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CONVERTIBLE NOTES PAYABLE

12 Months Ended

Sep. 30, 2019

Labrys Fund, LP – March 23, 2018 Promissory Note Funding

On March 23, 2018, we entered into a master convertible promissory note pursuant to which we could borrow up to $500,000. On March 23, 2018 the Company borrowed $200,000, less debt issuance costs of $15,750. The note carries an original issue discount of 10% ($20,000). Interest under the convertible promissory note is 12% per annum, and the principal and all accrued but unpaid interest is due on September 23, 2018. The Lender also received 23,750 commitment shares at execution as an inducement for entering into the agreement. The Company also incurred $15,750 of debt issuance costs on the note which was recorded as a debt discount. The note was convertible at any date after the issuance date at the noteholder’s option into shares of our common stock at a variable conversion price, The Conversion price equals the lesser of (1) 70% multiplied by the lowest "Trading Price" during the previous 20 Trading Day period ending on the latest complete Trading Day prior to the date of this Note and (2) 70% multiplied by the lowest "Trading Price" for the Common Stock during the 20 Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. The "Trading Price" as defined by the agreement is the lesser of: (a) the lowest trade price on the OTC Pink, OTCQB, or applicable trading market (the “OTC Market”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder and (b) the lowest closing bid price on the OTC Market as reported by a Reporting Service designated by the Holder. The Company recorded a debt discount in the amount of $85,348 in connection with the commitment shares and $98,902 in connection with the initial valuation of the derivative liability related to the embedded conversion option of the note to be amortized utilizing the effective interest method of accretion over the term of the note. On September 19, 2018, all principal and accrued interest of $220,000 and $12,730, respectively was converted into 25,859 shares of the Company’s common stock resulting to an outstanding balance of $0 as of September 30, 2018.

The aggregate debt discount have been accreted and charged to interest expenses as a financing expense in the amount of $220,000 during the year ended September 30, 2018.

Auctus Fund, LLC – July 2, 2018 Promissory Note Funding

On July 2, 2018 the Company entered into a Securities Purchase Agreement with Auctus Fund, LLC (“Auctus”), which was later amended on July 6, 2018, pursuant to which the Company issued to Auctus a Master Convertible Promissory Note (“Note”) pursuant to which the Company could borrow up to $500,000. The Company also incurred $11,900 of debt issuance costs on the note which was recorded as a debt discount. On July 11, Auctus paid $225,000 less $26,000 in legal and due diligence fees. The Note has a maturity date of six months for each tranche funded and the Company has agreed to pay interest on the unpaid principal balance of the Note at the rate of twelve percent (12%) per annum from the date on which the Note is issued (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Note, provided it makes a payment to Auctus as set forth in the Note within 180 days of its Issue Date. In connection with the issuance of the Note, the Company issued to Auctus, as a commitment fee, 13,750 shares of its common stock (the “Returnable Shares”) as well as 15,000 shares of its common stock (the “Non-Returnable Shares”), as further provided in the Note. The Returnable Shares shall be returned to the Company’s treasury if the Note is fully repaid and satisfied prior to the date, which is one hundred eighty (180) days following the Issue Date, subject further to the terms and conditions of the Note. The Note is convertible at any date after the issuance date at the noteholder’s option into shares of our common stock at a variable conversion price of 70% of the lowest closing market price of our common stock during the previous 20 days to the date of the notice of conversion, subject to adjustment in the case of default. The Note contains certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, (iii) certain loans, (iii) sales and the transfer of assets, and (iv) participation in 3(a)(10) transactions. The Note also contains certain anti-dilution provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions. In addition, subject to limited exceptions, Auctus will not have the right to convert any portion of the Note if Auctus, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion. The Company recorded a debt discount in the amount of $130,829 in connection with the Non-returnable shares and $56,271 in connection with the initial valuation of the derivative liability related to the embedded conversion option of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. On September 21, 2018, all principal and accrued interest of $225,000 and $5,474, respectively was converted into 25,608 shares of the Company’s common stock resulting to an outstanding balance of $0 as of September 30, 2018.

The aggregate debt discount have been accreted and charged to interest expenses as a financing expense in the amount of $225,000 during the year ended September 30, 2018.

EMA Financial, LLC – August 21, 2018 Promissory Note Funding

On August 21, 2018 we entered into a Securities Purchase Agreement with EMA Financial, LLC, (“EMA”), pursuant to which we issued and sold to EMA a convertible promissory note, dated August 21, 2018 in the principal amount of $225,000 (the “Note”). The Note is due six months from the date of issuance and bears interest at the rate of 12% per annum. The Company received $199,000 from the investment less fees and debt issuance costs of $26,000 which was recorded as a debt discount. In connection with the issuance of the Note, the Company issued to EMA, as a commitment fee, 13,750 shares of its common stock (the “Returnable Shares”) as well as 10,000 shares of its common stock (the “Non-Returnable Shares”), as further provided in the Note. The Returnable Shares shall be returned to the Company’s treasury if the Note is fully repaid and satisfied prior to the date, which is one hundred eighty (180) days following August 21, 2018, subject further to the terms and conditions of the Note. The Note as amended on September 27, 2018, is convertible at any date after the issuance date at the noteholder’s option into shares of our common stock at a variable conversion price, equal to the lesser of (i) 70% of the lowest trading price during the previous 20 days and ending on the latest trading date prior to the date of the Note, or (ii) a 70% of the lowest trading price for our common stock during the 20 trading day period immediately prior to conversion but subject to a conversion floor price of $30.50. The floor price is subject to reset under certain conditions. We have the right to prepay the Note at any time prior to 180 days following the closing date. If we pay after September 24, 2018, we must pay an additional $25,000 as a prepayment penalty. The Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties. The Note also contains a right of first refusal provision with respect to future financings by us. The Company recorded a debt discount in the amount of $113,727 in connection with the Non-returnable shares and $73,373 in connection with the initial valuation of the derivative liability related to the embedded conversion option of the Note to be amortized utilizing the effective interest method of accretion over the term of the Note. The aggregate debt discount have been accreted and charged to interest expenses as a financing expense in the amount of $48,955 during the year ended September 30, 2018. As of September 30, 2018, the Company owed $225,000 in principal and $2,959 in accrued interest under the terms of the agreement and recorded interest expense of $2,959 during the year ended September 30, 2018.

On January 3, 2019, the Company settled all remaining obligations under the EMA note through the payment of all outstanding principal, prepayment penalties and interest then outstanding of $225,000, $35,000 and $10,736, respectively. The unamortized debt discount on the note of $176,045 was fully amortized to interest expense during the year ended September 30, 2019.

In connection with the issuance of the Note, the Company issued to the Purchaser, as a commitment fee, 13,750 returnable shares of its common stock. As a result of the repayment the shares were returned to treasury and cancelled on January 8, 2019.

EMA loans payable consist of the following as of:	September 30, 2019		September 30, 2018
Current loan payable:	$	—	$	225,000
Unamortized debt discount		—		(176,045)

Total, net of unamortized discount	$	—	$	48,955

Labrys Fund, LP – September 19, 2018 Promissory Note Funding

On March 23, 2018, we entered into a master convertible promissory note pursuant to which we could borrow up to $500,000. On September 19, 2018 borrowed $330,000, less debt issuance costs of $20,700. The note also carries an original issue discount of 10% ($30,000). Interest under the convertible promissory note is 12% per annum, and the principal and all accrued but unpaid interest is due six months from the date of issuance. The Note, as amended on September 27, 2018, is convertible at any date after the issuance date at the noteholder’s option into shares of our common stock at a variable conversion price subject to a conversion floor price of $30.50, The Conversion price equals the lesser of (1) 70% multiplied by the lowest "Trading Price" during the previous 20 Trading Day period ending on the latest complete Trading Day prior to the date of this Note and (2) 70% multiplied by the lowest "Trading Price" for the Common Stock during the 20 Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. The "Trading Price" as defined by the agreement is the lesser of: (a) the lowest trade price on the OTC Pink, OTCQB, or applicable trading market (the “OTC Market”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder and (b) the lowest closing bid price on the OTC Market as reported by a Reporting Service designated by the Holder. If the note is not repaid within 180 days of issuance the floor will cease to apply. The Company recorded a debt discount in the amount of $279,300 in connection with the initial valuation of the derivative liability related to the embedded conversion option of the note to be amortized utilizing the effective interest method of accretion over the term of the note.

The aggregate debt discount have been accreted and charged to interest expenses as a financing expense in the amount of $20,166 during the year ended September 30, 2018.

On January 3, 2019, the Company settled all remaining obligations under the Labrys Fund, LP note through the payment of all outstanding principal and interest then outstanding of $330,000 and $11,609, respectively. The unamortized discount on the note of $309,834 was fully amortized to interest expense during the year ended September 30, 2019.

Labrys loans payable consist of the following as of:	September 30, 2019		September 30, 2018
Current loan payable:	$	—	$	330,000
Unamortized debt discount		—		(309,834)

Total, net of unamortized discount	$	—	$	20,166

Summary of all short-term convertible debts:

Short term convertible notes payable consist of the following as of:	September 30, 2019		September 30, 2018
Current loan payable:	$	—	$	555,000
Unamortized debt discount		—		(485,879)

Total, net of unamortized discount	$	—	$	69,121

Long-Term convertible notes

Securities Purchase Agreement – December 31, 2018

On December 31, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) with an otherwise unaffiliated third-party institutional investor (the “Investor”), pursuant to which the Company issued to the Investor a Senior Secured Redeemable Convertible Debenture (the “Debenture”) in the aggregate face value of $5,250,000. The note is secured by all assets of the Company. The Debenture has a maturity date of two years from the issuance date and the Company has agreed to pay compounded interest on the unpaid principal balance of the Debenture at the rate equal 7.5% per annum. Interest is payable on the date the applicable principal is converted or on maturity. The interest must be paid in cash and, in certain circumstances, may be paid in shares of common stock.

The transactions described above closed on December 31, 2018. In connection with the issuance of the Debenture and pursuant to the terms of the SPA, the Company issued to the Investor 10,000 shares of common stock and a Common Stock Purchase Warrant to acquire up to 308,333 shares of common stock for a term of three years (the “Warrant”) on a cash-only basis at an exercise price of $20.00 per share with respect to 125,000 Warrant Shares, $25.00 with respect to 100,000 Warrant Shares, $50.00 with respect to 50,000 Warrant Shares and $75.00 with respect to 33,333 Warrant Shares. The warrants and shares issued were fair valued and a debt discount of $4,995,000 was recorded as a result of the issuance of the warrants and shares and the recognition of a beneficial conversion feature on the Debenture. The Company also paid a $5,000 due diligence fee prior to receiving the funding which was also recorded as a debt discount.

Pursuant to the terms of the SPA, the Investor agreed to tender to the Company the sum of $5,000,000, of which the Company received the full amount as of the closing.

Prior to the maturity date, provided that no trigger event has occurred, the Company will have the right at any time upon 30 trading days’ prior written notice, in its sole and absolute discretion, to redeem all or any portion of the Debenture then outstanding by paying to the Investor an amount equal to 140% of the of the portion of the Debenture being redeemed.

The Investor may convert the Debenture into shares of the Company’s common stock at a conversion price equal to 95% of the mathematical average of the 5 lowest individual daily volume weighted average prices of the common stock, less $0.50 per share, during the period beginning on the issuance date and ending on the maturity date subject to certain floor price restrictions. In the event certain equity conditions exist, the Company may require that the Investor convert the Debenture. In no event shall the Debenture be allowed to affect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the Investor and its affiliates would exceed 4.99% of the outstanding shares of the common stock of the Company.

While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event.

On January 7, 2019, the investor converted $2,500,000 in principal and $875,000 in interest as a conversion premium, for 178,473 shares of the Company common stock at an effective conversion price of $18.90, due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018.

On March 6, 2019, the investor converted $1,000,000 in principal and $350,000 in interest as a conversion premium, for 71,389 shares of the Company common stock at an effective conversion price of $18.90, due to a trigger event for the Company not filing its annual report on Form 10-K for the fiscal year ended September 30, 2018 on or before December 31, 2018.

On July 9, 2019, in accordance with the terms of the agreement the investor was issued an additional 45,614 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $15.06.

On July 16, 2019, in accordance with the terms of the agreement the investor was issued an additional 18,246 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $15.06.

On July 19, 2019, an investor converted $500,000 in principal and $175,000 in interest as a conversion premium, for 45,109 shares of the Company common stock at an effective conversion price of $15.00.

On August 23, 2019, in accordance with the terms of the agreement the investor was issued an additional 43,721 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $7.60.

On September 16, 2019, in accordance with the terms of the agreement the investor was issued an additional 61,500 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $7.30.

The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $4,466,526 during the year ended September 30, 2019.

The Debenture at September 30, 2019 consists of:

Principal	$	1,250,000
Unamortized debt discount		(783,474)
Total, net of unamortized discount		466,526

Securities Purchase Agreement – April 17, 2019

On April 17, 2019, the Company entered into a Securities Purchase Agreement (the “Agreement”) with an otherwise unaffiliated third-party institutional investor (the “Investor”), pursuant to which the Company agreed to issue to the Investor a $10,750,000 face value Senior Secured Redeemable Convertible Promissory Note (the “Debenture”) with a 7.5% original issue discount, 215 shares of our Series B Preferred Stock with a 7.5% original issue discount, a Common Stock Purchase Warrant (the “Warrant”) on a cash-only basis to acquire up to 230,000 shares (the “Warrant Shares”) of our common stock and 125,000 shares of our Common Stock. The aggregate purchase price for the Debenture, the Series B Preferred Stock the Warrant and the Common Stock is $20,000,000. (See Notes 10 and 11 for additional details.) The Debenture is secured by all assets of the Company.

Pursuant to the first closing of the agreement, which occurred on April 18, 2019, the Investor agreed to tender to the Company the sum of $10,000,000, for the Debenture, the Common Stock and the Warrant. No additional closings to sell the preferred stock had occurred as of September 30, 2019.

The Debenture has a maturity date of two years from the issuance date and the Company has agreed to pay compounded interest on the unpaid principal balance of the Debenture at the rate equal 7.5% per annum. Interest is payable on the date the applicable principal is converted or on maturity. The interest must be paid in cash and, in certain circumstances, may be paid in shares of common stock.

Prior to the maturity date, provided that no trigger event has occurred, the Company will have the right at any time upon 30 trading days’ prior written notice, in its sole and absolute discretion, to redeem all or any portion of the Debenture then outstanding by paying to the Investor an amount equal to 145% of the of the portion of the Debenture being redeemed.

The Investor may convert the Debenture into shares of the Company’s common stock at a conversion price equal to 90% of the mathematical average of the 5 lowest individual daily volume weighted average prices of the common stock, less $0.75 per share, during the period beginning on the issuance date and ending on the maturity date subject to certain floor price restrictions. In the event certain equity conditions exist, the Company may require that the Investor convert the Debenture. In no event shall the Debenture be allowed to effect a conversion if such conversion, along with all other shares of Company common stock beneficially owned by the Investor and its affiliates would exceed 4.99% of the outstanding shares of the common stock of the Company.

While the note is outstanding if Triggering Events occur the conversion rate may be decreased by 10% and the interest rate increased by 10% for each Triggering Event.

The Debenture at September 30, 2019 consists of:

Principal	$	10,750,000
Unamortized debt discount		(8,320,205)
Total, net of unamortized discount	$	2,429,795

The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $2,429,795 during the year ended September 30, 2019.

Summary of all long term convertible debts:

Principal – December 31, 2018 Note	$	1,250,000
Principal – April 17, 2019 Note		10,750,000
Total principal on convertible notes (long-term)		12,000,000
Unamortized debt discount		(9,103,679)
Total convertible notes, net of unamortized discount (long-term)	$	2,896,321