v3.26.1
Convertible Notes, Promissory Notes Payable and Debt Extinguishment
 6 Months Ended
Jun. 30, 2026
Convertible Notes, Promissory Notes Payable and Debt Extinguishment [Abstract]  
CONVERTIBLE NOTES, PROMISSORY NOTES PAYABLE AND DEBT EXTINGUISHMENT
11. CONVERTIBLE NOTES, PROMISSORY NOTES PAYABLE AND DEBT EXTINGUISHMENT

 

The following table summarizes outstanding convertible notes and promissory notes payable as of June 30, 2026, and December 31, 2025.

 

    June 30,     December  31,  
    2026     2025  
Convertible Notes - Maturity Date            
March 31, 2026 (15% per annum)   $ -     $ 2,020,000  
August 31, 2026 (15% per annum)     2,020,000       -  
Promissory Notes - Maturity Date                
January 31, 2026 (18% per annum)     -       550,000  
June 30, 2026 (12% per annum)     -       500,000  
April 30, 2026 (8% per annum)     -       125,000  
June 30, 2026 (12% per annum)     -       1,117,500  
August 31, 2026 (12% per annum)     75,000       -  
August 31, 2026 (18% per annum)     625,000       -  
December 31, 2026 (12% per annum)     225,000       -  
Total Notes Payable     925,000       2,292,500  
Total Convertible and Promissory Notes Payable     2,945,000       2,292,500  
Unamortized debt discount     -       (1,982,244 )
Net Debt     2,945,000       2,330,256  
Current portion     (2,945,000 )     (2,330,256 )
Net long-term portion     -       -  
Interest Payable     313,212       265,350  

 

During six months ended June 30, 2026, the Company completed private placements, raising $1,980,000 with each unit consisting of an unsecured promissory note of 18% interest and five-year warrants for Class A Common Stock; 1,320,000 warrants were issued at a weighted average exercise price of $1.50.

 

Repayment of Debt

 

During the six months ended June 30, 2026, the Company repaid $25,000 of outstanding principal and $3,447 of accrued interest on its promissory notes, for total cash payments of $28,447. These repayments reduced the Company’s outstanding notes payable balance and were made in accordance with the terms of the applicable note agreements.

 

Debt Extinguishment and Common Stock Issued

 

During the six months ended June 30, 2026, the Company converted $3,322,500 in principal and $288,085 in interest into equity through warrant exercises, issuing 1,797,164 of Class A Common Stock shares at a $1.83 average price. The Company recorded a $10,420,483 conversion loss, reflecting the difference between market value and exercise price.

 

These amounts are presented as supplemental disclosure in the “Non-Cash Investing and Financing Activities” section of the Condensed Consolidated Statement of Cash Flows.

 

The relative fair value of the warrants issued in conjunction with the notes payable was treated as a debt discount, with a corresponding offsetting credit to Additional Paid-in Capital (APIC). This discount is being amortized to interest expenses over the term of the notes.

 

Derivative Liabilities

 

The fair values of the conversion option of outstanding convertible notes payable were determined to be derivative liabilities under ASC 815 due to the default on convertible notes payable disclosed above, which resulted in a variable conversion price on the outstanding convertible note payable. The fair value of the derivative liabilities was $1,974,046 as of December 31, 2025, estimated using the Black-Scholes option pricing model with the following assumptions: stock price of $3.50 per share, an expected life of 9 months, expected volatility of 73%, an average risk-free rate of 3.5% and no dividend yield. During the six months ended June 30, 2026, the Company recorded a gain on change in fair value of derivative liability of $1,335,664, remeasuring the derivative liability to $638,382 as of June 30, 2026, using the Black-Scholes option pricing model with the following assumptions: stock price of $2.29 per share, an expected life of 2 months, expected volatility of 71.93%, an average risk-free rate of 3.71% and no dividend yield.