• Filing Date: 2018-08-09
  • Form Type: 10-Q
  • Description: Quarterly report
v3.10.0.1
3. CONVERTIBLE DEBT AND DERIVATIVE LIABILITIES
6 Months Ended
Jun. 30, 2018
Debt Disclosure [Abstract]  
CONVERTIBLE DEBT AND DERIVATIVE LIABILITIES

NOTE 3: CONVERTIBLE DEBT AND DERIVATIVE LIABILITIES

 

Summary of Convertible Promissory Notes:

 

    June 30,   December 31,
    2018   2017
         
CAVU Notes, net   $ 100,000     $ 100,000  
Berg Note     50,000       50,000  
Secured and unsecured Notes net of discounts of $368,990 for June 30, 2018 and $234,502 for December 31, 2017     4,240,010       2,999,498  
Total Debt     4,390,010       3,149,498  
Current portion of debt     4,390,010       3,149,498  
Long-term portion of debt   $ —       $ —    

 

In the first quarter of 2018, the Company entered into agreements with non-affiliated persons to provide $1,000,000 of short term secured debt financing in four monthly tranches. The Company will issue in connection with each tranche, a six-month secured convertible promissory note. In connection with this transaction, the Company agreed to issue an origination fee of 1,000,000 shares of restricted common stock. Alexander Capital L.P. acted as Placement Agent and Advisor for this transaction. Each of these new notes are on the terms of the Company's 10% Senior Secured debt.

 

The Company's 10% Senior Secured Debt consists of 19 convertible notes issued totaling $4,234,000. These notes mature 6 months from the date of issuance, accrue interest at 10%, and had a base conversion price of $.05. As of June 30, 2018, the 10% Senior Secured Debt notes are in default for breach of covenants due to notes which have matured during the period not being settled. The default on these notes triggered an increase in the interest rate from 10% to 24% on the principal balance, a 9% late fee being charged on interest accrued, and a variable conversion price equal to 50% of the lowest volume weighted average price in the 30 days prior to conversion. On February 27, 2018 the Company reduced the base conversion price from $.05 to $.02. The Company accounted for this modification per ASC 470-50 "Modifications and Extinguishments". Due to the variable rate in effect from the default provisions of the 10% Senior Secured Debt notes this reduction in base conversion price had no material change on the value of the notes.

 

In the second quarter of 2018, the Company borrowed $375,000 from investors, including $125,000 from the Chairman of the Company. A total of 10,500,000 shares of common stock were issued as origination fees. The principal of the loans are due and payable the earlier of July 31, 2018 or upon the completion of a financing of at least $1,000,000.

 

A recap of the derivative liability is as follows:

 

Derivative Liability 2018
Beginning balance   $ (666,123 )
New Issuances     (559,728 )
Discount on new issuances     (647,431 )
Gain (Loss) on revaluation of derivative liability     (9,246,435 )
Ending balance   $ (11,119,717 )