Note 5 - Debt and Warrants Transactions

3 Months Ended

Mar. 31, 2026

Notes to Financial Statements

Debt and Warrant Disclosure [Text Block]

5. Debt and Warrants Transactions

Note Purchase Agreements 

September 11, 2025 Note Purchase Agreements

Effective September 11, 2025, the Company entered into note purchase agreements (the  “September 11, 2025 Note Agreements”) with the Smith Living Trust, for which William W. Smith, Jr., who at that time was the Company's the Chairman, President and Chief Executive officer, and currently serves as the Company’s Executive Chairman, and his wife, Dieva L. Smith, serve as co-trustees (“Smith”) and with Timothy C. Huffmyer, who, at that time was the Company's Chief Operating Officer, Chief Financial Officer, and Treasurer and is currently the Company’s President and Chief Executive Officer (“Huffmyer”). Pursuant to the September 11, 2025 Note Agreements, Smith agreed to loan to the Company an amount not to exceed approximately $0.7 million and Huffmyer agreed to loan to the Company an amount not to exceed $0.1 million, in each case in return for one or more secured promissory notes (the “September 11, 2025 Notes”) and accompanying unregistered common stock purchase warrants. The September 11, 2025 Notes are secured by the Company’s accounts receivable and certain other assets, bear interest at a rate of 15.0% per annum, and are due on or before March 31, 2026, unless otherwise mutually agreed to by the parties. The transactions were approved by an independent committee of the Company’s Board of Directors and the Company’s Audit Committee.

Each September 11, 2025 Note was accompanied by the issuance by the Company of an unregistered warrant (each, “September 11, 2025 Warrant”) to purchase up to a number of shares of the Company’s Common Stock equal to the principal amount of such September 11, 2025 Note divided by the Market Price (as defined under Nasdaq regulations) of the Company’s Common Stock on the date of issuance of the note (the “September 11, 2025 Warrant Shares”). The Company received an amount equal to $0.125 per September 11, 2025 Warrant Share for each September 11, 2025 Warrant issued. Each September 11, 2025 Warrant is exercisable at any time beginning six (6) months following its original issuance, will expire five years from the initial exercise date and has an exercise price equal to the greater of the Market Price on the date of the September 11, 2025 Note Agreement or on the date of issuance of the warrant. The September 11, 2025 Warrants contain a “full-ratchet” anti-dilution adjustment, such that the exercise price will be adjusted if the Company issues Common Stock (or Common Stock equivalents) at a price below the exercise price of the Warrants. The number of shares issuable upon exercise of the September 11, 2025 Warrants will then be proportionately adjusted. Additionally, in the event of a reverse stock split, the exercise price of each September 11, 2025 Warrant is subject to adjustment (along with a proportionate adjustment in the number of shares) if the market price of the Common Stock is less than the exercise price of the September 11, 2025 Warrants (after giving effect to the split) during a period before and after the effective date of the reverse split. However, no adjustment to the exercise price (or proportional adjustment to the number of shares) will be made under the “full-ratchet” adjustment or the anti-dilution adjustment, unless and until the Company has received approval from the Company’s stockholders in accordance with Nasdaq Listing Rule 5635. The shareholders of the Company will vote on a proposal with respect to such approval at its annual meeting in June 2026.

The Company and Smith completed an initial closing of the transactions contemplated by the September 11, 2025 Note Agreements on September 11, 2025, and the Company completed subsequent closings with each of Smith and Huffmyer on September 17, 2025. The gross proceeds to the Company from the closings with Smith totals approximately $0.8 million (comprised of approximately $0.7 million as a loan and approximately $0.1 million for the purchase of the accompanying September 11, 2025 Warrants) and the gross proceeds to the Company from the closing with Huffmyer totals approximately $0.1 million (comprised of approximately $85 thousand as a loan and approximately $15 thousand for the purchase of the accompanying September 11, 2025 Warrants), in each case, before deducting transaction expenses payable by the Company. Pursuant to the September 11, 2025 Note Agreements, the Company has filed a registration statement with the SEC registering the September 11, 2025 Warrant Shares for resale, which registration statement was declared effective on December 12, 2025. 

September 29, 2025 Note Purchase Agreement

On September 29, 2025, the Company entered into a note purchase agreement (the  “September 29, 2025 Note Agreement”) with certain accredited investors (“Purchasers”), pursuant to which the Purchasers agreed to provide loans in an aggregate amount of $0.4 million, of which $0.3 million was received and recorded on September 30, 2025, and the remaining $0.1 million was received by October 2, 2025 and recorded in the fourth quarter, in each case, in return for a secured promissory note (collectively, the “September 29, 2025 Notes”) and an accompanying unregistered common stock purchase warrant (collectively, the “September 29, 2025 Warrants”). The September 29, 2025 Notes have substantially the same terms as the September 11, 2025 Notes.

Each September 29, 2025 Note was accompanied by the issuance of a warrant to purchase up to a number of shares of the Company’s Common Stock equal to the principal amount of such Note divided by the Market Price (as defined under Nasdaq regulations) of the Company’s Common Stock on the date of issuance (the “September 29, 2025 Warrant Shares”). Each September 29, 2025 Warrant is exercisable at any time beginning six (6) months following its original issuance, will expire five years from the initial exercise date, and has an exercise price equal to the greater of $0.73 or the Market Price on the date of issuance of the warrant. The September 29, 2025 Warrants contain a “full-ratchet” anti-dilution adjustment, such that the exercise price will be adjusted if the Company issues Common Stock (or Common Stock equivalents) at a price below the exercise price of the warrants. The number of shares issuable upon exercise of the September 29, 2025 Warrants will then be proportionately adjusted. Additionally, in the event of a reverse stock split, the exercise price of each September 29, 2025 Warrant is subject to adjustment (along with a proportionate adjustment in the number of shares) if the market price of the Common Stock is less than the exercise price of the September 29, 2025 Warrants (after giving effect to the split) during a period before and after the effective date of the reverse split. However, no adjustment to the exercise price (or proportional adjustment to the number of shares) will be made under the “full-ratchet” adjustment or the anti-dilution adjustment, unless and until the Company has received approval from the Company’s stockholders in accordance with Nasdaq Listing Rule 5635. Pursuant to the September 29, 2025 Note Agreement, the Company filed a registration statement with the SEC registering the September 29, 2025 Warrant Shares for resale, which registration statement was declared effective December 12, 2025.

The Company received total cash proceeds from the  September 11, 2025 Note Purchase Agreements and the September 29, 2025 Note Purchase Agreement of approximately $1.2 million in 2025. Furthermore, the proceeds were allocated to the notes and their 1,512,934 equity-classified warrants on a relative fair value basis, resulting in a debt discount of approximately $0.4 million which is being amortized over the term of the agreements using the effective interest method. This resulted in an immaterial amount of amortization expense in 2025. The valuation of the equity-classified warrants was based on a Black-Scholes model at inception. The following assumptions were utilized in the Black Scholes option pricing model in 2025: common stock market price of $0.72 to $0.73, risk-free interest rate of 3.6% - 3.7%, expected volatility of 88.67% - 89.81%, and expected term of 5.5 years. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of valuation. Expected volatility is based on the historical volatility over the expected remaining term of the warrants. The Company has no reason to believe future volatility over the expected remaining life of the warrants is likely to differ materially from historical volatility. Expected life is based on the term of the applicable warrants.

February 3, 2026 Note Purchase Agreement

On February 3, 2026, the Company entered into a Note Purchase Agreement (the  “February Note Agreement”) with the Smith Living Trust. Pursuant to the February Note Agreement, Smith agreed to loan funds to the Company in return for one or more secured promissory notes (in each case, a “February Note”) and accompanying unregistered common stock purchase warrants (in each case, a “February Warrant”). The February Note Agreement provides that each February Note will be secured by the Company’s accounts receivable and certain other assets, will bear interest at a rate of 15.0% per annum, and will be due on or before March 31, 2026 (the “Maturity Date”), unless otherwise mutually agreed by the parties. Pursuant to the February Note Agreement, each February Note will be accompanied by the issuance of a February Warrant to purchase shares of the Company’s Common Stock, which will be exercisable at any time beginning six months following its original issuance, will expire five years from the initial exercise date and will have an exercise price equal to the greater of (a) $0.68 and (b) the greater of the market price of the Company’s Common Stock on the date of the February Note Agreement or on the date of issuance.  On February 3, 2026, the Company and Smith completed a closing of a loan transaction under the February Note Agreement, and the Company issued a February Note and a February Warrant to Smith. The February Warrant has an exercise price of $0.68 and will be exercisable during the period beginning August 3, 2026 and ending August 3, 2031. The transaction was approved by the Company’s Board of Directors and the Company’s Audit Committee.

The gross proceeds to the Company from the closing totals approximately $1,000,000 (comprised of approximately $814,979 as a loan and approximately $185,021 for the purchase of the accompanying Warrant). Furthermore, the proceeds were allocated to the notes and their 1,512,934 equity-classified warrants on a relative fair value basis, resulting in a debt discount of approximately $0.4 million which is being amortized over the term of the agreement using the effective interest method. The valuation of the equity-classified warrants was based on a Black-Scholes model at inception. The following assumptions were utilized in the Black Scholes option pricing model at inception: common stock market price of $0.54, risk-free interest rate of 3.8%, expected volatility of 89%, and expected term of 5.5 years. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of valuation. Expected volatility is based on the historical volatility over the expected remaining term of the warrants. The Company has no reason to believe future volatility over the expected remaining life of the warrants is likely to differ materially from historical volatility. Expected life is based on the term of the applicable warrants.

March 4, 2026 Securities Purchase Agreement

On March 4, 2026, the Company entered into a Securities Purchase Agreement for the sale of Secured Convertible Notes (the “2026 Convertible Notes”) with an aggregate original principal amount of $4.9 million and an initial conversion price of $0.68 per share, subject to adjustment, and warrants to acquire up to an aggregate amount of approximately 9.4 million additional shares of the Company's common stock, which will be exercisable at any time beginning six months following its original issuance, will expire five years from the initial exercise date and will have an exercise price equal to $0.68. The Smith Living Trust and Timothy C. Huffmyer were among the buyers in the offering, in addition to certain other noteholders from the September 29, 2025 Note Purchase Agreement. The Company agreed to use the proceeds of the offering to repay in full the principal and interest outstanding under those certain Notes due on March 31, 2026 in the aggregate amount of up to $2.2 million plus any additional interest amounts that may have accrued in connection with the extension of the maturity date under the existing notes and for general corporate purposes. The 2026 Convertible Notes mature on March 31, 2029; however, this date may be extended at the option of the holder.

The 2026 Convertible Notes accrue interest at the rate of 8.0% per annum. Upon the occurrence and during the continuance of an Event of Default (as defined in the 2026 Convertible Notes), the 2026 Convertible Notes will accrue interest at the rate of 12.0% per annum. The Convertible Notes are payable in equal monthly installments of approximately $7,000 per each $1,000,000 of principal outstanding, and are effectively interest only, beginning on May 1, 2026 and ending on the Maturity Date, at which time any unconverted or unpaid principal amounts would be due. Installment amounts shall be applied first to accrued interest under the Convertible Notes, with any amounts in excess of accrued interest being applied to outstanding principal. The Company will not be required to pay any installment amount to the extent such amount is less than one thousand dollars ($1,000). In such event, the Company may defer payment to the holder until the next applicable installment date, provided that (i) at such time the accrued installment amount due on such date is at least one thousand dollars ($1,000) and (ii) principal remains outstanding for the purposes of accruing interest. The Company will be permitted to prepay the outstanding principal and accrued or unpaid interest upon not less than thirty (30) days prior written notice to the holder. At any time after the sixth month anniversary of the issuance of the 2026 Convertible Notes, each 2026 Convertible Note will be convertible, at the option of the holder, into shares of the Company's common stock at an initial conversion price equal to $0.68, which is subject to standard adjustments. 

The offering was approved by the Company’s Board of Directors and the Company’s Audit Committee and closed on March 6, 2026, and March 10, 2026. The aggregate gross proceeds from the offering were $4.9 million, of which $1.9 million was utilized to repay in full the principal and interest outstanding under certain notes due on March 31, 2026, which then cancelled the notes. The remaining $0.2 million of certain notes due on March 31, 2026 were subsequently repaid in cash.  In connection with the transactions with Smith and Huffmyer, as well as other warrant holders who followed the same terms in this related-party led transaction, the Company did not recognize any gain or loss in connection with the extinguishment of such amounts, as the transactions were viewed as contributions to equity totaling $0.5 million. 

The relative fair value allocated to the 9,402,551 equity-classified warrants resulted in a debt discount of approximately $2.5 million which is being amortized over the term of the agreements using the effective interest method at a rate of 36.8%. The valuation of the equity-classified warrants was based on a Black-Scholes model at inception. The following assumptions were utilized in the Black-Scholes option pricing model at inception: common stock market price of $0.48 to $0.54, risk-free interest rate of 3.7%, expected volatility of 90%, and expected term of 5.5 years. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of valuation. Expected volatility is based on the historical volatility over the expected remaining term of the warrants. The Company has no reason to believe future volatility over the expected remaining life of the warrants is likely to differ materially from historical volatility. Expected life is based on the term of the applicable warrants. 

As of March 31, 2026, the remaining unamortized debt discount was $3.0 million. In the three months ended March 31, 2026, total interest expense for these notes was $0.5 million, inclusive of approximately $0.4 million of amortization of debt discount with the remainder related to contractual interest.  

Deemed Dividends

In connection with the issuance of the September 11, 2025 Warrants with an exercise price of $0.73, pursuant to the full-ratchet anti-dilution provisions of the July 2025 Warrants, the exercise price of each of the July 2025 Warrants was adjusted from $1.20 to $0.73 and the aggregate number of warrant shares underlying the July 2025 Warrants increased from 1,612,903 to 2,651,348.  As a result, the Company recorded a deemed dividend of $0.6 million and a reduction in income available to common shareholders in the Basic EPS calculation. In accordance with U.S. GAAP, the incremental fair value of the warrants resulting from the decrease in the exercise price and the increase in the number of warrant shares was measured using Black-Scholes valuation models at the time of the event. The following assumptions were utilized in the Black-Scholes option pricing model: common stock market price of $0.73, risk-free interest rate of 3.6%, expected volatility of 90.7%, and expected term of 4.85 years. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of valuation. 

Further, in connection with the issuance of the November 5, 2025 Common Stock at $0.6708 and Warrants with an exercise price of $0.6708, the exercise price of each of the July 2025 Warrants was further adjusted from $0.73 to $0.6708 and the aggregate number of warrant shares underlying the July 2025 Warrants increased from 2,651,348 to 2,885,339. As a result, the Company recorded a deemed dividend of $0.1 million and a reduction in income available to common shareholders in the Basic EPS calculation. In accordance with U.S. GAAP, the incremental fair value of the warrants resulting from the decrease in the exercise price and the increase in the number of warrant shares was measured using Black-Scholes valuation models at the time of the event. The following assumptions were utilized in the Black-Scholes option pricing model: common stock market price of $0.66, risk-free interest rate of 3.8%, expected volatility of 94%, and expected term of 4.70 years. 

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of valuation. Expected volatility is based on the historical volatility over the expected remaining term of the warrants. The Company has no reason to believe future volatility over the expected remaining life of the warrants is likely to differ materially from historical volatility. Expected life is based on the term of the applicable warrants.

The warrants issued pursuant to the September 11, 2025 Note Purchase Agreements and the September 29, 2025 Note Purchase Agreement are also subject to the same provisions, however, no adjustment to the exercise price (or proportional adjustment to the number of shares) was made nor will be made unless and until the Company has received approval from the Company’s stockholders in accordance with Nasdaq Listing Rule 5635. 

Warrant Liabilities 

On August 11, 2022, the Company issued warrants (the "Notes Warrants") to purchase Common Stock in conjunction with a senior secured convertible notes (the "Notes") and warrants offering (the "Notes and Warrants Offering"), at an initial fair value of $3.8 million. The Notes sold by the Company in the Notes and Warrants Offering were subsequently retired upon maturity at December 31, 2023. The exercise price of and number of shares underlying the Notes Warrants were immediately proportionately adjusted pursuant to the April 2024 Reverse Stock Split to $26.80 and 279,851 shares, respectively, and on May 2, 2024, the exercise price for each of the Notes Warrants was further adjusted to $2.06 in accordance with their terms.

The Company issued additional warrants (the "Additional Warrants") to purchase Common Stock on August 12, 2022 in conjunction with a registered direct offering for the sale of shares of the Company's Common Stock and the Additional Warrants. The Additional Warrants do not reprice further beyond the immediate proportionate adjustments to the per share exercise price and number of shares issuable of $21.20 and 141,509 shares, respectively, that occurred upon and as a result of the April 2024 Reverse Stock Split.

All changes in the fair value of the Notes Warrants and Additional Warrants liabilities are recognized in the Company's consolidated statements of operations until they are either exercised or expire. Since their issuance, none of the Notes Warrants or Additional Warrants have been exercised. The Notes Warrants and Additional Warrants are not traded in an active securities market and, as such, the estimated fair value is determined by using a Black-Scholes option pricing model which considers the likelihood of repricing adjustments and utilizes assumptions noted in the following table. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of valuation. Expected volatility is based on the historical volatility over the expected remaining term of the warrants. The Company has no reason to believe future volatility over the expected remaining life of the Notes Warrants and Additional Warrants is likely to differ materially from historical volatility. Expected life is based on the term of the applicable warrants. Below are the specific assumptions utilized (unaudited, except for  December 31, 2025):

Notes Warrants	March 31, 2026			December 31, 2025
Common stock market price	$	0.72		$	0.54
Risk-free interest rate		3.7	%		3.5	%
Expected dividend yield		—			—
Expected term (in years)		1.36			1.61
Expected volatility		98.7	%		119.9	%

Additional Warrants	March 31, 2026			December 31, 2025
Common stock market price	$	0.72		$	0.54
Risk-free interest rate		3.7	%		3.5	%
Expected dividend yield		—			—
Expected term (in years)		1.87			2.12
Expected volatility		116.1	%		116.0	%