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CONVERTIBLE NOTES
 3 Months Ended
Jun. 30, 2026
CONVERTIBLE NOTES  
CONVERTIBLE NOTES

9.CONVERTIBLE NOTES

2026 Convertible Notes

On June 12, 2026, the Company entered into a Securities Purchase Agreement (the “2026 SPA”) with SJC Lending, LLC (“SJC”), pursuant to which the Company agreed to sell to SJC 8% convertible promissory notes in up to eleven (11) separate closings in an aggregate principal amount of up to $10,600,000. The first tranche closed on June 12, 2026 (the “2026 Notes”) and consisted of a convertible note in the principal amount of $1,060,000, reflecting a 6% original issue discount of $60,000, issued for a purchase price of $1,000,000. The Company paid $30,000 from the proceeds for legal fees and expenses related to the 2026 Notes.

The 2026 Notes mature on June 12, 2027, if not previously converted, and are convertible into shares of common stock at a discounted price equal to 80% of the lowest volume weighted average price occurring during the five trading days immediately preceding the conversion date. The 2026 Notes bear interest at 8% of face amount, compounded daily, and the Company recorded $4,240 of interest for the three months ended June 30, 2026. The $60,000 original issue discount and the $309,000 initial fair value of the bifurcated conversion feature described below were recorded for a total debt discount of $369,000, resulting in an initial carrying value of the 2026 Notes of $691,000. The debt discount is accreted to interest expense over the term of the 2026 Notes using the effective interest method, at an effective rate of approximately 66% per annum, determined by solving for the rate that equates the initial net carrying value of $691,000 to the $1,148,274 of principal and compounded interest due at maturity. For the period from issuance through June 30, 2026, the Company recorded approximately $14,000 of debt discount amortization as interest expense, representing the excess of the effective-interest charge over the stated 8% accrual, for total interest expense of $18,240. As of June 30, 2026, the unamortized debt discount was $355,000 and the carrying value of the 2026 Notes, net of discount, was $709,240.

The conversion feature of the 2026 Notes is bifurcated and accounted for as a derivative liability. The 2026 Notes are recorded net of the fair value of the derivative component on the date of issuance, with subsequent changes in fair value recognized as a gain or loss in

each reporting period within “Other income (expense)” in the condensed consolidated statement of operations. The derivative component was measured on the date of issuance using the Monte Carlo simulation model, and an original derivative liability of $309,000 was recorded on June 12, 2026. The fair value of the derivative liability was $263,000 as of June 30, 2026. Other income of $46,000 was recorded during the three months ended June 30, 2026, reflecting the change in the fair value of the derivative component from the date of issuance of the 2026 Notes through June 30, 2026.

2025 Convertible Notes

On August 13, 2025, the Company entered into a Securities Purchase Agreement (the “2025 SPA”) with SJC, pursuant to which the Company agreed to sell to SJC 8% convertible promissory notes in three separate closings in an aggregate principal amount of $2,750,000. In August and September 2025, the Company issued convertible promissory notes (the “2025 Notes”) to SJC for the full aggregate principal amount of $2,750,000, for total cash proceeds of $2,500,000. The 2025 Notes were scheduled to mature in August and September 2026 and were convertible into common stock at 80% of the lowest volume weighted average price during the ten business days preceding conversion. Refer to Note B of the 2026 Annual Report for additional details regarding the 2025 Notes and the 2025 SPA.

On May 15, 2026, $842,631 of principal and $44,241 of accrued interest under the 2025 Notes were converted into 185,576 shares of the Company’s common stock. Interest expense related to the 2025 Notes, including $48,820 of amortization of the original issue discount, totaled $57,287 for the three months ended June 30, 2026. Following the conversion and as of June 30, 2026, the 2025 Notes had a $0 balance outstanding. The Company recognized $104,635 of other income during the three months ended June 30, 2026 for the change in fair value of the 2025 Notes derivative.

Embedded Derivatives

Under the provisions of ASC 815-40-15, Entity’s Own Equity - Scope and Scope Exceptions (“ASC 815-40-15”), we determined that the conversion features embedded in our outstanding notes are not considered indexed to our own common stock, principally because the conversion price varies with the market price of our common stock (a discount to the volume weighted average price) rather than being fixed. As a result, these features do not qualify for the scope exception in ASC 815-10-15-74(a), and are bifurcated from the host debt and accounted for as derivative instruments, which are recognized as liabilities on our condensed consolidated balance sheets and measured at fair value, with changes in fair value recognized in earnings.

The 2026 Notes have been accounted for under the amortized cost method, with the derivative component bifurcated and recorded at fair value pursuant to ASC 815-40-15. The fair value of the derivative liability, measured using the Monte Carlo simulation model (Level 3), was $309,000 on June 12, 2026.

At June 12, 2026 and June 30, 2026, the assumptions used to measure the fair value of the derivative embedded in the 2026 Notes, using the Monte Carlo simulation model, included an exercise price of $4.88 and $3.62 per share, respectively, common share market prices of $6.10 and $4.59, respectively, a discount rate of 34.7%, and volatility rates of 90% and 95%, respectively.

We measured the fair value of the derivative portion of the 2025 Notes by using the Binomial Valuation model. As of March 31, 2026, the assumptions used to measure fair value of the liability embedded in our outstanding notes included an exercise price of $3.92 per share, a common share market price of $5.16, a discount rate of 3.53% and 3.51%, and a volatility of 85% and 80% respectively, for the notes issued in August and September 2025.