Convertible Notes Payable

12 Months Ended

Dec. 31, 2023

Debt Disclosure [Abstract]

Convertible Notes Payable

5. Convertible Notes Payable

The following summarizes convertible note activity during the years ended December 31, 2023 and 2022:

2021 Financing

	Non-Related Party			Related Party
	Face Amount			Face Amount			Total
Balance as of January 1, 2022	$	1,260,000		$	200,000		$	1,460,000
Issuance		550,000			325,000			875,000
Conversion		(1,260,000	)		-			(1,260,000	)
Balance as of December 31, 2022		550,000			525,000			1,075,000
Conversion		(550,000	)		(325,000	)		(875,000	)
Balance as of December 31, 2023	$	-		$	200,000		$	200,000

2022 Financing 

	Non-Related Party			Related Party
	Face Amount			Face Amount			Total
Balance as of January 1, 2022	$	-		$	-		$	-
Issuance		75,000			677,500			752,500
Balance as of December 31, 2022		75,000			677,500			752,500
Issuance		800,000			1,675,000			2,475,000
Conversion		(75,000	)		(677,500	)		(752,500	)
Balance as of December 31, 2023	$	800,000		$	1,675,000		$	2,475,000

2021 Financing

On August 13, 2021, the Board approved a Financing Term Sheet (the “2021 Term Sheet”), which set forth the terms under which the Company will use its best efforts to arrange for financing of a maximum of $5,000,000 (the “2021 Financing”), which amounts will be obtained in several tranches.

Pursuant to the 2021 Term Sheet, the 2021 Notes will either be paid back, convert into shares of the Company’s Series D-1 Preferred Stock, or convert into Company equity securities and/or debt instruments of certain future financings on or before twelve months after the issue date of a 2021 Note, subject to certain exceptions.

The 2021 Financing is in the form of unsecured convertible loans from the investors and evidenced by convertible promissory notes (individually, a “2021 Note” and collectively, the “2021 Notes”). In addition to customary provisions, the 2021 Notes will contain the following provisions:

(i)	The 2021 Notes 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 2021 Notes will be accelerated and all amounts due under the 2021 Notes may be immediately due and payable at the investors’ option;
(iii)	The outstanding principal amount and interest payment under the 2021 Notes may be paid back at maturity at the investors’ option;
(iv)	The outstanding principal amount and interest payable under the 2021 Notes are convertible at the investors’ option into shares of Series D-1 Preferred Stock at a price per share equal to $2.862. The Series D-1 Preferred Stock is convertible into ten (10) shares of common stock; and
(v)	In the event the Company conducts a qualified equity or debt financing and the Company receives gross proceeds in the aggregate amount of $20 million, the 2021 Notes may be converted into the equity securities and/or debt instruments of such financing at the same terms as those investors.

The embedded conversion options associated with the 2021 Notes do not require bifurcation and treatment as a derivative liability.

On September 20, 2022, the Board approved the closure of the 2021 Financing. Through December 31, 2023, the Company received aggregate proceeds of $2,335,000, of which $525,000 is from related party investors (an officer and director of the Company), in connection with the 2021 Notes. For the years ended December 31, 2023 and 2022, the Company recorded interest expense of $46,189 and $147,340, respectively, related to the 2021 Notes.

2022 Financing

On September 20, 2022, the Board approved a Financing Term Sheet (the “2022 Term Sheet”), which set forth the terms under which the Company will use its best efforts to arrange for financing of a maximum of $5,000,000 (the “2022 Financing”), which amounts will be obtained in several tranches. Through December 31, 2023, the Company received proceeds of $3,227,500, of which $2,352,500 was from a related party investor (a Company director) in connection with the 2022 Notes. For the years ended December 31, 2023 and 2022, the Company recorded interest expense of $159,466 and $9,514, respectively, related to the 2022 Notes.

Pursuant to the 2022 Term Sheet, the 2022 Notes (defined below) will convert into shares of the Company’s Series D-1 Preferred Stock twelve months after the issue date of a 2022 Note, subject to certain exceptions.

The 2022 Financing will be in the form of unsecured convertible loans from the investors (the “2022 Note Investors”) and evidenced by convertible promissory notes (individually, a “2022 Note” and collectively, the “2022 Notes”). In addition to customary provisions, the 2022 Notes will contain the following provisions:

(i)	The 2022 Notes 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 2022 Notes will be accelerated and all amounts due under the 2022 Notes may be immediately due and payable at the 2022 Note Investors’ option;
(iii)	The outstanding principal amount and interest payable under the 2022 Notes may be convertible at the 2022 Note Investors’ option into shares of Series D-1 Preferred Stock at a price per share equal to $2.862. The Series D-1 Preferred Stock is convertible into ten (10) shares of common stock; and
(iv)	The outstanding principal amount and interest payable under the 2022 Notes will be automatically convertible into shares of the Company’s Series D-1 Preferred Stock twelve (12) months after the issue date of a 2022 Note.

The embedded conversion options associated with the 2022 Notes do not require bifurcation and treatment as a derivative liability.

2022 Conversions of 2021 Notes into Preferred Stock

The following summarizes the conversion activity during the year ended December 31, 2022:

	Series D-1
	Preferred Stock
Principal converted	$	1,260,000
Accrued interest converted		101,640
Total converted	$	1,361,640
Conversion price	$	2.862
Total shares		475,766

During the year ended December 31, 2022, principal and interest in the aggregate amount of $1,361,640, representing two 2021 Notes were converted into 475,766 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 Shares. See Note 9, Stockholders’ Deficit for additional information on the Series D-1 Preferred Stock.

2023 Conversions of 2021 Notes into Preferred Stock

The following summarizes the conversion activity during the year ended December 31, 2023:

	Series D-1
	Preferred Stock
Principal converted	$	875,000
Accrued interest converted		70,464
Total converted	$	945,464
Conversion price	$	2.862
Total shares		330,354

During the year ended December 31, 2023, principal and interest in the aggregate amount of $945,464, owed in connection with the 2021 Notes were converted into 330,354 shares of Series D-1 Preferred Stock at the Conversion Price of $2.862 per share. Any fractional shares issuable pursuant to the formula were rounded up to the next whole share of Series D-1 Preferred Shares. See Note 9, Stockholders’ Deficit for additional information on the Series D-1 Preferred Stock.

2023 Conversions of 2022 Notes into Preferred Stock 

The following summarizes the conversion activity during the year ended December 31, 2023:

	Series D-1
	Preferred Stock
Principal converted	$	752,500
Accrued interest converted		60,598
Total converted	$	813,098
Conversion price	$	2.862
Total shares		284,117

During the year ended December 31, 2023, principal and interest in the aggregate amount of $813,098, owed in connection with the 2022 Notes were converted into 284,117 shares of Series D-1 Preferred Stock at the Conversion Price of $2.862 per share. Any fractional shares issuable pursuant to the formula were rounded up to the next whole share of Series D-1 Preferred Shares. See Note 9, Stockholders’ Deficit for additional information on the Series D-1 Preferred Stock.