Convertible Debentures | 8. Convertible Debentures a) On April 27, 2017, the Company issued a convertible promissory note in the aggregate principal amount of $2,000,000. The interest on the outstanding principal due under the Unsecured Note accrues at a rate of 8% per annum. All principal and accrued interest under the Unsecured Note is due one year following the issue date of the Unsecured Note and is convertible into shares of common stock at a conversion price equal to 75% of the lowest volume-weighted average price during the 15 trading days immediately preceding the date of conversion. The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “ Derivatives and Hedging Modifications and Extinguishments b) On February 21, 2018, the holder of the convertible promissory note described in Note 8(a) entered into agreements to sell and assign a total of $105,000, of the outstanding principal to a third party. During the year ended December 31, 2018, $55,000 of the note was converted. During the three months ended March 31, 2019, $44,250 of the note was converted into 583,156 shares of common stock. At March 31, 2019, the carrying value of the notes was $5,750. c) On June 7, 2018, the holder of the convertible promissory note described in Note 8(a) entered into agreements to sell and assign a total of $39,375, of the outstanding principal to a third party. During the three months ended March 31, 2019, $39,375 of the note was converted into 576,501 shares of common stock. At March 31, 2019, the carrying value of the notes was $Nil. d) On January 24, 2019 and March 15, 2019, the holder of the convertible promissory note described in Note 8(a) entered into agreements to sell and assign a total of $200,000, of the outstanding principal to a third party. During the three months ended March 31, 2019, $75,000 and $7,499 of the note was converted into 1,071,418 shares of common stock. At March 31, 2019, the carrying value of the notes was $25,000. e) On February 27, 2018, the Company issued a convertible promissory note in the aggregate principal amount of $2,000,000. The interest on the outstanding principal due under the ADEX Note accrues at a rate of 6% per annum. All principal and accrued interest under the ADEX Note is due one year following the issue date of the ADEX Note and is convertible into shares of common stock at a conversion price equal to of the lowest volume-weighted average price during the 15 trading days immediately preceding the date of conversion, but in no event ever lower than $1 (the “Floor”), unless the note is in default, at which time the Floor terminates. The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “ Derivatives and Hedging On September 26, 2018, the holder of the convertible promissory note entered into agreement to sell and assign a total of $75,000 of the outstanding principal to a third party. The Company approved and is bound by the assignment and sale agreement. As a result of the assignment, the assigned note bears interest at 5% and the conversion price for the $75,000 of notes assigned is now equal to the lesser 75% of the lowest volume-weighted average price during the 15 trading days immediately preceding the date of conversion and $8. On December 3, 2018, the holder of the convertible promissory note entered into agreement to sell and assign a total of $50,000 of the outstanding principal to a third party. The Company accounted for the assignments in accordance with ASC 470-50 “ Modifications and Extinguishments During the three months ended March 31, 2019, $49,995 of the note was converted into 617,600 shares of common stock. During the three months ended March 31, 2019, the Company repaid $45,077 and recorded accretion of $125,967 increasing the carrying value of the notes to $1,596,577. f) The Company also issued InterCloud a convertible note with a principal amount of $793,894 to settle a contingent liability of $793,893 owed as a result of the acquisition of AWS. The note is due on August 16, 2019 and bears interest at 1% per annum. The note is convertible into common shares of the Company at a conversion price equal to the 80% of the lowest volume-weighted average price during the 5 trading days immediately preceding the date of conversion. The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “ Derivatives and Hedging g) On February 21, 2018, the Company issued a convertible note with a principal amount of $500,000 and a warrant with a term of three years to purchase up to 125,000 shares of common stock of the Company at an exercise price of $1.60 per share. The exercise price of the warrant will reduce to 85% of the closing price of the Company’s common stock if the closing price of the Company’s common stock is less than $1.60 on July 31, 2018. The note was due on January 15, 2019, and in February 2019, the maturity date was extended to June 1, 2019, and bears interest at 6% per annum. The note is convertible into common shares of the Company at a conversion price equal to the lower of 80% of the lowest volume-weighted average price during the 5 trading days immediately preceding the date of conversion and $1 (the “Floor”), unless the note is in default, at which time the Floor terminates. The embedded conversion option and warrant qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “ Derivatives and Hedging h) On April 23, 2018, the Company entered into and closed on a Securities Purchase Agreement with an institutional investor, pursuant to which the Company issued to the lender a senior secured convertible promissory note in the aggregate principal amount of $1,578,947 for an aggregate purchase price of $1,500,000. The interest on the outstanding principal due under the secured note accrues at a rate of 12% per annum. All principal and accrued interest under the secured note is due on October 23, 2019 and is convertible into shares of the Company’s common stock at a fixed conversion price of $1.00. While during the first three months that the secured note is outstanding, only interest payments are due to the lender, beginning in month four, and on each monthly anniversary thereafter until maturity, amortization payments are due for principal and interest due under the secured note. The secured note includes customary events of default, including non-payment of the principal or accrued interest due on the secured note. Upon an event of default, all obligations under the secured note will become immediately due and payable. If the Company issues any common stock or common stock equivalents at an effective price per share less than $1 then the conversion price of the note will be reduced to the lower price. As long as the note is not in default the Company may repay the note at 110% of the outstanding principal amount. If the Company defaults upon the note it bears interest at 18% per annum. In connection with the Purchase Agreement, the Company entered into a security agreement, dated as of April 23, 2018, with the Lender (the “Security Agreement”) and an intellectual property security agreement, dated as of April 23, 2018, with the Lender pursuant to which the Company granted a security interest in substantially all of the assets of the Company, but for those assets over which Prestige Capital Corporation holds a lien, to secure the Company’s obligations under the secured note. In addition, all of the Company’s subsidiaries are guarantors of the Company’s obligations to the Lender pursuant to the Secured Note. The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “ Derivatives and Hedging i) On May 18, 2018, the Company entered into and closed on a Securities Purchase Agreement with an institutional investor, pursuant to which the Company issued to the investor a senior secured convertible promissory note in the aggregate principal amount of $295,746 for an aggregate purchase price of $280,959. The interest on the outstanding principal due under the secured note accrues at a rate of 12% per annum. All principal and accrued but unpaid interest under the secured note is due on May 18, 2019. The secured note is convertible into shares of the Company’s common stock at a fixed conversion price of $1 per share. Interest is payable monthly on the 18th of each month. While interest payments must be made in cash during the first six months that the secured note is outstanding, beginning in month seven, and on each monthly anniversary thereafter until maturity, the Company has the option to pay interest payments in stock, subject to certain equity conditions being satisfied. Any payment of interest or principal scheduled after December 1, 2018 that is made in cash will be subject to a 5% prepayment premium. Any other prepayment is subject to a 10% premium. The secured note includes customary events of default, including non-payment of the principal or accrued interest due on the secured note and cross default to other notes owing to the investor. Upon an event of default, all obligations under the secured note and other notes owing to the investor will become immediately due and payable. In connection with the issuance of the secured note, the Company issued the investor 496,101 shares of Series A Preferred Stock with a fair value of $193,509 which was expensed. The investor was granted a right to participate in future financing transactions of the Company while the secured note remains outstanding. If the Company issues any common stock or common stock equivalents at an effective price per share less than $1 then the conversion price of the note will be reduced to the lower price. As long as the note is not in default the Company may repay the note at 110% of the outstanding principal amount. If the Company defaults upon the note it bears interest at 18% per annum. In connection with the Securities Purchase Agreement, the Company entered into an amendment to the existing Security Agreement described in Note 10(o). Pursuant to the amendment, the Company agreed that obligations under the secured note and related documents will be secured pursuant to the existing security interest in substantially all of the assets of the Company securing other notes issued to the Investor (except for those assets over which Prestige Capital Corporation holds a lien). In addition, all of the Company’s subsidiaries are guarantors of the Company’s obligations to the Investor pursuant to the Secured Note and have granted a similar security interest over substantially their assets. The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “ Derivatives and Hedging j) On July 3, 2018, the Company entered into and closed on a Securities Purchase Agreement with an institutional investor, pursuant to which the Company issued to the investor a senior secured convertible promissory note in the aggregate principal amount of $78,947 for an aggregate purchase price of $75,000. The interest on the outstanding principal due under the secured note accrues at a rate of 12% per annum. All principal and accrued but unpaid interest under the secured note is due on March 15, 2019. The secured note is convertible into shares of the Company’s at the greater of $0.80 or 75% of the lowest VWAP in the 10 trading days prior to conversion. The Company may repay the note at 115% of the outstanding principal amount. If the Company defaults upon the note it bears interest at 18% per annum. The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “ Derivatives and Hedging k) On July 31, 2018, the Company entered into and closed on a Securities Purchase Agreement with an institutional investor, pursuant to which the Company issued to the investor a senior secured convertible promissory note in the aggregate principal amount of $78,947 for an aggregate purchase price of $75,000. The interest on the outstanding principal due under the secured note accrues at a rate of 12% per annum. All principal and accrued but unpaid interest under the secured note is due on March 15, 2019. The secured note is convertible into shares of the Company’s at the greater of $1 or 75% of the lowest VWAP in the 10 trading days prior to conversion. The Company may repay the note at 115% of the outstanding principal amount. If the Company defaults upon the note it bears interest at 18% per annum. The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “ Derivatives and Hedging l) On December 4, 2018, the Company entered into and closed on a Securities Purchase Agreement with an institutional investor, pursuant to which the Company issued to the investor a senior secured convertible promissory note in the aggregate principal amount of $27,500 for an aggregate purchase price of $25,000. The interest on the outstanding principal due under the secured note accrues at a rate of 8% per annum. All principal and accrued but unpaid interest under the secured note is due on December 4, 2019. The secured note is convertible into shares of the Company’s at 65% of lowest trading price for the fifteen trading days prior to the conversion date. The Company may repay the note at 150% of the outstanding principal amount. If the Company defaults upon the note it bears interest at 18% per annum. The embedded conversion option qualified for derivative accounting and the conversion option qualified for bifurcation under ASC 815-15 “ Derivatives and Hedging m) On January 4, 2019, as part of the acquisition described in Note 3, the Company issued to InterCloud a convertible promissory note in the aggregate principal amount of $620,000 (the “Note”). The interest on the outstanding principal due under the Note accrues at a rate of 6% per annum. All principal and accrued interest under the Note is due January 30, 2020, and is convertible, at any time at InterCloud’s election, into shares of common stock of the Company at a conversion price equal to the greater of 75% of the lowest volume-weighted average price during the 10 trading days immediately preceding the date of conversion and $0.10. The embedded conversion option qualifies for derivative accounting and bifurcation under ASC 815-15 “Derivatives and Hedging”. The initial fair value of the conversion feature of $189,000 resulted in a discount to the note payable of $144,000. On January 28, 2019, the holder of the convertible promissory note entered into agreement to sell and assign a total of $620,000 of the $620,000 outstanding principal to two third parties, with $186,000 and $434,000 of principal assigned to each party. The Company approved and is bound by the assignment and sale agreement. During the three months ended March 31, 2019, $70,000 of each of the notes was converted into a total of 1,400,000 shares of common stock. During the three months ended March 31, 2019, the Company recorded accretion of $13,011 and $23,645 on the two notes increasing the carrying value of the two notes to $85,844 and $286,845 respectively. March 31, 2019 December 31, 2018 Convertible promissory note, InterCloud Systems, Inc,, 8% interest, unsecured, matured April 27, 2018, net of debt discount of $0 and $361,333 $ 1,445,625 $ 1,735,000 Convertible promissory note, InterCloud Systems, Inc,, 6% interest, unsecured, matured March 27, 2019, net of debt discount of $160,782 and $286,749 1,596,542 1,565,681 Convertible promissory note, InterCloud Systems, Inc,, 1% interest, unsecured, matures August 16, 2019, net of debt discount of $109,036 and $171,557 684,858 622,392 Convertible promissory note, Barn 11, 6% interest, unsecured, matures June 1, 2019, net of debt discount of $0 and $45,000 500,000 445,000 Convertible promissory note, Dominion Capital, 18% interest, secured, matures October 23,2019, net of debt discount of $879,130 and $1,009,630 239,291 240,370 Convertible promissory note, Dominion Capital, 12% interest, unsecured, matures May 18, 2019, net of debt discount of $82,787 and $172,570 212,959 123,176 Convertible promissory note, M2B Funding, 12% interest, unsecured, matures March 15, 2019, net of debt discount of $0 and $9,087 - 69,860 Convertible promissory note, M2B Funding, 12% interest, unsecured, matures March 15, 2019, net of debt discount of $0 and $41,395 - 37,552 Convertible promissory note, Silverback, 8% interest, unsecured, matures December 4, 2019, net of debt discount of $21,656 and $24,140 5,844 3,360 Convertible promissory note, Michael Roeske, 6% interest, unsecured, matures, January 30, 2020, net of debt discount of $30,189 and $0 85,844 - Convertible promissory note, Joel Raven, 6% interest, unsecured, matures January 30, 2020, net of debt discount of $77,155 and $0 286,845 - Convertible promissory note, Virtual Capital, LLC, 0% interest, unsecured, matured, January 24, 2019 125,000 Convertible promissory note, RDW Capital LLC, 9.9% interest, unsecured, matured March 30, 2019, net of debt discount of $0 and $0 5,750 - Total $ 5,188,558 $ 4,842,391 |