10. Debentures

On May 2, 2025, the Company entered into a securities purchase agreement with Yorkville, under which the Company has issued and sold three debentures (the "Initial Debenture") to Yorkville in an aggregate principal amount totaling $5,000,000. The Debentures were issued at a discounted price of 90% for proceeds to the Company of $4,500,000. Interest accrued on the outstanding principal amount of the Initial Debenture at an annual rate of 8%, and was subject to a potential increase to 18% per annum upon the occurrence of certain events of default. The Initial Debenture was expected to mature on February 2, 2026 and are required to be repaid using proceeds from the SEPA. The Company elected the fair value option to account for the Initial Debenture. The underlying methodology used was a discounted cash flow approach. The Company initially recorded the Initial Debenture at fair value with any differences between the transaction price and fair value recorded as a gain or loss in the statement of operations and comprehensive loss. It was determined that the Initial Debenture was issued at fair value and therefore there was no gain or loss at the issuance date. Based on the fair value option, the Company subsequently remeasured the Initial Debenture at fair value at each reporting period with the gain or loss recognized in the statements of operations and comprehensive loss. The Initial Debenture was remeasured to reflect changes in market yields at June 30, 2025, resulting in a change in fair value of $200,000 that was recorded in the statements of operations and comprehensive loss for the year ended December 31, 2025.

On September 17, 2025, the Company entered into securities purchase agreement with Yorkville to issue a debenture with the principal amount of $8,000,000 issued at a discount of $633,707 for proceeds of approximately $7,366,293. Interest will accrue on the outstanding principal amount of the debenture at an annual rate of 8%, subject to a potential increase to 18% per annum upon the occurrence of certain events of default. The debenture will mature on September 17, 2026 and will be repaid using proceeds from the SEPA.

Partial proceeds of the debenture issued on September 17, 2025 were used to settle the previously issued debentures. The change in fair value of the previously issued debentures as at September 17, 2025 of $383,823 was recorded in the statements of operations and comprehensive loss for the year ended December 31, 2025.

The Company applied the provisions of ASC Topic 470-50 - Debt Modifications and Extinguishments to the Debenture restructuring. ASC 470-50 provides that substantial modifications of terms should be treated in the same manner as an extinguishment of debt. A cash-flow test is used to determine if the modification is substantial whereby cash flows prior to the modification are compared to cash flows subsequent to the modification. ASC 470-50 states that if the discounted cash flows under the terms of the new debt instrument are at least ten percent different from the discounted cash flows under the terms of the original instrument then the new terms represent a substantial modification and an extinguishment of debt has occurred.

As the new debenture replaced the prior debentures, the Company assessed the transaction under ASC470-50 and determined that the changes were substantial. Accordingly, the transaction was accounted for as an extinguishment of the previous debentures. A loss on extinguishment was recognized based on the difference between the fair value and the carrying amount of the extinguished debentures at settlement date. The loss on extinguishment of $25,000 was recorded in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2025.

The new debenture was initially recorded at fair value, based on the discounted proceeds. Subsequently, the Company accounted for the debenture at amortized cost using the effective interest rate method, resulting in accretion expense of $403,121 for the year ended December 31, 2025. The effective interest rate calculated was 24.86% as December 31, 2025.

Debentures issued on May 2, 2025, and paid back on September 17, 2025

		December 31, 2025
Proceeds of debentures	$	4,500,000
Fair value loss		583,823
Repayment of debentures		(3,337,073	)
Interest payment		(83,823	)
Repayment of debentures on extinguishment		(1,662,927	)
Ending balance	$	-

New debentures issued on September 17, 2025:		December 31, 2025
Proceeds of new debenture		7,366,293
Repayment of new debenture		(2,386,031	)
Interest accretion		403,121
Interest payment		(137,840	)
Ending balance	$	5,245,543