NOTE 14. Capital Stock

During the nine months ended September 30, 2018, there have been significant transactions related to the capital stock of the Company, both in terms of its common and preferred shares. The following table presents a summary of the transactions that have occurred during the period in terms of outstanding shares (in thousands):

	Common		Preferred
Beginning balance at December 31, 2017		676		—
Private Placement - March 12, 2018 (See Note 22)		175		—
Cooltech Merger - March 12, 2018 (See Note 22)		1,111		764
Balance at March 31, 2018		1,962		764
Conversions of preferred shares to common		404		(404	)
Equity grant (See Note 3)		42		—
Shelf offering in June 2018		885		298
Balance at June 30, 2018		3,293		658
3(a)(9) debt exchange		3,110		—
Unitron option exercise (See Note 24)		625		—
4(a)(2) debt exchange		290		—
Conversions of preferred shares to common		220		(220	)
Equity grant (See Note 3)		59		—
Warrant exercises		81		—
Balance at September 30, 2018		7,678		438

On June 1, 2018, the Company sold 885,346 shares of its common stock and 297,770 shares of its preferred stock in a public offering at $3.14 per unit, which price included the concurrent private placement of warrants to purchase 1,183,116 shares of common stock at an exercise price of $3.02 per share. Net proceeds from the offering after expenses amounted to $3,585,000. The warrants, which have a cashless exercise feature, have a 3-year life and may not be exercised until 6 months from the date of issuance. The fair value of the warrants was estimated on the date of issuance at $1,280,000 using the Black-Scholes pricing model and assuming a risk-free interest rate of 2.61% based on the U.S. Treasury rate then in effect, a 3-year life and an expected volatility of 95% based on the Company’s historical stock price fluctuations for a 3-year period.

On August 15, 2018, the Company entered into debt exchange agreements with twenty-one holders of certain then outstanding promissory notes in the principal amount of $11,019,000 and related accrued interest of $426,000. The aggregate amount owed of $11,445,000 was exchanged into 3,110,000 units at a price of $3.68 per unit (the “Exchange”). Each unit was comprised of one share of Company common stock and a warrant to purchase one common share at an exercise price of $3.56 per share. The warrants, which have a cashless exercise feature, are exercisable beginning February 15, 2019 and expire August 15, 2021. The Exchange was made in reliance on the exemption from the registration requirements of the Securities Act of 1933 (the “Act”), as amended, provided by Section 3(a)(9) of the Act. All of the common stock issued in the transaction were “restricted securities,” as defined in Rule 144(a)(3), promulgated under the Act. The fair value of the warrants was estimated on the date of issuance at $3,815,000 using the Black-Scholes pricing model and assuming a risk-free interest rate of 2.68% based on the U.S. Treasury rate then in effect, a 3-year life and an expected volatility of 90% based on the Company’s historical stock price fluctuations for a 3-year period.

On August 17, 2018, as discussed in Note 24, the Company exercised an option to acquire the assets of a chain of seven retail electronics stores in the Dominican Republic referred to as the “Unitron Assets.” The Option Agreement, as amended, was issued on January 5, 2018 as part of the Company’s Merger with Cooltech. The Option Agreement provided that upon exercise of the Option by the Company, the Cooltech shareholders at the date of the merger would receive 625,000 shares of the Company’s common stock that was originally carved out of the Merger consideration when the Unitron acquisition had to be unwound as a result of the inability to produce pre-acquisition audited financial statements.

On September 13, 2018, the Company entered into release agreements pursuant to which the Company exchanged outstanding obligations to three parties in the aggregate amount of $1,023,000 into 290,000 units at a price of $3.53 per unit (the “Exchange”). Each unit was comprised of one share of Company common stock and a warrant to purchase one common share at an exercise price of $3.41 per share. The warrants, which have a cashless exercise feature, are exercisable beginning March 13, 2019 and expire September 13, 2021. The Exchange was made in reliance on the exemption from the registration requirements of the Securities Act of 1933 (the “Act”), as amended, provided by Section 4(a)(2) of the Act. All of the common stock issued in the transaction were “restricted securities,” as defined in Rule 144(a)(3), promulgated under the Act. The fair value of the warrants was estimated on the date of issuance at $342,000 using the Black-Scholes pricing model and assuming a risk-free interest rate of 2.68% based on the U.S. Treasury rate then in effect, a 3-year life and an expected volatility of 90% based on the Company’s historical stock price fluctuations for a 3-year period.

The Company’s preferred stock is convertible into common shares on a one-for-one basis at the election of the holder. During the three and nine months ended September 30, 2018, holders of 220,000 and 624,000 shares, respectively, of preferred stock elected to convert their shares into common shares.

During the three months ended September 30, 2018, holders of 233,000 warrants exercised their warrants at a weighted average price of $11.38 per share in cashless exercise transactions in which the Company issued 81,000 common shares. At September 30, 2018, warrants on a total of 4,739,371 shares were outstanding at an average exercise price of $3.66 per share, of which 156,543 shares were exercisable at an average exercise price of $11.02.