Notes Payable

9 Months Ended

Jun. 30, 2012

Notes Payable [Text Block]

Note 5.  Notes Payable

Notes payable and accrued interest consisted of the following at June 30, 2012 and September 30, 2011:

	June 30, 2012	September 30, 2011
Convertible debentures	$            53,000	$                210,534
Notes Payable	130,539	180,592
Accrued interest	220	23,273
Debt discount	(26,098)	(59,538)
	$          157,661	$               355,861

Settlements of Notes Payable and Accounts Payable

In December 2011, we entered into a settlement agreement and mutual release whereby a service provider discharged in full a note obligation in exchange for a mutual release by both parties of any future claims against the other. For the nine months ended June 30, 2012, the entire balance of approximately $152,000, including accrued interest, was written off and recorded as a gain on settlement of liabilities.

In December 2011, we issued 6,000,000 shares of our common stock, valued at approximately $36,000, to an affiliate of Southridge in full settlement of an outstanding balance of $180,000 owed for services provided under a consulting agreement. The remaining balance of approximately $144,000 was written off and recorded as a gain on settlement of liabilities during the nine months ended June 30, 2012.

In February 2012, we entered into a settlement agreement and mutual release whereby a service provider discharged in full our accounts payable obligation in the amount of approximately $60,000 in exchange for a mutual release by both parties of any future claims against the other pertaining to services provided and obligations owed. During the nine months ended June 30, 2012, this balance was written off and recorded as a gain on settlement of liabilities.

In March 2012, we entered into a settlement agreement and mutual release with a service provider whereby the provider agreed to exchange the balance on account of approximately $155,000 for a convertible note payable in the amount of $60,000 plus 1,500,000 shares of our common stock valued at $18,000. The remaining balance of $77,000 was written off and recorded as a gain on settlement of liabilities during the nine months ended June 30, 2012. In May 2012, we issued 6,000,000 shares of our common stock in full payment of the note payable amount.

In June 2012, we entered into a trade debt settlement and promissory note with a service provider whereby we paid the provider $15,000 and agreed to pay $65,000 by July 15, 2012 in settlement of the full amount due. The remaining balance of $29,000 was written off and recorded as a gain on settlement of liabilities during the three and nine months ended June 30, 2012. As of the date of this report, the balance of $65,000 remains unpaid.

During first nine months of fiscal year 2012, we entered into settlement agreements with other vendors to reduce outstanding account balances. Gains from these settlements of approximately $31,000 and $177,000 were recorded as a gain on settlement of liabilities for the three and nine months ended June 30, 2012, respectively. For settlement agreements convertible into common shares, we recorded debt discounts for beneficial conversion features in the amount of approximately $0 and $29,000 for the three and nine months ended June 30, 2012, respectively. Debt discount recognized as interest expense in the three and nine months ended June 30, 2012 was approximately $1,000 and $29,000, respectively.

During the nine months ended June 30, 2012, we issued a total of 7,485,071 shares of our common stock, valued at approximately $59,000, in payments against vendor settlement notes payable.

Amendment and Conversion of Promissory Note to Common Stock

In October 2011, Summit Trading Limited (“Summit”) assigned a $15,000 promissory note balance to Southridge Partners II, LP (“Southridge”). Subsequent to the assignment, we entered into an agreement with Southridge whereby terms of the note were amended (the “Amended Note”) and provided for conversion into our common stock. We recorded the estimated value of a beneficial conversion feature on the Amended Note in the amount of approximately $12,000, which was recognized as interest expense during the nine months ended June 30, 2012.  In October 2011, the Amended Note was converted into 3,991,411 shares of our common stock pursuant to the conversion terms in full satisfaction of the note balance.

Conversion of Debt Instruments to Common Stock

In October 2011, Southridge converted approximately $19,000 of a convertible note it held into 5,509,158 shares of our common stock. We recognized $8,000 in debt discount related to the conversion of this note as interest expense in the nine months ended June 30, 2012.

In February 2012, a note holder converted certain debentures with an aggregate principal balance of approximately $50,000 plus accrued interest of approximately $5,000 into 12,564,706 shares of our common stock.

In March 2012, Southridge converted a note payable in the principal amount of approximately $6,000 for 776,944 shares of our common stock. During the nine months ended June 30, 2012, we recognized approximately $5,000 as interest expense related to a debt discount resulting from a beneficial conversion feature pertaining to this note.

In May 2012, Green World Trust converted several convertible notes in the aggregate principal amount of $156,000 and accrued interest of $11,046 into 37,052,294 shares of our common stock.

Exchange Series A Preferred Stock for Convertible Promissory Notes

In October 2011, we issued to Southridge two convertible promissory notes in principal amounts of approximately $50,000 and $26,000, in exchange for Southridge’s cancellation of 1,380,000 shares of our Series A preferred stock. For the nine months ended June 30, 2012, we recorded to interest expense the estimated value of the beneficial conversion feature pertaining to these notes of approximately $56,000.

In November 2011, approximately $51,000 of the promissory notes was converted into 11,275,366 shares of our common stock leaving a balance remaining of $25,000. In November 2011, Southridge assigned the remaining $25,000 balance to five investors who converted the $25,000 balance of the promissory notes, plus interest, into 7,385,174 shares of our common stock.

Issuance of Convertible Promissory Note

In April 2012, we issued a convertible promissory note in the amount of $53,000 to an investor for net proceeds of $50,000. The note is interest bearing at an annual rate of 8% and has a maturity date of January 13, 2013. After six months from the date of issue, the promissory note may be converted into shares of common stock at a rate of 58% of the average of the three lowest closing bid prices during the ten trading days prior to notice to convert. During the three months ended June 30, 2012, we recorded debt discount for beneficial conversion feature on this note in the amount of approximately $38,000 andrecognized debt discount as interest expense in the amount of approximately $12,000.

Other Convertible Vendor Note Payable

At June 30, 2012, the balance of a convertible grid promissory note with a service provider was approximately $20,000. The note has a maturity date of April 1, 2013 and an interest rate of 0.16% per annum.