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Notes Payable | 9 Months Ended
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Oct. 31, 2020
Debt Disclosure [Abstract] |
Notes Payable | NOTE 11. Notes Payable Notes payable consisted of the following as of the dates presented (in thousands):
|  | October 31, 2020 (unaudited) |  |  | December 31, 2019 |  |  | February 1, 2020 (unaudited) |
0% convertible note due January 2021 |  | $ | — |  |  | $ | 91 |  |  | $ | 91 |
6% promissory note due December 2020 |  |  | 500 |  |  |  | 500 |  |  |  | 500 |
12% convertible notes due October 2019 |  |  | — |  |  |  | 1,775 |  |  |  | 1,775 |
12% convertible notes due November 2019 |  |  | — |  |  |  | 400 |  |  |  | 400 |
12% convertible notes due May 2020 |  |  | — |  |  |  | 1,500 |  |  |  | 1,500 |
12% convertible notes due July, August and September 2020 |  |  | — |  |  |  | 4,235 |  |  |  | 4,235 |
12% secured promissory note due September 2020 |  |  | — |  |  |  | 7,858 |  |  |  | 7,858 |
6% promissory note due February 2024 |  |  | 1,250 |  |  |  | — |  |  |  | — |
1% promissory note due April 2022 |  |  | 3,098 |  |  |  | — |  |  |  | — |
Total face amount |  |  | 4,848 |  |  |  | 16,359 |  |  |  | 16,359 |
Unamortized discount |  |  | — |  |  |  | (3,047 | ) |  |  | (2,674 | )
Total carrying value |  |  | 4,848 |  |  |  | 13,312 |  |  |  | 13,685 |
Amount classified as current |  |  | 2,270 |  |  |  | 13,227 |  |  |  | 13,685 |
Amount classified as long-term |  | $ | 2,578 |  |  | $ | 85 |  |  | $ | — |
In January 2018, the Company issued an aggregate of $1,000,000 of 3-year 0% convertible notes and warrants. The notes were convertible into an aggregate of 57,029 shares of common stock of the Company and the warrants are exercisable for 57,029 shares of common stock of the Company at an exercise price of $91.50 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 a 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 at December 31, 2018. In connection with another debt exchange in October 2019 (see Note 12), holders of an aggregate principal amount of $184,000 of the notes converted their notes into common stock, leaving a principal balance of $91,000 outstanding at December 31, 2019. The unamortized discount related to the converted notes amounted to $15,000, which amount was included in the loss on debt extinguishment. In connection with a subsequent debt exchange in March 2020 (see Note 12), the holder of the final remaining $91,000 note converted its note into common stock. The unamortized discount related to the converted note of $5,000 was included in the gain on debt extinguishment. Accretion of the discount on these notes for the 39 weeks ended October 31, 2020 and the transition period from January 1, 2020 was $1,000 and nil, respectively. Accretion for the three and nine months ended September 30, 2019 was $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 note specified varying monthly payments of principal and interest through 2021. By October 2019, the Company had paid down the principal balance to $704,000. In connection with the debt exchange in October 2019 (see Note 12), $204,000 of the note plus accrued interest was converted into common stock, leaving an outstanding balance of $500,000. In March 2020, the note was amended so that the outstanding balance plus accrued interest at 6% from March 24, 2020 are now due on December 31, 2020. 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 a single unsecured 8% promissory note in the principal amount of $2,107,000. The note was due in a lump sum on March 31, 2021 with interest compounding 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 connection with the debt exchange in October 2019 (see Note 12), this note plus accrued interest was converted into common stock. In October 2018, the Company issued an aggregate of $4,000,000 of 1-year 12% convertible notes and warrants. The notes were convertible at the option of the holder after six months from the date of issuance into an aggregate of 94,118 shares of common stock of the Company and the warrants were exercisable for 47,059 shares of common stock of the Company at an exercise price of $42.50 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 was amortized to interest expense over the 1-year life of the notes on a straight-line basis, which approximated the effective interest method. In connection with the debt exchange in October 2019 (see Note 12), holders of an aggregate principal amount of $2,225,000 of the notes converted their notes plus accrued interest into common stock, leaving a principal balance of $1,775,000 outstanding at December 31, 2019. The unamortized discount related to the converted notes amounted to $8,000, which amount was included in the loss on debt extinguishment. In connection with the debt exchange in March 2020 (see Note 12), $1,700,000 of the remaining balance plus accrued interest was converted into common stock, and the remaining $75,000 note was amended so that the outstanding balance plus accrued interest at 6% from November 1, 2019 was due on June 30, 2020, which payment was timely made. 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 were convertible at the option of the holder after six months from the date of issuance into an aggregate of 27,727 shares of common stock of the Company and the warrants are exercisable for 13,864 shares of common stock of the Company at an exercise price of $44.00 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 was amortized to interest expense over the 1‑year life of the notes on a straight-line basis. In connection with the debt exchange in October 2019 (see Note 12), holders of an aggregate principal amount of $820,000 of the notes converted their notes plus accrued interest into common stock, leaving a principal balance of $400,000 outstanding at December 31, 2019. The unamortized discount related to the converted notes amounted to $5,000, which amount was included in the loss on debt extinguishment. In connection with the debt exchange in March 2020 (see Note 12), the remaining balance plus accrued interest was converted into common stock. 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 were convertible at the option of the holder after six months from the date of issuance into an aggregate of 125,900 shares of common stock of the Company and the warrants are exercisable for 62,950 shares of common stock of the Company at an exercise price of $27.20 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 was being amortized to interest expense over the 1-year life of the notes on a straight-line basis, which approximated the effective interest method. In connection with the debt exchange in October 2019 (see Note 11), holders of an aggregate principal amount of $2,000,000 of the notes converted their notes plus accrued interest into common stock, leaving a principal balance of $1,500,000 outstanding at December 31, 2019. The unamortized discount related to the converted notes amounted to $304,000, which amount was included in the loss on debt extinguishment. In connection with the debt exchange in March 2020 (see Note 12), the remaining balance plus accrued interest was converted into common stock. The unamortized discount related to the converted notes amounted to $57,000, which amount was included in the gain on debt extinguishment. Accretion of the discount for the 39 weeks ended October 31, 2020 amounted to $60,000. Accretion of the discount for the three and nine months ended September 30, 2019 was $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 was being amortized to interest expense over the 1-year life of the notes on a straight-line basis, which approximated the effective interest method. In connection with the debt exchange in October 2019 (see Note 12), holders of an aggregate principal amount of $316,000 of the notes converted their notes plus accrued interest into common stock, leaving a principal balance of $4,235,000 outstanding at December 31, 2019. The unamortized discount related to the converted notes amounted to $190,000, which amount was included in the loss on debt extinguishment. In connection with the debt exchange in March 2020 (see Note 12), the remaining balance plus accrued interest was converted into common stock. The unamortized discount related to the converted notes amounted to $1,946,000, which amount was included in the gain on debt extinguishment. Accretion of the discount for the 39 weeks ended October 31, 2020 and the transition period from January 1, 2020 to February 1, 2020 was $605,000 and $339,000, respectively. On September 25, 2019, in connection with the acquisition of Simply Mac discussed in Note 17, the Company issued a $7,858,000 secured promissory note to GameStop. The note bore interest at a rate equal to 12% per annum and called for the Company to make four equal installment payments of $1,965,000, plus accrued interest, on each 3-month anniversary of the note. The note was secured by, among other things, the Simply Mac inventory and accounts receivable. The first installment payment was due on December 25, 2019, but the Company was unable to make the payment. Consequently, at December 31, 2019, the note was in default, and GameStop provided the Company with an official Notice of Default on January 15, 2020. On March 11, 2020, the Company and GameStop entered into an agreement to amend and restate the promissory note. The amended promissory note reduced the principal balance of the note from $7,858,000 to $1,250,000, reduced the interest rate to 6% per annum and extended the maturity date to February 17, 2024. Additionally, the amended note released all prior security and collateral under the original note and is unsecured. The parties also entered into a Termination Agreement, whereby the Company agreed to pay GameStop an aggregate amount of $335,152, payable in twelve equal monthly installments of $27,929 with the first installment due April 30, 2020, in satisfaction of certain post-closing amounts owed to GameStop under the Stock Purchase Agreement and certain agreements related thereto, less amounts owed to the Company from GameStop under the Stock Purchase Agreement relating to the post-closing working capital adjustment thereunder. The Company also made a onetime cash payment of $250,000 to GameStop and released to GameStop $345,000 of funds held in escrow in connection with the Simply Mac acquisition. As a result of these agreements, the Company recorded a gain of $6,961,000 on the extinguishment of debt. On April 16, 2020, the Company secured a $3,098,000, 2-year loan from a regional bank (the “Lender”) pursuant to the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) under Title I of the Coronavirus Aid, Relief, and Economic Security Act passed by Congress and signed into law on March 27, 2020 (“CARES Act”). The note bears interest at 1.0% per annum and no payments were due for the first six months. In accordance with the applicable provisions of the CARES Act, on October 19, 2020, the Company filed its forgiveness application (the “Application”) with the Lender. The Company certified in the Application that 100% of the loaned funds were utilized during the 24-week covered period commencing April 16, 2020 to pay for qualified payroll and payroll related costs, and as such, requested that the entire principal balance be forgiven. The Application is subject to a 90‑day review by both the Lender and the SBA, after which the Company will be notified as to whether the Application is approved. If the Application is denied or partially approved, any remaining balance due on the loan must be repaid in equal monthly installments by April 16, 2022. Interest expense for notes payable for the 13 and 39 weeks ended October 31, 2020 was $34,000 and $325,000, respectively. Interest expense for the transition period from January 1, 2020 to February 1, 2020 was $158,000. Interest expense for the three and nine months ended September 30, 2019 was $1,331,000 and $2,960,000, respectively. Derivative Liability: As noted above, the $4,368,000 discount applied against the July, August and September convertible notes to account for the convertibility feature and warrants was recorded as a derivative liability on the Company’s balance sheet. At December 31, 2019, although the Company was no longer subject to Nasdaq requirements for shareholder approval, it was determined that the conversion features and warrants did not have fixed conversion or exercise prices. Accordingly, these instruments continued to be accounted for as derivative liabilities. The Company used the same methodology as described above to value the derivative liabilities at each subsequent measurement date. In connection with the debt exchange in October 2019 (see Note 12), the Company issued warrants valued at $3,586,000 that were also recorded as derivative liabilities. These warrants were valued at issuance date and at each subsequent measurement date utilizing the methodology described in Note 12, and are level 3 measurements. Total derivative liabilities of $7,954,000 were marked-to-market at December 31, 2019, February 1, 2020 and at March 31, 2020, the date the underlying notes were exchanged (see Note 12). The changes resulted in an increase in value of $806,000 at February 1, 2020 that was recorded as other expense in the Company’s statement of operations for the transition period from January 1 to February 1, 2020, and resulted in a decrease in value of $543,000 at March 31, 2020 that was recorded as other income for the 39 weeks ended October 31, 2020.

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