NOTE

– CONVERTIBLE DEBT AND DERIVATIVE LIABILITY

Effective

September 28, 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”).

The bridge loan accrues interest at a rate of

per annum (with

twelve

months of interest guaranteed). The bridge loan is due on

September 28, 2019.

Upon the earlier to occur of an event of default or the filing of certain registration statements, each investor will have the right at any time thereafter to convert all or any part of its bridge loan into shares of the Company’s common stock at a conversion price which is equal to the lesser of: (i)

$1.00

and (ii)

70%

of the lowest volume-weighted average price (the “VWAP”) of the Company’s common stock during the

-trading day period ending on either the last complete trading day prior to the conversion date, or the conversion date (“Conversion Shares”). The number of Conversion Shares that

may

be issued is subject to an exchange cap such that the sum of (a) the total number of Conversion Shares plus (b) the number of Inducement Shares is limited to an aggregate

2,678,328

shares.

Management has concluded the conversion feature is an embedded derivative that is required to be bifurcated and separately presented as a liability on the balance sheet. The embedded derivative’s value was determined using

70%

of the VWAP for the

trading days preceding the balance sheet date, and assuming conversion on that date as management believed it is probable that the bridge loan will be convertible based on management’s expectation that additional financing will be required. The Company recognized an unrealized loss in other expenses on the statements of net loss for the corresponding change in fair value of

$231,348

for the

six

-month period ended

June 30, 2019.

The fair value of the derivative liability as of

June 30, 2019

was

$504,092.

In the

second

quarter

one

of the bridge loan investors thrice converted a portion of the principal balance of the note. The investor converted

$148,573

from the principal balance and received

398,734

shares of the Company’s common stock. The principal balance remaining for the investor is

$325,278.

The value of the embedded derivative from the bridge loan as well as the derivative included in the note payable agreements with the Company’s CEO (See Note

) were based upon level

inputs – see the Fair Value Caption in Note

The table below discloses all changes in value of those derivative liabilities during the

six

-month period ended

June 30, 2019.

Derivative Liability Balance at December 31, 2018				Derivative Instrument Issued				Loss Recognized to Revalue Derivative Instrument at Fair Value				Adjustments to Derivative Liability for Warrants Issued				Derivative Liability Balance at June 30, 2019
$	272,745				69,722				231,347				32,215			$	541,599