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CONVERTIBLE NOTES
 9 Months Ended
Sep. 30, 2025
CONVERTIBLE NOTES  
CONVERTIBLE NOTES

6. CONVERTIBLE NOTES

On June 13, 2025, the Company entered into the June Securities Purchase Agreement with certain institutional investors under which the Company agreed to issue and sell in a registered public offering directly to the investors (the “June Offering”), convertible notes for an aggregate principal amount of $5,000,000, which will be convertible into shares of the Company’s Common Stock.

On August 7, 2025, the Company entered into the August Securities Purchase Agreement with certain institutional investors under which the Company agreed to issue and sell in a registered public offering directly to the investors (the “August Offering”), convertible notes for an aggregate principal amount of $5,000,000, which will be convertible into shares of the Company’s Common Stock.

The June and August Securities Purchase Agreements contain customary representations, warranties and covenants. The Convertible Notes contain customary affirmative and negative covenants, including certain limitations on debt, liens, restricted payments, asset transfers, changes in the business and transactions with affiliates. The Convertible Notes also contain standard and customary events of default.

No note in the series of Convertible Notes may be converted to the extent that such conversion would cause a holder of any such note to become the beneficial owner of more than 9.99% of the then outstanding Common Stock, after giving effect to such conversion (the “Beneficial Ownership Cap”).

The Convertible Notes shall not bear interest except that upon the occurrence and during the continuance of an event of default. Upon the occurrence and during the continuance of an event of default, the interest rate on the Convertible Notes will be 18% per annum. Unless earlier converted, the Convertible Notes will mature on the twenty-four month anniversary of their respective issuance dates. Additionally, the Convertible Notes have a financial covenant of maintaining a minimum balance of available cash of $2.25 million.

At any time after the issuance date, all amounts due under the Series A-1 Convertible Notes and Series B-1 Convertible Notes are convertible, in whole or in part, and subject to the Beneficial Ownership Cap, at a conversion price equal to $0.63 and $0.83, respectively, which is subject to customary adjustments upon any stock split, stock dividend, stock combination, recapitalization, subsequent issuances, and other events.  When a conversion occurs on an Installment Amount (as defined below), the conversion price is the lower of the respective conversion price or 92% of the lowest VWAP of the Common Stock during the five consecutive trading days prior to the Installment Date (as defined below).  

Starting on the closing dates, the Convertible Notes amortize in equal installments (each, an “Installment Amount”), and we will make monthly payments on the first trading day of each monthly anniversary commencing on the closing date through the maturity date (each, an “Installment Date”), payable in cash or shares of Common Stock, at the Company’s option. Upon the satisfaction of certain conditions, we may prepay outstanding Convertible Notes upon not less than 20 trading days’ written notice by paying an amount equal to the portion of the Convertible Notes being redeemed at a 115% premium.

Pursuant to the June and August Securities Purchase Agreements, the Company has agreed to seek stockholder approval of the issuance of conversion shares upon the future conversion of the Convertible Notes, if any, that would exceed 19.99% of the Company’s issued and outstanding Common Stock, in order to comply with the rules and regulations of NYSE American. In connection with the obligation to seek such stockholder approval, the Company entered into voting agreements (each, a “Voting Agreement”) with certain officers and directors of the Company, pursuant to which each such officer and director agreed to vote shares of Common Stock held by such person in favor of such stockholder proposal.

The Convertible Notes and shares of Common Stock issuable upon conversion of the Convertible Notes were offered and sold pursuant to prospectus supplements filed on August 7, 2025 and June 13, 2025 as a “takedown” from the Company’s shelf registration statement on Form S-3.

The Company elected the Fair Value Option for the Convertible Notes (see Note 1 Significant Accounting Policies and Note 7 Fair Value Measurements for more details).  

For the three and nine months ended September 30, 2025, the Company recognized other expense of approximately $5.8 million related to changes in fair values and conversions of the Convertible Notes during the three months ended September 30, 2025 (see Note 11 Other Expense, Net for more details).