Quarterly report pursuant to Section 13 or 15(d)

Note 4 - Convertible Notes Payable

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Note 4 - Convertible Notes Payable
6 Months Ended
Jun. 30, 2019
Notes to Financial Statements  
Debt Disclosure [Text Block]
Note
4
 - Convertible Notes Payable
 
On
February 19, 2019,
the Company consummated its IPO. In connection with the closing of the IPO, the Company's convertible notes (and related accrued interest) of
$11,784,987
were converted into
6,825,391
shares of the Company's common stock. Upon the closing of the IPO, certain notes were to be automatically converted according to their terms into the Company’s common stock to the extent and provided that certain holders of these notes are
not
permitted to convert such notes to the extent that the holders or any of its affiliates would beneficially own in excess of
4.99%
of the Company’s common stock after such conversion. Due to this
4.99%
limitation, principal representing
$47,781
of these notes remained outstanding and will be converted into
273,034
shares of our common stock at such time when the conversion will
not
result in the holders and any of its affiliates to own more than
4.99%
of our outstanding common shares. The maturity date of these notes is automatically extended until such date the notes are fully converted and these notes ceased to accrue interest and are
not
repayable in cash.
 
The total amount of issuances under the Company's First Note and First Amendment throughout
2017
amounted to
$5,000,000
and were issued to a single related party, who is a major stockholder of the Company. As a result of the Company’s IPO on
February 19, 2019,
the principal amount of
$5,000,000
and accrued interest of
$944,063
were converted into
1,585,086
shares of the Company’s common stock
June 30, 2019
.
 
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.
 
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. As a result of the Company’s IPO, the principal amount of
$1,900,000
and accrued interest of
$223,368
were converted into
566,235
shares of the Company’s common stock.
 
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 were to mature on
April 2, 2020
but were settled as a result of the Company's IPO on
February 19, 2019.
 
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. As a result of the Company’s IPO, the principal amount of
$452,219
and accrued interest of
$43,562
were converted into
2,833,034
shares of the Company’s common stock. As of
June 30, 2019
, the total amount outstanding under the Third Note amounted to
$47,781.
 
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 matured
two
years from the Note issuance date but were settled as a result of the Company's IPO on
February 19, 2019.
 
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. As a result of the Company’s IPO, the principal amount of
$3,000,000
and accrued interest of
$221,775
were converted into
1,841,036
shares of the Company’s common stock.
 
The Company incurred issuance costs relating to the Fourth Note in the amount of
$163,760,
which were being amortized over
24
-months but were accelerated as a result of the Company’s IPO closing, resulting in the remaining
$118,492
being expensed during the
six
months ended
June 30, 2019
.
 
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. For additional information, see Note
6.
The value of these warrants were
$103,006
and were being amortized over
24
-months months but were accelerated as a result of the Company’s IPO closing, resulting in the remaining
$74,532
being expensed during the
six
months ended
June 30, 2019
.
 
On
August 7, 2018,
the Company's Board authorized it to commence a new offering for up to
$485,000
10%
 non-convertible promissory notes, which were accompanied by a
five
-year warrant to purchase
one
share of common stock with an exercise price of
$1.75
per share for each dollar in principal amount of notes purchased (collectively, the "Fifth Note") that can be exercised (i) at any time on or after the issuance of the notes and (ii) on or prior to the close of business on the
five
-year anniversary of the issuance of the notes. Mr. Klemp, Dr. Capelli, Ms. Bisson and other members of management collectively purchased
$125,000
of such notes and warrants. The principal and interest on the Fifth Note were due on the earlier of
one
-year from the date of issuance or upon successful completion of the IPO.
 
On
August 31, 2018,
the Company's Board approved a
$200,000
increase to the Fifth Note authorized on
August 7, 2018.
On
December 21, 2018,
the Company's Board approved an additional
$300,000
increase to the Fifth Note authorized on
August 7, 2018
up to a maximum of
$985,000.
From
October 2018
to
February 2019,
the Company issued
$125,000
and
$860,000
of the Fifth Note to related parties and non-related parties, respectively. On
February 15, 2019,
the Company paid
$985,000
in principal and
$20,038
in accrued interest to the note holders to repay the Fifth Note in full.
 
The Company issued
685,000
warrants in connection with the issuances of the Fifth Note in
2018.
These warrants were valued at
$775,616.
Proceeds of
$363,748
(of which
$66,423
was for related party and
$297,325
was for non-related party) were allocated to issuance cost based on the relative fair value of these warrants. These issuance costs were being amortized over
24
-months but were accelerated as a result of the Company’s IPO closing, resulting in the remaining balance of
$325,955
 being expensed during the
six
months ended
June 30, 2019
.
 
The Company issued
300,000
warrants in connection with the issuances of the Fifth Note in
January
and
February 2019.
These warrants were valued at
$285,234.
Proceeds of
$145,974
(of which all was for non-related party) were allocated to issuance cost based on the relative fair value of these warrants. These issuance costs were being amortized over
24
-months but were accelerated as a result of the Company’s IPO closing, resulting in the entire balance of
$145,974
being expensed during the
six
months ended
June 30, 2019
.