Notes Payable

9 Months Ended

Sep. 30, 2024

Debt Disclosure [Abstract]

Notes Payable

Note 6 – Notes Payable

As of September 30, 2024 and through the date of this filing, notes and convertible notes payable with principal amounts totaling approximately $5,663,000 and $1,926,000, respectively, were past due. Such notes continue to accrue interest and all relevant penalties have been accrued as of September 30, 2024. The Company is in negotiations with certain holders of notes payable to extend the maturity dates of such notes or to convert the principal and accrued interest into equity. As of September 30, 2024, the Company had an accrued interest balance of $840,663 related to notes and convertible notes payable that were past due.

During the three months ended September 30, 2024 and 2023, the Company recorded interest expense of $356,786 and $262,091, respectively, and amortization of debt discount of $148,073 and $80,667, respectively. During the nine months ended September 30, 2024 and 2023, the Company recorded interest expense of $730,539 and $635,143, respectively, and amortization of debt discount of $223,652 and $361,692, respectively. As of September 30, 2024 and December 31, 2023, the Company had $3,136,092 and $2,419,666, respectively, of accrued interest (including interest in the form of warrants (see Note 4, Fair Value) and penalties related to notes payable, which is included with accrued interest and accrued interest – related parties on the condensed consolidated balance sheets.

Notes Payable

In May 2024, the Company received proceeds of $250,000 from investors and issued notes payable in the aggregate principal amount of $300,000 with a maturity date of November 22, 2024. The notes bear interest at 10% per annum and have an aggregate original issue discount of $50,000 which was recorded as a debt discount and will be amortized over the term of the note. In connection with the issuances, the Company issued ten-year immediately vested warrants to purchase an aggregate of 625,000 shares of common stock at an exercise price of $0.75 per share. The warrants had an issuance date fair value of $96,710 which was included within derivative liabilities, recorded as a debt discount and will be amortized over the term of the notes. During the nine months ended September 30, 2024, the Company repaid $6,250 of the outstanding principal balance, such that $293,750 was outstanding as of September 30, 2024.

On July 15, 2024, the Company entered into an exchange agreement with a note holder, whereby the parties agreed to exchange a note payable with a principal amount of $30,000 for a warrant to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.75 per share. The exchange resulted in a gain on extinguishment of notes payable of $17,893 during the three and nine months ended September 30, 2024. The warrant had an issuance date fair value of $12,107 and was recorded as a derivative liability under the Company’s sequencing policy on the condensed consolidated balance sheet as of September 30, 2024.

Notes Payable - Related Parties

In May 2024, the Company received proceeds of $250,000 from an investor and issued a note payable in the principal amount of $300,000 with a maturity date of November 22, 2024. The note bears interest at 10% per annum and has an original issue discount of $50,000 which was recorded as a debt discount and will be amortized over the term of the note. In connection with the issuance, the Company issued ten-year immediately vested warrants to purchase 625,000 shares of common stock at an exercise price of $0.75 per share. The warrants had an issuance date fair value of $96,710 which was included within derivative liabilities - related parties, recorded as a debt discount and will be amortized over the term of the note. During the nine months ended September30, 2024, the Company repaid $6,250 of the outstanding principal balance, such that $293,750 was outstanding as of September 30, 2024.

Convertible Notes Payable

During the three months ended March 31, 2024, a convertible note with $100,000 of principal outstanding was automatically converted into 13,333 shares of Series C Convertible Preferred Stock at a price of $7.50 per share and the Company elected to convert $4,910 of accrued interest under such note into 6,546 shares of common stock at a price of $0.75 per share. The embedded conversion option attributable to the Series C Convertible Preferred Stock was accounted for as derivative liability and had an issuance date fair value of $1,700.

On March 22, 2024, the Company completed its private offering of 8% Convertible Notes that are convertible into shares of the Company’s Series C Convertible Preferred Stock at a conversion price of $7.50 per share. Since the inception of the private offering in 2020, the Company sold $4,760,170 aggregate principal amount of notes in the offering and issued investors warrants to purchase 4,321,926 shares of common stock at an exercise price of $1.25 per share. There were no issuances during the nine months ended September 30, 2024.

On July 24, 2024, the Company entered into a note amendment agreement with a note holder to (i) extend the maturity date of a note in the principal amount of $50,000 from December 23, 2023 to December 23, 2024 and (ii) increase the interest rate from 8% to 10% effective July 2024. Further, in the event of an equity or debt financing transaction resulting in gross proceeds of at least $2,000,000, the Company or guarantor of the note shall repay the note in full within five days after completing the transaction. If the note is not repaid in full by December 23, 2024, any further extension will require the issuance of an additional five-year warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $0.75 per share. Contemporaneous with the execution of this amendment, the Company (i) issued to the lender an additional five-year warrant to purchase 25,000 shares of the Company’s common stock at an exercise price of $0.75 per share and (ii) amended the holder’s previously outstanding warrant to reduce the exercise price to $0.75 per share. This transaction was accounted for as a debt modification. The warrants had an issuance date fair value of $3,000 and were accounted for as derivative liabilities under the Company’s sequencing policy on the condensed consolidated balance sheet as of September 30, 2024.

On July 24, 2024, the Company entered into a note amendment agreement with a note holder to (i) extend the maturity date of a note in the principal amount of $25,000 from December 26, 2023 to December 26, 2024 and (ii) increase the interest rate from 8% to 10% effective July 2024. Further, in the event of an equity or debt financing transaction resulting in gross proceeds of at least $2,000,000, the Company or guarantor of the note shall repay the note in full within five days after completing the transaction. If the note is not repaid in full by December 26, 2024, any further extension will require the issuance of an additional five-year warrant to purchase 25,000 shares of the Company’s common stock at an exercise price of $0.75 per share. Contemporaneous with the execution of this amendment, the Company (i) issued to the lender an additional five-year warrant to purchase 12,500 shares of the Company’s common stock at an exercise price of $0.75 per share and (ii) amended the holder’s previously outstanding warrant to reduce the exercise price to $0.75 per share. The warrants had an issuance date fair value of $1,500 and were accounted for as derivative liabilities under the Company’s sequencing policy on the condensed consolidated balance sheet as of September 30, 2024.

On November 29, 2023, the Company and a certain investor agreed to extend the maturity date of a certain convertible note payable in the principal amount of $100,000 from December 31, 2022 to July 1, 2024. In addition, the note provides repayment terms as follows: $10,000 per month from January 1, 2024 through March 1, 2024 and $20,000 per month from April 1, 2024 through June 1, 2024. A final payment of $10,000 and all accrued and unpaid interest is due on July 1, 2024. As of September 30, 2024 and through the date of filing these payments have not been made.

Convertible Notes Payable - Related Parties

In March 2024, the Company received additional advances of $146,672 under a note originally issued to George Verstraete, a director of the Company, and assigned to a trust controlled by Darlene Soave, a director of the Company, (the “Verstraete Note”), and, as a result, increased the outstanding principal balance of the Verstraete Note to $3,736,708. In connection with the advances, the Company issued five-year immediately vested warrants to purchase an aggregate of 117,338 shares of common stock at an exercise price of $1.25 per share to the trust controlled by Ms. Soave, the holder of the note. The warrants had an issuance date fair value of $6,666 which was included within derivative liabilities - related parties, recorded as a debt discount and will be amortized over the term of the note.

In April 2024, the Company entered into note amendment agreements with a trust controlled by Darlene Soave to extend the maturity dates of a note originally issued to Ms. Soave and assigned to the trust (the “Soave Note”) and the Verstraete Note to October 28, 2024 and September 10, 2024, respectively. See Note 10- Subsequent Events, for additional information related to the note extensions.