Note 6 - Convertible Notes Payable - Affiliates

6 Months Ended

Dec. 31, 2018

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 were due and payable on

December 31, 2017.

Effective

June 30, 2017,

the maturity dates were extended on the

January 2015

Convertible Notes until

July 1, 2019

and were further extended to

July 1, 2021

effective

September 30, 2018.

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

half 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, 2018,

the

January 2015

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

$1,698,873,

$882,202

and

$438,816,

respectively. As of

December 31, 2017,

the

January 2015

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

$1,640,291,

$851,781

and

$423,685,

respectively. The Company recorded interest expense related to the

January 2015

Convertible Notes of

$26,247

for both of the

three

months ended

December 31, 2018

and

2017,

respectively. The Company recorded interest expense of

$52,495

for both the

six

months ended

December 31, 2018

and

2017,

respectively.

During the

six

months ended

December 31, 2018,

the Company agreed to sell Bassani and Smith,

3,000,000

and

300,000

warrants, respectively, exercisable at

$0.60

per share until

June 30, 2025

and

June 30, 2023,

respectively. The purchase price for the warrants is

$0.10

per warrant and is payable with secured promissory notes of

$300,000

and

$30,000

from Bassani and Smith, respectively, both of which are secured by their

January 2015

Convertible Notes (Note

7

).

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, had 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. During the year ended

June 30, 2018,

Bassani and the Company agreed to split his original

September 2015

Convertible Note into

two

replacement notes with all the terms remaining the same. One of the replacement notes’ original principal is

$130,000,

which is being held by the Company as collateral for a subscription receivable promissory note from Bassani. During the

six

months ended

December 31, 2018,

with the Company’s approval, Bassani sold

$300,000

of his

second

replacement note to a Shareholder with all the terms remaining the same.

The balances of the

September 2015

Convertible Notes as of

December 31, 2018,

including accrued interest owed Bassani, Schafer and Shareholder, are

$157,141,

$18,554

and

$392,544,

respectively. The balances of the

September 2015

Convertible Notes as of

December 31, 2017,

including accrued interest, were

$443,627,

$17,899

and

$90,600,

respectively.

Effective

June 30, 2017,

the maturity dates of the

September 2015

Convertible Notes due Bassani and Schafer were extended until

July 1, 2019

and during the year ended

June 30, 2018,

the maturity date of the note due a Shareholder was extended until

July 1, 2019.

During the

six

months ended

December 31, 2018,

the maturity dates of the all the

September 2015

Convertible Notes were extended until

July 1, 2021.

The Company recorded interest expense of

$5,410

and

$5,308

for the

three

months ended

December 31, 2018

and

2017,

respectively. The Company recorded interest expense of

$10,420

and

$10,401

for the

six

months ended

December 31, 2018

and

2017,

respectively.