CONVERTIBLE NOTES PAYABLE
|12 Months Ended|
Jun. 30, 2019
|CONVERTIBLE NOTES PAYABLE|
|CONVERTIBLE NOTES PAYABLE||
NOTE 5 — CONVERTIBLE NOTES PAYABLE
Convertible notes payable are as follows as of June 30, 2019 and 2018 (in thousands):
Debt Discount and Issuance Costs
The components of DDIC for the fiscal years ended June 30, 2019 and 2018, are as follows (in thousands, except per share amounts):
DDIC is accreted to interest expense using the effective interest method. Accretion expense for the fiscal years ended June 30, 2019 and 2018 amounted to $2.1 million and $0.5 million, respectively.
Beneficial Conversion Feature
Each of the Fiscal 2018 Notes discussed above contained a mandatory conversion feature that was triggered if the Company completed a qualified financing whereby the notes would automatically convert into the securities issued in the financing at a 20% discount. This feature that enabled conversion at a 20% discount was a contingent BCF that was not calculated and recorded until the financing that triggered conversion was completed. Since the closing of the Series AA Financing resulted in the conversion of the Fiscal 2018 Notes, the contingent BCF was measured and recognized on January 30, 2019.
The fair value of the Company’s Common Stock was 0.24 per share on the conversion date for the Fiscal 2018 Notes compared to the effective conversion price of $0.176 per share (due to the 20% discount to the Series AA Financing terms which provide for a conversion price of $0.22 per share). Accordingly, the Company recognized a BCF of approximately $2.2 million as additional interest expense related to the Fiscal 2018 Notes for the fiscal year ended June 30, 2019.
Automatic Conversion of Fiscal 2018 Notes
The Series AA Financing met the definition of a qualified financing whereby all of the Fiscal 2018 Notes automatically converted for an aggregate principal balance of approximately $5.3 million plus accrued interest of approximately $0.8 million as of January 30, 2019, into an aggregate of 767,519 shares of Series AA Preferred Stock. Pursuant to the terms of the Fiscal 2018 Notes, the conversion price was $8.00 per share of Series AA Preferred Stock, which was a 20% discount to the terms set forth in the Series AA Financing. The conversion of the Fiscal 2018 Notes at a 20% discount resulted in a BCF of approximately $2.2 million as discussed above. As of January 30, 2019, the aggregate principal and accrued interest of approximately $6.1 million converted to Series AA Preferred Stock, as follows (in thousands):
Presented below is a summary of the components of interest expense related to Convertible Notes Payable for the fiscal years ended June 30, 2019 and 2018 (in thousands):
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef