Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments

v3.7.0.1
Derivative Instruments
6 Months Ended
Jun. 30, 2017
Derivative Instruments [Abstract]  
DERIVATIVE INSTRUMENTS

9. DERIVATIVE INSTRUMENTS

 

The Company evaluates and accounts for conversion options embedded in its convertible debt and freestanding instruments in accordance with ASC 815, Accounting for Derivative Instruments and Hedging Activities (“ASC Topic 815”).

 

MidMarket Warrants

 

The Company issued warrants to the lenders under the MidMarket Loan Agreement in 2012. These warrants were outstanding as of June 30, 2017 and December 31, 2016.

 

The terms of the warrants issued in September 2012 originally provided, among other things, that the number of shares of common stock issuable upon exercise of such warrants amounted to 11.5% of the Company’s fully-diluted outstanding common stock and common stock equivalents, whether the common stock equivalents were fully vested and exercisable or not, and that the initial exercise price of such warrants was $20.00 per share of common stock, subject to adjustment. Pursuant to an amendment to the loan agreement, on March 22, 2013, the number of shares for which the warrants are exercisable was fixed at 58,559 shares. On September 17, 2012, when the warrants were issued, the Company recorded a derivative liability in the amount of $194. The amount was recorded as a debt discount and was being amortized over the original life of the related loans. The amount of the derivative liability was computed by using the Black-Scholes option pricing model, which is not materially different from a binomial lattice valuation methodology, to determine the value of the warrants issued. In accordance with ASC Topic 480, the warrants are classified as liabilities because there is a put feature that requires the Company to repurchase any shares of common stock issued upon exercise of the warrants. The derivative liability associated with this debt is revalued each reporting period and the increase or decrease is recorded to the consolidated statement of operations under the caption “change in fair value of derivative instruments.” At each reporting date, the Company performs an analysis of the fair value of the warrants using the binomial lattice pricing model and adjusts the fair value accordingly.

 

On September 17, 2016, the fourth anniversary date of the warrants, the Company failed to meet the minimum adjusted earnings before interest, taxes, depreciation and amortization provisions set forth within the original warrant agreement. As such, the expiration date of the warrants was extended to September 17, 2018.

 

On June 30, 2017 and December 31, 2016, the Company used a binomial lattice pricing model to determine the fair value of the derivative liability of the warrants on those dates, and determined the fair value was $0. The Company recorded the change in the fair value of the derivative liability on the unaudited condensed consolidated statement of operations for the three months ended June 30, 2016 as a gain of $23. The Company recorded the change in the fair value of the derivative liability on the unaudited condensed consolidated statement of operations for the six months ended June 30, 2016 as a gain of $10.

 

The fair value of the warrant derivative liability as of June 30, 2017 and December 31, 2016 was calculated using a binomial lattice pricing model with the following factors, assumptions and methodologies:

 

    June 30,     December 31,  
    2017     2016  
             
Fair value of Company’s common stock   $ 0.12     $ 0.12  
Volatility (closing prices of 3-4 comparable public companies, including the Company’s historical volatility)     112 %     120 %
Exercise price per share   $ 4.00 - $5.00     $ 4.00 - $5.00  
Estimated life     1.2 years       1.7 years  
Risk free interest rate (based on 1-year treasury rate)     1.31 %     0.12 %

 

Forward Investments, LLC Convertible Feature

 

On February 4, 2014 and March 28, 2014, Forward Investments, LLC made convertible loans to the Company for working capital purposes in the amounts of $1,800 and $1,200, respectively. Such loans are evidenced by convertible promissory notes that bear interest at the rate of 2% and 10% per annum, were to mature on June 30, 2015 and originally were convertible into shares of the Company’s common stock at an initial conversion price of $25.44 per share.

 

The fair value of the embedded conversion feature at the date of issuance was $8,860. The Company recorded a debt discount of $6,475 and a loss on debt discount of $2,385. The debt discount is being amortized over the life of the loans. The Company used a Monte Carlo simulation on the date of issuance to determine the fair value of the embedded conversion feature.

 

On October 22, 2014, the two convertible promissory notes were modified to reduce the initial conversion price of $25.44 to $15.72. As a result, the Company used a Monte Carlo simulation to determine the fair value on the date of modification. The Company recorded the change in the fair value of the derivative liability as a loss on fair value of derivative instruments of $310.

 

On March 4, 2015, the Company and Forward Investments, LLC restructured the two promissory notes in order to extend the maturity dates thereof, reduce the seniority and reduce the interest rate accruing thereon (refer to Note 13, Related Parties, for further detail). The Company accounted for this restructuring of the promissory notes as a debt modification under ASC Topic 470-50. As part of the modification, the Company analyzed the embedded conversion feature and recorded a loss on fair value of derivative instruments of $2,600 on the consolidated statement of operations.

 

In conjunction with the issuance of the 6.5% and 3% convertible notes issued on March 4, 2015, the Company recorded an additional derivative liability as a debt discount in the amount of $260 and $1,970, respectively, on the date of the issuance of the notes.

 

The debt discounts are being amortized over the life of the loans. The Company used a Monte Carlo simulation on the date of issuance to determine the fair value of the embedded conversion features.

 

On August 3, 2015, the Company and Forward Investments, LLC agreed to reset the conversion price of the convertible notes to $6.32 per share of the Company’s common stock. As a result, the Company used a Monte Carlo simulation to determine the fair value of the conversion features on the date of the agreement. On the date of the transaction, the fair value of the Forward Investments convertible notes conversion feature did not change and as such, no change in fair value of derivative instruments was recorded on the consolidated statement of operations.

  

On October 26, 2015, the ratchet-down feature within the original agreement was triggered and the conversion price of the convertible notes was reset to $5.00 per share of the Company’s common stock. Prior to the triggering of the ratchet-down feature, the Company revalued the derivative and recorded a gain on fair value of derivative liabilities of $120 on the consolidated statement of operations. The Company then reduced the existing derivative liability related to the reset provision and recorded the change of $2,310 in the derivative liability value as a loss on change in fair value of derivative instruments on the consolidated statement of operations.

 

On December 29, 2015, the ratchet-down feature within the original agreement was triggered and the conversion price of the convertible notes was reset to $3.12 per share of the Company’s common stock. Prior to the triggering of the ratchet-down feature, the Company revalued the derivative and recorded a gain on fair value of derivative liabilities of $3,380 on the consolidated statement of operations. The Company then reduced the existing derivative liability related to the reset provision and recorded the change of $4,140 in the derivative liability value as a loss on change in fair value of derivative instruments on the consolidated statement of operations.

 

On June 30, 2017 and December 31, 2016, the fair value of the conversion feature of the Forward Investments, LLC loans was $510 and $791, respectively, which was included in derivative financial instrument at estimated fair value on the unaudited condensed consolidated balance sheets. The change in fair value of the Forward Investments, LLC derivative liabilities was recorded as a gain the unaudited condensed consolidated statement of operations of $4 and $281 for the three and six months ended June 30, 2017, respectively. The change in the fair value of the Forward Investments, LLC derivative liabilities was recorded as a gain in the unaudited condensed consolidated statements of operations of $4,156 and $6,148 for the three and six months ended June 30, 2016, respectively.

 

The fair value of the Forward Investments, LLC derivative at the measurement date was calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:

 

    June 30, 2017     December 31, 2016  
Principal amount and accrued interest   $ 1,744     $ 543     $ 1,192     $ 5,021     $ 3,210     $ 390     $ 1,025     $ 4,373  
                                                                 
Conversion price per share   $ 3.12     $ 3.12     $ 3.12     $ 3.12     $ 3.12     $ 3.12     $ 3.12     $ 3.12  
Risk free rate     1.89 %     1.89 %     1.14 %     1.14 %     1.93 %     1.93 %     0.51 %     0.85 %
Life of conversion feature (in years)     4.5       4.5       0.0       0.5       5.0       5.0       0.3       1.0  
Volatility     148 %     148 %     141 %     220 %     100 %     100 %     135 %     120 %

 

Dominion Capital LLC August 6, 2015 Demand Promissory Note – Senior Convertible Note Embedded Features

 

On August 6, 2015, the Company entered into a senior convertible note agreement with the investor whereby the Company issued a promissory note in the original principal amount of $2,105, with interest accruing at the rate of 12% per annum, which matured on January 6, 2017. The Company evaluated the senior convertible note’s settlement provisions and determined that the voluntary conversion feature and fundamental transaction clauses met the criteria to be classified as embedded derivatives as set forth in ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity. On August 6, 2015, the Company used a Monte Carlo simulation to value the settlement features and ascribed a value of $524 related to the voluntary conversion feature and fundamental transaction clauses and recorded these items on the consolidated balance sheets as a debt discount and related derivative liability. The debt discounts were being amortized over the life of the loan.

 

On December 31, 2016, the Company used a Monte Carlo simulation to value the settlement features of the senior convertible note and determined the fair value to be $176. As a result of the conversion of the outstanding principal balance (refer to Note 8, Term Loans, for further detail), the fair value of the corresponding derivative liability was $0 as of June 30, 2017. The Company recorded a gain on fair value of derivative instruments of $176 on the unaudited condensed consolidated statement of operations for the six months ended June 30, 2017. The Company recorded a gain of $78 on the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2016.

 

The fair value of the demand promissory note derivative at the measurement date was calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:

 

    December 31,
2016
 
Principal amount   $ 1,198  
         
Conversion price per share   $ 5.00  
Conversion trigger price per share     None  
Risk free rate     0.44 %
Life of conversion feature (in years)     0.10  
Volatility     135 %

 

Dominion Capital LLC November 4, 2016 Exchange Agreement – Senior Convertible Debt Features

 

On November 4, 2016, the Company entered into an exchange agreement with the holder of the September 15, 2016 term promissory note. The principal amount was increased by $40, and the note became convertible into shares of the Company’s common stock. The note is convertible at the lower of (i) $0.40, or (ii) 75% of the lowest VWAP day for the 15 days prior to the conversion date (for additional detail refer to Note 8, Term Loans). The Company evaluated the senior convertible note’s settlement provisions and determined that the voluntary conversion feature and fundamental transaction clauses met the criteria to be classified as embedded derivatives as set forth in ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity. On November 4, 2016, the Company used a Monte Carlo simulation to value the settlement features. The Company ascribed a value of $242 related to the conversion feature and recorded this item on the consolidated balance sheets as a derivative liability.

 

On June 30, 2017 and December 31, 2016, the Company used a Monte Carlo simulation to value the settlement features of the senior convertible note and determined the fair value to be $552 and $78, respectively. The Company recorded a loss of $151 on the unaudited condensed consolidated statement of operations for the three months ended June 30, 2017, and a loss of $474 on the unaudited condensed consolidated statement of operations for the six months ended June 30, 2017.

 

The fair value of the senior convertible note derivative at the measurement date was calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:

 

    June 30,
2017
    December 31,
2016
 
Principal amount and guaranteed interest   $ 670     $ 605  
                 
Conversion price per share   $ 0.40     $ 0.40  
Conversion trigger price per share      None        None  
Risk free rate     1.14 %     0.76 %
Life of conversion feature (in years)     0.35       0.80  
Volatility     213 %     120 %

 

Dominion Capital LLC January 31, 2017 – Senior Convertible Debt Features

 

On January 31, 2017, the Company entered into a senior convertible promissory note with Dominion Capital, LLC in the original principal amount of $70, with interest accruing at the rate of 6% per annum, which matures on January 31, 2018. The note is convertible at the lower of (i) $0.40 or (ii) 80% of the lowest VWAP in the 15 trading days prior to the conversion date. (for additional detail refer to Note 8, Term Loans). The Company evaluated the senior convertible note’s settlement provisions and determined that the voluntary conversion feature and fundamental transaction clauses met the criteria to be classified as embedded derivatives as set forth in ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity. On January 31, 2017, the Company used a Monte Carlo simulation to value the settlement features. The Company ascribed a value of $38 related to the conversion feature and recorded this item on the consolidated balance sheets as a derivative liability.

 

On June 30, 2017, the Company used a Monte Carlo simulation to value the settlement features of the senior convertible note and determined the fair value to be $67. The Company recorded a loss of $24 on the unaudited condensed consolidated statement of operations for the three months ended June 30, 2017, and a loss of $29 on the unaudited condensed consolidated statement of operations for the six months ended June 30, 2017.

 

The fair value of the senior convertible note derivative at the measurement date was calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:

 

    June 30,
2017
 
Principal amount and guaranteed interest   $ 78  
         
Conversion price per share   $ 0.40  
Conversion trigger price per share      None  
Risk free rate     1.14 %
Life of conversion feature (in years)     0.60  
Volatility     210 %

 

Smithline Senior Convertible Note Embedded Features

 

On August 6, 2015, the Company issued to Smithline a senior convertible note in the principal amount of $526, with interest accruing at the rate of 12% per annum, which matures on January 11, 2017. The Company evaluated the senior convertible note’s settlement provisions and determined that the voluntary conversion feature and fundamental transaction clauses met the criteria to be classified as embedded derivatives as set forth in ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity. On August 6, 2015, the Company used a Monte Carlo simulation to value the settlement features and ascribed a value of $131 related to the voluntary conversion feature and fundamental transaction clauses and recorded these items on the consolidated balance sheets as a debt discount and related derivative liability. The debt discounts are being amortized over the life of the loan.

 

On July 20, 2016 and September 1, 2016, principal of $55 and $97, respectively, was added to the Smithline senior convertible note (refer to Note 8, Term Loans, for additional detail).

 

On June 30, 2017 and December 31, 2016, the Company used a Monte Carlo simulation to value the settlement features of the senior convertible noted and determined the fair value to be $50 and $0, respectively. The Company recorded the change in the fair value of the derivative liability for the three months ended June 30, 2017 and 2016 as a loss and gain of $26 and $18, respectively. The Company recorded the change in fair value of the derivative liability for the six months ended June 30, 2017 and 2016 as a loss and gain of $50 and $85, respectively.

 

The fair value of the Smithline derivative at June 30, 2017 was calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:

 

    June 30,
2017
 
       
Principal amount and accrued interest   $ 149  
         
Conversion price per share   $ 5.00  
Conversion trigger price per share      None  
Risk free rate     1.14 %
Life of conversion feature (in years)     0.25  
Volatility     213 %

 

JGB (Cayman) Waltham Ltd. Senior Secured Convertible Debenture Features

 

On December 29, 2015, the Company entered into a securities purchase agreement with JGB Waltham whereby the Company issued to JGB Waltham, for gross proceeds of $7,500, a 10% original issue discount senior secured convertible debenture in the aggregate principal amount of $7,500. The Company evaluated the senior convertible note’s settlement provisions and determined that the voluntary conversion feature and fundamental transaction clauses met the criteria to be classified as embedded derivatives as set forth in ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity. On December 29, 2015, the Company used a Monte Carlo simulation to value the settlement features and ascribed a value of $1,479 related to the voluntary conversion feature and fundamental transaction clauses and recorded these items on the consolidated balance sheets as a debt discount and related derivative liability. The debt discounts are being amortized over the life of the loan. 

 

On May 17, 2016, the Company entered into the Debenture Forbearance Agreement with JGB Waltham pursuant to which JGB Waltham agreed to forbear action with respect to certain existing defaults in accordance with the terms of the Debenture Forbearance Agreement (Refer to Note 8, Term Loans, for further details). The Company evaluated the Debenture Forbearance Agreement and accounted for the transaction as a debt extinguishment in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company used a Monte Carlo simulation to revalue the settlement features associated with the Debenture Forbearance Agreement. The Company recorded the change in the settlement features as a loss to change in fair value of derivative instruments of $1,154 to its consolidated statement of operations on May 17, 2016. 

 

On May 23, 2016, the Company entered into the Amended Agreement with JGB Concord, JGB Waltham, VaultLogix, and the Guarantors. The Company accounted for this Amended Agreement in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company accounted for the Amended Agreement as a debt modification and utilized a Monte Carlo simulation to determine the fair value of the settlement features. The Company recorded a loss on the fair value of the settlement features to change in fair value of derivative instruments of $41 on the consolidated statement of operations as of May 23, 2016. 

 

On June 23, 2016, the Company entered into an amended agreement with JGB Concord and JGB Waltham (refer to Note 8, Term Loans, for further detail). The Company accounted for the amended agreement as a debt extinguishment in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company used a Monte Carlo simulation to revalue the settlement features associated with the Amended Agreement. The Company recorded the change in the settlement features as a loss to change in fair value of derivative instruments of $486 to its consolidated statement of operations on June 23, 2016. 

 

On September 1, 2016, the Company entered into an amended agreement with JGB Concord and JGB Waltham (refer to Note 8, Term Loans, for further detail). The Company accounted for the amended agreement in regards to the December Debenture as a debt modification in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company used a Monte Carlo simulation to revalue the settlement features associated with the Amended Agreement. The Company recorded the change in the settlement features as a gain to change in fair value of derivative instruments of $1,552 to its consolidated statement of operations on September 1, 2016.

 

On February 28, 2017, the Company entered into a consent agreement with JGB Concord and JGB Waltham (refer to Note 8, Term Loans, for further detail). The Company accounted for the amended agreement in regards to the JGB Waltham debenture as a debt extinguishment in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company used a Monte Carlo simulation to revalue the settlement features associated with the agreement. The Company recorded the change in the settlement features as a loss to change in fair value of derivative instruments of $1,752 to its unaudited condensed consolidated statement of operations for the six months ended June 30, 2017.

 

On March 9, 2017, JGB (Cayman) Waltham entered into an Assignment and Assumption agreement with MEF I, LP (refer to Note 8, Term Loans, for further detail). The Company accounted for the assumption agreement in regards to the JGB Waltham debenture as a debt extinguishment in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company used a Monte Carlo simulation to revalue the settlement features associated with the agreement. The Company recorded the change in the settlement features as a loss to change in fair value of derivative instruments of $349 to its unaudited condensed consolidated statement of operations for the six months ended June 30, 2017. 

 

On June 30, 2017 and December 31, 2016, the Company used a Monte Carlo simulation to value the settlement features of the senior convertible notes issued to JGB Waltham and determined the fair value to be $2,941 and $533, respectively. The Company recorded the change in the fair value of the derivative liability for the three months ended June 30, 2017 and 2016 as a loss and gain of $123 and $486, respectively. The Company recorded the change in fair value of the derivative liability for the six months ended June 30, 2017 and 2016 as a loss and gain of $2,408 and $1,436, respectively, which includes all extinguishment accounting for the periods in accordance with ASC Topic 470-50. These changes were recorded in the unaudited condensed consolidated statements of operations. 

 

The fair value of the JGB (Cayman) Waltham Ltd. derivative at the measurement date was calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:

 

    June 30,
2017
    December 31,
2016
 
Principal amount   $ 4,451     $ 5,034  
                 
Conversion price per share   $ 0.16     $ 0.80  
Conversion trigger price per share      None     $ 8.00  
Risk free rate     1.38 %     1.31 %
Life of conversion feature (in years)     1.92       2.41  
Volatility     141 %     100 %

 

JGB (Cayman) Waltham Ltd. 2.7 Note Convertible Debenture Features

 

On September 1, 2016, the Company entered into an amended agreement with JGB Concord and JGB Waltham (refer to Note 8, Term Loans, for further detail). The Company accounted for the amended agreement in regards to the 2.7 Note as a debt extinguishment in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company used a Monte Carlo simulation to revalue the settlement features associated with the Amended Agreement and determined that the fair value of the features was $1,200 as of September 1, 2016 and recorded these items on the consolidated balance sheets as a derivative liability. The debt discounts are being amortized over the life of the loan.

 

On February 28, 2017, the Company entered into a consent agreement with JGB Concord and JGB Waltham (refer to Note 8, Term Loans, for further detail). The Company accounted for the amended agreement in regards to the JGB Waltham 2.7 Note as a debt extinguishment in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company used a Monte Carlo simulation to revalue the settlement features associated with the agreement. The Company recorded the change in the settlement features as a loss to change in fair value of derivative instruments of $141 to its unaudited condensed consolidated statement of operations for the six months ended June 30, 2017.

 

On June 30, 2017 and December 31, 2016, the Company used a Monte Carlo simulation to value the settlement feature of the 2.7 Note and determined the fair value to be $243 and $119, respectively. The Company recorded a gain on fair value of derivative instruments of $55 for the three months ended June 30, 2017. The Company recorded a loss on fair value of derivative instruments of $124 for the six months ended June 30, 2017, which includes all extinguishment accounting for the periods in accordance with ASC Topic 470-50. These changes were recorded on the unaudited condensed consolidated statement of operations.

  

The fair value of the JGB Waltham derivative at the measurement date was calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:

 

    June 30,
2017
    December 31,
2016
 
Principal amount   $ 503     $ 593  
                 
Conversion price per share   $ 0.16     $ 0.80  
Conversion trigger price per share      None     $ 8.00  
Risk free rate     1.03 %     0.62 %
Life of conversion feature (in years)     0.17       0.58  
Volatility     213 %     130 %

 

JGB (Cayman) Concord Ltd. Senior Secured Convertible Note

 

On February 17, 2016, the Company entered into a securities exchange agreement by and among the Company, VaultLogix, and JGB Concord, whereby the Company exchanged the White Oak Global Advisors, LLC promissory note and subsequently assigned to the lender party a new 8.25% senior secured convertible note dated February 18, 2016 in the aggregate principal amount of $11,601 (refer to Note 8, Term Loans, for further details).

 

The Company evaluated the senior secured convertible note’s settlement provisions and determined that the conversion feature and fundamental transaction clauses met the criteria to be classified as embedded derivatives as set forth in ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity. On February 18, 2016, the Company used a Monte Carlo simulation to value the settlement features and ascribed a value of $1,350 related to the conversion feature and fundamental transaction clauses and recorded these items on the consolidated balance sheets as a derivative liability. The debt discounts are being amortized over the life of the loan.

  

On May 17, 2016, the Company entered into the Note Forbearance Agreement with JGB Concord pursuant to which JGB Concord agreed to forbear action with respect to certain existing defaults in accordance with the terms of the Note Forbearance Agreement (Refer to Note 8, Term Loans, for further details). The Company evaluated the Note Forbearance Agreement and accounted for the transaction as a debt extinguishment in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company used a Monte Carlo simulation to revalue the settlement features associated with the Note Forbearance Agreement. The Company recorded the change in the settlement features as a loss to change in fair value of derivative instruments of $2,196 to its consolidated statement of operations on May 17, 2016.

 

On May 23, 2016, the Company entered into the Amended Agreement with JGB Concord, JGB Waltham, VaultLogix, and the Guarantors. The Company accounted for this Amended Agreement in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company accounted for the Amended Agreement as a debt modification and utilized a Monte Carlo simulation to determine the fair value of the settlement features. The Company recorded a loss on the fair value of the settlement features to change in fair value of derivative instruments of $79 on the consolidated statement of operations as of May 23, 2016.

 

On June 23, 2016, the Company entered into an amended agreement with JGB Concord and JGB Waltham (refer to Note 8, Term Loans, for further detail). The Company accounted for the amended agreement as a debt extinguishment in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company used a Monte Carlo simulation to revalue the settlement features associated with the Amended Agreement to determine the fair value. The Company recorded the change in the settlement features as a loss to change in fair value of derivative instruments of $924 to its consolidated statement of operations on June 23, 2016.

 

As part of the June 23, 2016 amended agreement with JGB Concord, the Company issued 225,000 shares of the Company’s common stock on June 23, 2016 to JGB Concord (Refer to Note 11, Stockholders’ Deficit, for further detail), and agreed to a make-whole provision whereby the Company will pay JGB Concord in cash the difference between $3.76 per share of the Company’s common stock and the average volume weighted average price per share of the Company’s common stock sixty days after shares of the Company’s common stock are freely tradable. The Company accounted for the make-whole provision within the June 23, 2016 amendment agreement as a derivative liability and utilized a binomial lattice model to ascribe a value of $280, which was recorded as a derivative liability on the Company’s consolidated balance sheet and as a loss on extinguishment of debt on the Company’s consolidated statement of operations on June 23, 2016.

 

On September 1, 2016, the Company entered into an amended agreement with JGB Concord and JGB Waltham (refer to Note 8, Term Loans, for further detail). The Company accounted for the amended agreement as a debt extinguishment in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company used a Monte Carlo simulation to revalue the settlement features associated with the Amended Agreement. The Company recorded the change in the settlement features as a gain to change in fair value of derivative instruments of $1,308 to its consolidated statement of operations on September 1, 2016.

 

On February 28, 2017, the Company entered into a consent agreement with JGB Concord and JGB Waltham (refer to Note 8, Term Loans, for further detail). The Company accounted for the amended agreement in regards to the JGB Concord Debenture as a debt extinguishment in accordance with ASC Topic 470-50. In accordance with ASC Topic 470-50, the Company used a Monte Carlo simulation to revalue the settlement features associated with the agreement. The Company recorded the change in the settlement features as a gain to change in fair value of derivative instruments of $2 to its unaudited condensed consolidated statement of operations for the six months ended June 30, 2017.

 

On June 30, 2017 and December 31, 2016, the Company used a Monte Carlo simulation to value the settlement features of the senior secured convertible notes and determined the fair value to be $159 and $397, respectively. The Company recorded the change in fair value of derivative instruments for the three months ended June 30, 2017 and 2016 as a loss of $7 and $1,671, respectively. The Company recorded the change in fair value of derivative instruments for the six months ended June 30, 2017 and 2016 as a gain and loss of $238 and $2,949, respectively, which includes all extinguishment accounting for the periods in accordance with ASC Topic 470-50. These changes were recorded in the unaudited condensed consolidated statement of operations.

 

The fair value of the JGB (Cayman) Concord Ltd. derivative at the measurement date was calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:

 

    June 30, 2017     December 31,
2016
 
Principal amount   $ 241     $ 3,749  
                 
Conversion price per share   $ 0.16     $ 0.80  
Conversion trigger price per share      None     $ 8.00  
Risk free rate     1.38 %     1.31 %
Life of conversion feature (in years)     1.92       2.41  
Volatility     141 %     100 %

 

JGB Concord Make-Whole Provision

 

On December 31, 2016, the Company used a binomial lattice model to value the make-whole provision and determined the fair value to be $819. Proceeds from the January 31, 2017 sale of the Company’s Highwire subsidiary were used to pay the remaining balance of the make-whole provision. On February 28, 2017, the Company used a binomial lattice model to value the make-whole provision and determined the fair value to be $814. The Company recorded a gain on fair value of derivative instruments of $5 for the six months ended June 30, 2017 on the unaudited condensed consolidated statement of operations.

 

The fair value of the JGB Concord make-whole provision at the measurement date was calculated using a binomial lattice model with the following factors, assumptions and methodologies:

 

    December 31,
2016
 
Fair value of Company’s common stock   $ 0.12  
Volatility     120 %
Exercise price     3.76  
Estimated life     0.15  
Risk free interest rate (based on 1-year treasury rate)     0.48 %

 

February 28, 2017 JGB Waltham Warrant

 

On February 28, 2017, the Company entered into a securities exchange agreement with JGB Waltham whereby the Company issued a warrant giving JGB Waltham the right to purchase from the Company shares of common stock for an aggregate purchase price of up to $1,000. The warrant expires on November 28, 2018 and contains a cashless exercise feature. The warrants have an exercise price of $0.16 until May 29, 2017 and the lower of (a) $0.16 and (b) 80% of the lowest daily price of our common stock for the prior 30 days thereafter. On February 28, 2017, the Company used a binomial lattice calculation to value the warrants. The Company ascribed a value of $65 related to the warrants and recorded this item on the consolidated balance sheets as a derivative liability.

 

On June 30, 2017, the Company used a binomial lattice calculation to value the warrants and determined the fair value to be $1,399. The Company recorded a loss of $1,007 on the unaudited condensed consolidated statement of operations for the three months ended June 30, 2017. The Company recorded a loss of $1,334 on the unaudited condensed consolidated statement of operations for the six months ended June 30, 2017.

 

The fair value of the warrants at the measurement date was calculated using a binomial lattice calculation with the following factors, assumptions and methodologies:

 

    June 30,
2017
 
Fair value of Company’s common stock   $ 0.12  
Volatility     197 %
Exercise price     0.16  
Estimated life     1.50  
Risk free interest rate (based on 1-year treasury rate)     1.24 %

 

MEF I, L.P. Assignment and Assumption Agreement

 

On March 9, 2017, the Company entered into a convertible promissory note with MEF I, L.P. pursuant to an assignment and assumption agreement (refer to Note 8, Term Loans, for additional detail on the assignment). The note is convertible at the lower of (i) $0.16 or (ii) 80% of the lowest VWAP in the 30 trading days prior to the conversion date. The Company evaluated the convertible note’s settlement provisions and determined that the voluntary conversion feature and fundamental transaction clauses met the criteria to be classified as embedded derivatives as set forth in ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity. On March 9, 2017, the Company used a Monte Carlo simulation to value the settlement features. The Company ascribed a value of $250 related to the conversion feature and recorded this item on the consolidated balance sheets as a derivative liability. The Company recorded a debt discount of $50 and debt issuance costs of $50, which are being amortized over the life of the loan.

 

On June 30, 2017, the Company used a Monte Carlo simulation to value the settlement features of the convertible note and determined the fair value to be $369. The Company recorded a loss of $99 on the unaudited condensed consolidated statement of operations for the three months ended June 30, 2017. The Company recorded a loss of $119 on the unaudited condensed consolidated statement of operations for the six months ended June 30, 2017.

 

The fair value of the convertible note derivative at the measurement date was calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:

 

    June 30,
2017
 
Principal amount and guaranteed interest   $ 558  
         
Conversion price per share   $ 0.12  
Conversion trigger price per share      None  
Risk free rate     1.38 %
Life of conversion feature (in years)     1.92  
Volatility     141 %

 

SRFF Warrant and Derivative

 

On September 8, 2016, the Company issued a warrant to purchase up to a total of 625,000 shares of common stock at any time on or prior to April 1, 2017. The exercise price of the warrant is $0.004. The warrant was issued in consideration for the outstanding accounts payable to the holder of the warrant. Based on the agreement, the proceeds from the eventual sale of the common stock based on the exercise of all or a portion of the warrant will be applied towards unpaid invoices for services previously rendered to the Company. The Company determined that the fair value of the warrants was $460, which was included in common stock warrants within the stockholders’ deficit section on the consolidated balance sheet as of December 31, 2016.

 

During the three months ended December 31, 2016, the warrant value became less than the accounts payable owed. As a result, a derivative had to be recorded on the consolidated balance sheet as of December 31, 2016 in accordance with ASC 480.

 

As of June 30, 2017, the Company did not have sufficient authorized shares for the remaining equity warrants to qualify as equity. Per ASC 815-40-35-9, the Company reclassified these warrants to a derivative liability at their fair value as of March 31, 2017. Based on a warrant to purchase up to a total of 625,000 shares of common stock and an underlying price of $0.12 per share, the Company recorded these warrants at fair value of $75 on the unaudited condensed consolidated balance sheet as of March 31, 2017.

 

On June 30, 2017 and December 31, 2016, the Company used a binomial lattice model to value the warrant derivative and determined the fair value to be $165 and $152, respectively. The Company recorded a gain on fair value of derivative instruments of $24 for the three months ended June 30, 2017 on the unaudited condensed consolidated statement of operations. The Company recorded a gain on fair value of derivative instruments of $61 for the six months ended June 30, 2017 on the unaudited condensed consolidated statement of operations.

 

On April 1, 2017, the expiration date was extended until September 30, 2017.

 

The fair value of the warrant derivative as of June 30, 2017 and December 31, 2016 was calculated using a binomial lattice pricing model with the following factors, assumptions and methodologies:

 

    June 30,
2017
    December 31,
2016
 
Fair value of Company’s common stock   $ 0.12     $ 0.12  
Volatility     192 %     120 %
Exercise price     0.004       0.004  
Estimated life     0.25       0.25  
Risk free interest rate (based on 1-year treasury rate)     1.03 %     0.57 %

 

Reclassification of Equity Warrants

 

As of June 30, 2017, the Company did not have sufficient authorized shares for the existing equity warrants to qualify as equity. Per ASC 815-40-35-9, the Company reclassified these warrants to derivative liabilities at their fair value as of March 31, 2017. These warrants are outstanding to GPB Life Science Holdings, LLC, 8760 Enterprises, Inc., and the JGB entities.

 

The Company determined the fair value of these warrants as of March 31, 2017 to be as follows:

 

  De minimis for GPB Warrant-1, GPB Warrant-2, and GPB Warrant-3;
     
  2 for the 8760 Enterprises, Inc. warrant; and
     
  $33 for the JGB warrant.

 

On June 27, 2017, the 8760 Enterprises, Inc. warrant was cancelled. The Company used a binomial lattice pricing model to value the settlement features of this equity warrant as of June 27, 2017 and determined the fair value to be $0. The Company recorded the change in fair value in the unaudited condensed consolidated statement of operations as a gain of $2.

 

On June 30, 2017, the Company used a binomial lattice pricing model to value the settlement features of the remaining equity warrants and determined the fair value to be as follows:

 

  De minimis for GPB Warrant-1, GPB Warrant-2, and GPB Warrant-3;
     
  $30 for the JGB warrant.

 

The Company recorded the change in fair value of the JGB Warrant in the unaudited condensed consolidated statement of operations as a gain of $3.

 

The fair value of these warrants as of June 30, 2017 was calculated using a binomial lattice pricing model with the following factors, assumptions and methodologies:

 

    GPB Warrant-1     GPB Warrant-2     GPB Warrant-3     JGB Exchange Warrants  
    June 30,
2017
    June 30,
2017
    June 30,
2017
    June 30,
2017
    June 30,
2017
 
Fair value of Company’s common stock   $ 0.12     $ 0.12     $ 0.12     $ 0.12     $ 0.12  
Volatility     105 %     105 %     103 %     137 %     137 %
Exercise price     7.00       7.00       7.00       0.04       0.40  
Estimated life     1.43       1.48       1.87       0.50       0.50  
Risk free interest rate (based on 1-year treasury rate)     1.31 %     1.31 %     1.31 %     1.14 %     1.14 %

  

RDW 2.5% Convertible Promissory Note

 

On April 3, 2017, Scott Davis assigned 100% of his promissory note in the original principal amount of $250, reduced to $225 based on a $25 conversion into common stock, to RDW. This note was convertible at a price of $8.88 and was due on demand. As consideration for the assignment RDW paid Scott Davis $40. RDW then exchanged this original note for a new 2.5% convertible promissory note with a principal amount of $100 due April 3, 2018. This conversion price in effect on any conversion date shall be equal to 75% of the average of the five lowest VWAPS over the seven trading days prior to the date of conversion. The Company evaluated the convertible note’s settlement provisions and determined that the voluntary conversion feature and fundamental transaction clauses met the criteria to be classified as embedded derivatives as set forth in ASC 815, Derivatives and Hedging and ASC 480, Distinguishing Liabilities from Equity. On April 25, 2017, the Company used a Monte Carlo simulation to value the settlement features. The Company ascribed a value of $39 related to the conversion feature and recorded this item on the unaudited condensed consolidated balance sheets as a derivative liability.

 

On June 30, 2017, the Company used a Monte Carlo simulation to value the settlement features of the convertible note and determined the fair value to be $39.

 

The fair value of the convertible note derivative at the measurement date was calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:

 

    June 30,
2017
 
Principal amount and guaranteed interest   $ 103  
         
Conversion price per share   $ 0.12  
Conversion trigger price per share      None  
Risk free rate     1.02 %
Life of conversion feature (in years)     0.76  
Volatility     184 %