10. CONVERTIBLE NOTES PAYABLE NET OF DEBT DISCOUNT

Convertible Notes Payable consisted of the following:

During the initial recognition company calculated fair value of derivative liability on convertible debt and Warrants and recorded the difference as debt discount subject to maximum of notes payable amount. Debt discount will be amortized over the term of the note.

Debt discount is calculated as follows:

On February 6, 2025, the Company entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) with the purchasers named therein (the “Arena Investors”). Under the Securities Purchase Agreement, the Company will issue 10% original issue discount secured convertible debentures (“Debentures”) in a principal amount of up to $10,000,000, divided into up to four separate tranches that are each subject to certain closing conditions. The conversion price per share of each Debenture, subject to adjustment as provided therein, is equal to 92.5% of the lowest daily VWAP (as defined in the Debentures) of the Company’s shares of common stock during the five trading day period ending on the trading day immediately prior to delivery or deemed delivery of the applicable Conversion Notice (as defined in the Debentures). The Debentures accrue interest at a rate of 10% per annum paid in kind, unless there is an event of default in which case the Debentures will accrue interest at a default rate.

Upon the consummation of the closing of each tranche, the Company issued common stock purchase warrants (“Warrants”) to each Arena Investor who participated in such closing. The Warrants will: (i) provide for the purchase by the applicable Arena Investor of a number of shares of common stock equal to 20% of the total principal amount of the related Debenture purchased by the Arena Investor on the applicable closing date divided by 92.5% of the lowest daily VWAP of common stock for the five consecutive trading day period ended on the last trading day immediately preceding such closing date and (ii) be exercisable at an exercise price equal to 92.5% of the average of the lowest daily VWAP of the common stock over the consecutive trading days immediately preceding the delivery of the applicable Notice of Exercise (as defined in the Warrants).

The Company conducted four closings in February 2025, March 2025, and August 2025 and the Company issued to the Arena Investors Debentures in an aggregate principal amount of $3,750,000. The Debentures were sold to the Arena Investors for a purchase price of $4,166,665, representing an original issue discount of 10% and professional fees. The Company also issued to the Arena Investors 1,041,667 Warrants in connection with the Debentures. The fair value of the warrant liability was determined using Monte Carlo valuation techniques and is remeasured at each reporting date, with changes in fair value recognized in the statement of operations. In December 2025, the Company entered into a Warrant Exchange and Termination Agreement (“Warrant Termination Agreement”) with Areana Investors. Under the Warrant Termination Agreement, the Company terminated and cancelled all previously issued 1,041,667 Warrants and issued 134,139 common stock shares.