v3.26.1
Debt
 12 Months Ended
Jun. 30, 2026
Debt Disclosure [Abstract]  
Debt

Note 7 – Debt

 

Existing Hall Note

 

Prior to April 1, 2026 the Company was party to a related-party promissory note payable to Steve Hall that originated in a Debt Consolidation Agreement effective April 1, 2024 (the “Existing Hall Note”). The Existing Hall Note bore interest at 12% per annum and matured on December 31, 2025. As of June 30, 2025 the Existing Hall Note had a principal balance of $2,219,895 and accrued interest of $311,550.

 

During the year ended June 30, 2026, before the April 1 exchange, the Company received funding from Mr. Hall totaling $125,831. Of that amount, $98,368 was advanced under the Existing Hall Note, consisting of $20,000 of cash advances and $78,368 of Company expenses and payables paid directly by Mr. Hall. The remaining $27,463 was received in cash between January 1, 2026 and February 19, 2026, after the maturity of the Existing Hall Note, and was recorded in accounts payable and accrued liabilities – related party rather than as an advance under the note. The Company recognized related-party interest expense of $206,540 on the Existing Hall Note during the year. On the December 31, 2025 maturity date the outstanding balance of the Existing Hall Note was $2,767,756, comprising principal of $2,318,263 and accrued interest of $449,493. The note remained outstanding after maturity until it was exchanged on April 1, 2026. Accrued interest of $68,595 that arose after December 31, 2025 was forfeited by Mr. Hall and credited to additional paid-in capital.

 

Note purchase agreement and issuance of the convertible note

 

On April 1, 2026, the Company, HH, and Mr. Hall entered into a Note Purchase Agreement under which HH purchased the Existing Hall Note previously issued by the Company to Mr. Hall. The Existing Hall Note was amended and restated, and the Company issued to HH a non-interest-bearing Convertible Promissory Note with a principal amount of $2,767,756 (the “Convertible Note”). The Convertible Note would have matured on April 1, 2028 unless converted or repaid earlier. The Convertible Note was convertible at the holder’s option at any time before repayment into shares of the Company’s common stock at an initial conversion price of $0.12 per share. The conversion price was subject to customary structural anti-dilution adjustments and full-ratchet adjustment if the Company issued common stock or convertible securities below the then-current conversion price. The holder also had the right to demand prepayment upon certain reorganizations, mergers, consolidations or sales of substantially all of the Company’s assets.

 

The Company accounted for the April 1, 2026 issuance as an extinguishment of the Existing Hall Note and initially recognized the Convertible Note at its estimated fair value of $1,379,432. The note was accounted for as a single debt instrument, and its conversion feature was not separately accounted for as a derivative. The difference between the $2,767,756 principal amount and the $1,379,432 initial carrying amount was recorded as a debt discount of $1,388,324. The debt discount was accreted to interest expense using the effective-interest method. The resulting effective interest rate was approximately 41.6%.

 

The following table summarizes the initial recognition of the Convertible Note:

 

               
Convertible Note activity  Principal  Debt discount  Net carrying amount
Balance as of April 1, 2026, upon issuance  $2,767,756   $(1,388,324)  $1,379,432 
Accretion of debt discount   –    82,534    82,534 
Balance immediately before conversion   2,767,756    (1,305,790)   1,461,966 
Conversion into common stock   (2,767,756)   1,305,790    (1,461,966)
Balance as of June 30, 2026  $–   $–   $– 

 

On June 1, 2026, HH converted the full $2,767,756 principal amount into 23,064,634 shares of the Company’s common stock at the contractual conversion price of $0.12 per share. The net carrying amount immediately before conversion was $1,461,966, consisting of the initial carrying amount of $1,379,432 and $82,534 of debt discount accretion. The Company reclassified the net carrying amount to common stock and additional paid-in capital and recognized no gain or loss on conversion. No amount remained outstanding as of June 30, 2026.

 

See Note 10, Fair value measurements, for the nonrecurring Level 3 measurement performed on April 1, 2026. See Note 13, Earnings (loss) per share, for the treatment of the conversion shares in the weighted-average share calculation.