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Note 10 - Note Payable

3 Months Ended

Mar. 31, 2025

10.

NOTE PAYABLE

Note Purchase Agreement dated June 24, 2024

On June 24, 2024, the Company entered into and closed a note purchase agreement (the “Purchase Agreement”) which provided for the issuance of a $2,360,000 principal amount senior secured promissory note (the “2024 Note”). The 2024 Note carries an original issue discount of $350,000 and the Company agreed to pay $10,000 to the Lender to cover its transaction costs, which were deducted from the proceeds of the 2024 Note resulting in a total of $2,000,000 being funded to the Company at closing. The proceeds will be used for general working capital.

The principal amount of the 2024 Note is due eighteen months (18) following the date of issuance. Interest under the 2024 Note accrues at a rate of nine percent (9%) per annum. All repayments of principal due under the 2024 Note will be subject to an exit fee of seven percent (7%) of the principal amount being repaid (the “Exit Fee”). Commencing six months after the date of issuance of the Note (the “Redemption Start Date”), Lender shall have the right to redeem up to $270,000 of principal amount under the 2024 Note each month which amount plus the Exit Fee will be due and payable three (3) business days after Lender’s delivery of a redemption notice to the Company. At the end of each month following the Redemption Start Date, if the Company has not reduced the outstanding balance under the 2024 Note by at least $270,000, then by the fifth (5th) day of the following month, the Company must either pay to Lender the difference between $270,000 and the amount, if any, redeemed in such month plus the Exit Fee, or the outstanding balance due under the Note will automatically increase by one percent (1%).

The 2024 Note is secured by a lien on substantially all of the Company’s assets and properties and the Company’s obligations under the Note are guaranteed by Pistol Star, Inc., a wholly owned subsidiary of the Company. The 2024 Note can be prepaid in whole or in part without penalty at any time. In the event that the Company receives any proceeds in connection with any fundraising or financing transaction (including any warrant exercises), it will be required to make a mandatory prepayment equal to the lesser of (i) forty percent (40%) of the amount raised in such transaction and (ii) the full amount due under the 2024 Note.

The 2024 Note provides for customary events of default, including, among other things, the event of non-payment of principal, interest, fees or other amounts, a representation or warranty proving to have been incorrect when made, failure to perform or observe covenants within a specified period of time, the bankruptcy or insolvency of the Company or of all or a substantial part of its property, and monetary judgment defaults of a specified amount. Upon the occurrence of an Event of Default, Lender may (i) cause interest on the outstanding balance to accrue at an interest rate equal to the lesser of twenty two (22%) or the maximum rate permitted under applicable law, and (ii) accelerate all amounts due under the 2024 Note plus an amount equal to (a) fifteen percent (15%) of the amount due under the 2024 Note for each default that is considered a major trigger event (as defined), and (b) five percent (5%) of the amount due under the 2024 Note for each occurrence of any default that is considered a minor trigger event (as defined), in any case not to exceed twenty five percent (25%).

In the third quarter of 2024, the Company received gross proceeds of approximately $1.9 million in connection with a financing transaction (see Note 12 Warrants). In accordance with the terms of the 2024 Note, 40% of the proceeds received, or approximately $762,600, was used to prepay amounts due under the 2024 Note.

In, January 2025, the Company entered into two Exchange Agreements with the holder of the Note and agreed to partition the original Note new Promissory Notes in the original principal amounts of $629,000 and $205,000, respectively, reducing the outstanding principal amount of the original Note to approximately $738,400.