Annual report pursuant to Section 13 and 15(d)

Convertible Notes - Related Parties

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Convertible Notes - Related Parties
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
CONVERTIBLE NOTES - RELATED PARTIES

6 — CONVERTIBLE NOTES — RELATED PARTIES

 

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 was originally due in 2029, and the 2016 Convertible Notes bore 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 the 2016 Convertible 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 2016 Convertible Notes, the holder might elect to convert the 2016 Convertible Notes into common stock as if a sale of the Company had occurred on the maturity date. Repayment of the 2016 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.

 

2016 Convertible Notes, held by Directors and Officers of the Company, totaled $132,854 in principal at December 31, 2017.

 

On July 31, 2018, as a result of the completion of the IPO and as required under the terms of the 2016 Convertible Notes, the outstanding principal and accrued interest on the 2016 Convertible Notes was converted at the Conversion Cap Price to 700,854 shares of common stock and 700,845 warrants to purchase shares of common stock at an exercise price of $6.25 per share, of which 395,118 share of common stock and 395,118 warrants to purchase shares of common stock at an exercise price of $6.25 per share were issued to related parties. At the time of the conversion, the Company recognized a net gain on extinguishment of $752.

 

The total interest expense on these notes in the years ended December 31, 2018 and 2017 was $264,749 and $39,382, respectively.