Company: SMNR
Filing Date: 2025-04-02
Form Type: 10-K
Source: 0001213900-25-027319
Chunk: 207

Company: Semnur Pharmaceuticals, Inc.
Filing Date: 2025-04-02
Form: 10-K
Item: Item 1A
Chunk 207
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 shares upon conversion; c) no initial net investment, which typically excludes the amount
borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion
can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated
from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity.
The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in shareholders’ equity in its
statement of financial position.

If
the conversion feature within convertible debt meets the requirements to be treated as a derivative, the Company estimates the fair value
of the embedded derivative using the Black Scholes method upon the date of issuance. If the fair value of the embedded derivative is
higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. The derivative shall be
recorded at fair value as liability and the carrying value assigned to the host contract represents the difference between the previous
carrying amount of the hybrid instrument and the fair value of the derivative; therefore, there is no gain or loss from the initial recognition
and measurement of an embedded derivative that is accounted for separately from its host contract.

The
ASU changes the accounting for convertible instruments by reducing the number of accounting models. It requires convertible debt instruments
to be accounted for under one of the following three models: embedded derivative, substantial premium, or no proceeds allocated (traditional
debt) models. It eliminates the cash conversion and beneficial conversion feature models, which will likely result in more convertible
debt instruments being accounted for as a single unit.

The
conversion feature in convertible promissory notes issued by the Company in for the year ended December 31, 2024 and 2023 does not qualify
for either the derivative treatment. These convertible promissory notes are presented as traditional debt as of December 31, 2024 and
2023, in the consolidated balance sheets.

Class
A Ordinary Shares Subject to Possible Redemption

The
Company accounts for its Class A ordinary shares subject to possible redemption in accordance with ASC 480. Class A ordinary shares subject
to mandatory redemption (if any) are classified as a liability instrument and measured at fair value. Conditionally redeemable ordinary
shares (including shares that feature redemption rights that are either within the control of the holder or subject to redemption upon
the occurrence of uncertain events not