Quarterly report pursuant to Section 13 or 15(d)

Convertible Notes

Convertible Notes
6 Months Ended
Jun. 30, 2018
Debt Disclosure [Abstract]  



In September and December, 2016, the Company issued convertible notes (the “2016 Convertible Notes”) with an outstanding unsecured principal amount of $235,000 to its members, including Directors and Officers. The principal and interest is due in 2029, and the 2016 Convertible Notes bear interest at a rate of 15% per annum.


The 2016 Convertible Notes were to automatically convert to common stock in the event the Company issued and sold either common or preferred stock of $2,000,000 or more, excluding the value of the conversion of these notes. The conversion price would be either one third the price offered during the financing round that triggers the conversion, or the price obtained by dividing $2,000,000 by the Company’s fully-diluted capitalization at the time of the financing round that triggers the conversion (the “Conversion Cap Price”), whichever were lower. In the event that the Company or its assets were acquired prior to the closing of a financing round of $2,000,000 or more, the outstanding principal and accrued interest of the notes were to automatically convert to the same instruments offered in the financing round. The conversion would be equal to the Conversion Cap Price at the time of the event. Upon maturity of the Convertible Notes, the holder might elect to convert the Convertible Notes into common stock as if a sale of the Company had occurred on the maturity date. A default was defined as non-payment, default in a covenant of the Convertible Notes, bankruptcy or involuntary petition for bankruptcy against the Company. In addition, repayment of the Convertible Notes due to an event of default, as defined in the convertible promissory note agreement, required an accelerated payment of three times the outstanding principal and accrued interest. These default payment provisions were determined to be a derivative instrument. Refer to Note 6.


Convertible notes, held by Directors and Officers of the Company, totaled $132,854 in principal at June 30, 2018 and December 31, 2017.


The interest expense on these notes was $22,525 and $39,325 for the six months ended June 30, 2018 and year ended December 31, 2017, respectively.


On July 31, 2018, as a result of the completion of the IPO and as required under the terms of the convertible notes, the outstanding principal and accrued interest was converted at the Conversion Cap Price to 700,854 Units. These units were issued to the note holders, fully satisfying the Company’s obligations with respect to the convertible notes (see Note 11).