Convertible Notes Payable

9 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Note 6 - Convertible Notes Payable

The carrying value of convertible notes at June 30, 2018 and September 30, 2017 was comprised of:

	June 30,			September 30,
	2018			2017
Convertible notes payable	$	678,039		$	598,765
Unamortized original issue discount and debt discount		(87,531	)		(305,165	)
	$	590,508		$	293,600

Interest expense for the nine months ended June 30, 2018 was $861,586 and includes $511,030 of amortization of debt discount and loan fees, origination interest of $276,867 and $22,081 of amortization of original issue discount. Interest expense for the nine months ended June 30, 2017 amounted to $156,399.

During the years ended September 30, 2017 and 2016 and the nine months ended June 30, 2018, we executed a series of Promissory Notes (the “Notes”) to seven unrelated entities. The Notes have initial terms of one year or less. The notes carry face interest rates 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 quarter ending June 30, 2018 two of the lenders have sued for payment, which terminates their conversion rights. Aggregate amounts claimed pursuant to the lawsuits amounted to $448,833 including certain penalties and interest. Amounts included in convertible notes payable for these lenders amounted to $321,516 after the write-off of unamortized loan discounts of $181,869. Additionally, the Company eliminated $467,529 of the derivative liability related to these loans. Negotiations for settlement of the suits is currently in process. On July 6, 2018 a judgement in favor of one lender was entered in the amount of $219,460 which amount has been fully recorded in the financial statements.

During the nine months ended June 30, 2018 the Company’s lenders converted an aggregate of $420,394 of the face value of notes payable plus accrued interest into an aggregate of 2,362,457,485 shares of $.001 par value common stock.

We valued the derivative liability at the end of each accounting period and the difference in value is recognized as gain or loss. At June 30, 2018, we determined the valuation using the Black-Sholes valuation model with the following assumptions: dividend yield of zero, 0.01 to 01.25 years to maturity, risk free interest rate of 2.25% and annualized volatility of 158% to 486%. We recognized $841,653 of income for the change in value of the derivative for the nine months ended June 30, 2018.