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4. NOTES PAYABLE

3 Months Ended

Sep. 30, 2014

Convertible Notes Payable

In accounting for its convertible notes payable, proceeds from the sale of a convertible debt instrument with Common Stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portions of the proceeds allocated to the warrants are accounted for as paid-in capital with an offset to debt discount. The remainder of the proceeds are allocated to the debt instrument portion of the transaction as prescribed by ASC 470-25-20. The Company then calculates the effective conversion price of the note based on the relative fair value allocated to the debt instrument to determine the fair value of any beneficial conversion feature (“BCF”) associated with the convertible note in accordance with ASC 470-20-30. The BCF is recorded to additional paid-in capital with an offset to debt discount. Both the debt discount related to the issuance of warrants and related to a BCF is amortized over the life of the note.

Convertible Notes Payable – Related Parties

Convertible notes payable due to related parties consisted of the following as of September 30, 2014 and June 30, 2014, respectively:

Convertible Notes Payable – Related Parties
	September 30,			June 30,
	2014			2014

$250,000 face value, issued in February 2010, interest rate of 12%, matures in February 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.		$	250,000		$	250,000
$250,000 face value, issued in May 2010, interest rate of 12%, matures in May 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			250,000			250,000
$250,000 face value, issued in August 2010, interest rate of 12%, matures in August 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			250,000			250,000
$250,000 face value, issued in December 2010, interest rate of 12%, matures in December 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			250,000			250,000
$250,000 face value, issued in November 2011, interest rate of 15%, matures in November 2012, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			250,000			250,000
$250,000 face value, issued in December 2011, interest rate of 15%, matures in June 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			250,000			250,000
$100,000 face value, issued in December 2011, interest rate of 15%, matures in June 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			100,000			100,000
$300,000 face value, issued in December 2011, interest rate of 15%, matures in June 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			300,000			300,000
$100,000 face value, issued in February 2012, interest rate of 15%, matures in August 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			100,000			100,000
$100,000 face value, issued in February 2012, interest rate of 15%, matures in August 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			100,000			100,000
$150,000 face value, issued in March 2012, interest rate of 15%, matures in September 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			150,000			150,000
$200,000 face value, issued in March 2012, interest rate of 15%, matures in September 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			200,000			200,000
$200,000 face value, issued in April 2012, interest rate of 10%, matures in October 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			200,000			200,000
$150,000 face value, issued in May 2012, interest rate of 10%, matures in November 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			150,000			150,000
$125,000 face value, issued in June 2012, interest rate of 10%, matures in December 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			125,000			125,000
$125,000 face value, issued in June 2012, interest rate of 10%, matures in December 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			125,000			125,000
$50,000 face value, issued in August 2012, interest rate of 10%, matures in February 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			50,000			50,000
$50,000 face value, issued in September 2012, interest rate of 10%, matures in March 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			50,000			50,000
$100,000 face value, issued in October 2012, interest rate of 10%, matures in April 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			100,000			100,000
$100,000 face value, issued in October 2012, interest rate of 10%, matures in April 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			100,000			100,000
$50,000 face value, issued in October 2012, interest rate of 10%, matures in April 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			50,000			50,000
$75,000 face value, issued in November 2012, interest rate of 10%, matures in May 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			75,000			75,000
$25,000 face value, issued in November 2012, interest rate of 10%, matures in May 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			25,000			25,000
$50,000 face value, issued in November 2012, interest rate of 10%, matures in May 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			50,000			50,000
$50,000 face value, issued in December 2012, interest rate of 10%, matures in June 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			50,000			50,000
$75,000 face value, issued in January 2013, interest rate of 10%, matures in July 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			75,000			75,000
$25,000 face value, issued in January 2013, interest rate of 10%, matures in July 2014, net of unamortized discount of $0 and $1 as of September 30, 2014 and June 30, 2014, respectively.			25,000			24,999
$35,000 face value, issued in January 2013, interest rate of 10%, matures in July 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			35,000			35,000
$5,000 face value, issued in February 2013, interest rate of 10%, matures in August 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			5,000			5,000
$10,000 face value, issued in February 2013, interest rate of 10%, matures in August 2014, net of unamortized discount of $0 and $1 as of September 30, 2014 and June 30, 2014, respectively.			10,000			9,999
$50,000 face value, issued in February 2013, interest rate of 10%, matures in August 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.			50,000			50,000
$50,000 face value, issued in March 2013, interest rate of 10%, matures in September 2014, net of unamortized discount of $0 and $13 as of September 30, 2014 and June 30, 2014, respectively.			50,000			49,987
$75,000 face value, issued in April 2013, interest rate of 10%, matures in October 2014, net of unamortized discount of $0 and $546 as of September 30, 2014 and June 30, 2014, respectively.			75,000			74,454
$9,000 face value,of which $4,000 has been paid back, issued in June 2014, interest rate of 0%, matures in July 2014, net of unamortized discount of $0 and $1,200 as of September 30, 2014 and June 30, 2014, respectively.			5,000			7,800
Total convertible notes payable – related parties			3,930,000			3,932,239
Less current portion			3,930,000			3,932,239
Convertible notes payable – related parties, long-term		$	-		$	-

The notes were amended on June 30, 2014 to extend the maturity date to September 30, 2014 and amended again on September 30, 2014 to December 31, 2014. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt.

Convertible Notes Payable - Non-Related Parties

Convertible notes payable due to non-related parties consisted of the following as of September 30, 2014 and June 30, 2014, respectively:

Convertible Notes Payable - Non-Related Parties
	September 30,		June 30,
	2014		2014

$100,000 face value, issued in September 2011, interest rate of 0%, originally matured in December 2011, extended to November 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.	$	100,000	$	100,000
$15,000 face value, issued in October 2011, interest rate of 10%, matures in June 2012, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.		15,000		15,000

$75,000 face value, issued in January 2012, interest rate of 12%, originally matured in June 2013, extended to November 2014, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.	75,000	75,000
$50,000 face value, issued in August 2012, interest rate of 10%, matures in February 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.	50,000	50,000
$10,000 face value, issued in September 2012, interest rate of 10%, matures in March 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.	10,000	10,000
$50,000 face value of which $9,600 was converted leaving a $40,400 face value, issued in November 2012, interest rate of 10%, matures in November 2013 and an additional penalties were added to the principal of $120,348 bringing the face value to $160,748, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.	160,748	160,748
$30,000 face value, issued in February 2013, interest rate of 0%, matures in November 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.	30,000	30,000
$20,000 face value, issued in April 2013, interest rate of -0-%, matures in October 2013, net of unamortized discount of $0 and $0 as of September 30, 2014 and June 30, 2014, respectively.	20,000	20,000
$100,000 face value, of which $100,000 has been converted.	-	100,000
$50,000 face value, of which $50,000 has been converted.	-	50,000
$50,000 face value, of which $50,000 has been.	-	50,000
$50,000 face value, of which $50,000 has been converted.	-	46,132
$30,000 face value, issued in March 2014, interest rate of 0%, matures in September 2014, net of unamortized discount of $0 and $7,011 as of September 30, 2014 and June 30, 2014, respectively.	30,000	22,989
$20,000 face value, of which $20,000 has been converted.	-	20,000
$25,000 face value, of which $25,000 has been converted.	-	9,563
$15,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $6,557 and $14,098 as of September 30, 2014 and June 30, 2014, respectively.	8,443	902

$20,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $8,743 and $18,798 as of September 30, 2014 and June 30, 2014, respectively.	11,257	1,202
$30,000 face value, of which $30,000 has been converted.	-	1,967
$20,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $8,743 and $18,798 as of September 30, 2014 and June 30, 2014, respectively.	11,257	1,202
$25,000 face value, issued in June 2014, interest rate of 6%, matures September 2014, net unamortized discount of $0 and $25,000 as of September 30, 2014 and June 30, 2014, respectively.	25,000	-

$15,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $1,613 as of September 30, 2014.		13,387		-
$10,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $1,087 as of September 30, 2014.		8,913		-
$10,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $1,522 as of September 30, 2014.		8,478		-
$7,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $1,065 as of September 30, 2014.		5,935		-
$5,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $978 as of September 30, 2014.		4,022		-
$10,000 face value, issued in August 2014, interest rate of 6%, matures November 2014, net unamortized discount of $5,326 as of September 30, 2014.		4,674		-
$25,000 face value, of which $25,000 was converted.		-		-
$10,000 face value, issued in August 2014, interest rate of 6%, matures December 5 2014, net unamortized discount of $7,253 as of September 30, 2014.		2,747		-
$30,000 face value, issued in August 2014, interest rate of 6%, matures December 5 2014, net unamortized discount of $23,023 as of September 30, 2014.		6,977		-
$100,000 face value, issued in August 2014, interest rate of 6%, matures December 5 2014, net unamortized discount of $79,121 as of September 30, 2014.		20,879		-
$100,000 face value, issued in August 2014, interest rate of 6%, matures December 5 2014, net unamortized discount of $87,912 as of September 30, 2014.		12,088		-
$40,000 face value, issued in August 2014, interest rate of 6%, matures December 5 2014, net unamortized discount of $40,000 as of September 30, 2014.		-		-
Total convertible notes payable – non-related parties		634,805		764,705
Less current portion		634,805		764,705
Convertible notes payable – non-related parties, long-term	$	-	$	-

On August 15, 2014, the Company amended the convertible notes dated September 29, 2011 for $100,000 and January 6, 2012 for $75,000 to extend the maturity date to November 15, 2014 and issued 50,000 shares of the Company’s common stock valued at $15,750, as well as 50,000 warrants valued at $12,767. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did result in significant and consequential changes to the economic substance of the debt. The Company recorded a loss on extinguishment of debt of $28,517.

On September 30, 2013, the Company issued a convertible note to an unrelated individual for $100,000 that matures on February 28, 2014. The note bears an interest rate of 0% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. The value of the BCF recorded was $100,000. On August 14, 2014, the note holder elected to convert the entire note of $100,000.

On October 17, 2013, the Company issued a convertible note to an unrelated individual for $50,000 with an original maturity date of November 17, 2013, the note bears an interest rate of 0% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. The value of the original BCF recorded was $50,000. The note was amended on November 17, 2013 to extend the maturity date to May 17, 2014 and issued 25,000 common stock and 25,000 warrants as incentive to extending the maturity date. Under ASC 470-60-55-12, the debt was deemed to be extinguished and the company recognized a loss on extinguishment of debt $25,787. On August 14, 2014, the note holder elected to convert the entire note of $50,000.

On February 3, 2014, the Company issued a convertible note to an unrelated individual for $50,000 that matures on April 10, 2014. The note bears an interest rate of 10% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. On July 19, 2014, the note holder elected to convert the entire note of $50,000 and $3,041 in accrued interest.

On February 21, 2014, the Company issued a convertible note to an unrelated individual for $50,000 that matures on August 21, 2014. The note bears an interest rate of 6% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. On August 14, 2014, the note holder elected to convert the entire note of $50,000.

On March 31, 2014, the Company issued a convertible note to an unrelated individual for $20,000 that matures on June 28, 2014. The note bears an interest rate of 10% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share. The maturity date of the note can be extended, at the option of the holder, for a single 30 day period. On July 19, 2014, the note holder elected to convert the entire note of $20,000 and $603 in accrued interest.

On April 21, 2014, the Company issued a convertible note to an unrelated individual for $25,000 that matures on October 21, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share. On August 14, 2014, the note holder elected to convert the entire note of $25,000.

On June 18, 2014, the Company issued a convertible note to an unrelated individual for $30,000 that matures on December 18, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share. On August 14, 2014, the note holder elected to convert the entire note of $30,000.

On July 9, 2014, the Company issued a convertible note to an unrelated individual for $15,000 that matures on October 10, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.

In conjunction with the note, the Company issued to the holder 7,500 shares of restricted Common Stock. The value of the BCF recorded was $13,333 and the debt discount related to the attached relative fair value of the restricted Common Stock was $1,667, for a total debt discount of $15,000.

On July 10, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on October 10, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.

In conjunction with the note, the Company issued to the holder 5,000 shares of restricted Common Stock. The value of the BCF recorded was $8,889 and the debt discount related to the attached relative fair value of the restricted Common Stock was $1,111, for a total debt discount of $10,000.

On July 14, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on October 14, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.

In conjunction with the note, the Company issued to the holder 5,000 shares of restricted Common Stock. The value of the BCF recorded was $8,929 and the debt discount related to the attached relative fair value of the restricted Common Stock was $1,071, for a total debt discount of $10,000.

On July 14, 2014, the Company issued a convertible note to an unrelated individual for $7,000 that matures on October 14, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.

In conjunction with the note, the Company issued to the holder 3,500 shares of restricted Common Stock. The value of the BCF recorded was $6,222 and the debt discount related to the attached relative fair value of the restricted Common Stock was $778, for a total debt discount of $7,000.

On July 18, 2014, the Company issued a convertible note to an unrelated individual for $5,000 that matures on October 18, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.

In conjunction with the note, the Company issued to the holder 2,500 shares of restricted Common Stock. The value of the BCF recorded was $4,444 and the debt discount related to the attached relative fair value of the restricted Common Stock was $556, for a total debt discount of $5,000.

On August 18, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on November 18, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.10 per share.

In conjunction with the note, the Company issued to the holder 5,000 shares of restricted Common Stock. The value of the BCF recorded was $8,529 and the debt discount related to the attached relative fair value of the restricted Common Stock was $1,471, for a total debt discount of $10,000.

On August 22, 2014, the Company issued a convertible note to an unrelated individual for $25,000 that matures on September 22, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.15 per share. On September 30, 2014, the note holder elected to convert the entire note of $25,000 and $160 in accrued interest.

In conjunction with the note, the Company issued to the holder 12,500 shares of restricted Common Stock. The value of the BCF recorded was $21,393 and the debt discount related to the attached relative fair value of the restricted Common Stock was $3,607, for a total debt discount of $25,000.

On September 5, 2014, the Company issued a convertible note to an unrelated individual for $10,000 that matures on December

5, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The company valued a BCF related to the note valued at $10,000.

On September 10, 2014, the Company issued a convertible note to an unrelated individual for $30,000 that matures on December 5, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The company valued a BCF related to the note valued at $30,000.

On September 11, 2014, the Company issued a convertible note to an unrelated individual for $100,000 that matures on December 11, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The company valued a BCF related to the note valued at $100,000.

On September 19, 2014, the Company issued a convertible note to an unrelated individual for $100,000 that matures on December 19, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The company valued a BCF related to the note valued at $100,000.

On September 30, 2014, the Company issued a convertible note to an unrelated individual for $40,000 that matures on December 29, 2014. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.20 per share. The company valued a BCF related to the note valued at $40,000.

Notes Payable – Related Parties

Notes payable due to related parties consisted of the following as of September 30, 2014 and June 30, 2014, respectively:

Notes Payable – Related Parties

	September 30,			June 30,
	2014			2014

Face value of $200,000, issued in April 2011, original maturity date of August 2011 extended to September 2014, 30,000 warrants per month were granted in lieu of interest through June 2011, warrants increased to 50,000 shares per month through August 2011, from September until maturity, the note bears interest at 12%.		$	200,000		$	200,000
Face value of $250,000, issued in September 2011, matures in September 2012 extended to September 2014, 25,000 warrants per month issued for first 90 days, note bears interest at 15% from December 2011 through maturity.			250,000			250,000
Face value of $125,000, issued in October 2011, matures in October 2012 extended to September 2014, 30,000 warrants issued in lieu of interest through December 2011, note bears interest at 0% from December 2011 through maturity.			125,000			125,000
Face value of $35,000, issued in January 2014, matures in February 2014 extended to September 2014, note bears interest at 10%, interest is accrued monthly and paid quarterly by issuing restricted stock until the January 2015 and thereafter interest to be paid in cash.			35,000			35,000
Total notes payable – related parties			610,000			610,000
Less current portion			610,000			610,000
Notes payable - related parties, long term		$	-		$	-

Notes Payable – Non-Related Parties

Notes payable due to non-related parties consisted of the following as of September 30, 2014 and June 30, 2014, respectively:

Notes Payable – Non-Related Parties
	September 30,			June 30,
	2014			2014
Various term notes with total face value of $40,488 due upon demand, interest rates range from 12% to 14%.		$	40,488		$	40,488
Total note payable – non-related parties			40,488			40,488
Less current portion			40,488			40,488
Notes payable – non-related parties, long-term		$	-		$	-

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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