Convertible Debt

The components of debt outstanding are as follows:

	December 31,
	2017			2016
2016 convertible notes	$	—		$	1,880,000
Pre-Merger convertible notes		550,000			550,000
		550,000			2,430,000
Less current portion		(550,000	)		(1,880,000	)
Long-term debt, net of current portion	$	—		$	550,000

For the years ended

December 31, 2017

and

2016,

the Company recognized interest expense of approximately

$0.1

million and

$37,000,

respectively in connection with its convertible debt instruments. Accrued interest was

$37,000

and

$29,000

as of

December 31, 2017

and

2016,

respectively.

2016

Convertible Notes

September 27, 2016,

the Company issued and sold convertible promissory notes (

“2016

Convertible Notes”) in an aggregate principal amount of

$1.9

million. The

2016

Convertible Notes were issued to an investor and certain other parties in connection with the settlement of a litigation matter. The

2016

Convertible Notes had a term of

one

(

) year and bore interest at a rate of

6.0%

per annum with the principal and accrued interest due upon the earlier of the maturity date or conversion date. The Company accounted for the issuance of the convertible promissory notes in accordance with ASC

470

and, at the time of issuance, recorded a litigation settlement expense of

$2.5

million which represents the difference between the estimated fair value of the

2016

Convertible Notes issued and the cash received from the noteholders. Upon maturity of the

2016

Convertible Notes during the

third

quarter of

2017,

the Company repaid the outstanding principal and interest of

$1.9

million and

$0.1

million, respectively.

Pre-Merger Convertible Notes

From

December 2009

through

December 2015,

the Company issued unsecured convertible promissory notes (the “Pre-Merger Convertible Notes”) for aggregate gross proceeds of

$22.4

million. The Pre-Merger Convertible Notes bore interest at either

1.5%

per annum, however, all Pre-Merger Convertible Notes outstanding at

December 31, 2017

bear interest at a rate of

per annum. The Pre-Merger Convertible Notes accrue interest beginning on the date of issuance, with the principal and accrued interest due upon the earlier of the maturity date or conversion date. At any time prior to the maturity date, the holders

may

elect to convert, in whole or in part, the Pre-Merger Convertible Notes and any related accrued but unpaid interest into common stock of the Company at a price per share equal to the conversion price. In the event of a Change of Control or a Qualified Financing (each as defined below), the holders of the Pre-Merger Convertible Notes

may

declare the aggregate outstanding amount of the Pre-Merger Convertible Notes to be immediately due and payable or

may

elect to convert the Convertible Notes and any accrued but unpaid interest as if such conversion took place on the maturity date. A Change of Control is defined as: (i) a merger or consolidation in which the owners immediately prior to the transaction do

not

own, directly or indirectly, more than

50%

of the surviving company; (ii) the acquisition of more than

50%

of the Company

’s outstanding shares by a single person, entity or group or persons or entities acting in concert or (iii) the sale or transfer of all or substantially all of the assets of the Company. A Qualified Financing is defined as a sale of shares or other transaction that results in gross proceeds to the Company of at least

$50.0

million, including proceeds received in connection with the conversion of any Pre-Merger Convertible Notes. Through the date the financial statements were available to be issued, there have been

Change of Control or Qualified Financing events. The Company

may

prepay the Pre-Merger Convertible Notes, in full or in part, at any time on a pari passu basis. Upon receipt of notice that the Company intends to prepay the Pre-Merger Convertible Notes, holders will have the option to convert their notes in lieu of payment.

At the effective time of the Merger,

$1.1

million in aggregate principal amount of Pre-Merger Convertible Notes were outstanding and

the rights of the holders of each such outstanding Pre-Merger Convertible Notes convertible into Diffusion Units were converted into the right to convert such securities into a number of shares of the Company’s common stock equal to the number of Diffusion Units such Pre-Merger Convertible Notes would be convertible into pursuant to its terms multiplied by the Exchange Ratio.

During the year ended

December 31, 2016,

Pre-Merger Convertible Notes of

$0.7

million and related accrued interest of approximately

$16,000

were converted into

217,122

shares of common stock.