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RELATED PARTY TRANSACTIONS
 9 Months Ended
Sep. 30, 2025
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS

NOTE 15 — RELATED PARTY TRANSACTIONS

 

Lead Investor Agreement

 

In connection with the Subscription Agreement, the Company and Faraday entered into a Lead Investor Agreement (the “Lead Investor Agreement”), pursuant to which, among other things, the Company has agreed to adopt a treasury reserve policy suitable to Faraday and has agreed to certain governance changes including, among other things, the reduction of the size of the Board of Directors, of which two will initially be appointed by Faraday.

 

Convertible Debt

 

On December 22, 2022, the Company issued to Alpha, an 8% Senior Convertible Debenture in the aggregate principal amount of $3,300,000 for a purchase price of $3,000,000 pursuant to the terms of a Securities Purchase Agreement, dated December 21, 2022. As of December 31, 2023, the remaining principal balance was $1,418,922. During the year ended December 31, 2024, the remaining principal balance of this Debenture was converted into 103,876 shares of common stock of the Company, at a weighted average price of $13.66 per share.

 

On February 27, 2024, the Company issued to Alpha, an 8% Convertible Debenture in the principal amount of $550,000 for a purchase price of $500,000 less expenses pursuant to the terms of a Securities Purchase Agreement dated February 26, 2024. During the year ended December 31, 2024, a principal amount of $50,979 of this Debenture was converted into 7,846 shares of common stock of the Company, at a weighted average price of $6.50 per share. On November 20, 2024 the Company paid to Alpha in cash the remaining principal amount of $499,021 plus outstanding accrued interest of $31,818.

 

On April 12, 2024, the Company issued to Chen an 8% Convertible Debenture with a principal amount of $1,100,000 for a purchase price of $1,000,000 less expenses pursuant to the terms of a Securities Purchase Agreement dated February 26, 2024. The Company entered into an Exchange Agreement with Yi Hua Chen on November 18, 2024, pursuant to which it issued 1,154 shares of Series A-2 Preferred Stock in full settlement of the outstanding balance of the 2024 Chen Debenture of approximately $1.15 million (see Note 14 — Stockholders’ Equity (Deficit)).

 

See Note 9 – Convertible Debt for additional information concerning convertible debt – related party transactions.

 

 

Warrants

 

On May 22, 2020, as a commitment fee, the Company issued warrants to Alpha for the purchase of common stock. The remaining warrants expired on May 22, 2025, and as of September 30, 2025, none of these warrants remain outstanding and exercisable. During the nine months ended September 30, 2025 and 2024 there were no exercises of this warrant. This warrant was equity classified as of December 31, 2023 and was reclassified to warrant liabilities during the year ended December 31, 2024 (see Note 8 - Warrant Liabilities).

 

On December 22, 2022, in conjunction with the issuance of a debenture to Alpha, the Company issued to Alpha a warrant to purchase 50,000 shares of the Company’s common stock. This warrant may be exercised by Alpha, in whole or in part, on or after June 22, 2023 and at any time before June 22, 2028, subject to certain terms and conditions described in the warrant. During the nine months ended September 30, 2024, Alpha partially exercised this warrant to purchase 5,769 shares respectively, of the Company’s common stock at a weighted average exercise price of $13.00, for total cumulative proceeds to the Company of $300,000. During the nine months ended September 30, 2025, there were no exercises of this warrant. This warrant is included in equity on the Company’s consolidated balance sheets (see Note 14 – Stockholders’ Equity(Deficit)).

 

On February 27, 2024, in conjunction with the issuance of a debenture to Alpha, the Company issued to Alpha, a warrant to purchase 18,001 shares of the Company’s common stock, exercisable in whole or in part, until February 27, 2029, subject to certain terms and conditions described in the warrant.

 

On September 6, 2024 as a result of the down-round provision triggered by shares sold in a public offering, the above warrants were repriced from $13.00 per share exercise price to $6.50 per share exercise price. The company recognized an additional deemed dividend of $27,587, which represents the incremental fair value of the outstanding warrants as a result of the down-round provision. As the Company has an accumulated deficit, the deemed dividend was recorded as a reduction in additional paid-in capital, resulting in a net impact of zero to additional paid-in capital in the consolidated statements of changes in stockholders’ equity (deficit).

 

As a result of a partial voluntary conversion of the 2024 Alpha Debenture on September 9, 2024, the Company no longer had sufficient shares to settle the 2024 Alpha Warrant in full until shareholder approval was obtained, and a portion (2,314 warrant shares with a fair value of $14,997) was reclassified to liabilities (see Note 8 – Warrant Liabilities). Shareholder approval was subsequently obtained on October 25, 2024, and as of that date, the Company determined that shareholder approval resulted in equity classification for the warrant again and, accordingly, the Company remeasured the warrant liability to fair value, and reclassified to noncompensatory equity classified warrants.

 

During the nine months ended September 30, 2025, there were no exercises of this warrant. This warrant is included in equity on the Company’s consolidated balance sheets (see Note 14 – Stockholders’ Equity(Deficit)).

 

As of September 30, 2025, the exercise price of all of the above warrants issued to Alpha was $6.50.

 

On April 12, 2024, in connection with the issuance of a debenture to Chen (see Note 9 – Convertible Debt), the Company issued a liability classified warrant to Chen to purchase 36,001 shares of common stock, exercisable until February 27, 2029. On September 6, 2024, as a result of a down-round provision triggered by shares sold in a public offering, the warrant was repriced from an exercise price of $13.00 per share to an exercise price of $6.50 per share. The warrant was initially liability classified due to an insufficient number of authorized shares to settle the warrant prior to the receipt of shareholder approval, which was subsequently obtained on October 25, 2024. As of that date, the Company determined that shareholder approval resulted in equity classification for the warrant and accordingly, the Company remeasured the warrant liability to fair value, and reclassified to noncompensatory equity classified warrants (see Note 14 – Stockholders’ Equity (Deficit)). On April 28, 2025, as a result of the down-round provision triggered by the issuance of the 2025 Convertible Note, the warrant was repriced from an exercise price of $6.50 per share to an exercise price of $5.82 per share.