NOTES PAYABLE

6 Months Ended

Dec. 31, 2018

Short Term Notes Payable to Stockholders

	Short Term Notes Payable to Stockholders
	December 31, 2018		June 30, 2018
Short term notes payable (A)	$	114,000	$	114,000
Short term notes payable (B)		250,000		250,000
Short term notes payable (C)		100,000		100,000
Short term notes payable (D)		20,000		-
Short term notes payable (E)		55,000		-
Net total	$	539,000	$	464,000

Short Term Notes Payable to Stockholders

(A)	In 2012, the Company issued a short term note payable to a non-affiliate stockholder. This note was scheduled to mature on December 31, 2013 and accrued interest at seven and one-half (7.5) percent per annum. In February 2016, the noteholder provided the Company with an additional $1,000. As of September 30, 2018, the outstanding balance of this note was $114,000. The Company is currently in default and is in discussions with the noteholder to restructure the terms of the note.

(B)	In 2017, the Company issued short term notes payable to a non-affiliate stockholder. These notes were scheduled to mature on June 30, 2017 and accrued no interest. In addition, the Company issued to the noteholder 50,000 shares of the Company’s common stock. In connection with the issuance of the 50,000 shares of common stock, the Company recorded the approximate $26,000 value of the shares issued as debt discount cost. The expense has been fully amortized at June 30, 2017. The Company used a recent sale of stock to an independent third party for cash to determine the fair market value of the transaction. As of June 30, 2017, the outstanding principal balance was $175,000. On August 29, 2017, the Company issued a $250,000 amended and consolidated note payable. The amended and consolidated note payable is a consolidation of the $175,000 notes payable and an additional $75,000. The amended and consolidated promissory note was scheduled to mature on December 31, 2017 and accrues no interest. In addition, the Company issued to the noteholder 200,000 shares of the Company’s common stock. In connection with the issuance of the 200,000 shares of common stock, the Company recorded the approximate $30,000 value of the shares issued as loss on extinguishment of debt. The Company is currently in default and is in discussions with the noteholder to restructure the terms of the note.

(C)	In June 2018, the Company issued a short term note payable to a non-affiliate stockholder. The note matured on August 14, 2018 and accrues no interest. On August 14, 2018, the Company issued an addendum to the short term note payable. The addendum extended the maturity date of the note to December 31, 2018. The Company is currently in default and is in discussions with the noteholder to restructure the terms of the note.

(D)	In November 2018, the Company received $20,000 from a non-affiliate stockholder. The terms of this loan have not yet been negotiated.

(E)	On December 10, 2018 the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the Company sold $55,000.00 in the principal amount of a Convertible Promissory for a purchase price of $50,000. On December 18, 2018, the Company received $50,000.00 in net proceeds from the sale of this note. This note and the shares of common stock of the Company issuable upon conversion of this note are collectively referred to herein as the “Securities.” This note will mature on March 10, 2019, less any amounts redeemed prior to the Maturity Date. This note bears interest at a rate of 10% per annum, subject to increase to the lesser of 18% per annum or the maximum rate permitted under applicable law upon the occurrence of an Event of Default. This note is convertible following 180 days from the Issuance Date, in whole or in part, at the option of the Purchaser into shares of common stock of the Company at a conversion price equal to $0.01. Upon an Event of Default, this note is convertible at 60% of the lowest traded price of the Company’s common stock during the twenty (20) trading days immediately prior to the Conversion Date, which is subject to adjustment for stock dividends, stock splits, combinations or similar events. The Company may prepay in cash any portion of the principal amount of this note and any accrued and unpaid interest in an amount equal to a range between 125% to 135% of the sum of the then outstanding principal amount of this note and interest.

Short Term Convertible Notes Payable

	Short Term Convertible Notes Payable
	December 31, 2018			June 30, 2018
Crown Bridge Partners	$	51,844		$	65,000
Auctus Fund		162,485			110,000
EMA Financial		86,919			110,000
Subtotal		301,248			285,000
Debt discount		(19,625	)		(177,094	)
Net total	$	281,623		$	107,906

Crown Bridge Partners

On March 2, 2018, the Company held an initial closing under a Securities Purchase Agreement (the “Crown SPA”) and corresponding Convertible Promissory Note (the “Crown Note”) with Crown Bridge Partners, LLC (“Crown”), dated February 14, 2018. Under the Crown SPA and the Crown Note, Crown agreed to loan the Company up to One Hundred Thirty Thousand Dollars ($130,000) in tranches. The Crown Note has an original issuance discount of $13,000, meaning the maximum amount the Company can borrow under the Crown Note is $117,000. The initial tranche on March 2, 2018 was $65,000, with the Company receiving $58,500 and the remaining $6,500 being retained by Crown as the portion of the prorated original issuance discount. The Crown Note bears interest at Ten Percent (10%) per annum and matures twelve (12) months from the date of each tranche, with the initial tranche of $65,000 maturing on March 2, 2019. Under the terms of the Crown Note, Crown has the right, at any time to convert all or part of the amounts due to it under the Crown Note into shares of the Company’s common stock. The conversion price is 55% of the lesser of (a) the lowest traded price or (b) the lowest closing bid price, of the Company’s common stock on the twenty-five trading days prior to the conversion date. However, Crown may not convert the amounts due under the Note into shares of the Company’s common stock if such conversion would cause it to own more than 4.99% of the Company’s then-outstanding common stock, which limitation may be waived by Crown upon 61 days-notice. In the event the Company defaults under the terms of the Crown Note, the Company owes 150% of the principal amount then due under the Note, plus any unpaid interest, immediately. The Company may prepay the amounts loaned to the Company under the Crown Note as follows: (i) during the initial 60-day period after each tranche, at 125% multiplied by the amount the Company is prepaying, (ii) during the 61st through 120 days after each tranche, at 135% multiplied by the amount the Company is prepaying, and (iii) during the 121st through 180th day after each tranche, at 150% multiplied by the amount the Company is prepaying. Any prepayments are subject to Crown’s written acceptance of such prepayment. After 180 days from each tranche the Company cannot prepay that tranche in cash.

While the Crown Note is outstanding, if the Company enters into a Section 3(a)(9) transaction, as defined by the Securities Act, (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, as defined by the Securities Act, in which any third party has the right to convert monies owed to that third party (or receive shares pursuant to a settlement or otherwise) at a discount to market greater than the Variable Conversion Price in effect at that time (prior to all other applicable adjustments in the Crown Note), then the Variable Conversion Price shall be automatically adjusted to such greater discount percentage (prior to all applicable adjustments in this Crown Note) until this Crown Note is no longer outstanding. Each time, while this Crown Note is outstanding, the Company enters into a Section 3(a)(9) transaction, as defined by the Securities Act, (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, as defined by the Securities Act, in which any third party has a look back period greater than the look back period in effect under the Crown Note at that time, then the Holder’s look back period shall automatically be adjusted to such greater number of days until this Crown Note is no longer outstanding.

In addition to issuing the Crown Note, the Company agreed to issue Crown a warrant with each funding tranche. Each warrant will be for the purchase of shares of the Company’s common stock equal to 75% of the face value of the tranche divided by $0.50. For example, the first tranche of funding is for $65,000, the Company issued a warrant to purchase 97,500 shares of the Company’s common stock at an exercise price of $0.50 per share. The warrant contains a cashless exercise provision. Each warrant expires five years after the date of issuance.

In connection with the warrants, if the Company, at any time from and after the Issuance Date, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of, sell or issue (or announce any offer, sale, grant or any option to purchase or other disposition of) any Common Stock or Common Stock Equivalents entitling any person, firm, association or entity to acquire shares of Common Stock at an effective price per share less than the then-current Exercise Price (including but not limited to under the Note), as adjusted hereunder (any such issuance being referred to as a “Dilutive Issuance,” subject, however, to the provision contained in the further definition of the term “Dilutive Issuance” contained in the agreement, then (a) the Exercise Price shall be adjusted to match the lowest price per share at which such Common Stock was issued or may be acquired pursuant to such Common Stock Equivalents in the Dilutive Issuance, and (b) the number of Warrant Shares issuable upon the exercise of this Warrant shall be increased to an amount equal to the number of Warrant Shares Holder could purchase hereunder for the aggregate Exercise Price, as reduced pursuant to the agreement, equal to the aggregate Exercise Price payable immediately prior to such reduction in Exercise Price. Additionally, following the occurrence of a Dilutive Issuance, all references in this Warrant to “Warrant Shares” shall be a reference to the Warrant Shares as increased pursuant to the agreement, and all references in this Warrant to “Exercise Price” shall be a reference to the Exercise Price as reduced pursuant to the agreement, as the same may occur from time to time hereunder. Subject to the anti-dilution provision, the Company adjusted Crown’s warrant to purchase 243,750 shares of our common stock at an exercise price of $0.20 per share as a result of the warrant issued to Auctus Fund on March 8, 2018.

On September 7, 2018, Crown Bridge Partners, LLC elected to convert $5,049, consisting of $4,549 of principal and $500 of fees, into 90,000 shares of the Company’s Common Stock at an exercise price of $0.0561 pursuant to the convertible note dated February 14, 2018.

On September 28, 2018, Crown Bridge Partners, LLC elected to convert $2,554, consisting of $2,054 of principal and $500 of fees, into 480,000 shares of the Company’s Common Stock at an exercise price of $0.00532 pursuant to the convertible note dated February 14, 2018.

On October 10, 2018, Crown Bridge Partners, LLC elected to convert $2,896, consisting of $2,396 of principal and $500 of fees, into 548,000 shares of the Company’s Common Stock at an exercise price of $0.005285 pursuant to the convertible note dated February 14, 2018.

On November 6, 2018, Crown Bridge Partners, LLC elected to convert $1,706, consisting of $1,206 of principal and $500 of fees, into 677,000 shares of the Company’s Common Stock at an exercise price of $0.00252 pursuant to the convertible note dated February 14, 2018.

On November 9, 2018, Crown Bridge Partners, LLC elected to convert $1,875, consisting of $1,375 of principal and $500 of fees, into 744,000 shares of the Company’s Common Stock at an exercise price of $0.00252 pursuant to the convertible note dated February 14, 2018.

On November 28, 2018, Crown Bridge Partners, LLC elected to convert $2,076, consisting of $1,576 of principal and $500 of fees, into 824,000 shares of the Company’s Common Stock at an exercise price of $0.00252 pursuant to the convertible note dated February 14, 2018.

Auctus Fund

On March 8, 2018, the Company closed a Securities Purchase Agreement (the “Auctus SPA”) and corresponding Convertible Promissory Note (the “Auctus Note”) with Auctus Fund, LLC (“Auctus”), dated February 15, 2018. Under the Auctus SPA and the Auctus Note, Auctus agreed to loan the Company One Hundred Ten Thousand Dollars ($110,000). The Auctus Note bears interest at Ten Percent (10%) per annum and matured on November 15, 2018. Under the terms of the Auctus Note, Auctus has the right, at any time to convert all or part of the amounts due to it under the Auctus Note into shares of the Company’s common stock. The conversion price is 55% multiplied by the lowest Trading Price during the twenty-five trading days prior to the conversion date. However, Auctus may not convert the amounts due under the Auctus Note into shares of the Company’s common stock if such conversion would cause it to own more than 4.99% of the Company’s then-outstanding common stock, which limitation may be waived by Auctus upon 61 days-notice. In the event the Company defaults under the terms of the Auctus Note, the Company owes 150% of the principal amount then due under the Auctus Note, plus any unpaid interest, immediately. The Company may prepay the amounts loaned to the Company under the Auctus Note as follows: (i) during the initial 90-day period after the issue date, at 135% multiplied by the amount the Company is prepaying, and (ii) from the 91st through the 180th day after the issue date, at 150% multiplied by the amount the Company is prepaying. Any prepayments are subject to Auctus’ written acceptance of such prepayment. In the event the Company defaults under the terms of the Crown Note, the Company owes 150% of the principal amount then due under the Note, plus any unpaid interest, immediately. After 180 days from the issue date the Company cannot prepay the Auctus Note. The Company is currently in default and is in discussions with the noteholder to restructure the terms of the Auctus Note. As a result of the default, the Company has incurred a default penalty expense of approximately $54,000.

While this Auctus Note is outstanding, if the Company enters into a Section 3(a)(9) transaction, as defined by the Securities Act, (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, as defined by the Securities Act, in which any third party has the right to convert monies owed to that third party (or receive shares pursuant to a settlement or otherwise) at a discount to market greater than the Variable Conversion Price in effect at that time (prior to all other applicable adjustments in the Note), then the Variable Conversion Price shall be automatically adjusted to such greater discount percentage (prior to all applicable adjustments in this Auctus Note) until this Auctus Note is no longer outstanding. Each time, while this Auctus Note is outstanding, the Company enters into a Section 3(a)(9) transaction, as defined by the Securities Act, (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, as defined by the Securities Act, in which any third party has a look back period greater than the look back period in effect under the Auctus Note at that time, then the Holder’s look back period shall automatically be adjusted to such greater number of days until this Note is no longer outstanding.

In addition to issuing the Auctus Note, the Company agreed to issue Auctus a warrant to acquire 275,000 shares of the Company’s common stock at an exercise price of $0.20 per share. The warrant contains a cashless exercise provision and expires on the fifth anniversary of the warrant.

In connection with the warrants, if the Company, at any time from and after the Issuance Date, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of, sell or issue (or announce any offer, sale, grant or any option to purchase or other disposition of) any Common Stock or Common Stock Equivalents entitling any person, firm, association or entity to acquire shares of Common Stock at an effective price per share less than the then-current Exercise Price (including but not limited to under the Note), as adjusted hereunder (any such issuance being referred to as a “Dilutive Issuance,” subject, however, to the proviso contained in the further definition of the term “Dilutive Issuance” contained in the agreement, then (a) the Exercise Price shall be adjusted to match the lowest price per share at which such Common Stock was issued or may be acquired pursuant to such Common Stock Equivalents in the Dilutive Issuance, and (b) the number of Warrant Shares issuable upon the exercise of this Warrant shall be increased to an amount equal to the number of Warrant Shares Holder could purchase hereunder for the aggregate Exercise Price, as reduced pursuant to the agreement, equal to the aggregate Exercise Price payable immediately prior to such reduction in Exercise Price. Additionally, following the occurrence of a Dilutive Issuance, all references in this Warrant to “Warrant Shares” shall be a reference to the Warrant Shares as increased pursuant to the agreement, and all references in this Warrant to “Exercise Price” shall be a reference to the Exercise Price as reduced pursuant to the agreement, as the same may occur from time to time hereunder.

On September 12, 2018, Auctus Fund, LLC elected to convert $3,025, consisting of $2,525 of accrued and unpaid interest and $500 of fees, into 50,000 shares of the Company’s Common Stock at an exercise price of $0.06050 pursuant to the convertible note dated February 15, 2018.

On September 25, 2018, Auctus Fund, LLC elected to convert $693, consisting of $193 of accrued and unpaid interest and $500 of fees, into 60,000 shares of the Company’s Common Stock at an exercise price of $0.01155 pursuant to the convertible note dated February 15, 2018.

On October 1, 2018, Auctus Fund, LLC elected to convert $2,333, consisting of $1,833 of accrued and unpaid interest and $500 of fees, into 360,000 shares of the Company’s Common Stock at an exercise price of $0.00648 pursuant to the convertible note dated February 15, 2018.

On October 10, 2018, Auctus Fund, LLC elected to convert $2,884, consisting of $1,960 of accrued and unpaid interest, $424 of principal and $500 of fees, into 477,500 shares of the Company’s Common Stock at an exercise price of $0.00440 pursuant to the convertible note dated February 15, 2018.

On October 29, 2018, Auctus Fund, LLC elected to convert $1,760, consisting of $570 of accrued and unpaid interest, $690 of principal and $500 of fees, into 400,000 shares of the Company’s Common Stock at an exercise price of $0.00440 pursuant to the convertible note dated February 15, 2018.

On November 30, 2018, Auctus Fund, LLC elected to convert $2,648, consisting of $1,586 of accrued and unpaid interest, $562 of principal and $500 of fees, into 859,799 shares of the Company’s Common Stock at an exercise price of $0.00308 pursuant to the convertible note dated February 15, 2018.

On December 18, 2018, Auctus Fund, LLC elected to convert $1,057, consisting of $557 of accrued and unpaid interest and $500 of fees, into 943,900 shares of the Company’s Common Stock at an exercise price of $0.00112 pursuant to the convertible note dated February 15, 2018.

EMA Financial

On March 8, 2018, the Company closed a Securities Purchase Agreement (the “EMA SPA”) and corresponding Convertible Promissory Note (the “EMA Note”) with EMA Financial, LLC (“EMA”), dated February 12, 2018. Under the EMA SPA and the EMA Note, EMA agreed to loan the Company One Hundred Ten Thousand Dollars ($110,000). The EMA Note has an original issuance discount of $6,600, meaning the amount the Company received at funding was $103,400. The EMA Note bears interest at Ten Percent (10%) per annum and matured on February 12, 2019. On January 15, 2019, the Company received notice from EMA that pursuant to the terms of the Note, the Maturity Date of the Note was extended to February 12, 2020. Under the terms of the EMA Note, EMA has the right, at any time to convert all or part of the amounts due to it under the EMA Note into shares of the Company’s common stock. The conversion price is 55% multiplied by the lowest Trading Price during the twenty trading days prior to the conversion date. However, EMA may not convert the amounts due under the Note into shares of the Company’s common stock if such conversion would cause it to own more than 4.99% of the Company’s then-outstanding common stock, which limitation may be waived by EMA upon 61 days-notice. In the event the Company defaults under the terms of the EMA Note, the Company owes 150% of the principal amount then due under the Note, plus any unpaid interest, immediately. The Company may prepay the amounts loaned to the Company under the EMA Note as follows: (i) during the initial 90-day period after the issue date, at 135% multiplied by the amount the Company is prepaying, and (ii) from the 91st through the 180th day after the issue date, at 150% multiplied by the amount the Company is prepaying. Any prepayments are subject to EMA’s written acceptance of such prepayment. After 180 days from the issue date the Company cannot prepay the EMA Note.

While this EMA Note is outstanding, if the Company enters into a Section 3(a)(9) transaction, as defined by the Securities Act, (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, as defined by the Securities Act, in which any third party has the right to convert monies owed to that third party (or receive shares pursuant to a settlement or otherwise) at a discount to market greater than the Variable Conversion Price in effect at that time (prior to all other applicable adjustments in the Note), then the Variable Conversion Price shall be automatically adjusted to such greater discount percentage (prior to all applicable adjustments in this Note) until this EMA Note is no longer outstanding. Each time, while this Note is outstanding, the Company enters into a Section 3(a)(9) transaction, as defined by the Securities Act, (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, as defined by the Securities Act, in which any 3rd party has a look back period greater than the look back period in effect under the EMA Note at that time, then the Holder’s look back period shall automatically be adjusted to such greater number of days until this EMA Note is no longer outstanding.

In addition to issuing the EMA Note, the Company agreed to issue EMA a warrant to acquire 137,500 shares of the Company’s common stock at an exercise price of $0.40 per share. The warrant contains a cashless exercise provision and expires on the fifth anniversary of the warrant.

In connection with the warrants, if the Company, at any time from and after the Issuance Date, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of, sell or issue (or announce any offer, sale, grant or any option to purchase or other disposition of) any Common Stock or Common Stock Equivalents entitling any person, firm, association or entity to acquire shares of Common Stock at an effective price per share less than the then-current Exercise Price (including but not limited to under the Note), as adjusted hereunder (any such issuance being referred to as a “Dilutive Issuance,” subject, however, to the proviso contained in the further definition of the term “Dilutive Issuance” contained in the agreement, then (a) the Exercise Price shall be adjusted to match the lowest price per share at which such Common Stock was issued or may be acquired pursuant to such Common Stock Equivalents in the Dilutive Issuance, and (b) the number of Warrant Shares issuable upon the exercise of this Warrant shall be increased to an amount equal to the number of Warrant Shares Holder could purchase hereunder for the aggregate Exercise Price, as reduced pursuant to the agreement, equal to the aggregate Exercise Price payable immediately prior to such reduction in Exercise Price. Additionally, following the occurrence of a Dilutive Issuance, all references in this Warrant to “Warrant Shares” shall be a reference to the Warrant Shares as increased pursuant to the agreement, and all references in this Warrant to “Exercise Price” shall be a reference to the Exercise Price as reduced pursuant to the agreement, as the same may occur from time to time hereunder. Subject to the anti-dilution provision and as a result of the warrant issued to Auctus detailed above, the Company issued EMA an amended and restated warrant to purchase 275,000 shares of our common stock at an exercise price of $0.20 per share, which replaced the original warrant issued to EMA.

On September 11, 2018, EMA Financial, LLC elected to convert $6,187.50, consisting of $5,437.50 of principal and $750 of fees, into 90,000 shares of the Company’s Common Stock at an exercise price of $0.06875 pursuant to the convertible note dated February 12, 2018.

On September 9, 2018, EMA Financial, LLC elected to convert $4,800, consisting of $4,050 of principal and $750 of fees, into 300,000 shares of the Company’s Common Stock at an exercise price of $0.016 pursuant to the convertible note dated February 12, 2018.

On October 4, 2018, EMA Financial, LLC elected to convert $4,120, consisting of $3,370 of principal and $750 of fees, into 515,000 shares of the Company’s Common Stock at an exercise price of $0.008 pursuant to the convertible note dated February 12, 2018.

On October 18, 2018, EMA Financial, LLC elected to convert $3,618, consisting of $2,368 of principal and $750 of fees, into 599,000 shares of the Company’s Common Stock at an exercise price of $0.00604 pursuant to the convertible note dated February 12, 2018.

On October 29, 2018, EMA Financial, LLC elected to convert $2,472, consisting of $1,722 of principal and $750 of fees, into 561,750 shares of the Company’s Common Stock at an exercise price of $0.0044 pursuant to the convertible note dated February 12, 2018.

On November 7, 2018, EMA Financial, LLC elected to convert $2,085, consisting of $1,335 of principal and $750 of fees, into 677,000 shares of the Company’s Common Stock at an exercise price of $0.00308 pursuant to the convertible note dated February 12, 2018.

On November 9, 2018, EMA Financial, LLC elected to convert $2,293, consisting of $1,543 of principal and $750 of fees, into 744,500 shares of the Company’s Common Stock at an exercise price of $0.00308 pursuant to the convertible note dated February 12, 2018.

On November 20, 2018, EMA Financial, LLC elected to convert $2,523, consisting of $1,722 of principal and $750 of fees, into 819,000 shares of the Company’s Common Stock at an exercise price of $0.00308 pursuant to the convertible note dated February 12, 2018.

On December 14, 2018, EMA Financial, LLC elected to convert $1,320, consisting of $570 of principal and $750 of fees, into 943,000 shares of the Company’s Common Stock at an exercise price of $0.0014 pursuant to the convertible note dated February 12, 2018.

On December 26, 2018, EMA Financial, LLC elected to convert $1,163, consisting of $412 of principal and $750 of fees, into 1,038,000 shares of the Company’s Common Stock at an exercise price of $0.00112 pursuant to the convertible note dated February 12, 2018.

Short Term Convertible Notes Conversion

The Company evaluated the notes under the requirements of ASC 480 “Distinguishing Liabilities From Equity” (ASC 480) and concluded that the notes do not fall within the scope of ASC 480. The Company next evaluated the notes under the requirements of ASC 815 “Derivatives and Hedging”. Due to the existence of the anti-dilution provisions which reduces the purchaser’s conversion price in the event of subsequent dilutive issuances by the Company below the purchaser’s conversion price as described above, the conversion features do not meet the definition of “indexed to” the Company’s stock, and the scope exception to ASC 815’s derivative accounting provisions does not apply. The Company also evaluated the embedded derivative criteria in ASC 815, and concluded that the conversion features meet all the embedded derivative criteria in ASC 815, and therefore, the conversion features meet the definition of an embedded derivative that should be separated from the notes and accounted for as a derivative liability.

The embedded derivatives were recorded as a derivative liability on the consolidated Balance Sheet at their fair value of $330,000 at the date of issuance. At each subsequent reporting date, the fair value of the embedded derivative liabilities will be remeasured and changes in the fair value will be recorded in the consolidated Statements of Operations. At December 31, 2018, the embedded derivatives were re-measured at fair value that was determined to be approximately $355,000. During the six months ended December 31, 2018 and 2017, the Company recorded an approximate gain on embedded derivative re-valuation of $70,000 and $0, respectively.

The fair value of the embedded derivative liabilities is measured in accordance with ASC 820 “Fair Value Measurement”, using the “Monte Carlo Method” modeling incorporating the following inputs:

	December 31,			June 30,
Crown Bridge Partners	2018			2018

Expected dividend yield		0.00	%		0.00	%
Expected stock-price volatility		245.0	%		260.0	%
Risk-free interest rate		2.45	%		2.22	%
Stock price	$	0.0043		$	0.14
Conversion price	$	0.0019		$	0.07

	December 31,			June 30,
Auctus Fund	2018			2018

Expected dividend yield		0.00	%		0.00	%
Expected stock-price volatility		345.0	%		100.0	%
Risk-free interest rate		2.56	%		2.02	%
Stock price	$	0.0043		$	0.14
Conversion price	$	0.0013		$	0.07

	December 31,			June 30,
EMA Financial	2018			2018

Expected dividend yield		0.00	%		0.00	%
Expected stock-price volatility		240.0	%		210.0	%
Risk-free interest rate		2.45	%		2.22	%
Stock price	$	0.0043		$	0.14
Conversion price	$	0.0017		$	0.07

Short Term Convertible Notes Warrants

The Company evaluated the Warrants under ASC 480 “Distinguishing Liabilities From Equity” and ASC 815 “Derivatives and Hedging”. Due to the existence of the antidilution provision, which reduces the Exercise Price and Conversion Price in the event of subsequent issuances, the Warrants are not indexed to our common stock, and the Company has determined that the Warrants meet the definition of a derivative under ASC 815. Accordingly, the Warrants were recorded as derivative liabilities in the consolidated Balance Sheet at their fair value of $96,289 at the date of issuance. At each subsequent reporting date, the fair value of the Warrants will be remeasured and changes in the fair value will be reported in the consolidated Statements of Operations. At December 31, 2018, the warrant liability was re-measured at fair value that was determined to be approximately $92,000. During the six months ended December 31, 2018 and 2017, the Company recorded a loss on warrant re-valuation of approximately $2,500 and $0, respectively.

The fair value of the Warrants is measured in accordance with ASC 820 “Fair Value Measurement”, using “Monte Carlo simulation” modeling, incorporating the following inputs:

Crown Bridge Partners	December 31, 2018			June 30, 2018

Expected dividend yield		0.00	%		0.00	%
Expected stock-price volatility		255.0	%		215.0	%
Risk-free interest rate		2.49	%		2.74	%
Stock price	$	0.0043		$	0.14
Exercise price	$	0.20		$	0.20

Auctus Fund	December 31, 2018			June 30, 2018

Expected dividend yield		0.00	%		0.00	%
Expected stock-price volatility		255.0	%		215.0	%
Risk-free interest rate		2.49	%		2.74	%
Stock price	$	0.0043		$	0.14
Exercise price	$	0.20		$	0.20

EMA Financial	December 31, 2018			June 30, 2018

Expected dividend yield		0.00	%		0.00	%
Expected stock-price volatility		255.0	%		215.0	%
Risk-free interest rate		2.49	%		2.73	%
Stock price	$	0.0043		$	0.14
Exercise price	$	0.20		$	0.20

Debt Discount

The Company issued the notes with warrants that require liability treatment under ASC 815. As such, the proceeds of the notes were allocated, based on fair values, as follows: original issue discount of approximately $32,000, approximately $96,000 to the warrants granted, and approximately $330,000 to the embedded derivative, resulting in a debt discount to such notes of approximately $285,000 with the remaining amount of approximately $173,000 expensed at inception of the note. The debt discount is accreted to interest expense over the term of the note.

The Company recorded debt discount accretion of approximately $157,000 and $0 to interest expense for the six months ended December 31, 2018 and 2017, respectively and approximately $71,000 and $0 to interest expense for the three months ended December 31, 2018 and 2017, respectively. The accretion of debt discount expense to be recognized in future years is approximately $20,000.

Changes in the derivative and warrant liabilities were as follows:

Derivative liabilities:
June 30, 2018	$	285,000
Increase (decrease) in fair value (net of extinguishments)		70,334
December 31, 2018	$	355,334

Warrant liabilities:
June 30, 2018	$	85,058
Increase (decrease) in fair value		7,270
December 31, 2018	$	92,328

Convertible Notes to Stockholders

	Convertible Notes Payable
	December 31, 2018			June 30, 2018
Convertible notes payable (A)	$	116,000		$	116,000
Convertible note payable (B)		260,000			260,000
Convertible notes payable (C)		2,937,113			2,560,112
Subtotal		3,313,113			2,936,112
Debt discount		(81,350	)		(5,381	)
Net total	$	3,231,763		$	2,930,731

Convertible Notes Payable (A)

Between September 2013 and December 2017, the Company entered into various unsecured convertible promissory notes with non-affiliate stockholders for principal amounts of approximately $7,500 to $30,000, totaling approximately $157,000, offset by the conversion of convertible notes payable to shares of the Company’s common stock of approximately $26,000 and the repayment of one note totaling $15,000, netting a balance of approximately $116,000. Under the terms of these notes, maturity dates range from June 2015 and July 2019, interest rates range from 7.5% to 8.0% per annum, and are convertible into shares of the Company’s common stock at rates that range from $0.20 and $5.00 per share, but only if such conversion would not cause the noteholders to own more than 9.9% of the Company’s outstanding common stock and contains piggyback registration rights. In addition, the Company granted to certain noteholders a cashless option to purchase one (1) share of the Company’s common stock, $.001 par value, at the exercise price of $0.50 to $1.25 per share, for each share the noteholders are entitled pursuant to the promissory notes. The options are fully vested and shall expire from one to three years from date of execution. For the period ended September 30, 2018, the Company is in default approximately $77,500 on various notes. As a result, these notes are included in the current portion of convertible notes payable, and the Company is in discussions with the noteholders to restructure the terms of the notes.

The Company determined that some of the notes had a beneficial conversion feature of approximately $38,000.

The Company recognized an accretion of debt discount expense of approximately $2,300 and $3,300 for the six-month periods ended December 31, 2018 and 2017, respectively and approximately $800 and $1,700 for the three-month periods ended December 31, 2018 and 2017, respectively. The accretion of debt discount expense to be recognized in future years is approximately $3,000.

Unsecured, Amended and Consolidated Convertible Note Payable (B)

December 2015 Convertible Note

In December 2015, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate stockholder for a principal amount of $260,000. In exchange, the Company extinguished a $10,000 short term note payable, the $200,000 convertible note payable issued in December 2014, and received cash of $50,000. The amended and consolidated note payable matures in October 2019, accrues interest at 7.5% per annum, and convertible into shares of the Company’s common stock at a conversion rates of $0.20 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of the Company’s outstanding common stock, and contains piggyback registration rights. In addition, the Company granted to the noteholder a cashless warrant to purchase one (1) share of the Company’s common stock, $.001 par value, at the exercise price of $0.50 per share, for each share the noteholder is entitled pursuant to the promissory note. The options are fully vested and shall expire three years from date of execution. The Company is currently in default and is in discussions with the noteholder to restructure the terms of the note.

The Company determined the estimated relative fair value discount of the warrants was approximately $128,000 which was valued using the Black-Scholes option pricing model with the following inputs: volatility of 240%; risk-free interest rate of 1.05%; expected term of 3 years; and 0% dividend yield.

Unsecured, Amended and Consolidated Convertible Notes Payable (C)

January 2017 Convertible Note

In January 2017, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate stockholder for a principal amount of approximately $2,460,000. In exchange, the Company modified the $2,410,112 convertible promissory note payable issued in November 2016 and received cash of $50,000. The amended and consolidated convertible note payable matures in January 2019, accrues interest at 5% per annum, and is convertible into shares of the Company’s common stock at a conversion rate of $0.15 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of the Company’s outstanding common stock, and contains piggyback registration rights. The note payable was extinguished in October 2017.

In connection with the $2,460,000 convertible note payable, the Company determined the embedded conversion feature does not meet the criteria in ASC 470-50-40-10 or 470-20-25, and the issuance of the convertible promissory note payable is considered a modification, and not an extinguishment that would require the recognition of a gain or loss.

October 2017 Convertible Note

In October 2017, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate stockholder for a principal amount of approximately $2,560,000. In exchange, the Company modified the $2,460,112 convertible promissory note payable issued in January 2017 and received cash of $100,000. The amended and consolidated convertible promissory note matures in October 2019, accrues interest at 5% per annum and is convertible into shares of the Company’s common stock at a conversion rate of $0.10 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of the Company’s outstanding common stock, and contains piggyback registration rights. The note payable was modified in September 2018.

In connection with the $2,560,000 convertible note, the Company determined the embedded conversion feature does meet the criteria in ASC 470-50-40-10 or 470-20-25, and the issuance of the convertible promissory note payable is considered an extinguishment that would require the recognition of a gain or loss. The Company recognized a loss from extinguishment of debt of approximately $3.1 million for the year ended June 30, 2018.

September 2018 Convertible Note

In September 2018, the Company entered into an unsecured amended and consolidated convertible promissory note with a non-affiliate stockholder for a principal amount of $2,937,113. In exchange, the Company modified the $2,560,112 convertible promissory note payable issued in October 2017, accounts payable related to accrued interest of approximately $302,000 and received cash of $75,000. The amended and consolidated convertible promissory note matures in October 2019, accrues interest at 5% per annum and is convertible into shares of the Company’s common stock at a conversion rate of $0.10 per share, but only if such conversion would not cause the noteholder to own more than 9.9% of the Company’s outstanding common stock, and contains piggyback registration rights.

In connection with the $2,937,113 convertible note payable, the Company determined the embedded conversion feature does not meet the criteria in ASC 470-50-40-10 or 470-20-25, and the issuance of the convertible promissory note payable is considered a modification, and not an extinguishment that would require the recognition of a gain or loss. The Company determined that the note had a beneficial conversion feature of approximately $87,000.

The Company recognized an accretion of debt discount expense of approximately $8,700 and $0 for the six-month periods ended December 31, 2018 and 2017, respectively and approximately $8,700 and $0 for the three-month periods ended December 31, 2018 and 2017, respectively. The accretion of debt discount expense to be recognized in future years is approximately $78,300.

The Company recognized interest expense on all notes payable to stockholders of approximately $103,600 and $82,000 for the six-month periods ended December 31, 2018 and 2017, respectively and approximately $53,500 and $41,000 for the three-month periods ended December 31, 2018 and 2017, respectively. Accrued interest on all notes payable to stockholders at December 31, 2018 and 2017 totaled approximately $222,500 and $340,000, respectively, and is included in accounts payable.

As of December 31, 2018, future maturities of all note payables are as follows:

2019		1,200,248
2020		2,953,113
Total outstanding notes		4,153,361
Debt Discount		(100,975	)
Net Notes Payable	$	4,052,386

CEREBAIN BIOTECH CORP. 10-Q