Convertible Notes

6 Months Ended

Jun. 30, 2019

Notes Payable [Abstract]

Convertible Notes

On May 17, 2019, the Company closed a financing transaction and issued convertible promissory notes (the “Notes”) in the aggregate principal amount of $10.0 million to Winsave Resources Limited and Pioneer Step Holdings Limited. The maturity date of the Notes was originally July 1, 2019 and was subsequently extended to August 15, 2019. The Notes accrue interest at a rate of 5.0% per annum. On the maturity date, the Notes will automatically convert into the shares of the Company’s common stock (the “Common Stock”) at a price per share equal to the lesser of (i) $4.59, or (ii) if one or more Common Stock financings occur on or prior to the Maturity Date, the lowest price per share at which the shares of Common Stock are issued in all such financings.

Summary of Convertible Notes

Description	Conversion Price *		Extended Maturity Date		Original Maturity Date		Interest Rate			Amount (In thousands)
Principal	$	4.59		August 15, 2019		July 1, 2019		5	%	$	10,000
Debt Discount, at issuance on May 17, 2019		—		—		—		48	%		(565	)
Debt Discount, amortized through June 30, 2019											552
Carrying Value at June 30, 2019										$	9,987
* The conversion price has a down round feature, subject to modification upon subsequent financings prior to the maturity date.

Down Round Feature

The Notes had adjustments which meet the definition of a down round feature per ASU 2017-11. The conversion price per share will be adjusted downward from $4.59 if the Company enters into Common Stock financings with an issuance price per share lower than $4.59 on or prior to the Maturity Date. As allowed under ASU 2017-11, the Company excluded such down round feature when determining whether the instrument is indexed to the entity’s own stock and did not bifurcate the down round feature from the loan host. The Company will recognize the value of the down round feature when it is triggered and the conversion price is adjusted downward.

Debt Modification

On June 30, 2019, the Company and the Purchasers entered into an Omnibus Amendment to the Purchase Agreement and the Notes to (i) remove the restriction on the Company issuing Common Stock during the Restricted Period (as defined in the Purchase Agreement) and (ii) amend the Notes to extend the Maturity Date 45 days from July 1, 2019 to August 15, 2019. The amendment to extend the Maturity Date for another 45 days to August 15, 2019 was recognized as a modification of the Notes.

Debt Issuance Costs and Interest Expense

In connection with the issuance of the Notes, the Company incurred issuance costs of approximately $0.6 million. The issuance costs were recorded as a debt discount and have been netted in presenting the carrying value of the Notes. The debt discount is amortized as interest expense using the effective interest method over the original term of 45 days and the Company recorded approximately $0.6 million in amortization of debt discount during the three months ended June 30, 2019. The unamortized debt discount amount was approximately $13,000 at June 30, 2019.

In addition, the Company recorded accrued interest of approximately $60,000 at a rate of 5.0% per annum during the three months ended June 30, 2019 pursuant to the terms of the Notes.