Annual report pursuant to Section 13 and 15(d)

Subordinated Notes - Related Parties

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Subordinated Notes - Related Parties
12 Months Ended
Dec. 31, 2018
Subordinated Notes - Related Parties  
SUBORDINATED NOTES - RELATED PARTIES

5 — SUBORDINATED NOTES — RELATED PARTIES

 

On November 20, 2017, the Company entered into subordinated notes (the "Subordinated Notes"), subordinate to the Senior Secured Bridge Note, with certain insiders, including Directors and a Consultant, (the "Subordinated Holders") in the aggregate principal amount of $115,000, of which $100,000 was received as proceeds and $15,000 was recorded as original issue discount. In the event of default, the full principal amount of $115,000 plus accrued interest would be immediately due and payable to the Subordinated Holder; in addition, interest on the outstanding principal and accrued interest would increase to 15% and $25,000 would be due and payable to Subordinated Holder for every calendar month the note is in default until full payment were made. Because the default provisions required payment of significant penalties in the case of a default event (greater than 10% of the principal), the default provision was determined to be a derivative instrument. In addition, upon repayment, the Subordinated Holders were to receive warrants to purchase shares of the Company's common stock in the amount equal to the principal of the Subordinated Notes and at an exercise price per share equal to 100% of the IPO price. The warrants were to provide for a cashless exercise and were to be exercisable nine months from issue date.

 

On February 22, 2018 the Subordinated Holders settled the Subordinated Notes for newly issued Senior Secured Notes in the principal amount of $100,000, in full and complete satisfaction of the all obligations, including the principal sum of the Subordinated Notes, all accrued and unpaid interest thereon, and warrant issuance obligations. As a result of this settlement, the Company realized a gain of $12,241. As a result of the settlement of these securities for newly issued Secured Notes, no stock or warrants were issued as a result of these provisions of the Subordinated Notes.

 

For the years ended December 31, 2018 and 2017, interest expense on the notes was $4,637 and $3,518, respectively.