NOTES PAYABLE

3 Months Ended

Sep. 30, 2011

Notes to Financial Statements

NOTES PAYABLE

Convertible Notes Payable

Convertible notes payable consisted of the following as of September 30, 2011 and June 30, 2011, respectively:

	September 30,		June 30,
	2011		2011
$250,000 face value, issued in February 2010, interest rate of 12%, matures in February 2013, net of unamortized discount of $116,788 and $137,774 at September 30, 2011 and June 30, 2011, respectively.	$	133,212	$	112,226
$250,000 face value, issued in May 2010, interest rate of 12%, matures in May 2013, net of unamortized discount of $132,755 and $153,741 at September 30, 2011 and June 30, 2011, respectively.		117,245		96,259
$250,000 face value, issued in August 2010, interest rate of 12%, matures in August 2013, net of unamortized discount of $196,570 and $222,848 at September 30, 2011 and June 30, 2011, respectively.		53,430		27,152
$250,000 face value, issued in December 2010, interest rate at 12%, matures in December 2013, net of unamortized discount of $185,903 and $206,889 as of September 30, 2011 and June 30, 2011, respectively.		64,097		43,111
$100,000 face value, issued in June 2011, interest rate of 8%, matures in December 2013, net of unamortized discount of $63,387 as of June 30, 2011.		-		31,614
$100,000 face value, issued in September 2011, interest rate of 0%, matures in December 2011, net of unamortized discount of $79,689 as of September 30, 2011.		20,311		-
Total		388,295		310,362
Less current portion		20,311		31,613
Notes payable-convertible, long-term	$	367,984	$	278,749

In September 2011, the Company issued a convertible note to an unrelated individual for $100,000 that matures in 90 days on December 2011.  All or any amount of the principal amount of the note together with the accrued interest may be converted into the Company’s Common Stock at a conversion price of $0.50 per share.  In lieu of interest payments during the 90 day term, the Company issued to the note holder a warrant to purchase 50,000 shares of the Company’s Common Stock.  The warrant has an exercise price of $0.50 per share and a contractual life of five (5) years from the issuance date.  The intrinsic value of the beneficial conversion feature (“BCF”) and the debt discount associated with the warrant issued in connection with the convertible debt were recorded based on the relative fair value of the warrants in relation to the debt in accordance with ASC 470-20-25-2.  The total initial beneficial conversion feature recorded was $57,845 and the debt discount of the warrant allocated based on relative fair value of warrant in relation to the debt was $21,844.  The recorded intrinsic value of the beneficial conversion feature and the debt discount shall be amortized to interest expense over the life of the note.

In June 2011, the Company issued a convertible note to an unrelated individual for $100,000 that matures in December 2011.  The note provided for an interest rate of 8% per annum and was convertible into the Company’s Common Stock at $0.50 per share.  The Company calculated the intrinsic beneficial conversion feature value of $80,000 which is amortized over the life of the note.  In July 2011, the principal amount and the accrued interest for the above note was converted into 201,622 shares of the Company’s Common Stock pursuant to the conversion rate provision in the agreement.  Upon conversion, the remaining unamortized beneficial conversion feature amount of $62,796 was charged to interest expense and recorded in the other income (expense) section of statement of operations for the three months ended September 30, 2011.

Non-Convertible Notes Payable

Non-convertible notes payable consisted of the following as of September 30, 2011 and June 30, 2011:

	September 30,		June 30,
	2011		2011
Various term notes with total face value of $65,398, due upon demand, interest rates range from 12% to 14%.	$	40,488	$	40,398
Term note, face value of $200,000, original maturity date of August 2011 extended to December 2011, 30,000 warrants per month are granted in lieu of interest through June 2011, warrant issuance increased to 50,000 shares per month through August 2011, then beginning in September 2011, the note bears interest at 12% through maturity.		200,000		200,000
Term note, face value of $250,000, maturity date of September 2012, 25,000 warrants issued per month issued for first 90 days; thereafter, note bears interest at 15% (cash-pay) through maturity.		250,000		-
Total		490,398		240,398
Less current portion		490,398		240,398
Notes Payable – non-convertible, long-term	$	-	$	-

In September 2011, the Company entered into a one-year loan agreement for $250,000 with an unrelated lender.  The loan bears no cash-pay interest for the first 90 days.  In lieu of such interest for the first 90 days, the Company granted to the lender a warrant to purchase 25,000 shares of Company’s Common Stock at an exercise price of $0.40 for a contractual period of five years, for each 30 days or portion thereof the loan remains outstanding.  If the loan remains outstanding after the first 90 days, the loan shall bear an interest rate of fifteen percent per annum.  

Additional conditions of the loan require that the Company deploy and make operational certain designated studios by October 31, 2011.  Failure to do so will require the Company to issue to the lender a warrant to purchase 25,000 shares of the Company’s Common Stock at an exercise price of $0.40 per share with a contractual life of five years.  The Company and the lender subsequently agreed to extend the deadline from October 31, 2011 to November 30, 2011.

The Company also agreed to provide to the lender or its representative online access, for viewing purposes only, to the accounting and financial data maintained by the Company.  Online access shall be terminated once the loan and other funds advanced by the lender to the Company, including any accrued interest, have been fully paid.  Failure to provide access would have required the Company to issue a warrant to purchase 50,000 shares of the Company’s Common Stock at an exercise price of $0.40 per share with a contractual life of five years.   Online access was made available to the lender before September 30, 2011.

In April 2011, the Company entered into a 90 day note for $200,000 with a related party.  The note bears no cash-pay interest but requires the Company to issue to the lender, for each thirty day period of the original term, a warrant to purchase 30,000 shares of the Company’s Common stock at a price of $0.60 per share over a contractual life of five years.  The Company may also elect, at its option, to extend the maturity date for two thirty day periods upon notice of such election to the lender and the issuance of a warrant to purchase up to 50,000 shares of the Company’s Common Stock at a price of $0.60 per share with a contractual life of five years for each such extension.  The note is not convertible and no warrant was issued in connection with the issuance of the note so there is no beneficial conversion feature value or debt discount applicable to the origination of the note.  

In both June 30, 2011 and July 30, 2011, the Company exercised its option to extend the maturity date each time for 30 days, pursuant to the provision contained in the aforementioned financing agreement, upon reaching the maturity dates of the June 30, 2011 and July 30, 2011.  Upon final maturity of the loan on August 29, 2011, the Company and lender agreed to amend the original financing agreement in which the maturity date was extended to December 31, 2011 with an interest rate of twelve percent per annum.  The lender, at its option and from time to time, may choose to have the accrued interest outstanding on the bridge loan be repaid in shares of the Company’s Common Stock in lieu of cash.  For each instance where such election is made, the number of shares of the Company’s common stock to be issued shall be calculated at a discount based on seventy-five percent of the average of the closing prices of the Company’s Common Stock as reported by Bloomberg, L.P. or other independent reporting services acceptable to the lender and the Company for ten trading days prior to the date such payment is due.

The Company evaluated the above amendment to extend the maturity date from August 29, 2011 to December 31, 2011 under the guidance of ASC 470-50, Debt - Modification and Extinguishment, and concluded that such extension of the maturity date of the loan to December 31, 2011 did not result in a ten percent (or more change in the present value of the cash flow, and thus did not result in an extinguishment of the loan.