11.	Convertible NOTES PAYABLE

April 4, 2019,

the Company issued a

$550,000

secured convertible debenture which had a maturity date of

November 15, 2019

and was convertible into common stock at a conversion price of

$1.50

per share. The note was redeemable at any time by payment of a premium to the principal balance starting at

and increasing to

25%.

The note was issued at approximately

(

$40,000

) original issue discount. Subject to the mutual agreement of the Company and the investor, the Company could issue

two

additional

$550,000

principal amount notes on the same terms after

day intervals from the prior issuance, for additional net proceeds of

$1,020,000.

The convertible note contained anti-dilution protections if the Company issued shares of common stock for less than the conversion price. The convertible note was secured by substantially all the assets of the Company. At the closing, the Company issued

80,000

shares of common stock in payment of a

$120,000

commitment fee and was obligated to issue

10,000

shares of common stock monthly in payment of a monthly commitment fee of

$15,000

until the earlier of

November 1, 2019

or the repayment or conversion of the note.

June 14, 2019,

the Company issued a

$157,000

secured

10%

convertible redeemable note which had a maturity date of

November 14, 2019

and was convertible into common stock at a conversion price of

$1.50

per share. The convertible redeemable note contained anti-dilution protections if the Company offered a conversion discount or other more favorable conversion terms while the note was outstanding. The note was redeemable within the

first

five

months by payment of a premium to the principal balance starting at

10%

and increasing to

30%

of principal plus interest. At the closing, the Company agreed to issue

200,000

shares of common stock in lieu of payment of a

$30,000

commitment fee which would be reduced to

20,000

shares if the note was repaid prior to the maturity date.

Both notes were repaid in full on

July 10, 2019.

For the

two

notes issued during the

second

quarter of

2019,

the Company agreed to issue a total of

310,000

shares of common stock, amounting to

$465,000

in commitment fees. Of these amounts,

$195,000

was recorded as an offset to notes payable – debt issuance costs and was amortized over the life of the loan. The reduction of the commitment fee in amount of

$270,000

(

180,000

shares) was recorded as a reduction in additional paid in capital and the shares were returned to the Company on

July 10, 2019.

The Company also incurred

$17,000

of legal fees withheld from proceeds which was also recorded as an offset to notes payable – debt issuance costs and was amortized over the life of the loan. Amortization of the debt issuance costs and debt discount are included in interest expense on the statement of operations.

Securities Purchase Agreement dated

July 10, 2019

July 10, 2019,

the Company issued a

$3,060,000

principal amount senior secured convertible note (the “Note”). At closing, a total of

$2,550,000

was funded. The original issue discount was

$510,000.

The principal amount due of the Note is due and payable as follows:

$918,000

is due

180

days after funding,

$1,071,000

is due

270

days after funding, and the remaining balance is due

months after the date of funding. Upon the occurrence of standard and customary events of default and expiration of any applicable cure periods, repayment of the outstanding principal amount due under the Note is subject to acceleration in the discretion of the Investor in which event, interest will accrue at the higher of

18%

per annum or the maximum amount permitted by applicable law and the Company will become obligated to pay an amount equal to

20%

of the then outstanding principal amount due under the Note.

The Note is secured by a lien on substantially all of the Company’s assets and properties and is convertible at the option of the Investor into shares of common stock at a fixed conversion price of

$1.50

per share. The Company has the right to prepay the Note in full at any time without penalty in which event, the Investor will have the option of converting

25%

of the outstanding principal amount of the Note into shares of common stock.

In connection with the closing, the Company issued a

five

year warrant to the Investor to purchase

2,000,000

shares of common stock at a fixed exercise price of

$1.50

per share, paid a

$50,000

commitment fee, and issued

266,667

shares of common stock in payment of a

$400,000

due diligence fee. The Company also paid banker fees of

$193,500

and legal fees of

$71,330.

The valuation of the warrant of

$595,662

was recorded to debt discount and is amortized over the life of the Note. The fees associated with the agreement were allocated to debt issuance costs and additional paid-in capital based on the respective ratio of the valuation of the note and warrant. Amortization of the debt issuance costs and debt discount are included in interest expense on the statement of operations.

Until the

second

anniversary of the closing, the Investor has the right to purchase up to

20%

of the securities the Company issues in any future private placement, subject to certain exceptions for, among other things, strategic investments.

Secured convertible note payable, net of unamortized debt discount and debt issuance costs at

September 30, 2019

consisted of:

Principal amount	$	3,060,000
Less unamortized debt discount		(856,888	)
Less unamortized debt issuance costs		(343,477	)
Notes payable, net of unamortized debt discount and debt issuance costs	$	1,859,635