Note 7 - Convertible Notes Payable - Affiliates

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Convertible Debt [Text Block]

7.

     CONVERTIBLE NOTES PAYABLE - AFFILIATES:

January 2015

Convertible Notes

The

January 2015

Convertible Notes accrue interest at

4%

per annum and effective

September 30, 2018

are due and payable on

July 1, 2021.

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, 2019,

the

January 2015

Convertible Note balances, including accrued interest, owed Bassani, Smith and Edward Schafer (“Schafer”), the Company’s Vice Chairman, were

$2,207,458,

$1,118,138

and

$453,886,

respectively. 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. The Company recorded interest expense of

$31,354

and

$26,247

for the

three

months ended

December 31, 2019

and

2018,

respectively. The Company recorded interest expense of

$71,870

and

$52,495

for the

six

months ended

December 31, 2019

and

2018,

respectively.

During the

six

months ended

December 31, 2019,

Bassani and Smith each elected to transfer

$436,508

and

$199,573,

respectively, from deferred compensation owed them to their

January 2015

Convertible Notes. Also during the

six

months ended

December 31, 2019,

Smith agreed to extend the maturity date of his

January 2015

Convertible Notes until

July 1, 2022.

During the year ended

June 30, 2019,

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 portions of their

January 2015

Convertible Notes (Note

9

). The promissory notes accrue interest at

4%

per annum and as of

December 31, 2019

the accrued interest owed by Bassani and Smith is

$16,964

and

$1,696,

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

September 2015

Convertible Notes bear interest at

4%

per annum, originally had maturity dates of

December 31, 2017

but during the year ended

June 30, 2019

the maturity dates were extended to

July 1, 2021,

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 year ended

June 30, 2019,

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, 2019,

including accrued interest owed Bassani, Schafer and Shareholder, are

$162,808,

$19,206

and

$407,964,

respectively. The balances of the

September 2015

Convertible Notes as of

December 31, 2018,

including accrued interest, were

$157,141,

$18,554

and

$392,544,

respectively.

The Company recorded interest expense of

$5,365

and

$5,410

for the

three

months ended

December 31, 2019

and

2018,

respectively. The Company recorded interest expense of

$10,731

and

$10,420

for the

six

months ended

December 31, 2019

and

2018,

respectively.

2019

Convertible Notes

During the year ended

June 30, 2019,

Bassani converted

$150,000

of his deferred compensation into a

2019

Deferred Compensation Convertible Promissory Note. The

2019

Convertible Note accrues interest at

4%

per annum and is due and payable on

May 31, 2021

and as of

December 31, 2019

the

2019

Convertible Note and accrued interest was

$153,750.

The

2019

Convertible Note (including accrued interest), is 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 an initial price of

$0.50

per Unit. The warrant contained in the Unit shall be exercisable at

$0.75

per share until

December 31, 2021.

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. The Company recorded interest expense of

$1,482

and

nil

for the

three

months ended

December 31, 2019

and

2018,

respectively. The Company recorded interest expense of

$3,359

and

nil

for the

six

months ended

December 31, 2019

and

2018,

respectively.