CONVERTIBLE NOTE |
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Jun. 30, 2026 | ||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||
| CONVERTIBLE NOTE | Note 10 CONVERTIBLE NOTE
On October 31, 2025, the Company entered into a Securities Purchase Agreement (the “Original SPA”) with an institutional accredited investor (the “SPA Buyer”), pursuant to which the Company may issue and sell, in multiple closings, senior secured convertible notes in an aggregate original principal amount of up to $300,000,000. At the initial closing on November 3, 2025, the Company issued a senior secured convertible note in the principal amount of $8,000,000 (the “Note”) for a purchase price of $7,280,000, reflecting an original issue discount of $720,000. The Note bears interest at 9.0% per annum, payable monthly in arrears, and matures on November 3, 2027. Upon the occurrence of an event of default, as defined in the Note, the interest rate increases to 18.0% per annum.
The Note is secured by a first-priority security interest in substantially all of the Company’s assets purchased or acquired with the proceeds from the sale of the Note, pursuant to a Pledge and Security Agreement and an Account Control Agreement, each dated as of November 3, 2025. The Note ranks senior to all existing and future indebtedness of the Company, subject to certain permitted indebtedness exceptions.
The Note is convertible at any time at the option of the holder into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”). The conversion price is equal to the lower of: (A) The lower of (i) $2.01, and (ii) the average closing price of the Common Stock for the five trading days immediately preceding the closing; and (B) 93% of the lowest daily volume-weighted average price (“VWAP”) of the Common Stock during the ten trading days immediately preceding the conversion date.
The conversion price is subject to a floor price and customary adjustments. The holder is restricted from converting the Note if such conversion would result in the holder beneficially owning more than 4.99% of the outstanding Common Stock, which may be increased to 9.99% upon 61 days’ prior written notice.
The Company elected the fair value option for the Note in accordance with ASC 825, Financial Instruments. Accordingly, the Note is measured at fair value at each reporting date, with changes in fair value recorded in other expense in the Consolidated Statements of Operations and Comprehensive Loss.
The fair value of the Note is classified as Level 3 within the fair value hierarchy due to the lack of an active market and reliance on unobservable inputs. The fair value is estimated using a discounted cash flow model based on expected future principal and interest payments, adjusted for expected conversions and the floor price of the conversion feature. The discount rate is based on management’s estimate of rates for similar debt instruments, adjusted for the Company’s credit risk. Changes in key assumptions, including the discount rate or expected conversion, could materially affect the estimated fair value of the convertible notes.
Issuance costs of $643,500 were expensed as incurred during the year ended December 31, 2025.
In December 2025, a holder of the Note converted $45,319 into shares of Common Stock. During the second quarter of 2026, holders of the Note converted an aggregate of $4,965,758 into shares of Common Stock.
On May 22, 2026, the Company and the SPA Buyer entered into a First Amendment to the Original SPA (the “SPA Amendment”) to expand the permitted use of proceeds from future additional closings to include (i) general corporate purposes and working capital, (ii) acquisitions, investments, or other strategic transactions, and (iii) other lawful corporate purposes. The SPA Amendment continues to prohibit use of proceeds for repayment of general indebtedness, repurchases of the Company's securities, payments to related parties, and settlement of litigation matters (other than acquisition-related matters). The Company evaluated the SPA Amendment under ASC 470-50, Debt—Modifications and Extinguishments, and concluded that the amendment did not result in a substantial modification, as it did not change the interest rate, conversion terms, principal amount, or maturity date of the Notes; accordingly, no gain or loss was recognized and the amendment was accounted for prospectively.
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