Debt Extinguishment |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2015 | |||
| Debt Extinguishment | |||
| Debt Extinguishment |
In February 2015, Factor Fund’s holdings in the Company were split between its two members, FLUX Carbon Starter Fund LLC (“FCSF”) and Five Nine Group LLC (“59G”). On February 26, 2015, Factor Fund assigned the balance due under the foregoing debenture in two equal $325,000 portions to its members, Five Nine Group LLC (“Five Nine”) and FLUX Carbon Starter Fund LLC (“FCSF”). On the same date, the Company additionally issued convertible debentures with a principal balance of $534,888 to Factor Fund in exchange for debentures issued to Factor Fund in prior periods. The issued amount was then assigned in two equal portions to Factor Fund’s members, Five Nine and FCSF. A total of $592,444 was due as of February 26, 2015, to each Five Nine and FCSF as a result of the foregoing transactions. Of the amount assigned to FCSF, $108,560 of principal plus $16,440 of interest was transferred to Long Side Ventures LLC (“LSV”). The Company accounted for the foregoing transfers as an extinguishment of debt and recorded a loss on extinguishment of $938,489. On December 31, 2015, 59G and FCSF entered into an agreement with the Company pursuant to which the Company securities held by 59G and FCSF were to be exchanged for two debentures in the amount of $250,000 and $255,000, respectively. Each debenture has a maturity date of December 31, 2018, and bears a 2% interest rate. Per ASC 470-50-40-10 the exchange of debt instruments between or a modification of a debt instrument by a debtor and a creditor in a non troubled debt situation is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. The company found that the present value of the cash flows of the new debt instrument was at least 10% different from the present value of the remaining cash flows of the original instrument. Therefore, debt extinguishment accounting rules apply. Accordingly, the reissued convertible notes payable were initially recorded at fair value, with a gain on extinguishment of debt of $639,667 for the difference in the fair value of the new notes compared to the carrying value of the old notes.
Effective as of December 31, 2015, GreenShift entered into a series of agreements providing for contingent participation payments involving use of the Company’s extraction technologies. Collectively, these agreements resulted in an aggregate of $26,720,059 in debt extinguishment for amounts that had been due, payable and accrued as of December 31, 2015, as well as a reduction in the Company’s continuing costs of sales, legal expenses and interest expense moving forward. First, GreenShift and YA Global Investments, L.P. (“YA Global”) entered into an agreement pursuant to which GreenShift agreed to pay 15% of all payments received by GreenShift from any new licensees issued in connection with its intellectual properties, including any amounts awarded in the Company’s pending and future infringement matters, net of any legal fees and expenses incurred in obtaining the settlement or award (see Note 9, Debt Obligations, above). Next, Cantor Colburn LLP (“Cantor”) and GreenShift entered into an amended agreement pursuant to which Cantor agreed to accept 15% of any recoveries from GreenShift’s pending patent litigation in excess of $3.6 million per year in exchange for all services rendered to date and moving forward. GreenShift recognized an $8,433,388 gain on extinguishment of debt upon the write-off of all accrued legal fees. The terms of the original and amended agreements include a beneficial conversion feature due to the variable nature of the number of shares that could be issued in settlement of fees under the agreement. As a result, GreenShift recognized and expense of $1,737,909 and $1,035,780 for the intrinsic value of the beneficial conversion feature for the years ended December 31, 2015 and 2014, respectively. Finally, CWT and GreenShift entered into an amended agreement pursuant to which CWT agreed to accept 20% of GreenShift’s net cash receipts deriving from use of the Company’s extraction technologies, after payment in full of all litigation costs and expenses (including attorneys’ fees and expenses). Under the amended CWT agreement, no amount shall accrue or be due and payable to CWT until the earlier to occur of the date on which all such litigation costs and expenses have been paid on a current basis, the date on which GreenShift has successfully appealed the October 2014 summary judgment ruling in GreenShift’s pending infringement litigation, and all applicable appeal periods in connection therewith have expired, or the date on which GreenShift has entered into new license agreements corresponding to an additional $1,000,000 in annualized revenue.
We accordingly consider these transactions to be an extinguishment of debt. The appropriate accounting treatment is therefore to recognize the difference between the net carrying amount of the extinguished debt and the reacquisition price of the debt as income in the current period. |