| CONVERTIBLE NOTES PAYABLE AND ADVISORY FEE LIABILITIES | NOTE
10 - CONVERTIBLE NOTES PAYABLE AND ADVISORY FEE LIABILITIES Senior
Secured Credit Facility Note Effective
September 13, 2016 (“Effective Date”), the Company entered into a senior secured credit facility note (the “Agreement”)
with an investment fund to provide capital for the acquisition of Howco. The Company can borrow up to $6,500,000, subject to lender
approval, with an initial convertible promissory note at closing of $3,500,000 (the “Convertible Note”). The Convertible
Note bears interest at a rate of 18% per annum, required monthly payments of $52,500 which is interest only starting on October
13, 2016 through February 13, 2017, and monthly payments, including interest and principal, of $298,341 starting on March 13,
2017 through maturity on March 13, 2018. Events of default are defined in the Agreement and Convertible Note. In the event of
default the Convertible Note balance will bear interest at 25% per annum. In connection with this Agreement, the Company was obligated
to pay additional advisory fees of $850,000 payable in the form of cash or common stock in accordance with the terms of the Agreement.
The Company was also required to reserve 7,000,000 shares of common stock related to this transaction. The reserved shares will
be released upon the satisfaction of the loan. In
the event the lender makes additional loans under the Agreement, the Company agreed to pay additional advisory fees under similar
terms as the $850,000 fee. As of March 31, 2019, the Company had issued 539,204 shares of common stock in satisfaction of the
$850,000 advisory fee in accordance with the terms of the agreement, such shares being issued in September 2016. The proceeds
from the sale of the 539,204 shares were supposed to be applied towards the $850,000 advisory fee due. Based upon the value of
the shares, at the time the lender sells the shares, the Company may be required to redeem unsold shares for the difference between
the $850,000 and the lender’s sales proceeds. Accordingly, the $850,000 was reflected as a current liability through December
31, 2017. In January 2018, in connection with a settlement agreement (see below), the accrued advisory fee was reclassified to
the principal balance of the replacement Convertible Note. Through the date of the settlement agreement and through March 31,
2019, the lender had not reported any proceeds from the sale of these shares (see below). Prior to the settlement agreement in
January 2018, notwithstanding anything contained in the Agreement to the contrary, in the event the Lender has not realized net
proceeds from the sale of Advisory Fee Shares equal to at least the Advisory Fee by the earlier to occur of: (A) the twelve (12)
month anniversary of the Effective Date; (B) the occurrence of an Event of Default; or (C) the Maturity Date, then at any time
thereafter, the Lender shall have the right, upon written notice to the Borrower, to require that the Borrower redeem all Advisory
Fee Shares then in Lender’s possession for cash equal to the Advisory Fee, less any cash proceeds received by the Lender
from any previous sales of Advisory Fee Shares, if any. In the event such redemption notice is given by the Lender, the Borrower
shall redeem the then remaining Advisory Fee Shares in Lender’s possession for an amount of Dollars equal to the Advisory
Fee, less any cash proceeds received by the Lender from any previous sales of Advisory Fee Shares, if any, payable by wire transfer
to an account designated by Lender within five (5) Business Days from the date the Lender delivers such redemption notice to the
Borrower. The
Convertible Note is only convertible upon default or mutual agreement by both parties at a conversion rate of 85% of the lowest
of the daily volume weighted average price of the Company’s common stock during the 5 business days immediately prior to
the conversion date. At any time and from time to time while this Note is outstanding, but only upon: (i) the occurrence of an
Event of Default under any of the Loan Documents; or (ii) mutual agreement between the Company and the Holder, this Note may be,
at the sole option of the Holder, convertible into shares of the Company’s common stock, in accordance with the terms and
conditions set forth below. At any time while this Note is outstanding, but only upon: (i) the occurrence of an Event of Default
under any of the Loan Documents; or (ii) mutual agreement between the Company and the Holder, the Holder may convert all or any
portion of the outstanding principal, accrued and unpaid interest, and any other sums due and payable hereunder or under any other
Loan Documents (such total amount, the “Conversion Amount”) into shares of common stock of the Company (the “Conversion
Shares”) at a price equal to: (i) the Conversion Amount (the numerator); divided by minus divided by Once
a default occurs the Convertible Note will be accounted for as stock settled debt at its fixed monetary value and any shares issued
upon conversion are also subject to a make whole provision similar to that described above for the $850,000 advisory fee payable.
On March 13, 2017 the Company defaulted on the monthly principal and interest payment of $298,341. Due to this default, as of
June 30, 2017, the Company has accounted for the embedded conversion option as stock settled debt and recorded a debt premium
of $617,647 with a charge to interest expense, and the interest rate increased to 25% (default rate). On
March 28, 2017, the Company entered into an agreement with the above senior secured credit facility lender to receive a range
of advisory services for a total of $1,200,000 with no definitive terms or length of service which was expensed in fiscal 2017
and had been recorded as an accrued liability – advisory fees through December 31, 2017. In connection with the settlement
agreement discussed below, in January 2018, the advisory services fee payable was reclassified to the principal balance of the
replacement Convertible Note. On
January 3, 2018, the Company entered into a settlement agreement (the “Settlement Agreement”) and replacement note
agreements with the investment fund related to a senior secured credit facility note dated September 13, 2016. On the effective
date of the Settlement Agreement, all amounts owed to the investment fund aggregated $5,788,642 and consisted of a convertible
promissory note of $3,500,000, accrued interest payable of $238,642, and accrued advisory fees payable of $2,050,000. Additionally,
on the effective date, the amount due of $5,788,642 was split and apportioned into 2 separate and distinct replacement notes (“Replacement
Note A” and “Replacement Note B”). Replacement Note A shall have a principal amount of $1,000,000 and Replacement
Note B shall have a principal balance of $4,788,642, both of which shall be and remained secured by the original security agreements,
the pledge agreements, the guarantee agreement and other applicable loan documents and both shall bear interest at 18% per annum.
The default was not waived by this settlement agreement. The Company originally recorded a premium on stock settled debt of $617,647
on the $3,500,000, and subsequent to the settlement agreement recorded an additional premium on stock settled debt of $403,878
on the additional $2,288,642. The interest rate was amended to 12% effective June 12, 2018. The
Credit Agreement is hereby amended such that the Maturity Date is extended to January 13, 2019 (the “Extended Maturity Date”)
for replacement Note B, while the Note A maturity date remained at March 13, 2018 but was due as of March 2017 due to the
principal and interest payment default discussed above. Notwithstanding anything contained in this Agreement to the contrary,
all Obligations owing by the Company and all other Credit Parties under the Credit Agreement, First Replacement Note B, and all
other Loan Documents shall be paid in full by the Extended Maturity Date as follows: $52,500 per month from January 13, 2018 to
December 13, 2018 and the remaining principal and accrued interest on January 13, 2019. Interest payments made since the amendment
have totaled $283,440 and are therefore not in accord with that amendment. However, TCA has received payments under the 3(a)(10)
settlement (below) totaling $578,420 from January 13, 2018to March 31, 2019. On
October 30, 2018, TCA the Company’s senior lender amended its credit facility which had been restructured in January 2018
when fees due for advisory and other matters along with accrued but unpaid interest were capitalized and separated into two notes,
Note A having $1,000,000 principal and Note B having $4,788,642 both having the same maturity terms, interest rates and conversion
rights. Under the current amendment total amounts outstanding under the notes along with accrued interest of $537,643 has been
capitalized with the principal amount due of $6,018,192. The restated note has the same conversion price discount and therefore
continues to be stock settled debt under ASC 480, an additional $94,878 was charged to interest with a credit to debt premium.
The new note accrues interest on the principal balance at 12% per annum, includes amortization to the new maturity of December
15, 2020. The amortization payments credited toward the principal amount and accrued interest vary and include payments made under
the 3(a)(10) settlement agreement with a third party related to Note A. Economically the total principal and accrued interest
outstanding remain unchanged as reported in the consolidated balance sheet. All other terms including conversion rights and a
make-whole provision in the case of a conversion shortfall remain the same as stated in the footnotes above. At March 31, 2019
the principal of the Note B portion was $5,326,285. During the six months ended March 31, 2019, the Company paid $115,000 and
Livingston Asset Management (under the 3(a)(10) settlement) remitted $270,320 to TCA. Accrued but unpaid interest was $180,518,
at March 31, 2019. Note A principal subject to the 3(a)(10) court order was $421,587. On
November 15, 2017, the Company executed a Liability Purchase Term Sheet with Livingston Asset Management (“Livingston”)
under which Livingston agreed to purchase up to $10,000,000 that the Company owes to its creditors through direct purchase of
the debts from the Company’s creditors in return for a convertible note issued by the Company in the principal amount of
$50,000 bearing interest of 10% per year to cover certain legal fees and other expenses of Livingston. The note matures in six
months and is convertible into shares of our common stock at a 30% reduction off the lowest closing bid price for 20 trading days
prior to the date of conversion. Livingston has the right to retain 30% of any negotiated reduction off the face amount of the
liability the Company owes to such creditors. The Company has accounted for the convertible promissory note as stock settled debt
under ASC 480 and recorded a debt premium of $21,428 with a charge to interest expense. The note and accrued interest were fully
converted as of September 30, 2018 for 18,162,608 common shares. Debt premium of $21,428 was charged to additional paid in capital. On
January 30, 2018 pursuant to the Liability Purchase Term Sheet, the TCA Replacement Note A in the principal amount of $1,000,000
was purchased by Livingston Asset Management LLC (“Livingston”) from the original lender. Principal of Replacement
Note A is due to Livingston with all then accrued but unpaid interest due to the original lender. In accordance with the terms
of the Settlement Agreement, the Court was advised of Company’s intention to rely upon the exception to registration set
forth in Section 3(a)(l0) of the Securities Act to support the issuance of its common shares and the Court held a fairness hearing
regarding the issuance (the “Hearing”) on March 12, 2018. Following entry of an Order by the Court which occurred
on March 12, 2018, in settlement of the claims, the Company shall issue and deliver to Livingston shares of its common stock (the
“Settlement Shares”) in one or more tranches as necessary, and subject to adjustment and ownership limitations as
set forth in the Settlement Agreement, sufficient to generate proceeds such that the aggregate Remittance Amount equals the Claim
Amount. The Company will issue free trading shares of its common stock under section 3(a)(10) of the Securities Act to Livingston
in the amount of such judgment in a series of tranches so that Livingston will not own more than 9.99% of our outstanding shares
per tranche. The parties reasonably estimate that the fair market value of the Settlement Shares to be received by Livingston
is equal to approximately $1,666,667 which is based on a discount of 40%. As
of March 31, 2019, there have been eleven issuances under section 3(a)(10) of the Securities Act totaling 566,838,000 shares,
which have been recorded at par value with an equal charge to additional paid-in capital. The value originally recorded as a liability
remains in the convertible note balance, until these shares have been sold and reported to the Company by the lender as part of
the Make-Whole provision at which time the proceeds value of such shares are reclassified to additional paid-in capital. During
the six months ended March 31, 2019, proceeds of $270,320 were remitted to TCA by Livingston and applied to reduce the liability
with corresponding credits to additional paid in capital. $180,618 of debt premium was credited to additional paid in capital
in conjunction with the payments to TCA. At March 31, 2019 the balance of $421,587 along with related debt premium of $281,054
are included in convertible notes payable on the balance sheet. On
March 7, 2018 the Company entered into a placement agent and advisory agreement with Scottsdale Capital Advisors in connection
with the Livingston liability purchase term sheet executed on November 15, 2017. The placement agent services fee amounted to
$15,000 payable to Scottsdale Capital Advisors in the form of a convertible note. The note matures six months from the date of
issuance and shall accrue interest at the rate of 10% per annum. The $15,000 note is convertible into shares of the Company’s
common stock at a discount of 30% of the low closing bid price for the twenty trading days prior to the conversion and is not
subject to any registration rights. The Company has accounted for the convertible promissory note as stock settled debt under
ASC 480 and recorded a debt premium of $6,429 with a charge to interest expense. The note has not been converted and the principal
balance is $15,000 with $2,037 of accrued interest at March 31, 2019. Other
Convertible Debt In
July 2017, the FASB issued Accounting Standards Update No. 2017-11 Earnings Per Share (Topic 260) Distinguishing Liabilities from
Equity (Topic 480) Derivatives and Hedging (Topic 815) (“ASU 2017-11”), which changes the classification analysis
of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain
financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity
classification when assessing whether the instrument is indexed to an entity’s own stock. ASU 2017-11 also clarifies existing
disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or
embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence
of a down round feature. For freestanding equity classified financial instruments, ASU 2017-11 requires entities that present
earnings per share (EPS) in accordance with ASC Topic 260 to recognize the effect of the down round feature when it is triggered.
That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. For the Company,
ASU 2017-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early
adoption is permitted, including adoption in an interim period. The Company adopted this standard on October 1, 2017. On
November 9, 2017, the Company received a first tranche payment of $75,500 under the terms of a Securities Purchase Agreement dated
October 25, 2017, with Crown Bridge Partners, LLC (“Crown Bridge”) under which the Company issued to Crown Bridge
a convertible note in the principal amount of $105,000 and a five-year warrant to purchase 100,000 shares of the Company’s
common stock at an exercise price of $0.35 as a commitment fee which is equal to the product of one-third of the face value of
each tranche divided by $0.35. Under the terms of the note Crown Bridge was to receive “right of first refusal” for
any subsequent loans or notes to fund the Company. The Company violated this covenant when funding was received from other sources
without offering Crown Bridge the opportunity to participate. On December 20, 2017 the Company cured this covenant violation by
issuing 200,000 additional warrants have the same exercise price and terms of the original warrants. The warrants have full ratchet
price protection and cashless exercise rights. The
convertible note (the “Note”) issued to Crown Bridge in the principal amount of $105,000, has an original issue discount
of $10,500 and issue costs of $19,000 both of which are recorded as debt discount along with the warrant relative fair value of
$12,507 for the original 100,000 warrants and $31,529 for the penalty warrants to be amortized over the twelve month term of this
tranche, bears interest of 10% (12% default rate) per annum, and has a maturity date of 12 months from the date of each tranche
of payments under the Note with future tranches being at the discretion of Crown Bridge. The conversion rate for any conversion
of unpaid principal and interest under the Notes is at a 35% discount to the lowest market price of the shares of the Company’s
common stock within a 20 day trading period prior to the date of conversion to which an additional 10% discount will be added
if the conversion price of the Company’s common stock is less than $0.05 per share and no shares of the Company’s
common stock can be issued to the extent Crown Bridge would own more than 4.99% of the outstanding shares of the Company’s
common stock and the conversion shares contain piggy-back registration rights. The Note is subject to customary default provisions
including an event of default if the bid price of the Company’s common stock is less than its par value of $.0001 per share.
The Company is entitled to prepay the Note between 30 days after its issuance until 180 days from its issuance at amounts that
increase from 112% of the prepayment amount to 137% of the prepayment amount depending on the length of time when prepayments
are made. The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded a debt
premium of $56,538 with a charge to interest expense. As of September 30, 2018 the note holder fully converted principal and accrued
interest into common shares. The debt premium on stock settled debt was fully recognized as additional paid in capital. On
March 1, 2019, the Company received a second tranche advance under the Crown Bridge Partners, LLC for principal amount of $35,000,
including covered fees and original issue discount totaling $5,000. Under the conversion terms of the above note, the holder is
entitled to a 35% discount plus an additional 10% discount based on the conversion rights of certain other note holders. Therefore
a discount of 45% is assumed for any conversions of this note tranche. The Company has accounted for the convertible promissory
note as stock settled debt under ASC 480 and recorded a debt premium of $28,636 with a charge to interest expense. The original
issue discount and fees charged were treated as debt discount and will be amortized to financing expenses over the term of the
note. Accrued interest was $432, and unamortized debt discount was $4,583, at March 31, 2019. On
June 1, 2018 the Company entered into a consulting and services arrangement with Livingston Asset Management. The arrangement
provides for financial management services including accounting and related periodic reporting among other advisory services.
Under the agreement the Company will issue to Livingston Asset Management Convertible Fee Notes having principal of $12,500, interest
of 10% per annum, maturity of six or seven months. The notes are convertible into common shares at a discount of 50% to the lowest
bid price in the 30 trading days immediately preceding the notice of conversion. The Company has accounted for the convertible
promissory note as stock settled debt under ASC 480 and recorded a debt premium of $12,500 with a charge to interest expense for
each note. As of March 31, 2019 the following notes had been issued, of which the June1, July 1 August 1, and September 1, 2018
notes were fully converted by March 31, 2019: June
1, 2018, $12,500 principal, maturing December 31, 2018 – fully converted; July
1, 2018, $12,500 principal, maturing January 31, 2019 – fully converted; August
1, 2018, $12,500 principal maturing January 31, 2019 fully converted; September
1, 2018, $12,500 principal, maturing February 28, 2019; fully converted; October
1, 2018, $12,500 principal, maturing March 31, 2019; November
1, 2018, $12,500 principal, maturing April 30, 2019; December
1, 2018, $12,500 principal, maturing May 31, 2019; January
1, 2019, $12,500 principal, maturing June 30, 2019; February
1, 2019, $12,500 principal, maturing July 31, 2019; and March
1, 2019, $12,500 principal, maturing August 31, 2019. The
notes were charged to professional fees for each corresponding service month. The Company has accounted for each of the Convertible
Fee Notes as stock settled debt under ASC 480 and recorded a debt premium of $12,500 each with a charge to interest expense. On
August 29, 2018 the Company entered into an agreement with a legal firm to provide securities related and other legal services.
Under the agreement the Company will issue convertible notes with varying principal amounts for services. The first note was issued
on August 29, 2018 for $6,000, interest of 12%, and maturity date of February 28, 2018. The conversion feature allows for conversion
into common shares at the lesser of: a) 70% of the share price on the date of the note; or b) 50% of the lowest bid price during
the 30 trading days preceding the date of the notice of conversion. In connection with the issuance of this Note, the Company
determined that the terms of the Note contain a conversion formula that caused variations in the conversion price resulting in
the treatment of the conversion option as a bifurcated derivative to be accounted for at fair value. Accordingly, under the provisions
of FASB ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”, the embedded
conversion option contained in the convertible instruments were accounted for as derivative liabilities at the date of issuance
and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option
derivatives were determined using the Binomial valuation model. $10,435 was recognized as derivative liability with $6,000 charged
to debt discount and $4,035 charged to derivative expense on issuance. The debt discount of $6,000 will be amortized to interest
expense to the maturity date of the note. At March 31, 2019 the derivative fair value was determined to have decreased to $8,881.
As the note reached its maturity date no further fair value adjustments will be recorded. For the six months ended March 31, 2019,
$5,000, balance of the debt discount was charged to interest expense and debt discount balances was $0. On
September 4, 2018 and September 18, 2018 the Company issued additional convertible notes of $10,000 and $6,000 respectively for
legal services to the same legal firm. The notes have 6 month maturities and 12% interest rates. The notes are convertible into
common shares at a discount of 50% to the lowest bid price in the 30 trading days immediately preceding the notice of conversion.
The Company has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded debt premiums of
$10,000 and $6,000 with a charge to interest expense for the notes. The notes were charged to professional fees during the month
the notes were issued. On
October 18, 2018 the Company issued a convertible promissory note to an attorney for services in the amount of $6,000. The note
bears interest at 12%, matures in six months and is convertible into the Company’s common stock at 50% of the lowest closing
bid price on the 30 trading days immediately preceding the notice of conversion. The Company has accounted for the convertible
promissory note as stock settled debt under ASC 480 and recorded debt premium $6,000 with a charge to interest expense for the
notes. The note was charged to professional fees during the month the note was issued. On
November 18, 2018 the Company issued a convertible promissory note to an attorney for services in the amount of $6,000. The note
bears interest at 12% and is convertible into the Company’s common stock at 50% of the lowest closing bid price on the 30
trading days immediately preceding the notice of conversion. The Company has accounted for the convertible promissory note as
stock settled debt under ASC 480 and recorded debt premium $6,000 with a charge to interest expense for the notes. The note was
charged to professional fees during the month the note was issued. On
November 13, 2018, the Company issued a convertible promissory note for $90,000 to a vendor in settlement of past due amounts
due for services. The note bears interest at 5%, matures on June 30, 2019 and is convertible into the Company’s common stock
at 50% of the lowest closing bid price during the 20 trading days immediately preceding the notice of conversion. The Company
has accounted for the convertible promissory note as stock settled debt under ASC 480 and recorded debt premium $90,000 with a
charge to interest expense for the notes. The original amount payable was reduced by $90,000 on the date the note was issued. On
December 18, 2018 the Company issued a convertible promissory note to an attorney for services in the amount of $6,000. The note
bears interest at 12% and is convertible into the Company’s common stock at 50% of the lowest closing bid price on the 30
trading days immediately preceding the notice of conversion. The Company has accounted for the convertible promissory note as
stock settled debt under ASC 480 and recorded debt premium $6,000 with a charge to interest expense for the notes. The note was
charged to professional fees during the month the note was issued. On
January 18, 2019 the Company issued a convertible promissory note to an attorney for services in the amount of $6,000. The note
bears interest at 12%, matures in six months and is convertible into the Company’s common stock at 50% of the lowest closing
bid price on the 30 trading days immediately preceding the notice of conversion. The Company has accounted for the convertible
promissory note as stock settled debt under ASC 480 and recorded debt premium $6,000 with a charge to interest expense for the
notes. The note was charged to professional fees during the month the note was issued. On
February 18, 2019 the Company issued a convertible promissory note to an attorney for services in the amount of $6,000. The note
bears interest at 12%, matures in six months and is convertible into the Company’s common stock at 50% of the lowest closing
bid price on the 30 trading days immediately preceding the notice of conversion. The Company has accounted for the convertible
promissory note as stock settled debt under ASC 480 and recorded debt premium $6,000 with a charge to interest expense for the
notes. The note was charged to professional fees during the month the note was issued. On
March 18, 2019 the Company issued a convertible promissory note to an attorney for services in the amount of $6,000. The note
bears interest at 12%, matures in six months and is convertible into the Company’s common stock at 50% of the lowest closing
bid price on the 30 trading days immediately preceding the notice of conversion. The Company has accounted for the convertible
promissory note as stock settled debt under ASC 480 and recorded debt premium $6,000 with a charge to interest expense for the
notes. The note was charged to professional fees during the month the note was issued. On
March 4, 2019, the Company issued a convertible promissory note to Redstart Holdings Corporation in the amount of $78,000. The
note bears interest at 10%, matures on December 31, 2019, includes legal fees of $3,000 and is convertible at 35% discount to
the average of the lowest two prices observed in the 15 days prior to the issuance of a conversion notice. The Company has accounted
for the convertible promissory note as stock settled debt under ASC 480 and recorded debt premium $42,000 with a charge to interest
expense for the notes. The fees charged were treated as debt discount and will be amortized to financing expenses over the term
of the note. Accrued interest was $513, and unamortized debt discount was $2,700, at March 31, 2019. Note
Amendments, Assignments and Restatements On
October 17, 2018 Porta Pellex assigned $62,500 of the principal balance of its note to Trillium Partners LP along with $7,500
of accrued interest, leaving an unpaid balance of $62,500 plus accrued interest on Porta Pellex’s original note. The assigned
portion of the note was restated to provide for conversion of interest and principal into common shares at 50% discount to the
lowest bid price over the 20 trading days prior to conversion notification. This modification was treated as a debt extinguishment.
The modified note was treated as stock settled debt in accordance with ASC 480 and $62,500 was recorded as put premium with a
charge to interest expense for the assigned and restated note. The Trillium Partners LP note principal and accrued interest was
fully converted into 115,668,621 common stock by November 27, 2018. On
October 23, 2018 Porta Pellex assigned $62,500 of the remaining principal balance of its note to Jefferson Street Capital LLC
along with $7,500 of accrued interest. The assigned portion of the note was restated to provide for conversion of interest and
principal into common shares at the lower of: 50% discount to the lowest bid price over the 20 trading days prior to conversion
notification; or 50% of the lowest bid price during the 20 trading days prior to the closing date of the related assignment. This
modification was treated as a debt extinguishment. In connection with the issuance of this Note, the Company determined that the
terms of the modified Note contain a conversion formula that caused variations in the conversion price resulting in the treatment
of the conversion option as a bifurcated derivative to be accounted for at fair value. Accordingly, under the provisions of FASB
ASC Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”, the embedded conversion
option contained in the convertible instruments were accounted for as derivative liabilities at the date of assignment and shall
be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option derivatives
were determined using the Binomial valuation model. In connection with this Note, on the initial measurement date of October 23,
2018, the fair values of the embedded conversion option derivative of $78,471 was recorded as derivative liabilities, $15,971
was charged to current period operations as initial derivative expense, and $62,500 was recorded as a debt discount and is being
amortized into interest expense over the expected holding period of the restated note. The Jefferson Street Capital LLLC note
principal and accrued interest was fully converted into 128,619,959 shares of common stock by December 5, 2018. A net loss on
debt extinguishment of $14,057 was recorded during the six months ended March 31, 2019. The
senior secured credit facility note balance and convertible debt balances consisted of the following at March 31, 2019 and September
30, 2018:
March 31, September 30,
Principal $ 6,099,892 $ 5,568,566
Premiums 1,516,070 1,380,175
Unamortized discounts (7,283 ) (5,00 |
