Annual report pursuant to Section 13 and 15(d)

Convertible Notes Payable

v3.8.0.1
Convertible Notes Payable
12 Months Ended
Dec. 31, 2017
Debt Disclosure [Abstract]  
Convertible Notes Payable
Convertible Notes Payable

On various dates from August 31, 2015 through January 19, 2016, each as amended on March 10, 2016, the Company entered into seven unsecured promissory notes with three separate third-party investors. Each note bore interest at 8.0% per annum and was to mature on the earlier of June 30, 2016 or the completion of an IPO of the Company’s securities.
 
Since the completion of the IPO occurred prior to June 30, 2016, these notes were to be automatically converted according to their terms into shares of the Company’s common stock at applicable conversion price upon the Company’s IPO to the extent and provided that no holder of these notes was permitted to convert such notes to the extent that the holder or any of its affiliates would beneficially own in excess of 4.99% of our common stock after such conversion. Due to this 4.99% limitation, a portion of these notes was not converted at the time of the IPO and the remaining unconverted principal and accrued interest amounts of the effected notes remained outstanding and were converted into shares of our common stock at such time as the 4.99% limitation was met. Until such time as the notes were converted into shares of common stock, the maturity date of the notes was automatically extended, and we were not required to repay the notes or the accrued interest relating to the notes in cash.

The IPO was completed on May 31, 2016. On May 31, 2016, pursuant to the conversion feature of the foregoing notes and with restriction of the 4.99% beneficially owned condition limitation, discussed above, the Company issued 1,166,503 common shares in total, reducing the convertible debt principal by $183,356 and accrued interest by $17,699. Subsequent to these transactions and through December 31, 2016, an additional 910,095 common shares were issued due to the number of common shares outstanding allowing for conversion of additional shares under the 4.99% beneficially owned condition limitation. This reduced the convertible debt principal by $155,565 and accrued interest by $7,172.
 
The convertible notes were analyzed for a beneficial conversion feature on various issuance dates, at which time it was concluded that a beneficial conversion feature did not exist. On June 22, 2017, pursuant to the conversion feature of the foregoing notes and with restriction of the beneficially owned condition limitation discussed above, the Company issued common shares which effectively converted all remaining outstanding convertible debt and accrued interest outstanding as of that date.
 
The table below represents the shares that are convertible at December 31, 2017 relating to the principal amounts of these convertible notes payable and excludes any shares that are convertible relating to the associated accrued interest:
 
 
 
(Amounts and shares in whole values)
Issuance Date
 
December 31, 2017
 
December 31, 2016 (c)
 
Conversion Rate
 
Shares Convertible at December 31, 2016
August 31, 2015(a)
 
$

 
$
38,299

 
$
0.1299

 
294,832

September 3, 2015
 

 
125,000

 
0.1299

 
962,279

October 6, 2015(a)(b)
 

 
30,280

 
0.20

 
151,402

January 19, 2016
 

 
82,500

 
0.20

 
412,500

Total
 
$

 
$
276,079

 
 

 
1,821,013

 
(a) Debt partially converted on May 31, 2016 and on August 19, 2016.
(b) Debt partially converted on September 1, 2016.
(c) Excluded from the $276,079 is $20,333 in accrued interest on the convertible notes payable which is included in the accompanying balance sheet.

The common shares relating to the above mentioned convertible notes payable contained the following trading restrictions: (a) beginning 90 days after the initial closing of our IPO and until the one-year anniversary of the initial closing of the IPO, the holder of the note will be able to sell 1% of the number of shares of common stock underlying the note on a monthly basis, subject to a maximum sale on any trading day of 4% of the daily volume; (b) if the common stock price is over $7.00 per share for five consecutive trading days then the holder of the note can sell up to 3% of the number of shares of common stock underlying the note on a monthly basis, subject to a maximum sale on any trading day of 4% of the daily volume; (c) if the common stock price is over $10.00 per share for five consecutive trading days then the holder of the note can sell up to an additional 5% of the number of shares of common stock underlying the note on a monthly basis, subject to a maximum sale on any trading day of 7% of the daily volume; and (d) if the common stock price is over $14.00 per share then the holder of the note is not restricted from making any sales until such time as the common stock price falls back below $14.00 per share; and (b) thereafter, until the two-year anniversary of the initial closing of IPO, the holder of the note can sell on any trading day 10% of the daily volume; provided that if the common stock price is over $10.00 per share then the holder of the note is not restricted from making any sales until such time as the common stock falls back below $10.00 per share. The foregoing lock-up restrictions relate to public sales and do not restrict the transfer of the shares privately, if permitted by applicable law, provided the acquirer of the shares agrees to comply with the above restrictions with respect to any public sales.