NOTE

– NOTES PAYABLE

The balances of notes payable were as follows:

	Due Date	March 31, 2020		December 31, 2019
Bridge loan	June 28, 2020	$	1,721,776	$	1,989,104
Promissory note 2019	June 27, 2020		980,833		680,833
Promissory note 2020 T1	August 5, 2020		490,000		-
Promissory note 2020 T2	September 5, 2020		480,000		-
Short term borrowing	May 26, 2020		-		18,563
Short term borrowing	June 10, 2020		-		147,783
Short term borrowing	June 20, 2020		-		194,943
Short term borrowing	August 12, 2020		196,478		-
Short term borrowing	August 25, 2020		215,526		-
Short term borrowing	September 11, 2020		226,053		-
Dr. Schwartz notes	September 30, 2020		2,115,000		2,115,000
Total Notes Payable, gross			6,425,666		5,146,226
Less: Unamortized discount			493,490		350,426
Total Notes Payable, net		$	5,932,176	$	4,795,800

Bridge Loan

September 2018,

the Company issued convertible secured promissory notes to

two

private investors in the original principal amount of an aggregate

$2,297,727

(the “bridge loan”) in exchange for cash proceeds of

$2,000,000.

As additional consideration for the loan, the Company issued an aggregate

65,000

shares of its common stock as inducement shares plus warrants to acquire up to an aggregate

107,178

shares of common stock at an exercise price of

$11.55

per share. Pursuant to a security agreement between the Company and the investors, the Company granted to the investors a security interest in its assets to secure repayment of the note. The bridge loan accrues interest at a rate of

per annum. In

February 2019,

the Company entered into a forbearance agreement with the bridge loan investors pursuant to which, among other things, the investors agreed to forbear on their rights to accelerate the bridge loan based on an event of default and a claimed event of default. In connection with such forbearance, an additional

$344,659

in principal and an additional

16,667

common shares were issued to the investors. In

September 2019,

the bridge loan of

one

investor was paid in full. On

March 19, 2020,

the Company and the remaining investor agreed to extend the note maturity to

June 28, 2020.

payment penalties of were paid in relation to payments on the bridge loan during the

three

-month period ended

March 31, 2020

and

$430,444

in payment penalties were accrued but

not

paid as of

March 31, 2020.

The outstanding principal balance of the bridge loan as of

March 31, 2020

was

$1,721,776,

with an unamortized discount of

$93,374.

Each investor received the right to convert all or any part of its bridge loan into shares of the Company’s common stock at a conversion factor that is the lesser of a discounted

-day average price or a set price floor. The number of conversion shares that

may

be issued is subject to an exchange cap such that the sum of (

) the total number of conversion shares plus (

) the number of inducement shares is limited to an aggregate

267,833

shares. As of

March 31, 2020,

the maximum number of conversion shares have been issued,

additional shares are available to be issued related to this conversion option. During the

first

three

months of

2020

and

2019,

the investors converted

$267,328

and

$90,000,

respectively of the principal balance and received

170,000

and

15,985

shares of the Company’s common stock, respectively.

Dr. Schwartz Notes

November 2018,

Dr. Schwartz made a loan to the Company with a principal balance of

$370,000.

As of

December 31, 2018,

one

promissory note was held with a principal balance of

$370,000

and an unamortized discount of

$63,028.

From

November 30, 2018

through

July 15, 2019,

Dr. Schwartz made numerous loans to the Company in the total amount of

$1,920,000

under

two

promissory notes. As consideration for these amounts, Dr. Schwartz received promissory notes and warrants to purchase

22,129

shares of the Company’s common stock at

$8.36

per share. Further, beginning on

February 1, 2019

and the

first

day of each calendar month thereafter while the note remained outstanding, a number of additional warrants were issued. Beginning in

October 2019,

the Company and Dr Schwartz began to renegotiate the note. Due to the negotiations, the Company did

not

issue any additional warrants because they would be cancelled under the new deal.

During

January 2020,

the Company entered into an exchange agreement with Dr. Schwartz. Under the exchange agreement, the

two

outstanding notes were cancelled and in exchange a new promissory note in the amount of

$2,115,000

bearing

12%

interest per annum and maturing on

September 30, 2020

was issued. In addition to the promissory note, Dr. Schwartz received

50,000

shares of the Company’s common stock. All warrants issued under the prior promissory notes were cancelled under the exchange agreement;

rights and obligations remain under the cancelled notes. The Company determined that the exchange agreement had, in substance, occurred at

December 31, 2019.

As of

March 31, 2020,

the outstanding principal balance was

$2,115,000.

Effective

April 21, 2020,

the Company and Dr. Schwartz agreed to exchange the total outstanding principal and accrued interest on the note for shares of the Company’s common stock. As a result of the exchange, the principal was classified as non-current as of

March 31, 2020.

See

Note

– Subsequent Events

for further discussion.

Promissory Note

2019

During

September 2019,

the Company issued a promissory note with a principal amount of

$847,500

in exchange for cash proceeds of

$700,000.

Pursuant to a security agreement between the Company and the investor, the Company has granted to the investor a security interest in its assets to secure repayment of the note. As additional consideration for the loan, the Company issued an aggregate

8,857

shares of its common stock to the investor plus warrants to acquire up to

68,237

shares of the Company’s common stock at an exercise price of

$6.21

per share. The warrants are exercisable beginning on the

sixth

month anniversary of the effective date through the

fifth

-year anniversary thereof. The note accrues interest at a rate of

per annum.

March 19, 2020,

the Company entered into an agreement to extend the due date of its outstanding notes payable from

March 27, 2020

and

March 31, 2020

June 27, 2020.

The Company increased the principal amount due on the notes payable by

$300,000

and issued

30,000

shares of its common stock as consideration for the extension. The change in value resulting from the extension exceeded

10%

and as a result the extension was accounted for as an extinguishment under ASC

470,

Debt

. During the

first

quarter of

2020,

the Company incurred a

$300,000

loss on debt extinguishment related to extensions of notes payable.

payment penalties were paid in relation to payments on this promissory note during the

three

-month period ended

March 31, 2020

and

$196,167

in payment penalties were accrued but

not

paid as of

March 31, 2020.

As of

March 31, 2020,

the remaining balance on the promissory note was

$980,833

with an unamortized discount of

$35,750.

Promissory Note

2020

February 5, 2020,

the Company issued a promissory note with a principal amount of

$1,450,000

in exchange for cash proceeds of

$1,200,000.

Distributions of proceeds under the note were to be made in

three

tranches. Net proceeds of

$400,000

were received for the first, second, and

third

tranches on

February 5, 2020,

March 5, 2020,

and

April 5, 2020,

respectively. Pursuant to a security agreement between the Company and the investor, the Company has granted to the investor a security interest in its assets to secure repayment of the note. The note accrues interest at a rate of

per annum. Subject to certain limitations, the outstanding principal amount of the note and interest thereon are convertible at the election of the investor into shares of the Company’s common stock at a conversion price equal to

$2.589.

payment penalties were paid in relation to payments on this promissory note during the

three

-month period ended

March 31, 2020

and

$194,000

in payment penalties were accrued but

not

paid as of

March 31, 2020.

As of

March 31, 2020,

the outstanding balance on the promissory note was

$970,000

with an unamortized discount of

$364,366.

The note contains a conversion feature and a put which were determined to be derivatives and are discussed further below.

As additional consideration, the Company issued to the investor warrants to purchase

94,631

and

92,700

shares of the Company’s common stock at the closing of the

first

and

second

tranches, respectively, and will issue additional warrants to purchase

92,700

shares at the distribution of the

third

tranche. The warrants are exercisable beginning on the

sixth

month anniversary of the issuance date at an exercise price equal

$2.992

per share. The Company also issued

46,875

shares of its common stock to the investor at the closing of the

first

tranche.

Short Term Borrowings

The Company entered into short-term borrowings with an investor. The maturity date of the notes is

six

months after the dates of issuance with interest rates of

payable at maturity. Repayment of such notes is subject to a premium. During the

three

-month period ended

March 31, 2020,

the Company issued short term notes for a total of

$1,098,684

for cash proceeds of

$1,020,000

and repaid

$821,816

of principal using a portion of proceeds from the equity financing facility. Payment penalties of

$84,898

were paid in relation to payments on these short-term borrowings during the

three

-month period ended

March 31, 2020

and an additional

$160,380

in payment penalties were accrued but

not

paid as of

March 31, 2020.

The total amount outstanding under the short-term borrowings as of

March 31, 2020

was

$638,057.

Derivative Liabilities

Management concluded the

September 2018

bridge loan contains a conversion feature which is an embedded derivative that is required to be bifurcated and separately presented as a liability on the consolidated balance sheets. The embedded derivative’s value was determined using the discounted stock price for the

-trading days preceding the balance sheet date and the assumption of conversion on that date, as management believed it was probable that the notes would be convertible based on management’s expectation that additional financing would be required. During the

three

months ended

March 31, 2020,

the maximum number of conversions was reached. The Company recognized an unrealized gain or (loss) in Other Income on the condensed consolidated statements of net loss for the corresponding change in fair value of

$50,989

and (

$19,408

) for the

three

-month periods ended

March 31, 2020

and

March 31, 2019,

respectively. The fair value of the derivative liability related to the bridge loan was

zero

as of

March 31, 2020

and

$50,989

as of

December 31, 2019.

May 21, 2019,

the Company issued a common stock purchase warrant to Dr. Schwartz for value received in connection with the First Note. Beginning on

February 1, 2019

and the

first

day of each calendar month thereafter while the First Note and associated warrants remained outstanding, a number of additional shares were added to the warrant. The Company accounted for the liability to issue more warrants as a derivative liability as the exact number of warrants to be issued was uncertain at the time of the agreement. The Company issued

5,753

warrants to Dr. Schwartz under the agreement in

2019.

The remaining derivative liability of

$22,644

was reduced to

zero

as of

December 31, 2019,

due to the exchange agreement in

January 2020,

which eliminated the issuance of any future warrants and voided all previously issued warrants related to these notes.

Management concluded the Promissory Note

2020

contains a conversion feature and a put each of which is an embedded derivative that are generally require bifurcation. In accordance with ASC

815,

Derivatives and Hedging

, the Company combined these

two

embedded derivatives into a single derivative and determined the fair value to record within the derivative liability on the condensed consolidated balance sheet. At inception, the fair value of the derivative liability was

$68,796

and

$52,125

for the

first

and

second

tranches, respectively. During the

three

months ended

March 31, 2020,

the Company recognized a gain on the change in the fair value of the derivative liability. As of

March 31, 2020,

the fair value of the derivative liability was

$17,256

and

$17,824

for the

first

and

second

tranches, respectively.

Management concluded the A, B and agent warrants issued in connection with the

March 2020

Private Placement discussed below are a derivative liability due to certain features of the warrants which could, in certain circumstances, result in the holder receiving the Black Scholes value of the outstanding warrants in the same type of consideration as the common stockholders. As a result, in those circumstances, the amount of consideration would differ from that provided to holders of common stock, therefore, the warrants have been classified as a liability. At inception, the A, B and agent warrants had a fair value of

$2,669,995.

As of

March 31, 2020,

the fair value of the A, B and agent warrants was determined to be

$2,779,718

and the Company recorded a loss on the change in fair value of

$109,723

during the

three

months ended

March 31, 2020.

The table below discloses changes in value of the Company’s embedded derivative liabilities:

Derivative liability balance at December 31, 2019	$	50,989
Derivative instrument recognized for A, B and Agent Warrants		2,669,995
Derivative instrument related to Promissory Note 2020		120,921
Gain recognized to revalue derivative instrument at fair value		(27,107)
Derivative liability balance at March 31, 2020	$	2,814,798

Other expense

Other expense consisted primarily of interest expense, payment penalties, amortization of original issue discounts, and loss on debt extinguishment related to our notes payable. The Company recognized other expense of

$1,117,075

in the

three

months ended

March 31, 2020

compared to

$569,776

in the comparable period in

2019.