v3.26.3
Commitments and Contingencies
6 Months Ended
Jun. 30, 2026
Commitments and Contingencies [Abstract]  
Commitments and Contingencies

Note 12 – Commitments and Contingencies

 

Legal

 

From time to time, the Company may be involved in various litigation matters, which arise in the ordinary course of business. There is currently no litigation that management believes will have a material impact on the financial position of the Company.

 

Investment Bank

 

During September 2025, the Company signed an agreement (“Investment Bank Agreement”) with a brokerage firm and investment bank (“Investment Bank”); in the event that the Investment Bank introduces the Company to one or more persons or entities which results in the completion of a (i) non-financing transactions, including without limitation, licensing agreement(s), joint venture(s), merger(s) and acquisition(s) (collectively referred to as a “non-financing transaction”) and/or (ii) financing transactions, including equity, debt or any combination thereof and a financing transaction to complete a non-financing transaction, the Company will be entitled to pay a success fee (the “Placement Success Fee”) equal to 8% on a S-3 retail takedown, an equity placement, a private investment in public equity (“PIPE”), or a convertible note, and 6% on each draw down of an Equity Line of Credit (“ELOC”) along with 1% upfront commitment shares registered in the S-1 for the ELOC, and 4% for a debt deal/placement. The Placement Success Fee is due and payable to the Investment Bank immediately upon the closing of the placement and shall be disbursed directly to the Investment Bank simultaneously with the delivery of the proceeds of the placement to the Company.

 

The Investment Bank shall be entitled to receive from the Company a Placement Success Fee on any monies received from an Introduced Party (as defined in the Investment Bank Agreement) subsequent to the final closing of the placement (the “Tail Fee”). The Tail Fee shall be payable in cash and shall be based upon whether the transaction was completed as an equity or debt financing. In the event that a placement is a combination equity/debt deal, then the placement shall be appropriately pro-rated between the two transactions. The tail is activated, and in effect for 12 months from the date of termination or expiration of this Investment Bank Agreement, or from the last funding tranche; whichever is the latter.

 

At the time of closing of a financing transaction during the term or the tail period, the Company also shall pay the Investment Bank equity in the form of common stock equal to 7% of the gross proceeds received.

 

The Company issued 917,431 shares of common stock to the Investment Bank, with an approximate fair value of $106,000, during the six months ended June 30, 2026. The Investment Bank earned this Placement Success fee for helping to originate the Standby Equity Purchase Agreement that was signed on December 1, 2025.

 

During November 2025, the Company signed an agreement (“Underwriting Agreement”) with the Investment Bank to act as the Company’s exclusive financial advisor, sole book-runner, sole underwriter and sole investment banker in connection with a proposed Initial Public Offering (“IPO”) or any other financing; the term of this engagement is six months. The Underwriting Agreement will provide that in an IPO, the Company will grant to Craft Capital an option, exercisable within 45 days after the closing of the IPO (“Closing”), to acquire up to an additional 15% of the total number of Shares to be offered by the Company in the IPO, solely for the purpose of covering over-allotments (the “Over-allotment Shares”).

 

The Company will pay the Investment Bank an underwriting discount or spread of 7.0% of the IPO price. The Investment Bank will also be entitled to a non-accountable expense allowance of 1% payable at the Closing (the “Non-Accountable Expense Allowance”). As additional compensation for the Investment Bank’s services, the Company shall issue to the Investment Bank or its designees at the Closing; warrants (the “Underwriter’s Warrants”) to purchase that number of Shares equal to 5.0% percent of the aggregate number of Shares sold in the IPO (including Overallotment Shares, if applicable). The Underwriter’s Warrants will be exercisable at any time and from time to time, in whole or in part, during the 5-year period commencing at the time of the IPO, at a price per share equal to 125.0% of the IPO price per Share at the IPO (and shall provide for adjustments to the exercise price and number of shares of ordinary shares for which the warrant is exercisable in the event of stock dividends, splits and recapitalizations). The Underwriter’s Warrant shall not be redeemable. The Underwriter’s Warrants may not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities for a period of six months following the commencement of sales of the IPO, except that they may be assigned, in whole or in part, to any successor, officer, manager, member or partner of the Investment Bank (or to officers, managers or members for any such successor, member or partner), if all securities so transferred remain subject to the lock-up restriction for the remainder of the time period. The Underwriter’s Warrant will provide for registration rights (including a one-time demand registration right and unlimited piggyback rights) and customary anti-dilution provisions (for stock dividends and splits and recapitalizations) consistent with Financial Industry Regulatory Authority (“FINRA”) Rule 5110, and further, the number of shares underlying the Underwriter’s Warrants and any of the other compensation and expense payments/reimbursements shall be reduced if necessary to comply with FINRA rules or regulations.

 

At June 30, 2026 and December 31, 2025, the Company has incurred approximately $68,000 and $50,000, respectively, in deferred offering costs.

 

Standy Equity Purchase Agreement (“SEPA”)

 

On December 1, 2025, the Company entered into a SEPA with the Investor, pursuant to which the Company may sell up to $10 million of its common stock, par value $0.0001 per share, over a period ending on the Maturity Date, defined as the first day of the month following the 24-month anniversary of the Commencement Date.

 

Under the SEPA, the Company issued 500,000 restricted shares of common stock as a Commitment Fee valued at approximately $79,000, which were deemed earned upon execution. The Investor is obligated to purchase, and the Company has the right (but not the obligation) to direct the Investor to purchase, additional shares (“Purchase Shares”) through written Request Notices, subject to specified Request Limits. These limits cap any single request to the lesser of $1,000,000 or 400% of the average trading volume over the 10 preceding trading days, with a minimum request of $25,000 and at least 10 business days between requests.

 

The purchase price for each draw equals 85% of the lowest daily closing price during the 10-day valuation period preceding the purchase date. All shares issued must be DWAC-eligible and freely tradable under an effective registration statement. Additionally, the SEPA includes a 9.99% beneficial ownership cap, preventing the Investor from acquiring shares that would put its beneficial ownership above that threshold.

 

The Company must maintain an effective resale registration statement, ensure continued listing on its Principal Market, and comply with restrictions preventing integration of this financing with other securities offerings. The Investor is prohibited from engaging in short sales or hedging transactions during the term of the SEPA. The SEPA also includes customary representations, warranties, and covenants by both parties, as well as indemnification provisions in favor of the Investor.

 

The SEPA may be terminated under several conditions, including failure of the Commencement to occur by December 31, 2025, the Company’s completion of the full $10,000,000 commitment amount, or the arrival of the Maturity Date. Certain obligations, including indemnification, survive termination.

 

On December 1, 2025, the Company entered into the Promissory Note Purchase Agreement with this same Investor, pursuant to which the Company sold the Investor an unsecured original issue discount promissory note in the principal amount of $75,000; see Note 7.

 

Under the SEPA during April 2026, the Company issued 2,500,000 restricted shares of common stock for total cash proceeds of $25,000 and stock issuance costs of $1,500.