Note 5 – Debt Obligations

Convertible Notes

In March 2026, we issued three separate convertible notes and received cash proceeds of $800,000. Two of our non-employee directors purchased $250,000 and $50,000, respectively, of the issued convertible notes. In April and June 2026, we issued an aggregate of $2,160,000 of additional convertible notes, of which one in the amount of $400,000 was issued to one of our non-employee directors.  The convertible notes bear interest at 10% and mature three years from the issue date. Semi-annual interest payments are required on March 31, and September 30, each year commencing September 30, 2026. The convertible notes include warrant coverage equal to the shares of common stock issuable upon the conversion of the note. The original terms of the convertible notes provided a conversion rate of $5.00 per share and the warrants were exercisable immediately for a period of three years at an exercise price of $7.50 per warrant share. On May 26, 2026, the terms of the convertible notes were amended as follows: the conversion rate was reduced from $5.00 to $3.00, the exercise price of the warrants was reduced from $7.50 to $4.50, and substantially all assets of the Company were added as collateral (the “Modification”). The Modification impacted $2,300,000 convertible notes that were previously issued and originally convertible into 460,000 shares of common stock with equal warrant coverage of 460,000 warrant shares initially exercisable at $7.50 per warrant share. The Modification increased the number of shares issuable upon conversion to 766,667 from 460,000 and warrant shares to 766,667 from 460,000 on the $2,300,000 convertible notes outstanding at the time of the Modification.

The aggregate incremental value from the Modification to the embedded conversion option exceeded 10% of the total outstanding principal on the modified convertible notes. Therefore, the Modification resulted in an extinguishment of debt pursuant to ASC 470-50-40-10(a). Pursuant to ASC 470-50 Modifications and Extinguishments, the Company remeasured the acquisition price of the debt based on the fair value of the replacement convertible notes which approximated its $2,300,000 of principal outstanding due to arms-length issuances of convertible notes, with terms similar to the modified convertible notes, to various third parties near the date of the Modification. During the three and six months ended June 30, 2026, we have recognized a loss on debt extinguishment from the Modification of $1,021,787 which is comprised of $498,695 of unamortized issuance costs, which are required to be included in the debt extinguishment gain or loss pursuant to ASC 470-50. Further, ASC 470-50-40-17A requires any change in fair value of a freestanding-equity classified written call option held by the creditor that is modified as part of a debt modification to be included in debt extinguishment gain or loss.  Therefore, the increase in fair value of the warrants held by the convertible note holders, at the time of the Modification, of $523,092 was also included in the loss on extinguishment of debt.

We computed the incremental value received by the convertible note holders due to the Modification of the conversion rate and warrant exercise price using a Black-Scholes option pricing model (the “Black-Scholes”) and the following inputs:  expected term of approximately 3 years (based on the remaining contractual term of the warrants and convertible notes), volatility of approximately 115% (company’s volatility over the expected term), risk free rate of 4.10% ( based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term), underlying common stock of $2.30 per share, and a dividend rate of 0.00%.

At initial issuance of the $2,300,000 convertible notes a total of 460,000 warrants were also issued with an exercise price of $7.50. In accordance with ASC 470-20-25-2, we allocated the proceeds received between the convertible notes and the common stock warrants using the relative fair value method. Therefore, $528,898 of the total proceeds were allocated to the warrants and were presented as a discount against the convertible notes to be amortized into interest expense over the three-year term of the convertible notes and an increase to additional paid in capital. The relative fair value allocation was based on the estimated fair value of warrants on the date of issuance determined using the Black-Scholes and the following key assumptions: expected term of three years (based on the contractual term of the warrants), volatility of approximately 114-115% (company’s volatility over the expected term), risk free rate of 3.49-4.10% ( based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term), underlying common stock of $2.37 - $3.22 (market price on date of issuance) per share and a dividend rate of 0.00%. Prior to the Modification, a total of $26,566 and $30,203, of the warrant discount had been amortized into interest expense during the three and six months ended June 30, 2026, respectively. The unamortized discount of $498,695 associated with the originally issued warrants, with a $7.50 exercise price, at the time of the Modification, was also included in the loss on debt extinguishment.

Post Modification, an additional $660,000 of convertible notes were issued and a total of 220,000 warrant shares were issued, exercisable for three years at an exercise price of $4.50. In accordance with ASC 470-20-25-2, we allocated the proceeds received between the convertible notes and the common stock warrants using the relative fair value method. Therefore, $221,384 of the total proceeds was allocated to the warrants and has been presented as a discount against the convertible notes to be amortized into interest expense over the three-year term of the convertible notes and an increase to additional paid in capital. The relative fair value allocation was based on the estimated fair value of warrants on the date of issuance determined using the Black-Scholes and the following key assumptions: expected term of three years (based on the contractual term of the warrants), volatility of approximately 115% (company’s volatility over the expected term), risk free rate of 4.06-4.10% ( based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term), underlying common stock of $2.31 - $2.57 (market price on date of issuance) per share and a dividend rate of 0.00%.

Post modification, during the three and six months ended June 30, 2026, we recognized $5,430 of amortization related to the debt discount which has been included within interest expense on the condensed consolidated statements of operations. At June 30, 2026, the unamortized debt discount is $215,954.

At June 30, 2026, the total principal balance on the convertible notes is $2,960,000, which is due three years from issuance or March-June 2029, and accrued interest is $60,137, which is included within accounts payable and accrued expenses within the condensed consolidated balance sheets.

Note Payable

During the year ended December 31, 2025, we purchased approximately $48,200 of equipment with a note payable. The note bears interest at 10.75% and requires fixed payments of principal and interest of $1,042 for sixty months. At June 30, 2026 and December 31, 2025, the outstanding principal balance was $39,125 and $43,149, respectively.

At June 30, 2026, future principal payments on the note payable for the years ending December 31, will be as follows:

Secured Promissory Note

On September 30, 2025, the Company executed a $600,000 short-term secured promissory note (the “Short-Term Note”). The Short-Term Note required repayment of $630,000 on the maturity date of January 2, 2026. The Short-Term Note was secured by certain outstanding receivables of the Company. The lender of the Short-Term Note also received a warrant to purchase 10,000 shares of common stock at $11.25 for a period of four years. The Short-Term note was repaid in its entirety upon maturity.

Financing Liability

During the year ended December 31, 2025, we entered into a financing agreement to finance $265,505 of insurance premiums due on various policies. The financed amount is due in fixed monthly payments of $19,808 for a period of eleven months and bears interest at 9.85%. At June 30, 2026 and December 31, 2025, the balance of $10,159 and $159,342, respectively, remaining on the financing liability has been presented within current liabilities on the accompanying consolidated balance sheets.