|6 Months Ended|
Jun. 30, 2017
|Debt Disclosure [Abstract]|
Note 5 – Debentures
On February 2, 2017, the Company issued $1.6 million aggregate principal amount of Original Issue Discount Convertible Debentures due three months from the date of issuance (the “February Debentures”) and warrants to purchase an aggregate of 100,000 shares of common stock, which can be exercised at any time after August 17, 2017 at an exercise price of $2.58 per share (the “Warrants”), to an accredited investor for a purchase price of $1.5 million. The February Debentures were convertible at a conversion price of $2.58 per share (subject to adjustment).
On March 21, 2017, the Company issued $10.85 million aggregate principal amount of Senior Secured Original Issue Discount Convertible Debentures due March 21, 2019 (the “Convertible Debentures”) and three series of warrants to purchase an aggregate of 19,608,426 shares of the Company’s common stock to several accredited investors. The Company received net proceeds from this transaction in the approximate amount of $8.4 million. The Company used $3.8 million of the net proceeds to repay the 2017 Diamantis Note (see Note 6) and $0.75 million of the net proceeds to make the partial repayment on the TCA Debenture (see Note 4). The remainder of the net proceeds were used for general corporate purposes. In conjunction with the issuance of the Convertible Debentures, the holder of the February Debentures exchanged these debentures for $2.5 million of new debentures (the “Exchange Debentures” and, collectively with the Convertible Debentures, the “Debentures”) on the same terms as, and pari passu with, the Convertible Debentures, and warrants to purchase 4,453,917 shares of the Company’s common stock. The Company recorded non-cash interest expense in the amount of $0.4 million as a result of this exchange. Additionally, the holders of an aggregate of $2.2 million stated value of the Company’s Series H Convertible Preferred Stock (the “Series H Preferred Stock”) exchanged such preferred stock into $2.7 million principal amount of Exchange Debentures and warrants to purchase 4,871,853 shares of the Company’s common stock. All of the Debentures contain a 24% original issue discount, have no regularly scheduled interest payments except in the event of a default and have a maturity date of March 21, 2019. The warrants issued with the Convertible Debentures and the Exchange Debentures are collectively referred to as the “Debenture Warrants.”
The Debentures are convertible into shares of the Company’s common stock (initially at a conversion price of $1.66, which has been adjusted pursuant to the terms of the Debentures to $0.39 due to prices at which the Company has subsequently issued shares of common stock). The Debentures will begin to amortize monthly commencing on the 90th day following the closing date, except for the Exchange Debentures related to the Series H Preferred Stock, which began to amortize monthly on the closing date. On each monthly amortization date, the Company may elect to repay 5% of the original principal amount of Debentures in cash or, in lieu thereof, the conversion price of such Debentures will thereafter be 85% of the volume weighted average price at the time of conversion. In the event the Company does not elect to pay such amortization amounts in cash, each investor, in their sole discretion, may increase the conversion amount subject to the alternative conversion price by up to four times the amortization amount. The Debentures contain customary affirmative and negative covenants. The conversion price is subject to reset in the event of offerings or other issuances of common stock, or rights to purchase common stock, at a price below the then conversion price, as well as other customary anti-dilution protections as more fully described in the Debentures. The Debentures are secured by all of the Company’s assets and are guaranteed by substantially all of the Company’s subsidiaries. Between March 22, 2017 and June 30, 2017, holders of the Exchange Debentures converted an aggregate of $2.7 million of debentures into 4,611,093 shares of common stock.
The exercise price of the Debenture Warrants is subject to reset in the event of offerings or other issuances of common stock, or rights to purchase common stock, at a price below the then exercise price, as well as other customary anti-dilution protections. As a result of these provisions, both the Debentures and the Debenture Warrants were deemed to be not indexed to the Company’s common stock, and the Company recognized derivative liabilities for the embedded conversion feature of the Debentures and the Debenture Warrants in the original amount of $15.3 million and $41.3 million, respectively. The Company recognized a discount for 100% of the principal value of the Debentures and non-cash interest expense in the amount of $43.7 million in connection with the recognition of these derivative liabilities. As a result of the adoption of ASU 2017-11, the interest expense and derivative liability originally recognized has since been adjusted and extinguished as reflected herein.
On June 2, 2017 and June 22, 2017, the Company issued $1.9 million aggregate principal amount of Original Issue Discount Debentures due three months from the date of issuance in these two issuances (collectively, the “June Debentures”) and warrants to purchase an aggregate of 1,500,000 shares of common stock (500,000 warrants in the June 2, 2017 transaction and 1,000,000 in the June 22, 2017 transaction), which can be exercised at any time after six months at an exercise price of $0.39 per share for the June 2, 2017 warrants and $0.38 per share for the June 22, 2017 warrants (collectively the “Warrants”), to accredited investors for a purchase price of $1.8 million. The Company recorded a discount on the debentures of $107,700 which is to be amortized over the term of the June 22, 2017 debenture.
See Note 1 for the adoption of ASU 2017-11 for the retrospective adjustments made to the Company’s condensed consolidated financial statements with respect to the derivative liabilities associated with the Convertible Debentures.
The carrying amount of the Debentures as of June 30, 2017 (unaudited), is as follows:
There were no debentures as of December 31, 2016.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://www.xbrl.org/2003/role/presentationRef