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Note 6 - Convertible Notes Payable - Affiliates
 12 Months Ended
Jun. 30, 2019
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
June 30, 2019,
the
January 2015
Convertible Note balances, including accrued interest, owed Bassani, Smith and Edward Schafer (“Schafer”), the Company’s Vice Chairman, were
$1,727,923,
$897,287
and
$446,320,
respectively. As of
June 30, 2018,
the
January 2015
Convertible Note balances, including accrued interest, owed Bassani, Smith and Schafer were
$1,669,342,
$866,866
and
$431,188,
respectively. The Company recorded interest expense of
$104,134
and
$104,135
for the years ended
June 30, 2019
and
2018,
respectively.
 
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
7
). The promissory notes accrue interest at
4%
per annum and as of
June 30, 2019
the accrued interest owed by Bassani and Smith is
$10,948
and
$1,095,
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, 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. 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 year ended
June 30, 2019,
the maturity dates of the all the
September 2015
Convertible Notes were extended until
July 1, 2021.
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, 2019,
including accrued interest owed Bassani, Schafer and Shareholder, are
$159,963,
$18,879
and
$400,405,
respectively. The balances of the
September 2015
Convertible Notes as of
June 30, 2018,
including accrued interest, were
$452,400,
$18,224
and
$87,196,
respectively.
 
The Company recorded interest expense of
$21,428
and
$21,094
for the year ended
June 30, 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
June 30, 2019
the
2019
Convertible Note and accrued interest was
$150,391.
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.