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Convertible Notes Payable | 12 Months Ended
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Dec. 31, 2024
Convertible Notes Payable |
Convertible Notes Payable | 7. Convertible Notes Payable Convertible Promissory Notes Payable During March 2023, the Company issued a convertible promissory note payable (the “Convertible Promissory Notes Payable”) with an aggregate principal amount of $0.8 million to a non-related third party. The Convertible Promissory Note Payable had a maturity date of 18 months from the date of issuance. The note carries interest at a rate of 20% annually, which is payable every six (6) months from the date of the note until the maturity date. On October 9, 2024, the Company and the loan holder signed an extension to extend the maturity date from September 20, 2024 to October 20, 2024 with the option for the Company to further extend the maturity date two times, each by an additional 30-day period. The Company exercised both options to extend the maturity date to December 19, 2024 which included interest previously payable as well as the principal. As consideration for extending the maturity date, the Company amended the form of repayment of the remaining interest due on the loan. As payment for the interest, the Company issued the loan holder, (i) $80,000 worth of Common Stock to be issued at the closing market price on the date prior to issuance and (ii) 20,000 shares of Common Stock. On October 11, 2024, the Company issued the loan holder 27,812 shares of Common Stock in satisfaction of the obligations in (i) and (ii) in the preceding sentence. The extension met the criteria for as a debt extinguishment under ASC 470-50. As of October 9, 2024, the Company recorded a gain on debt extinguishment of $0.1 million, calculated as the difference between (i) the $0.8 million carrying value of the Convertible Promissory Note Payable immediately prior to the amendment (ii) the $0.4 million fair value of the Convertible Promissory Note Payable immediately after the amendment and (iii) the $0.3 million fair value of the shares issued to the holder as consideration for extending the maturity date. The difference between the $0.8 million carrying value immediately prior to the amendment and the $0.4 million fair value immediately after the amendment was recorded as a debt discount and amortized over the amended maturity date of the Convertible Promissory Note using the effective interest method. In connection with the extension of the loan, the Company entered into a consulting agreement with an unrelated third party to negotiate the extension of the of the convertible note with the loan holder on behalf of the Company. The Company issued the third-party 8,500 shares on October 11, 2024, in exchange for services provided. The fair value of the shares were $0.1 million, as determined by multiplying the closing share price on October 10, 2024 (day prior to issuance) of $10.24 by the total number of shares issued, 8,500. This amount was capitalized as a debt issuance cost and accreted over the amended term of the Convertible Promissory Notes Payable using the effective interest method. For the year ended December 31, 2024, and December 31, 2023, the Company incurred interest expense on the Convertible Promissory Note Payable of $0.5 million and $0.1 million, respectively. The promissory note payable remained outstanding as of December 31, 2024, therefore the Company was considered to be in default. On March 6, 2025, the Company reached an agreement with the loan holder to pay $0.7 million in order to settle the March 2023 Convertible Note in full. The Company repaid the loan holder the settlement amount $0.7 million on March 13, 2025. See Note 20 for additional details. August 2024 Nirland Note On August 6, 2024, the Company entered into a Senior Secured Promissory Note (the “August 2024 Nirland Note”) with Nirland, a related party of the Company, pursuant to which the Company issued and sold to Nirland the August 2024 Note in the original principal amount of $2.7 million, inclusive of a $0.5 million original issuance discount. See Note 16 for further reference to the relationship between the Company and Nirland. Of the total amount of the August 2024 Nirland Note, $1.7 million was issued upon execution of the August 2024 Nirland Note. In connection with the August 2024 Nirland Note, the Company issued to Nirland 125,000 shares of the Company’s Common Stock on August 6, 2024. The balance of $0.5 million became payable to the Company when the shares were registered for resale in September 2024. In the event the Company completes any public or private equity or debt financing, the Company shall be required to mandatorily prepay (“Mandatory Prepayment Right”), any amounts that may be then outstanding under the August 2024 Nirland Note, within two business days following the closing of such financing, in an amount of no less than 75% of the net proceeds received. Per the terms of the August 2024 Nirland Note, the Company is prohibited from entering into a variable rate transaction without prior written consent from Nirland. The August 2024 Nirland Note bears interest at a rate of 12% per annum, accruing daily on a 365-day basis, payable monthly in arrears as cash, or accrued at Nirland’s discretion. The August 2024 Nirland Note matures 12 months from August 6, 2024. As noted above, the Company issued to Nirland 125,000 shares of the Company’s Common Stock on August 6, 2024. The Company determined that loan agreement and share issuance should were part of a basket transaction and allocated the net proceeds on a relative fair value basis. Of the total $2.2 net proceeds, $1.2 million was allocated to the August 2024 Nirland Note including $1.5 million gross proceeds, less $0.3 million Original Issue Discount (“OID”). The remaining $1.0 million was allocated to the common stock, including $1.2 million gross proceeds less $0.2 OID. The $1.2 million allocated to the common stock was considered to be a discount on the August 2024 Nirland Note making the balance of the note to be $2.7 million note payable, less a total debt discount of $1.5 million. The debt discount will be amortized to interest expense using the effective interest method over the life of the note. On October 31, 2024, the Company and Nirland amended the August 2024 Nirland Note (the “First Amendment”), whereby the August 2024 Nirland Note was amended to (i) provides for the conversion of the August 2024 Nirland Note into shares of Common Stock, at Nirland’s discretion, in a multiple of any unpaid amounts, if not otherwise previously paid, pursuant to the conversion rate contained therein, (ii) removes Nirland’s Mandatory Prepayment Right, and (iii) removes Nirland’s right of first refusal to participate in any future equity or debt offerings of the Company. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to shall be determined by dividing (x) such conversion amount by (y) the conversion price. Conversion amount means two and one quarter times the sum of (x) portion of the principal to be converted, redeemed or otherwise with respect to which this determination is being made and (y) all accrued and unpaid interest with respect to such portion of the principal amount, if any. Conversion price means, as of any conversion date or other date of determination, $10.00, subject to adjustment as provided within the amended agreement. We evaluated the conversion feature of this note offering for embedded derivatives in accordance with ASC 815, Derivatives and Hedging, and the substantial premium model in accordance with ASC 470, Debt. Based on our assessment, separate accounting for the conversion feature of this note offering is not required and will be accounted for under the substantial premium model. Under the substantial premium model, the excess above the fair value of the August 2024 Nirland Note will be recorded in additional paid-in-capital. The August 2024 Nirland Note will be carried at amortized cost using the effective interest method. The Company determined the fair value of the August 2024 Nirland Note to be $3.6 million as of October 31, 2024 through the use of a binomial lattice model. See Note 3 for additional information regarding the fair value measurement of the August 2024 Nirland Note. The Company accounted for the First Amendment as a debt extinguishment, as the First Amendment added a substantive conversion option. As of October 31, 2024, a loss on debt extinguishment of $2.2 million was recorded consisting of (i) the derecognition of the $1.3 million carrying value immediately prior to the First Amendment (ii) recognition of the $2.7 million par value and (iii) recognition of the $0.8 million substantial premium. On November 22, 2024, the Company and Nirland entered into a Second Amendment to the August 2024 Nirland Note (the “Second Amendment”). Pursuant to the Second Amendment, the Nirland Note may not be converted (other than partial conversions that may be permitted pursuant to the rules and regulations of NASDAQ (or any successor entity)) prior to receipt of stockholder approval to provide for such conversion of the Nirland Note, and subsequent issuance of the Company’s Common Stock, pursuant to the stockholder approval rules under the rules and regulations of The Nasdaq Stock Market. If the Company has not held a special meeting of the stockholders to approve the full conversion of the August 2024 Nirland Note on or before January 9, 2025, then the Company shall be obligated to pay Nirland a penalty of $0.1 million per day until the special meeting is held. In addition, the existing conversion rate was amended to be two and one half times the sum of (x) the portion of the principal to be converted, redeemed or otherwise with respect to which this determination is being made and (y) all accrued and unpaid interest (including default interest) with respect to such portion of the principal amount, if any divided by $0.10, prior to the Reverse Stock Split, (or following any reverse splits that may occur in a ratio greater than 10 to 1, the lower of such reverse split price and the market price per share at the time of the Conversion Date, but in no event less than $1.00), subject to adjustment as provided therein and to take into account any future share splits or reverse splits to maintain the economic equivalence of the conversion rights as at the amendment effective date. The Company notes that the reverse split provision in the preceding sentence was tripped, effective January 25, 2025, following the 1-for-100 reverse stock split that occurred on that date. As of the Second Amendment, the Company elected to account for the August 2024 Nirland Note at fair value under ASC 825. The Company determined that the amendment to the conversion features present in the Second Amendment fall under the guidance within ASC 825 that notes that if a significant modification of debt occurs an entity is able to make an accounting election on that date to account for that debt under the fair value option. At the end of each reporting period, the Company calculates the fair value of the August 2024 Nirland Note, and any changes in fair value are reported in the current period’s consolidated statements of operations and comprehensive income (loss). The Company remeasured the fair value of the August 2024 Nirland Note as of the Second Amendment date and calculated a fair value of $4.5 million using a binomial lattice model. See Note 3 for additional information regarding the fair value measurement of the August 2024 Nirland Note. The Company accounted for the Second Amendment as a debt extinguishment, as the terms of the August 2024 Nirland Note were deemed to be substantially different after the Second Amendment. As of November 22, 2024, a loss on debt extinguishment of $0.9 million was recorded consisting of (i) the derecognition of the 2.7 million carrying value immediately prior to the First Amendment (ii) derecognition of $0.1 million in accrued interest (iii) derecognition of the $0.8 million substantial premium and (iv) recognition of the $4.4 million fair value. On December 9, 2024, and prior to obtaining shareholder approval, Nirland exercised their conversion option and converted $0.1 million of principal for 23,000 shares of common stock pursuant to the rules and regulations of the NASDAQ. As of December 31, 2024, $2.6 million of principal and accrued interest remains outstanding. As of December 31, 2024, the August 2024 Nirland Note had a fair value of approximately $2.8 million and is included within Convertible promissory notes payable at fair value – related parties on the consolidated balance sheets. For the year ended December 31, 2024, the Company recorded a $1.5 million gain from the change in fair value of convertible promissory note and interest expense of approximately $0.4 million. The interest expense of $0.4 million is comprised of (i) accrued interest of $0.2 million and (ii) $0.2 million in amortization expense related to the initial debt discount of $1.5 million. The $2.2 million loss on debt extinguishment from the Frist Amendment, $0.9 million loss on debt extinguishment from the Second Amendment, and the $1.5 million gain on the change in fair value are presented within other income (expense), net, while the $0.4 million of interest expense is presented within Interest expense, net, in the consolidated statement of operations and comprehensive income (loss). A.G.P. Convertible Note On November 25, 2024, the Company issued to A.G.P. a convertible promissory note (the “A.G.P. Convertible Note”) in the principal amount of $5.7 million to evidence the A.G.P.’s currently owed deferred commission payable. Refer to the Note 9 for additional information. Unless earlier converted as specified in the Convertible Note, the principal amount, plus all accrued but unpaid interest, is due on November 25, 2025 (the “Maturity Date”). The convertible promissory note accrues interest at 5.5% per annum. At any time prior to the full payment of the convertible promissory note, provided that the A.G.P. has given at least three business days written notice to the Company, A.G.P., in its sole discretion, may elect to have all or any portion of the outstanding principal amount and all interest accrued converted into shares of the Company’s common stock, at a fixed price of $10.00 (or following any reverse splits that may occur in a ratio greater than 10 to 1, the lower of such reverse split price and the market price per share at the time of the conversion date, but in no event less than $1.00), subject to adjustment as provided therein and to take into account any future share splits or reverse splits. The Company notes that the reverse split provision in the preceding sentence was tripped, effective January 25, 2025, following the 1-for-100 reverse stock split that occurred on that date. However, the conversion of the convertible promissory note may not occur prior to the Company having sufficiently authorized shares of common stock to permit the entire conversion of the convertible promissory note. In addition, the conversion of the convertible promissory note may also not occur prior to receipt of stockholder approval to provide for such conversion of the convertible promissory note, and subsequent issuance of the Company’s common stock, pursuant to the stockholder approval rules under the rules and regulations of The Nasdaq Stock Market. Further, following the A.G.P.’s ability to convert the convertible promissory note, if at all, A.G.P. will not be entitled to receive the Company’s common stock upon conversion, if such conversion would result in A.G.P. owning greater than 9.99% of the Company’s then currently outstanding common stock. A.G.P. is also entitled to resale registration rights as identified in the convertible promissory note. The Company may prepay the convertible promissory note in whole or in part. In the event of certain Events of Default (as defined in the convertible promissory note), all outstanding principal and accrued interest under the Convertible Note will become, or may become at A.G.P.’s election, immediately due and payable to the A.G.P. The Company elected to account for the A.G.P. Convertible Note at fair value under ASC 825. The Company determined that the substantive conversion option within the A.G.P. Convertible Note falls under the guidance within ASC 825 that notes that if a significant modification of debt occurs an entity is able to make an accounting election on that date to account for that debt under the fair value option. At the end of each reporting period, the Company calculates the fair value of the A.G.P. Convertible Note, and any changes in fair value are reported in the current period’s consolidated statements of operations and comprehensive income (loss). The change in fair value attributable to instrument-specific credit risk, if any, will be recognize within other comprehensive income each reporting period. As an accounting policy, the Company elected to present interest expense separately from other changes in the A.G.P. Convertible Note’s fair value. Interest expense will be presented within Interest expense, net, while the other changes in the fair value with be presented within other income (expense), net in the consolidated statements of operations and comprehensive income (loss). The Company determined the fair value of the A.G.P. Convertible Note to be $3.4 million as of November 25, 2024 through the use of a binomial lattice model. See Note 3 for additional information regarding the fair value measurement of the A.G.P Convertible Promissory Note. The Company accounted for the issuance on the A.G.P. Convertible Promissory Note as a debt extinguishment, as it was issued to evidence the A.G.P.’s currently owed deferred commission payable discussed in Note 9. A gain on debt extinguishment of $2.4 million was recorded as of November 25, 2024, consisting of (i) the derecognition of the $5.7 million deferred commission payable and (ii) recognition of the $3.4 million fair value of the A.G.P. Convertible Note. For the year ended December 31, 2024, the Company recorded a $0.5 million gain in the change in fair value of the A.G.P. Convertible Note and interest expense of approximately $32 thousand. The $2.4 million gain on extinguishment and $0.5 million gain on the change in fair value are presented within other income (expense), net, while the $32 thousand of interest expense is presented within Interest expense, net, in the consolidated statement of operations and comprehensive income (loss).

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