Senior Secured Debt |
6 Months Ended | ||||||||||||||||||||||||||||||
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Jun. 30, 2026 | |||||||||||||||||||||||||||||||
| Senior Secured Debt [Abstract] | |||||||||||||||||||||||||||||||
| SENIOR SECURED DEBT | NOTE 5 – SENIOR SECURED DEBT
On April 29, 2026, the Company entered into a private placement (the “April 2026 Offering”) pursuant to Securities Purchase Agreements dated as of April 29, 2026 (the “April 2026 Purchase Agreement”) with certain accredited investors (the “April 2026 Investors”). The Company issued and sold an aggregate of $4,165,000 principal amount of its Senior Secured Debt (the “April 2026 Debentures”) together with accompanying Stock Purchase Warrants (the “April 2026 Warrants”).
The April 2026 Debentures are senior secured obligations of the Company, maturing six months from issuance (October 2026). The Debentures do not bear interest. The obligations under the Debentures are secured by a first-priority security interest in substantially all of the Company’s assets pursuant to a Security Agreement dated as of April 29, 2026, subject only to customary permitted liens.
The Company issued April 2026 Warrants to purchase a number of shares of the Company’s common stock equal to 1 share per $1.00 principal amount invested by each investor, at an exercise price of $1.50 per share. The April 2026 Warrants have a five-year term from issuance, are exercisable beginning six months after issuance, and include a cashless exercise provision. The April 2026 Warrants are subject to standard adjustments for share combinations, sub-division or reorganization and contain a beneficial ownership limitation of 4.99% or 9.99% (or 19.99 % in the case of one Director) as elected by each individual April 2026 Investor.
In addition to the April 2026 Debentures and April 2026 Warrants, the Company issued to the April 2026 Investors “Fee Shares” in lieu of fees and interest equal to 15% of the principal amount invested by each investor divided by $1.00 (or the Nasdaq Consolidated Closing Bid Price if the April 2026 Investor is a director of the Company. See Note 6).
The Company entered into a Registration Rights Agreement with the April 2026 Investors pursuant to which the Company agreed to register for resale the shares of common stock issuable upon exercise of the April 2026 Warrants and the Fee Shares (the “Registrable Securities”). On July 15, 2026 the Company filed a registration statement on Form S-1 registering the Registrable Securities.
The April 2026 Debentures contain a most-favored-nation provision with respect to subsequent financings and provide for automatic conversion into securities issued in a subsequent financing on substantially similar economic terms (subordinate in right of payment and priority to the security issued to the lead investor in the subsequent financing).
The aggregate shares of common stock issuable pursuant to the April 2026 Debentures (upon conversion) and the Fee Shares, together with the Warrant Shares (if applicable), shall not exceed 19.99% of the Company’s outstanding common stock immediately prior to the date of the April 2026 Purchase Agreement without stockholder approval, in accordance with Nasdaq Listing Rule 5635.
Additionally, the Company issued placement agent warrants representing approximately 7% warrant coverage of the aggregate financing amount as compensation for placement agent services.
The Company elected the fair value option under ASC 825, Financial Instruments, for the April 2026 Debentures. Accordingly, the April 2026 Debentures are carried at fair value with changes in fair value recognized in earnings in each reporting period. The Company estimated the fair value of the April 2026 Debentures using a probability-weighted expected return methodology that considered the contractual terms of the instrument and potential future financing outcomes, including expected financing scenarios, conversion outcomes, repayment probabilities, expected volatility and market participant discount rates. The fair value measurement of the April 2026 Debentures is classified as a Level 3 fair value measurement due to the use of significant unobservable inputs.
The Company determined that the April 2026 Warrants and Fee Shares represented separate freestanding equity instruments and allocated proceeds received in the April 2026 Offering among the April 2026 Debentures, April 2026 Warrants and Fee Shares based on their relative fair values at issuance. The Company estimated the fair value of the April 2026 Warrants using the Black-Scholes option pricing model. Significant assumptions used in the valuation included the Company’s common stock price, the $1.50 exercise price, expected volatility, risk-free interest rate, contractual term and expected dividends. Expected volatility was based primarily on the historical volatility of the Company’s common stock.
The following table summarizes the proceeds allocation at issuance:
As of June 30, 2026, the Company utilized the most recent valuation available to estimate the fair value of the April 2026 Debentures. Changes in the fair value of the April 2026 Debentures are recognized in other income (expense), net in the accompanying consolidated statements of operations.
The Company estimated the fair value of the April 2026 Warrants using the Black-Scholes option pricing model. The valuation incorporated the market price of the Company’s common stock as of the valuation date, the contractual exercise price of $1.50 per share, the remaining contractual term of the warrants, expected volatility based primarily on the historical volatility of the Company’s common stock, the applicable risk-free interest rate, and an assumed dividend yield of zero percent. |
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