v3.26.1
Note 7 - Convertible Note
12 Months Ended
Dec. 31, 2025
Notes to Financial Statements  
Convertible Debt [Text Block]

Note 7 Convertible Note

 

The Company had a Convertible Note outstanding with Alpha Capital Anstalt (“Alpha”) which was due  January 8, 2025 and went into default upon maturing.  The Convertible Note was a result of an exchange agreement executed on  February 8, 2024 in which the parties agreed to exchange the then outstanding promissory note into a convertible note in the principal amount of $4,849,491 convertible into Common Stock at the initial conversion price of $100.00 (the "Convertible Note"),  subject to adjustment based on the effectiveness of the Company’s Reverse Stock Split which became effective on February 9, 2024. On February 16, 2024, the conversion price was adjusted downward to $62.64 pursuant to the terms of the Convertible Note. The conversion price was adjusted downward several times during the year due to down round trigger events that occurred (see below).

 

On February 16, 2024, the Company received a notification from Alpha to convert $100,000 into 1,597 shares of common stock at an exercise price of $62.64, reducing the principal balance to $4,749,491.

 

On April 12, 2024, the Company received an investor notice for the aggregate purchase of 1,050 shares of Series F Convertible Preferred convertible into 28,378 shares of Common Stock, in the aggregate, at a conversion price of $37.00 for an aggregate purchase price of $1,050,000, Alpha retained $569,091 as a payment on the Convertible Note which consisted of the scheduled principal payment of $484,950 for the month of April 2024 and $84,141 of interest, as result, the Company received $480,909.

 

The Company was not able to make the Amortization Payments required in the third quarter of 2024. Therefore $426,454 of accrued interest was added to principal due to this failure.

 

 

Pursuant to the Omnibus Agreement executed between the Company and Alpha in connection with the October 2024 Offering (see N ote 9), Alpha agreed to purchase $3,000,000 of the units in the offering and the Company agreed to apply said $3,000,000 towards the repayment of the Convertible Note balance. Upon such repayment, $2,000,000 remained outstanding on the Convertible Note to be paid in six monthly installments consisting of $333,333 in principle plus all accrued interest commencing on October 15, 2024 and continuing on the 15th day of each calendar month until the Convertible Note was paid in full. The Company remitted the October and November 2024 monthly payments and the December 2024 payment was waived by the lender.

 

During the year ended December 31, 2024, $1,164,590 of interest was added to the principal balance,  payments of $4,235,757 were made on the principal balance of the Convertible Note and Alpha converted $100,000 of principal into 1,597 shares of common stock at a conversion price of $62.64. 
 
As of December 31, 2024, the principal outstanding was  $1,333,333. During the year ended December 31, 2024, the Company recorded $884,769 of interest expense related to the Convertible Note in the consolidated statements of operations and comprehensive loss, and as of December 31, 2024, there was $47,123 of accrued interest included in accrued liabilities on the consolidated balance sheets.

 

During the year ended December 31, 2025, the remaining principal and accrued interest of $1,425,606 was converted into 1,490,495 of shares of common stock and we recognized $92,273 of interest expense prior to conversion. As of December 31, 2025, there were no amounts outstanding due on the Convertible Note. 

 

Convertible Note Conversion Price Adjustments 

 

During the year ended December 31 2025 and prior to repayment, the conversion price of the Convertible Note was reduced from $1.10 to $0.8294  due to the sale of Series F preferred stock and Series F warrants with a conversion price and exercise price of $0.8294 (see Note 9) which resulted in the reduction of the Convertible Note's conversion price.  The Company recognized a loss on debt extinguishment of $125,242 for the incremental value of the conversion feature due to the reduced conversion price. The incremental value was determined using a Black-Scholes pricing model pre and post modification and the following inputs: expected term 0.50 years, risk free rate of 4.27%, volatility of 203.53%, and dividend rate of 0.00%.

 

During the year ended December 31, 2024, the conversion price of the Convertible Note was reduced on March 6, August 27, and October 1, 2024 due to equity or equity-linked issuances or modifications which triggered reductions in the conversion price from $62.50 to $30.00  to $20.19 and to $4.00, respectively.   Upon the conversion price reductions , the Company determined the incremental value using a Black-Scholes pricing model pre and post reduction and the following inputs: expected term 0.50 - 0.92 years, risk free rate of  3.96% - 4.83% , volatility of 89.6% - 130.57% and dividend rate of 0.00%.  During the year ended December 31, 2024, the Company recognized a total of $6,351,221 of expense due to the incremental value received by Alpha related to the conversion price reductions. 

 

Further, in October 2024, the conversion price of the Convertible Note was reduced again from $4.00 to $1.10 due to an agreed upon modification to the conversion price due to the Share Combination Event that occurred on October 14, 2024 (see Note 9). The modification was deemed to be a debt extinguishment due to the conversion price reduction being substantive. The incremental value of $1,572,512 has been reflected on the statement of operations and comprehensive loss as a loss on debt extinguishment.

 

The October 2024 incremental value from the modification was determined using a Black-Scholes pricing model pre and post modification and the following inputs: expected term 0.50 years, risk free rate 4.24%, volatility 144.88%, and dividend rate of 0.00%.