CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

6 Months Ended

Mar. 31, 2025

CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

6. CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE

Convertible notes payable as of March 31, 2025 and September 30, 2024 are summarized below:

	March 31, 2025		September 30, 2024
Convertible note- Clayton A. Struve	$	1,595,000	$	1,301,005
Convertible note- Ronald P. Erickson and affiliates		1,879,515		1,460,926
Convertible note - 1800 Diagonal Lending LLC		232,118		-
Lind Global Fund II LP		1,259,432		1,961,575
	$	4,966,065	$	4,723,506
Long term	$	-	$	407,522
Short term - third party		3,086,550		1,554,053
Short term - related party		1,879,515		2,761,931
	$	4,966,065	$	4,723,506

Convertible Promissory Notes with Clayton A. Struve

The Company owes Clayton A. Struve, a significant stockholder, $1,595,000 under convertible promissory or OID notes. The Company recorded accrued interest of $105,322 and $101,852 as of March 31, 2025 and September 30, 2024, respectively. On September 15, 2023, the due dates on the notes were extended to September 30, 2024. The Company expensed $230,005 as loss on debt extinguishment during the three months ended December 31, 2023 related to the extension of the notes. On December 17, 2024, the due dates on the notes were further extended to September 30, 2025. The Company expensed $302,823 as loss on debt extinguishment during the six months ended March 31, 2025 related to the extension of the notes.

The Company recorded in convertible note payable the incremental value related to the conversion feature and as such, we recorded the extension value as an expense with an offset to convertible note payable. The extension value will be reclassified to equity upon conversion. The Company is currently working on a further extension for the notes.

Pursuant to their terms, the Convertible Promissory Notes are subject to repricing.

Convertible Redeemable Promissory Notes with J3E2A2Z – Related Party

The Company owes Ronald P. Erickson and J3E2A2Z, an entity affiliated and controlled by Ronald P. Erickson owed $1,879,515 under convertible promissory notes. On March 16, 2018, the Company entered into a Note and Account Payable Conversion Agreement pursuant to which (a) all $664,233 currently owing under the J3E2A2Z Notes was converted to a Convertible Redeemable Promissory Note in the principal amount of $664,233, and (b) all $519,833 of the J3E2A2Z Account Payable was converted into a Convertible Redeemable Promissory Note in the principal amount of $519,833 together with a warrant to purchase up to 47,367 shares of our common stock for a period of five years. The initial exercise price of the warrants described above was $20.00 per share, also subject to certain adjustments. The Company recorded accrued interest of $113,443 as of March 31, 2025.

On September 15, 2023, the due dates on the notes were extended to September 30, 2024. The Company expensed $276,860 as interest during the six months ended December 31, 2023 related to the extension of the notes. The Company recorded in convertible note payable the incremental value related to the conversion feature and as such, we recorded the extension value as an expense with an offset to convertible note payable. The extension value will be amortized to equity upon conversion.

On October 22, 2024, the due dates on the notes were further extended to September 30, 2025 and increased the interest rate from 6% to 8%. The Company expensed $425,475 as interest during the six months ended March 31, 2025 related to the extension of the notes. The Company recorded in convertible note payable the incremental value related to the conversion feature and as such, we recorded the extension value as an expense with an offset to convertible note payable. The extension value will be amortized to equity upon conversion.

On December 12, 2024, the Company sold units consisting of shares of common stock and warrants at $9.60 per unit, resulting in a down round triggering event lowering the conversion price of the Convertible Promissory Notes with Clayton A. Struve, Ronald P. Erickson and J3E2A2Z to that value. Upon the occurrence of the triggering event that resulted in a reduction of the strike price, the Company measured the value of the effect of the conversion feature as the difference between the fair value of the convertible promissory notes without the down round feature or before the strike price reduction and the fair value of the convertible promissory notes with a strike price corresponding to the reduced strike price upon the down round feature being triggered. Accordingly, the Company recognized a debt discount of $29,683 during the six months ended March 31, 2025 with a corresponding increase to additional paid in capital. The debt discount will be amortized over the remaining term of the convertible promissory notes.

Pursuant to their terms, the Convertible Promissory Notes are subject to repricing.

Senior Convertible Note with Lind Global Fund II, LP

On February 27, 2024, the Company (a) entered into a securities purchase agreement (the “Lind Purchase Agreement”) with Lind Global Fund II, LP (“Lind”), pursuant to which the Company may issue Lind one or more senior convertible notes the aggregate principal amount of up to $14,400,000 for an aggregate purchase price equal to up to $12,000,000 and warrants to purchase a number of shares equal to the applicable funding amount multiplied by 75% and divided by the volume weighted average price of the common stock on the trading date immediately preceding the issuance date of the warrant and (b) issued to Lind an initial convertible note with an outstanding principal amount of $4,800,000 in exchange for a purchase price of $4,000,000, that is convertible into shares of our common stock at an adjusted conversion price of $9.60 per share, subject to adjustment, and an initial five year warrant to purchase up to 150,000 shares of our common stock at an adjusted exercise price of $9.60 per share, subject to adjustment.

The convertible notes issued under the Lind Purchase Agreement bearing an Original Issue Discount (the “OID”) equal to 20% of the principal amount of the note and do not accrue interest. Beginning on the date that is 120 days from the issuance date of each note and on each one month anniversary thereafter for 20 months, the Company is obligated to pay to Lind an amount equal to the greater of (x) 5% of the aggregate principal amount of such note or (y) $240,000, until the outstanding principal amount of such note has been paid in full prior to or on its maturity date or, if earlier, upon acceleration, conversion or redemption of such note in accordance with the terms. At the Company’s discretion, the monthly payments may be made in cash, in shares of our common stock, or in a combination of cash and shares. If made in shares, the number of shares shall be determined by dividing (x) the principal amount being paid in shares by (y) 90% of the average of the 3 lowest daily VWAPs during the 20 trading days prior to the applicable payment date. The notes set forth certain conditions that must be satisfied before we may make any monthly payments in shares of common stock. If the Company makes a monthly payment in cash, we must also pay Lind a cash premium of 5% of such monthly payment. Lind may elect with respect to no more than two (2) monthly payments to increase the amount of such monthly payment up to $750,000 which increase would be paid only in shares of our common stock upon notice by us. Any such increased payment shall be deducted from the amount of the last monthly payment owed under the note.

Issuance of note shares and warrant shares upon repayment or conversion of notes and exercise of warrants is subject to an ownership limitation equal to 4.99% of our outstanding shares of common stock; provided, that if Lind and its affiliates beneficially own in excess of 4.99% of our outstanding shares of common stock, then such limitation shall automatically increase to 9.99% so long as Lind and its affiliates own in excess of 4.99% of such common stock (and shall, for the avoidance of doubt,

Upon the occurrence of any event of default, the notes will become immediately due and payable and the Company must pay Lind an amount equal to 120% of the then outstanding principal amount of each Note, in addition to any other remedies under the note or the other transaction documents. Events of default include, among others, the Company’s failure to make any note payment when due, a default in any indebtedness or adverse judgements in excess of $250,000, our failure to instruct its transfer agent to issue unlegended certificates, the Company’s shares of common stock no longer being public traded or listed on a national securities exchange, any stop order or trading suspension restricting the trading in our common stock, and our market capitalization is below $15 million for consecutive 10 days. On January 29, 2025, NYSE American publicly announced and provided a notice to the Company that the NYSE Regulation has suspended trading of, and determined to commence proceedings to delist, the Company’s common stock from NYSE American. NYSE Regulation has determined that the Company is no longer suitable for listing pursuant to Section 1003(f)(v) of the Company Guide due to the low selling price of the Common Stock. The Company recorded a one-time default penalty of $624,000 and $124,600 of interest expense during the six months ended March 31, 2025.

The warrant may be exercised via cashless exercise in the event there is no effective registration statement covering the shares of common stock underlying a warrant exercise.

Pursuant to the terms of the securities purchase agreement, if at any time prior to a date that is 24 months following the closing of the offering, the Company proposes to offer or sell any additional securities in a subsequent financing, the Company shall first offer Lind the opportunity to purchase up to 20% of such new securities.

The Company received net proceeds of $3,805,699 in exchange for the issuance of the $4,800,000 notes and a warrant to purchase 150,000 shares of our common stock. The relative fair value of the 150,000 warrant shares was $2,110,731 on the date of issuance of which $1,673,502 was classified in equity after the allocation of issuance costs. The value of the warrant shares was recorded as debt discount (with an offset to APIC) and will be amortized over the two-year term of the Note.

In connection with this securities purchase agreement, the Company incurred approximately $994,000 of issuance costs of which $557,000 were allocated to the note and $437,000 to the warrant shares. The amount allocated to the notes was recorded as debt discount (with an offset to APIC) and will be amortized over the two-year term of the notes.

The Company recorded $665,123 and $100,029 of amortization of debt issuance costs during the six months ended March 31, 2025 and 2024 related to this security purchase agreement.

During the six months ended March 31, 2025, the Company issued 428,573 shares of our common stock at $1.74 per share related to a principal payment of convertible debt settled with a common stock issuance for a total value of $746,001. During the six months ended March 31, 2025, the Company made principal payments of $480,000 and interest payments of $24,000.

On December 12, 2024, the Company sold units consisting of shares of common stock and warrants at $9.60 per unit, resulting in a down-round triggering event lowering the conversion price of the Senior Convertible Note with Lind to that value. Upon the occurrence of the triggering event that resulted in a reduction of the strike price, the Company measured the value of the effect of the conversion feature as the difference between the fair value of the convertible promissory notes without the down round feature or before the strike price reduction and the fair value of the convertible promissory notes with a strike price corresponding to the reduced strike price upon the down round feature being triggered. Accordingly, the Company recognized a debt discount of $1,039,281 during the six months ended March 31, 2025 with a corresponding increase to additional paid in capital. The debt discount will be amortized over the remaining term of the convertible promissory notes. The Company recorded $274,015 as interest expense during the six months ended March 31, 2025 related to the amortization of the debt discount.

The warrants issued to Lind had similar down-round protection features as the Senior Convertible Note. Upon the occurrence of the triggering event that resulted in a reduction of the strike price, the Company measured the value of the effect of the feature as the difference between the fair value of the warrants without the down round feature or before the strike price reduction and the fair value of the warrants with a strike price corresponding to the reduced strike price upon the down round feature being triggered. Accordingly, the Company recognized interest expense of $233,644 during the six months ended March 31, 2025.

Pursuant to their terms, the Convertible Promissory Notes are subject to repricing.

Promissory Note with 1800 Diagonal Lending LLC

On February 28, 2025, the Company entered into a Promissory Note with 1800 Diagonal Lending LLC, pursuant to which the Company issued a Promissory Note for $236,900 and received $200,000. The Note has a payoff balance of $265,328 The Company incurred expenses of $6,000, incurred an original interest discount of $30,000 and an interest expense of $28,428. The Promissory Note in unsecured and matures in December 2025.