Note 5 – Convertible Debt and Derivative Liability

Standby Equity Purchase Agreement and 2025 Convertible Promissory Notes

On October 24, 2025, the Company entered into a Standby Equity Purchase Agreement (“SEPA”) and related Registration Rights Agreement with YA II PN, Ltd. (“Yorkville”), providing the Company the right, but not the obligation, to sell up to $20.0 million of common stock from time to time, subject to customary conditions, including an effective resale registration statement.

In connection with the SEPA, Yorkville agreed to provide up to $6.0 million of pre-paid advances via convertible promissory notes (the “2025 Notes”). On October 27, 2025, the Company received $3,720,000 and issued a $4.0 million note (7% original issue discount, “OID”). A second $1,860,000 tranche was received in December 2025, upon registration effectiveness and receipt of stockholder approval, against a $2.0 million note (7% OID). The notes bear interest at 8% (increasing to 18% upon default), mature on October 24, 2026, and are convertible at $1.50 per share, subject to proportional anti-dilution and price-protection adjustments (not below a contractual floor). Beginning January 7, 2026, and monthly thereafter, the Company must repay one-tenth (1/10) of the then-outstanding principal plus accrued interest (a 5% premium applies to cash repayments). Installments may be satisfied via SEPA advances without the premium, and SEPA proceeds must be applied first to repay the notes until they are repaid in full.

As consideration for Yorkville’s commitment to purchase common stock at the Company’s direction pursuant the SEPA, the Company (i) paid to Yorkville a cash “structuring fee” in the amount of $25,000 and (ii) upon execution of the SEPA, issued to Yorkville 131,909 Commitment Shares, which have a total aggregate dollar value equal to $200,000, or 1.0% of Yorkville’s $20.0 million aggregate purchase commitment under the SEPA (each Commitment Share valued at approximately $1.5162 per share, representing the VWAP on October 23, 2025, the trading day immediately prior to the date of execution of the SEPA, rounded to the nearest whole share).

On February 20, 2026, the Company and Yorkville entered into an Omnibus Amendment (the “Amendment”). Among other changes, the Amendment revises the terms of the convertible promissory notes to defer the commencement of monthly installment payments to April 1, 2026, effectively providing an extension of approximately three months.

The Convertible Notes include features that allow for settlement through either (i) cash repayment or (ii) issuance of common stock at variable or fixed conversion prices, subject to certain contractual terms, including a floor price and installment-based repayment structure.

The Convertible Notes are classified as a Level III liability within the fair value hierarchy, as their valuation is based on significant unobservable inputs and assumptions.

The Company elected the fair value option for the Convertible Notes upon issuance. As such, the Convertible Notes are measured at fair value at inception and remeasured at each reporting date, with changes in fair value recognized in earnings. The fair value of the Convertible Notes was determined using a Monte Carlo simulation model.

This valuation approach incorporates multiple potential stock price paths over the contractual term, the Company’s ability to settle in shares or cash, the note holder’s ability to convert at a fixed price, variable conversion features tied to market prices, and contractual floors and share caps.

The model simulates a large number of potential outcomes and calculates the expected fair value based on probability-weighted results.

The convertible notes accounted for under the fair value election are each debt host financial instruments containing embedded features wherein the entire financial instrument is initially measured at its issue-date estimated fair value and then subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. Changes in the estimated fair value of the 2025 Notes are recorded as a component of Other (expense) income in the consolidated statements of operations, except that the change in estimated fair value attributable to a change in the instrument-specific credit risks is recognized as a component of other comprehensive income. The instrument specific credit risk associated with the 2025 Notes was de minimis. As a result of electing the fair value method, issuance costs related to the 2025 Notes, including the structuring fee and the commitment fee were expensed as incurred.

The following key assumptions were used in the valuation at each measurement date:

Schedule of Key Assumptions in Valuation Measurement

Volatility was estimated using a combination of the Company’s historical volatility and that of comparable publicly traded companies.

At issuance, the initial convertible promissory note was measured at a fair value of $3,914,515. As of December 24, 2025, concurrent with the second tranche, the fair value of the 2025 Notes was remeasured to $5,225,670. As of December 31, 2025, the fair value of the 2025 Notes was $5,298,068. Changes in fair value during the period were recognized in the Statements of Operations as Gain on change in fair value of convertible notes. The original issue discounts totaling $420,000 were incorporated into the initial and subsequent fair value measurements of the 2025 Notes. As of December 31, 2025, the outstanding principal balance on the 2025 Notes is $6,000,000.

For the year ended December 31, 2025, the Company recognized a net gain on change in fair value of convertible notes of $281,932.

As of December 31, 2025, the Company incurred $61,723 of interest expense and paid $22,251 through the sale of 20,000 shares of common stock at an average price of approximately $1.11 through the SEPA. As of December 31, 2025, $39,829 is accrued in Accrued interest on the Company’s balance sheets.

JUPITER NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2025 and 2024

Note 5 – Convertible Debt and Derivative Liability, continued

Convertible Debt I

Between August and December 2021, the Company issued convertible notes (collectively, “Notes I”) totaling $527,650, originally maturing on July 31, 2022, with an interest rate of 1%. Notes I featured an automatic conversion feature upon an IPO into Common Stock at 70% of the IPO price. Various amendments extended the maturity, ultimately to December 31, 2024, and increased the interest rate to 10%. In December 2024, following a successful IPO, the then outstanding principal and accrued interest totaling $636,852 Notes I converted into 227,447 shares of Common Stock at $2.80 per share.

Convertible Debt II

On April 11, 2022, the Company issued a senior secured convertible note (“Note II”) and 514,403 shares of Common Stock for net proceeds of $977,333 ($1,000,000 less origination costs and an embedded discount). Note II had an original principal of $1,111,111. The original terms of Note II included, among other provisions, penalties and stock conversions at substantial discounts upon default or qualified offerings. Various amendments were executed which extended principal repayment dates and increased repayment premiums resulting in losses on debt extinguishment totaling $887,946 in 2023. On April 24, 2024, Note II was further modified, removing the conversion feature, increasing principal to $1,377,778, and extending the maturity, resulting in a gain on modification of $951,868 and an increase to derivative liability of $407,494. Note II was fully repaid in December 2024 for $2,102,797, which included all outstanding principal and accrued interest.

Convertible Debt III

On March 1, 2023, the Company issued a convertible note (“Note III”) with a principal amount of $150,000 in connection with an investor relations settlement, maturing February 28, 2026 and a compounding 5% annual interest rate. In December 2024, the then outstanding balance of Note III totaling $178,386 was fully repaid, which included all then outstanding principal and accrued interest.

Interest

During the year ended December 31, 2024, $147,705, was included in interest expense for the combined convertible Notes I, II and III on the accompanying 2024 statements of operations. These notes were paid in full in December 2024.

JUPITER NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2025 and 2024

Note 5 – Convertible Debt and Derivative Liability, continued

Derivative Liability Pursuant to Convertible Debt

In connection with the issuance of the Notes, the Company determined that the terms of Notes contain an embedded conversion option to be accounted for as a derivative liability due to the Holder having the potential to gain value upon IPO. Accordingly, the embedded conversion option contained in Notes was accounted for as derivative liability and debt discount at the date of issuance and has been adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option was determined using the Monte Carlo valuation model.

During the year ended December 31, 2024, the derivative liabilities were revalued, and a $857,723 adjustment was recorded as a gain on extinguishment of debt to other expenses reflected in the accompanying statements of operations.

The Company also recorded $53,257 as a loss on the change in the fair value of the derivative liability for the year ended December 31, 2024.

The fair value of the derivative liability of Notes I, Note II and Note III was estimated using the Monte Carlo Valuation model at issuance and each reporting period with the following assumptions:

Schedule of Fair Value Derivative Liability 

JUPITER NEUROSCIENCES, INC.

NOTES TO FINANCIAL STATEMENTS

December 31, 2025 and 2024

Note 5 – Convertible Debt and Derivative Liability, continued

Derivative Liability Pursuant to Convertible Debt, continued

A summary of activity of the derivative liabilities and the 2025 Notes, which represent the Level III fair value measurements, is presented below:

Schedule of Derivative Liability