Notes Payable Disclosure | (7) Notes Payable As of December 31, 2022 and 2021, the Company had the following note payable obligations: December 31, 2022 2021 Convertible debenture issued to an accredited investor on August 4, 2021, in principal amount of $1,941,176, original issue discount of 15%, convertible at option of investor into a total of 194,118 shares of common stock at $10.00 per share, payable upon earlier of a qualified offering, uplisting on national exchange, convertible at 25% discount to the price per share of common stock in a qualified offering, past due nominal maturity. $ 1,941,176 $ 1,075,048 Convertible debenture issued to an accredited investor on May 31, 2022, in principal amount of $411,764, original issue discount of 15%, convertible at option of investor into a total of 41,176 shares of common stock at $10.00 per share, payable upon earlier of a qualified offering, uplisting on national exchange, convertible at 25% discount to the price per share of common stock in a qualified offering, past due nominal maturity. 411,764 - Convertible promissory notes issued to an accredited investor on November 15, 2019, maturing in 5 years, accruing interest at 5% per annum, convertible into common stock at $1.25 per share. 150,000 150,000 Unsecured advances received from two officers beginning in May 2021 through December 2022, accruing interest at 1% per annum, payable on demand. 396,902 - 260,000 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 be convertible into common stock at $1.25 per share. 48,386 48,386 Promissory note issued to an independent director on January 28, 2022, accruing interest at approximately 18% per annum, currently past due nominal maturity. 400,000 - Promissory note issued to an institutional investor on March 8, 2022, accruing interest at approximately 8% per annum, due in one year, in default and partially converted as of December 31, 2022. 70,104 - Convertible note issued to an accredited investor on July 25, 2022, net of unamortized debt discount of $40,647 (see further discussion below). 33,603 - Total notes payable $ 3,451,935 $ 1,533,434 Future maturities of notes payable as of December 31, 2022, without taking into account the unamortized debt discount, are as follows: Year ending December 31, 2023 $ 3,342,582 Year ending December 31, 2024 150,000 $ 3,492,582 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. The Company accreted such discount as a non-cash charge to interest expense over the original term of the loan, which was extended in May 2022, as further discussed below. Additionally, we granted the investor warrants to purchase a total of 194,118 shares of our common stock at an exercise price of $10.00 per share for a period of five years, which was extended by two years in May 2022, as further discussed below. The bridge loan is in the form of a debenture which is convertible into shares of the Company’s common stock at the lower of: (a) (b) The bridge loan was originally structured with a maturity date in May 2022, however, due to unforeseen delays experienced in the Company’s planned public offering of common stock on a national exchange, we were unable to repay or convert the note by that date. On May 31, 2022, we reached a formal agreement with the institutional investor to extend the maturity of our existing Convertible Debenture in the amount of $1,941,176, until the earlier of (i) the completion of a qualified offering, (ii) an uplisting on a national exchange, or (iii) September 1, 2022, and simultaneously issued a new Convertible Debenture to the institutional investor payable for additional borrowings in the gross amount of $411,764, on substantially equivalent terms. The note is past due its nominal maturity date, however, the lender has not declared it to be in default. As a result of the formal extension agreement reached with the institutional investor in May 2022, we restructured our specific obligations to this investor as follows: • • • • Following the issuance of the initial Convertible Debenture in August 2021, 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. We elected to apply this new accounting principle to the subject convertible borrowings using the modified retrospective method. Pursuant to the provisions of ASC 470-60-35-5 with regard to debt modifications, we have accounted for the extension of the maturity of the initial Convertible Debenture in May 2022, on a prospective basis and, therefore, did not adjust any previously recorded amounts. The two tranches of Common Stock Purchase Warrants that we have granted to the investor in August 2021 and May 2022, as well as a grant of warrants that we made in August 2021 to the placement agent for the bridge loan to purchase a total of 9,706 shares of our common stock at an exercise price of $10.00 per share, with substantially similar terms, are subject to certain ownership limitations and adjustment provisions. These 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). As a result of this provision, the Company accounted for the issuance of the initial tranche of 203,824 warrants in August 2021 (including 9,706 shares to the placement agent) 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 and was subsequently adjusted, as of December 31, 2021, to its then current fair value of $1,085,360. As of December 31, 2022, we adjusted the warrant liability to its current fair value of $140,615, based on the Black Scholes model, resulting in a gain on warrant liability of $944,745 that was recorded in our statement of operations for the year ended December 31, 2022. The Company has also accounted for the issuance of the additional tranche of 388,236 warrants in May 2022 as a liability recorded at fair value in accordance with ASC 480-10. Using the Black Scholes model, such warrant liability was valued at issuance in the amount of $756,285. This liability was recorded as a discount to the convertible debt of $350,000 with the excess $406,285 expensed as interest. The Company is accreting the debt discount, along with the original issue discount on the convertible debt, to interest expense over the term of the convertible debenture and such debt discount was fully accreted as of December 31, 2022. As of December 31, 2022, we adjusted the warrant liability to its current fair value of $367,978, based on the Black Scholes model, resulting in a gain on warrant liability of $419,512 that was recorded in our statement of operations for the year ended December 31, 2022. Prior to obtaining the bridge loan noted above, the Company received a series of unsecured cash advances from two of its officers beginning in May 2021 through December 2022, in the net amount of $396,902. 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. In January and March 2022, the Company closed two short-term loans from two different lenders in the total amount of $597,000. One of these loans was from an independent director of the Company in the amount of $400,000. Both loans were in the form of unsecured promissory notes bearing interest at rates of approximately 8-18% per annum with original maturities of one year. For the larger note with an independent director, the principal amount and accrued interest are due at the maturity date, which the director has agreed to extend to a date to be determined, whereas for the smaller note with an institutional investor, monthly payments of principal and interest of $21,276 were required beginning in May 2022. In the event of a default by the Company on the payment terms of either note, the notes would be convertible into shares of the Company’s common stock at a conversion price equal to the greater of (a) $0.001875 per share; and (b) 75% of the average closing bid price of the Company’s common stock, on the principal securities exchange or market where the Company’s common stock is then quoted or traded, for the five trading days immediately prior to the date of conversion. In December 2022, we defaulted on making the monthly note payment of $21,276 to the institutional investor due to our lack of liquidity which resulted in the investor electing to convert $15,000 of the note principal into 16,340 shares of our common stock, at a calculated conversion rate of $0.92 per share, leaving a remaining outstanding loan balance of $70,104, including default interest. In January and February 2023, the investor elected to convert an additional $44,856 of the note principal into a total of 116,973 shares of our common stock, at the applicable conversion rates at the time of each conversion, leaving a remaining outstanding loan balance of $25,248, including default interest (see Note 13). On July 25, 2022, the Company entered into an agreement with an accredited investor (the “ Buyer Note Effective March 31, 2021 and August 31, 2020, the Company reached the necessary milestones to trigger the conversion of certain notes payable issued on various dates in 2018 and 2019, as amended, into shares of the Company’s common stock, at conversion prices of $1.25 to $3.25 per share, subject to a 4.99% ownership limitation for each beneficial owner of such notes. In conjunction with these conversions, the holders of notes with total principal and accrued interest balances in the aggregate amount of $794,358 converted their notes into 433,203 shares of common stock, effective March 31, 2021, and the holders of notes with total principal and accrued interest balances in the aggregate amount of $501,137 converted their notes into 400,910 shares of common stock, effective August 31, 2020. As of December 31, 2022, convertible notes payable in the amount of $174,685, plus accrued interest in the amount of $48,624, remain outstanding and are available to be subsequently converted into 178,647 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 Notes 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. |