REALLOYS INC. Debt Disclosure

8. Debt

 

Senior Secured Debenture

 

The Company entered into a Securities Purchase Agreement dated with Five Narrow Lane LP (“FNL”), on January 17, 2025 which was later amended on January 27, 2025 (the “Purchase Agreement”), pursuant to which the Company agreed to issue, and Five Narrow Lane LP agreed to purchase, debentures (defined therein as the “Additional Debentures”). The Purchase Agreement provides for financing of up to an aggregate principal amount of $2,300,000 of which $2,050,000 has been received. In addition, pursuant to the terms of the Additional Debenture, upon consummation of the Merger, the Company shall, at its option, either (i) pay FNL in cash the entire principal amount of the Additional Debenture then outstanding, together with all accrued and unpaid interest thereon, the exit fee and any other amounts due thereunder, or (ii) issue to FNL such number of shares of Series C Convertible Preferred Stock, par value $0.001 per share, to be established by the Company upon closing of the Merger (the “Series C Stock”) for aggregate stated value equal to (x) 3.0 multiplied by (y) the entire principal amount of the Additional Debenture then outstanding, together with all accrued and unpaid interest thereon, the exit fee and other amounts due thereunder. The Company has filed a registration statement (the “Resale Registration Statement”) with the SEC registering the resale of common stock underlying the Additional Debenture (the “Resale Securities”) which was declared effective by the SEC on May 5, 2025. Pursuant to the terms of the Merger Agreement, (i) any REalloys Warrants outstanding at the effective time of the Merger will be assumed by the Company and (ii) shares of Series X Stock issued by REalloys will be exchanged for shares of Series C Stock of the Company on a one-to-one basis. Shares underlying the REalloys Warrants and the Series C Stock will be registered pursuant to the Merger Registration Statement. Prior to the Merger, the Additional Debenture is convertible into common stock at a conversion price of $5.46 per share. As of December 31, 2025, FNL had converted $1,783,550 of the Additional Debenture into 326,658 shares of common stock.

 

The Company incurred issuance costs of approximately $255,000 related to the Additional Debentures, which are being amortized over the life of the Additional Debentures.

 

The Additional Debentures are secured by substantially all of the assets of the Company, including its wholly owned subsidiary, and contains customary negative and affirmative covenants. The Company was in compliance with these covenants at December 31, 2025. The Additional Debentures mature on the earlier of March 10, 2026, or the date on which the Merger with REalloys is completed. Subsequent to December 31, 2025, FNL issued the remaining tranche of $250,000 due upon the effectiveness of the registration statement on Form S-4. In addition, subsequent to December 31, 2025, FNL redeemed all of the remaining principal and accrued interest for the Additional Debentures.

 

Convertible Note Payable

 

In connection with the Senior Secured Debenture with FNL, the Company incurred issuance costs of $164,000 payable to Palladium Capital Group (“Palladium”), the placement agent. The Company and Palladium entered into a 7% convertible note payable to settle the issuance costs. The convertible note, has a present conversion price $5.46 per share of common stock, matures on the earlier of January 17, 2026, or the effective date of the Merger. This note was also redeemed subsequent to December 31, 2025.

 

Note Payable

 

On May 1, 2020, pursuant to the Paycheck Protection Program under the Coronavirus Aid Relief and Economic Security Act (“CARES Act”), the Company received a loan of $130,200. The loan carries an interest rate of 1% and an initial maturity of May 1, 2022. During August 2021, the Company received partial loan forgiveness from the SBA reducing the principal balance of the note to $96,795. During December 2021, the terms of the note were amended to carry an interest rate of 1% and mature on May 4, 2025. As of December 31, 2025 and 2024, the unpaid balance of the note totaled $-0- and $10,592, respectively.

 

Merchant Cash Advances

 

On May 28, 2024, the Company entered into a merchant cash advance agreement with proceeds totaling $198,500 and total future receivables purchased totaling $272,000. On September 27, 2024, the Company entered into a merchant cash advance agreement with proceeds totaling $99,250 and total future receivables purchased totaling $136,000. On October 31, 2024, the Company entered into a merchant cash advance agreement with proceeds totaling $268,000 and total future receivables purchased totaling $228,480. The merchant cash advances are to be repaid through 28 weekly payments of $9,714, $4,857, and $8,160, respectively. The finance expense for the advances has been calculated using the effective interest rate method.

 

During February 2025, the September 27, 2024, merchant cash advance was amended to reduce the weekly payments. Under the amended agreement, the merchant cash advance is to be repaid through eight weekly payments of $1,214, two weekly payments of $4,585, and eight weekly payments of $3,643.

 

During February 2025, the October 31, 2024, merchant cash advance was amended to reduce the weekly payments. Under the amended agreement, the merchant cash advance is to be repaid through eight weekly payments of $2,040, seven weekly payments of $8,160, and eight weekly payments of $36,120.

 

The Company issued 15,000 shares with a value of $49,650 in consideration for amending the two merchant cash advances. The amendments of the cash advances were accounted for as a debt extinguishment and reissuance in accordance with ASC 470-50-40-10.

 

As of December 31, 2025 and 2024, the unpaid balance of the merchant cash advances totaled $-0- and $187,921, respectively.

 

Advance

 

On December 30, 2024, the Company received an advance totaling $50,000 from an unrelated third party. The advance was unsecured, bears no interest, and had no stated maturity date. The advance was repaid during the year ended December 31, 2025.