NOTE

– CONVERTIBLE DEBT AND DERIVATIVE LIABILITY

Bridge Loan

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 was due on

September 28, 2019.

Effective

September 27, 2019,

the bridge loan of

one

investor was paid in full. Also, effective

September 27, 2019,

the due date of the bridge loan of the other investor was extended to

December 31, 2019

in exchange for

$120,000

increase in the principal balance and

15,000

shares of the Company’s common stock. In the

third

quarter, the remaining investor converted

$100,000

of the principal balance and received

26,573

shares of the Company’s common stock. The outstanding principal balance of the bridge loan as of

September 30, 2019

was

$1,878,295.

The bridge loan accrues interest at a rate of

per annum. 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 factor that is the lesser of a discounted

trading 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 (a) the total number of conversion shares plus (b) the number of inducement shares is limited to an aggregate

267,833

shares.

Promissory Note

Effective

September 27, 2019,

the Company issued a promissory note with a principal amount of

$847,500

in exchange for an investment of

$700,000.

The note is due on

March 27, 2020.

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 investment, the Company issued an aggregate

8,858

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

$6.210

per share. The warrant is 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.

Derivative Liability

Management has concluded the 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 balance sheet. The embedded derivative’s value was determined using discounted stock price 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 gain in other expenses on the statements of net loss for the corresponding change in fair value of

$84,627

for the

nine

-month period ended

September 30, 2019.

The fair value of the derivative liability as of

September 30, 2019

was

$188,118.

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

nine

-month period ended

September 30, 2019.

Derivative Liability Balance at December 31, 2018				Derivative Instrument Issued				Gain Recognized to Revalue Derivative Instrument at Fair Value				Adjustments to Derivative Liability for Warrants Issued				Derivative Liability Balance at September 30, 2019
$	272,745				69,722				(84,627	)			(47,078	)		$	210,762