v3.26.3
Convertible Notes, Promissory Notes Payable and Debt Extinguishment
 9 Months Ended
Sep. 30, 2026
Convertible Notes, Promissory Notes Payable and Debt Extinguishment [Abstract]  
CONVERTIBLE NOTES, PROMISSORY NOTES PAYABLE AND DEBT EXTINGUISHMENT
11. CONVERTIBLE NOTES, PROMISSORY NOTES PAYABLE AND DEBT EXTINGUISHMENT

 

The following table summarizes outstanding convertible notes and promissory notes payable as of September 30, 2026, and December 31, 2025.

 

    September 30,     December 31,  
    2026     2025  
Convertible Notes - Maturity Date            
March 31, 2026 (15% per annum)   $ -     $ 2,020,000  
December 31, 2026 (15% per annum)     2,020,000       -  
Promissory Notes - Maturity Date                
January 31, 2026 (18% per annum)     -       550,000  
March 31, 2026 (12% per annum)     -       500,000  
April 30, 2026 (8% per annum)     -       125,000  
June 30, 2026 (12% per annum)     -       1,117,500  
December 31, 2026 (12% per annum)     300,000       -  
December 31, 2026 (18% per annum)     1,094,465       -  
Total Notes Payable     1,394,465       2,292,500  
Total Convertible and Promissory Notes Payable     3,414,465       4,312,500  
Unamortized debt discount     (301,741 )     (1,982,244 )
Net Debt     3,112,724       2,330,256  
Current portion     (3,112,724 )     (2,330,256 )
Net long-term portion     -       -  
Interest Payable     585,353       265,350  

 

During nine months ended September 30, 2026, the Company completed private placements, raising $2,418,750 with each unit consisting of an unsecured promissory note of 18% interest and five-year warrants for Class A Common Stock; 1,612,525 warrants were issued at a weighted average exercise price of $1.50.

 

Repayment of Debt

 

During the nine months ended September 30, 2026, the Company repaid $25,000 of outstanding principal and $3,447 of accrued interest on its promissory notes, for total cash payments of $28,447. These repayments reduced the Company’s outstanding notes payable balance and were made in accordance with the terms of the applicable note agreements.

 

Debt Extinguishment and Common Stock Issued

 

During the nine months ended September 30, 2026, the Company converted $3,322,500 in principal and $288,085 in interest ($3,610,585 in aggregate) into equity through warrant exercises, issuing 1,797,163 shares of Class A Common Stock upon the exercise of 1,609,195 warrants. The Company recorded a $10,420,483 conversion loss, reflecting the difference between market value and exercise price.

 

During the three months ended September 30, 2026, the Company and the Investor amended the Company’s 15% convertible note to extend its maturity date to December 31, 2026. The Company evaluated the amendment under ASC 470-50, Debt – Modifications and Extinguishments, accounted for it as an extinguishment of the original note, and recognized a loss on debt extinguishment of $590,282, which is presented as loss on extinguishment of debt in the condensed consolidated statements of operations.

 

These amounts are presented as supplemental disclosure in the “Non-Cash Investing and Financing Activities” section of the Condensed Consolidated Statement of Cash Flows.

 

The relative fair value of the warrants issued in conjunction with the notes payable was treated as a debt discount, with a corresponding offsetting credit to Additional Paid-in Capital (APIC). This discount is being amortized to interest expenses over the term of the notes.

 

Derivative Liabilities

 

The fair values of the conversion option of outstanding convertible notes payable were determined to be derivative liabilities under ASC 815 due to the default on convertible notes payable disclosed above, which resulted in a variable conversion price on the outstanding convertible note payable. The fair value of the derivative liabilities was $1,974,046 as of December 31, 2025, estimated using the Black-Scholes option pricing model with the following assumptions: stock price of $3.50 per share, an expected life of 9 months, expected volatility of 73%, an average risk-free rate of 3.5% and no dividend yield. During the nine months ended September 30, 2026, the Company recorded a gain on change in fair value of derivative liability of $1,080,060, remeasuring the derivative liability to $893,986 as of September 30, 2026, using the Black-Scholes option pricing model with the following assumptions: stock price of $5.40 per share, an expected life of 4 months, expected volatility of 72%, an average risk-free rate of 3.9% and no dividend yield.