Convertible Debentures

3 Months Ended

Mar. 31, 2026

Convertible Debentures [Abstract]

Convertible Debentures

Note 11 – Convertible Debentures

On April 30, 2025, the Company entered into a Securities Purchase Agreement with certain third-party lenders and JGB Collateral LLC, as collateral agent (the “Securities Purchase Agreement”). Pursuant to the Securities Purchase Agreement, the Company agreed to issue and sell (i) senior secured convertible debentures (“Debentures”) in an aggregate principal amount of $22.2 million which is convertible into shares of the Company’s common stock, according to the terms, conditions, and limitations outlined in the Securities Purchase Agreement and (ii) warrants to purchase up to 1,000,000 shares of the Company’s common stock, for an exercise price of $2.52 per share (the “Warrants”), subject to adjustments as set forth in the warrants, for a total purchase price of $20.0 million.

The Debentures mature on April 30, 2028, unless earlier redeemed, repurchased, or converted. The coupon rate on the Debentures is the prime rate plus 5.0%, provided that if the prime rate would be less than 6.0%, the coupon rate under the Debentures will be 6.0% plus 5.0%. The term of the Debentures allows the lenders, at their own discretion, to require monthly principal payments of up to $0.5 million starting August 28, 2025 until the Debentures are repaid in full. The lenders exercised this right on August 28, 2025 and principal payments in an aggregate amount of $2.5 million were made for the year ended December 31, 2025 and principal payments in an aggregate amount of $1.5 million were made for the three months ended March 31, 2026.

The Debentures are convertible, at the option of the lenders, into the Company’s shares of common stock, if fully converted at the initial principal amount, at a conversion price of $2.52 per share, to 8,818,340 shares of common stock. The conversion price is subject to adjustment in the event of (i) stock dividends and splits, (ii) reclassification of shares, and (iii) certain fundamental transactions, including but not limited to a merger or consolidation, the sale or lease of all or substantially all of the Company’s assets, a tender or exchange offer for 50% or more of the Company’s common stock, a reorganization or recapitalization, or a business combination or stock purchase agreement where another entity acquires more than 50% of the outstanding common stock of the Company. The Debentures do not have any price protection or price reset provisions with respect to the future issuance of securities.

The Debentures include certain embedded features that resulted in a compound embedded derivative that was bifurcated from the host instrument, which included: (i) a contingent prepayment option exercisable by the Company, (ii) a holder-initiated prepayment option upon a permitted disposition, (iii) a premium repayment feature upon an event of default, and (iv) a contingent interest feature upon an event of default. The compound embedded derivative was ascribed a de minimis fair value upon issuance, as the Company assessed that the probability of the underlying contingent events occurring, which would trigger a payment under these features, was remote. As of both December 31, 2025 and March 31, 2026, the Company determined that the fair value of the compound embedded derivative continued to be de minimis.

The Debentures are subject to customary events of default, including, but not limited to: (i) failure to make payments of principal or interest; (ii) breach of covenants or representations; (iii) certain events of bankruptcy or insolvency; (iv) cross-defaults to other material indebtedness; (v) failure to deliver conversion shares in a timely manner; (vi) delisting of the Company’s common stock; and (vii) the occurrence of a material adverse effect. Upon the occurrence of an event of default, the outstanding principal amount of the Debentures, interest and other amounts owed as a result of the event of default, shall become immediately due and payable in cash.

Pursuant to the Debentures, the Company must at all times maintain a cash balance equal to the lesser of (a) $15.0 million and (b) the then-outstanding principal balance of the Debentures plus $3.0 million, in a deposit account subject to an account control agreement. In addition, for as long as any portion of the Debentures remain outstanding, the Company is generally restricted from: incurring indebtedness; granting or suffering liens on any of its property or assets; amending its organizational documents; repurchasing any of its securities; paying dividends; selling, disposing, licensing or leasing its assets other than in the ordinary course; and other customary restrictive covenants. The Company also entered into a Security Agreement (the “Security Agreement”), pursuant to which the Company and its subsidiary granted, for the benefit of the investors, to secure its obligations under the Securities Purchase Agreement and the Debentures, (i) first priority liens on certain assets, in each case subject to permitted liens described in the Security Agreement. In addition, the Company and its subsidiary entered into a Subsidiary Guarantee, pursuant to which the Company and its subsidiary guaranteed all of its obligations under the Securities Purchase Agreement and the Debentures.

In connection with the Securities Purchase Agreement, the Company also issued Warrants to purchase an aggregate total of 1,000,000 shares of the Company’s common stock at an initial exercise price of $2.52 per share. Each Warrant is classified as equity, in accordance with ASC 815-40, and is exercisable at any time for a period beginning on the date of issuance and ending 10 years from the date of issuance.  The key assumptions used in the Black-Scholes option pricing model were (i) expected term of 10 years, (ii) a risk-free rate of 4.17%, (iii) expected volatility of 83.5%, (iv) and no estimated dividend yield. The fair value of the Warrants was recorded as a discount and is being recognized as interest expense over the life of the Debentures using the effective interest method.

The Warrants also include a separate provision whereby the exercisability of the common stock warrants may be limited if, upon exercise, the holder would beneficially own more than 4.99% (or, at the election of the holder, 9.99%) of the outstanding common stock immediately after exercise. This threshold is subject to the holder’s rights under the Warrants to increase such percentage upon at least 61 days’ prior notice from the Warrant holder to the Company.

Approximately $19 million of the proceeds from the transactions contemplated by the Securities Purchase Agreement were used to satisfy in full and retire the Company’s indebtedness under the Loan and Security Agreement.

Issuance costs for the Debentures of $762,116 were recorded as a debt discount. As of  March 31, 2026, the effective annual interest rate of the Debentures was approximately 24.1%.

For the three months ended March 31, 2026, the Company recognized interest expense of $1,013,490.  For the three months ended March 31, 2026 the Company amortized $448,837 of the debt discount, and as of March 31, 2026, had a remaining debt discount balance of $2,409,663.