14. Convertible Notes Payable

On June 23, 2023, the Company entered into a Securities Purchase Agreement (the “Original SPA”) with an accredited investor named therein, to issue and sell, subject to the satisfaction of certain closing conditions, up to $5,100 aggregate principal amount of the Company’s unsecured senior convertible promissory notes (the “June 2023 Notes”). The June 2023 Notes are subject to an original issue discount of 8.5%, and each June 2023 Note matures on the date that is 18 months after the date of issuance at each applicable closing. The June 2023 Notes accrue interest at the Prime Rate (as defined in the June 2023 Notes) plus 4.75% per annum in cash, or the Prime Rate plus 7.75% per annum if interest is paid in shares of common stock. The Company may, from time to time, prepay the principal amount owing under the June 2023 Notes, subject to a 30% prepayment premium, so long as the Company provides at least 30 business days’ prior written notice to the holder of such prepayment.

The June 2023 Notes are convertible into shares of common stock of the Company, at a conversion price equal to the greater of (x) $0.60 (the “Floor Price”) and (y) 87.5% of the lowest daily VWAP (as defined in the SPA) in the seven (7) trading days prior to the applicable conversion date (the “Variable Price”), subject to certain adjustments including full ratchet anti-dilution price protection, as set forth in the June 2023 Notes. Notwithstanding the foregoing, automatically following an Event of Default (as defined in the June 2023 Notes), without the requirement of the holder to provide notice to the Company, and subject to the provisions relating to the stockholder approval requirements under Nasdaq rules for the issuance of shares in a private placement at a price above the market price (the “Nasdaq 19.99% Cap”), the conversion price is equal to the lesser of the (x) Floor Price and (y) the Variable Price. In respect of any conversion where the Variable Price is less than the Floor Price (the “Alternative Conversion”), the Company will pay to the holder either in cash, or subject to the Nasdaq 19.99% Cap, in shares of common stock equal to such conversion amount or interests, divided by the applicable Variable Price. So in essence, there is no floor price for the conversion and Alternative Conversion together.

Thus, the Group determined that the conversion feature and the alternative conversion features embedded within the June 2023 Notes met the definition of embedded derivatives and the Group estimated a fair value of the derivative liability using the Monte Carlo Simulation Model at the date of issuance. As the fair value of the derivative liability is less than the face value of the June 2023 Notes, the fair value of the derivative liability of $294 was recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The original issue discount of the June 2023 Notes of $136 was recorded as a debt discount as well.

On October 26, 2023, the Company entered into the First Amendment (the “Amendment”) to the Original SPA, with the same accredited investor. Pursuant to the Amendment, the “Funding Amount” under the Original SPA was increased to an aggregate principal amount equal to no greater than $9,667 while other terms remain unchanged. On October 26, 2023, the Company agreed to issue and sell, in a private placement, an additional $1,750 of principal amount (the “October 2023 Notes”) of the Company’s unsecured senior convertible promissory note.

In connection with the Amendment, the Company issued a warrant (the “October Warrant”) to the investor to purchase up to 1,500,000 shares of the Company’s common stock, with an exercise price equal to $1.30 per share, subject to full ratchet anti-dilution protection and other adjustments as stated in the warrant, which warrant is exercisable for six years on a cash basis or, if the shares of common stock issuable upon exercise of the warrant are not registered within 12 months after the closing, on a cashless basis. The Group determined that the October Warrant met the definition of liability instrument and estimated a fair value of the October Warrant using the Black Scholes pricing model at the date of issuance. On March 31, 2025, the investor cashless exercised 3,000,000 warrant shares and received a net of 2,378,644 shares of the Company’s common stock; however, the cashless exercise is based on incorrect calculation and information. The Company is currently in legal proceedings with the investor trying to recover the excessive shares issued to the investor from the cashless exercise.

The October 2023 Notes are convertible into shares of common stock of the Company, at a conversion price equal to the greater of (x) $0.60 (the “Fixed Price”) and (y) 87.5% of the lowest daily VWAP (as defined in the SPA) in the seven (7) trading days prior to the applicable conversion date (the “Variable Price”), subject to certain adjustments including full ratchet anti-dilution price protection, as set forth in the October 2023 Notes. Notwithstanding the foregoing, automatically following an Event of Default (as defined in the October 2023 Notes), without the requirement of the holder to provide notice to the Company, and subject to the provisions relating to the Nasdaq 19.99% Cap, the conversion price is equal to the lesser of the (x) Fixed Price and (y) the Variable Price. In respect of any conversion where the Variable Price is less than the Fixed Price (the “Alternative Conversion”), the Company will pay to the holder either in cash, or subject to the Nasdaq 19.99% Cap, in shares of common stock equal to such conversion amount or interests, divided by the applicable Variable Price. So in essence, there is no floor price for the conversion and Alternative Conversion together.

The Group determined that the conversion feature and alternate conversion feature within the October 2023 Notes met the definition of embedded derivatives and the Group estimated a fair value of the derivative liability using the Binominal Tree Model at the date of issuance. In addition, the Group considered that the October Warrants were issued in a bundled transaction with the October 2023 Notes, and the proceeds received from the transaction should be first allocated to the warrants as debt discounts based on the fair value of the warrants on the issuance date.

On November 10, 2023, the Company entered into Second Securities Purchase Agreement (the “Second SPA”) with the same accredited investor, which the Company agreed to issue and sell, in a private placement, subject to the satisfaction of certain closing conditions, a $12,000 of principal amount of the Company’s secured senior convertible promissory notes. As of December 31, 2023, the closing conditions have not been met and Company has not issued any convertible notes pursuant to the Second SPA. Upon execution of the Second SPA, the Company also issued a warrant (the “Execution Warrant”) to the investor to purchase up to 1,000,000 shares of the Company’s common stock, with an exercise price equal to $1.30 per share, subject to full ratchet anti-dilution protection and other adjustments as stated in the warrant, which warrant is exercisable for six years on a cash basis or, if the shares of common stock issuable upon exercise of the warrant are not registered within 12 months after the closing, on a cashless basis. The Execution Warrants can be exercisable no matter whether the Second SPA would be closed or not in the future. On April 3, 2025, the investor cashless exercised 1,700,000 warrant shares and received a net of 1,155,322 shares of the Company’s common stock; however, the cashless exercise is based on incorrect calculation and information. The Company is currently in legal proceedings with the investor trying to recover the excessive shares issued to the investor from the cashless exercise.

The Group determined that the Execution Warrant met the definition of liability instrument, and the Group estimated a fair value of Execution Warrant using the Black Scholes pricing model at the date of issuance. The Group considered that the Execution Warrant was issued in a bundled transaction with a future convertible note offering, and the Execution Warrant was considered as issuance costs associated with the future convertible note offering and should be deferred and charged against the gross proceeds of the future offering as debt discount based on the fair value of the warrants. However, this future convertible note offering (Second SPA) is to be closed subject to certain closing conditions. On April 5, 2024, the Group entered into a waiver letter by and between the Company and the above investor to which the investor waived its right to require the Company to sell $12,000 principal amount of the Company’s secured senior convertible promissory note as previously agreed under Second SPA. However, the Execution Warrant survived the cancellation and is effective.

On March 29, 2024, the Group noted that an event of default has occurred under the June 2023 Notes and October 2023 Notes, due to a failure to observe or perform in a material respect the following covenants: 1) under the Registration Rights Agreement dated on November 10, 2023, the Company agreed to use all commercially reasonable efforts to cause a registration statement relating to the registrable securities to become effective and to keep such registration statement effective until the earlier to occur of the date on which (A) the investor shall have sold all the registrable securities; or (B) the investor has no right to acquire any additional shares of common stock under the purchase agreement or the warrants; and 2) under the Securities Purchase Agreement dated as of June 23, 2023 and a covenant under the notes, as determined on the first of every calendar month, the Company agreed at all times to keep on hand unencumbered, unrestricted cash in an amount greater than or equal to $200,000. The default was not fully cured within five (5) business days of such failure. As a result, the interest rate of the June 2023 Notes and October 2023 Notes was automatically increased to 18% per annum, starting from the date of occurrence of the Event of Default. In addition, the Group is obligated to pay to the holder of the June 2023 Note and October 2023 Note all of the outstanding principal amount and accrued interest on the date of occurrence of the Event of Default. As of the date of issuance of the condensed consolidated financial statements, the noteholder has not declared that an Event of Default has occurred and that the notes are due and payable. As a result of the default, the carrying amount of both June 2023 Note and October 2023 Note were classified as convertible notes, current and all the remaining unamortized debt discounts were amortized into interest expense immediately.

During the six months ended June 30, 2025, the Group issued a total of 3,071,603 shares of common stock of the Company to the investor to convert a total principal amount of $485 of the October 2023 Note. The total fair value of the common stock issued for conversion was $609. As a result of the conversion, the Group reclassified $33 derivative liability into equity upon each conversion of the corresponding convertible notes.

On March 14, 2025, the Company entered into a loan agreement with J.J. Astor & Co. (the “J.J. Astor”) pursuant to which J.J. Astor agreed to loan the Company the sum of up to $6,000, in two tranches of $4,000 and $2,000, in consideration for a senior secured convertible promissory note in the original principal amount of $5,300, and an additional senior secured convertible promissory note in the original principal amount of $2,650. The net proceeds of the loan are to be used to repay existing senior debt in the aggregate principal amount of approximately $1,200 and for general working capital purposes. On March 14, 2025, the Company closed the first tranche of notes (March 2025 Note) and received net proceeds of $2,680 after paying off existing senior debts and fees. On May 23, 2025, the Company closed the second tranche of notes (the “May 2025 Note,” and together with the March 2025 Note, the “Notes”) and received net proceeds of $1,910. There was no warrant issued to the lender for the Notes.

The March 2025 Note is payable in 26 bi-weekly installments of $204 through the maturity date of March 13, 2026, in cash or shares of the Company’s common stock, at the Company’s election. The May 2025 Note is payable in 26 bi-weekly installments of $102 through the maturity date of May 22, 2026 in cash or shares of the Company’s common stock, at the Company’s election. The Notes will not accrue interest (unless there is an event of default) and are subject to an exit fee of $150 upon maturity. Upon an event of default, the outstanding principal amount will increase to 120% of the outstanding principal amount, plus interest thereon at the rate of 19% per annum. The Notes will be convertible into shares of common stock by J.J. Astor following an event of default.

The conversion price of the Notes is the lower of (i) 85% of the closing price of the common stock on the trading day immediately prior to the applicable funding date and issuance of the March 2025 Note, or (ii) 85% of the average of the four lowest VWAP prices for the 20 trading days prior to the applicable funding date. If J.J. Astor or any other holder of the Notes elects to voluntarily convert the Notes, the conversion price will be the lower of (a) 100% of the closing price of the common stock on the trading day immediately prior to the applicable funding date and issuance of the March 2025 Note, or (b) 100% of the average of the four lowest VWAP prices of the common stock for the 20 trading days prior to the applicable funding date. Upon an event of default, the conversion price of the Notes will be 80% of the closing price of the common stock on the initial funding date. The Notes are subject to a limitation that prohibits ownership of more than 19.9% the Company’s outstanding share capital at any time, without stockholder approval.

The Group has determined that the Notes do not contain a separate conversion option liability and allow the Group to fully or partially settle a conversion in cash. The Group elected the fair value option for the convertible notes liability and estimated a fair value of the March 2025 Note of $2,163 using the Binomial Model at the date of issuance, and recorded the remaining proceeds of $1,837 in additional paid capital. The Group estimated a fair value of the May 2025 Note of $1,924 using the Binomial Model at the date of issuance and recorded the remaining proceeds of $76 in additional paid capital

On April 15, 2025, the Group noted that an event of default occurred under both Notes, when the common stock ceased trading on Nasdaq. As a result, the outstanding principal amount will increase to 120% of the outstanding principal amount, plus interest thereon at the rate of 19% per annum. As of the date of issuance of the condensed consolidated financial statements, the noteholder has not declared that the entire default amount is due and payable. As a result of the default, an additional $1,029 interest expense was accrued to reflect the default principal amount.

The Group recorded interest expenses from debt discount amortization in interest expense, net in the statements of operations of nil and $1,490 for the six months ended June 30, 2025 and 2024 respectively.

The Group recorded accrued interest of convertible notes in interest expense, net in the statements of operations of $1,603 and $93 for the six months ended June 30, 2025 and 2024, respectively.

As of June 30, 2025 and December 31, 2024, the carrying amounts of the Group’s convertible bonds are $3,440 and $485, respectively.