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CONVERTIBLE NOTES | 6 Months Ended
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Jun. 30, 2025
Convertible Notes |
CONVERTIBLE NOTES | 16. CONVERTIBLE NOTES Convertible notes payable at June 30, 2025 and December 31, 2024, were comprised of the following:
Schedule of convertible notes payable |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Conversion price per share |  |  | Interest rate |  | Effective rate |  | Due date |  | June 30, 2025 |  |  | December 31, 2024 |
SJC Lending, LLC (“SJC”) convertible promissory note |  | 75% of 5-day VWAP |  |  |  | 15% |  | 15% |  | December 31, 2025 |  | $ | 4,909,000 |  |  | $ | - |
ROI senior secured convertible note, in default |  | $0.11 (ROI stock) |  |  |  | OID Only |  | 22% |  | April 27, 2024 |  |  | 4,245,000 |  |  |  | 4,245,000 |
Orchid Finance LLC (“Orchid”) convertible promissory notes, in default |  | 75% of 5-day VWAP |  |  |  | 15% |  | 20% |  | June 30, 2025 |  |  | 4,626,000 |  |  |  | - |
20% original issue discount (“OID”) convertible promissory notes |  | 80% of 5-day VWAP |  |  |  | OID Only |  | 73% |  | September 30, 2025 |  |  | 1,916,000 |  |  |  | - |
10% OID convertible promissory note |  | $5.87 |  |  |  | 18% |  | 18% |  | May 15, 2025 |  |  | - |  |  |  | 4,167,000 |
Forbearance convertible promissory note, in default |  | $2.00 |  |  |  | 18% |  | 18% |  | June 30, 2025 |  |  | 2,118,000 |  |  |  | 853,000 |
Convertible promissory note – OID only, in default |  | 90% of 5-day VWAP |  |  |  | OID Only |  | 32% |  | September 28, 2024 |  |  | 406,000 |  |  |  | 393,000 |
AVLP convertible promissory notes, principal |  | $0.35 (AVLP stock) |  |  |  | 7% |  | 9% |  | August 22, 2025 |  |  | - |  |  |  | 9,911,000 |
Fair value of embedded conversion options |  |  |  |  |  |  |  |  |  |  |  |  | 3,531,000 |  |  |  | - |
Total convertible notes payable |  |  |  |  |  |  |  |  |  |  |  |  | 21,751,000 |  |  |  | 19,569,000 |
Less: unamortized debt discounts |  |  |  |  |  |  |  |  |  |  |  |  | (941,000 | ) |  |  | - |
Total convertible notes payable, net of financing cost, long-term |  |  |  |  |  |  |  |  |  |  |  | $ | 20,810,000 |  |  | $ | 19,569,000 |
Less: current portion |  |  |  |  |  |  |  |  |  |  |  |  | (20,810,000 | ) |  |  | (19,569,000 | )
Convertible notes payable, net of financing cost – long-term portion |  |  |  |  |  |  |  |  |  |  |  | $ | - |  |  | $ | - |
| (1) | Includes forbearance and extension fees and OID costs that are amortized to interest expense over the life of the notes.
Orchid Convertible Promissory Notes On February 5, 2025, the Company entered into an exchange agreement with an institutional investor, pursuant to which the Company issued to the investor a convertible promissory note in the principal face amount of $1.9 million (the “February 2025 Convertible Note”), in exchange for the cancellation of an outstanding term note the Company issued to the investor in April 2024. That note had an outstanding principal amount and accrued but unpaid interest of $1.9 million. The February 2025 Convertible Note accrued interest at the rate of 15% per annum. The February 2025 Convertible Note was to mature on May 5, 2025. The February 2025 Convertible Note was convertible into shares of Class A common stock at a fixed conversion price of $4.00 per share. On March 14, 2025, the Company entered into an exchange agreement with an institutional investor pursuant to which we issued to the investor a convertible promissory note in the principal face amount of $4.2 million in exchange for the cancellation of (i) a term note issued by the Company on May 16, 2024, with outstanding principal and accrued but unpaid interest of $0.7 million, (ii) a term note issued by the Company on May 20, 2024, with outstanding principal and accrued but unpaid interest of $1.5 million, and (iii) the February 2025 Convertible Note issued by the Company on February 5, 2025, with outstanding principal and accrued but unpaid interest of $2.0 million. The note accrues interest at the rate of 15% per annum, unless an event of default (as defined in the note) occurs, at which time the note would accrue interest at 18% per annum. The note will mature on June 30, 2025. The note is convertible into shares of Class A common stock at a conversion price equal to the greater of (i) $0.40 per share (the “Floor Price”) and (ii) the lesser of 75% of the VWAP (as defined in the note) of the Class A common stock during the five trading days immediately prior to (A) the date of issuance of the note or (B) the date of conversion into shares of Class A common stock. On April 1, 2025, the Company issued a convertible promissory note to an institutional investor in the principal amount of $1.65 million in consideration for $1.5 million in cash previously advanced to the Company. The note bears interest at 15% per annum, increasing to 18% per annum upon an event of default, as defined in the note. The note matures on September 30, 2025. The note is convertible into shares of the Company’s Class A common stock at any time at a conversion price equal to the greater of (i) the Floor Price and (ii) the lesser of (A) 75% of the VWAP (as defined in the note) of the Class A common stock during the five trading days immediately prior to the April 1, 2025 issuance date, or (B) 75% of the VWAP during the five trading days immediately prior to the date of conversion. The conversion price is not subject to adjustment for stock splits, combinations, or dividends. The note was issued with an OID of 10%. Forbearance Convertible Promissory Note In February 2025, the Company and an institutional investor entered into an amended and restated forbearance agreement pursuant to which the investor agreed to forebear through the close of business on May 15, 2025, from exercising the rights and remedies it is entitled in consideration for the Company’s agreement to issue to the investor an amended and restated convertible promissory note in the amount of $3.5 million (the “A&R Forbearance Note”), consisting of (i) the amount then due under the original forbearance agreement of $0.9 million, (ii) a forbearance extension fee of $0.3 million and (iii) a true-up amount of $2.3 million. Subject to the approval by the NYSE and the Company’s stockholders, the A&R Forbearance Note is convertible into shares of Class A common stock at a conversion price equal to $2.00, subject to adjustment. The A&R Forbearance Note accrues interest at the rate of 18% per annum with a maturity date of May 15, 2025. On June 3, 2025, the Company and the investor entered into an amendment to the A&R Forbearance Note, pursuant to which the maturity date of the A&R Forbearance Note was extended until June 30, 2025. SJC Convertible Promissory Note On March 21, 2025, the Company entered into an exchange agreement with an institutional investor, pursuant to which the Company issued to the investor a convertible promissory note in the principal face amount of $4.9 million (the “Exchange Note”) in exchange for the cancellation of (i) a term note issued by the Company on January 14, 2025, with outstanding principal and accrued but unpaid interest of $2.6 million, (ii) a promissory note issued by the Company on March 7, 2025, with outstanding principal and accrued but unpaid interest of $0.5 million, (iii) a promissory note issued by the Company on March 12, 2025, with outstanding principal and accrued but unpaid interest of $1.5 million, and (iv) a promissory note issued by the Company on March 13, 2025, with outstanding principal and accrued but unpaid interest of $0.3 million. The Exchange Note accrues interest at the rate of 15% per annum. The Exchange Note will mature on December 31, 2025. The Exchange Note is convertible into shares of Class A common stock at a conversion price equal to the greater of (i) the Floor Price and (ii) the lesser of 75% of the VWAP (as defined in the Exchange Note) of the Class A common stock during the five trading days immediately prior to (A) the date of issuance of the Exchange Note or (B) the date of conversion into shares of Class A common stock, but not greater than $10.00 per share. 20% OID convertible promissory notes On April 15, 2025, the Company issued convertible promissory notes in aggregate principal amount of $5.0 million to Target Capital 14 LLC and Secure Net Capital LLC in exchange for $4.0 million in cash proceeds. The Company incurred placement agent fees and expenses of approximately $0.5 million in connection with the transaction. The notes do not bear interest unless an event of default occurs, in which case the interest rate increases to 20% per annum. The notes mature on September 30, 2025. The notes are convertible into Class A common stock at any time at a conversion price equal to the greater of (i) the Floor Price and (ii) 80% of the lowest closing price of the Class A common stock during the five trading days immediately prior to the date of conversion. The conversion price is not subject to adjustment for stock dividends, splits, or similar corporate actions. The notes were issued with an original issue discount of 20%. Embedded Derivatives The Company identified embedded derivative features within certain convertible promissory notes issued during the six months ended June 30, 2025, that required bifurcation and separate accounting as derivative liabilities under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging Activities. Specifically, the embedded conversion options associated with the Orchid convertible promissory notes, the SJC convertible promissory note and the April 2025 convertible notes were determined to meet the criteria for derivative classification. The fair value of the embedded derivative liabilities was estimated using a Monte Carlo simulation model. The model incorporates key assumptions including the Company’s stock price, risk-free interest rate, expected volatility, credit-risk adjusted discount rate, and the specific terms of each conversion feature (including floor price, cap, and VWAP-based pricing). Due to the significant use of unobservable inputs, these derivative liabilities are classified within Level 3 of the fair value hierarchy. The following table summarizes the key inputs used in the valuation of the embedded derivatives at inception:
Schedule of valuation of the embedded derivatives |  |  |  |
Assumption |  | Weighted Average at Inception |  | Weighted Average at June 30, 2025
Valuation technique |  | Monte Carlo Simulation |  | Monte Carlo Simulation
Risk-free interest rate |  | 4.2% |  | 4.2%
Expected volatility |  | 118% |  | 122%
Credit-risk adjusted rate |  | 60% |  | 60%
Time to maturity (years) |  | 0.5 |  | 0.3
Stock price at valuation date |  | $2.37 |  | $1.40
Dividend yield |  | 0% |  | 0%
The Monte Carlo simulation utilized 100,000 iterations and incorporated conversion mechanics, including the floor price and the VWAP-based conversion price as defined in each agreement. The incremental value attributable to the conversion feature was isolated to determine its impact on the overall fair value of the embedded option. Conversions of Convertible Notes During the six months ended June 30, 2025, principal, accrued and unpaid interest of $11.3 million were converted into 4.9 million shares of Class A common stock of the Company. Loss on Extinguishment of Convertible Notes During the six months ended June 30, 2025, the Company recognized a total net loss on extinguishment of convertible notes of $4.6 million. This amount includes:
| · | A gain of $0.3 million resulting from the conversion of $0.7 million of convertible notes into 0.2 million shares of Class A common stock, which had a fair value of $0.4 million at the time of conversion;
| · | A loss of $2.6 million related to the issuance of the A&R Forbearance Note. The A&R Forbearance Note, with a principal amount of $3.5 million, was determined to be substantially different from the original note due to significant changes in terms, including the addition of a conversion feature and increased principal amount. As such, extinguishment accounting was applied, and a loss was recognized based on the difference between the value of the A&R Forbearance Note and the net carrying amount of the original note;
| · | A loss of $1.0 million related to the Orchid convertible promissory note issued on March 14, 2025. Although the principal amount of the new note equaled the aggregate principal and accrued interest of the notes exchanged, the fair value of the new note, including the embedded derivative liability, exceeded the carrying amount of the original notes. As a result, a loss on extinguishment of $1.0 million was recognized; and
| · | A loss of $1.3 million related to the SJC convertible promissory note issued on March 21, 2025. Although the principal of the new note matched the principal and accrued interest of the exchanged notes, the combined fair value of the new note and its embedded derivative exceeded the carrying amount of the original instruments. Accordingly, a $1.3 million loss on extinguishment was recognized.
Contractual Maturities Principal maturities of the Company’s convertible notes payable, assuming the exercise of all extensions that are exercisable solely at the Company’s option, as of June 30, 2025 were:
Schedule of contractual maturities |  |  |  |
Year |  | Principal |
2025 (remainder) |  | $ | 18,220,000 |
|  | $ | 18,220,000 |

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