v3.25.4
Standby Equity Purchase Agreement
 3 Months Ended
Dec. 31, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Standby Equity Purchase Agreement

Note 9— Standby Equity Purchase Agreement

 

On July 4, 2025, the Company entered into the SEPA with the Investors. Pursuant to SEPA, the Company has the right, but not the obligation, to issue and sell, from time to time at the Company’s discretion, up to $6 million of shares of our common stock to the Investors at a price equal to 40%, or a percentage between 20% and 40% as determined by us, of the Minimum Price, or $1.20, subject to specified limitations and conditions, including a $0.5 million minimum per drawdown and a 9.99% beneficial ownership cap per investor. The SEPA has a three-year term and may be terminated earlier by the Company, and the Company expect to use any proceeds for working capital and general corporate purposes. The SEPA, in its entirety, is classified as a derivative liability because it did not meet the equity classification criteria under ASC 815-10, Derivatives and Hedging (“ASC 815-10”). The SEPA derivative is valued based on a scenario-based valuation model utilizing the expected draws, probability of the draws and risk-free rate inputs. The change in the fair value of the derivative is recorded in the Condensed Consolidated Statements of Operations. The SEPA is accounted for as a derivative and is recognized as a liability measured at fair value in accordance with ASC 820. The Company intends to utilize the SEPA to access capital to fund its operations.

 

 

A third-party independent appraiser was engaged to calculate the estimated fair value of the SEPA. The estimated fair value of the SEPA liability on September 30, 2025, was $370,546, which was determined using a scenario-based valuation model. The liability was remeasured to its fair value was $370,546 as of September 30, 2025, and is classified within non-current liabilities in the Consolidated Balance Sheets. As the SEPA was terminated by mutual agreement between the Investors and the Company on December 30, 2025, the SEPA liability on December 31, 2025 was $Nil. This remeasurement resulted in the recognition of a loss of $370,546 for the three months ended December 31, 2025, classified as change in fair value of SEPA in the Condensed Consolidated Statement of Operations. Assumptions used in the valuation are described below:

 

Valuation assumptions:  December 31,
2025		   September 30,
2025		 
Expected draws  $         -   $3,600,000 
Expected probability of draws   -    90%
Risk-free interest rate   -    1.07%

 

The estimated fair value of the liability was determined using a scenario-based valuation model which assigned a probability to a number of different outcomes. The inputs and assumptions utilized in the calculation require management to apply judgment and make estimates including:

 

(a)total expected draws of $3,600,000 at September 30, 2025;
  
(b)the expected probability of the draws on the SEPA, which the Company estimate based on our expectation of the draws being completed; and
  
(c)risk-free interest rate, which was determined by reference to the U.S. Treasury yield curve for time periods commensurate with the expected term of the agreement in relation to the date of the expected draw.

 

These estimates may be subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined with exact precision.