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Convertible Debt | 9 Months Ended
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Sep. 30, 2020
Debt Disclosure [Abstract] |
Convertible Debt | Convertible Debt 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 the Notes 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 featu res. 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 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%. In July 2020, the Company received notices for the conversion of $19.1 million of principal amount of the Notes, which were settled in July 2020 into an aggregate of 3,546,074 shares of the Company's common stock. The fair value of the Notes at the date of conversion was $13.0 million compared to the carrying value of $16.1 million, resulting in a $3.1 million gain on extinguishment of debt. This gain was recorded in the condensed consolidated statement of operations. To measure the fair value of the converted Notes as of the conversion dates, the Company engaged a third-party valuation expert and utilized a binomial lattice model. The balance of the Notes at September 30, 2020 is as follows:
Principal amount | $ | 78,500,000 |
Principal amount converted into common shares | (19,085,000) |
Unamortized debt discount on the liability component | (8,965,643) |
Unamortized debt issuance cost | (1,233,978) |
Accrued interest | 321,831 |
Net carrying amount | $ | 49,537,210 |
For the three and nine months ended September 30, 2020, the Company recognized $1.7 million and $5.9 million, respectively, of interest expense related to the Notes, of which $996,000 and $3.5 million, respectively, related to the contractual interest coupon. 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 descr ibed in Note 18 below, subsequent to September 30, 2020, certain holders converted an additional portion of the Notes into shares of the Company's common stock. August 2019 Convertible Bonds On August 1, 2019, the Company closed a private placem ent of the August 2019 Bonds with an aggregate principal amount of 18 billion 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 in the form of Korean Depositary Receipts (KDRs) representing shares of common stock. The August 2019 Bonds, which were unsecured obligations of the Company, were issued on August 1, 2019 and accrued interest at a coupon rate of 1.00% per annum, payable quarterly. The August 2019 Bonds were scheduled to mature on July 31, 2024, unless earlier converted or repurchased. On August 3, 2020 the August 2019 Bonds were converted in full into an aggregate of 4,962,364 shares of the Company's common stock, leaving no further August 2019 Bonds outstanding. The initial conversion rate was 211.0595 shares per KRW1,000,000 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 was reset on January 2, 2020 and was subject to reset quarterly thereafter if the current market price was lower than the conversion price then in effect. The conversion rate as of the date of conversion on August 1, 2020 was 275.6873 shares per KRW 1,000,000 in principal amount (equivalent to a conversion price of approximately USD $3.04 per share based on the exchange rate as of August 3, 2020). The Company evaluated the accounting for the issuance of the August 2019 Bonds and concluded that the embedded conversion feature was considered a derivative requiring bifurcation from the August 2019 Bonds as it did not meet the equity scope exception due to the fact that it was 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 was being amortized to interest expense over the term of the debt using the effective interest method. The conversion option was accounted for as a derivative liability, which was 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 August 2019 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. At their issuance, the Company determined that the expected life of the August 2019 Bonds was equal to the period through August 1, 2022 as this represented the point at which the August 2019 Bonds were 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, was being amortized using the effective interest method through August 1, 2022. The effective interest rate of the August 2019 Bonds was 29.4%. For the three and nine months ended September 30, 2020, the Company recognized $238,000 and $1.6 million, respectively, of interest expense related to the August 2019 Bonds, of which $13,000 and $87,000, respectively, related to the contractual interest coupon. For the nine months ended September 30, 2019, the Company recognized $374,000 of interest expense related to the August 2019 Bonds, of which $26,000 related to the contractual interest coupon. In August 2020, all outstanding August 2019 Bonds were converted into common stock. Immediately prior to the conversion, the derivative liability was revalued at $84.5 million. The changes in fair value of the derivative liability were a decrease of $35.3 million and an increase of $75.7 million, which were recorded on the condensed consolidated statement of operations for the three and nine months ended September 30, 2020, respectively. To measure the fair value of the derivative liability as of the conversion date, the Company engaged a third-party valuation expert. Upon conversion, a loss on extinguishment of $8.2 million was recorded on the condensed consolidated statement of operations for the three months ended September 30, 2020. This loss represents the difference between (a) the calculated fair value of the derivative liability immediately prior to its derecognition plus the carrying amount of the debt component including any unamortized debt discount and issuance costs and (b) the fair value of the 4,692,364 shares of the Company's common stock issued upon conversion. December 2019 Convertible Bonds On December 26, 2019, the Company closed a private placement of convertible promissory notes (the “December 2019 Bonds”) with an aggregate principal amount of 4.7 billion KRW (approximately USD $4.1 million based on the exchange rate on the date of issuance) issued to a Korea-based institutional investor. Net proceeds from the offering were approximately $4.0 million. The December 2019 Bonds, which are unsecured obligations of the Company, were issued on December 31, 2019 and will accrue interest at a coupon rate of 1.00% per annum, payable quarterly. The December 2019 Bonds will mature on December 31, 2024, unless earlier converted or repurchased. The outstanding December 2019 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 December 31, 2020, the December 2019 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 of the Company. The initial conversion rate is 214.7766 shares per KRW1,000,000 principal amount of Bonds (equivalent to an initial conversion price of approximately USD $4.00 per share based on the exchange rate as of December 19, 2019), subject to adjustment upon the occurrence of certain events. The conversion rate is subject to reset on July 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 357.9611 shares per KRW1,000,000 (equivalent to a conversion price of approximately USD $2.40 per share based on the exchange rate as of December 19, 2019). The conversion rate has not been reset as of September 30, 2020. The December 2019 Bonds will be subject to repurchase by the Company at the option of the bondholders from and including December 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 December 2019 Bonds to be repurchased plus a premium on the Bonds in order to ensure an internal rate of return with respect to the Bonds equal to 6.00%. In addition, upon the occurrence of a fundamental change (as defined in the Subscription Agreement) 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. If certain bankruptcy and insolvency-related events of default occur, the principal of, and accrued and unpaid interest on, all of the then outstanding December 2019 Bonds shall automatically become due and payable. If any other event of default occurs and is continuing, the holders of at least 25% of the in aggregate principal amount of the December 2019 Bonds by notice to the Company may declare the principal of, and accrued and unpaid interest on, all of the then-outstanding December 2019 Bonds to be due and payable. The Company evaluated the accounting for the issuance of the December 2019 Bonds and concluded that the embedded conversion feature does not require bifurcation from the December 2019 Bonds. Although the embedded conversion feature meets the definition of a derivative, it qualifies for the equity scope exception for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity in its consolidated balance sheet. The December 2019 Bonds are denominated in a foreign currency other than the Company’s functional currency, which would typically violate the settlement provision criteria when analyzing whether the conversion option is indexed to an entity’s own stock. However, per the terms of the agreement, the functional currency rate required to be used in a conversion scenario is fixed as of the date preceding the date of issuance of the Bonds. Therefore, the fluctuation in functional currency does not impact the settlement of the conversion option. Further, as there was no cash conversion feature or beneficial conversion feature on the date of issuance, and the Bonds were not issued at a substantial premium, all of the proceeds were recorded as a liability. The Company determined that all other features of the December 2019 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 December 2019 Bonds at September 30, 2020 was as follows:
Principal amount | $ | 4,030,978 |
Unamortized debt issuance cost | (37,985) |
Accretion of premium associated with the December 2019 Bonds | 148,593 |
Accrued interest | 10,077 |
Net carrying amount | $ | 4,151,663 |
The Company determined that the expected life of the December 2019 Bonds was equal to the period through December 31, 2022 as this represents the point at which the December 2019 Bonds are initially subject to repurchase by the Company at the option of the holders. The effective interest rate of the December 2019 Bonds is 6.2%. For the three and nine months ended September 30, 2020, the Company recognized $63,000 and $185,000, respectively, of interest expense related to the December 2019 Bonds, of which $10,000 and $30,000, respectively, related to the contractual interest coupon. As of September 30, 2020, there had not been any conversions or redemptions of the December 2019 Bonds. As of September 30, 2020, future minimum payments due under the Company's convertible debt instruments are as follows:
|  | Convertible Notes (1) |  |  |  | December 2019 Bonds (2) |  | Total
Remainder of 2020 |  | $ | — |  |  |  |  | $ | 10,000 |  |  | $ | 10,000 |
2021 |  | 3,862,000 |  |  |  |  | 40,300 |  |  | 3,902,300 |
2022 |  | 3,862,000 |  |  |  |  | 40,300 |  |  | 3,902,300 |
2023 |  | 3,862,000 |  |  |  |  | 40,300 |  |  | 3,902,300 |
2024 |  | 61,346,000 |  |  |  |  | 5,189,000 |  |  | 66,535,000 |
Total |  | $ | 72,932,000 |  |  |  |  | $ | 5,319,900 |  |  | $ | 78,251,900 |
(1) Amounts represent contractual amounts due under the Notes, including interest based on the fixed rate of 6.5% per year. (2) Amounts represent amounts due under the December 2019 Bonds, including interest based on the fixed rate of 1% per year plus a premium on such bonds to provide an internal rate of return with respect to such Bonds of 6% at maturity.

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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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