DEBT |
9 Months Ended | |||||||||||||||||||||||||||
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Sep. 30, 2025 | ||||||||||||||||||||||||||||
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| DEBT |
NOTE 3 - DEBT
Entry into a convertible loan agreement
On July 4, 2025, the Company’s Board of Directors approved by unanimous consent an unsecured convertible note program for up to $2 million of borrowings from investors. Subsequently, on July 8, 2025, the Company entered into a Convertible Loan Agreement with an investor under this convertible note program. The investor loaned the Company $250,000 at an interest rate of 10% (effective interest rate of 15.1% including warrant costs) and a term of 24 months. Interest on the loan accrues and is due along with the principal at the end of the term. The loan and accrued but unpaid interest converts into common shares at the earlier of (a) a Qualified Financing of new money equity investment of at least $5 million, and other terms as defined in the agreement, at 80% of the price per share in the Qualified Financing or (b) the Maturity Date at $13.94 per share. The loan may be repaid at the Company’s option before the occurrence of the events in the preceding sentence at a premium of 115% of the loan and accrued interest balance. In the event there was a change in control event, as defined, the Company is required to provide the investor notice of a certain number of days to convert its loan and accrued interest into shares and the investor then has a certain number of days to convert or in the event of no conversion, all amounts due will become payable at the closing date of the change of control event. The conversion price will be equal to the lower of $13.94 per share or the price per share of the Company’s Common Stock as determined in change of control event. The Company elected to apply the fair value option for this convertible note. The primary reason for electing the fair value option is for simplification of accounting for the Convertible Note at fair value in its entirety versus bifurcation of the embedded derivatives. The fair value of note is calculated by discounting scheduled cash flows using discount rates reflecting the credit and interest rate risk inherent in the note. On the date of issuance, July 8, 2025, the Company recognized the liability at fair value of $234,759. Subsequently, the Company remeasured the liability and recognized an increase of approximately $1,754 in the condensed statements of operations within Other Expense, representing the change in fair value from the initial issuance to September 30, 2025. The following table represents the inputs used to calculate the fair value of the convertible notes as of September 30, 2025 and July 8, 2025:
Concurrently with the issuance of the convertible debt, the Company issued a warrant to the investor which allows the investor to purchase 1,793 shares of the Company's common stock at a fixed price of $13.94 per share, the market price on the day of the loan agreement. At issuance, the Company assigned the residual of the proceeds received for the convertible loan and warrant to the equity classified warrants in the amount of $15,241. The Company determined that the warrants did not contain any provisions within the agreement that would require further analysis under ASC 815, such as cash redemption features or exercise price adjustments (other than standard stock splits, dividends, recapitalization or reorganizations) or other characteristics which would preclude equity classification. Interest expense related to this loan was $5,685 during the three and nine months ended September 30, 2025.
Short term unsecured loan
On March 5, 2025, the Company entered into a short-term unsecured loan agreement to finance a portion of the Company’s directors’ and officers’, and employment practices liability insurance premiums. The note in the amount of $488,198 carries an 7.85% annual percentage rate and will be paid down in ten equal monthly payments of $50,593 beginning on March 10, 2025. As of September 30, 2025, the principal balance of $146,459 remained outstanding.
On March 5, 2024, the Company entered into a short-term unsecured loan agreement to finance a portion of the Company’s directors’ and officers’, and employment practices liability insurance premiums. The note in the amount of $517,560 carries an 8.5% annual percentage rate and will be paid down in nine equal monthly payments of $59,562 beginning on March 10, 2024. As of November 9, 2024, the loan was fully paid.
Short term notes
On November 12, 2024, the Company finalized a restructuring of the outstanding convertible debt of $240,000 principal and accrued interest of $36,853. The original debt was a group of 12 separate convertible notes with three parties controlled by one lender and issued between 2008 and 2011. The notes were all past their original maturity dates and the lender allowed for rolling 30-day extensions until notice would be given by the lender to the Company to the contrary. The Company and the lender have now agreed to terminate all these existing notes on November 30, 2024, in favor of three new notes with an aggregate principal balance at November 30, 2024, of $277,254. The new notes have a term of 24 months, and annual interest rate of 1% percent, will be paid off in 24 equal payments beginning November 30, 2024 and ending October 31, 2026. The new notes are not convertible into equity and may be repaid early with no prepayment penalty. As of September 30, 2025 the total remaining principal value of the notes is $150,886. |
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