Note 7 - Convertible Notes Payable - Affiliates

12 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Convertible Debt [Text Block]

7.

     CONVERTIBLE NOTES PAYABLE - AFFILIATES:

2020

Convertible Obligations (formerly

January 2015

Convertible Notes and

2019

Convertible Note)

The

2020

Convertible Obligations (formerly named

January 2015

Convertible Notes and

2019

Convertible Notes) which accrue interest at either

4%

per annum or

1%

compounded quarterly and effective

January 1, 2020

are due and payable on

July 1, 2024.

The

2020

Convertible Obligations (including accrued interest, plus all future deferred compensation added subsequently), are convertible, at the sole election of the holder, into Units consisting of

one

share of the Company's common stock and

one

half to

three

quarters warrant to purchase a share of the Company's common stock, at a price of

$0.50

per Unit until

July 1, 2024.

The warrant contained in the Unit was originally exercisable at

$1.00

per unit but was modified to

$0.75

during the year ended

June 30, 2020

and is exercisable until a date

three

years after the date of the conversion. 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

June 30, 2020,

the

2020

Convertible Obligation balances, including accrued interest, owed Bassani (and his donees), Smith and Edward Schafer (“Schafer”), the Company's Vice Chairman, were

$2,408,432,

$1,123,736

and

$462,963,

respectively. As of

June 30, 2019,

the

2020

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

$1,878,314,

$897,287

and

$446,320,

respectively. The Company recorded interest expense of

$137,130

and

$104,525

for the years ended

June 30, 2020

and

2019,

respectively.

During the year ended

June 30, 2020,

Bassani and Smith elected to transfer

$436,508

and

$199,573,

respectively, from deferred compensation owed them to their

2020

Convertible Obligations.

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 represented by secured promissory notes of

$300,000

and

$30,000

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

2020

Convertible Obligations (Note

9

). The promissory notes accrue interest at

4%

per annum and as of

June 30, 2020

the accrued interest owed by Bassani and Smith is

$22,948

and

$2,295,

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. During the year ended

June 30, 2020,

the maturity dates of the

September 2015

Convertible Notes were further extended until

July 1, 2024.

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

June 30, 2020,

including accrued interest owed Bassani, Schafer and Shareholder, are

$165,653,

$19,535

and

$415,522,

respectively. The balances of the

September 2015

Convertible Notes as of

June 30, 2019,

including accrued interest, were

$159,963,

$18,879

and

$400,405,

respectively.

The Company recorded interest expense of

$21,462

and

$21,428

for the years ended

June 30, 2020

and

2019,

respectively.