v3.26.1
Note 8 - Convertible Notes, Embedded Derivatives and Pre-Funded Warrants
 3 Months Ended
Mar. 31, 2026
Notes to Financial Statements  
Debt Disclosure [Text Block]

8. Convertible Notes, Embedded Derivatives and Pre-Funded Warrants

 

During the three months ended March 31, 2026, the Company issued three convertible debentures and one pre-funded warrant to YA II PN, Ltd. The following tables summarize the contractual terms and reconcile the related debt host, embedded conversion derivative liability, accrued interest payable, pre-funded warrant proceeds and APIC allocation to the balance sheet, statement of operations, statement of cash flows and shareholders’ equity presentation.

 

Convertible debenture terms

  

January Debenture

    

February Debenture

    

March Debenture

  

Issue date

  

Jan. 26, 2026

    

Feb. 19, 2026

    

Mar. 10, 2026

  

Principal amount

   $ 600,000     $ 750,000     $ 3,000,000  

Maturity

  

Jan. 26, 2027

    

Feb. 19, 2027

    

Mar. 10, 2027

  

Interest rate

  

12%; 18% upon event of default

    

12%; 18% upon event of default

    

12%; 18% upon event of default

  

Fixed conversion price

   $ 18.75     $ 18.75     $ 18.75  

Variable conversion price

  

85% of lowest daily VWAP over seven trading days, subject to floor

    

85% of lowest daily VWAP over seven trading days, subject to floor

    

85% of lowest daily VWAP over seven trading days, subject to floor

  

Floor price

   $ 1.42     $ 1.45     $ 1.39  

 

Convertible debt, warrant and related financial statement presentation reconciliation (USD in thousands)  

Amount, KUSD

  
Balance Sheet – March 31, 2026      

Gross convertible notes payable

     4,350  

Unamortized debt discount

     (3,651 )

Convertible notes payable, net of discount

     699  

Embedded conversion derivative liability

     3,708  

Accrued interest payable

     44  

Pre-funded warrant APIC (equity)

     1,420  
Income Statement –Months Ended March 31, 2026        
Day-one loss on derivative liability     (1,083 )
Gain on change in fair value of embedded derivatives     591  

Coupon interest expense

     (44 )

Debt discount amortization expense

     (62 )

Total interest expense

     113  

 

The initial fair value of the bifurcated embedded conversion derivative liabilities exceeded the cash proceeds allocated to the debt host because the valuation reflects the variable conversion features, floor prices and probability-weighted settlement outcomes under the convertible debenture terms. This resulted in a recognized loss of $1,083.

 

The embedded conversion features were bifurcated and recognized as derivative liabilities measured at fair value. Changes in fair value are recognized in earnings. Debt discount is amortized to interest expense over the expected term of the convertible debentures. The balance sheet presentation separates (i) the convertible debt host, net of unamortized discount, (ii) accrued interest payable, and (iii) embedded conversion derivative liabilities. Accrued interest payable is not included in convertible notes payable, net of discount, because it represents separately accrued contractual coupon interest. Cash proceeds from convertible debentures and pre-funded warrants are presented as financing cash inflows, the pre-funded warrant APIC allocation is presented within shareholders’ equity, and the embedded conversion derivative liabilities and convertible debt host are presented as separate balance sheet captions.