5. CONVERTIBLE PROMISSORY NOTES

9 Months Ended

Jun. 30, 2016

5.	CONVERTIBLE PROMISSORY NOTES

On October 1, 2014, the Company entered into an extension of a 12% unsecured convertible promissory note (the "12% Note") having a remaining principal balance of $252,335, and a maturity date of September 30, 2015. On October 20, 2015, the 12% Note had a remaining principal balance of $143,033, and the Company and the holder entered into a third extension of the 12% Note providing for a new maturity date of March 30, 2017, and requiring payments of $10,000 per month beginning November 1, 2015 until the such time that the 12% Note is paid in full. The note bears interest at 12% annum, and may be converted by the Holder into shares of common stock of the Company at 60% of the lowest volume weighted average price ("VWAP") occurring during the twenty trading days preceding any conversion date by Holder. The balance of the provisions remained substantially the same. During the nine month period ended June 30, 2016 the Company paid $80,000 of the principal balance, leaving a remaining balance of $63,033.

On November 20, 2014, the Company issued a 10% unsecured convertible promissory note (the “Note”) for the principal sum of up to $400,000 plus accrued interest on any advanced principal funds. The Note matures eighteen months from each advance. The Note may be converted by the lender into shares of common stock of the Company at the lesser of $.0125 per share or fifty percent (50%) of the three lowest trade prices of three separate trading days recorded in the twenty five (25) trading days prior to the conversion of any outstanding funded principal or accrued interest under the Note. The Company recorded debt discount of $201,066 related to the conversion feature of the notes, along with derivative liabilities at inception. On November 20, 2014, the lender advanced $50,000 to the Company under the Note at inception. On various dates from February 18, 2015 through June 30, 2016, the lender advanced an additional $315,000 under the Note. As of June 30, 2016, there remains an aggregate outstanding principal balance of $116,000. During the nine months ended June 30, 2016, the Company recognized debt amortization as interest expense in the amount of $60,735.

Issuance of Convertible Promissory Notes for Services to Related Party

As of June 30, 2016, the remaining unsecured Convertible Promissory Note (the “Note”) was $12,000, entered into with a Board member (the “Holder”) in exchange for retention as a director during the fiscal year ending September 30, 2014. The Note can be converted into shares of common stock by the Holder for $0.0045 per share. The Note matured on October 1, 2015, and bore a one-time interest charge of $1,200 which was applied to the principal on October 1, 2014. So long as any shares issuable under a conversion are subject to transfer and sale restrictions imposed pursuant to SEC Rule 144 of the Rules promulgated under the Securities Act of 1933, the Company shall, upon written request by Holder, file Form S-8, if applicable, with the U.S. Securities and Exchange commission to register the issued.

For purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:

Risk free interest rate		Between 0.10% and 1.06%
Stock volatility factor		Between 61.10% and 256.58%
Months to Maturity		6 months to 2 years
Expected dividend yield		None

At June 30, 2016, the fair value of the derivative liability was $400,560.