v3.19.3

Notes Payable | 9 Months Ended
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Sep. 30, 2019
Debt Disclosure [Abstract] |
Notes Payable | NOTE 10. Notes Payable Notes payable consisted of the following as of the dates presented (in thousands):
|  | September 30, 2019 (unaudited) |  |  | December 31, 2018 |
8% secured promissory notes due August 2018 |  | $ | — |  |  | $ | 250 |
0% convertible notes due January 2021 |  |  | 275 |  |  |  | 275 |
4% promissory note due April 2021 |  |  | 704 |  |  |  | 847 |
0% promissory note due April 2019 |  |  | — |  |  |  | 418 |
8% promissory note due March 2021 |  |  | 2,107 |  |  |  | 2,107 |
12% convertible notes due October 2019 |  |  | 4,000 |  |  |  | 4,000 |
12% convertible notes due November 2019 |  |  | 1,220 |  |  |  | 1,220 |
12% convertible notes due May 2020 |  |  | 3,500 |  |  |  | — |
12% convertible notes due July 2020 |  |  | 350 |  |  |  | — |
12% convertible notes due August 2020 |  |  | 350 |  |  |  | — |
12% convertible notes due September 2020 |  |  | 3,851 |  |  |  | — |
12% secured promissory note due September 2020 |  |  | 7,858 |  |  |  | — |
Total face amount |  |  | 24,215 |  |  |  | 9,117 |
Unamortized discount |  |  | (4,956 | ) |  |  | (1,780 | )
Total carrying value |  |  | 19,259 |  |  |  | 7,337 |
Amount classified as current |  |  | 16,544 |  |  |  | 4,464 |
Amount classified as long-term |  | $ | 2,715 |  |  | $ | 2,873 |
In August 2017, the Company issued a $250,000 secured promissory note with a 1-year term bearing interest at 8%. The $250,000 note was not paid upon maturity, and went into default. Upon agreement with the holder, the note was paid in full, including additional default interest on February 14, 2019. In January 2018, the Company issued an aggregate of $1,000,000 of 3-year 0% convertible notes and warrants. The notes are convertible into an aggregate of 570,287 shares of common stock of the Company and the warrants are exercisable for 570,287 shares of common stock of the Company at an exercise price of $9.15 per share. The Company valued the debt and the warrants in accordance with ASC 470-20-25-2 using a binomial option pricing model for the warrants, and the conversion feature, which was determined to be a Beneficial Conversion Feature, was recorded at fair value based on the difference between the closing market price of the Company’s stock on the date of the transaction and the implied conversion price in the fair value of the debt. The valuation assumed a 105% volatility rate of the Company’s common stock, a risk-free interest rate of 2.20% and a credit spread of 7.70%. The warrants were assigned a value of $127,000 and the conversion feature was assigned a value of $144,000. The remaining value of $729,000 was assigned to the debt. The aggregate discount of $271,000 is being amortized to interest expense over the 3-year life of the notes on a straight-line basis. In connection with the debt exchange on August 15, 2018, holders of an aggregate principal amount of $725,000 of the notes converted their notes to common stock, leaving a principal balance of $275,000 outstanding. The unamortized discount related to the converted notes amounted to $163,000, which amount was recorded as accretion expense in the period. Accretion of the discount for the three and nine months ended September 30, 2019 amounted to $6,000 and $18,000, respectively. In April 2018, the Company issued a $1,000,000 installment note bearing interest at 4.02% per annum due April 30, 2021. The principal balance outstanding on the note at September 30, 2019 was $704,000. The note specifies varying monthly payments of principal and interest with annual principal payments of $305,000, $359,000 and $183,000 in 2019 through 2021. In August 2018, in connection with the Unitron acquisition, the Company assumed the remaining balance of $868,000 on 0% promissory notes with $450,000 paid in October 2018 and $418,000 paid in April 2019. In September 2018, the Company entered into a Note Consolidation Agreement with a lender in which 12 promissory notes and associated accrued interest were consolidated into single unsecured 8% promissory note in the principal amount of $2,107,000. The note is due in a lump sum on March 31, 2021. Interest compounds annually. Because the present value of the cash flows under the terms of the new debt instrument was less than 10% different from the present value of the aggregate remaining cash flows under the terms of the original instruments, the debt instruments were not considered to be substantially different and the transaction was not considered a debt extinguishment. In October 2018, the Company issued an aggregate of $4,000,000 of 1-year 12% convertible notes and warrants. The notes are convertible at the option of the holder after six months from the date of issuance into an aggregate of 941,181 shares of common stock of the Company and the warrants are exercisable for 470,592 shares of common stock of the Company at an exercise price of $4.25 per share. The Company valued the debt and the warrants in accordance with ASC 470-20-25-2 using a binomial option pricing model for the warrants, and the conversion feature, which was determined to be a Beneficial Conversion Feature, was recorded at fair value based on the difference between the closing market price of the Company’s stock on the date of the transaction and the implied conversion price in the fair value of the debt. The valuation assumed a 90% volatility rate of the Company’s common stock, a 25% discount on the value of the underlying stock due to trading restrictions, and a risk-free interest rate of 2.47%. The warrants were assigned a value of $769,000 and the conversion feature was assigned a value of $1,173,000. The remaining value of $2,058,000 was assigned to the debt. The aggregate discount of $1,942,000 is being amortized to interest expense over the 1-year life of the notes on a straight-line basis, which approximates the effective interest method. Accretion of the discount for the three and nine months ended September 30, 2019 amounted to $485,000 and $1,456,000, respectively. In November 2018, the Company issued an aggregate of $1,220,000 of 1-year 12% convertible notes and warrants. The notes are convertible at the option of the holder after six months from the date of issuance into an aggregate of 277,274 shares of common stock of the Company and the warrants are exercisable for 138,638 shares of common stock of the Company at an exercise price of $4.40 per share. The Company valued the debt and the warrants in accordance with ASC 470-20-25-2 using a binomial option pricing model for the warrants. The conversion feature was not assigned any value as the implied conversion price in the fair value of the debt was higher than the closing market price of the Company’s stock on the date of the transaction. The valuation assumed a 90% volatility rate of the Company’s common stock, a 25% discount on the value of the underlying stock due to trading restrictions, and a risk-free interest rate of 2.52%. The warrants were assigned a value of $118,000 and the remaining value of $1,102,000 was assigned to the debt. The discount of $118,000 is being amortized to interest expense over the 1‑year life of the notes on a straight-line basis. Accretion of the discount for the three and nine months ended September 30, 2019 amounted to $29,000 and $88,000, respectively. In May 2019, the Company issued an aggregate of $3,500,000 of 1-year 12% convertible notes and warrants. The notes are convertible at the option of the holder after six months from the date of issuance into an aggregate of 1,258,996 shares of common stock of the Company and the warrants are exercisable for 629,500 shares of common stock of the Company at an exercise price of $2.72 per share. The Company valued the debt and the warrants in accordance with ASC 470-20-25-2 using a binomial option pricing model for the warrants, and the conversion feature, which was determined to be a Beneficial Conversion Feature, was recorded at fair value based on the difference between the closing market price of the Company’s stock on the date of the transaction and the implied conversion price in the fair value of the debt. The valuation assumed a 105% volatility rate of the Company’s common stock, a 30% discount on the value of the underlying stock due to trading restrictions, and a risk-free interest rate of 2.33%. The warrants were assigned a value of $507,000 and the conversion feature was assigned a value of $243,000. In addition, the Company incurred fundraising costs of $190,000, which were recorded as an additional discount. The remaining value of $2,750,000 was assigned to the debt. The aggregate discount of $940,000 is being amortized to interest expense over the 1-year life of the notes on a straight-line basis, which approximates the effective interest method. Accretion of the discount for the three and nine months ended September 30, 2019 amounted to $235,000 and $352,000, respectively. In July, August and September 2019, the Company issued a number of tranches of 1-year 12% convertible notes and warrants with an aggregate principal amount of $4,551,000. The notes and warrants are convertible/exercisable at the option of the holders into the Company’s shares of common stock at any time during their respective exercisability period commencing on the date the Company obtains shareholder or other required regulatory approvals to permit the conversion of the notes (the “Approval Date”). The funds raised from the issuance of these notes were used to finance the acquisition of Simply Mac. At the time of issuance of the notes, both the note conversion prices and the warrant exercise prices were structured to be a discount to the current market price of the Company’s stock, certain notes at a 20% discount to the 5-day closing average price and others at a 30% discount to the 2-day volume weighted average price. However, in order to issue the convertible notes and warrants below market, shareholder approval was required according to Nasdaq rules to which the Company was subject at the time. Consequently, the trigger date for the conversion and warrant pricing was set as the Approval Date. In accordance with ASC 815, the conversion options embedded in the respective notes meet the criteria of a derivative instrument liability and are bifurcated from the host debt contract. Similarly, the warrants meet the criteria of a freestanding derivative instrument liability. Accordingly, the notes and warrants are recorded at fair value as of the respective issuance dates and marked-to-market at subsequent reporting dates with the changes recorded as gains or losses. Based on facts and circumstances as of the respective measurement dates, a Monte-Carlo simulation, a continuous stochastic-process of randomly generating values for uncertain variables, was utilized in determining the fair value of the notes and warrants. This valuation methodology provides the ability and flexibility of capturing the variability and uncertainty underlying the instruments’ unique conditions, features, and terms. The valuations assumed a 70% expected annualized equity volatility rate of the Company’s common stock. Determination of this rate began with the full-observed historical volatility of the stock dating back to March 2018, immediately following the announcement of completion of the Cooltech merger and related stock split. It was noted that the Company did not have any exchange-traded options since the merger from which to obtain an implied volatility. Certain adjustments were then applied to the full-observed historical volatility in the form of excluding the effects of the Company’s extraordinarily-significant announcements and events during such period and capturing market participants’ views of pricing convertible notes (compared to own non-convertible debt with similar maturity or publicly-traded comparable debt issuances) and illiquid shares and warrants. Considering the utilization of unobservable inputs, as defined by ASC 820, the fair value of the notes and warrants as of the respective issuance dates and at September 30, 2019 are level 3 measurements. As a result of the valuation methodology, the conversion feature was assigned a value of $2,471,000 and the warrants were assigned a value of $1,897,000. The remaining value of $182,000 was assigned to the debt. The aggregate discount of $4,368,000 is being amortized to interest expense over the 1-year life of the notes on a straight-line basis, which approximates the effective interest method. Accretion of the discount for the three months ended September 30, 2019 amounted to $217,000. As noted above, the $4,368,000 discount was recorded as a derivative liability on the Company’s balance sheet, which amount was marked-to-market at September 30, 2019. At that date, the fair market value of the derivative liability amounted to $4,091,000, which represented a $277,000 decrease in the liability that was recorded as other income in the Company’s financial statements. On September 25, 2019, in connection with the Company’s acquisition of Simply Mac from GameStop Corp. (“GameStop”), the Company issued a 12% secured promissory note to GameStop in the amount of $7,858,000 representing a portion of the purchase price for Simply Mac. The principal of the note is due in four equal installments on each 3-month anniversary of the note, with accrued interest payable on each installment date. In addition, in the event that after the payment of any installment, the remaining principal balance of the note is greater than 65% of the value of Simply Mac’s inventory, then an additional payment will be required to reduce the principal balance down to the 65% level. The note is secured by the inventory, receivables and other financial assets of the Company and all of its wholly-owned subsidiaries, and contains other restrictive covenants. Interest expense for notes payable for the three and nine months ended September 30, 2019 amounted to $1,331,000 and $2,959,000,000, respectively. Interest expense for notes payable for the three and nine months ended September 30, 2018 amounted to $506,000 and $1,028,000, respectively.

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