Note 5 – Convertible Debt and Derivative Liability

Convertible Debt I

Between August and December 2021, the Company executed twelve convertible promissory notes (“Notes I”) for $527,650 in proceeds with a maturity date of July 31, 2022, and interest rate of 1%. The Notes I will automatically convert into equity securities on the first business day following effectiveness of an initial public offering of common stock with the Securities and Exchange Commission (“IPO”). Upon IPO, the outstanding principle of the Notes I and all unpaid accrued interest will automatically convert into a number of restricted fully paid and non-assessable shares of common stock, or units of common stock and warrants to purchase common stock if units are offered to the public in the IPO, equal to the indebtedness divided by 70% of the offering price paid per share at which the IPO is made. For the avoidance of doubt, in the event the IPO is not declared effective prior to the maturity date, none of the indebtedness shall convert or be convertible into shares of Common Stock.

Jupiter Neurosciences, Inc.

Notes to Financial Statements

September 30, 2024

Note 5 – Convertible Debt and Derivative Liability, continued

Convertible Debt I, continued

At the time of execution, the Company recorded a debt discount of $257,650 based on the fair value of the embedded conversion feature of Notes I, which was amortized into interest expense over term of Notes I, each with a maturity date of July 31, 2022. On August 6, 2022, the Notes I were amended to extend the maturity date to January 31, 2023, and increase the interest rate to 5%. All other terms remain the same as previously stated in Notes I. The impact of the amendment is prospective and increased accrued interest by $23,072 and is included in accrued interest on the accompanying balance sheet. On February 2, 2023, the Notes I were amended to extend the maturity date to December 31, 2023. During January 31, 2024, the Company and all Note I holders agreed to amend and extend the maturity date of their notes to December 31, 2024. The holders waived any default under the original notes prior to the amendment date. With the amendments the applicable interest rate to Notes I increased to 10% effective from January 1, 2024. The amendments were accounted for as a modification and not an extinguishment of debt, therefore there was no gain recorded in the statement of operations.

See Note 9 – Subsequent events – Convertible Debt I for the subsequent conversion of the Note I upon the closing of the offering.

Senior Secured Note – Formerly Known as the Convertible Debt I

The Note - On April 11, 2022, the Company entered into a securities purchase agreement with an accredited investor (the “Holder”). Pursuant to the terms of the securities purchase agreement, the Company received aggregate gross proceeds of $1,000,000, less loan origination costs of $22,667, and issued a (i) 10% original issue discount senior secured convertible note (the “Note II”) in the principal amount of $1,111,111 and (ii) 514,403 shares of common stock.

The Company will have the right at any time to redeem in cash all or a portion of Note II at 120% (or 125% on or after the first six months from the closing) of the principal amount thereof plus any unpaid accrued interest to the date of repayment.

Pursuant to the terms of the securities purchase agreement, the Company received aggregate gross proceeds of $1,000,000, less loan origination costs of $22,667, and issued a (i) 10% original issue discount senior secured convertible note (the “Note II”) in the principle amount of $1,111,111 and (ii) 514,403 shares of common stock.

Upon an Event of Default (as defined therein) interest shall accrue at 1 1/2% per month and the 125% of principal and interest through maturity shall be due and payable. At the Holder’s option the Holder shall be entitled to be paid in cash or after the Qualified Offering (as defined in the Purchase Agreement) common stock with the conversion price of the common stock equal to a 30% discount to the lowest closing price of the common stock for the 20 prior trading days.

On October 10, 2022, Note II was amended to postpone the commencement of the principal payments from October 11, 2022 to November 11, 2022. As consideration for the amendment, an additional 42,867 shares of common stock were issued to the Holder on October 10, 2022, valued at 1/12^th of the original 514,403 shares issued at commencement of Note II.

On November 10, 2022, Note II was amended to postpone the commencement of the principle from November 11, 2022 to February 11, 2023 and payable in three monthly installments. An additional 128,599 shares of common stock were issued to the Holder on November 10, 2022, value at 1/4^th of the original 514,403 shares issued at commencement of Note II.

Jupiter Neurosciences, Inc.

Notes to Financial Statements

September 30, 2024

Note 5 – Convertible Debt and Derivative Liability, continued

Senior Secured Note – Formerly Known as the Convertible Debt II, continued

On February 6, 2023, Note II was amended to postpone the commencement of the principle to February 28, 2023. On March 6, 2023, Note II was amended to postpone the commencement of the principal from February 11, 2023 to May 31, 2023. The Company and the noteholder agreed to a repayment plan on past due interest. In addition, the Company agreed to prepay in cash the aggregate principal amount of the Note II of 120% (or 137.5% on or after the first six months from closing) plus any accrued interest on the sale of all the assets of the Company and its subsidiaries, upon the Change of Control, or on a Qualified Offering. Upon default of Note II, the Company agrees to pay 137.5% of the outstanding note principal, and accrued interest through maturity and all liquidation damages. As a result of the material modification, the incremental fair value of the modified derivative was classified as a debt extinguishment. Due to the extension of the maturity date of the convertible note, the fair value of the derivative liability increased. This resulted in the Company recording a loss on extinguishment of debt of $670,419.

On September 22, 2023, Note II was amended to postpone the commencement of the principle to December 31, 2023. The Company and the noteholder agreed to a repayment plan on past due interest. In addition, the Company agreed to prepay in cash the aggregate principal amount of the Note II of 120% (or 150% on or after the first six months from closing) plus any accrued interest on the sale of all the assets of the Company and its subsidiaries, upon the Change of Control, or on a Qualified Offering. Upon default of Note II, the Company agrees to pay 150% of the outstanding note principal and accrued interest through maturity and all liquidation damages. In addition, upon closing the Note Holder will receive 175% stock coverage. As a result of the material modification, the incremental fair value of the modified derivative was classified as a debt extinguishment. Due to the extension of the maturity date of the convertible note, the fair value of the derivative liability increased. This resulted in the Company recording a loss on extinguishment of debt of $217,527.

On April 29, 2024, the Company, the Holder of the Note II and the CEO entered into an amendment in which the CEO agrees to exchange 685,867 shares issued to the Holder in exchange for his related party notes that accrued interest at 3% that are due from the Company in an aggregate principal amount of $266,667 and the Holder agreed to forfeit all rights to all additional future shares from the Company that would of become due upon a qualified offering as well as the conversion option. Therefore, the principal amount of the note was increased to $1,377,778 and the exchange debt follows the requirements of Note II. In addition, the Holder agreed to extend the note maturity date to August 11, 2024. The note shall be designated as a 10% original issued discount secured note (“Senior Secured Note”) moving forward. The Senior Secured Note and interest will become due and payable upon the earliest of the maturity date or upon the occurrence of a qualified event. The note is recorded on the balance sheet under note payable. As a result of the conversion feature of the note being removed the Company recorded a one-time gain on the modification of the debt of $951,868 and a new derivative liability of $407,494 was recorded related to the Senior Secured Note.

On August 8, 2024, the Company, and the Holder of the Senior Secured Note entered into an amendment to extend the maturity date of the Senior Secured Note to October 11, 2024. See Note 9 – Subsequent Events – Senior Secured Note – Formerly Known as the Convertible Debt II for the subsequent extension and repayment of the Senior Secured Note.

Ancillary Agreements - In connection with the Company’s obligations under Note II, the Company entered into a security agreement and intellectual property security agreement with the Holder, pursuant to which the Company granted a security interest on all assets of the Company, including all intellectual property of the Company, for the benefit of the Holders, to secure the Company’s obligations under Note II and the other transaction documents.

Jupiter Neurosciences, Inc.

Notes to Financial Statements

September 30, 2024

Note 5 – Convertible Debt and Derivative Liability, continued

Convertible Debt III

On March 1, 2023, the Company issued a convertible promissory note (the “Note III”) with a principal amount of $150,000 as part of a settlement agreement with an investor relations firm. Note III matures on February 28, 2026 and accrues interest at 5% annually which compounds quarterly. Note III is convertible upon election of the holder upon a qualified financing of at least $5,000,000 into shares of common stock equal to 70% of the per share price of the equity issued in the qualified financing. Note III is also convertible upon the completion of an IPO by the Company into shares of common stock equal to 70% of the per share price of the equity issued in connection with the IPO. In both cases the Holder can elect to receive the principal and accrued interest instead of converting the note.

During the three months ended September 30, 2024 and 2023, $96,924 and $36,546, respectively, are included in interest expense for the combined convertible Notes I, II and III on the accompanying statements of operations. During the nine months ended September 30, 2024 and 2023, $186,906 and $107,214, respectively, are included in interest expense for the combined convertible Notes I, II and III on the accompanying statements of operations. As of September 30, 2024 and December 31, 2023 the balance of the combined convertible promissory Note I, II and III was $649,375 and $1,745,472, respectively, net of the debt discount and loan origination costs of $28,275 and $43,288, respectively. As of September 30, 2024 the balance on the Senior Secured Debt was $1,377,778.

See Note 9 – Subsequent Events – Convertible Debt III for the subsequent repayment of the Note III.

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, under the provisions of ASC 815-40 –Derivatives and Hedging – Contracts in an Entity’s Own Stock, 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.

In connection with the issuance of Notes I, on the initial measurement date of September 2021, the fair value of the embedded conversion option of $257,650 was recorded as derivative liability and debt discount to be amortized into interest expense over the terms of the Notes.

In connection with the issuance of Note II, on the initial measurement date of April 2022, the fair value of the embedded conversion option of $346,000 and the fair value of the Share True Up of $34,000 was recorded as derivative liability and a debt discount to be amortized into interest expense over the term of Note II. An additional discount of $421,111 was recorded on the initial measurement date for the 10% original issue discount of $111,111 and the relative fair value of the allocation of proceeds to the 514,403 shares of common stock issued, valued at $310,000, to be amortized into interest expense over the term of Note II.

Jupiter Neurosciences, Inc.

Notes to Financial Statements

September 30, 2024

Note 5 – Convertible Debt and Derivative Liability, continued

Derivative Liability Pursuant to Convertible Debt, continued

During the three and nine months ended September 30, 2023, the derivative liabilities were revalued, and a $217,527 and $887,946, respectively, adjustment was recorded as a loss on extinguishment of debt to other expenses reflected in the accompanying statements of operations.

During the three and six months ended September 30, 2024, the derivative liability was revalued, and a $0 and $951,868, respectively, gain was recorded on the modification of the Note II, now known as the Senior Secured Note, with in other income in the accompanying statements of operations.

The Company also recorded a $9,885 and $(34,086), adjustment as a gain (loss) on the change in the fair value of the derivative liability for the three months ended September 30, 2024 and 2023. The Company also recorded a $(53,257) and $15,458,adjustment as a (loss) on the change in the fair value of the derivative liability for the nine months ended September 30, 2024 and 2023.

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

A summary of activity of the derivative liability pertaining to the Notes is presented below:

Schedule of Derivative Liability

Jupiter Neurosciences, Inc.

Notes to Financial Statements

September 30, 2024