NOTE 7: CONVERTIBLE DEBT

The fair value of convertible debt as on:

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2026 Convertible Notes

The Company entered into nine and eighteen convertible note agreements with a total principal of approximately $1,533,000 and $3,540,000 issued at a discount for proceeds of $1,431,000 and $3,292,000 during the three and six months ended June 30, 2026 (the “Q1 and Q2 2026 Convertible Notes”). The Q1 and Q2 2026 Convertible Notes bear interest at rates ranging from 10.0% to 20.0% per annum, with certain notes bearing one-time interest charges ranging from 10.0% to 15.0% and the remaining notes bearing interest at 20.0% per annum. The Q1 and Q2 2026 Convertible Notes have maturity dates that range from 210 days to one year from the convertible note issuance date, optional conversion periods that range up to 210 days or upon default, and conversion prices that range from $3.738 to $7.483 for fixed-price notes. Certain notes contain variable conversion price provisions as described below.

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*     The conversion price has been calculated using the VWAP-based conversion price as per the respective agreements. This price may vary depending on the market conditions prevailing on the reporting date.

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As of issuance and at June 30, 2026, the fair value of the remaining 2026 Convertible Notes was determined to be $3,292,400 and $3,318,000 respectively (see Note 9).

The 2026 Convertible Notes were convertible into 375,830 shares of the Company’s common stock on June 30, 2026.

2025 Convertible Notes

As of December 31, 2025, the Company had convertible notes outstanding with an aggregate principal amount of approximately $3,212,000. As of June 30, 2026, the aggregate principal amount of the convertible notes outstanding was approximately $1,773,000, with an estimated fair value of approximately $2,031,000. Based on the applicable conversion terms, the outstanding convertible notes would be convertible into approximately 305,193 shares of the Company’s common stock. For additional information regarding the terms and conditions of the convertible notes, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.

SEPA Convertible Note

In December 2024, in connection with its Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, LTD. (“Yorkville”), the Company issued a Convertible Promissory Note (the “SEPA Convertible Note”) with an original principal amount of $2,500,000 and received net proceeds of $2,300,000 after an 8.0% original issue discount.

During the six months ended June 30, 2026, the Company made three cash payments totaling $375,000, of which $344,000 was applied to principal, $7,000 to accrued interest, and $24,000 to prepayment premiums. In addition, Yorkville converted $443,000 of principal and $18,000 of accrued interest into post-split – 84,100 shares of common stock at a variable price of ranging from $5.35 to $5.64 per share pursuant to Section 3(a)(9) of the Securities Act of 1933.

As of June 30, 2026 and December 31, 2025, the outstanding principal balances of the SEPA Convertible Note was approximately $600,000 and $1,387,000 respectively. The fair value of the SEPA Convertible Note was approximately $841,000 and $1,543,000 respectively, as of June 30, 2026 and December 31, 2025, and is included within “Convertible debt, at fair value” under current liabilities on the condensed consolidated balance sheets. The change in fair value recognized in earnings was approximately $241,000 and $312,000, for the three and six months ended June 30, 2026 and is included in “Other income (expense), net” in the condensed consolidated statements of operations and comprehensive loss.