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Note 9 - Convertible Notes Payable at Fair Value
 12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Debt Disclosure [Text Block]

NOTE 9 – CONVERTIBLE NOTES PAYABLE AT FAIR VALUE

 

As of December 31, 2024 and 2023, the estimated fair value of our convertible debt is as follows:

 

  

2024

KEUR

  

2023

KEUR

 
         

Face value $27,656 convertible notes due December 7, 2023 (in default)

  24,035   25,629 

 

On December 7, 2022, the Company entered into a share purchase agreement with Yorkville to purchase up to $31.1 million in convertible debentures (the “ 2022 Debentures”). On February 5, 2024 and August 30, 2024, Company issued additional convertible debentures in the amounts of $4.3 million and $3.3 million, respectively, (the “February 2024 Debenture” and "August 2024 Debenture” respectively, and together, the “2024 Debentures”), pursuant to a funding commitment letter entered into between the Company and Yorkville in connection with Sono Group’s restructuring in connection with the Self-Administration Proceedings. The following table reflects the outstanding debt and accrued interest for each tranche as of December 31, 2024 and December 31, 2023:

 

December 31, 2024

Issue Date

 

Principal

KUSD

  

Accrued Interest

KUSD

 

Tranch-1 @4% (12% - default rate)

December 7, 2022

  11,100   2,370 

Tranch-2 @4% (12% - default rate)

December 8, 2022

  8,150   1,657 

Tranch-3 @4% (12% - default rate)

December 20, 2022

  750   153 

Tranch-4 @12% (18% - default rate)

February 5, 2024

  4,318   470 

Tranch-5 @12% (18% - default rate)

August 30, 2024

  3,338   136 
          

Total

  27,656   4,785 

 

December 31, 2023

Issue Date

 

Principal

KUSD

  

Accrued Interest

KUSD

 

Tranch-1 @4% (12% - default rate)

December 7, 2022

  11,100   1,034 

Tranch-2 @4% (12% - default rate)

December 8, 2022

  8,150   676 

Tranch-3 @4% (12% - default rate)

December 20, 2022

  750   62 
          

Total

  20,000   1,772 

 

 

The 2022 Debentures carry a coupon of 4% and were convertible into common stock at the holder’s option at, the lower of (i) $1.75, or (ii) 96.5% of the lowest daily VWAP of the Ordinary Shares during the (7) consecutive Trading Days immediately preceding the conversion date or other date of determination). As a result of the amendment described below, the 2022 Debentures have a maturity date of the later of July 1, 2025 or 12 months from the issuance date of each such new note. The 2022 Debentures contain default provisions that accelerate the payment of principal and interest calculated at the default rate of 12%. Resulting from the Company’s application for its Self-Administration Proceedings, the 2022 Debentures have been in default since May 15, 2025.

 

In November 2023, the contractual terms of the 2022 Debentures were renegotiated and significantly amended resulting in modified convertible debentures. The maturity date was extended until July 1, 2025. The conversion price was changed to the lower of USD 0.25 and 85% of the minimum daily volume-weighted average price on the seven trading days before conversion, provided that the conversion price will not be below the nominal value of EUR 0.06, as translated to USD, and, if and only if the shares of Sono Group are listed and traded on Nasdaq on the relevant conversion date, the conversion price will not be lower than the Floor Price of USD 0.006.

 

The 2024 Debentures carry a coupon of 12% and are convertible into common stock at the holder’s option at, the lower of (x) a price per Ordinary Share equal to $18.75 or (y) 85% of the lowest daily volume weighted average price of the Ordinary Shares during the seven consecutive trading days immediately preceding the date of conversion (the “2024 Variable Conversion Price”); provided, that the 2024 Variable Conversion Price may not be lower than (i) a price equal to 20% of the closing price of the ordinary shares on the trading day immediately prior to the issuance date of the debenture and (ii) the nominal value of one ordinary share. The 2024 Debentures contain default provisions that accelerate the payment of principal and interest calculated at the default rate of 18%.  The February 2024 Debenture has a maturity date of July 1, 2025, and the August 2024 Debenture has a maturity date of August 30, 2025.

 

The Company has evaluated the terms and conditions of the convertible notes under the guidance of ASC 815. The conversion feature did not meet the definition of “indexed to a company’s own stock” provided for in ASC 815 due to the variable number of shares issuable at conversion. Therefore, the conversion feature requires bifurcation and liability classification. Rather than bifurcating and recording the embedded derivative as a derivative liability, the Company elected to initially and subsequently measure the convertible note in its entirety at fair value, with changes in fair value recognized in earnings in accordance with ASC 815-15-25-4.

 

The carrying value of the convertible notes, which under ASC 815-15-25-4 is Fair Value, is on the balance sheet, with changes in the carrying value being recorded in earnings. The components of the convertible promissory notes as of December 31, 2024 and 2023 are as follows:

 

  

2024

  

2023

 

Indexed common shares

  18,537,485   12,441,365 

Fair value per share

 

$

1.24  

$

1.86 

Total Fair Value of Convertible Notes

 

EUR24,035

  

EUR25,629

 

 

The Company utilized a binomial lattice option pricing model to estimate the fair value per share of the underlying common equity. The Company believes that the binomial lattice model results in the best estimate of fair value because it embodies all of the requisite assumptions (including the underlying price, exercise price, term, volatility, and risk-free interest-rate) necessary to fairly value these instruments and, unlike less sophisticated models like the Black-Scholes model, it also accommodates assumptions regarding investor exercise behavior and other market conditions that market participants would likely consider in negotiating the transfer of such an instruments. The table below reflects the assumptions used as inputs to the binomial lattice option pricing model.

 

Assumption

 

December 31, 2024

  

December 31, 2023

 
         

Closing price of underlying common equity

 

$

4.18  

$

5.92 

Exercise price

 

$

1.75  

$

1.64 

Volatility of underlying common equity

  150%  150%

Remaining term (in years)

 

1

  

1

 

Risk Free treasury rates

  4.18%  4.20%

Foreign exchange rate at year end USD/EUR

  1.0389   1.105