In March 2022, the Company entered into a binding term sheet agreement (“note payable”) with Robert Kopple and associated entities (collectively “Kopple”) in the aggregate of $10,000. Robert Kopple is the former Vice-Chairman of the Company’s Board of Directors and is a current shareholder in the Company. The Kopple note payable was previously reported as a note payable-related party (see Note 9). In March 2024, the Company and Kopple amended the note payable, which, among other things, added a conversion feature to the note payable. Accordingly, the amended note payable is now reported as a convertible note payable-related party.

The convertible note payable to Kopple is secured by tangible and intangible assets of the Company, bears interest at a rate of 10% per annum (15% on default) and matures in June 2029. As of February 28, 2025, the outstanding balance of the convertible note payable was $9,259. 

March 2024 amendment to the Kopple note payable

The amendment to the Kopple note payable (i) replaced a requirement to pay the $3,850 past due principal balance with the requirement to pay $2,000 on or before December 15, 2024 (see extension below); (ii) increased the stated interest rate to 10% (15% on default); (iii) added a fee of $15 monthly until the Company makes a principal payment of $2,000 by December 2024; (iv) effective August 30, 2024, the Company granted Kopple a 36 month right (but not any obligation) to convert the note payable into equity of the Company at a conversion price equal to the lower of $1 per share or 50% of the 10 day volume weighted average price per share of the Company’s common stock; (v) requires the Company to pay 20% of all collected revenues within 10 days of the end of each fiscal quarter; (vi) requires the Company to pay Kopple 20% of any amount raised in new capital in the form of equity, debt or convertible debt above $3,500; (vii) reduces the exercise price of the warrants granted to Kopple in March 2022 from $0.85 per share to $0.50 per share; and (viii) extends the warrant expiration date of the warrants granted to Kopple from March 8, 2029, to March 31, 2031.

On February 28, 2025, an installment payment of $2,000, due in December 2024, was extended to March 31, 2025 in exchange for a cash payment of $100,000, which was recorded as interest expense. On April 28, 2025, , Kopple agreed to extend the installment payment of $2,000 for an additional 90 days to June 30, 2025, in exchange for another cash payment of $100,000.

Accounting for March 2024 amendment to the Kopple note payable as debt extinguishment

The Company accounted for the amended terms of the Kopple note payable as a debt extinguishment because the present value of the cash flows under the amended debt terms is greater by more than 10% compared to the present value of the remaining cash flows under the original existing debt terms. Furthermore, the amendment granted a conversion option to the note holder and is deemed substantially different from the existing note. As a result, the net carrying amount of the existing note payable of $12,164 was derecognized and amended convertible note payable was recorded at its fair value of $9,259. The Company recorded a loss on debt extinguishment of $19,324 as a result of this amendment, which is the difference between (i) the fair value of the amended convertible note payable of $9,259, combined with the fair value of the conversion option of $22,194 (see Note 12), and the change in the fair value of the amended warrants of $33, and (ii) the net carrying amount of the existing note payable of $12,162.

Other

At February 28, 2025, Kopple alleges that the Company failed to comply with certain non-monetary terms including failing to hold a shareholders’ meeting by August 1, 2024, and failure to pay 20% of all collected revenues within 10 days of the end of each fiscal quarter. In addressing the alleged violation of terms, the Company has provided for interest at the rate of 15% per annum and reported the entire convertible note payable as current.