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Convertible Debt | 9 Months Ended
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Sep. 30, 2019
Debt Disclosure [Abstract] |
Convertible Debt | Convertible Debt Convertible Bonds On August 1, 2019, the Company closed a private placement of the Bonds with an aggregate principal amount of 18 billion Korean Won (KRW) (approximately USD $15.0 million based on the exchange rate on the date of issuance) issued to institutional investors led by Korea Investment Partners (KIP), a global venture capital and private equity firm based in Seoul, Korea. Net proceeds from the offering were approximately $14.5 million. The Company also announced its intent to pursue a listing of its securities on the KOSDAQ Market of the Korea Exchange (KOSDAQ) in the form of Korean Depositary Receipts (KDRs) representing shares of common stock. The Bonds, which are unsecured obligations of the Company, were issued on August 1, 2019 and will accrue interest at a coupon rate of 1.00% per annum, payable quarterly. The Bonds will mature on July 31, 2024, unless earlier converted or repurchased. The outstanding Bonds will be repaid at maturity at a price equal to the principal of the outstanding bonds to be repaid plus a premium on such bonds to provide an internal rate of return with respect to such bonds of 6.00%. Commencing on August 1, 2020, the Bonds will be convertible until the date that is one month prior to maturity date. Upon conversion, the Company will deliver KDRs, if the Company has any such securities listed on the KOSDAQ at that time, or otherwise shares of common stock, if KDRs are not listed on KOSDAQ at that time or the converting holder requests delivery of shares of common stock. The initial conversion rate is 211.0595 shares per KRW 1,000,000 in principal amount (equivalent to an initial conversion price of approximately USD $4.00 per share based on the exchange rate as of July 30, 2019), subject to adjustment upon the occurrence of specified events. The conversion rate is subject to reset on January 2, 2020 and on each three month anniversary thereafter until the maturity date to the then current market price if the current market price is lower than the conversion price then in effect; provided that the conversion rate will not exceed 351.7658 shares per KRW 1,000,000 (equivalent to a conversion price of approximately USD $2.40 per share based on the exchange rates as of July 30, 2019). The Bonds will be subject to repurchase by the Company at the option of the bondholders from and including July 31, 2022 up to the date that is one month prior to the maturity date at a repurchase price equal to the principal of the Bonds to be repurchased plus a premium in order to provide an internal rate of return with respect to the Bonds of 6.00%. In addition, upon the occurrence of a fundamental change (as defined in the Bonds), the Company will be required to offer to repurchase the Bonds at a repurchase price equal to the principal amount thereof plus accrued and unpaid interest thereon to but excluding the applicable repurchase date. Upon the occurrence of an event of default (as defined in the Bonds), with the approval of at least 25% of the bondholders, the Company will be required to offer to repurchase the Bonds at a repurchase price equal to the principal amount thereof plus a premium in order to provide an internal rate of return with respect to the Bonds of 8.00%. The Company evaluated the accounting for the issuance of the Bonds and concluded that the embedded conversion feature is considered a derivative requiring bifurcation from the Bonds as it does not meet the equity scope exception due to the fact that it is denominated in a currency other than the Company's functional currency. The fair value of the conversion feature at August 1, 2019 was $7.1 million, which was recorded as a reduction to the carrying value of the debt. This debt discount is being amortized to interest expense over the term of the debt using the effective interest method. The conversion option is accounted for as a derivative liability, which is revalued each reporting period with the resulting change in fair value reflected in other income (expense), net, in the condensed consolidated statements of operations. The Company determined that all other features of the Bonds were clearly and closely associated with a debt host and did not require bifurcation as a derivative liability, or the fair value of the feature was immaterial to the Company's condensed consolidated financial statements. The balance of the Bonds at September 30, 2019 is as follows:
Principal amount | $ | 15,052,055 |
Unamortized debt discount | (6,945,328 | )
Unamortized debt issuance cost | (262,013 | )
Accretion of premium associated with the Bonds | 84,569 |
Accrued interest | 25,568 |
Net carrying amount | $ | 7,954,851 |
The Company determined that the expected life of the Bonds was equal to the period through August 1, 2022 as this represents the point at which the Bonds are initially subject to repurchase by the Company at the option of the holders. Accordingly, the total debt discount of $7.3 million, inclusive of the fair value of the embedded conversion feature derivative at issuance, is being amortized using the effective interest method through August 1, 2022. The effective interest rate of the Bonds is 29.4%. For the three and nine months ended September 30, 2019, the Company recognized $374,000 of interest expense related to the Bonds, of which $26,000 related to the contractual interest coupon. As of September 30, 2019, there have not been any conversions or redemptions of the Bonds. The derivative liability is valued at $4.5 million as of September 30, 2019. The change in fair value of the derivative liability was $2.6 million for the three and nine months ended September 30, 2019. Convertible Senior Notes On February 19, 2019 and March 1, 2019, the Company completed a private placement of $78.5 million aggregate principal amount of its 6.50% convertible senior notes due 2024 (the “Notes”). The Notes were sold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Net proceeds from the offering were approximately $75.7 million. The Notes are senior unsecured obligations of the Company and accrue interest payable in cash semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2019, at a rate of 6.50% per annum. The Notes will mature on March 1, 2024, unless earlier converted, redeemed or repurchased. Prior to the close of business on the business day immediately preceding November 1, 2023, the Notes will be convertible at the option of the holders only upon the satisfaction of certain circumstances. Thereafter, the Notes will be convertible at the option of the holders at any time until the close of business on the scheduled trading day immediately before the maturity date. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. The initial conversion rate will be 185.8045 shares per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $5.38 per share), subject to adjustment upon the occurrence of specified events. The Company may not redeem the Notes prior to March 1, 2022. On or after March 1, 2022, the Company may redeem all, or any portion, of the Notes for cash if the last reported sale price per share of the Company's common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the trading day immediately before the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such redemption notice. The redemption price will be equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. The Company evaluated the accounting for the issuance of the Notes and concluded that the embedded conversion features meet the requirements for a derivative scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in its condensed consolidated balance sheet, and that the cash conversion guidance applies. Therefore, the Notes issuance proceeds of $78.5 million are allocated first to the liability component based on the fair value of non-convertible debt with otherwise identical residual terms with the residual proceeds allocated to equity for the conversion features. The Company determined that the fair value of the non-convertible debt upon issuance of the Notes was $62.2 million and recorded this amount as a liability and the offsetting amount as a debt discount as a reduction to the carrying value of the Notes on the closing date. The debt issuance costs associated with the Notes of $2.8 million are allocated to the liability and equity component in the same proportion as the issuance proceeds. The Company determined that all other features of the Notes were clearly and closely associated with a debt host and did not require bifurcation as a derivative liability, or the fair value of the feature was immaterial to the Company's condensed consolidated financial statements. The balance of the Notes at September 30, 2019 is as follows:
Principal amount | $ | 78,500,000 |
Unamortized debt discount on the liability component | (14,772,356 | )
Unamortized debt issuance cost | (2,033,181 | )
Accrued interest | 425,208 |
Net carrying amount | $ | 62,119,671 |
The Company determined that the expected life of the Notes was equal to the period through November 1, 2023 as this represents the point at which the Notes are initially subject to repurchase by the Company at the option of the holders. Accordingly, the total debt discount of $18.6 million, inclusive of the fair value of the embedded conversion feature derivative at issuance, is being amortized using the effective interest method through November 1, 2023. The effective interest rate of the liability component is 13.1%. For the three and nine months ended September 30, 2019, the Company recognized $2.1 million and $4.9 million, respectively, of interest expense related to the Notes, of which $1.3 million and $3.1 million, respectively, related to the contractual interest coupon. As of September 30, 2019, there have not been any conversions or redemptions of the Notes.

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- Definition 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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