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Item 2.03
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Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement
of a Registrant
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$9,000,000 Convertible Note Offering
Between September 26, 2019 and September
30, 2019, investors (the “Lenders”) of the Company subscribed for convertible promissory notes (the “Notes”)
in an aggregate of $3,490,000 (the “Loans”). The Loans represent additional tranches borrowed pursuant to an up to
$9,000,000 convertible note offering (the “Offering”) previously disclosed by the Company, for total borrowed principal
through September 30, 2019 of $9,000,000. Of the Loans, $500,000 was advanced to the Company through the conversion and satisfaction
of the principal of the $500K Note, and $2,930,000 had a conversion price of $8.265.
As a result of the Loans, (a) the Offering
has successfully closed as the maximum aggregate amount permitted under the Offering has been received, and (b) the terms for conversion
of all of the convertible promissory notes pursuant to the Offering has been satisfied and accordingly all of the indebtedness
under the Offering has been converted to the Company’s common stock in accordance with their terms. An aggregate principal
amount of $2,930,000 of the convertible promissory notes issued in the Offering had a conversion price of $8.265, and an aggregate
principal amount of $6,070,000 of the convertible promissory notes issued in the Offering had a conversion price of $6.80.
The Company intends to use the net cash
proceeds, after payment of fees and expenses, from the Loans for the Company’s working capital and general corporate purposes.
The foregoing is a brief description of
the subscription of the Notes and the terms of the Notes and is qualified in its entirety by reference to the full text of the
form of Subscription Agreement and the form of the Note, the forms of which are included as Exhibits 10.1 and 10.2, respectively,
to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 17, 2019, each of
which are incorporated herein by reference.
$3,000,000 Convertible Note Offering
On September 26, 2019, but deemed effective as of October 1, 2019, an investor (the
“$70K Lender”) of the Company subscribed for a convertible promissory note (the “$70K Note”) and loaned
to the Company an aggregate of $70,000 (the “$70K Loan”). The $70K Loan represent the first tranche borrowed pursuant
to a newly launched convertible note offering for up to $3,000,000 of gross proceeds (or up to $7,000,000 in the discretion of
the Company) (the “$3M Offering”).
The Company intends to use the net proceeds
from the $70K Loan for the Company’s working capital and general corporate purposes.
The $70K Note bears interest at a fixed
rate of 1% per month, computed based on a 360-day year of twelve 30-day months and will be payable, along with the principal amount,
on the earlier of (the “$3M Offering Maturity Date”): (a) March 30, 2020 and (b) the raising in one or more offerings
(including the $3M Offering) and/or tranches of securities, commencing as of October 1, 2019, of aggregate gross proceeds of no
less than $3,000,000 (“Qualified Financing”), but in no event earlier than December
31, 2019.
The $70K Note will be convertible into
equity of the Company upon the following events on the following terms:
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On the Maturity Date without any action
on the part of the $70K Lender, the outstanding principal and accrued and unpaid interest under the $70K Note will be converted
into shares of common stock at a conversion price of $8.55 (in the event of an investment on or prior to September 30, 2019) or
$9.50 (in the event of an investment after September 30, 2019) (the “$3M Offering Conversion Price”).
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Upon a change of control transaction prior
to the $3M Offering Maturity Date, the outstanding principal and accrued and unpaid interest under the $70K Note would, at the
election of the holders of a majority of the outstanding principal of the loans under the $3M Offering, be either (i) payable upon
demand as of the closing of such change of control transaction or (ii) convertible into shares of the Company’s common stock
immediately prior to such change of control transaction at a price per share equal to the lesser of (x) the $3M Offering Conversion
Price, or (y) the per share consideration to be received by the holders of the common stock in such change of control transaction.
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The $70K Note contains customary events
of default, which, if uncured, entitle the $70K Lender to accelerate the due date of the unpaid principal amount of, and all accrued
and unpaid interest on, its $70K Note.
Under certain circumstances, in the event
the $70K Note converts into common stock and the Company raises capital through the sale of Common Stock for cash during the period
ending on the three year anniversary of the earliest issue date of the notes issued pursuant to the $3M Offering, and the price
per share thereof (the “Offering Price”) is less than the $3M Offering Conversion Price, then in such event the Company
shall issue to the $70K Lender additional shares of common stock equal to the number of conversion shares the $70K Lender would
have received upon conversion if the conversion price equaled the Offering Price, less the number of shares actually issued on
or as of the Maturity Date.
To secure the prompt payment and performance
to the $70K Lender of the obligations under the $70K Note, the Company granted to the $70K Lender a continuing security interest
in and to, and lien on, all of its collateral.
The foregoing is a brief description of
the subscription of the $70K Note and the terms of the $70K Note and is qualified in its entirety by reference to the full text
of the form of Subscription Agreement and the form of the $70K Note, the forms of which will be filed with the Company’s
Quarterly Report on Form 10-Q for the fiscal period ended September 30, 2019, each of which are incorporated herein by reference.