Note 6 - Convertible Notes Payable - Affiliates

6 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Convertible Debt [Text Block]

6.

     CONVERTIBLE NOTES PAYABLE - AFFILIATES:

January

2015

Convertible Notes

The

January

2015

Convertible Notes accrue interest at

4%

per annum and are due and payable on

December

31,

2017.

The

January

2015

Convertible Notes (including accrued interest, plus all future deferred compensation), are convertible, at the sole election of the noteholder, into Units consisting of

one

share of the Company’s common stock and

one

quarter warrant to purchase a share of the Company’s common stock, at a price of

$0.50

per Unit until

December

31,

2020.

The warrant contained in the Unit shall be exercisable at

$1.00

per share until

December

31,

2020.

The original conversion price of

$0.50

per Unit approximated the fair value of the Units at the date of the agreements; therefore no beneficial conversion feature exists. Management evaluated the terms and conditions of the embedded conversion features based on the guidance of ASC

815

-

15

“Embedded Derivatives” to determine if there was an embedded derivative requiring bifurcation. An embedded derivative instrument (such as a conversion option embedded in the deferred compensation) must be bifurcated from its host instruments and accounted for separately as a derivative instrument only if the “risks and rewards” of the embedded derivative instrument are not “clearly and closely related” to the risks and rewards of the host instrument in which it is embedded. Management concluded that the embedded conversion feature of the deferred compensation was not required to be bifurcated because the conversion feature is clearly and closely related to the host instrument, and because of the Company’s limited trading volume that indicates the feature is not readily convertible to cash in accordance with ASC

815

-

10,

“Derivatives and Hedging”.

As of

December

31,

2016,

the

January

2015

Convertible Note balances, including accrued interest, owed Bassani, Smith and Schafer were

$1,581,710,

$821,360

and

$408,553,

respectively. During both of the

three

months ended

December

31,

2016

and

2015,

the Company recorded interest expense of

$26,247

,

respectively, related to the

January

2015

Convertible Notes. The Company recorded

$52,495

for both the

six

months ended

December

31,

2016

and

2015,

respectively.

September

2015

Convertible Notes

During the year ended

June

30,

2016,

the Company entered into

September

2015

Convertible Notes with Bassani, Schafer and a Shareholder which replaced previously issued promissory notes. The initial principal balances of the

September

2015

Convertible Notes were

$405,831,

$16,382

and

$82,921,

respectively. The

September

2015

Convertible Notes bear interest at

4%

per annum, have maturity dates of

December

31,

2017

and

may

be converted at the sole election of the noteholders into restricted common shares of the Company at a conversion price of

$0.60

per share. As the conversion price of

$0.60

approximated the fair value of the common shares at the date of the

September

2015

Convertible Notes, no beneficial conversion feature exists. The balances of the

September

2015

Convertible Notes as of

December

31,

2016,

including accrued interest, are

$427,179,

$17,244

and

$87,282,

respectively. The Company recorded interest expense related to the

2015

Convertible Notes of

$5,092

and

$5,093

for the

three

months ended

December

31,

2016

and

2015,

respectively. The Company recorded interest expense of

$10,185

and

$6,311

for the

six

months ended

December

31,

2016,

respectively.