Quarterly report pursuant to Section 13 or 15(d)

Note 5 - Convertible Notes Payable

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Note 5 - Convertible Notes Payable
9 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
Debt Disclosure [Text Block]
Note
5
- Convertible Notes Payable
 
On
January 18, 2017,
the Board approved a note purchase agreement (the "First Note") allowing the Company to sell an aggregate of
$3,000,000
of convertible bridge notes (the "Notes"). The Notes were convertible into either the Company’s preferred or common stock (depends on the equity securities offered in the equity financing) at
75%
of the price paid per share in a subsequent equity financing where the Company receives gross proceeds of
not
less than
$5,000,000
or at
85%
of the per share price determined by dividing the equity value of the Company that is expected to be available for distribution to the Company’s stockholders by the aggregate number of the Company’s fully-diluted common shares upon the closing of a sale, liquidation, merger, or change of control of the Company. The Notes bore interest at
8.25%
per annum and initially matured on
January 31, 2018,
which date was extended as discussed below. At maturity, the interest rate increased to
12.0%
per annum.
 
The Company closed the initial tranche of the First Note on
January 23, 2017
for
$1,000,000,
followed by a tranche on
March 1, 2017
for
$1,000,000
and a final tranche on
April 27, 2017
for
$1,000,000.
 
On
June 19, 2017,
the Company entered into the
first
amendment ("First Amendment") to the First Note to allow for the sale and issuance of an additional
$3,250,000
of Notes up to an aggregated amount of
$6,250,000.
 
The Company closed
$1,300,000
on
June 19, 2017
under the First Amendment and closed an additional
$700,000
on
July 17, 2017.
No
additional tranches were issued under the First Amendment.
 
As of
September 30, 2018,
the total amount of issuance under the First Note and First Amendment amounted to
$5,000,000
and were issued to a single related party, who is a major stockholder of the Company.
 
On
November 1, 2017,
the Board approved a
second
note purchase agreement (the "Second Note") allowing the Company to sell an aggregate of
$1,900,000
of Notes. The Notes were convertible into either the Company’s preferred or common stock (depends on the equity securities offered in the equity financing) at
75%
of the price paid per share in a subsequent equity financing where the Company receives gross proceeds of
not
less than
$5,000,000
or at
85%
of the per share price determined by dividing the equity value of the Company that is expected to be available for distribution to the Company’s stockholders by the aggregate number of the Company’s fully-diluted common shares upon the closing of a sale, liquidation, merger, or change of control of the Company. The Notes bore interest at
8.25%
per annum and initially matured on
June 29, 2018,
which date was extended as discussed below. At maturity, the interest rate increased to
12.0%
per annum.
 
The Company closed the initial tranche of the Second Note on
November 9, 2017
for
$400,000,
followed by a tranche on
December 1, 2017,
for
$375,000,
a
third
tranche on
December 
26,
2017
for
$250,000,
a
fourth
tranche on
January 8, 2018
for
$250,000,
a
fifth
tranche on
January 25, 2018
for
$250,000
and a final tranche on
February 13, 2018
for
$375,000
for a total of
$1,900,000
 
On
June 29, 2018,
the Company and the related party modified the maturity date of the Notes entered into under the First Note and Second Note to
April 30, 2019.
 
As of
September 30, 2018,
the total amount of issuance under the Second Note amounted to
$1,900,000
and were issued to a single related party, who is a major stockholder of the Company.
 
On
April 2, 2018,
the Board approved a note purchase agreement (the "Third Note"), which was amended on
August 10, 2018,
allowing the Company to sell an aggregate of
$500,000
of Notes. The Third Note provided that, on the closing date of the IPO, the outstanding principal and accrued, but unpaid, interest would be converted into common stock at the conversion price of
$0.175.
However, certain notes holders are
not
permitted to convert their notes when the holders or any of its affiliates would beneficially own in excess of
4.99%
of the Company’s common stock after such conversion. The holders of the Company’s outstanding preferred shares agreed to waive the adjustment to the preferred stock conversion price triggered by the Third Note. The Notes bore interest at
10.0%
per annum and mature on
April 2, 2020.
 
As of
September 30, 2018,
the total amount of issuance under the Third Note amounted to
$500,000.
The Company issued
$250,000
to a single related party, who is a major stockholder of the Company, and
$250,000
to
four
non-related party investors.
 
On
April 17, 2018,
the Board approved a note purchase agreement (the "Fourth Note") allowing the Company to sell an aggregate of
$3,000,000
of Notes. The Fourth Note provided that on the closing date of the IPO, the outstanding principal and accrued, but unpaid, interest would be converted into common stock at the conversion price of
$1.75.
The holders of the Company’s outstanding preferred shares agreed to waive the adjustment to the preferred stock conversion price triggered by the Fourth Note. The Notes bore interest at
10.0%
per annum and mature
two
years from the Note issuance date.
 
As of
September 30, 2018,
the total amount of issuance under the Fourth Note amounted to
$3,000,000.
The Company issued
$1,272,000
in principal amount of such Notes to related party investors and
$1,728,000
to non-related party investors.
 
The Company incurred issuance costs relating to the Fourth Note in the amount of
$163,760,
which is being amortized over
24
-months. At
September 30, 2018,
the unamortized balance amounted to
$136,184.
 
The Company also issued warrants to purchase
91,350
shares of common stock at a price of
$1.75
per share to placement agents in connection with the Notes issued under the Fourth Note in the amount of
$103,006.
For additional information, see Note
7.
The value of these warrants is also being amortized over
24
-months. At
September 30, 2018,
the unamortized balance amounted to
$85,661.
 
As of
September 30, 2018,
the net amount of the Notes for Non-Related Party amounted to
$1,756,155.
 
The following table summarizes convertible notes payable and interest as of
September 30, 2018:
 
   
Interest Rate
   
Related Party
   
Non-Related Party
   
Total
 
   
Initial
   
Post-
Maturity
   
Principal
   
Interest
   
Principal
   
Interest
   
Principal
   
Interest
 
First Note
   
8.25
%
   
12.00
%
  $
5,000,000
     
 
    $
     
 
    $
5,000,000
     
 
 
Second Note
   
8.25
%
   
12.00
%
   
1,900,000
     
 
     
     
 
     
1,900,000
     
 
 
Third Note
   
10.00
%
   
10.00
%
   
250,000
     
 
     
250,000
     
 
     
500,000
     
 
 
Fourth Note
   
10.00
%
   
10.00
%
   
1,272,000
     
 
     
1,728,000
     
 
     
3,000,000
     
 
 
Total
   
 
     
 
    $
8,422,000
    $
916,944
    $
1,978,000
    $
79,988
    $
10,400,000
    $
996,932
 
Unamortized Discount
   
 
     
 
     
     
     
(221,845
)
   
     
(221,845
)
   
 
Total, Net
   
 
     
 
    $
8,422,000
    $
916,944
    $
1,756,155
    $
79,988
    $
10,178,155
    $
996,932