| NOTE 6 – NOTES PAYABLE | Short
Term Notes Payable
Short
Term Notes Payable
September
30, 2017 June
30, 2017
Short
term notes payable (A) $ 114,000 $ 114,000
Short
term notes payable (B) 250,000 175,000
Net
total $ 364,000 $ 289,000 Related
Party Notes Payable
(A) In 2012, the Company
issued a note payable to a related party. The note was scheduled to mature on December 31, 2013 and accrued interest at seven
and one-half (7.5) percent per annum. In February 2016, the noteholder provided the Company with an additional $1,000. As
of September 30, 2017, the outstanding balance was $114,000. The Company is currently in default and is in discussions with
the noteholder to restructure the terms of the note.
(B) In 2017, the Company
issued notes payable to a related party. The notes were scheduled to mature on June 30, 2017 and accrued no interest. In addition,
the Company issued to the noteholder 50,000 shares of the Companys common stock. In connection with the issuance of
the 50,000 shares of stock, the Company recorded the approximate $26,000 value of the shares issued as debt discount cost.
The expense has been fully amortized at June 30, 2017. The Company used a recent sale of stock to an independent third party
for cash to determine the fair market value of the transaction. As of June 30, 2017, the outstanding principal balance was
$175,000. On August 29, 2017, the Company issued a $250,000 amended and consolidated note payable. The amended and consolidated
note payable is a consolidation of the $175,000 notes payable and an additional $75,000. The amended and consolidated promissory
note is scheduled to mature on December 31, 2017 and accrues no interest. In addition, the Company issued to the noteholder
200,000 shares of the Companys common stock (see Note 7). In connection with the issuance of the 200,000 shares of
stock, the Company recorded the approximate $30,000 value of the shares issued as loss on extinguishment of debt. Convertible
Notes to Stockholders
Convertible
Notes Payable
September
30, 2017 June
30, 2017
Convertible
notes payable (A) $ 131,000 $ 131,000
Convertible
note payable (B) 260,000 260,000
Convertible
notes payable (C) 2,460,112 2,460,112
Subtotal 2,851,112 2,851,112
Debt
discount (10,385 ) (12,053 )
Net
total $ 2,840,727 $ 2,839,059 Convertible
Notes Payable (A) Between
September 2013 and September 2017, the Company entered into various unsecured convertible promissory notes with non-affiliate
stockholders for principal amounts of approximately $7,500 to $30,000, totaling approximately $157,000, offset by the conversion
of convertible notes payable to shares of the Companys common stock of approximately $26,000, netting a balance of approximately
$131,000. Under the terms of these notes, maturity dates range from June 2015 and July 2019, interest rates range from 7.5% to
8.0% per annum, and are convertible into shares of our common stock at rates that range from $0.20 and $5.00 per share, but only
if such conversion would not cause the noteholders to own more than 9.9% of our outstanding common stock, and contains piggyback
registration rights. In addition, the Company granted to certain noteholders a cashless option to purchase one (1) share of the
Companys common stock, $.001 par value, at the exercise price of $0.50 to $1.25 per share, for each share the noteholders
are entitled pursuant to the promissory notes. The options are fully vested and shall expire from one to three years from date
of execution. For the period ended September 30, 2017, the Company is in default approximately $62,500 on various notes. As a
result, these notes are included in the current portion of convertible notes payable, and the Company is in discussions with the
noteholders to restructure the terms of the notes. The
Company determined that some of the notes had a beneficial conversion feature of approximately $38,000. The
Company recognized an accretion of debt discount expense of approximately $1,700 and $8,000 for the three-month periods ended
September 30, 2017 and 2016, respectively. The accretion of debt discount expense to be recognized in future years is approximately
$10,000. Unsecured,
Amended and Consolidated Convertible Note Payable (B) December
2014 Convertible Note In
December 2014, the Company entered into an unsecured convertible promissory note with a non-affiliate stockholder for a principal
amount of $200,000. The note payable was extinguished in December 2015, accrued interest at 7.5% per annum, and convertible into
shares of our common stock at a conversion rates of $1.00 per share, but only if such conversion would not cause the noteholder
to own more than 9.9% of our outstanding common stock, and contains piggyback registration rights. The
Company determined that the note had a beneficial conversion feature of approximately $90,000. December
2015 Convertible Note In
December 2015, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate
stockholder for a principal amount of $260,000. In exchange, the Company extinguished a $10,000 short term note payable, the $200,000
convertible note payable issued in December 2014, and received cash of $50,000. The amended and consolidated note payable matures
in October 2019, accrues interest at 7.5% per annum, and convertible into shares of our common stock at a conversion rates of
$0.20 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common stock,
and contains piggyback registration rights. In addition, the Company granted to the noteholder a cashless warrant to purchase
one (1) share of the Companys common stock, $.001 par value, at the exercise price of $0.50 per share, for each share the
noteholder is entitled pursuant to the promissory note. The options are fully vested and shall expire three years from date of
execution. The
Company determined the estimated relative fair value discount of the warrants was approximately $128,000 which was valued using
the Black-Scholes option pricing model with the following inputs: volatility of 240%; risk-free interest rate of 1.05%; expected
term of 3 years; and 0% dividend yield. The
Company determined that the note had a beneficial conversion feature of approximately $141,000. Unsecured,
Amended and Consolidated Convertible Notes Payable (C) June
2015 Convertible Note In
June 2015, the Company entered into an unsecured convertible promissory note with a non-affiliate stockholder for a principal
amount of approximately $1,475,000. The note matured on June 9, 2017 and accrued interest at 7.5% per annum and is convertible
into shares of our common stock at a conversion rate of $1.00 per share, but only if such conversion would not cause the noteholder
to own more than 9.9% of our outstanding common stock, and contains piggyback registration rights. December
2015 Convertible Note In
December 2015, the Company entered into an unsecured $112,000 promissory note with a stockholder. The note matured on March 31,
2016 and accrued no interest. In addition, the Company issued to the noteholder 125,000 shares of the Companys common stock. In
connection with the issuance of the 125,000 shares of stock in December 2015, the Company recorded the approximate $39,000 value
of the shares issued, included in loss on extinguishment. The Company used a recent sale of stock to determine the fair market
value of the transaction. February
2016 Convertible Note In
February 2016, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate
stockholder for a principal amount of approximately $2,100,000. In exchange, the Company modified the $1,475,000 convertible note
payable issued in June 2015, the $112,000 note payable issued in December 2015, accounts payable related to accrued interest of
approximately $293,000, and received cash of $200,000. The amended and consolidated note payable matures February 2018, accrues
interest at 5% per annum, and is convertible into shares of our common stock at a conversion rate of $0.50 per share, but only
if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common stock, and contains piggyback
registration rights. In
connection with the $2,100,000 convertible note payable, the Company determined the embedded conversion feature does not meet
the criteria in ASC 470-50-40-10 or 470-20-25, and the issuance of the convertible promissory note payable is considered a modification,
and not an extinguishment that would require the recognition of a gain or loss. April
2016 Convertible Note In
April 2016, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate stockholder
for a principal amount of approximately $2,130,000. In exchange, the Company modified the $2,080,112 convertible promissory note
payable issued in February 2016 and received cash of $55,000. The amended and consolidated convertible note payable matures in
February 2018, accrues interest at 5% per annum, and is convertible into shares of our common stock at a conversion rate of $0.50
per share, but only if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common stock, and
contains piggyback registration rights. In
connection with the $2,130,000 convertible note payable, the Company determined the embedded conversion feature does not meet
the criteria in ASC 470-50-40-10 or 470-20-25, and the issuance of the convertible promissory note payable is considered a modification,
and not an extinguishment that would require the recognition of a gain or loss. August
2016 Convertible Note In
August 2016, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate stockholder
for a principal amount of approximately $2,285,000. In exchange, the Company extinguished the $2,135,112 convertible promissory
note payable issued in April 2016 and received cash of $150,000. The amended and consolidated convertible note payable matures
in August 2018, accrues interest at 5% per annum, and is convertible into shares of our common stock at a conversion rate of $0.40
per share, but only if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common stock, and
contains piggyback registration rights. In
connection with the $2,285,000 convertible note, the Company determined the embedded conversion feature does meet the criteria
in ASC 470-50-40-10 or 470-20-25, and the issuance of the convertible promissory note payable is considered an extinguishment
that would require the recognition of a gain or loss. The Company recognized a loss from extinguishment of debt of approximately
$3.7 million during the quarter ended September 30, 2016. October
2016 Convertible Note In
October 2016, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate
stockholder for a principal amount of approximately $2,310,000. In exchange, the Company modified the $2,285,000 convertible promissory
note payable issued in August 2016 and received cash of $25,000. The amended and consolidated convertible note payable matures
in October 2018, accrues interest at 5% per annum, and is convertible into shares of our common stock at a conversion rate of
$0.40 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common stock,
and contains piggyback registration rights. In
connection with the $2,310,000 convertible note payable, the Company determined the embedded conversion feature does not meet
the criteria in ASC 470-50-40-10 or 470-20-25, and the issuance of the convertible promissory note payable is considered a modification,
and not an extinguishment that would require the recognition of a gain or loss. November
2016 Convertible Note In
November 2016, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate
stockholder for a principal amount of approximately $2,410,000. In exchange, the Company extinguished the $2,310,112 convertible
promissory note payable issued in October 2016 and received cash of $100,000. The amended and consolidated convertible note payable
matures in November 2018, accrues interest at 5% per annum, and is convertible into shares of our common stock at a conversion
rate of $0.15 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common
stock, and contains piggyback registration rights. In
connection with the $2,410,000 convertible note, the Company determined the embedded conversion feature does meet the criteria
in ASC 470-50-40-10 or 470-20-25, and the issuance of the convertible promissory note payable is considered an extinguishment
that would require the recognition of a gain or loss. The Company recognized a loss from extinguishment of debt of approximately
$10.1 million for the fiscal year ended June 30, 2017. January
2017 Convertible Note In
January 2017, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate
stockholder for a principal amount of approximately $2,460,000. In exchange, the Company modified the $2,410,112 convertible promissory
note payable issued in November 2016 and received cash of $50,000. The amended and consolidated convertible note payable matures
in January 2019, accrues interest at 5% per annum, and is convertible into shares of our common stock at a conversion rate of
$0.15 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of our outstanding common stock,
and contains piggyback registration rights. In
connection with the $2,460,000 convertible note payable, the Company determined the embedded conversion feature does not meet
the criteria in ASC 470-50-40-10 or 470-20-25, and the issuance of the convertible promissory note payable is considered a modification,
and not an extinguishment that would require the recognition of a gain or loss. The
Company recognized interest expense on all notes payable to stockholders of approximately $40,000 and $38,000 for the three-month
periods ended September 30, 2017 and 2016, respectively. Accrued interest on all notes payable to stockholders at September 30,
2017 and 2016 totaled approximately $300,000 and $140,000, respectively, and is included in accounts payables. As
of September 30, 2017, future maturities of all notes payable are as follows:
Fiscal
year ended June 30,
2018 $ 456,500
2019 2,742,612
2020 16,000
Total
outstanding notes 3,215,112
Debt
Discount (10,385 )
Net
Notes Payable $ 3,204,727 |
