Quarterly report pursuant to Section 13 or 15(d)

DEBENTURES PAYABLE

v3.21.1
DEBENTURES PAYABLE
3 Months Ended
Mar. 31, 2021
Debentures Payable  
DEBENTURES PAYABLE

NOTE 11 – DEBENTURES PAYABLE

 

In a series of transactions from the period October 2018 through February 2020, the Company sold an aggregate of $21.0 million of convertible debentures (the “$21M Debentures”) to an accredited investor pursuant to an amended securities purchase agreement (the “SPA”). The following table as of March 31, 2021 summarizes the purchase dates and selected terms of each debenture transaction that comprises the $21M Debentures:

 

Issue
Date
  Maturity
Date
  Initial
Principal
    Interest
Rate
    Issue
Discount
    Warrant
Discount
    Beneficial Conversion
Feature
    Converted
To Common Stock
 
10/17/18   10/16/20   $ 5,000,000       6.0%       1.0%     $ 457,966     $ 1,554,389     $ 5,000,000  
11/07/18   11/06/20     5,000,000       6.0%       1.0%       599,867       4,015,515       5,000,000  
05/08/19   05/07/21     5,000,000       6.0%       1.0%       783,701       2,537,235       5,000,000  
06/28/19   06/27/21     2,500,000       0.0%       7.0%       145,022       847,745       2,500,000  
08/20/19   08/19/21     2,500,000       0.0%       7.0%       219,333       850,489       2,500,000  
02/21/20   02/20/21     1,000,000       6.5%       6.5%       28,021       379,183       1,000,000  

 

As of March 31, 2021, the holder of the $21M Debentures (the “Holder”) had converted all of the $21M Debentures, along with accrued interest, into the Company’s common stock at conversion prices equal to 80% of a calculated average, as determined in accordance with the terms of the $21M Debentures, of the daily volume-weighted price during the ten consecutive trading days preceding the date of conversion. The conversion were limited in any given month to certain agreed-upon amounts based on the conversion price, and the Holder was also limited from beneficially owning more than 4.99% of the Company’s outstanding common stock.

 

In conjunction with the issuance of the $21M Debentures, the Company issued the Holder three-year warrants to purchase an aggregate of 1,354,675 shares of the Company’s common stock at exercise prices ranging from $0.75 to $5.50 per share, of which warrants to purchase 180,000 shares of common stock at an exercise price of $0.75 were issued in 2020. The fair value of the warrants of approximately $2.2 million was recorded as a discount to the carrying amount of the $21M Debentures and are amortized to interest expense over the respective term of the individual debentures comprising the $21M Debentures.

 

 

Based on the conversion prices of the $21M Debentures in relation to the market value of the Company’s common stock, the $21M Debentures provided the Holder with a beneficial conversion feature, as the embedded conversion option was in-the-money on the commitment date. The aggregate intrinsic value of the beneficial conversion feature of approximately $10.2 million was recorded as a discount to the carrying amount of the $21M Debentures, and amortized to interest expense over the respective term of the individual debentures comprising the $21M Debentures.

 

Pursuant to the terms of a registration rights agreement with the Holder, entered into concurrently with the SPA, the Company agreed to provide the Holder with certain registration rights with respect to shares issued pursuant to the terms of the SPA and the $21M Debentures.

 

Over the life of the $21M Debentures, the Holder converted, in several transactions, an aggregate of $21.0 million of principal and approximately $836,000 of accrued interest into 92,704,035 shares of common stock at conversion prices ranging from $0.11 to $3.06 per share. Of these conversions, (i) during 2020, an aggregate of $9.7 million of principal and approximately $365,000 of accrued interest was converted into 77,766,559 shares of common stock at conversion prices ranging from $0.11 and $0.34 per share, and (ii) during 2021, an aggregate of $1.3 million of principal and approximately $56,000 of accrued interest was converted into 4,610,645 shares of common stock at a conversion price of $0.29 per share.

 

All of the aforementioned conversions were effected in accordance with the terms of the respective convertible debenture agreement, and therefore the Company was not required to record a gain or loss on such conversions.

 

During the year ended December 31, 2020, amortization of the beneficial conversion features, after adjustment for the aforementioned conversions, approximated $3.2 million; amortization of the warrant discounts approximated $805,000; amortization of original issue discounts approximated $321,000; and interest expense approximated $224,000. At December 31, 2020, the aggregate outstanding principal balance of the $21M Debentures was $1.3 million. Also on such date, the unamortized balances of the beneficial conversion features, the warrant discounts, and original issue discounts were approximately $177,000, $39,000, and $52,000, respectively. Accordingly, at December 31, 2020, the carrying value of the $21M Debentures approximated $1.0 million, all of which was current.

 

During the three months ended March 31, 2021, amortization of the beneficial conversion features, after adjustment for the aforementioned conversions, approximated $177,000; amortization of the warrant discounts approximated $39,000; amortization of original issue discounts approximated $52,000; and interest expense approximated $1,000.