|9 Months Ended|
Sep. 30, 2020
|Debt Disclosure [Abstract]|
Note 8 – Debentures
The carrying amount of all outstanding debentures as of September 30, 2020 (unaudited), and December 31, 2019 was as follows:
The original terms of outstanding debentures at September 30, 2020 and December 31, 2019, which were issued during the years ending December 31, 2017, 2018 and 2019, are more fully described in Note 9 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2019. Certain of these debentures were issued with warrants to purchase shares of the Company’s common stock. Outstanding warrants are more fully discussed in Note 13.
During the nine months ended September 30, 2019, the Company realized a total of $3.8 million in proceeds from issuances of debentures. No debentures were issued during the nine months ended September 30, 2020. During the three and nine months ended September 30, 2019, the Company recorded approximately $1.4 million and $15.9 million, respectively, of non-cash interest and amortization of debt discount expense primarily in connection with the debentures and warrants. The interest expense for the nine months ended September 30, 2019 included $9.5 million of expense due to the modifications of warrants during the period. The modifications are more fully discussed in Notes 11 and 13. These discounts were fully amortized as of September 30, 2019 and, accordingly, no amortization associated with the debentures was recorded in the three and nine months ended September 30, 2020.
In addition to the non-cash interest expense and amortization of debt discount recorded during the three and nine months ended September 30, 2019 discussed in the paragraph above, during the three months ended September 30, 2020 and 2019, the Company accrued interest expense on outstanding debentures of $1.5 million and $0.2 million, respectively, and during the nine months ended September 30, 2020 and 2019, the Company accrued interest expense on outstanding debentures of $5.4 million and $0.4 million, respectively.
Payment of all outstanding debentures totaling $14.3 million at September 30, 2020 was past due by the debentures’ original terms and the Company recorded approximately $6.6 million of non-payment penalties, of which $5.7 million was recorded in the nine months ended September 30, 2019, as a result of the payment defaults. In January 2020, the Company and Mr. Diamantis entered into a Forbearance Agreement with certain debenture holders under which Mr. Diamantis paid the debenture holders $50,000 for legal fees and $220,000 in principal payments on debentures that were issued in February 2019. In addition, Mr. Diamantis, who had guaranteed certain of the debentures, agreed to grant the debenture holders security interests in certain potential legal settlements funds that may become due to Mr. Diamantis. The Forbearance Agreement, which terminated on March 15, 2020, required the Company and Mr. Diamantis to repay the debenture holders a total of $4.9 million on or before the termination date, of which $4.7 million was not repaid. During May 2020, the Company repaid $0.5 million of the debentures. On June 30, 2020, the Company received a formal notice of default and demand for full payment of the $29.2 million of outstanding debentures on that date plus accrued interest. The Company repaid $0.2 million of the debentures in July 2020.
On August 31, 2020, the Company and the debenture holders entered into the Exchange, Redemption and Forbearance Agreements (the “Exchange and Redemption Agreements”) wherein they agreed to:
During the three and nine months ended September 30, 2020, as a result of the Exchange and Redemption Agreements, the Company recorded (i) a $0.4 million gain on the extinguishment of debt, which included the potential exchange premium of $1.65 million, and a $0.3 million fair value adjustment to the debenture principal, partially offset by the reduction in interest expense of $2.3 million; and (ii) deemed dividends of $3.7 million as a result of the exchange of the debentures and Series I-1 and I-2 Preferred Stock for shares of the Series N Preferred Stock. The Company recorded the $1.65 million potential exchange premium as of September 30, 2020 because its ability to raise sufficient capital to make the $10 million cash payment on or before November 29, 2020 is uncertain at this time.
In addition, during the three and nine months ended September 30, 2020, the Company recorded $59.8 million of deemed dividends as a result of the down round provisions of debentures and warrants. See Notes 11 and 13.
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://fasb.org/us-gaap/role/ref/legacyRef