v3.26.1
Convertible Promissory Notes, Net
 3 Months Ended
Mar. 31, 2026
Convertible Promissory Notes, Net [Abstract]  
CONVERTIBLE PROMISSORY NOTES, NET

NOTE 6 – CONVERTIBLE PROMISSORY NOTES, NET

 

During the year ended December 31, 2025, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”) with certain existing investors for the sale of debentures (“Debentures”). Pursuant to the Purchase Agreements, the Company agreed to sell to the purchasers in several private placements, Debentures in aggregate principal amounts of $1,750,000, initially for 60 day periods with varying maturity dates. The Debentures were extended when due, and the most recent extensions extended all the Debentures until June 30, 2026. The Debentures do not bear interest. The Debentures also set forth certain customary events of default after which the Debentures may be declared immediately due and payable, including certain types of bankruptcy or insolvency events of default. Subject to the satisfaction of certain conditions, including applicable prior notice to the holders of the Debentures, at any time prior to the maturity dates, the Company may elect to prepay all or a portion of the-then outstanding principal amount of the Debentures. On February 26, 2026, the Company sold an additional $200,000 of Debentures due April 27, 2026, which were extended until June 30, 2026 along with the other Debentures.

 

In the event that prior to the maturity dates the Company consummates a public offering of its securities (“Public Offering”), the then-outstanding principal amount of the Debentures automatically converts into shares of the Company’s Common Stock (the “Debenture Shares”) at a conversion price equal to the per share price of the shares of Common Stock offered in the Public Offering. The Debenture Shares, if any, are subject to the same terms and conditions as the shares of Common Stock issued in a Public Offering, including the issuance of any accompanying warrants to purchase shares of Common Stock issued and registration rights granted, if any, to investors in the Public Offering.

 

In addition, pursuant to the Purchase Agreements the Company agreed to issue (A) subject to the consummation of a Public Offering, five-year warrants to purchase up to a number of shares of Common Stock (the “Purchase Warrants”), equal to: (i) in the event the Debentures are outstanding as of the date of the consummation of the Public Offering, 150% of the Debenture Shares issued, if any; or (ii) in the event that the Debentures are not outstanding as of the Public Offering closing date, 100% of the Debenture Shares that would have been issued, if any, as if such Debentures were outstanding as of the Public Offering closing date, and (B) subject to the completion of a Public Offering by the Company of warrants to purchase shares of Common Stock, additional warrants to purchase shares of Common Stock (the “Additional Warrants” and, collectively with the Purchase Warrants, the “Bridge Financing Warrants”) equal to: (i) in the event that the Debentures are outstanding as of the Public Offering closing date, 150% of the number of shares of Common Stock underlying the warrants issued in the Public Offering that the purchaser would have been entitled to receive had the purchaser participated in the Public Offering in the amount equal to the purchaser’s subscription amount under the Purchase Agreements (the “Warrant Subscription Amount”); or (ii) in the event that the Debentures are not outstanding as of the Public Offering closing date, 100% of the Warrant Subscription Amount.

The Company reviewed the terms of the Bridge Financing Loans and determined that due to the variable number of instruments to be issued, they would constitute a derivative liability. At the initial date, the Company estimated the fair value of both sets of Bridge Financing. The fair value of the embedded derivative financial instruments was bifurcated from the host instrument and remeasured on recurring basis at each reporting period under marked to market approach. The fair value of the derivative liabilities at inception are recorded as debt discounts to the Debentures which are amortized over the life of the loan using the effective interest method. Amortization of debt discount for the three months ended March 31, 2026 and 2025 amounted to $161,425 and $0, respectively, using effective interest rates of 74.15%-76.57% for the estimated amortization period. The balance of the Debentures in the financial statements as of December 31, 2025 is $1,308,229, which represents principal values of $1,750,000, net of a debt discount of $441,771. The balance of the Debentures in the financial statements as of March 31, 2026 is $1,584,358, which represents principal values of $1,950,000, net of a debt discount of $365,642.

 

Derivative Liability

 

The Company valued the derivative liability relating to the embedded conversion features using the Black Scholes Model using the following assumptions on the respective dates of the Debentures:

 

   December 31,
2025		   February 26,
2026		   March 31,
2026		 
Stock price  $0.0100    0.0061    0.0052 
Estimated exercise price   0.0095    0.0058    0.0049 
Term (years)   2.5    2.5    2.5 
Annual volatility   43.81%   44.46%   44.67%
Risk free rate   3.55%   3.46%   3.81%
Dividend yield   0%   0%   0%
Estimated warrant amount*   262,500,000    49,180,328    562,500,000 
Fair value of warrants  $722,192   $85,296   $789,788 

 

  * Amounts at December 31, 2025 and March 31, 2026 represent the total estimated number of warrants.

 

The Company has assumed that the debentures will be outstanding at the potential Public Offering. The Company discounted the Purchase Warrants value due to an estimated probability of 90% of the occurrence of a Public Offering, as well as a dilution discount relating to the effect the exercise of the warrants would have on expected market value. The Additional Warrants were fully discounted resulting from the Company’s current estimation of a zero probability of an occurrence of Public Offering including warrants.

 

The Company’s activity in its convertible promissory notes, net related derivative liability was as follows for the period ended March 31, 2026:

 

Balance of derivative liability at January 1, 2025  $
-
 
Grant of warrants   751,640 
Change in fair value of warrant derivative liability   (29,448)
Balance of derivative liability at December 31, 2025  $722,192 
Grant of warrants   85,296 
Change in fair value of warrant derivative liability   (17,700)
Balance of derivative liability at March 31, 2026  $789,788