Convertible Notes Payable

9 Months Ended

Sep. 30, 2024

Debt Disclosure [Abstract]

Convertible Notes Payable

5. Convertible Notes Payable

2024 Financing

On July 11, 2024, the Board approved a Financing Term Sheet (the “2024 Term Sheet”), which set forth the terms under which the Company will use its best efforts to arrange for financing of a maximum of $10,000,000 (the “2024 Financing”), which amounts will be obtained in several tranches.

Pursuant to the 2024 Term Sheet, the 2024 Notes (defined below) will automatically convert into shares of the Company’s Series D-1 Preferred Stock twelve months after the issue date of a 2024 Note, subject to certain exceptions.

The 2024 Financing will be in the form of an unsecured convertible loan (the “2024 Loan”) from the investors (the “2024 Loan Investors”) and evidenced by convertible promissory notes (individually, a “2024 Note” and collectively, the “2024 Notes”). In addition to customary provisions, the 2024 Notes will contain the following provisions:

(i)	The 2024 Loan will bear interest at the rate of eight percent (8%) per annum on the outstanding principal amount of the Loan that has been funded to the Company;
(ii)	In the event there is a change of control of the Board, the term of the 2024 Notes will be accelerated and all amounts due under the 2024 Notes may be immediately due and payable at the 2024 Loan Investors’ option;
(iii)	The outstanding principal amount and interest payable under the 2024 Loan may be convertible at the 2024 Loan Investors’ option into shares of Series D-1 Convertible Preferred Stock at a price per share equal to $2.8620. The Series D-1 Convertible Preferred Stock is convertible into ten (10) shares of common stock; and
(iv)	The outstanding principal amount and interest payable under the 2024 Loan will be automatically convertible into shares of the Company’s Series D-1 Preferred Stock twelve (12) months after the issue date of a 2024 Note at a price per share equal to $2.8620.

The following summarizes convertible notes payable activity during the nine months ended September 30, 2024:

2021 Financing

	Non-Related Party		Related Party
	Face Amount		Face Amount			Total
Balance as of January 1, 2024	$	-	$	200,000		$	200,000
Repayment		-		(100,000	)		(100,000	)
Balance as of September 30, 2024	$	-	$	100,000		$	100,000

2022 Financing

	Non-Related Party		Related Party
	Face Amount		Face Amount			Total
Balance as of January 1, 2024	$	800,000	$	1,675,000		$	2,475,000
Issued		353,000		1,500,000			1,853,000
Conversion		(700,000)		(1,525,000	)		(2,225,000	)
Balance as of September 30, 2024	$	453,000	$	1,650,000		$	2,103,000

On July 11, 2024, the board of directors (the “Board”) approved the closure of the 2022 Financing. Through September 30, 2024, the Company received 2022 Notes proceeds in the aggregate amount of $5,080,500, of which $3,852,500 is from a related party investor (a Company officer/director).

2024 Financing

	Non-Related Party		Related Party
	Face Amount		Face Amount		Total
Balance as of January 1, 2024	$	-	$	-	$	-
Issued		-		450,000		450,000
Balance as of September 30, 2024	$	-	$	450,000	$	450,000

Through September 30, 2024, the Company received 2024 Notes proceeds in the aggregate amount of $450,000, all of which is from a related party investor (a Company officer/director). See Note 12 for details on 2024 Notes received subsequent to September 30, 2024.

2024 Repayment of 2021 Notes

During the nine months ended September 30, 2024, the Company repaid $100,000 of principal owed on the 2021 Note. As of September 30, 2024, principal and interest in the amount of $100,000 and $48,094, respectively, remains outstanding on the 2021 Note.

2024 Conversions of 2022 Notes into Preferred Stock

During the three months ended September 30, 2024, principal and interest in the aggregate amount of $972,600, owed in connection with the 2022 Notes were converted into 339,833 shares of Series D-1 Preferred Stock at the Conversion Price of $2.862. Any fractional shares issuable pursuant to the formula were rounded up to the next whole share of Series D-1 Preferred Stock. See Note 8, Stockholders’ Deficit for additional information on the Series D-1 Preferred Stock.

During the nine months ended September 30, 2024, principal and interest in the aggregate amount of $2,404,057, owed in connection with the 2022 Notes were converted into 839,998 shares of Series D-1 Preferred Stock at the Conversion Price of $2.862. Any fractional shares issuable pursuant to the formula were rounded up to the next whole share of Series D-1 Preferred Stock. See Note 8, Stockholders’ Deficit for additional information on the Series D-1 Preferred Stock.

Interest expense on Convertible Notes Payable

During the three and nine months ended September 30, 2024, the Company incurred $55,193 and $166,327, respectively of interest expense on outstanding 2021, 2022 and 2024 Notes. As of September 30, 2024 and December 31, 2023, accrued interest on the convertible notes was $133,699 and $146,428, respectively.