v3.26.1
CONVERTIBLE NOTES PAYABLE
 12 Months Ended
Dec. 31, 2025
Debt Disclosure [Abstract]  
CONVERTIBLE NOTES PAYABLE

10. CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable were comprised of the following:

                      
   Conversion
price per
share		  Interest
rate		  Effective
rate(1)		  Due
date		  December
31, 2025		   December
31, 2024		 
SJC convertible promissory note  80% of 10-day VWAP  12%  21%  October 29,2026  $440,000   $- 
Fair value of embedded conversion options               150,000    - 
Less: unamortized debt discounts               33,000    - 
Total convertible notes payable, net of financing cost, long-term              $557,000   $- 
Less: current portion               557,000      
Convertible notes payable, net of financing cost – long-term portion              $-   $- 

(1)Includes OID costs that are amortized to interest expense over the life of the notes.

 

SJC Convertible Promissory Note

 

On October 29, 2025, the Company entered into a Securities Purchase Agreement (“Agreement”) with SJC Lending LLC ("SJC"), pursuant to which the Company agreed to sell to SJC convertible promissory notes in the aggregate principal amount of up to $ 1,650,000 (the "Convertible Notes") for a total purchase price of up to $ 1.5 million (the "Loan"). The Agreement provides that the Loan shall be conducted through seven (7) separate tranche closings, provided, that SJC has the ability, exercisable in its sole discretion, to accelerate its purchases of Convertible Notes prior to the dates of the tranche closings provided for in the Agreement (See Note 17).

 

Pursuant to the Agreement, the initial tranche closing, which occurred on October 29,2025, consisted of the issuance of a Convertible Note to SJC in the principal face amount of $440,000 for a purchase price of $400,000. The Convertible Note accrues interest at 12% per annum and will mature October 28, 2026. The note was issued with an original issue discount of 10%.

 

SJC entered into various collateral agreements in support of the convertible notes including (i) an intellectual property security agreement pursuant to which the Company and its subsidiaries granted SJC a continuing security interest in certain trademarks, copyrights, patents and mask works (ii) a security agreement pursuant to which the Company and its subsidiaries granted SJC a security interest in substantially all of their respective assets as collateral for repayment of the convertible notes and (iii) a pledge agreement pursuant to which the Company pledged the capital stock of the Company’s subsidiaries as additional collateral.

 

Embedded Derivative

 

The Company identified embedded derivative features within certain convertible promissory notes issued on October 29, 2025, that required bifurcation and separate accounting as derivative liabilities under Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging Activities. Specifically, the embedded conversion options associated with the SJC convertible promissory note was determined to meet the criteria for derivative classification.

 

The fair value of the embedded derivative liabilities was estimated using a Monte Carlo simulation model. The model incorporates key assumptions including the Company’s stock price, risk-free interest rate, expected volatility, credit-risk adjusted discount rate, and the specific terms of each conversion feature (including floor price, cap, and VWAP-based pricing). Due to the significant use of unobservable inputs, these derivative liabilities are classified within Level 3 of the fair value hierarchy.

 

The following table summarizes the key inputs used in the valuation of the embedded derivatives at inception and on December 31, 2025:

          
Assumption  October 29, 2025   December 31, 2025 
 Valuation technique  Monte Carlo Simulation   Monte Carlo Simulation 
 Risk-free interest rate (cont. comp.)   4%   3%
 Expected volatility   95%   105%
 Credit-risk adjusted rate   22%   26%
 Time to maturity (years)   1    0.83 
 Stock price at valuation date  $0.05   $0.07 
 Dividend yield   0.00%   0.00%

 

The Monte Carlo simulation utilized 100,000 iterations and incorporated conversion mechanics, including the floor price and the VWAP-based conversion price as defined in the agreement. The incremental value attributable to the conversion feature was isolated to determine its impact on the overall fair value of the embedded option.