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Notes Payable and Convertible Debt
 9 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
Notes Payable and Convertible Debt

Note 10. Notes Payable and Convertible Debt

 

Secured Convertible Note

 

In connection with the Lottery.com domain purchase, the Company issued a secured convertible promissory note (“Secured Convertible Note”) with a fair value of $935,000 that matured in March 2021. The Company used the fair value of the Secured Convertible Note to value the debt instrument issued. In March 2021, the Secured Convertible Note was fully converted into 69,910 shares of the Company’s common stock.

 

Series A Notes

 

From August to October 2017, the Company entered into seven Convertible Promissory Note Agreements with unaffiliated investors for an aggregate amount of $821,500. The notes bear interest at 10% per year, are unsecured, and were due and payable on June 30, 2019. The parties verbally agreed to extend the maturity of the notes to December 31, 2021. While the TDAC business combination was a Qualified Financing event, noteholders were required to consent to conversion and surrender their Note to the Company prior to the close of the business combination. Noteholders that failed to consent and surrender their note prior to the business combination lost the ability to convert because there were no additional Qualified Financing events following the business combination and before the maturity date of the notes. As of both September 30, 2024, and December 31, 2023 the remaining outstanding balance of $771,500 relates to notes that are no longer convertible which have been reclassified and reported as Notes Payable. Accrued interest on the Series A notes payable was $318,909 on September 30, 2024. These notes have matured and have not been repaid.

 

Series B Notes

 

From November 2018 to December 2020, the Company entered into multiple Convertible Promissory Note agreements with unaffiliated investors for an aggregate amount of $8,802,828. The notes bear interest at 8% per year, are unsecured, and were due and payable on dates ranging from December 2020 to December 2021. For those notes maturing on or before December 31, 2020, the parties entered into amendments in February 2021 to extend the maturity of the notes to December 21, 2021. The Company could not prepay the loans without consent from the noteholders.

 

During the year ended December 31, 2021, the Company entered into multiple Convertible Promissory Note agreements with unaffiliated investors for an aggregate amount of $38,893,733. The notes bear interest at 8% per year, are unsecured, and are due and payable on dates ranging from December 2021 to December 2022. The Company could not prepay these loans without consent from the noteholders. As of December 31, 2021, the Series B Convertible Notes issued during 2021 had a balance of $0.

 

During the year ended December 31, 2021, the Company entered into amendments with six of the Series B holders of promissory notes issued between November 2018 and December 2020 to increase the principal value of the notes. The additional principal associated with the amendments totaled $3,552,114. The amendments were accounted for as a debt extinguishment, whereby the old debt was derecognized and the new debt was recorded at fair value. The Company recorded loss on extinguishment of $71,812 as a result of the amendment which was mapped in “Other expenses” on the consolidated statements of operations and comprehensive loss.

 

As of October 29, 2021, all except $185,095 of the series B convertible notes were converted into 488,226 shares of Lottery.com common stock. While the TDAC business combination was a Qualified Financing event, noteholders were required to consent to conversion and surrender their Note to the Company prior to the close of the business combination. Noteholders that failed to consent and surrender their note prior to the business combination lost the ability to convert because there were no additional Qualified Financing events following the business combination and before the maturity date of the notes. As of December 31, 2023 the remaining outstanding balance of $185,095 relates to notes that are no longer convertible which have been reclassified and reported as Notes Payable. Accrued interest on the Series B notes payable was $75,915 on September 30, 2024. See Note 10. These notes have matured and have not been repaid.

 

 

Short term loans

 

On June 29, 2020, the Company entered into a Promissory Note with the U.S. Small Business Administration (“SBA”) for $150,000. The loan has a thirty-year term and bears interest at a rate of 3.75% per annum. Monthly principal and interest payments were deferred for twelve months after the date of disbursement. The loan may be prepaid at any time prior to maturity with no prepayment penalties. The Promissory Note contains events of default and other provisions customary for a loan of this type. As of both September 30, 2024 and December 31, 2023, the balance of the loan was $150,000. As of September 30, 2024, the accrued interest on this note was $6,378.

 

In August 2020, the Company entered into three separate note payable agreements with three individuals for an aggregate amount of $37,199. The notes bear interest at a variable rate, are unsecured, and the parties verbally agreed that the notes would be due upon a qualifying financing event. The notes were not retired in connection with the Business Combination in October of 2021 and remain outstanding. As of both September 30, 2024 and December 31, 2023, the balance of the loans totaled $13,000, respectively.

 

Notes payable

 

On August 28, 2018, in connection with the purchase of the entire membership interest of TinBu, the Company entered into several notes payable for $12,674,635 with the sellers of the TinBu and a broker involved in the transaction. The notes had an interest rate of 0%, and original maturity date of January 25, 2022. The notes payable were modified during 2021 to extend the maturity to June 30, 2022 and change the interest rate to include simple interest of 4.1% per annum effective October 1, 2021. Each of the amendments were evaluated and determined to be loan modifications and accounted for accordingly. This note is in technical default because they were not repaid by the maturity date and no alternative agreement has been entered by the Parties.

 

As of both September 30, 2024 and December 31, 2023, the balance of the notes was $2,336,081. Accrued interest on these notes was $323,273 on September 30, 2024.