NOTE 5 - RELATED PARTY DEBT AGREEMENTS

Esenjay”). Esenjay is deemed to be a related party as Mr. Michael Johnson, the beneficial owner and director of Esenjay is a current member of our board of directors and a major shareholder of the Company (owning approximately 66% of our outstanding common shares as of June 30, 2016). The three debt agreements consisted of a Bridge Loan Promissory Note, a Secondary Revolving Promissory Note and an Unrestricted Line of Credit (collectively, the “Loan Agreements”). On December 31, 2015, the Bridge Loan Promissory Note and the Secondary Revolving Promissory Note expired leaving the Unrestricted Line of Credit, with a maximum borrowing amount of $2,500,000, available for future draws. As discussed below, the Unrestricted Line of Credit has been amended resulting in an increase in the maximum borrowing amount to $3,500,000. Additional borrowings under the Unrestricted Line of Credit are subject to pre-approval by Esenjay which has no obligation to loan additional funds under the agreement. The borrowings bear an interest rate at 6% per annum and, as amended on July 28, 2016, mature on January 31, 2018.

 

4,550,000 pursuant to these various debt agreements with Esenjay. On September 3, 2015, we entered into a Loan Conversion Agreement with Esenjay (“Conversion Agreement”), as amended on October 6, 2015 and November 13, 2015, pursuant to which we agreed to issue 51,171,025 shares of our common stock (based on $0.04 per share) in exchange for the cancellation of $2,000,000 (“Principal Amount”) of the total $2,200,000 outstanding under the Loan Agreements, plus $46,841 in accrued interest on such Principal Amount as of September 3, 2015 (the accrued interest together with the Principal Amount referred to as the “Debt”). In connection with the Conversion Agreement, as amended, on September 9, 2015, we issued 51,171,025 shares to Esenjay in exchange for settlement of the Debt.

Second Amendment”), with Esenjay which modified the following terms: (i) extended the maturity date to July 30, 2016; (ii) increased the maximum principal amount available from $2,000,000 to $2,500,000; and (iii) reduced the conversion price from $0.30 to $0.06.

The estimated change in fair value of the conversion price of approximately $310,000 was determined to be a debt issuance cost, and accordingly, was recorded as a deferred financing cost at the date of the Second Amendment to be amortized over the remaining seven-month term through July 30, 2016. During the year ended June 30, 2016, we recorded approximately $266,000 of deferred financing amortization costs,

which are included in interest expense in the accompanying consolidated statements of operations

.

rincipal amount available was increased to $3,500,000.

under the Unrestricted Line of Credit was settled

, in conjunction with our then outstanding private placement discussed further in Note 7, via the issuance of 33,750,000 shares of our common stock.

common stock shares issued during fiscal 2016 as settlement of the Debt and/or Unrestricted Line of Credit have not been registered under the Securities Act. The shares were offered and sold in reliance upon exemptions from registration pursuant to Section 4(a)(2) of the Securities Act. The transactions have been accounted for as a capital transaction in accordance with FASB ASC Topic No. 470-50, “”. Accordingly, no gain or loss has been recognized.

The outstanding principal balance of the Unrestricted Line of Credit as of June 30, 2016 was $1,200,000 resulting in a remaining $2,300,000 available for future draws under this agreement, subject to lender’s approval.  During fiscal 2016 and 2015, the Company recorded approximately $92,000 and $29,000, respectively of interest expense in the accompanying consolidated statements of operations related to the Unrestricted Line of Credit.  Subsequent to June 30, 2016, we have borrowed $120,000 under the credit facility and entered into a Fourth Amendment to the Unrestricted Line of Credit extending the maturity date to January 31, 2018 (see Note 14).