Standby Equity Purchase Agreement and Convertible Debt |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Standby Equity Purchase Agreement and Convertible Debt | Note 5 – Standby Equity Purchase Agreement and Convertible Debt
Standby Equity Purchase Agreement and 2025 Convertible Promissory Notes
On October 24, 2025, the Company entered into a Standby Equity Purchase Agreement (“SEPA”) and related Registration Rights Agreement with YA II PN, Ltd. (“Yorkville”), providing the Company the right, but not the obligation, to sell up to $20.0 million of common stock from time to time, subject to customary conditions, including an effective resale registration statement.
In connection with the SEPA, Yorkville agreed to provide up to $6.0 million of pre-paid advances via convertible promissory notes (the “Convertible Notes”). On October 27, 2025, the Company received $3,720,000 and issued a $4.0 million note (7% original issue discount, “OID”). A second $ tranche was received in December 2025, upon registration effectiveness and receipt of stockholder approval, against a $ million note (% OID). During the year ended December 31, 2025, the Company received aggregate proceeds of $5,100,000, after deducting $420,000 of OID and $480,000 of financing costs associated with the transaction. The Convertible Notes bear interest at 8% (increasing to 18% upon default), mature on October 24, 2026, and are convertible at $112.50 per share, subject to proportional anti-dilution and price-protection adjustments (not below a contractual floor). Under the original terms of the Convertible Notes, monthly installment payments were scheduled to begin January 7, 2026, with the Company required to repay one-tenth (1/10) of the then-outstanding principal plus accrued interest and a 5% premium applicable to cash repayments. As described below, the February 20, 2026 Omnibus Amendment deferred commencement of monthly installment payments to April 1, 2026 and revised the payment calculation and Advance Notice provisions.
As consideration for Yorkville’s commitment to purchase common stock at the Company’s direction pursuant to the SEPA, the Company (i) paid to Yorkville a cash “structuring fee” in the amount of $25,000 and (ii) upon execution of the SEPA, issued to Yorkville Commitment Shares, which have a total aggregate dollar value equal to $200,000, or 1.0% of Yorkville’s $20.0 million aggregate purchase commitment under the SEPA (each Commitment Share valued at approximately $113.715 per share, representing the VWAP on October 23, 2025, the trading day immediately prior to the date of execution of the SEPA, rounded to the nearest whole share).
On February 20, 2026, the Company and Yorkville entered into an Omnibus Amendment (the “Amendment”). Among other changes, the Amendment revises the terms of the Convertible Notes to defer the commencement of monthly instalment payments to April 1, 2026, effectively providing an extension of approximately three months.
On June 26, 2026, the Company filed a registration statement on Form S-1 to register for resale by Yorkville up to an additional shares of common stock that may be issued pursuant to future Advances under the SEPA. The Company will not receive proceeds from Yorkville’s resale of such shares. The Company may receive proceeds when and if it elects to issue and sell shares to Yorkville pursuant to future Advances under the SEPA. As of June 30, 2026, approximately $ million of the $20.0 million aggregate commitment remained available, subject to the limitations and conditions contained in the SEPA.
The Convertible Notes include features that allow for settlement through either (i) cash repayment or (ii) issuance of common stock at variable or fixed conversion prices, subject to certain contractual terms, including a floor price and instalment-based repayment structure.
The Convertible Notes are classified as a Level III liability within the fair value hierarchy, as their valuation is based on significant unobservable inputs and assumptions.
The Company elected the fair value option for the Convertible Notes upon issuance. As such, the Convertible Notes are measured at fair value at inception and remeasured at each reporting date, with changes in fair value recognized in earnings. The fair value of the Convertible Notes was determined using a Monte Carlo simulation model.
This valuation approach incorporates multiple potential stock price paths over the contractual term, the Company’s ability to settle in shares or cash, the note holder’s ability to convert at a fixed price, variable conversion features tied to market prices, and contractual floors and share caps.
The model simulates a large number of potential outcomes and calculates the expected fair value based on probability-weighted results.
The Convertible Notes accounted for under the fair value election are each debt host financial instruments containing embedded features wherein the entire financial instrument is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. Changes in the estimated fair value of the Convertible Notes are recorded as a component of Other (expense) income in the statements of operations, except that the change in estimated fair value attributable to a change in the instrument-specific credit risks is recognized as a component of other comprehensive income. The instrument specific credit risk associated with the Convertible Notes was de minimis. As a result of electing the fair value method, issuance costs related to the Convertible Notes, including the structuring fee and the commitment fee were expensed as incurred.
The following key assumptions were used in the Monte Carlo Simulation valuation at each measurement date:
Volatility was estimated using a combination of the Company’s historical volatility and that of comparable publicly traded companies.
As of December 31, 2025, the fair value of the Convertible Notes was $5,298,068. As of June 30, 2026, the fair value of the Convertible Notes was $1,528,469. Changes in fair value during the period were recognized in the Statements of Operations as Gain on change in fair value of convertible notes. The original issue discounts totaling $420,000 were incorporated into the initial and subsequent fair value measurements of the Convertible Notes.
For the three and six months ended June 30, 2026, the Company recognized a net gain on change in fair value of Convertible Notes of $549,098 and $550,380, respectively.
For the three and six months ended June 30, 2026, the Company incurred interest expense of $83,004 and $195,308, respectively. For the three and six months ended June 30, 2026, the Company paid interest of $99,445 and $210,924, respectively. Of these amounts, $21,399 and $125,426, respectively, were settled through the issuance of common stock, and $78,035 and $78,035 were settled through cash payments, respectively. Additionally, $0 and $7,463 of interest was settled through the conversion of Convertible Notes during the three and six-month period.
The Company also repaid principal of $2,713,683 and $3,206,058 during the three and six months ended June 30, 2026, respectively. Of these amounts, $2,290,801 and $2,683,176, respectively, were settled through the issuance of common stock, and $422,882 and $422,882 were settled through cash payments, respectively. Additionally, $100,000 of principal was settled through the conversion of Convertible Notes during the six-month period.
For the three and six months ended June 30, 2026, the share-settled payments for principal and interest were funded through the issuance and sale of approximately and shares of common stock during the three and six month periods, respectively, pursuant to the SEPA, at an average price of $36.13 per share and $ per share, respectively.
The $100,000 of principal and $7,463 of accrued interest related to the 2025 Convertible Notes were settled through the conversion of shares of common stock at a conversion price of approximately $70.75 per share.
As of December 31, 2025, the Company incurred $61,723 of interest expense and paid $22,251 through the sale of shares of common stock at an average price of approximately $ through the SEPA.
Since inception and through June 30, 2026, we have issued and sold approximately shares of common stock to Yorkville pursuant to the SEPA in connection with the settlement of Prepaid Advances and issued shares of common stock upon conversion of a portion of the Convertible Notes into common stock, for aggregate net proceeds to us of $2,937,948. As of June 30, 2026, the outstanding principal balance on the Convertible Notes is $2,791,624.
A summary of activity of the Convertible Notes, which represent the Level III fair value measurements, is presented below:
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