(

)

Convertible Notes

May 2015,

BioCardia Lifesciences entered into note agreements with various stockholders of BioCardia Lifesciences and other lenders for a total of

$7.2

million, or the

2015

Notes. The

2015

Notes accrued

annual simple interest, matured

months from the issue date and were callable after the maturity date by written demand of a majority of the holders of the outstanding note principle. If BioCardia Lifesciences closed an effective registration statement filed under the Securities Act of

1933,

as amended, covering the sale of BioCardia Lifesciences common stock (an IPO) prior to maturity, the outstanding principle and accrued interest would have automatically converted into shares of common stock at

80%

of the price of the shares of common stock purchased in the IPO. If at any time prior to the maturity date, the Company closed a private placement of the Company’s preferred stock for aggregate sales proceeds of at least

$5.0

million excluding note conversions, at the note holder’s option, or the Optional Conversion Right, the outstanding principle and interest

may

have been converted into shares of the preferred stock at a conversion price equal to

80%

of the price of the preferred shares sold in such financing, plus preferred stock warrant coverage equal to

with an exercise price equal to the purchase price of the preferred stock sold in such financing. If the notes were held to maturity, subject to BioCardia Lifesciences authorizing sufficient shares of a new class of preferred stock, or the Maturity Date Preferred Stock, the holder would have had the option to convert the outstanding principle and interest to this new class of Maturity Date Preferred Stock at an exercise price of

$0.07

per share, plus

warrant coverage.

August 2016,

the Company and the holders of the

2015

Notes amended the

2015

Notes, pursuant to which the outstanding principal amount and all accrued interest through

August 31, 2016

automatically converted into shares of BioCardia Lifesciences common stock at

80%

of the conversion price of the convertible notes issued in

October 2016.

In addition, the amendment eliminated the payment of interest for the period subsequent to

August 31, 2016,

and through the date of the closing of the Merger. Upon the completion of the Merger, the

2015

Notes and accrued interest converted into shares of BioCardia Lifesciences common stock, which were then exchanged at the Exchange Ratio into

67,443,988

shares of the Company’s common stock.

The

2015

Notes had redemption features that were determined to be a compound embedded derivative requiring bifurcation and separate accounting at estimated fair value. The changes in the estimated value are reflected in the change in fair value of convertible shareholder notes derivative liability in the consolidated statements of operations. We estimated the fair value of the compound embedded derivative utilizing a Monte Carlo simulation model. The inputs used to determine the estimated fair value of the compound embedded derivative instrument include the probability of an underlying event triggering the redemption event and its timing prior to the maturity date of the

2015

Notes. The fair value measurement is based upon significant inputs

not

observable in the market. These assumptions are inherently subjective and involve significant management judgment. Immediately prior to the closing of the Merger, the compound embedded derivative was remeasured based on the settlement value of the common stock exchanged for the notes, and we reclassified the balance of the convertible shareholder notes derivative liability to additional paid-in capital.

The Company recognized interest expense, including amortization of the debt discount of approximately

and

$557,000

for the

three

months ended

June 30, 2017

and

2016,

respectively, and approximately

and

$1.1

million for the

six

months ended

June 30, 2017

and

2016,

respectively.