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10. CONVERTIBLE NOTES PAYABLE

9 Months Ended

Jun. 30, 2020

Short-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 was secured by all assets of the Company. The Debenture has a maturity date of two years from the issuance date and the Company 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 which may result in the issuance of additional shares.

On March 4, March 13, and May 1, 2020 the Company entered into amendments (the “Amendments”) with the Investor.

The Amendments amended the SPA and Debenture, as follows:

	1)	A Floor Price of $1.50 per share of Common Stock was placed on conversions by the Investor under the Debenture, with the Floor Price on the First Debenture not applying in the occurrence of an event of default;
	2)	Lowered the closing price of the Common Stock which may trigger an event of default from $5.00 per share to $1.75 per share for 5 consecutive trading days provided that any event of default will not be triggered, if at all, until after September 29, 2020;

Deleted the requirement that the Investor convert the Debenture at maturity and

Allowed the Company, to not reserve or issue to the Investor more shares of Common Stock than were reserved for the Investor prior to the amendment date until September 29, 2020.

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, the 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 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 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.

On October 17, 2019, in accordance with the terms of the agreement the Investor was issued an additional 90,000 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $3.74.

On December 5, 2019, in accordance with the terms of the agreement the Investor was issued an additional 97,100 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $3.15.

On February 10, 2020, in accordance with the terms of the agreement the Investor was issued an additional 100,000 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $3.15.

On February 21, 2020, in accordance with the terms of the agreement the Investor was issued an additional 108,770 shares of common stock due to the decrease in stock price resulting in an effective conversion price of 2.69.

On March 2, 2020, in accordance with the terms of the agreement the Investor was issued an additional 167,100 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $1.87.

On March 5, 2020, in accordance with the terms of the agreement the Investor was issued an additional 154,835 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $1.83.

On March 13, 2020, in accordance with the terms of the agreement the Investor was issued an additional 116,000 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $1.50.

On March 20, 2020, in accordance with the terms of the agreement the Investor was issued an additional 163,800 shares of common stock due to the decrease in stock price resulting in an effective conversion price of $1.50.

On April 15, 2020, the Investor converted $1,250,000 in principal and $437,500 in interest, for 1,125,000 shares of the Company common stock at an effective conversion price of $1.50 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. As of June 30, 2020, the Debenture was fully converted into shares of the Company’s common stock.

The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $783,474 during the nine months ended June 30, 2020.

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 13 and 14 for additional details.) The Debenture was 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 have occurred and the Series B preferred stock was removed under the amendments to the Agreement discussed below.

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.

On March 4, March 13, and May 1, 2020 the Company entered into amendments (the “Amendments”) with the Investor.

The Amendments amended the SPA and Debenture, as follows:

	1)	A Floor Price of $1.50 per share of Common Stock was placed on conversions by the Investor under the Debenture, not applying in the occurrence of an event of default;
	2)	Lowered the closing price of the Common Stock which may trigger an event of default from $5.00 per share to $1.75 per share for 5 consecutive trading days provided that any event of default will not be triggered, if at all, until after September 29, 2020;

Deleted the requirement that the Investor convert the Debenture at maturity and

Allowed the Company, to not reserve or issue to the Investor more shares of Common Stock than were reserved for the Investor prior to the amendment date until September 29, 2020.

The Company and the Investor also agreed to remove the Second Closing and Company Option to sell an aggregate of an additional $10,000,000 in securities under the Debenture. As a result of these changes, the Company was authorized to terminate any and all documentation related to the 100,000 shares of Series B Preferred Stock that the Company's Board of Directors had previously voted to designate back on April 16, 2019.

On May 5, 2020, the Investor converted $750,000 in principal and $112,500 in interest, for 575,000 shares of the Company common stock at an effective conversion price of $1.50.

On May 6, 2020, the Investor converted $600,000 in principal and $90,000 in interest, for 460,000 shares of the Company common stock at an effective conversion price of $1.50.

On May 7, 2020, the Investor converted $595,000 in principal and $89,250 in interest, for 456,167 shares of the Company common stock at an effective conversion price of $1.50.

On May 8, 2020, the Investor converted $350,000 in principal and $52,500 in interest, for 268,333 shares of the Company common stock at an effective conversion price of $1.50.

On May 11, 2020, the Investor converted $350,000 in principal and $52,500 in interest, for 268,333 shares of the Company common stock at an effective conversion price of $1.50.

On May 12, 2020, the Investor converted $730,000 in principal and $109,500 in interest, for 559,667 shares of the Company common stock at an effective conversion price of $1.50.

On May 13, 2020, the Investor converted $375,000 in principal and $56,250 in interest, for 287,500 shares of the Company common stock at an effective conversion price of $1.50.

On May 18, 2020, the Investor converted $360,000 in principal and $54,000 in interest, for 276,000 shares of the Company common stock at an effective conversion price of $1.50.

On May 19, 2020, the Investor converted $1,020,000 in principal and $153,000 in interest, for 782,000 shares of the Company common stock at an effective conversion price of $1.50.

On May 20, 2020, the Investor converted $380,000 in principal and $57,000 in interest, for 291,333 shares of the Company common stock at an effective conversion price of $1.50.

On May 21, 2020, the Investor converted $2,140,000 in principal and $321,000 in interest, for 1,640,667 shares of the Company common stock at an effective conversion price of $1.50.

On May 22, 2020, the Investor converted $3,100,000 in principal and $465,000 in interest, for 2,376,667 shares of the Company common stock at an effective conversion price of $1.50.

As of June 30, 2020, the Debenture was fully converted into shares of the Company’s common stock.

The aggregate debt discount has been accreted and charged to interest expenses as a financing expense in the amount of $8,320,205 during the nine months ended June 30, 2020.