Note 2 - Fair Value Measurements

9 Months Ended

Sep. 30, 2025

Notes to Financial Statements

Fair Value Disclosures [Text Block]

2. FAIR VALUE MEASUREMENTS

The fair value of the Company’s financial assets and liabilities is determined in accordance with the fair value hierarchy established in FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value 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 on the measurement date. The fair value hierarchy of ASC 820 requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs, other than Level 1 inputs, which are observable either directly or indirectly or can be corroborated by observable market data using quoted prices for similar assets or liabilities.

Level 3—Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company's financial instruments that are not remeasured at fair value include accounts receivable, prepaid and other current assets, accounts payable, accrued expenses, other current and noncurrent liabilities, and the noncurrent convertible note. The carrying values of these financial instruments approximate their fair values.

The Company’s financial assets and liabilities measured at fair value on a recurring basis and the level of inputs used for such measurements were as follows (in thousands):

	Fair Value Measured as of September 30, 2025 Using:
	Adjusted Cost		Unrealized Gains (Losses)			Fair Value		Cash and Cash Equivalent		Marketable Securities
Assets
Level 1
Money market funds	$	42,531	$	—		$	42,531	$	42,531	$	—
Level 2
Asset-backed securities		4,986		1			4,987		—	$	4,987
Corporate bonds		19,380		(2	)		19,378		—		19,378
Commercial paper		7,453		(2	)		7,451		—		7,451
U.S. Government securities		9,483		(1	)		9,482		—		9,482
Total financial assets	$	83,833	$	(4	)	$	83,829	$	42,531	$	41,298
Liabilities
Level 2
Private placement warrant liability	$	—	$	—		$	1	$	—	$	—
Level 3
Convertible note, current		—		—			106		—		—
Derivative warrant liabilities		—		—			787		—		—
Total financial liabilities	$	—	$	—		$	894	$	—	$	—

	Fair Value Measured as of December 31, 2024 Using:
	Adjusted Cost		Unrealized Gains		Fair Value		Cash and Cash Equivalent		Marketable Securities
Assets
Level 1
Money market funds	$	6,965	$	—	$	6,965	$	6,965	$	—
Level 2
Corporate bonds		9,660		4		9,664		—		9,664
Commercial paper		945		—		945		—		945
U.S. Government securities		1,402		1		1,403		—		1,403
Total financial assets	$	18,972	$	5	$	18,977	$	6,965	$	12,012
Liabilities
Level 2
Private placement warrant liability	$	—	$	—	$	—	$	—	$	—
Level 3
Derivative warrant liability		—		—		26		—		—
Total financial liabilities	$	—	$	—	$	26	$	—	$	—

The Company’s financial assets and liabilities subject to fair value procedures were comprised of the following:

Money Market Funds: The Company holds financial assets consisting of money market funds. These securities are valued using observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Marketable Securities: The Company holds financial assets consisting of fixed-income U.S. government agency securities, corporate bonds, commercial paper, and asset-backed securities. The securities are valued using prices from independent pricing services based on quoted prices of identical instruments in less active or inactive markets. Additionally, quoted prices of similar instruments in active market or industry models using data inputs such as interest rates and prices that can be directly observed or corroborated in active markets are used to value marketable securities.

2025 Convertible Note: In January 2025, the Company entered into a convertible note agreement with a face value of $3,240 (the "2025 Note"). The Company elected the fair value option to account for the 2025 Note. The fair value estimate of the 2025 Note is based on a binomial-lattice model, which represents Level 3 measurements. Significant assumptions include the discount rate used in the model, remaining term, stock price, and volatility. The changes in fair value are recognized in other income (expense), net for each reporting period. See Note 7 for details of the terms and conditions of the 2025 Note.

Derivative Warrant Liabilities: On September 15, 2022, the Company entered into a convertible note agreement with a face value of $10,500 (the "2022 Note"). The Company issued warrants as part of the 2022 Note. The warrants are recorded on the condensed consolidated balance sheets at fair value. The fair value is based on unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. The fair value estimate of the warrants was based on a Monte-Carlo simulation model. Inherent in a Monte-Carlo simulation model are assumptions related to price, volatility, risk-free interest rate, term to expiration, and dividend yield. Changes in fair value are recognized in other income (expense) for each reporting period. Derivative Warrant Liability is included within other noncurrent liabilities on the condensed consolidated balance sheets. These warrants were cancelled on July 28, 2025.

In January 2025, in connection with the 2025 Note, the Company issued warrants, which are recorded on the accompanying condensed consolidated balance sheets at fair value. The fair value is based on unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. The fair value estimate of the warrants was based on a Black-Scholes model. Inherent in a Black-Scholes model are assumptions related to price, volatility, risk-free interest rate, term to expiration, and dividend yield. Changes in fair value are recognized in other income (expense) for each reporting period. Derivative Warrant Liability is included within other noncurrent liabilities on the condensed consolidated balance sheets. These warrants were exercised in full on July 28, 2025.

In August 2025, in connection with the lease settlement (see Note 5 for details of the settlement), the Company issued warrants, which are recorded on the accompanying condensed consolidated balance sheets at fair value. The fair value is based on unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. The fair value estimate of the warrants was based on a Black-Scholes model. Inherent in a Black-Scholes model are assumptions related to price, volatility, risk-free interest rate, term to expiration, and dividend yield. Changes in fair value are recognized in other income (expense) for each reporting period. Derivative Warrant Liability is included within other noncurrent liabilities on the condensed consolidated balance sheets.

Private Placement Warrant Liability: The Private Placement Warrants are recorded on the condensed consolidated balance sheets at fair value. The fair value is based on observable Level 2 inputs, specifically, the observable input of the Company's public warrants, as terms of both warrants are substantially similar. Any changes in the fair value of the liability are reflected in other income (expense), net, on the condensed consolidated statements of operations and comprehensive loss. Private Placement Warrant liability is included within other noncurrent liabilities on the condensed consolidated balance sheets.

For the nine months ended September 30, 2025, there were no net transfers between Level 1 and Level 2 inputs.

The following table presents a summary of the changes in fair value of the Company’s Level 3 financial instruments for the nine months ended September 30, 2025 (in thousands):

	Derivative Warrant Liabilities			2025 Note			Total
Balance at December 31, 2024	$	26		$	—		$	26
Additions		1,945			3,266			5,211
Change in fair value included in other income (expense), net		1,809			314			2,123
Payments and conversions		—			(3,474	)		(3,474	)
Extinguishment and exercise		(2,992	)		—			(2,992	)
Balance at September 30, 2025	$	788		$	106		$	894

 

The key inputs into the Black-Scholes model for the derivative warrant liability from the 2025 Note as of the exercise date of  July 28, 2025 are as follows:

	July 28, 2025
Expected term (years)		3.9
Expected volatility		144.3	%
Risk-free interest rate		3.9	%
Dividend yield		—	%
Exercise price	$	2.22

The key inputs into the Black-Scholes model for the derivative warrant issued as a result of the lease settlement valued at September 30, 2025 are as follows:

	September 30, 2025
Expected term (years)		4.9
Expected volatility		143.0	%
Risk-free interest rate		3.7	%
Dividend yield		—	%
Exercise price	$	2.22

If factors or assumptions change, the estimated fair values could be materially different. The value of the Company’s convertible note and derivative warrant liabilities would increase if a higher risk-free interest rate was used and would decrease if a lower risk-free interest rate was used. Similarly, a higher volatility assumption would increase the value of the liabilities, and a lower volatility assumption would decrease the value of the liabilities.