Convertible Notes Payable

3 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Note 6 - Convertible Notes Payable

The carrying value of all convertible notes at December 31, 2017 and September 30, 2017 was comprised of:

	December 31,			September 30,
	2017			2017
Convertible notes payable	$	549,802		$	568,765
Unamortized original issue discount and debt discount		(332,768	)		(305,165	)
	$	217,034		$	263,600

Interest expense for the three months ended December 31, 2017 was $215,648 and includes $194,537 of amortization of debt discount and loan fees, and $19,580 of amortization of original issue discount. Interest expense for the three months ended December 31, 2016 amounted to $40,374.

During the years ended September 30, 2017 and 2016 and the three months ended December 31, 2017, we executed a series of Promissory Notes (the “Notes”) to six unrelated entities. The Notes have initial terms of one year or less. The notes carry face interest rates of from 8% to 12% per annum. The Lenders have the rights, at any time and/or after 180 days at their election to convert all or part of the outstanding and unpaid principal and accrued interest into shares of our common stock. The conversion price is generally a range of between 50% and 58% of a two-day average of the lowest trading price in the 15 to 25 range of trading days prior the conversion.

During the three months ended December 31, 2017 the Company participated in an exchange agreement with an original lender and a new lender whereby the new lender purchased three existing loans aggregating $97,000. The Company executed a replacement note (face amount of $154,977) to the new lender and executed a new note to the lender for $75,000 in exchange for additional cash. The Company was obligated to pay third party loan and legal fees related to the new note amounting to $40,000. Unamortized loan fees at December 31, 2017 amounted to $28,325 in connection with the new note. The replacement note has conversion features more favorable to the Company than the notes it replaced. As such, the net change in the derivative liability related to the notes was reduced by $1,328,777 at the replacement date. This amount is included in the gain from debt conversion in the accompanying financial statements.

During the three months ended December 31, 2017 the Company’s lenders converted an aggregate of $328,725 of the face value of notes payable (including the MDI note as described above) plus accrued interest into an aggregate of 881,078,070 shares of $.001 par value common stock.

We valued the derivative liability and at the end of each accounting period the difference in value is recognized as gain or loss. At December 31, 2017, we determined the valuation using the Black-Sholes valuation model with the following assumptions: dividend yield of zero, 0.01 to 0.6 years to maturity, risk free interest rate of 1.70% and annualized volatility of 372.14. We recognized $547,774 of income for the change in value of the derivative for the three months ended December 31, 2017.