NOTE 9. EXTINGUISHMENT OF DEBT

In connection with, and effective upon, the closing of the change in control described in note 5, the Company terminated all of its outstanding debt during the quarter ended June 30, 2026. No cash or other consideration was paid by the Company to extinguish any of these obligations. Each obligation was legally terminated by a binding agreement under which the Company was released and the amounts were deemed paid in full, and each was accordingly derecognized in accordance with ASC 405-20-40-1.

On June 10, 2026, all of the convertible notes described in note 8 were terminated pursuant to a convertible note termination agreement. The holder of the convertible notes is not a related party of the Company. Because no consideration was transferred, the reacquisition price of the notes was nil and the entire net carrying amount was recognized as a gain. In accordance with ASC 470-50-40-2, the Company recognized a gain on extinguishment of debt of $88,612, being the carrying amount of the convertible notes at the termination date, comprising $87,120 of principal and accrued interest at March 31, 2026 and $1,492 of interest accrued from April 1, 2026 to June 10, 2026. The gain is presented as a separate item in the statement of operations for the three and six months ended June 30, 2026.

On June 10, 2026, the promissory note described in note 6 and the demand loan payable described in note 7 were terminated pursuant to a note termination agreement with Compass North, the Company’s then controlling shareholder. ASC 470-50-40-2 provides that extinguishment transactions between related entities may, in substance, be capital transactions. Because Compass North forgave these obligations in its capacity as an owner of the Company, and in connection with the sale of its controlling interest, the transaction was accounted for as a capital transaction.

The aggregate amount of $112,721, comprising the promissory note of $19,078 including accrued interest to the termination date, the non-interest bearing demand loan of $71,848 and $21,795 of Company costs settled directly by Compass North, was credited to additional paid-in capital, and no gain was recognized in the statement of operations.