Debt and Convertible Debt

9 Months Ended

Apr. 30, 2018

Debt Disclosure [Abstract]

DEBT AND CONVERTIBLE DEBT

NOTE 12 - DEBT AND CONVERTIBLE DEBT

At April 30, 2018 and July 31, 2017, outstanding debt consisted of the following: (In thousands)

Outstanding debt consisted of the following: (In thousands)	April 30,			July 31,
	2018			2017
Note payable, payable upon maturity, bearing interest of 12% per annum, maturing September 15, 2018, provided, however, the Company shall have the right to request that the maturity date to be extended by one (1) additional period of ninety (90) days, until December 14, 2018. (See details below)	$	250		$	-
Note payable, payable upon maturity, bearing interest of 12% per annum, maturing September 15, 2018, provided, however, the Company shall have the right to request that the maturity date to be extended by one (1) additional period of ninety (90) days, until December 14, 2018. (See details below)		250			-
Note payable, payable upon maturity, bearing interest of 6% per annum, maturing February 28, 2019. (See details below)		125			-
Note payable, payable upon maturity, bearing interest of 0.00% per annum, maturing May 14, 2018, with an automatic extension until June 14, 2018. (See details below)		650			-
Note payable to Thermo Credit, LLC., interest payment for the first twenty-three months with a balloon payment on the twenty-fourth month, maturing April 30, 2020, collateralized byShift8's accounts receivable. Bearing an annual interest rate of prime plus 5.25%, adjusted quarterly on the first of each calendar quarter. However the rate will never be less than 9.50% per annum, a commitment fee of 2% and monthly monitoring fee of .33% of the credit facility. Shift8 is required to maintain the following financial covenants: 1) A consolidated debt service coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, 2) A fixed charge coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, and 3) A tangible net worth, at all times of at least $100,000. (See details below)		500			-
Note payable, payable upon maturity, bearing interest of 12% per annum, maturing June 27,2018. (See details below)		348			-
Total outstanding debt	$	2,123		$	-
Less discount on debt		(93	)		-
Total debt net of discount		2,030			-
Less debt due within 12 months		(1,530	)		-
Long-term portion of debt	$	500		$	-

On February 21, 2018, the Company entered into a Promissory Note (the "Note") for $35,000, bearing interest at a rate of 5% per annum, with maturity date of March 2, 2018. The Company paid the full principal amount outstanding and accrued interest on March 2, 2018.

On March 13, 2018, the Company entered into various Promissory Notes (the "Notes") for $200,000, bearing interest at a rate of 12% per annum, with maturity date of April 13, 2018. In conjunction with the Notes, the Company issued 3-year warrants to purchase 80,000 shares of common stock at an exercise price of $0.15 per share. The Company paid the full principal amount outstanding and accrued interest on April 13, 2018.

In March 2018, the Company entered into two (2) Promissory Notes (the "Notes") for $250,000 each, bearing interest at a rate of 12% per annum. The Notes have a maturity date of September 15, 2018, provided, however, the Company shall have the right to request that the maturity date to be extended by one (1) additional period of ninety (90) days, until December 14, 2018. The Notes are payable every month, commencing April 15, 2018, in monthly payments of interest only and a single payment of the principal amount outstanding plus accrued interest on September 15, 2018. The Company agreed to repay the Notes from the proceeds from the Company's current private placement. As proceeds from the Private Placement are received, the Company shall direct all funds to the Note Holders until the principal amount outstanding and accrued interest are paid in full. In conjunction with the Notes, the Company issued 3-year warrants to purchase 300,000 shares of common stock each at an exercise price of $0.10 per share. At time of issuance the company recognized approximately $125,000 in warrant expense using Black-Scholes valuation. In addition, on March 15, 2018, the Company entered into a Note Conversion Agreement (the "Agreement") with the Note holders, whereby, the holders may elect to convert up to 50% of the principal amount outstanding on the Notes into Common Stock of Digerati at any time after 90 days of funding the Notes. The Conversion Price shall be the greater of: (i) the Variable Conversion Price (as defined herein) or (ii) the Fixed Conversion Price (as defined herein). The "Variable Conversion Price" shall be equal to the average closing price for Digerati's Common Stock (the “Shares”) for the ten (10) Trading Day period immediately preceding the Conversion Date. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. The "Fixed Conversion Price" shall mean $0.50. The Company analyzed the Promissory notes for derivative accounting consideration and determined that the embedded conversion option qualified as a derivative instrument, due to the variable conversion price. Therefore, as of the period ending April 30, 2018, the company recognized a debt discount of $93,000 and $17,000 charge to noncash interest expense. In addition, the Company recognized $74,000 derivative liability as of April 30, 2018.

On December 1, 2017, Shift8 and Synergy Telecom, Inc., a Delaware corporation ("Synergy"), closed a transaction to acquire all the assets, assumed all customers, and critical vendor arrangements from Synergy. In conjunction with the transaction, Shift8 entered into a promissory note for $125,000 with an effective annual interest rate of 6% with 5 quarterly payments and a maturity date of February 28, 2019.

On April 30, 2018, Shift8 entered into a promissory note for $650,000 with an effective annual interest rate of 0% and a maturity date of May 14, 2018, provided, however, the Maturity Date will automatically be extended by one (1) additional period of thirty (30) days, until June 14, 2018. In addition, Shift8 entered into a Security Agreement, whereby Shift8 Agreed to pledge one third of the outstanding shares of T3, the secured interest will continue until the principal balance is paid in full. Furthermore, a late fee of $3,000 per calendar week will be accessed beginning on May 15, 2018 and will continue until he principal balance is paid in full. We are currently in negotiations with the lender to extend the maturity date, and we are currently paying a $3,000 per week late fee.

On April 30, 2018, Shift8 Networks, Inc. ("Shift8"), a subsidiary of Digerati Technologies, Inc. entered into a credit facility under a promissory note of $500,000, interest payment for the first twenty-three months with a balloon payment on the twenty-fourth month and a maturity date of April 30, 2020. Collateralized by Shift8 and T3's accounts receivables and with an effective annual interest rate of prime plus 5.25%, adjusted quarterly on the first day of each calendar quarter. However, the rate will never be less than 9.50% per annum. In the event of default, the interest rate will be the maximum nonusurious rate of interest per annum permitted by whichever of applicable United States federal law or Louisiana law permits the higher interest rate. Shift8 agreed to pay the lender a commitment fee of 1.00% upon payment of the first interest payment under the credit facility and 1.00% on the first anniversary of the credit facility. In addition, Shift8 agreed to pay a monitoring fee of 0.33% of the credit facility, payable in arrears monthly. Shift8 also agreed to pay an over-advance fee of 3.00% of the amount advanced in excess of the borrowing base or maximum amount of the credit facility, payable in arrears monthly. Shift8 is required to maintain the following financial covenants: 1) A consolidated debt service coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, 2) A fixed charge coverage ratio, as of the last day of each fiscal quarter, of at least 1.25 to 1.00, and 3) A tangible net worth, at all times of at least $100,000.

On April 27, 2018, Shift8 entered into a promissory note for $348,000 with an effective annual interest rate of 12% and a maturity date of June 27, 2018. With a principal payment of $200,000 due on May 31, 2018 and a principal payment of $150,000 due on June 27, 2018. The promissory note is secured by a Pledge and Security Agreement, whereby Shift8 agreed to pledge the cash on hand at one of the bank accounts owned by T3 until the principal payment is paid in full. In conjunction with the Notes, the Company issued 3-year warrants to purchase 400,000 shares of common stock each at an exercise price of $0.15 per share. At time of issuance the company recognized approximately $117,000 in warrant expense using Black-Scholes valuation. In June 2018, Shift8 in accordance to the terms of the promissory note made a principal payment of $200,000.