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Notes Payable

9 Months Ended

Jun. 30, 2016

Note 5. Notes Payable

Notes payable and accrued interest consisted of the following at June 30, 2016 and September 30, 2015:

	June 30, 2016		September 30, 2015
	June 30, 2016		September 30, 2015
Convertible debentures	$	1,207,133	$	888,510
Accrued interest		91,756		44,570
Debt discount		(348,278)		(72,255)
Total	$	950,611	$	860,825

Convertible Promissory Notes Payable – Inter Mountain

On May 7, 2014 we received an initial payment on a May 5, 2014 Securities Purchase Agreement with Inter-Mountain Capital Corporation LLC (“Inter-Mountain”), for the sale of a 5% Secured Convertible Promissory Note in the principal amount of $832,500, which included legal expenses in the amount of $7,500 and a $75,000 original issue discount, for net proceeds of $750,000, consisting of $450,000 paid in cash at closing in May 2014 with the remaining amount of $300,000 funded in March 2015. The outstanding balance of this note in our consolidated balance sheets at June 30, 2016 and September 30, 2015, is zero and $231,010, respectively. The note bore interest at the rate of 5% per annum. All interest and principal was to be repaid on or prior to October 7, 2015. The note, as amended, was convertible into common stock at the lesser of $0.05 per share or 75% (the “Conversion Factor”) of the average of the three (3) lowest VWAPs in the twenty (20) Trading Days immediately preceding the applicable Conversion (the “Market Price”), provided that if at any time the average of the three (3) lowest VWAPs in the twenty (20) Trading Days immediately preceding any date of measurement is below $0.01, then in such event the Conversion Factor shall be reduced to 70% for all future Conversions. The Company had the option to prepay the note at the rate of 125%.

We recorded beneficial conversion feature in the amount of $76,706 for the funding paid at initial closing in May of 2014, and an additional $135,178 for the two secured promissory notes funded in March 2015. During the nine months ended June 30, 2016 and 2015, we have amortized $5,024 and $120,348, respectively to interest expense in our condensed consolidated statements of operations. During the nine months ended June 30, 2016, the Company opted to convert $78,750 of principal and interest into 60,458,806 shares of common stock. On conversion, we recorded a reduction to accrued interest of $2,692, and a reduction to notes payable in the amount of $76,058.

On June 17, 2015 we received an initial payment on a June 16, 2015 Securities Purchase Agreement with Inter-Mountain, for the sale of a 5% Secured Convertible Promissory Note in the principal amount of $832,500, which included legal expenses in the amount of $7,500 and a $75,000 original issue discount, for net proceeds of $750,000, consisting of $150,000 paid in cash at closing and four secured promissory notes payable to the Company, aggregating $600,000, bearing interest at the rate of 5% per annum. On July 31, 2015 one of the secured promissory notes was partially paid and the company received $50,000 and that note has a $100,000 remaining balance. The net value of these notes on our consolidated balance sheets at September 30, 2015 and June 30, 2016, was $227,500 and zero, respectively. The note bore interest at the rate of 5% per annum. All interest and principal was to be repaid on or prior to September 15, 2016. The note was convertible into common stock at the lesser of $0.05 per share or 75% (the “Conversion Factor”) of the average of the three (3) lowest VWAPs in the twenty (20) Trading Days immediately preceding the applicable Conversion (the “Market Price”), provided that if at any time the average of the three (3) lowest VWAPs in the twenty (20) Trading Days immediately preceding any date of measurement is below $0.01, then in such event the Conversion Factor shall be reduced to 70% for all future Conversions. The Company had the option to prepay the note at the rate of 125%.

We recorded beneficial conversion feature in the amount of $95,056 for this note during the year ended September 30, 2015. During the nine months ended June 30, 2016 and June 30, 2015, we have amortized $67,231 and $3,863, respectively, to interest expense in our condensed consolidated statements of operations.

These notes were purchased in full in the amount of $388,427.77 by Union Capital LLC on December 16, 2015 (see below). As of June 30, 2016 the Company no longer has a liability to Inter-Mountain Capital Corporation.

Convertible Promissory Note- Rich Niemiec

In December 2014, we issued a convertible promissory note to Rich Niemiec in the amount of $400,000 and warrants to purchase 50,000,000 shares of our common stock at the price of $0.008 per share, subject to adjustment, for proceeds of $400,000. The note is interest bearing at a rate of 10% per annum and had a maturity date of June 18, 2015. The Conversion Price per share of Common Stock shall be the lower of (A) the 10-day trailing volume weighted average price of the Borrower’s Common Stock, calculated at time of conversion, or (B) $0.008 (“Fixed Price Component”) subject to adjustment. The Fixed Price Component of the Conversion Price will be subject to adjustments during the period that the Note is outstanding. Each adjustment shall be at the Holder’s election, using the 10-day trailing volume weighted average bid price of the Borrower’s Common Stock at the time of such election (the “New Reference Price”). If the New Reference Price is less than the existing Fixed Price Component of the Conversion Price, then the New Reference Price shall be used as the new Fixed Price Component of the Conversion Price subject to a floor of $0.003 per share. This convertible promissory note is senior to all existing debt of the Borrower and is subordinate to any future line of credit backed by the Borrower’s accounts receivable and inventory. This convertible note is un-perfected but secured by the assets of the Borrower. Such security interest will be affected upon an Event of Default. The Company recorded a debt discount related to the value of the warrants in the amount of $208,000. The debt discount amount recorded related to the warrants was determined based on the relative fair value of the note payable and the warrants. The fair value of the warrants was determined using the Black-Scholes-Merton model. The Company also recorded a debt discount related to a beneficial conversion feature in the amount of $192,000 for this note. The total debt discount of $400,000 was fully amortized to interest expense in our consolidated statement of operations during the nine months ended June 30, 2015.

On June 19, 2015, the Company opted for an automatic extension of the maturity date of the Note of six months to December 19, 2015 under the terms of the original agreement. Per these terms, the interest rate increased from 10% per annum to 18% on the outstanding principal balance, and the Company issued a warrant to purchase an additional 52,493,151 shares of common stock at an exercise price of $0.008 per share, pursuant to the terms of the agreement. The fair value of the warrant of $288,712 was determined using the Black-Sholes-Merton model was being amortized to expense over the amended term of the debt with $128,315 and $16,000 amortized to financing costs in our condensed consolidated statements of operations for the nine months ended June 30, 2016 and 2015 respectively. The Company is currently in discussions with the lender to extend or modify repayment terms.

Convertible Promissory Notes Payable – JMJ Financial

On November 4, 2015 we received an initial payment of $30,000 on a Convertible Promissory Note with JMJ Financial , a Nevada sole proprietorship. The note is for an amount of up to $250,000 10% Original Issue Discount (“OID”) dated October 28, 2015. The Note is interest free if repaid within 90 days of the effective date, otherwise a one-time interest charge of 12% shall be applied to the principal balance in addition to the 10% OID. The note was not repaid within 90 days and therefore incurs interest. The maturity date is two years from the effective date of each payment. The note is convertible into common stock at the price lesser of $0.0026 per share or 63% of the lowest trade price in the 25 trading days previous to the conversion.

We recorded beneficial conversion feature in the amount of $20,000 for this note during the nine months ended June 30, 2016. During the nine months ended June 30, 2016, we have amortized $20,000 to interest expense in our condensed consolidated statements of operations.

This note, has been fully converted to stock by election of note holder. During the nine months ended June 30, 2016, 122,148,135 shares of stock were issued to the note holder, paying off the principal balance of $30,000 and accrued interest of $7,333.

December 2015 Convertible Promissory Notes Payable – Union Capital

On December 17, 2015 we received proceeds from Union Capital LLC, for the issuance of a 8% Convertible Promissory Note in the principal amount of $170,250 which includes legal expenses in the amount of $70,240. In conjunction with the transaction, Union Capital LLC retired the Company’s debt obligation to Inter-Mountain Capital LLC in full and we issued a replacement note to Union Capital LLC in the amount of $388,428.

The notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on or prior to December 17, 2017. The notes are convertible into common stock at the price of sixty percent (60%) of the lowest trading price in the prior 20 trading days before conversion. The Company had the option to prepay the $170,250 note at the rate of 120% of the face amount if repaid within the first 60 days.

We recorded beneficial conversion feature in the amount of $558,678 for these notes during the nine months ended June 30, 2016. During the nine months ended June 30, 2016, we have amortized $284,000 to interest expense in our condensed consolidated statements of operations.

During the nine months ended June 30, 2016, Union Capital opted to convert $190,000 of principal and $4,069 of interest into 357,374,930 shares of common stock. On conversion, we recorded a reduction to accrued interest of $4,069 and a reduction to notes payable in the amount of $190,000.

February 3, 2016 Convertible Note Payable – Union Capital

On February 3, 2016, we received proceeds from Union Capital LLC, for the issuance of a 8% Convertible Redeemable Note in the principal amount of $28,000, which includes legal expenses in the amount of $2,000.

The note bears interest at the rate of 8% per annum on the unpaid principal balance. All interest and principal must be repaid on or prior to February 3, 2017. The note and interest are convertible into common stock at the price of sixty percent (60%) of the lowest trading price in the prior 20 trading days before conversion. The Company had the option to prepay the $28,000 note at the rate of 120% of the face amount plus any accrued interest if repaid within the first 60 days. If the note is prepaid after 60 days after the issuance date, but less than 121 days after the date of issuance, then the Company can prepay the note at 135% of the face amount plus any accrued interest. If the note is prepaid after 120 days after the issuance date, but less than 180 days after the date of issuance, then the Company can prepay the note at 140% of the face amount plus any accrued interest. This note may not be prepaid after the 6^th month anniversary

We recorded beneficial conversion feature in the amount of $28,000 for this note during the nine months ended June 30, 2016. During the nine months ended June 30, 2016, we have amortized $11,665 to interest expense in our condensed consolidated statements of operations.

February 23, 2016 Convertible Note Payable – Union Capital

On February 23, 2016, we received proceeds from Union Capital LLC, for the issuance of an 8% Convertible Redeemable Note in the principal amount of $50,000, which includes legal expenses in the amount of $2,500 and financing fees of $5,000.

The note bears interest at the rate of 8% per annum on the unpaid principal balance. All interest and principal must be repaid on or prior to February 23, 2017. The note and interest are convertible into common stock at the price of sixty percent (60%) of the lowest trading price in the prior 20 trading days before conversion. The Company had the option to prepay the $50,000 note at the rate of 120% of the face amount plus any accrued interest if repaid within the first 60 days. If the note is prepaid after 60 days after the issuance date, but less than 121 days after the date of issuance, then the Company can prepay the note at 135% of the face amount plus any accrued interest. If the note is prepaid after 120 days after the issuance date, but less than 180 days after the date of issuance, then the Company can prepay the note at 140% of the face amount plus any accrued interest. This note may not be prepaid after the 6^th month anniversary

We recorded beneficial conversion feature in the amount of $50,000 for this note during the nine months ended June 30, 2016. During the nine months ended June 30, 2016, we have amortized $17,710 to interest expense in our condensed consolidated statements of operations.

April 01, 2016 Convertible Note Payable – Union Capital

On April 2016, we received proceeds from Union Capital LLC, for the issuance of an 8% Convertible Redeemable Note in the principal amount of $50,000, which includes legal expenses in the amount of $2,500 and financing fees of $5,000.

The note bears interest at the rate of 8% per annum on the unpaid principal balance. All interest and principal must be repaid on or prior to April 01, 2017. The note and interest are convertible into common stock at the price of sixty percent (60%) of the lowest trading price in the prior 20 trading days before conversion.

The note may be prepaid with the following penalties: if the note is paid within 60 days of issuance date, then it can be paid off at 120% of the face amount plus any accrued interest, if the note is paid after 60 days after the date of issuance but less than 121 days after the issuance date, then the note can be paid off at 135% of face plus any accrued interest, if the note is paid off after 120 days after the issuance date but less than 180 days after the issuance date, then the note can be paid off at 140% of the face amount plus any accrued interest. This note cannot be prepaid after the 6th month anniversary.

We recorded beneficial conversion feature in the amount of $33,333 for this note during the nine months ended June 30, 2016. During the nine months ended June 30, 2016, we have amortized $8,358 to interest expense in our condensed consolidated statements of operations.

Six-Month Convertible Promissory Notes

A series of six month notes were issued for bridge funding during the nine months ended June 30, 2016. The notes were of various amounts, from $1,000 to $100,000, totaling $280,455. The due dates of these notes currently range from October 19, 2016 to December 3, 2016. The notes bear interest at the rate of 8% per annum on the unpaid principal balance

The Holder of the note shall have the right, from time to time, commencing upon the Issue Date to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount by the Conversion Price on the date specified in the notice of conversion.

The conversion price per share of Common Stock (the “Conversion Price”) shall be determined (on a pre-Qualified Financing basis) by: (i) calculating the percentage of the entire unpaid principal amount of this Note sought to be converted (the “Conversion Percentage”); (ii) multiplying the sum of Three Million (3,000,000.00) dollars by the Conversion Percentage (the “Conversion Value Amount”) ; (iii) then, multiplying the number of issued and outstanding Common Shares of the Company on the Conversion Date by the Conversion Percentage (the “Conversion Share Pool”), and; (iv) then, dividing the Conversion Value Amount by the Conversion Share Pool. In the event that the Borrower consummates a Qualified Financing at a pre-money valuation of less than Three Million (3,000,000.00) dollars, for the purposes of determining the Conversion Price, such pre-money valuation if lower than Three Million (3,000,000) dollars shall replace “Three Million (3,000,000.00) dollars” above. There was no beneficial conversion feature on these notes.

Promissory Note – Global Resource Advisors LLC

On September 23, 2015, we settled a trade debt for the issuance of a non-interest bearing note due in 180 days. At any time up to maturity date, the note bearer could have demanded common stock in full satisfaction of the balance. As of the maturity date, March 23, 2016, the note was still unpaid. If the note is unpaid after the maturity date, the company has the option to pay the balance in cash or common stock. Company is currently in discussions with the note holder to extend or modify repayment terms. The outstanding balance of this note is $30,000 at both June 30, 2016 and September 30, 2015.