v3.21.1

Stockholders' Deficit | 12 Months Ended
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Jan. 30, 2021
Equity [Abstract] |
Stockholders' Deficit | NOTE 12—STOCKHOLDERS’ DEFICIT Preferred Stock The Company has authorized the issuance of 10,000,000 shares of 0% Series A Convertible Preferred Stock. As of January 30, 2021, a total of 2,000 shares were outstanding. The preferred shares rank senior to the common stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding-up of the Company, and are entitled to vote on all shareholder matters. The preferred shares are essentially convertible into common stock of the Company on a one-for-one basis at the election of the holder. At the outset of 2019, 32,000 preferred shares were outstanding, and in September 2019, the holder of 30,000 preferred shares converted its preferred shares into common shares. Common Stock and Warrants The Company has authorized the issuance of 150,000,000 shares of common stock. As of January 30, 2021, a total of 11,465,000 shares were outstanding. On January 9, 2019, the Company entered into a fee settlement agreement with a vendor to whom it owed $164,000. In the agreement, the parties agreed to satisfy this obligation by the Company issuing to the vendor 9,345 restricted common shares and warrants to purchase 9,345 common shares at $16.40 per share. The warrants are exercisable beginning July 9, 2019 and expire January 9, 2022. The fair value of the restricted stock on the date of issuance was estimated to be $114,000 using a 25% discount for trading restrictions computed using a risk-free interest rate of 2.52% for the 6-month hold period and an expected volatility of 90% based on the Company’s historical stock price fluctuation. The fair value of the warrants was estimated on the date of issuance at $59,000 using the Black-Scholes pricing model and assuming a 90% volatility rate and a risk-free interest rate of 2.54% based on the 3-year U.S. Treasury rate then in effect. The combined value of the stock and warrants was $173,000, and the Company recorded a loss on extinguishment of debt of $9,000. During March 2019, holders of warrants on 38,217 shares of the Company’s common stock exercised the warrants at the strike price of $30.20 per share, which resulted in aggregate cash proceeds to the Company of $1,154,000. On September 30, 2019, the holder of 30,000 shares of preferred stock converted the shares into an equal number of shares of common stock. During October 2019, the Company entered into exchange agreements with the holders of certain then outstanding promissory and convertible notes in the principal amount of $7,852,000 and related accrued interest of $668,000. The carrying value of the debt at the time of extinguishment was $7,461,000. The aggregate amount owed of $8,520,000 was exchanged into 1,671,000 shares of common stock at $5.10 per share and 1,540,000 warrants to purchase common stock at $5.10 per share. The warrants, which have a cashless exercise feature, are exercisable beginning on the exchange date and expire in 3 years. The Exchange was made in reliance on the exemption from the registration requirements of the Securities Act of 1933 (the “Act”), as amended, provided by Section 3(a)(9) of the Act. All of the common stock issued in the transaction were “restricted securities,” as defined in Rule 144(a)(3), promulgated under the Act. The issued common stock was valued at the closing market price on the exchange date and had an aggregate value of $8,464,000. The fair value of the warrants was estimated at $3,713,000 using the Black-Scholes pricing model and assuming the closing market price of the underlying stock on the exchange date, a risk-free interest rate ranging from 1.5% to 1.7% based on the U.S. Treasury rate then in effect, a 3-year life and an expected volatility of 70%. The combined value of the stock and warrants issued in exchange for the outstanding principal amount was $12,177,000, and the Company recorded a loss on extinguishment of debt of $4,048,000. During March 2020, the Company completed the exchange of two outstanding convertible notes with a principal amount of $434,000 and related accrued interest of $8,000 into 86,800 shares of common stock at $5.10 per share in accordance with exchange agreements entered into in October 2019. The value of the stock issued in the exchange was $35,000, and the Company recorded a gain on extinguishment of debt of $204,000. Also during March 2020, the Company entered into an additional debt restructuring that resulted in the conversion of debt with an aggregate principal amount of $7,492,000 and accrued interest of $691,000 into common stock of the Company. The carrying value of the debt and related derivative liability at the time of extinguishment amounted to $8,341,000. The aggregate total of $8,183,000 was converted into 4,814,000 shares of common stock at $1.70 per share. The combined value of the stock issued in the conversion was $1,869,000, and the Company recorded a gain on extinguishment of debt of $6,472,000. The restructuring also included the settlement of other outstanding claims, that resulted in the issuance of an additional 1,068,000 common shares, of which 1,040,000 shares were attributable to a royalty claim in connection with the September 2019 acquisition of Simply Mac. The $415,000 value of the 1,040,000 shares was recorded in other expenses in the Company’s statement of operations for the year ended December 31, 2019 and as an accrued liability at December 31, 2019. The aggregate number of common shares issued in these transactions was 5,882,000. However, pursuant to a 4.99% blocker request from the holders, only 270,000 shares have been delivered, and 5,612,000 shares remain to be delivered. During June 2020, the Company issued 80,000 shares of common stock valued at $106,000 to its two outside directors in lieu of payment of accrued director fees, and in June, September and December 2020, issued an aggregate of 54,000 shares of common stock valued at $57,000 to three former executives in lieu of payment of accrued severance. During August 2020, the Company repurchased and retired 70,000 shares of common stock, valued at $28,000, previously issued to one of its employees. On October 14, 2020, the Company executed a 1-for-10 reverse stock split and issued 2,000 shares of common stock in lieu of fractional shares. All references to shares and per-share amounts have been restated to give effect to this reverse split. Stock Options and Stock-based Compensation The Company’s 2015 Equity Incentive Plan (the “Plan”) was approved by stockholders in June 2015 with 5,000 shares authorized for issuance thereunder. In December 2018, stockholders approved an amendment to the Plan to increase the number of shares authorized for issuance thereunder by 79,000 shares. In November 2019, stockholders approved an amendment to the Plan to increase the number of shares authorized for issuance thereunder by 1,500,000 shares. In December 2020, stockholders approved an amendment to the Plan to increase the number of shares authorized for issuance thereunder by 1,500,000 shares. The Plan is intended to provide incentives to key employees, officers, directors and consultants who provide significant services to the Company. The exercise price is determined by the Compensation Committee, but must be at least equal to the fair market value of the common stock on the date of grant of such option. The Compensation Committee also establishes the vesting schedule for each option granted and the term of each option, which cannot exceed 10 years from the date of grant. In the event of termination, vested options generally must be exercised within three months. In a change of control, if outstanding awards under the Plan are assumed or substituted by a successor company, such awards do not automatically fully vest but may become fully vested in the event of a qualifying termination following such change of control. The Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the award, which is generally the option vesting term. Options granted generally vest over a two-year or three-year period. Income tax effects of share-based payments are recognized in the financial statements for those awards which will normally result in tax deductions under existing tax law. Under current U.S. federal tax law, we would receive a compensation expense deduction related to non-qualified stock options only when those options are exercised and vested shares are received. Accordingly, the financial statement recognition of compensation expense for non-qualified stock options creates a deductible temporary difference which results in a deferred tax asset and a corresponding deferred tax benefit in the income statement. No stock options were granted by the Company during the fiscal year ended December 31, 2019 or the transition period from January 1, 2020 to February 1, 2020. A summary of stock option activity for the fiscal year ended January 30, 2021 is as follows (shares and aggregate intrinsic value in thousands):
|  | Shares |  |  | Wtd. Avg. Exercise Price |  |  | Wtd. Avg. Remaining Contractual Life |  | Aggregate Intrinsic Value (a) |
Outstanding at December 31, 2019 and February 1, 2020 |  |  | — |  |  | $ | 345.40 |  |  |  |  |  |  |
Granted |  |  | 855 |  |  | $ | 1.66 |  |  |  |  |  |  |
Expired |  |  | — |  |  | $ | 342.89 |  |  |  |  |  |  |
Forfeited |  |  | — |  |  | $ | — |  |  |  |  |  |  |
Outstanding at January 30, 2021 |  |  | 855 |  |  | $ | 1.74 |  |  | 4.74 years |  | $ | 2,172 |
Vested and expected to vest |  |  | 855 |  |  | $ | 1.66 |  |  | 4.74 years |  | $ | 2,172 |
Exercisable at January 30, 2021 |  |  | 707 |  |  | $ | 1.77 |  |  | 4.75 years |  | $ | 1,789 |
Non-vested at January 30, 2021 (b) |  |  | 148 |  |  | $ | 1.61 |  |  | 4.69 years |  | $ | 383 |
| (a) | The aggregate intrinsic value is based on our closing stock price of $4.20 as of January 30, 2021.
| (b) | The weighted-average grant date fair value of non-vested options at January 30, 2021 was $1.06 per share.
During the fiscal year ended January 30, 2021, the Company granted stock options under the Plan to purchase an aggregate of 855,000 shares to employees and directors. The fair value of the option grants was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: stated life of 5 years; risk-free interest rate of 0.2% to 0.3% based on the U.S. Treasury yields in effect at the time of grant; expected dividend yield of 0% as the Company has not, and does not intend to, declare dividends; and an expected life of 2.5 years for options having immediate vesting and 3.3 years for graded vested options. The expected annualized volatility of the Company’s common stock used in the calculation ranged from 95% to 108%. Determination of the volatility rate began with the fully-observed historical volatility of the Company’s common 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 Cooltech merger from which to obtain an implied volatility. Certain adjustments were then applied to the fully‑observed historical volatility through June 2020 by excluding the effects of the Company’s extraordinarily-significant announcements and events during the period. Stock option expense for the year amounted to $722,000. During the fiscal year ended December 31, 2019, the Company made incentive stock grants under the Plan to employees in the aggregate amount of 140,000 shares, 130,000 of which vested in 2019. The Company also made stock grants in 2019 under the Plan to former employees in lieu of severance in the aggregate amount of 721,000 shares. Grants of unregistered shares were also made to the three advisors associated with the March 2020 debt restructuring (who were existing note holders) in the aggregate amount of 1,000,000 shares, together with 1-year warrants exercisable for 1,000,000 shares at an exercise price of $0.50 per share. The Company valued the stock grants at the closing market price on the date of grant and valued the warrants in accordance with ASC 718 using a Black-Scholes model. The valuation assumed a 70% volatility rate of the Company’s common stock and a risk-free interest rate of 1.6%. On a combined basis, the 1,851,000 shares and 1,000,000 warrants issued were valued at $3,265,000, which amount was recorded as compensation expense during the fiscal year ended December 31, 2019. In April 2020, the Company made grants of unregistered shares to two of the advisors in the aggregate amount of 300,000 shares, and a corresponding reduction of warrants on 300,000 shares previously issued to the advisors. On a combined basis, the shares issued were valued at $216,000, and the warrant reductions were valued at $89,000, resulting in a net compensation expense of $127,000. In December 2020, the advisors exercised warrants on an aggregate of 453,000 shares for an exercise price of $227,000, leaving warrants on 247,000 shares unexercised. The unexercised warrants were set to expire on January 6, 2021. The Company agreed to extend the expiration date of the warrants by four months to May 6, 2021. The warrant modifications were valued in accordance with ASC 718 using the same assumptions in the original valuation, but no additional compensation expense was valued or recorded in the fiscal year ended January 30, 2021. In June 2020, the Company made stock grants under the Plan in an aggregate amount of 295,000 shares to its board of directors. The stock was valued at $390,000 based on the closing market price on the date of grant, which amount was also recorded as compensation expense. Additional compensation expense for vesting of restricted shares during the fiscal year ended January 30, 2021 amounted to $93,000, bringing total stock-based compensation expense for the year to $1,332,000. Future stock-based compensation related to unvested restricted stock and stock options at January 30, 2021 amounts to $167,000.

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