Table of Contents
Notes to Consolidated Financial Statements (Continued)
11. Convertible Notes (Continued)
the Company were to receive gross proceeds of $500,000 or more from the issuance or sale of any equity securities to PBM or another third party, any time prior to January 31,
2016, (a "PBM Qualified Financing"), the Class B Note would automatically convert, at the price per share paid by the investors in the PBM Qualified Financing, into the class of equity
securities sold in the PBM Qualified Financing.
the Company completed a financing that was not considered a PBM Qualified Financing any time prior to January 31, 2016, PBM, at its option, could convert the Class B
Note, at the price per share paid by the investors in such a financing transaction, into the class of equity securities sold in the financing transaction.
Additionally, PBM, at its option, could elect to convert the Class B Note at any time prior to the earlier of the maturity date or the closing of a PBM Qualified Financing, into
shares of the Company's Class B-1 preferred stock at a conversion price of $2.47 per share. Finally, if not earlier converted, The Class B Note would automatically convert into shares of
the Company's Class B-1 preferred stock at a conversion price of $2.47 per share at maturity.
Company recorded the Class B Note in accordance with the guidance found in ASC 470-20. The conversion feature in the Class B Note qualifies for the exception
from derivative accounting in accordance with ASC 815-40. The Company therefore allocated the $500,000 in proceeds received from PBM to the Class B Note, the Class B Option and the
contingent Class B-1 Milestone shares based on their relative fair values.
The fair value of the Class B Option on the date of issuance, as calculated using the Black-Scholes model was $112,835, using the following assumptions: exercise price of $2.47
per share; Class B-1 preferred stock price of $2.47 per share; volatility of 45%; term of one month; a dividend yield of 0%; and an interest rate of 0.40%.
The fair value of the contingent Class B-1 Milestone Shares was determined to be $0 because the $2.40 purchase price was equal to the fair value of a Class B-1 share as of
the contract date. As a result, the Company recorded a discount of $112,835 related to the Class B Option.
On March 7, 2014, the Company completed a PBM Qualified Financing with PBM and the outstanding principal amount of the Class B Note was converted into 202,345 shares of
preferred stock at a conversion price of $2.47 per share and a Class B-2 Warrant to purchase 32,654 shares of Class B-2 preferred stock at an exercise price of $2.57 per share.
a result, the unamortized debt discount associated with the Class B Option of $112,835 was recognized immediately as a loss on extinguishment of debt. Such amount has been
recorded within interest expense in the consolidated statement of operations for the year ended December 31, 2014.
Deerfield Convertible Note
June 19, 2014, the Company and Deerfield entered into a $500,000 secured promissory note (the "Deerfield Note"). The Deerfield Note accrued interest
at a rate of 5% per year compounding annually on December 31 of each year. In connection with the issuance of the Deerfield Note, Deerfield was granted a security interest in the Company's