XML 53 R43.htm IDEA: XBRL DOCUMENT

CONVERTIBLE NOTES (Tables)

9 Months Ended

Sep. 30, 2018

Long-term Debt, Unclassified [Abstract]

Convertible Notes Payable at September 30, 2018 and December 31, 2017, are comprised of the following:

	September 30,	December 31,
	2018	2017
10% Convertible secured notes ^(a)	$ 8,031	$ —
5% Convertible secured notes ^(b)	—	550
12% Convertible secured note ^(c)	—	202
Total convertible notes payable	8,031	752
Less:
Unamortized debt discounts	(670)	(351)
Unamortized financing cost	(167)	(3)
Total convertible notes payable, net of financing cost	$ 7,194	$ 398


	(a)	On May 15, 2018, the Company entered into a securities purchase agreement to sell (i) a 10% convertible note (the “10% Convertible Note”), (ii) a five-year warrant to purchase 1,111,111 shares of the Company’s common stock at an exercise price of $1.35 per share; (iii) a five-year warrant to purchase 1,724,138 shares of the Company’s Class A common stock at an exercise price of $0.87 per share; and (iv) 344,828 shares of the Company’s common stock to an institutional investor. Initially, the 10% Convertible Note was convertible into the Company’s common stock at $0.75 per share, but could only be converted if an event of default thereunder had occurred and not been cured on a timely basis. On September 25, 2018, the Company entered into an agreement to amend the maturity date on the 10% Convertible Note, pursuant to which amendment the amortization schedule of the 10% Convertible Note provides for 13 monthly payments in the amount of $309, and for the fourteenth payment to be in the amount of $1,011, plus accrued and unpaid interest. Each such amortization payment shall be made in cash or Bitcoin. The Company has not made the monthly amortization payments due during September 2018 and October 2018 and this secured 10% convertible note is currently in default. The Company is in negotiations with the investor to amend the payment terms on this secured 10% convertible note.

The 10% Convertible Note is in the principal amount of $6,000 and bears interest at 10% simple interest on the principal amount with 50% of the total interest due on the principal payable at the closing and the remaining 50% payable over the term of the 10% Convertible Note. In connection with the financing, the Company agreed to pay the placement agent, Alliance Global Partners, a cash fee of $300,000 and a warrant to purchase 150,000 shares of the Company’s common stock with an exercise price of $1.00 per share.

The Company computed the fair value of the warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $1,398 based on the estimated fair value of the warrants. The Company estimated that the grant date fair value of the shares of common stock was $405, which was determined from the closing price of the Company’s common stock on the dates of issuance. In aggregate, the Company recorded debt discount in the amount of $2,170 based on the relative fair values of the warrants, common stock and debt issuance costs of $367. During the three and nine months ended September 30, 2018, non-cash interest expense of $1,053 and $1,504, respectively, was recorded from the amortization of debt discounts. The fair value of the warrants was estimated using the Black-Scholes option-pricing method. The risk-free rate of 2.94% was derived from the U.S. Treasury yield curve, matching the term of the warrant, in effect at the measurement date. The volatility factor of 127.9% was determined based on the Company’s historical stock prices.

On July 2, 2018, the Company entered into a securities purchase agreement with the institutional investor providing for the issuance of (i) a second 10% convertible note (the “Second 10% Convertible Note”) with a principal face amount of $1,000 which Second 10% Convertible Note was convertible into the Company’s common stock at $0.75 per share and (ii) an additional 400,000 of the Company’s common stock to be issued in connection with the 10% Convertible Note. The Second 10% Convertible Note matures on January 1, 2019.

On August 31, 2018, the Company entered into a securities purchase agreement with the institutional investor providing for the issuance of a third 10% convertible note (the “Third 10% Convertible Note” and with the 10% Convertible Note and the Second 10% Convertible Note, the “10% Convertible Notes”) with a principal face amount of $2,000, which Third Convertible Note is convertible into 5,000,000 shares of the Company’s common stock at $0.40 per share and (ii) an additional 400,000 of the Company’s common stock. The shares of common stock issuable pursuant to the Third 10% Convertible Note will not be issued to the institutional investor until the Company shall have obtained approval of the NYSE American and the Company’s stockholders. The Third 10% Convertible Note matures on February 15, 2019.

At the time of issuance of the Third 10% Convertible Note, the closing price of the Company’s common stock was in excess of the conversion price, resulting in a beneficial conversion feature (“BCF”). The BCF embedded in the Third 10% Convertible Note is accounted for under ASC No. 470, Debt (“ASC 470”). At issuance, the intrinsic value of the BCF totaled $827, based on the difference between the effective conversion price and the fair value of the Company’s common stock at the commitment date of the transaction, and the relative fair value of the 400,000 shares of common stock was $177. The Company, however, is prohibited from issuing the 400,000 shares of common stock or the shares of common stock issuable pursuant to the Third 10% Convertible Note unless stockholder approval of such issuance of securities is obtained as required by applicable NYSE American listing rules. The Company has not yet received stockholder approval of such share issuances. This provision resulted in a contingent beneficial conversion feature that shall be recognized once the contingency is resolved.

The Company recorded debt issuance costs of $200 from the Third 10% Convertible Note. The debt issuance costs are being amortized as non-cash interest expense over the term of the debt. During the three months ended September 30, 2018, non-cash interest expense of $33 was recorded from the amortization of the debt issuance costs.

Pursuant to an amendment dated as of August 31, 2018 to the 10% Convertible Note and the Second 10% Convertible Note, the Company reduced the conversion price to $0.40 from $0.75. The amendment to the embedded conversion options of the 10% Convertible Note and the Second 10% Convertible Note caused a material change in the fair value of the embedded conversion options on these two notes and resulted in a loss on extinguishment of $666. At the time of the amendment, the closing price of the Company’s common stock was in excess of the conversion price, resulting in a BCF. The intrinsic value of the BCF was $1,132 on the 10% Convertible Note and $225 on the Second 10% Convertible Note based on the difference between the effective conversion price and the fair value of the Company’s common stock. The Company, however, is only allowed to issue 8 million shares of common stock pursuant to the 10% Convertible Note and is prohibited from issuing any shares of common stock pursuant to the Second 10% Convertible Note unless stockholder approval of such issuance of securities is obtained as required by applicable NYSE American listing rules. The Company has not yet received stockholder approval of such share issuances. This provision resulted in a contingent beneficial conversion feature that shall be recognized once the contingency is resolved. During the three months ended September 30, 2018, non-cash interest expense of $51 was recorded from the amortization of debt discounts attributed to the portion of the shares currently issuable from the 10% Convertible Note.

(b)

On December 4, 2017, the Company entered into a securities purchase agreement to sell a 5% Convertible Note (the “5% Convertible Note”) and 150,000 shares of restricted common stock to an institutional investor. The principal of the 5% Convertible Note and interest thereon was convertible into shares of common stock at $0.60 per share of common stock, subject to adjustments for lower priced issuances, stock splits, stock dividends, combinations or similar events. The 5% Convertible Note was in the principal amount of $550, included an OID of $50 resulting in net proceeds to the Company of $500, accrued interest at 5% simple interest on the principal amount, and was due on August 13, 2018. Interest only payments were due on a quarterly basis and the principal was due on June 3, 2018.

At the time of issuance of the 5% Convertible Note, the closing price of the Company’s common stock was in excess of the conversion price, resulting in a BCF accounted for under ASC 470. At issuance, the intrinsic value of the BCF totaled $244 based on the difference between the effective conversion price and the fair value of the Company’s common stock at the commitment date of the transaction. The intrinsic value of the BCF exceeded the proceeds allocated to the relative fair value of the 5% Convertible Note. The BCF was amortized to interest expense over the term of the 5% Convertible Note using the effective interest method. The valuation of the BCF was calculated based on the effective conversion price compared with the market price of the Company’s common stock on the date of issuance of the 5% Convertible Note.

In aggregate, the Company recorded debt discount in the amount of $550 based on the relative fair values of the 150,000 shares of common stock of $256, BCF of $244 and OID of $50. The debt discount is being amortized as non-cash interest expense over the term of the debt. During the year ended December 31, 2017, non-cash interest expense of $381 was recorded from the amortization of debt discounts. In January 2018, the 5% Convertible Note was converted into 921,645 shares of the Company’s common stock based upon the contractual rights included in the 5% Convertible Note (See Note 21).

(c)

On August 3, 2017, the Company entered into a securities purchase agreement to sell a 12% Convertible Note (the “12% Convertible Note”) and a warrant to purchase 666,666 shares of common stock to an accredited investor. The principal of the 12% Convertible Note may be converted into shares of common stock at $0.55 per share and under the terms of the Warrant, up to 666,666 shares of common stock may be purchased at an exercise price of $0.70 per share.

The 12% Convertible Note was in the principal amount of $400, included an OID of $40 resulting in net proceeds to the Company of $360, accrued interest at 12% simple interest on the principal amount, and was due on August 13, 2018. Interest only payments were due on a quarterly basis and the principal was due on August 3, 2018. The principal may be converted into shares of the Company’s common stock at $0.55 per share.

The Company computed the fair value of the 666,666 warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $167 based on the estimated fair value of the 666,666 warrants.

The BCF embedded in the 12% Convertible Note is accounted for under ASC 470. At issuance, the intrinsic value of the BCF totaled $187. The Company, however, was prohibited from issuing shares of common stock pursuant to the 12% Convertible Note until stockholder approval of such issuance of securities was obtained as required by applicable NYSE American listing rules. The Company received stockholder approval for the share issuances on December 28, 2017. The intrinsic value of the BCF was amortized to interest expense over the term of the 12% Convertible Note using the effective interest method. The valuation of the BCF was calculated based on the effective conversion price compared with the market price of the Company’s common stock on the date of issuance of the 12% Convertible Note. In aggregate, the Company recorded debt discount in the amount of $394 based on the relative fair values of the 666,666 warrants, BCF and OID of $40. During the year ended December 31, 2017, non-cash interest expense of $212 was recorded from the amortization of debt discounts.

On December 28, 2017, principal and accrued interest of $198 and $5, respectively, on the 12% Convertible Note was satisfied through the issuance of 368,760 shares of the Company’s common stock and the remaining balance was converted into 377,678 shares of the Company’s common stock on January 10, 2018 (See Note 21). The fair value of the warrants was estimated using the Black-Scholes option-pricing method. The risk-free rate of 1.79% was derived from the U.S. Treasury yield curve, matching the term of the warrant, in effect at the measurement date. The volatility factor of 107.3% was determined based on the Company’s historical stock prices.

(d)

On April 16, 2018, the Company entered into securities purchase agreements to sell (i) a 12% convertible note (the “12% April 2018 Convertible Note”), (ii) a five-year warrant to purchase 993,588 shares of the Company’s common stock at an exercise price of $1.30 per share; and (iii) 200,926 shares of the Company’s common stock to three institutional investors. The 12% April 2018 Convertible Note is convertible into common stock at $0.70 per share, but may only be converted if an event of default thereunder has occurred and not been cured on a timely basis.

The 12% April 2018 Convertible Note is in the principal amount of $1,722, included an OID of $172 resulting in net proceeds to the Company of $1,550 and bears interest at 12% simple interest on the principal amount. The Company is required to make monthly principal and interest payments until the 12% April 2018 Convertible Note is satisfied in full on October 16, 2018.

The Company computed the fair value of the warrants using the Black-Scholes option pricing model and, as a result of this calculation, recorded debt discount in the amount of $539 based on the estimated fair value of the warrants. The Company estimated that the grant date fair value of the shares of common stock was $129, which was determined from the closing price of the Company’s common stock on the date of issuance.

In aggregate, the Company recorded debt discount in the amount of $885 based on the relative fair values of the warrants, common stock, OID and debt issuance costs of $45. During the three and nine months ended September 30, 2018, non-cash interest expense of $522 and $885, respectively, was recorded from the amortization of debt discounts. The fair value of the warrants was estimated using the Black-Scholes option-pricing method. The risk-free rate of 2.94% was derived from the U.S. Treasury yield curve, matching the term of the warrant, in effect at the measurement date. The volatility factor of 127.9% was determined based on the Company’s historical stock prices. Beginning on May 16, 2018, the Company was required to make six monthly cash payments in the aggregate amount of $304. On August 31, 2018, the Company made its final payment and in aggregate paid principal and accrued interest of $1,722 and $103, respectively, on the 12% April 2018 Convertible Note.