CONVERTIBLE NOTES

3 Months Ended

Mar. 31, 2025

17. CONVERTIBLE NOTES

Convertible notes payable at March 31, 2025 and December 31, 2024, were comprised of the following:

Schedule of convertible notes payable
	Conversion price per share	Interest rate	Effective rate⁽¹⁾	Due date	March 31, 2025			December 31, 2024
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	21%	May 15, 2025		4,245,000			4,245,000
Orchid convertible promissory note	75% of 5-day VWAP	15%	15%	June 30, 2025		4,087,000			-
10% original issue discount (“OID”) convertible promissory note	$5.87	18%	18%	May 15, 2025		3,503,000			4,167,000
Forbearance convertible promissory note, in default	$2.00	18%	18%	May 15, 2025		3,500,000			853,000
Convertible promissory note – OID only, in default	90% of 5-day VWAP	OID Only	0%	September 28, 2024		393,000			393,000
AVLP convertible promissory notes, principal	$0.35 (AVLP stock)	7%	-	August 22, 2025		-			9,911,000
Fair value of embedded conversion options						2,269,000			-
Total convertible notes payable						22,906,000			19,569,000
Less: unamortized debt discounts						-			-
Total convertible notes payable, net of financing cost, long-term					$	22,906,000		$	19,569,000
Less: current portion						(22,906,000	)		(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.

Forbearance Convertible Promissory Note

In February 2025, the Company and an institutional investor (the “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 and matures on May 15, 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.

Embedded Derivatives

The Company identified embedded derivative features within certain convertible promissory notes issued during the quarter ended March 31, 2025, that required bifurcation and separate accounting as derivative liabilities under ASC 815. Specifically, the embedded conversion options associated with the Orchid convertible promissory notes and the SJC convertible promissory note 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:


Assumption	Orchid Note (March 14, 2025)	SJC Note (March 21, 2025)
Valuation technique	Monte Carlo Simulation	Monte Carlo Simulation
Risk-free interest rate	4.3%	4.1%
Expected volatility	130%	100%
Credit-risk adjusted rate	60%	60%
Time to maturity (years)	0.3	0.8
Stock price at valuation date	$2.26	$2.42
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.

The fair value of the embedded derivative liabilities at inception and as of March 31, 2025 was as follows:

Orchid Note: $1.0 million; and

SJC Note: $1.3 million.

Loss on Extinguishment of Convertible Notes

During the three months ended March 31, 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 March 31, 2025 were:

Schedule of contractual maturities
Year	Principal
2025	$	20,637,000
	$	20,637,000