Unsecured Convertible Promissory Notes

6 Months Ended

Jun. 30, 2018

11. Unsecured Convertible Promissory Notes

In April and May of 2017, the Company issued to certain accredited investors convertible notes in the original principal amount of $5,750,000 and $2,587,500, respectively, for total principal of $8,337,500 (the “Convertible Notes”).

The Convertible Notes accrued interest at a rate of 1.25% per annum from date of issuance until December 31, 2018 on a non-compounding basis. All principal and interest was due on December 31, 2018. The IPO was considered a qualified financing, therefore the outstanding principal balance and all accrued interest under the Convertible Notes automatically converted into 881,911 shares of common stock pursuant to the terms of such notes. The conversion price of the Convertible Notes was equal to the price at which the equity securities were sold in the IPO, which was $9.50 per share.

In connection with the issuance of the Convertible Notes, the Company granted those investors the right to receive a seven-year warrant to purchase 131,675 common shares at an exercise price that is equal to the conversion price of the Convertible Notes. The gross proceeds of $8,337,500 was allocated $7,560,783 and $776,717 to the Convertible Notes and warrants, respectively, based on their relative fair value. The relative fair value of the warrants of $776,717 was recorded as debt discount and credited to additional paid-in capital. The resulting debt discount was amortized to interest expense using the effective interest method over the term of the Convertible Notes until converted.

Cedar Point Capital, LLC (“Cedar”) served as the Company’s placement agent in connection with the placement of the Convertible Notes and earned a commission of approximately 10% of the original principal balance of such notes. Debt financing costs in the aggregate of $885,131 (not including the agent warrant discussed below), comprised primarily of the commission earned by Cedar, were amortized to interest expense using the effective interest method over the term of the Convertible Notes until converted. In addition to the commission earned by Cedar, the Company issued an agent’s ten-year warrant to purchase 48,615 common shares. The exercise price was $8.42 per share. The fair value of the agent’s warrant was $286,999 and is considered additional debt discount and was credited to additional paid-in capital. During the period beginning on January 1, 2017 and ending on September 22, 2017 (the date of the IPO closing), the Company amortized $411,375 of debt discount and financing costs to interest expense for these Convertible Notes.