Note 5. Notes Payable

September 2022 Note

On September 12, 2022, the Company entered into a securities purchase agreement, pursuant to which the Company borrowed $1,335 and in exchange issued a secured convertible promissory note (the “September 2022 Note”) in the principal amount of $1,500 with an original issue discount of $165. Any time prior to a change of control transaction, the September 2022 Note was convertible into 30% of the outstanding shares of the Company’s common stock on the conversion date on a post-conversion basis (the “Conversion Shares”). The September 2022 Note had a maturity date of December 31, 2023 and bore interest at a rate of 6% per annum. The September 2022 Note provided for customary events of default, the occurrence of which would result in 110% the principal and other accrued amounts outstanding under the September 2022 Note to become immediately due and payable, with the interest rate increasing to 12%. On December 19, 2023, the Company exchanged the September 2022 Note for a new note (see below).

At inception the Company recorded a debt discount of $1,500 and non-cash interest as accretion of debt discount of $5,324. There was no accretion of debt discount recorded during the three and six months ended June 30, 2024 in connection with the September 2022 Note. During the three and six months ended June 30, 2023, the Company recorded accretion of debt discount of $219 and $342, respectively.

December 2023 Note

On December 19, 2023, the Company exchanged the September 2022 Note for a new note (the “December 2023 Note”) with substantially the same terms with the exception of a maturity date of December 31, 2024 and with a conversion feature based on a 40% of the Company’s common stock in a fully diluted basis. The Company accounts for liability classified conversion features and warrants at fair value. As all components of the September 2022 Note are accounted for at fair value both before and after the modification, any changes in the fair value was reflected in earnings. The Company analyzed the cash flows of the plain debt pre and post modifications and concluded that the changes in cash flows were less than 10% and hence modification accounting was applied. The Company continues to amortize the debt discount using the effective interest method of the modified debt. The principal balance of the December 2023 Note is $1,579, has a debt discount of $257, and bears interest at a rate of 6% per annum. During the year ended December 31, 2023, the Company recorded accretion of debt discount of $7 in respect of the December 2023 Note. During the three and six months ended June 30, 2024, the Company recorded accretion of debt discount of $108 and $162, respectively, in connection with the December 2023 Note. There was no accretion of debt discount recorded during the three and six months ended June 30, 2023 in connection with the December 2023 Note.

During the three and six months ended June 30, 2024, the lender converted $41 and $178 of the December 2023 Note into 40,000,000 and 126,000,000 shares of Common Stock with a fair value of $60 and $354, respectively. As a result of the conversion of the $41 and $178 of the December 2023 Note, net of $3 and $24 of debt discount and the settlement of $84 and $368 of the related derivative liability, the Company recorded $41 and $147 as a gain on the settlement of debt, respectively, for the three and six months ended June 30, 2024.

Additionally, the Company issued to the lender three series of warrants (collectively, the “Warrants”). Each of the Series of Warrants is exercisable into 60% of the Conversion Shares and has a term of three years. The Warrants have exercise prices as follows:

In addition to the warrants described above, the Company has previous warrants outstanding whereby it cannot conclude that it has enough authorized and unissued shares to satisfy the settlement requirements for those already outstanding warrants. As a result, the equity environment would be considered tainted, and the conversion feature and the attached warrants are treated as derivative liabilities.

Derivative Liabilities

The Company valued the derivative liability relating to the embedded conversion feature using the Monte Carlo Simulation Method because of the unknown stock price at the future time of conversion. The Monte Carlo Simulation was calculated using the following assumptions:

 Schedule of Monte Carlo Simulation Assumption

The Company’s activity in its convertible debt related derivative liability was as follows for the three and six months ended June 30, 2024:

 Schedule of Derivative Liability Activity

As of June 30, 2024, the fair value of the derivative liability was $311 and for the three and six months ended June 30, 2024 the Company recorded a gain of $2,281 and $2,665, respectively, from the change in fair value of derivative liability as non-operating income in the condensed statements of operations. As of June 30, 2023, the fair value of the derivative liability was $2,979 and for the three and six months ended June 30, 2023 the Company recorded a gain of $1,591 and $244, respectively, from the change in fair value of derivative liability as non-operating income in the statements of operations.

Warrant Derivative Liabilities

As of June 30, 2024, the fair value of the warrant derivative liabilities was $684 and for the three and six months ended June 30, 2024, the Company recorded a gain of $3,420 and $3,526, respectively, from the change in fair value of derivative warrant liability as non-operating expense in the condensed statements of operations. The Company valued the warrant derivative liabilities other than the warrants issued as part of the debt financing using the Black-Scholes option pricing model using the following assumptions as of June 30, 2024: 1) stock price of $0.0005, 2) exercise prices of $0.003 - 0.05, 3) remaining lives of 1.68 – 2.83 years, 4) dividend yields of 0%, 5) risk free rates of 4.71– 4.89%, and 6) volatility of 296.5 – 495%. The Company valued the warrant derivative liability relating to warrants issued in the 2023 debt financing using the binomial lattice model because of the variable exercise price with the following assumptions as of June 30, 2024: 1) stock price of $0.0005, 2) strike prices of $0.007 - $0.012, 3) remaining life of 1.2 years, 4) dividend yield of 0%, 5) risk free rate of 4.89%, and 6) volatility of 439.8%.

As of December 31, 2023, the fair value of the warrant derivative liabilities was $4,253. For the year ended December 31, 2023, the Company recorded a loss of $2,685 from the change in fair value of derivative warrant liability as non-operating income in the statements of operations. The Company valued the warrant derivative liabilities other than the warrants issued as part of the debt financing using the Black-Scholes option pricing model using the following assumptions as of December 31, 2023: 1) stock price of $0.003, 2) exercise prices of $0.03 - 0.12, 3) remaining lives of 2.05 – 2.56 years, 4) dividend yields of 0%, 5) risk free rates of 4.01 – 4.23%, and 6) volatility of 157.7 – 312.4 %. The Company valued the warrant derivative liability relating to warrants issued in the 2022 debt financing using the binomial lattice model because of the variable exercise price with the following assumptions as of December 31, 2023: 1) stock price of $0.004, 2) remaining life of 1.70 years, 3) dividend yield of 0%, 4) risk free rate of 4.23%, and 5) volatility of 344.4%.

The Company’s activity in its warrant derivative liabilities was as follows for the three and six months ended June 30, 2024 and 2023:

 Schedule of Warrant Derivative Liabilities

The Company recorded loss on settlement of derivative liability in the amount of $0 and $0 for the three and six months ended June 30, 2024, respectively. The Company recorded loss on settlement of derivative liability in the amount of $93 and $262 for the three and six months ended June 30, 2023, respectively.

Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally increases, therefore increasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Increases in expected volatility would generally result in higher fair value measurement. A 10% change in pricing inputs and changes in volatilities and correlation factors would not result in a material change in our Level 3 fair value.

 Schedule of Derivative Liability Fair value