8-K: ScanTech AI Secures $270,900 Convertible Note

ScanTech AI Systems Inc. has secured a convertible promissory note of up to $270,900 from Vanquish Funding Group Inc. to bolster its working capital.

Summary

• ScanTech AI Systems Inc. (the Company) entered into a securities purchase agreement with Vanquish Funding Group Inc. (Vanquish) on December 22, 2025.
• The Company issued a convertible promissory note (the Note) to Vanquish with a total principal amount of up to $270,900.
• The Note includes an original issue discount of $12,900, resulting in net cash proceeds of $258,000 to the Company.
• The Note bears an annual interest rate of 10% and matures on October 22, 2026.
• Vanquish has the right, but not the obligation, to convert the Note into common stock at any time following 180 days from the issue date.
• The conversion price for the common stock is equal to 75% of the average of the two lowest trading prices during the ten trading day period preceding the conversion date.
• Conversion is subject to a 4.99% beneficial ownership limitation for Vanquish and a 19.99% Conversion Cap (of outstanding common stock or voting power) unless stockholder approval is obtained pursuant to Nasdaq Rule 5635(d).
• In the event of default, the interest rate increases to 22% per annum, and the 'Default Amount' is 150% of the remaining principal, accrued interest, and default interest.
• The Company may prepay the Note in full with three days' written notice, but must pay 120% of the outstanding amount if within 90 days of the issue date, or 125% if between 91 and 190 days.
• The proceeds from the Note are designated for general working capital purposes.
• The Company will reimburse Vanquish $8,000 for legal fees and due diligence expenses.

Sentiment

Score: 3

Explanation: The financing provides immediate capital, which is a positive for liquidity. However, the highly dilutive conversion terms, high interest rates, significant original issue discount, and punitive default/prepayment clauses indicate a very expensive and potentially detrimental financing structure for existing shareholders. This suggests the Company may be in a challenging financial position or unable to secure more favorable terms.

Positives

• Secured $258,000 in immediate funding for general working capital, providing necessary liquidity to support ongoing operations.

Negatives

• The Note carries a high annual interest rate of 10% on the principal amount.
• A significant original issue discount of $12,900 reduces the net proceeds received by the Company to $258,000.
• The conversion price is set at a substantial 25% discount (75% of market price), leading to significant potential dilution for existing shareholders.
• Punitive default terms include an increased interest rate of 22% per annum and a 'Default Amount' equal to 150% of the outstanding obligations.
• High prepayment penalties of 120% within 90 days and 125% between 91 and 190 days make early repayment costly and limit financial flexibility.
• The 19.99% conversion cap may necessitate shareholder approval, adding complexity and potential delays if further conversions are needed beyond this threshold.

Risks

• Significant Shareholder Dilution: The conversion price at a 25% discount to market price, combined with the potential for conversion of the full principal and accrued interest, poses a substantial risk of dilution for existing common stockholders.
• High Cost of Capital: The 10% interest rate, $12,900 original issue discount, and potential default interest of 22% represent a very high cost of capital, which could strain the Company's financial resources.
• Default Risk: Failure to meet payment obligations or other covenants could trigger an Event of Default, leading to immediate payment of 150% of the outstanding amount and potentially further dilution if converted at default terms.
• Market Price Volatility: The conversion price is tied to the Company's trading price, meaning a declining stock price would result in more shares being issued upon conversion, exacerbating dilution.
• Regulatory Compliance: The 19.99% conversion cap requires adherence to Nasdaq rules, potentially necessitating shareholder approval, which could be a hurdle.
• Liquidity Risk: The need for this type of financing suggests potential underlying liquidity challenges or difficulty in securing more favorable terms from traditional lenders.

Future Outlook

The Company intends to use the proceeds from the convertible note for general working capital purposes, aiming to support ongoing operations and strategic initiatives.

Management Comments

• ScanTech AI Systems Inc. By: /s/ Dolan Falconer Name: Dolan Falconer Title: Chief Executive Officer

Industry Context

This type of financing, characterized by a convertible note with a significant discount to market price and high interest rates, is often utilized by smaller, emerging growth companies in the technology or AI sector that may have limited access to traditional bank financing or are seeking to bridge funding gaps. It reflects a higher risk profile and a willingness to accept dilutive terms for immediate capital.

Comparison to Industry Standards

• The 25% discount on conversion (75% of market price) is aggressive and significantly more dilutive than typical convertible debt issued by more established companies, which often have conversion premiums.
• The 10% annual interest rate is high for debt, and the 22% default interest rate is punitive, indicating a high-risk lending scenario.
• The original issue discount further increases the effective cost of capital, making this a relatively expensive form of financing compared to standard corporate bonds or bank loans.
• Prepayment penalties of 120-125% are also on the higher side, limiting the Company's flexibility to refinance if better terms become available.
• Comparable companies or projects that might resort to such financing are typically early-stage tech firms, biotech startups, or companies facing short-term liquidity challenges, where access to capital is paramount, even at a high cost.

Corporate Governance

Stakeholder Impact

• Shareholders: Face significant potential dilution due to the convertible nature of the note and the 25% discount on conversion. The high cost of capital could also negatively impact future earnings per share.
• Creditors (Vanquish Funding Group Inc.): Benefits from favorable terms, including a high interest rate, significant discount on conversion, and punitive default provisions, providing strong downside protection and upside potential.
• Employees/Operations: The capital infusion for working capital may help stabilize operations and ensure continued employment, at least in the short term.

Next Steps

• The Company will use the $258,000 proceeds for general working capital.
• Vanquish Funding Group Inc. may convert portions of the note into common stock after 180 days, subject to conversion limitations.
• The Company must ensure it maintains sufficient authorized and unissued common stock to cover potential conversions.
• The Company is obligated to comply with reporting requirements of the 1934 Act.

Key Dates

Recommendation

The terms of this convertible note financing are highly unfavorable and indicative of a company in a distressed or challenging financial position. The 25% discount on conversion, coupled with a 10% interest rate and punitive default clauses (22% default interest, 150% default amount), will lead to substantial dilution for existing shareholders and a very high cost of capital. This financing structure suggests the Company was unable to secure more favorable terms, raising concerns about its long-term financial health and ability to generate shareholder value. Investors should consider selling due to the significant dilution risk and the high cost of this capital raise.

Keywords

ScanTech AI Systems, STAI, Convertible Note, Promissory Note, Vanquish Funding Group, Debt Financing, Equity Dilution, Working Capital, SEC Filing, 8-K, Nasdaq, AI Systems