA liability			$	-
Conversion Option liability			$	488,000
Warrants liabilities			$	1,260,000

The fair value of the AMPA (see Note 9) was measured before and after the March 19, 2026 modification and as of the March 31, 2026 reporting period using Level 3 inputs. The fair value was deemed de minimis at both date of issuance date and as of the March 31, 2026 reporting period.

The fair value of the Conversion Option liability and Warrants liabilities related to the 2025 Notes (see Note 8b) were measured as of December 31, 2025 and as of the March 31, 2026 reporting period. The change in fair value between the periods was recognized as gains in other income (expense) in the statements of comprehensive income (loss). The Company also recognized a change in fair value as a result of the modification of the Conversion Option and Warrants on March 19, 2026 which was offset by the issuance of the Series D-1 Warrants as discussed further below.  Activity during the quarter ended March 31, 2026 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	)		—
Balance at March 31, 2026	$	488,000		$	1,260,000

The March 31, 2026 fair value of the Conversion Option liability and Warrants liabilities were estimated using the Black-Scholes option pricing model Level 3 inputs, with the following assumptions:

		Conversion Option Liability			Warrants Liabilities
Expected term (in years)		2.59			2.59
Risk‑free interest rate		3.7	%		3.7	%
Dividend yield		—	%		—	%
Expected volatility		30	%		30	%
Exercise price	$	0.73		$	0.58-1.10
Stock price	$	0.42		$	0.42
Black-Scholes value	$	0.023		$	0.004-0.047

The valuations of the Conversion Option liability and Warrants liabilities at modification in Q1 2026 (see Note 8b) were calibrated such that the aggregate change in fair values 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 March 31, 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 March 31, 2026, were consistent with the terms used as of December 31, 2025, 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 March 31, 2026, there were no transfers between Level 1, Level 2 and 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 March 31, 2026, the fair value of the 2025 notes (excluding the conversion option, see Note 8b), calculated using a discounted cash flow analysis using Level 3 inputs, was approximately $3.8 million. The Company uses a Black-Scholes option valuation model to determine the grant date fair value of employee stock options which uses Level 2 inputs. See Note 10 for a description of inputs used.