NOTE 10 – PREFERRED STOCK

Series C Private Placement

On August 17, 2025, the Company entered into the Series C Private Placement Agreement with the Investors, pursuant to which it agreed to sell to the Investors in a private placement (the “Series C Private Placement”) (i) an aggregate of 7,000 shares of the Company’s newly designated Series C convertible preferred stock, par value $0.0001, with a stated value of $1,000 per share (the “Series C Preferred Stock”), initially convertible into up to 7,000,000 shares of the Company’s common stock, par value $0.0001 per share at an initial conversion price of $1.00 and (ii) the Series C Preferred Warrants to purchase up to an aggregate of 7,000,000 shares of Common Stock. The closing of the Private Placement occurred on August 19, 2025. The aggregate gross proceeds from the Private Placement totaled $7,000,000.

In connection with the Series C Private Placement, pursuant to an Engagement Letter (the “Engagement Letter”) between the Company and the Placement Agent, the Company has agreed to pay the Placement Agent (i) a cash fee equal to 8.0% of the gross proceeds from the Series C Private Placement, and (ii) warrants to purchase shares of Common Stock equal to 8.0% of the number of shares of common stock that the Preferred Stock are initially convertible into, with an exercise price of $1.00 per share and a five-year term. Further, pursuant to the Engagement Letter, the Placement Agent is entitled to compensation with respect to any financing of the Company occurring during the term of the Engagement Letter or within twelve months thereafter when such financing is provided by investors whom the Placement Agent introduced to the Company. In addition, for any warrants of the Company that are issued to investors who are introduced to the Company by the Placement Agent in the Private Placement or were previously issued in connection with the Company’s May 2023 private placement, and are exercised during the term of the Engagement Letter, the Company shall pay the Placement Agent a cash fee equal to 8.0% of the net proceeds received by the Company from such warrant exercises.

Transaction costs totaling $1,234,553 were incurred related to the Series C Private Placement consisting of cash expenses for placement agent fees, legal fees, and accounting costs related to the financing, as well as the fair value of the warrants issued to the Placement Agent, of which $86,419 was included in accounts payable on the condensed consolidated balance sheet as of October 31, 2025. These costs were proportionately allocated to the Series C Preferred Stock and the Series C Warrants based on the allocated gross proceeds of the instruments. Accordingly, none of the transaction costs were allocated against the carrying value of the Preferred Stock and the total of $1,234,553 of transaction costs were immediately expensed related to the Series C Warrants which are accounted for as liabilities in accordance with ASC 815, and the bifurcated derivative related to the Series C Preferred Stock, which is included as a Series C preferred stock and warrants issuance costs on the condensed consolidated statement of operations for the three and six months ended October 31, 2025. Net proceeds from the Series C Private Placement totaled $6,182,447.

Series C Preferred Stock

The terms of the Series C Preferred Stock are as set forth in the form of Certificate of Designations (the “Certificate of Designations”). The Series C Preferred Stock are convertible into shares of Common Stock (the “Conversion Shares”) at the election of the holder at any time at an initial conversion price of $1.00 (the “Conversion Price”). The Conversion Price is subject to customary adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of Common Stock, or securities convertible, exercisable or exchangeable for Common Stock, at a price below the then-applicable Conversion Price (subject to certain exceptions). The conversion price was reduced to $0.95 after issuance pursuant to the full ratchet anti-dilution provisions contained in the Certificate of Designations.

The holders of the Series C Preferred Stock will be entitled to dividends of 7% per annum, compounded quarterly, which will be payable in cash. Upon the occurrence and during the continuance of a Triggering Event (as defined in the Certificate of Designations), the Series C Preferred Stock will accrue dividends at the rate of 15% per annum. The holders of Series C Preferred Stock are entitled to vote with holders of the Common Stock as a single class on all matters that holders of Common Stock are entitled to vote upon, with the number of votes per Series C Preferred Share equal to the stated value of such Series C Preferred Share divided by the then applicable Conversion Price; provided, however that in no event shall the then applicable Conversion Price be less than the “Minimum Price” (as defined in Nasdaq Listing Rule 5635) on the date immediately prior to the date of the Purchase Agreement. 

In October 2025, the Company held a special meeting of stockholders (the “2025 Special Meeting”). At the 2025 Special Meeting, the stockholders of the Company approved, for purposes of complying with Nasdaq Listing Rule 5635(d), (the “Exchange Cap”) the issuance of shares of Common Stock underlying the Series C Preferred Stock and Series C Warrants, which allows the Company to settle all Series C Preferred Stock conversions into shares of Common Stock. The Series C Certificate of Designations contains a certain beneficial ownership limitation after giving effect to the issuance of shares of Common Stock issuable upon conversion of the Series C Preferred Stock or Series C Warrants.

The Company obtained stockholder approval to remove the Exchange Cap on October 30, 2025, upon which event the conversion floor price was adjusted to $0.19.

The Series C Certificate of Designations includes certain Triggering Events (as defined in the Series C Certificate of Designations), including, among other things, the Company’s failure to pay any amounts due to the holders of the Series C Preferred Stock when due. In connection with a Triggering Event, each holder of Series C Preferred Stock will be able to require the Company to redeem in cash any or all of the holder’s Series C Preferred Stock at a premium set forth in the Series C Certificate of Designations.

The Series C Preferred Shares were determined to be more akin to a debt-like host than an equity-like host. The Company identified certain embedded features that were deemed not to be clearly and closely related to the debt host instrument and were therefore bifurcated as a derivative under ASC 815. These features were bundled together, assigned probabilities of being affected and measured at fair value. Subsequent changes in fair value of these features are recognized in the condensed consolidated statement of operations. The Company estimated the $1,995,000 fair value of the compound bifurcated embedded derivative at issuance using a probability-weighted scenario model, with the following inputs: the fair value of the Company’s common stock of $1.01 on the issuance date, estimated equity volatility of 60.0%, the time to maturity of 1.50 years, the maturity redemption premium of 106%, the liquidation premium of 125%, a market interest rate of 16.92%, a risk-free rate of 3.76%, and dividend rate of 7.00%. The fair value of the bifurcated derivative liability was estimated utilizing the with and without method which uses the probability weighted difference between the scenarios with the derivative and the plain vanilla scenario without a derivative.

The discount to the fair value is included as a reduction to the carrying value of the Series C Preferred Stock. During the three months ended October 31, 2025, the Company recorded a total discount of $7,000,000 upon issuance of the Series C Preferred Stock, which was comprised of the issuance date fair value of the associated embedded derivative of $1,995,000 and the difference between the remaining gross proceeds after allocation to the derivative liability and the residual fair value of the Series C Preferred Shares of $5,005,000, which represents the portion of the total of the Series C Warrant liability of $5,220,000 allocated to the discount. As the fair value of the liabilities required to be subsequently measured at fair value exceeded the net proceeds received, the Company recognized the excess of the fair value over the net proceeds received as a loss upon issuance of preferred stock of $215,000 which is included in other income (expense) in the condensed consolidated statement of operations for the three and six months ended October 31, 2025. As of October 31, 2025, it is probable that the Series C Preferred Stock will be redeemed. In accordance with ASC 480-10-S99-3A, the Company is accreting the discount using the effective interest method and $901,996 was recorded as a deemed dividend during the three and six months ended October 31, 2025.

During the three and six months ended October 31, 2025, the Company recorded a gain of $302,000 related to the change in fair value of the derivative liability which is recorded in other income (expense) on the condensed consolidated statements of operations. The Company estimated the $1,693,000 fair value of the bifurcated embedded derivative at October 31, 2025 using a probability-weighted scenario model, with the following inputs: the fair value of the Company’s common stock of $0.93 on the measurement date, estimated equity volatility of 65.0%, the time to maturity of 1.30 years, the maturity redemption premium of 106%, the liquidation premium of 125% a market interest rate of 12.15%, a risk-free rate of 3.60%, and dividend rate of 7.00%. The fair value of the bifurcated derivative liability was estimated utilizing the with and without method which uses the probability weighted difference between the scenarios with the derivative and the plain vanilla scenarios without a derivative.

During the three months ended October 31, 2025, the Company recognized a total of $96,639 of preferred dividends at the stated dividend rate, of which $61,250 were paid in cash and $35,389 are accrued in accrued Series C Preferred Stock and dividends on the condensed consolidated balance sheet as of October 31, 2025.