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

12. CONVERTIBLE NOTES

 

Convertible notes payable at March 31, 2026 and December 31, 2025, were comprised of the following:

                      
   Conversion price
per share		  Interest
rate		  Effective
rate(1)		  Due date  March 31, 2026   December 31,
2025		 
Convertible promissory notes issued to JGB entities  85% of 3-day VWAP  13%  32%  December 30, 2027  $12,768,000   $12,768,000 
SJC Lending, LLC (“SJC”) convertible promissory note  75% of 5-day VWAP  15%  15%  June 30, 2026   2,786,000    2,786,000 
ROI senior secured convertible note, in default  $0.11 (ROI stock)  OID Only  15%  April 27, 2024   631,000    1,981,000 
TurnOnGreen convertible promissory note  80% of 10-day
VWAP
(TurnOnGreen stock)		  12%  21%  Various dates through March 27, 2027   1,320,000    440,000 
Fair value of embedded conversion options               252,000    1,576,000 
Total convertible notes payable               17,757,000    19,551,000 
Less: unamortized debt discounts               (4,387,000)   (4,958,000)
Total convertible notes payable, net of financing cost, long-term              $13,370,000   $14,593,000 
Less: current portion               (4,899,000)   (6,750,000)
Convertible notes payable, net of financing cost – long-term portion              $8,471,000   $7,843,000 

 

(1)Includes forbearance and extension fees and OID costs that are amortized to interest expense over the life of the notes.

 

SJC Convertible Promissory Note Amendment

 

In January 2026, the Company entered into an amendment with SJC pursuant to which the maturity date of the convertible promissory note was extended to June 30, 2026.

 

Embedded Derivatives

 

The Company identified embedded derivative features within certain convertible promissory notes that required bifurcation and separate accounting as derivative liabilities under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging. These features primarily relate to conversion options with variable pricing mechanisms.

 

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 pricing based on the Volume-Weighted Average Price, or VWAP). Due to the significant use of unobservable inputs, these derivative liabilities are classified within Level 3 of the fair value hierarchy. See Note 5 for additional information, including the initial recognition and rollforward of embedded derivative liabilities.

 

The following table summarizes the key inputs used in the valuation of the embedded derivatives at inception and as of March 31, 2026:

      
Assumption  Weighted Average at
Inception		  Weighted Average at
March 31, 2026
Valuation technique  Monte Carlo Simulation  Monte Carlo Simulation
Risk-free interest rate  3.6%  3.7%
Expected volatility  108%  130%
Credit-risk adjusted rate  27%  41%
Time to maturity (years)  1.7  1.0
Stock price at valuation date  $0.81  $0.15
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.

Gain (Loss) on Extinguishment of Convertible Notes

 

During the three months ended March 31, 2026, the Company did not recognize any gains or losses on extinguishment of convertible notes.

 

During the three months ended March 31, 2025, the Company recognized a net loss on extinguishment of convertible notes of $4.6 million, consisting primarily of losses recognized on certain exchange or refinancing transactions where newly issued instruments were determined to be substantially different from the original debt instruments under applicable accounting guidance.

 

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, 2026, were:

     
Year  Principal 
2026 (remainder)  $4,737,000 
2027   12,768,000 
   $17,505,000