Notes Payable Disclosure | (7) Notes Payable As of December 31, 2021 and 2020, the Company had the following note payable obligations: December 31, 2021 2020 Convertible debenture issued to an accredited investor on August 4, 2021, due May 1, 2022 in principal amount of $1,941,176, original issue discount of 15%, convertible at option of investor into a total of 4,852,940 shares of common stock at $0.40 per share and automatically convertible at 25% discount to the price per share of common stock in a qualified offering (net of unamortized debt discount of $866,128 as of December 31, 2021) $ 1,075,048 $ - Promissory note issued to an accredited investor on November 10, 2020, accruing interest at 5% per annum, due on January 10, 2021, along with lending fee of 20,000 shares of common stock - 300,000 Convertible promissory notes issued to two accredited investors on November 15, 2019, maturing in 1 to 5 years, accruing interest at 5% per annum, convertible into common stock at $0.05 per share 150,000 150,000 Unsecured advances received from two officers in May through August 2021, accruing interest at 1% per annum, payable on demand 260,000 - - Convertible promissory notes issued to former owners in acquisition of Power Blockchain, accruing interest at 5% per annum, principal repayments originally due in four equal installments on 2nd, 3rd, 4th and 5th anniversaries, convertible into common stock at $0.13 per share, with final maturity on February 1, 2023. - 165,240 Other short term notes issued to various affiliates of the former owners of Power Blockchain for acquisition of Treasury Stock, computers and equipment, and working capital financing, at stated interest rates of 10%. Amended on November 15, 2019, to mature in one year and to be convertible into common stock at $0.05 per share. 48,386 351,933 Convertible notes issued to an accredited investor in three tranches from June to August 2020, net of unamortized debt discount of $43,306 (see further discussion below) - 46,694 Total notes payable $ 1,533,434 $ 1,013,867 Future maturities of notes payable as of December 31, 2021, without taking into account the unamortized debt discount, are as follows: Year ending December 31, 2022 $ 2,249,562 Year ending December 31, 2023 - Year ending December 31, 2024 150,000 $ 2,399,562 On August 4, 2021, the Company closed a short-term bridge loan with an institutional investor in the gross amount of $1,941,176. The closing of this bridge loan resulted in net proceeds to the Company of $1,650,000, after deducting the 15% original issue discount, which the Company is accreting as a non-cash charge to interest expense over the term of the loan. We recorded amortization on this original issue discount for the period from August 4, 2021 to December 31, 2021, in the amount of $161,764. The bridge loan is in the form of a convertible debenture with a maturity date of May 1, 2022 or earlier upon the closing of a public offering of common stock and/or common stock equivalents which results in the listing of the Company’s common stock on a national securities exchange (including Nasdaq). The debenture may not be prepaid without the prior written consent of the investor and does not accrue interest, except upon the occurrence of an event of default, at which time the amount owed accrues interest at the rate of 18% per annum, until paid in full. While the debenture is outstanding, the Company is prohibited from incurring additional indebtedness, repurchasing its securities or repaying certain of its indebtedness, paying cash dividends or other distributions on equity securities, other than pursuant to certain limited exceptions. The debenture is convertible into shares of the Company’s common stock at the lower of: (a) (b) The conversion of the debenture is subject to a beneficial ownership limitation of 4.99%, preventing such conversion by the holder thereof, if such exercise would result in such holder and its affiliates, exceeding ownership of 4.99% of our common stock, which percentage may be increased to up to 9.99%, with at least 61 days prior written notice by the holder thereof. The Company early adopted the provisions of ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity In conjunction with the convertible debenture, we granted the investor five-year warrants to purchase a total of 4,852,940 shares of our common stock at an exercise price of $0.40 per share. Such warrants have cashless exercise rights if when exercised, and following the six-month anniversary of the closing of the offering, a registration statement for the underlying shares of common stock, is not effective. The exercise of the warrants is subject to a beneficial ownership limitation of 4.99%, preventing such exercise by the holder, if such exercise would result in such holder and its affiliates, exceeding ownership of 4.99% of our common stock, which percentage may be increased to up to 9.99% with at least 61 days prior written notice by the holder. The warrants contain anti-dilution rights such that if we issue, or are deemed to have issued, common stock at a price less than the then exercise price of the warrants, subject to certain exceptions, the exercise price of the warrants is automatically reduced to such lower value, and the number of shares of common stock issuable upon exercise thereafter is adjusted proportionately so that the aggregate exercise price payable upon exercise of such warrants is the same prior to and after such reduction in exercise price. The warrants also require the Company, at the holder’s option, following a Fundamental Transaction (as defined in the agreement), to purchase the warrants from the holder in cash, based on the Black Scholes value (as calculated pursuant to the terms of the warrant). Additionally, we made a grant to the placement agent for the bridge loan of warrants to purchase a total of 242,647 shares of our common stock at an exercise price of $0.40 per share, with substantially similar terms. All of these warrants are outstanding as of December 31, 2021. The Company accounted for the issuance of the warrants as a liability recorded at fair value in accordance with ASC 480-10. Using the Black Scholes model, the warrant liability was valued at issuance in the amount of $1,717,213. This was recorded as a discount to the convertible debt of $1,650,000 with the excess $67,213 expensed as interest. The Company accreted the debt discount to interest expense over the term of the convertible debenture. Debt discount amortization for the period from August 4, 2021 to December 31, 2021 totaled $980,497. As of December 31, 2021, we adjusted the warrant liability, to its then current fair value of $1,085,360, based on the Black Scholes model, resulting in a gain on warrant liability of $631,853 that was recorded in the statement of operations. Prior to obtaining the bridge loan noted above, the Company received unsecured cash advances from two of its officers from May through August 2021, in the net amount of $260,000. These related party advances accrue interest at the rate of 1% per annum and are payable on demand. Such advances are expected to be repaid out of the proceeds of an underwritten public offering of the Company’s equity securities in conjunction with the planned listing on a national exchange. However, no assurance can be given that the Company will be successful in achieving a closing of the underwritten public offering. Effective August 31, 2020, the Company reached the necessary milestone to trigger the conversion of certain notes payable issued on various dates in 2018 and 2019, as amended, in the total principal amount of $732,835, into shares of the Company’s common stock, at a conversion price of $0.05 per share, subject to a 4.99% ownership limitation for each beneficial owner of such notes. In conjunction with this conversion, holders of notes in the principal amount of $404,601, plus additional accrued interest in the amount of $96,536, converted their notes into 10,022,749 shares of common stock at that time. Effective March 31, 2021, the following additional conversions of the Company’s remaining convertible notes payable occurred: (i) the holders of convertible notes payable issued in 2018 at a conversion price of $0.13 per share, with total principal and accrued interest balances in the aggregate amount of $410,888, converted their notes into a total of 3,160,684 shares of common stock; and (ii) the holders of convertible notes payable amended or issued in 2019 at a conversion price of $0.05 per share, with total principal and accrued interest balances in the aggregate amount of $383,470, the automatic conversion of which had previously been triggered on August 31, 2020, as discussed above, subject to each holder’s beneficial ownership limitation, converted their notes into a total of 7,669,381 shares of common stock. As a result of these conversions, a total of 10,830,065 new shares of common stock were issued. As of December 31, 2021, convertible notes payable in the amount of $174,685, plus accrued interest in the amount of $38,683, remain outstanding and are available to be subsequently converted into 4,267,360 shares of common stock, subject to the ownership limitation (see Note 9). From June 30, 2020 to August 14, 2020, the Company entered into three identical Securities Purchase Agreements with an accredited investor (the “Buyer”) with respect to Convertible Promissory Notes (the “Notes”) issued by the Company to the Buyer in the total amount of $125,000. The Notes had a maturity date of one year after the date of each issuance and bore interest at a rate of 12% per annum, which was not due until maturity. At the option of the Buyer, the Notes could be converted into shares of the Company’s common stock, beginning one hundred eighty (180) days following the date of each issuance. Under this option, the conversion price was equal to a discount of 42% of the average of the three (3) lowest closing bid prices for the common stock during the prior fifteen (15) trading day period. The Buyer was limited to a 4.99% beneficial ownership limitation in connection with such conversion right under the note. The Company determined that the conversion feature of the Notes required the recognition of a derivative liability upon each issuance. Accordingly, the Company calculated the fair value of these derivative liabilities, using the Black Scholes model, and recognized a derivative liability for each Note in that amount offset by a debt discount. On December 30, 2020, the Buyer elected to exercise the conversion option on $35,000 of principal of the first Note resulting in the issuance of 80,775 shares of common stock to the Buyer. In the three months ended March 31, 2021, the Buyer elected to exercise the conversion option on the remaining principal of the first Note and the entire principal of the second and third Notes resulting in the issuance of 264,520 shares of common stock to the Buyer. Effective November 15, 2019, the following transactions took place in the Company’s notes payable: · · · The Company performed an analysis of both the newly issued convertible notes and the newly amended existing notes, which were formerly non-convertible, to determine whether there was a beneficial conversion feature and noted none. |