INVESTMENTS - RELATED PARTIES

9 Months Ended

Sep. 30, 2018

Investments, Debt and Equity Securities [Abstract]

INVESTMENTS - RELATED PARTIES

9. INVESTMENTS – RELATED PARTIES

Investments in AVLP at September 30, 2018 and December 31, 2017, are comprised of the following:

	September 30,	December 31,
	2018	2017
Investment in convertible promissory note of AVLP	$            6,407	$            4,124
Investment in warrants of AVLP	2,418	6,902
Investment in common stock of AVLP	810	826
Accrued interest in convertible promissory note of AVLP	803	324
Total investment in AVLP – Gross	10,438	12,176
Less: original issue discount	(2,580)	(2,115)
Total investment in AVLP – Net	$           7,858	$         10,061

The following table summarizes the changes in our investments in AVLP during the nine months ended September 30, 2018:

	Investment in	Investment in
	warrants and	convertible	Total
	common stock	promissory	investment
	of AVLP	note of AVLP	in AVLP – Net
Balance at January 1, 2018	$            7,728	$          2,333	$          10,061
Investment in convertible promissory notes of AVLP	—	1,474	1,474
Payment of convertible promissory notes of AVLP	—	(1,108)	(1,108)
Investment in common stock of AVLP	371	—	371
Fair value of warrants issued by AVLP	1,917	—	1,917
Unrealized loss in warrants of AVLP	(6,401)	—	(6,401)
Unrealized loss in common stock of AVLP	(387)	—	(387)
Accretion of discount	—	1,452	1,452
Accrued Interest	—	479	479
Balance at September 30, 2018	$            3,228	$          4,630	$            7,858

The Company has made a strategic decision to invest in AVLP, a related party controlled by Philou Ventures, LLC, or Philou, a significant stockholder of the Company. The Company’s investments in AVLP consist of convertible promissory notes, warrants and shares of common stock of AVLP. On September 6, 2017, the Company and AVLP entered into a Loan and Security Agreement (“AVLP Loan Agreement”) with an effective date of August 21, 2017 pursuant to which the Company will provide AVLP a non-revolving credit facility of up to $10,000 for a period ending on August 21, 2019, subject to the terms and conditions stated in the Loan Agreement, including that the Company having available funds to grant such credit. At September 30, 2018, the Company has provided loans to AVLP in the principal amount $6,407 and, in addition to the 12% convertible promissory notes, AVLP has issued to the Company warrants to purchase 12,814,440 shares of AVLP common stock. Under the terms of the AVLP Loan Agreement, any notes issued by AVLP to the Company are secured by the assets of AVLP.

The warrants entitle the Company to purchase up to 12,814,440 shares of AVLP common stock at an exercise price of $0.50 per share for a period of five years. The exercise price of $0.50 is subject to adjustment for customary stock splits, stock dividends, combinations or similar events. The warrant may be exercised for cash or on a cashless basis. At September 30, 2018 and December 31, 2017, the Company recorded an unrealized gain (loss) on its investment in warrants of AVLP of ($1,888) and $4,513, respectively, representing the difference between the cost basis and the estimated fair value of the warrants in the Company’s accumulated other comprehensive income in the stockholder's equity section of the Company’s consolidated balance sheet and as a change in net unrealized gains on securities available-for-sale in the Company’s consolidated statements of comprehensive loss. During the three and nine months ended September 30, 2018, the Company’s investment in warrants and common stock of AVLP represented $387 and $6,401, respectively, of the Company’s aggregate $1,339 and $6,787, respectively, in net unrealized loss on securities available-for-sale. The Company’s investment in AVLP will be revalued on each balance sheet date. The fair value of the Company’s holdings in the AVLP warrants was estimated using the Black-Scholes option-pricing method. The risk-free rate, which ranged between 1.92% and 2.43%, was derived from the U.S. Treasury yield curve, matching the term of our investment, in effect at the measurement date. The volatility factor of 80.4% was determined based on historical stock prices for similar technology companies with market capitalizations under $100 million. The warrant valuation is a Level 3 measurement.

In accordance with ASC No. 310, Receivables (“ASC 310”), the Company accounts for its convertible promissory notes in AVLP at amortized cost, which represents the amount at which the convertible promissory notes were acquired, adjusted for accrued interest and accretion of original issue discount and discount attributed to the fair value of the 12,814,440 warrants that the Company received in conjunction with its investment. Interest is accreted using the effective interest method. The Company records interest on an accrual basis and recognizes it as earned in accordance with the contractual terms of the convertible promissory notes, to the extent that such amounts are expected to be collected. The original issue discount of $165 on the New Note and the discount attributed to the fair value of the warrants of $4,306 are being amortized as interest income through the maturity date. During the three and nine months ended September 30, 2018, the Company recorded $535 and $1,454, respectively, of interest income for the discount accretion. During the three and nine months ended September 30, 2017, the Company recorded $18 and $38, respectively, of interest income for the discount accretion As of September 30, 2018 and December 31, 2017, the Company recorded contractual interest receivable attributed to the AVLP Notes and AVLP Loan Agreement of $803 and $324, respectively.

The Company evaluated the collectability of both interest and principal for the convertible promissory notes in AVLP to determine whether there was an impairment. Based on current information and events, the Company determined that it is probable that it will be able to collect amounts due according to the existing contractual terms. Impairment assessments require significant judgments and are based on significant assumptions related to the borrower’s credit risk, financial performance, expected sales, and estimated fair value of the collateral.

During the nine months ended September 30, 2018 and the year ended December 31, 2017, the Company also acquired in the open market 389,391 shares of AVLP common stock for $371 and 221,333 shares of AVLP common stock for $192, respectively. At September 30, 2018, the closing market price of AVLP’s common stock was $0.94, a decline from $1.75 at December 31, 2017. The Company has determined that its investment in AVLP marketable equity securities are accounted for pursuant to the fair value method and based upon the closing market price of common stock at September 30, 2018, the Company has recognized an unrealized gain of $163.