NOTE 6 – CONVERTIBLE NOTES PAYABLE, NET

As of June 30, 2026 and December 31, 2025, the Company had outstanding convertible notes payable to unaffiliated individuals. The convertible notes bear interest at fixed rates, have stated maturities ranging from 2018 through 2028, and contain conversion features that permit or require conversion into shares of the Company’s common stock, as applicable, upon the occurrence of specified events or at the election of the holder. Certain notes were in default as of June 30, 2026.

Convertible notes outstanding as of June 30, 2026 were as follows:

As of June 30, 2026, $542,256 of the carrying amount was classified as current and $443,220 was classified as long-term.  

Convertible Note Payable – In Default

In July 2018, the Company issued a convertible promissory note to an unrelated individual with a principal amount of $45,000. As of June 30, 2026, the outstanding balance of these notes was $45,000. Principal and accrued interest were originally due in July 2018, and the note is currently in default. The note bears interest at a rate of 18% per annum, accrues monthly, and is unsecured.

The note, together with all unpaid accrued interest, is automatically convertible in full upon the closing of a qualified financing. A qualified financing is defined as an equity financing resulting in gross proceeds to the Company of at least $750,000, including the conversion of this note and other debt. Upon a qualified financing, the conversion price would be equal to 100% of the per-share price paid by investors in the financing, subject to valuation adjustments ranging from a minimum valuation of $15.0 million to a maximum valuation of $30.0 million. We reviewed this conversion feature under ASC 815 and determined no derivative accounting was required. See Note 9.

Interest expense related to this note was $4,017 for each of the six months ended June 30, 2026 and 2025, respectively. Accrued interest was $72,634 and $68,617 as of June 30, 2026 and December 31, 2025, respectively.

Series 2023 Mandatorily Convertible Notes

In May 2023, the Board of Directors authorized an offering of up to $1,000,000 of mandatorily convertible notes, designated as Series 2023 10% Mandatorily Convertible Notes (the “Series 2023 Notes”). During 2023 the Company raised $34,000 through issuance of Series 2023 Notes. As of June 30, 2026, the outstanding balance of these notes is $34,000.

The Series 2023 Notes mature 36 months from the issue date (which range between June 1, 2026 and October 2, 2026), and bear interest at 10% per annum. The Series 2023 Notes are mandatorily convertible 30 calendar days after the earliest to occur of: (i) the Company’s common stock achieving a closing price greater than $1.00 for ten consecutive trading days (a “Market Forced Conversion”), or (ii) the Company completing an offering of common stock resulting in gross proceeds of at least $1,000,000 (an “Offering Forced Conversion”). Upon conversion, the Series 2023 Notes will automatically convert into shares of common stock at a conversion price equal to 75.8% of: (i) the closing price of the Company’s common stock on the tenth trading day for a Market Forced Conversion, or (ii) the offering price of the Company’s common stock for an Offering Forced Conversion. These notes include an embedded conversion feature that is accounted for as a derivative under ASC 815. See note 9.

The number of shares issuable upon conversion is determined by adding the principal amount of the Series 2023 Notes, accrued and unpaid interest, and any applicable default interest, and dividing by the applicable conversion price. The conversion price is subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company, combinations, recapitalizations, reclassifications, extraordinary distributions, and similar events.

Interest expense related to the Series 2023 Notes was $1,686 and $1,694 for the six months ended June 30, 2026 and 2025, respectively, and $848 and $854 for the three months ended June 30, 2026 and 2025, respectively. Accrued interest on the Series 2023 Notes was $10,235 and $8,549 as of June 30, 2026 and December 31, 2025, respectively.

Series 2025 Notes Mandatorily Convertible Notes

During 2025, the Company issued Series 2025 Notes. As of June 30, 2026, the outstanding balance of these notes was $434,100.

These notes are substantially similar to the Series 2023 Notes, except that they convert at 50% of the applicable offering price, or if the Company’s common stock trades at or above $1.00 ($0.50 for the March 18 Note) for 10 consecutive trading days, in which case they convert at 50% of the closing price on the tenth day.

Interest expense was $22,269 and $9,574 for the six months ended June 30, 2026 and 2025, respectively. Interest expense was $11,208 and $9,340 for the three months ended June 30, 2026 and 2025, respectively. Accrued interest was $53,937 and $31,668 as of June 30, 2026 and December 31, 2025, respectively.

November 2025 Convertible Promissory Note (Original Issue Discount and Derivative Liability)

In November 2025, the Company issued an unsecured convertible promissory note to an unaffiliated accredited investor for cash proceeds of $50,000. The note has a stated principal balance of $55,555, reflecting an original issue discount (“OID”) of $5,555, bears interest at 15% per annum (simple interest), and matures on September 7, 2026.

Beginning 180 days after issuance, the note is convertible at the option of the holder into shares of the Company’s common stock at a conversion price equal to 75% of the lowest volume-weighted average price (“VWAP”) of the Company’s common stock during the twenty (20) consecutive trading days immediately preceding the conversion date, subject to a floor price of $0.15 per share. Accrued and unpaid interest is convertible on the same terms. The note includes a beneficial ownership limitation of 4.99%, which may be increased to 9.99% upon advance notice. The November 2025 Convertible Promissory Note includes an embedded conversion feature that is accounted for as a derivative liability under ASC 815. See Note 9.

The derivative liability was recognized at fair value on the issuance date, with the initial value of $29,647 recorded as a component of the debt discount which is being amortized over the term of the note. The derivative liability is subsequently remeasured at fair value at each reporting period, with changes in fair value recognized in the consolidated statement of operations. As of June 30, 2026, the derivative liability associated with this note is included in Derivative liabilities – convertible instruments on the consolidated balance sheet.

In connection with the financing, the Company issued 100,000 shares of its common stock to the investor as additional consideration. Under ASC 470 shares issued with debt are required to be valued at relative fair value and recorded as a debt discount. The relative fair value of these shares on the date of issuance was $4,297 and was recorded as a component of the debt discount which is being amortized to interest expense over the term of the note.

The Company recorded a total debt discount at issuance consisting of (i) the original issue discount, (ii) the fair value of the embedded derivative liability, and (iii) the fair value of shares issued in connection with the financing for a total of $39,499. This total debt discount is amortized to interest expense over the term of the note using the effective interest method.

As of June 30, 2026, the convertible note is presented net of an unamortized debt discount of $8,965 on the consolidated balance sheet. The Company recognized $23,517 in amortization of the debt discount as interest expense during the six months ended June 30, 2026.

Interest expense related to this note was $4,269 for the six months ended June 30, 2026. Accrued interest was $5,548 and $1,279 as of June 30, 2026 and December 31, 2025, respectively.

Series 2026 Notes Mandatorily Convertible Notes

During the six months ended June 30, 2026, the Company issued a new note for $10,000, denoted as Series 2026 Notes. These notes are identical to the Series 2025 Notes. The derivative liability was recognized at fair value of $1,000 on the issuance date and was recorded as a debt discount which is being amortized over the term of the note using the effective interest method. The derivative liability is subsequently remeasured at fair value at each reporting period, with changes in fair value recognized in the consolidated statement of operations. As of June 30, 2026, the derivative liability associated with this note is included in Derivative liabilities – convertible instruments on the consolidated balance sheet (see Note 9). As of June 30, 2026, the net carrying amount of this note was $9,120 and the debt discount was $880.

Interest expense totaled $534 for the six months ended June 30, 2026 and $357 for the three months ended June 30, 2026. Accrued interest was $534 as of June 30, 2026.

Convertible notes outstanding as of December 31, 2025 were as follows:

As of December 31, 2025, $102,072 of the carrying amount was classified as current and $434,100 was classified as long-term.

The five-year maturity for the convertible notes payable is as follows: