v3.26.1
Debt
 6 Months Ended
Jun. 30, 2026
Debt [Abstract]  
DEBT

NOTE 6 — DEBT

 

Convertible notes, net

 

In 2025 the Company issued a senior secured convertible note with an aggregate redemption amount of $10,900,000, comprising an issuance price of $10,000,000 and an original issue discount of $900,000. Of the amount funded, $1,104,000 was disbursed by the holder directly to a subsidiary within the Digital Asset segment and is recorded on that subsidiary’s books; the remaining $9,796,000 is recorded by the parent. Both amounts are obligations under the same instrument and are presented together within convertible notes, net. The note is secured by substantially all of the assets of the Company, including the $8,000,000 held in a deposit account control arrangement presented as restricted cash. The embedded conversion feature was determined to require bifurcation and is carried as a derivative liability at fair value (see Note 2). The original issue discount, issuance costs and the discount arising from the bifurcated derivative are accreted to interest expense using the effective interest method. The note was issued on December 8, 2025 and matures on December 8, 2026. It bears no stated interest and accrues default interest at 18% per annum upon an event of default. It was issued under a Securities Purchase Agreement that contemplates the issuance of notes in tranches with an aggregate redemption amount of up to $120,900,000, of which $10,900,000 had been drawn as of June 30, 2026 and as of the date of this report. Additional tranches are issuable only upon satisfaction of the conditions in that agreement and at the holder’s election, and the Company has no unilateral right to draw. The note is convertible at the holder’s election into shares of common stock at a conversion price subject to reset and other anti-dilution adjustments, which is the feature bifurcated as a derivative liability.

 

    June 30,
2026		     December 31,
2025		  
Convertible note, principal recorded by the parent   $ 9,796,000     $ 9,796,000  
Less: unamortized debt issuance costs     (717,222 )     (1,370,670 )
Less: unamortized original issue discount     (446,404 )     (853,114 )
Less: unamortized derivative discount     (829,348 )     (1,584,953 )
Senior secured convertible note, net     7,803,026       5,987,263  
Convertible note, principal recorded by subsidiary     1,104,000       1,104,000  
Total convertible notes, net   $ 8,907,026     $ 7,091,263  

 

Accretion of the discounts on the senior secured convertible note was $964,744 and $1,815,763 for the three and six months ended June 30, 2026, respectively. The entire balance is classified as a current liability as of June 30, 2026.

 

Forbearance. During the period, the holder of the senior secured convertible note agreed to forbear from exercising remedies through June 30, 2026. The forbearance arrangement was disclosed in the Company’s Current Report on Form 8-K filed May 4, 2026. As of the date these condensed consolidated financial statements were issued, the Company was in discussions with the holder regarding an extension or restructuring of the note. No assurance can be given that such discussions will be successful. The holder had previously delivered a notice of default under the financing documents, and the forbearance agreement was entered into on April 30, 2026. The forbearance period expired on June 30, 2026 and had not been extended as of the date of this report.

 

Notes payable, net

 

During the six months ended June 30, 2026, the Company, through Lokahi, issued four short-term notes payable with an aggregate principal amount of $6,000,000. Note 1 below is secured by a pledge of Lokahi’s certificate of deposit, which had a balance of $1,500,000 at the date the note was issued and was presented within short-term investments. The certificate of deposit had a balance of $2,000,000 as of December 31, 2025; $500,000 was redeemed during the three months ended March 31, 2026 and the remaining $1,500,000 matured on May 4, 2026, the proceeds of which were applied to repay the note in full on May 5, 2026. The notes were issued at an original issue discount and bear a fixed, flat interest amount payable at maturity rather than a stated periodic rate. The terms of the notes were as follows:

 

Note   Issue date   Maturity   Principal     Original issue discount     Issuance costs     Flat interest  
Note 1   3/31/2026   5/15/2026   $ 1,000,000     $ 5,000     $ 75,000     $ 100,000  
Note 2   5/6/2026   6/11/2026     1,000,000       5,000       110,000       200,000  
Note 3   5/12/2026   6/11/2026     2,000,000       15,000       340,000       500,000  
Note 4   6/3/2026   6/18/2026     2,000,000       5,000       340,000       500,000  
Total           $ 6,000,000     $ 30,000     $ 865,000     $ 1,300,000  

 

Note 1 was repaid in full on May 5, 2026 for $1,100,000, comprising $1,000,000 of principal and $100,000 of flat interest. Notes 2, 3 and 4, with an aggregate principal amount of $5,000,000, remained outstanding as of June 30, 2026. On June 18, 2026, the Company paid an extension fee of $60,000 to extend the maturity of the outstanding notes to July 1, 2026; the fee was charged to interest expense in the three months ended June 30, 2026.

 

    June 30,
2026		     December 31,
2025		  
Notes payable, principal   $ 5,000,000       —  
Less: unamortized discounts     —       —  
Notes payable, net   $ 5,000,000       —  

 

Cash proceeds from the notes payable were $5,970,000, net of original issue discount of $30,000. Debt issuance costs of $865,000 were incurred, of which $585,000 was paid in cash during the six months ended June 30, 2026 and $280,000 was accrued within accrued offering costs as of June 30, 2026. The discounts were fully accreted as of June 30, 2026 because all of the notes had reached their stated maturity; accretion on the notes payable was $955,000 for the three and six months ended June 30, 2026.

 

Interest expense

 

Total interest expense was $3,223,755 and $4,083,160 for the three and six months ended June 30, 2026, respectively, consisting of contractual and flat interest of $1,304,011 and $1,312,398 and accretion of debt discounts of $1,859,744 and $2,710,762 for the respective periods, together with the $60,000 cash extension fee paid on June 18, 2026 in respect of Notes 2 and 3, which is presented within interest expense rather than as accretion because it was a cash fee and not a discount on the notes. Of the $1,300,000 of flat interest on the notes payable, $2,222 was recognized in the three months ended March 31, 2026 and $1,297,778 in the three months ended June 30, 2026; together with related-party interest of $6,233, that comprises the $1,304,011 recognized in the second quarter. Accretion of debt discounts for the six months ended June 30, 2026 comprises $1,815,763 on the senior secured convertible note and $895,000 on the notes payable, being the full $30,000 of original issue discount and $865,000 of issuance costs on those notes.

 

Accrued interest was $1,240,350 as of June 30, 2026 and $27,952 as of December 31, 2025, consisting of $1,200,000 of interest on the outstanding notes payable (none as of December 31, 2025) and $40,350 of interest on notes payable — related party ($27,952 as of December 31, 2025).