NOTE 5: DEBT

Convertible Debt

During the six months ended June 30, 2017, the Company borrowed an aggregate of $1,215,943, net of original issue discounts and fees of $1,137,856, under convertible notes payable. Additional discounts of $1,105,486 were recognized during the six months ended June 30, 2017 due to derivative liabilities. As of June 30, 2017 and December 31, 2016, the Company had outstanding convertible notes payable of $7,949,288 and $6,650,484, net of unamortized discounts of $2,429,074 and $1,920,571, respectively. The outstanding convertible notes of the Company are unsecured, bear interest between 6% and 12% per annum, mature between October 2017 and June 2020 and are convertible at variable rates between $0.06 and $0.15 per share and at rates between 60% and 65% of the quoted market price of the Company’s common stock. All notes that were convertible during the six months ended June 30, 2017 were accounted for as derivative liabilities until the final resolution of outstanding variable conversion debt instruments (see Note 6). Aggregate amortization of the debt discounts on convertible debt for the six months ended June 30, 2017 and 2016 was $629,353 and $517,227, respectively.

During the six months ended June 30, 2017, the Company incurred loan default and standstill expenses added to debt principal of $98,849.

During the six months ended June 30, 2017, holders of convertible notes payable elected to convert a total of $1,889,616 in principal and $47,071 in accrued interest into a total of 29,403,968 shares of the Company’s common stock.

Nonconvertible Debt

As of June 30, 2017 and December 31, 2016, the Company had outstanding notes payable to former affiliates of the Company of $463,185. These notes payable of the Company are unsecured, bear no interest and are due on demand.

Accounts Payable

During the six months ended June 30, 2017, The Company recognized a gain on settlement of accounts payable of $51,835 due to the settlement of an outstanding professional fee payable with a third party vendor.