DEBT |
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| DEBT | NOTE 8 — DEBT
Debt consisted of the following at June 30, 2026:
Convertible debentures
The Company’s convertible debt comprises the 9% private placement debentures and the seller convertible note issued in the acquisition. The combined carrying value was $918,237 at June 30, 2026, of which $670,711 is classified as current and $247,526 as non-current.
9% private placement debentures
On July 1, 2024, the Board authorized a private placement of unsecured 9% convertible debentures with 24-month maturities in an aggregate principal amount of up to $5,000,000. The debentures are convertible into common stock at the lower of $0.75 per share or a 20% discount to the trailing volume-weighted average price, subject to a floor of $0.50 per share. At June 30, 2026, $530,000 of principal was outstanding. All outstanding debentures mature within twelve months of the balance sheet date and are therefore classified as current. Accrued interest was $69,116 at June 30, 2026. Interest expense on the debentures was $11,892 and $23,654 for the three and six months ended June 30, 2026.
Seller convertible note
In connection with the acquisition the Company issued a $450,000 convertible note to Arcadia. The note bears interest at 0.00% per annum, increasing to 8.00% upon an event of default, and is payable in three equal annual installments of $150,000 on April 1, 2027, 2028 and 2029. The note is convertible at the holder’s option into common stock at $0.75 per share and contains a cross-default to the Stock Purchase Agreement. Because the note is non-interest-bearing, it was recorded at its present value of $379,694 using an imputed interest rate of 9%, resulting in a discount of $70,306 that is amortized to interest expense using the effective interest method. Accretion was $8,543 for the three and six months ended June 30, 2026 and the carrying value was $388,237 at June 30, 2026, of which $140,711 is classified as current and $247,526 as non-current.
Loans payable — Flipside AI
Flipside AI has borrowings from Philippine financial institutions and a shareholder totaling $607,918 at June 30, 2026. Based on the stated maturities of the individual facilities, $558,700 is classified as current and $49,218 as non-current. Interest expense on these borrowings was $30,740 for the three months ended June 30, 2026. Borrowings from banks and financing companies total $194,158 and consist of two China Banking Corporation term loans bearing interest at 9.0% per annum ($27,503 and $24,447), two unsecured business loans from First Circle Growth Finance Corp. bearing interest at 17.0% per annum ($76,692 and $49,218) and an unsecured business loan from Esquire Financing Inc. bearing interest at 16.5% per annum ($16,298). The remaining $413,760 is owed to individual lenders rather than to financial institutions and consists of three unsecured term loans bearing interest at 15.0% per annum ($93,810, $27,755 and $47,729), an unsecured interest-only loan from a member of the Company's board of directors, bearing interest at 12.5% per annum ($81,489), two unsecured interest-only loans bearing interest at 16.0% per annum ($40,744 each) and two unsecured interest-only loans bearing interest at 10.0% per annum ($48,893 and $32,596). All of the facilities mature within twelve months of the balance sheet date other than the First Circle loan of $49,218, which matured in August 2027. An unsecured loan from a relative of the Company's Chief Executive Officer, was repaid in full on May 19, 2026. See Note 10.
Loan payable — Arcadia
On April 6, 2026, Arcadia advanced $200,000 to TaskAlpha on an unsecured basis. The loan bears interest at 12% per annum, matured July 6, 2026, provides for default interest of 2% per month, and is governed by Singapore law. The proceeds were advanced to Flipside AI and are recorded there as a deposit for future subscription. Accrued interest was $5,589 at June 30, 2026 and interest expense was $5,589 for the three months ended June 30, 2026.
Future principal maturities
Future principal payments on debt outstanding at June 30, 2026 are as follows:
Total principal payments of $1,787,918 differ from the aggregate carrying value of debt of $1,726,155 by the unamortized discount on the seller convertible note of $61,763. |
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