CONVERTIBLE NOTES PAYABLE

9 Months Ended

Sep. 30, 2018

NOTE 7 — CONVERTIBLE NOTES PAYABLE

In connection with the October 9, 2015 Note and Warrant Purchase Agreement, in September 2018, the Company issued convertible promissory notes in aggregate principal amount

of $100,000

(the “Notes”) and warrants (the “Warrants”) to

purchase 40,000

shares of common stock of the Company.

$50,000

of the principal was in connection with an entity that a member of the Company’s board of directors is deemed a beneficial owner (see Note 8). Subject to the agreement, any investor in the October 9, 2015 Purchase Agreement within the three-year period immediately following the initial closing date, may purchase an additional note in the principal amount equal

to 50%

of the principal amount of the initial note purchased by such investor at previous closings and an additional warrant equal to the principal amount of such additional note divided by the exercise price of the additional warrant.

The Notes bore interest at 10% and matured on the earlier of October 9, 2018 or after the occurrence of an event of default (as defined in the Note). In the event of any conversion, all interest was converted into equity and shall not be payable in cash.

Under the terms of the October 9, 2015 Note and Warrant Purchase Agreement, if the Company sells equity securities in a single transaction or series of related transactions for cash of at least $1,000,000 (excluding the conversion of the Notes and excluding the shares of common stock to be issued upon exercise of the warrants) on or before the maturity date, all of the unpaid principal on the Note plus accrued interest shall be automatically converted at the closing of the equity financing into a number of shares of the same class or series of equity securities as are issued and sold by the Company in such equity financing (or a class or series of equity securities identical in all respects to and ranking pari passu with the class or series of equity securities issued and sold in such equity financing) as is determined by dividing (i) the principal and accrued and unpaid interest amount of the Notes by

(ii) 60%

of the price per share at which such equity securities are issued and sold in such equity financing

On October 2, 2018, the Company’s board of directors approved to convert the debt, upon maturity, at $3.75 per share, which is 60% of the price per share at which equity was sold in August 2018 and will be treated as debt extinguishment at conversion.

The Warrants are exercisable at $2.50 per share and expire 5 years following the date of issuance. The Warrants are subject to anti-dilution protection, subject to certain customary exceptions. Effective January 1, 2018, the Company adopted ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480)-see Note 1).

In accordance with Accounting Standards Codification subtopic 470-20, the Company estimated relative fair value of the issued warrants, determined to be

$77,978

and recognized a debt discount

of $100,000

as a credit to additional paid in capital. The Company amortized

$32,430

of the debt discount to current period operations as interest expense for the three and nine months ended September 30, 2018