Note 7 – Convertible Notes and Notes Payable

Notes Payable

As of September 30, 2020, the CEO and companies controlled by the CEO have loaned the Company a total of $1,221,558 in addition to the convertible note discussed above. The loans carry an interest rate of 8% and mature one year and one day from the date of the loan. The Company accrued interest of $193,209 on the loans. $1,012,949 of these loans are in default as of November 13, 2020.

KryptoBank Co., as part of its initial funding, borrowed an additional $100,000 from its shareholders during the year ended December 31, 2018. The notes have a stated interest rate of 12% compounded annually and are due on demand. The balance outstanding as of September 30, 2020 is $112,167. The Company has accrued interest of $21,612 as of September 30, 2020.

On October 3, 2019, The Sammy Farkas Foundation, a related party, loaned the Company $40,000, the note bears 12% interest per annum and matures on October 10, 2020 or upon the Company raising $500,000 from outside investors, whichever occurs first (see Note 5). The promissory note comes with a warrant to purchase 40,000 shares of the Company’s stock with an exercise price of $1.00 per share and expires on October 10, 2022. The promissory note is currently in default, and as of September 30, 2020, accrued interest on the note is $7,022. The warrants have a relative fair value of $8,283, which was recorded as a debt discount and amortized over the life of the note. As of September 30, 2020, the remaining debt discount was $0.

During January 2020, The Farkas Group, a related party, loaned the Company $36,200, unsecured, for one year and one day at an interest rate of 8%.

During February 2020, The Farkas Group, a related party, loaned the Company $23,500, unsecured for one year and one day at an interest rate of 8%.

During March 2020, The Farkas Group, a related party, loaned the Company $4,050, unsecured for one year and one day at an interest rate of 8%.

During April 2020, The Farkas Group, a related party, loaned the Company $18,500, unsecured, for one year and one day at an interest rate of 8%.

During May 2020, The Farkas Group, a related party, loaned the Company $2,500, unsecured for one year and one day at an interest rate of 8%.

On May 7, 2020, the Company (the “Borrower”) received a note payable in the amount of $34,500 from Wells Fargo Bank (the “Lender”) as part of the Paycheck Protection Program under the CARES Act. The interest rate is 1%. Payments shall be due and payable monthly in the amount of $1,463.85 commencing on November 1, 2020 and continuing on Day Three (3) of each month thereafter until maturity. The note shall mature on May 3, 2022, at which time all unpaid principal, accrued interest, and any other unpaid amounts shall be due and payable in full. Unless otherwise agreed, all sums received from the borrower may be applied to interest, fees, principal, or any other amounts due to Lender in any order at Lender’s sole discretion. The Borrower may apply for the loan to be forgiven in whole or in part. As of September 30, 2020, the accrued interest on the note is $139. Furthermore, the Company plans on applying for Loan Forgiveness within the subsequent weeks.

During June 2020, The Farkas Group, a related party, loaned the Company $17,200, unsecured for one year and one day at an interest rate of 8%.

During July 2020, The Farkas Group, a related party, loaned the Company $10,000, unsecured for one year and one day at an interest rate of 8%.

During August 2020, The Farkas Group, a related party, loaned the Company $29,000, unsecured for one year and one day at an interest rate of 8%.

During September 2020, The Farkas Group, a related party, loaned the Company $12,000, unsecured for one year and one day at an interest rate of 8%.

Convertible Notes Payable

On December 23, 2015, the Company issued a secured convertible promissory note in the amount of $25,000. The note carries a rate of 8% and was due on March 23, 2016. It is secured by all the assets of the Company. The note further contains a provision that the lender may convert any part of the note, including accrued interest, that is unpaid into the Company’s common stock at an exercise price of $0.50 per share. The note also contains a five-year warrant to purchase 100,000 shares of common stock at an exercise price of $0.50 per share until December 23, 2020. As of March 23, 2016, the note is in default and the interest rate has been increased to 18%. As of September 30, 2020, the accrued interest on the note is $25,360.

On April 1, 2016, the Company received $500,000 from Newell Trading Group in exchange for a convertible debenture due April 2, 2017 bearing interest at 10% and convertible into common stock at $.25 per share unless the note is paid by the Company prior to the election of the holder to convert. The Company recognized a beneficial conversion feature expense of $500,000 that has been fully amortized. As of September 30, 2020, accrued interest on the note is $225,034. On October 3, 2019, Newell Trading Group assigned its rights and interests in its $500,000 convertible debenture to the Sammy Farkas Foundation Inc., (the “Foundation”), a related party. The Foundation then entered into an agreement with the Company to extend the maturity date of the convertible debenture to October 10, 2024 in exchange for 54,000 shares of the Company’s stock. The shares have a fair value of $56,700 which was recorded as a debt discount and amortized over the life of the extension. During the three and nine months ended September 30, 2020, the Company amortized $2,835 and $8,505 of debt discount, respectively. As of September 30, 2020, the remaining debt discount was $45,360.

On September 30, 2016, Balance Group LLC loaned the Company $120,000 with an interest rate of 10% and is convertible into common stock at $1.00. In addition, the Company issued the CEO 600,000 warrants and recorded a debt discount of $111,428, which has been fully amortized. The Company valued the warrants using the Black-Scholes option pricing model with the following assumptions: Expected volatility of 514%, expected life of five years, risk free rate of return of 1.14% and an expected divided yield of 0%. The warrants had a fair value of $85,714. The note is currently in default and has an accrued interest balance of $48,016 as of September 30, 2020.