NOTES PAYABLE

3 Months Ended

Sep. 30, 2014

4. NOTES PAYABLE

Notes payable – related parties and a third parties consist of the following:

		September 30,		June 30,
		2014		2014

Note payable – former Managing Member	$	27,750	$	27,750
Note payable – related corporation		4,300		4,300
Notes payable – stockholders		13,000		13,000
Convertible notes payable		777,217		729,120
Total		822,268		774,170
Convertible notes payable, discount		(88,834)		(126,722)
Total, net of discount		733,433		647,448
Less current portion		733,433		647,448
Long-term debt	$	-	$	-

All notes will mature during the Fiscal year ended June 30, 2015.

During the current fiscal year, the following notes have been issued:

On July 1, 2014, the Company issued a note for $30,000 for consulting services. The convertible promissory note bears no interest and matures on January 31, 2015. The third party has the option to convert all or a portion of the note plus accrued interest into common stock at a conversion price equal to 50% of the lowest closing bid price for the twenty days prior to the conversion. The Company recorded a derivative liability of $30,000 based on the fair value of the common stock into which the note is convertible to and allocated $-0- of the proceeds to the discounted value of the note. As of the date of this filing, there have been no conversions of this Note and the entire amount is outstanding.

On July 1, 2014, the Company issued a note for $25,000 for fees. The convertible promissory note bears no interest and matured on September 30, 2014. The Promissory Note matured on September 30, 2014 ,and bore no interest Shares of Common Stock to be issued upon conversion of each tranche shall be determined by dividing (a) the conversion amount by (b) the Market Price. The “Market Price” is defined as 50% of the lowest closing bid price for the twenty (20) days immediately preceding the conversion date. The Company recorded a derivative liability of $25,000 based on the fair value of the common stock into which the note is convertible to and allocated $-0- of the proceeds to the discounted value of the note. As of the date of this filing, the note has been fully converted and no balance remains.

On August 1, 2014, the Company issued a note for $30,000 for consulting services. The convertible promissory note bears no interest and matures on February 28, 2015. The third party has the option to convert all or a portion of the note plus accrued interest into common stock at a conversion price equal to 50% of the lowest closing bid price for the twenty days prior to the conversion. The Company recorded a derivative liability of $30,000 based on the fair value of the common stock into which the note is convertible to and allocated $-0- of the proceeds to the discounted value of the note. As of the date of this filing, there have been no conversions of this Note and the entire amount is outstanding.

On September 1, 2014, the Company issued a note for $30,000 for consulting services. The convertible promissory note bears no interest and matures on March 31, 2015. The third party has the option to convert all or a portion of the note plus accrued interest into common stock at a conversion price equal to 50% of the lowest closing bid price for the twenty days prior to the conversion. The Company recorded a derivative liability of $30,000 based on the fair value of the common stock into which the note is convertible to and allocated $-0- of the proceeds to the discounted value of the note. As of the date of this filing, there have been no conversions of this Note and the entire amount is outstanding.

Derivative Liability Feature on Notes Payable

Prior to the fourth quarter of the prior fiscal year, for conventional convertible debt where the rate of conversion is based on a discount to the prevailing market value, the Company recorded a “beneficial conversion feature” (“BCF”) and related debt discount.

The BCF was recorded as a debt discount against the face amount of the respective debt instrument. There would be an offsetting increase to Additional paid in capital as the BCF is deemed to be an increase to equity. The discount would be amortized to interest expense over the life of the debt.

Commencing with the fourth quarter of the prior fiscal year, the Company reconsidered the requirements of the Financial Accounting Standards Board Accounting Standards Classification 820 (‘FASB ASC 820” or “ASC 820”) and determined that newly issued debt were derivative financial instruments. As such, a derivative expense was recorded on the issuance of the debt as well as a quarterly mark to market

Interest Expense

Interest expense on notes payable, including amortization of the discount on the convertible notes and the accrual of the Original Issue Discount, was $163,263 and $66,223 for the three months ended September 30, 2014 and 2013, respectively.