CONVERTIBLE NOTES PAYABLE

6 Months Ended

Dec. 31, 2014

4. CONVERTIBLE NOTES PAYABLE

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

	December 31,		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		897,291		774,170
Convertible notes payable, discount		(158,325)		(126,722)
Total, net of discount		738,966		647,448
Less current portion		738,966		647,448
Long-term debt	$	-	$	-

All notes will mature prior to December 31, 2015

During the current fiscal year, the Company has issued $180,000 of notes for consulting purposes and $115,000 in notes for cash.

The consulting notes are comprised of six $30,000 notes which mature between January 1, 2015 and October 1, 2015. They carry no interest and convert into common stock at a 50% discount to the low closing bid price over the prior thirty days

The notes for cash are comprised of six notes which convert into common stock at anywhere between a 42% and 50% discount to the prevailing market price. All notes mature before December 31, 2015.

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 $292,464 and $167,932 for the six months ended December 31, 2014 and 2013, respectively.