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RELATED PARTY TRANSACTIONS
6 Months Ended
Jun. 30, 2023
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTIONS

NOTE 3 – RELATED PARTY TRANSACTIONS

 

Due to Stockholder and Convertible Note Payable

 

Mr. James Owens, the founder, controlling stockholder, and chairman of the board of directors of the Company, advances the Company money as needed for working capital needs. During the six months ended June 30, 2023, Mr. Owens loaned the Company $114,760. The unaudited financial statements reflect a “Due to stockholder” liability which was $211,513 and $96,753 at June 30, 2023 and December 31, 2022, respectively, representing advances that remain due to Mr. Owens. The loans from Mr. Owens are pursuant to an oral agreement, are non-interest bearing and payable upon demand by Mr. Owens.

 

On June 3, 2022, the Company entered into a settlement agreement with Mr. Owens whereby Mr. Owens was issued a two-year convertible note payable in the amount of $1,101,000 in exchange for 1) elimination of the “Due to stockholder” liability balance of $756,450 on the date of the settlement agreement, 2) elimination of the Company’s obligations under Mr. Owens’ employment agreement for accrued salary of $845,833 and accrued auto allowance of $29,000, and 3) amended his employment agreement to set his salary at $1 per year beginning in June of 2022. The convertible note bears interest at the rate of eight percent (8%) per annum. The interest is accrued from the issue date and payable twenty-four months from the issue date. Mr. Owens may convert the note at any time beginning three days after the note issue date at a rate of $0.01 per share for the Company’s common stock. Mr. Owens subsequently transferred the note to the Frank Perone Trust, which he controls.

 

On May 15, 2023, the Frank Perone Trust partially converted $101,000 of the note’s principal and $82,710 of accrued interest into 18,371,000 shares of the Company’s common stock at the conversion rate of $0.01 per share, in accordance with the Note’s convertible provision. There was no gain or loss related to the partial conversion.

 

As of June 30, 2023, $1,000,000 of the note’s principal remains outstanding and $1,101,000 was outstanding at December 31, 2022. Accrued interest related to this note was $3,990 and $50,556 as of June 30, 2023 and December 31, 2022, respectively, on the accompanying unaudited balance sheets. Interest expense was $14,125 and $36,144 for the three and six months ended June 30, 2023, respectively, and $6,516 for the three and six months ended June 30, 2022 on the accompanying unaudited statements of operations.

 

The Company believes the convertible note’s standalone value to be minimal given the current financial position of the Company. Therefore, the Company estimated the value of the conversion feature using the fair value of the equity shares that the convertible note could be converted into on the date the note was issued. Per ASC 470-20-30-25, the fair value of a convertible note at date of issuance shall be deemed no less than the fair value of the shares of equity for which it can be converted into if there is no other reliable measure of fair value. The Company’s market price at date of issue for one share of common stock was $.287 resulting in a fair value of the convertible note of $31,598,700 at date of issue.

 

 

With the valuation of the convertible note determined, the convertible note fair value was allocated pro-rata between the two instruments being extinguished with the resulting difference being recognized in the statement of operations. Compensation expense relative to the convertible note issued in exchange for the elimination of accrued salary and related expenses owed is $0 for the three and six months ended June 30, 2023 and $16,071,084 for the three and six months ended June 30, 2022 in the accompanying unaudited statements of operations. Loss on extinguishment of debt relative to the convertible note issued in exchange for advances owed to Mr. Owens is $0 for the three and six months ended June 30, 2023 and $13,896,333 for the three and six months ended June 30, 2022.

 

The Company notes that if a convertible debt instrument is issued at a substantial premium compared to the principal (or par) amount to be settled at maturity, ASC 470-20-25-13 indicates that there is a presumption that the premium should be recognized in equity as paid-in capital, if substantial. Such is the case here. The convertible note was recorded at $1,101,000 on the accompanying unaudited balance sheet at June 30, 2022, and additional paid-in-capital was increased by $30,497,700, which also includes the $530,284 of total liabilities outstanding with Mr. Owens in excess of the face value of the convertible note of $1,101,000 on the accompanying unaudited balance sheet as of June 30, 2022.

 

Employment Agreements

 

On February 21, 2020, effective January 1, 2020, the Company entered into executive employment agreements with Don D. Roberts as its President and Chief Executive Officer, Harold E. Hutchins as its Chief Financial Officer, and James Owens as its Chief Technology Officer. The details of these agreements are found in Note 6 below (Commitments). The agreements provide for salaries of $350,000 and auto allowances of $12,000 per year for each of the executives. Mr. Owens’ employment agreement was amended on June 3, 2022 reducing his salary to $1 per year with no auto allowance. As of June 30, 2023 and December 31, 2022, the accrued salaries resulting from these employment agreements were $2,191,500 and $1,866,000, respectively, and the accrued auto allowances were $62,100 and $52,200, respectively, and have been included in accrued salaries and related expenses on the accompanying unaudited balance sheets. As of June 30, 2023 and December 31, 2022, payroll taxes in the amount of $148,087 and $122,230, respectively, have also been accrued related to these employment agreements. There were no accruals for these agreements prior to January 1, 2020. However, as of June 30, 2023 and December 31, 2022, $309,444 was accrued for an employment agreement dating back to 2016.

 

The salaries and related expenses related to these agreements for the three and six months ended June 30, 2023 were $193,470 and $387,857, respectively, and $16,326,868 and $16,618,449 for the three and six months ended June 30, 2022, respectively, and are included on the accompanying unaudited statements of operations. During the three and six months ended June 30, 2023, Mr. Hutchins was paid $10,500 and $24,500, respectively, of his salary and $900 and $2,100, respectively, in auto allowances. During the three and six months ended June 30, 2022, Mr. Hutchins was paid $21,000 and $42,000, respectively, of his salary and $1,800 and $3,600, respectively, in auto allowances. The amounts paid to Mr. Hutchins were offset against his employment agreement amounts and therefore not accrued.

 

The employment agreements contain a termination provision that states if employment is terminated by the Company, without cause, the employee is entitled to severance pay equal to one year of the employee’s annual salary. If the termination is due to a change of control, the employee is entitled to severance pay equal to two years of the employee’s salary. See Note 6. The CEO, CFO and Board of Directors do not anticipate the termination of either of these agreements without cause or that there will be a change of control and therefore, have not accrued any provision for the termination of the employment agreements.

 

License Agreement

 

On April 21, 2020, the Company entered into a license agreement with Soft Tech Development Corporation (“Soft Tech”) to exclusively license, market and distribute Soft Tech’s Gigabyte Slayer and WARP-G software (the “Licensed Technology”) and further develop and commercialize these softwares throughout the world. James Owens, our controlling stockholder, owns Soft Tech. Pursuant to the terms of the license agreement, we agreed to pay a contingent licensing fee of $650,000 for each of the two components of Soft Tech’s technology, for a total of $1,300,000 for the Licensed Technology. The contingent licensing fee becomes due and payable only upon the earlier of: (i) the closing of an aggregate of $20 million in net capital offering of our stock or (ii) when our cumulative net sales from the Licensed Technology reaches $20 million. Further, we have agreed to pay a royalty rate of 7% based on the net sales of the Licensed Software. The term of the license agreement is five years with one automatic renewal period. However, the royalty will continue as long as we are selling the Licensed Technology. As of June 30, 2023, no amounts have been paid on the license agreement as the events triggering the license fees have not occurred nor have any net sales of the Licensed Software been generated.