Quarterly report pursuant to Section 13 or 15(d)

Note 4 - Related Party Debt Agreements

v3.8.0.1
Note 4 - Related Party Debt Agreements
3 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
Related Party Debt Agreement Disclosure [Text Block]
NOTE
4
- RELATED PARTY DEBT AGREEMENTS
 
Esenjay Unrestricted Line Of Credit
 
Between
October 2011
and
September 2012,
the Company entered into
three
debt agreement
s with Esenjay Investments, LLC (“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
64%
of our outstanding common shares as of
September 30, 2017).
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, available for future draws.
 
The Unrestricted Line of Credit has a maximum borrowing amount of
$10,000,000,
is convertible at a rate of
$0.60
per share, bears interest at
8%
per annum and matures on
January 31, 2019.
Advances under the
Unrestricted Line of Credit are subject to Esenjay's approval.
 
  
The outstanding principal balance of the Unrestricted Line of Credit as of
September 30, 2017
was
$6,680,000,
convertible into
11,133,333
shares of common stock, resulting in a remaining
$3,320,000
available for future draws under this agreement, subject to lender
’s approval.  During the
three
months ended
September 30, 2017
and
2016,
the Company recorded approximately
$121,000
and
$16,000,
respectively of interest expense in the accompanying condensed consolidated statements of operations related to the Unrestricted Line of Credit.  Subsequent to
September 30, 2017,
we have borrowed an additional
$2,585,000
under the credit facility (see Note
9
). 
 
Shareholder Convertible Promissory Note
 
On
April 27, 2017,
we formalized an oral agreement for advances totaling
$500,000,
received from a shareholder (“Shareholder”) into a written Convertible Promissory Note (the “Convertible Note”). Borrowings under the Convertible Note accrue interest at
12%
per annum, with all unpaid principal and accrued interest due and payable on
October 27, 2018.
In addition, at any time commencing on or after the date that is
six
(
6
) months from the issue date, at the election of Shareholder, all or any portion of the outstanding principal, accrued but unpaid interest and/or late charges under the Convertible Note
may
be converted into shares of the Company
’s common stock at a conversion price of
$1.20
per share; provided, however, the Shareholder shall
not
have the right to convert any portion of the Convertible Note to the extent that the Shareholder would beneficially own in excess of
5%
of the total number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon conversion of the Convertible Note.  During the
three
months ended
September 30, 2017,
we recorded approximately
$15,000
of interest expense in the accompanying condensed consolidated statements of operations related to the Convertible Note.