Debt | Note 7 — Debt Securities Purchase Agreement with Kips Bay Select LP and Cyber One LTD On November 21, 2023, the Company entered into a Securities Purchase Agreement (“SPA”) with Kips Bay Select LP and Cyber One, LTD, pursuant to which the Company agreed to issue and sell to each of Kips Bay Select LP and Cyber One, LTD, i) a convertible promissory note which will be convertible into shares of common stock (the “Conversion Shares”) and (ii) a common stock purchase warrant (each a “Warrant” and collectively, the “Warrants”) which will be exercisable to purchase shares of common stock (the “Warrant Shares”). Convertible Promissory Notes On November 21, 2023, pursuant to the SPA, the Company issued a convertible promissory note to each of Kips Bay Select LP (“Kips Bay 2023 Note”) and Cyber One, LTD (“Cyber One 2023 Note”), collectively referred to as the Holders, in the principal amount of $8,000,000 to each for an aggregate principal amount of $16,000,000. The Kips Bay 2023 Note and the Cyber One 2023 Note are collectively referred to as the “2023 Convertible Notes”. The 2023 Convertible Notes were issued with an original issue discount of 50% and bear simple interest accruing as of November 21, 2023, at the rate of 5% per annum or 18% per annum following any Event of Default (as defined in the SPA and 2023 Convertible Notes agreements). The interest shall be computed on the basis of a 360 -day -day The 2023 Convertible Notes were convertible (in whole or in part), at the option of the Holders, into such number of fully paid and non -assessable Pursuant to the terms and conditions of the 2023 Convertible Notes, the Company was to repay the $16,000,000 commencing on January 21, 2024 with $1,500,000 due monthly and any remaining outstanding principal due on July 21, 2024. As of June 30, 2024, the Company had made no payments on the outstanding principal and interest amounts of the 2023 Convertible Notes. The 2023 Convertible Notes limit the Company’s ability to issue any debt, equity or equity -linked The following events constituted an Event of Default under the 2023 Convertible Notes: (i) any default in the payment of any portion of the principal or interest; (ii) failure to observe or perform material covenants; (iii) inability to convert the 2023 Convertible Notes into its common stock; (iv) failure to timely deliver shares of common stock or make payment of any fees or liquidated damages under the 2023 Convertible Notes; (v) failure to have required minimum shares of common stock authorized, reserved and available for issuance; (vi) default on any other indebtedness; (vii) apply for or consent to the appointment of or the commencement of any type of receivership or any voluntary or involuntary bankruptcy, (viii) any judgment or settlements exceeding $250,000, (ix) failure to instruct transfer agent to remove any legends from the shares of common stock; (x) the Company’s common stock no longer publicly traded or cease to be listed on the trading market; (xi) any SEC or judicial stop trade order or any restrictions on transactions in the shares of the common stock; (xii) failure to comply with reporting requirements of the 1934 Act; (xiii) failure to file timely with the SEC; (xiv) a Fundamental Transaction, as defined in the SPA, and (xv) any inaccurate representations or warranties made by the Company in any transaction documents or public filings. The 2023 Convertible Notes did not contain any financial covenants. The Company has triggered multiple Events of Default under the SPA and 2023 Convertible Notes. The Events of Default had the following significant impacts: (i) the interest rate per annum on outstanding principal amounts increased from 5.0% to 18.0%; (ii) a Mandatory Premium Amount became due, which consists of the $16,000,000 outstanding principal amount, accrued interest, and $250,000 for every Event of Default that has occurred and reoccurred, up to the sum of the 130% of the $16,000,000 outstanding principal and accrued interest; and (iii) the conversion price of the notes were no longer subjected to Floor Price. The Mandatory Premium Amount as of June 30, 2024 was approximately $22,862,667. Due to the 2023 Convertible Notes having numerous embedded derivatives, the Company elected the fair value option to account for them. See fair value disclosures in Note 6 - Fair Value Measurement Registration Payment Arrangements In connection with the SPA, on November 21, 2023, the Company entered into a registration rights agreement (“Registration Rights Agreement”) with Kips Bay Select LP and Cyber One, LTD, pursuant to which the Company agreed to file with the SEC by January 5, 2024 an initial Registration Statement on Form S -1 -1 -1 If (i) a Registration Statement of Form S -1 -1 nd -1 -1 th -1 nd -1 -1 -1 -1 -1 therein is not available for use for any reason (a “Current Public Information Failure”), the Company shall pay an amount in cash equal to one and half percent (1.5%) of the $16,000,000 principal amount (the “Registration Delay Payments”). The Registration Delay Payments are due (1) on the date of such Filing Failure, Effectiveness Failure, Maintenance Failure or Current Public Information Failure, as applicable, and (2) on every thirty (30) day anniversary of (I) a Filing Failure until such Filing Failure is cured; (II) an Effectiveness Failure until such Effectiveness Failure is cured; (III) a Maintenance Failure until such Maintenance Failure is cured; and (IV) a Current Public Information Failure until the earlier of (i) the date such Current Public Information Failure is cured and (ii) such time that such public information is no longer required pursuant to Rule 144 (in each case, pro rated for periods totaling less than thirty (30) days). In the event the Company fails to make Registration Delay Payments in a timely manner in accordance with the foregoing, such Registration Delay Payments shall bear interest at the rate of two percent (2%) per month (prorated for partial months) until paid in full. Notwithstanding the foregoing, no Registration Delay Payments shall be owed (other than with respect to a Maintenance Failure resulting from a suspension or delisting of (or a failure to timely list) the shares of common stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB, OTCQX or the OTC Pink) with respect to any period during which all Registrable Securities may be sold without restriction under Rule 144 (including, without limitation, volume restrictions) and without the need for current public information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable). A Filing Failure occurred on January 5, 2024 and has still not been cured as of June 30, 2024. The Company recorded $1,533,760 for Registration Delay Payments in the accompanying Condensed Consolidated Statement of Operations in Event of default fees and such amount was accrued in the accompanying Condensed Consolidated Balance Sheets in Interest expense payable as of June 30, 2024. Short-term Borrowings On April 12, 2024, the Company issued a short -term Interest Expense Interest expense for the periods were as follows: For the Three Months Ended For the Six Months Ended 2024 2023 2024 2023 2023 Convertible Notes interest expense $ 720,000 $ — $ 1,440,000 $ — Interest on convertible notes extinguished in November 2023 — 542,297 — 1,078,634 Interest on short-term borrowings 85,000 — 85,000 — Other 3,391 — 6,782 — Total interest expense $ 808,391 $ 542,297 $ 1,531,782 $ 1,078,634 | Note 8 — Debt The Company elected fair value option for the convertible notes issued in November 2023. For all notes outstanding as of December 31, 2022, the debt discounts are amortized using effective interest rate through maturity date. The following is a summary of the Company’s outstanding notes payable as of the following: December 31, 2023 2022 Amended and Restated Notes $ — $ 19,280,887 2023 Convertible Notes, fair value option 20,082,880 — Total notes payable, net $ 20,082,880 $ 19,280,887 Securities Purchase Agreement with Kips Bay Select LP and Cyber One LTD On November 21, 2023, the Company entered into a Securities Purchase Agreement (“SPA”) with Kips Bay Select LP and Cyber One, LTD, pursuant to which the Company agreed to issue and sell to each of Kips Bay Select LP and Cyber One, LTD, i) a convertible promissory note which will be convertible into shares of common stock (the “Conversion Shares”) and (ii) a common stock purchase warrant (each a “Warrant” and collectively, the “Warrants”) which will be exercisable to purchase shares of common stock (the “Warrant Shares”). The commitment fee of the SPA was 3% of the initial principal amount of the 2023 Convertible Notes. The net cash proceeds from the 2023 Convertible Notes were used for settlement in full and satisfaction of the outstanding obligations under the Amended and Restated Notes and the Trade Credit Agreement entered into on August 17, 2023, as assigned. In connection with the issuance of the note and the warrant, the Company paid a commitment fee of $480,000, which was recorded to Interest expense on the accompanying Consolidated Statements of Operations during the year ended December 31, 2023 and legal fees of $195,196, which were recorded to General and administrative expenses on the accompanying Consolidated Statements of Operations during the year ended December 31, 2023. Convertible Promissory Notes On November 21, 2023, pursuant to the SPA, the Company issued a convertible promissory note (“Kips Bay 2023 Note”, and “Cyber One 2023 Note”, and collectively, the “2023 Convertible Notes”) to each of Kips Bay Select LP and Cyber One, LTD, collectively referred to as the Holders, in the principal amount of $8,000,000 each, with an aggregate principal amount of $16,000,000. The 2023 Convertible Notes were issued with an original issue discount of 50% and bear simple interest accruing as of November 21, 2023, at the rate of 5% per annum or 18% per annum following any Event of Default (as defined in SPA). The interest shall be computed on the basis of a 360 -day -day The 2023 Convertible Notes are convertible (in whole or in part), at the option of the Holders, into such number of fully paid and non -assessable The Company elected the fair value option for the 2023 Convertible Notes. See fair value disclosures in Note 7 — Fair Value Measurement Pursuant to the terms and conditions of the 2023 Convertible Notes, the Company shall repay the $16,000,000 commencing on January 21, 2024 with $1,500,000 due monthly and any remaining outstanding principal due on July 21, 2024. Alternatively, the Company may accelerate payments and reduce the overall principal repaid, by making repayments in an amount determined in SPA upon at least 20 trading days’ written notice. During the year ended December 31, 2023, the Company made no principal payments. The 2023 Convertible Notes limits the Company’s ability to issue any debt, equity or equity -linked The following events constituted an Event of Default under the 2023 Convertible Notes: (i) any default in the payment of any portion of the principal or interest; (ii) failure to observe or perform material covenants; (iii) inability to convert the 2023 Convertible Notes into its common stock; (iv) failure to timely deliver shares of common stock or make payment of any fees or liquidated damages under the 2023 Convertible Notes; (v) failure to have required minimum shares of common stock authorized, reserved and available for issuance; (vi) default on any other indebtedness; (vii) apply for or consent to the appointment of or the commencement of any type of receivership or any voluntary or involuntary bankruptcy, (viii) any judgment or settlements exceeding $250,000, (ix) failure to instruct transfer agent to remove any legends from the shares of common stock; (x) the Company’s common stock no longer publicly traded or cease to be listed on the trading market; (xi) any SEC or judicial stop trade order or any restrictions on transactions in the shares of the common stock; (xii) failure to comply with reporting requirements of the 1934 Act; (xiii) failure to file timely with the SEC; (xiv) a Fundamental Transaction, as defined in the SPA, and (xv) any inaccurate representations or warranties made by the Company in any transaction documents or public filings. The 2023 Convertible Notes did not contain any financial covenants. The Company failed to make the interest payments starting in December 2023, principal payments starting in January 2024, and did not file with the SEC an initial Registration Statement on Form S -1 Amended and Restated Notes Kips Bay Note On September 1, 2021, Proton Green, LLC entered into a $2,692,308 zero -percent The Kips Bay Note had the following amendments: • • • • • In July 2022, the lender of the Amended and Restated Kips Bay Note assigned its note and all related rights and obligations under it to the lender under the Amended and Restated Alpha Carta Note 2, as defined below, and the Amended and Restated Alpha Carta Note 3, as defined below (the “Amended and Restated Alpha Carta Notes”), in exchange for cash from the lender of the Amended and Restated Alpha Carta Notes. Proton Green, LLC also issued to Kips Bay Selects LP 0.67% of Membership Interest in the Proton Green, LLC in order to effect this assignment. Subsequent to the assignment, the Amended and Restated Kips Bay Note and the Amended and Restated Alpha Carta Notes, collectively referred to as the Amended and Restated Notes, were outstanding with the lender under the Amended and Restated Alpha Carta Notes. Alpha Carta Note 2 On December 23, 2021, Proton Green, LLC entered into a $1,846,154 zero -percent The Alpha Carta Note 2 had the following amendments: • • • Alpha Carta Note 3 On January 11, 2022, Proton Green, LLC entered into a $4,307,692 zero -percent The Alpha Carta Note 3 had the following amendments: • • Key Terms of and Events Under the Amended and Restated Notes The Company’s Amended and Restated Kips Bay Note, Amended and Restated Alpha Carta 2 Note, and Amended and Restated Alpha Carta 3 Note, collectively, represent the Amended and Restated Notes. The Company failed to pay the principal, interest and fees outstanding under the Amended and Restated Notes on April 29, 2022, which constituted an Event of Default as defined in the Amended and Restated Notes agreements. The Event of Default Redemption Price included: (i) the Redemption Price, which was 125% of the outstanding principal amount of the notes; (ii) all interest accrued on the principal amount up to the date of the Event of Default; (iii) the amendment fees; and (iv) interest accrued on the Redemption Price after the date of the Event of Default. In addition, the Company was required to pay: (i) liquidated damages of $750,000 per note; (ii) an amount equal to 1% of the Event of Default Redemption Price for each 30 day period during which redemptions fail to be made; and (iii) the daily financing, administrative, packaging, and extension fees. The following table summarizes the principal, fees, and event of default costs accrued at December 31, 2022 for Amended and Restated Notes: December 31, 2022 Principal amount $ 9,667,315 Increase for redemption price 2,416,829 Fees added to outstanding balance 7,196,743 Notes payable outstanding at the end of year $ 19,280,887 In 2023, the Company incurred event of default fees of $5,875,111 which increased the notes payable outstanding during the period. On June 20, 2023, the Company entered into a forbearance agreement with Alpha Carta, Ltd., whereby Alpha Carta, Ltd. were to forbear from exercising any of its rights and remedies under the notes discussed above subject to the Company’s satisfaction of, among other things, payment in July 2023 of $3,000,000 and a monthly payment thereafter of $2,000,000 until the notes are paid in full. The Company made the initial $3,000,000 payment. On July 31, 2023, the Company entered into a Loan Settlement Agreement with Alpha Carta, Ltd. to settle the Amended and Restated Notes for $8,000,000. Pursuant to the Loan Settlement Agreement, no interest or other costs were to accrue from July 31, 2023. In August 2023, the Company paid $2,000,000 towards the Loan Settlement Agreement and in November 2023, the Company settled the remaining outstanding obligations under the Loan Settlement Agreement in full using $6,000,000 of the proceeds from the 2023 Convertible Notes. The settlement of the Amended and Restated Notes was considered a debt extinguishment and the Company recognized a gain on debt extinguishment of $17,671,812 on the accompanying Consolidated Statements of Operations during the year ended December 31, 2023. The gain on debt extinguishment of the Amended and Restated Notes was partially offset by the initial fair value of the 2023 Convertible Notes and Warrants that resulted in a loss of $14,638,178. Short-term loans During the year ended December 31, 2023, the Company issued short -term -term -term -term -term -term The $2,000,000 short -term -term During October 2023, $295,000 of the short -term -term Interest Expense Interest expense for the periods were as follows: For the Year Ended 2023 2022 Amended and restated notes stated interest $ 1,626,890 $ 1,804,477 Amortization of debt discount on amended and restated notes — 6,635,147 Related party short-term loans 560,400 — 2023 Convertible Notes commitment fee 480,000 — 2023 Convertible Notes interest expense 146,667 — Other 4,521 63 Total interest expense $ 2,818,478 $ 8,439,687 |