Quarterly report [Sections 13 or 15(d)]

CONVERTIBLE NOTES

v3.26.1
CONVERTIBLE NOTES
 3 Months Ended
Mar. 31, 2026
CONVERTIBLE NOTES  
CONVERTIBLE NOTES

NOTE 5 – CONVERTIBLE NOTES

 

March 2026 Notes

 

During March 2026, the Company issued three unsecured promissory notes to third-party lenders, two having one-time interest charge of 12% and the other bearing interest at 10% per annum and containing variable-rate embedded conversion features. The notes were issued for aggregate gross proceeds of $610 against aggregate face amounts of $665, resulting in aggregate original issue discount (“OID”) of $55. Under ASC 815-15, the embedded conversion features of all three notes were bifurcated as derivative liabilities at inception (see Note 7). Set out below are the terms of each note:

 

Boot Capital LLC Note

 

·

The note has a one-time interest charge of 12%.

 

·

Interest and principal are payable in monthly installments commencing September 15, 2026 (first scheduled payment date), with $63 due on such date followed by four payments of $16 due on the 15th of each month through January 2027.

 

·

The Holder may elect to convert any or all amounts outstanding upon an Event of Default. The conversion price equals 75% of the lowest closing bid price of the Company’s common stock during the 10 Trading Days preceding the conversion date, subject to a floor of $0.125 per share.

 

·

Upon an Event of Default, the outstanding balance becomes 150% of the then-outstanding principal plus accrued interest, and default interest accrues at 22% per annum.

 

Vanquish Funding Group Inc. Note

 

·

The note has a one-time interest charge of 12%.

 

·

Interest and principal are payable in monthly installments commencing September 15, 2026 (first scheduled payment date), with $133 due on such date followed by four payments of $33 due on the 15th of each month through January 2027.

 

·

The Holder may elect to convert upon an Event of Default. Conversion price equals 75% of the lowest closing bid price in the 10-Trading-Day lookback window, subject to a $0.125 floor.

 

·

Upon an Event of Default, the outstanding balance becomes 150% of the then-outstanding principal plus accrued interest, and default interest accrues at 22% per annum.

 

Labrys Fund II, L.P. Note

 

·

The note bears interest at 10%.

 

·

Principal and accrued interest of $347 is payable in a single bullet payment at maturity on March 20, 2027. There are no scheduled interim payments.

 

·

Beginning on September 16, 2026 (Day 181 from issuance), and regardless of whether any Event of Default has occurred, the Holder may elect at any time to convert any portion of the outstanding balance into shares of the Company’s common stock. This time-based conversion right represents a fundamental difference from the Boot Capital and Vanquish notes, in which the conversion right is contingent upon an Event of Default.

 

·

Conversion price equals 75% of the average of the two (2) lowest closing bid prices of the Company’s common stock during the 10 Trading Days preceding the conversion date. The Holder may deduct $2 per conversion notice from the conversion amount.

 

·

Upon an Event of Default, the outstanding balance becomes 150% of the then-outstanding principal plus accrued interest, and default interest accrues at 22% per annum. A default does not expand the conversion right, which is already fully available after Day 181.

 

At inception, each note was recorded at its face amount as a liability, with a corresponding contra-liability debt discount comprising (i) the OID and (ii) the fair value of the bifurcated embedded derivative allocated from the proceeds. The debt discount is amortized to interest expense over the term of each note using the effective interest method (“EIM”) for the Boot Capital and Vanquish notes, and the straight-line method for the Labrys Fund II note (see Note 7).

 

The following represents the movement of the value of the March 2026 notes during the three months ended March 31, 2026:

 

 

 

Boot Capital LLC

 

 

Vanquish Funding Group Inc.

 

 

Labrys Fund II, L.P.

 

 

Total

 

Face amount

 

 $ 113

 

 

 $ 237

 

 

 $ 315

 

 

 $ 665

 

Less: Debt discount at inception

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OID

 

 

 (13 )

 

 

 (27 )

 

 

 (15 )

 

 

 (55 )

Derivative allocation

 

 

 (46 )

 

 

 (98 )

 

 

 (293 )

 

 

 (437 )

Debt issuance costs

 

 

 -

 

 

 

 (10 )

 

 

 (8 )

 

 

 (18 )

Initial carrying value

 

 

 54

 

 

 

 102

 

 

 

 (1 )

 

 

 155

 

Amortization

 

 

 5

 

 

 

 10

 

 

 

 9

 

 

 

 24

 

Carrying value, March 31, 2026

 

 $ 59

 

 

 $ 112

 

 

 $ 8

 

 

 $ 179

 

 

The Boot Capital LLC, Vanquish Funding Group Inc. and Labrys Fund II, L.P. notes were repaid in full in April 2026.

 

May 2025 Notes

 

Between April 27, 2025, and May 1, 2025, the Company entered into subscription agreements with various investors, pursuant to which the Company issued convertible notes (the “Notes”) to the investors in an aggregate principal amount of $900 (collectively, the “Notes Offering”). A portion of the Notes was convertible into shares of the Company’s common stock, at the election of each investor, pursuant to the Voluntary Conversion (defined below) and the remaining portion of each Note was to be converted into warrants to purchase shares of the Company’s common stock. The sale and issuance of the Notes closed on May 1, 2025.

 

At the Maturity Date (defined below), the investor had the ability (at the investor’s sole option) to convert all of that certain unpaid portion of principal and accrued interest of the investor’s Note into shares of common stock (the “Voluntary Conversion”), specifically into that number of shares of common stock (the “Converted Shares”) equal to the unpaid principal balance and any accrued interest of each Note divided by $23.22. The amount of principal balance and any accrued interest of each Note convertible pursuant to the Voluntary Conversion was equal to the number of Converted Shares multiplied by $18.72. Should the investor not elect Voluntary Conversion, such portion of the unpaid principal balance and any accrued interest of each Note subject to Voluntary Conversion became immediately due and payable in cash.

 

The Notes accrued interest at a rate of 12% per annum, which would have adjusted to 20% upon an Event of Default (as defined in the Notes). All unpaid principal, together with any then unpaid and accrued interest and other amounts payable thereunder, became due and payable 180 days after the closing of the Notes Offering (the “Maturity Date”). Upon the closing of the Notes, the Company recorded deferred debt costs of $163 associated with transaction costs of the Notes.

 

Effective October 28, 2025, the Company entered into an agreement pursuant to which it issued and sold to certain investors, and the investors purchased (by converting all or a portion of the unconverted portion of unpaid principal balance and accrued interest due to such investors upon the maturity of the convertible promissory notes issued to the investors on May 1, 2025): (i) convertible notes in an aggregate principal amount of $692, of which $195 was for related parties; (ii) warrants to purchase an aggregate of 146,067 shares of the Company’s common stock, par value $0.001 per share, at an exercise price of $10.20 per share; and (iii) warrants to purchase an aggregate of 82,170 warrants of the Company’s common stock, par value $0.001 per share, at an exercise price of $18.72 per share. The notes will accrue interest at a rate of 12% per annum. All unpaid principal, together with any then unpaid and accrued interest and other amounts payable thereunder, shall be due and payable 180 days after the effective date. At any time prior to the Maturity Date, all or any portion of the outstanding principal amount of the Notes, together with the accrued and unpaid interest, shall be convertible, in whole or in part, into shares of Common Stock, at a conversion price of $10.20. Each warrant is immediately exercisable after issuance for five (5) years. The Company accounted for this transaction as an extinguishment of debt in accordance with ASC 470, Debt, and realized a loss on the extinguishment of debt of $1,158 during the year ended December 31, 2025, of which $333 was from related parties.

 

The Company utilizes the Black-Scholes model to value its warrants. During the year ended December 31, 2025, the Company utilized the following assumptions:

 

 

 

Year Ended December 31,

 

 

 

2025

 

Expected term

 

2.50 years

 

Expected average volatility

 

 

 105 %

Expected dividend yield

 

 

 -

 

Risk-free interest rate

 

 

 3.50 %

 

As of March 31, 2026, the net carrying value of the Notes is $480, which includes principal of $494 and deferred debt costs of $14. Included within such amounts at March 31, 2026 is amounts held by related parties, including a carrying value of the notes of $195, which includes principal of $189 and deferred debt costs of $6. During the three months ended March 31, 2026, the Company recorded interest expense of $89 associated with the accretion of accrued interest of $20 and $69 amortization of deferred debt costs. During the three months ended March 31, 2026, the Company issued 20,375 shares of common stock associated with the conversion of debt with a carrying value of $208.