Quarterly report pursuant to Section 13 or 15(d)

CONVERTIBLE PROMISSORY NOTES

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CONVERTIBLE PROMISSORY NOTES
9 Months Ended
Sep. 30, 2020
Debt Disclosure [Abstract]  
CONVERTIBLE PROMISSORY NOTES CONVERTIBLE PROMISSORY NOTES
In March 2019, the Company initiated a convertible promissory notes offering pursuant to which the Company issued unsecured convertible promissory notes (the “Prom Notes”), bearing interest at 12.0% with a maturity of one year. Through August 31, 2019, the Company had raised an aggregate principal amount of $7.4 million in Prom Notes, including $1.7 million from certain of the Company’s management and board of directors. On August 31, 2019, immediately prior to the Merger, the Prom Notes and related accrued interest converted into 1,069,740 shares of Private Brickell common stock at a conversion price of $7.54 per share.

The Prom Notes also provided for the issuance of warrants at 50% coverage, to acquire 490,683 shares of common stock. The warrants are exercisable for a term of five years at an exercise price of $10.36. The Company evaluated the various financial instruments under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815, “Derivatives and Hedging” (“ASC 815”), and determined the warrants required fair value accounting. The fair value of the warrants was recorded as a warrant liability upon issuance. The fair value of the warrants on the dates of issuance of $1.5 million was determined with the assistance of a third-party valuation firm. The fair value of the warrants was recorded as a debt discount upon issuance and was amortized to interest expense over the term of the Prom Notes based on the effective interest method.

At inception of the Prom Notes offering, the Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815 and determined that the embedded conversion features should be classified as a derivative, which was required to be bifurcated and recorded as a derivative liability.

The embedded derivative for the Prom Notes was carried on the Company’s condensed consolidated balance sheets at fair value. The derivative liability was marked-to-market each measurement period and any change in fair value was recorded as a component of the statements of operations. The fair value of the derivative liabilities on the date of issuance of $1.4 million was determined with the assistance of a third-party valuation firm. The fair value of the conversion feature was recorded as a debt discount upon issuance and was amortized to interest expense over the term of the Prom Notes based on the effective interest method.

During the three months ended September 30, 2019, the Company recognized $1.1 million of interest expense, including $0.4 million of accretion of discounts using an effective interest rate of 12.0%. During the nine months ended September 30, 2019, the Company recognized $2.0 million of interest expense, including $0.8 million of accretion of discounts using an
effective interest rate of 12.0%. During the three and nine months ended September 30, 2020, no interest expense was recognized.