Note 7.  Convertible Notes

On May 14, 2018 the Company completed the offering of $15.0 million principal amount of the Company’s 6.5% Convertible Senior Secured Notes due 2023. The net proceeds of the offering after payment of offering costs were approximately $13.1 million. The notes will mature on May 31, 2023, unless earlier converted, redeemed or repurchased. Interest on the notes accrues at the rate of 6.5% per year and is payable at the Company’s option quarterly in cash and/or freely tradable shares of the Company’s common stock, subject to certain limitations.

The Company analyzed the components of the convertible notes for embedded derivatives and the application of the corresponding accounting treatment. This analysis determined that certain features of the notes (i.e, the interest make-whole payment and the qualifying fundamental change payments) represented derivatives that require bifurcation from the host contract. The fair value of these components of $1,158,800 was recorded as a debt discount and will be adjusted to fair value at the end of each future reporting period.