Quarterly report pursuant to Section 13 or 15(d)

Preferred Stock

v3.10.0.1
Preferred Stock
9 Months Ended
Sep. 30, 2018
Stockholders' Deficit/Preferred Stock [Abstract]  
PREFERRED STOCK

14. PREFERRED STOCK

 

 Designation of Series J preferred stock

 

On July 20, 2017, the Board of Directors designated 1,000 shares of the Company’s authorized preferred stock, with a par value of $0.0001 per share, as Series J preferred stock. The Series J preferred stock has a stated value of $4,916 per share, is not redeemable and, except as otherwise required by law, shall be voted together with the Company’s common stock and any other series of preferred stock then outstanding, and not as a separate class, at any meeting of the stockholders of the Company upon any matter upon which the holders of common stock have the right to vote, except that the aggregate voting power of the Series J preferred stock shall be equal to 51% of the total voting power of the Company. The holders of Series J preferred stock also have a liquidation preference in the amount of $4,916 per share that is senior to the distributions, if any, to be paid to the holders of common stock.

 

Designation of Series K preferred stock

 

On November 10, 2017, the Board of Directors designated 3,000 shares of the Company’s authorized preferred stock, with a par value of $0.0001 per share, as Series K preferred stock. The Series K preferred stock has a stated value of $10,000 per share. The Series K preferred stock is convertible into common stock of the Company at the lower of $3.00 or 95% of the weighted average trading price for the five days prior to conversion. The Series K preferred stock has a liquidation preference equal to $10,000 per share. There are no dividends on the Series K preferred stock. 1,512 shares of the Series K preferred stock were issued and outstanding as of September 30, 2018 and December 31, 2017. Due to the variable conversion feature, the Company cannot assert it would have sufficient authorized, but unissued shares to settle all future conversion requests and as such the Series K is deemed to be conditionally redeemable, and is classified as temporary equity in the consolidated balance sheet.

 

Designation of Series L preferred stock

 

On October 12, 2017, the Board of Directors designated 1,000 shares of the Company’s authorized preferred stock, with a par value of $0.0001 per share, as Series L preferred stock. The Series L preferred stock has a stated value of $10,000 per share. The Series L preferred stock is convertible into common stock of the Company at 105% of the weighted average trading price for the five days prior to conversion. The Series L preferred stock has a liquidation preference equal to $10,000 per share. There are no dividends on the Series L preferred stock. 227 shares of the Series L preferred stock were issued as of September 30, 2018 and December 31, 2017. 182 and 227 shares of the Series L preferred stock were outstanding as of September 30, 2018 and December 31, 2017, respectively. Due to the variable conversion feature, the Company cannot assert it would have sufficient authorized, but unissued shares to settle all future conversion requests and as such the Series L is deemed to be conditionally redeemable, and is classified as temporary equity in the consolidated balance sheet.

 

On July 17, 2018, the Company amended its Certificate of Designation for its Series L preferred stock. Per the amended Certificate of Designation, the conversion price was changed to the greater of $0.01 or a 35% discount to the lowest VWAP for the 5 trading days immediately preceding the conversion date. Additionally, 20% of the issued and outstanding shares were cancelled per the amendment. The Company treated the amendment as a debt extinguishment (refer to Note 9, Derivative Instruments, for detail on the extinguishment accounting related to the amendment).

 

Designation of Series M preferred stock

 

On December 1, 2017, the Board of Directors designated 500 shares of the Company’s authorized preferred stock, with a par value of $0.0001 per share, as Series M preferred stock. The Series M preferred stock has a stated value of $10,000 per share, no liquidation privilege and no dividend feature. The Series M preferred stock was originally convertible into common stock of the Company at a conversion price equal to 105% of the weighted average trading price for the five days prior to conversion. As such, the Series M represented an unconditional obligation to transfer a variable number of shares, where the monetary value of the obligation was based solely or predominantly on a fixed monetary amount known at inception and accordingly was classified as a liability in the consolidated balance sheet.

On July 3, 2018, the Company amended its Certificate of Designation for its Series M preferred stock. Per the amended Certificate of Designation, the conversion price was changed to the greater of $0.01 or 105% of the average closing VWAP price for the 5 days immediately preceding the conversion date. In accordance with ASC Topic 470-50, the Company treated the amendment as a debt extinguishment (refer to Note 9, Derivative Instruments, for detail on the extinguishment accounting related to the amendment). Post amendment, the instrument is no longer predominantly an obligation to issue a variable number of shares for a fixed monetary amount and thus the instrument as a whole is no longer classified as a liability. However, due to the variable conversion feature, the Company cannot assert it would have sufficient authorized, but unissued shares to settle all future conversion requests and as such the embedded conversion option has been bifurcated and classified as a derivative liability and the host instrument is deemed to be conditionally redeemable, and, accordingly is classified as temporary equity in the unaudited condensed consolidated balance sheet as of September 30, 2018.

 

On July 30, 2018, an employee of the Company and holder of the Company’s Series M preferred stock assigned 10 shares of Series M preferred stock to a third party, Apollo Management Group, Inc. The terms of the Series M preferred stock assigned did not change as a result of the assignment.

 

309 and 386 shares of the Series M preferred stock were issued and outstanding as of September 30, 2018 and December 31, 2017, respectively.

 

Exchange of related party debt for preferred stock

 

On July 25, 2017, Mark Munro, CEO, and Mark Durfee, Board Member, exchanged their outstanding related party debt for the Company’s Series J preferred stock with special voting rights. Mark Munro converted principal and interest of $1,709 and $195, respectively. Mark Durfee converted principal and interest of $2,550 and $464, respectively. As a result of the exchange, Mark Munro and Mark Durfee received 387 and 613 shares, respectively, of the Company’s Series J preferred stock (Refer to Note 13, Related Parties, for further detail). The fair value of the Series J Preferred Stock on date of issuance was $1,753. The difference between the fair value of the preferred stock and the debt converted was included in additional paid in capital.

 

Exchange of term loan debt and employee warrants for preferred stock

 

On October 12, 2017, a note holder agreed to exchange $5,430 held in promissory notes into 227 shares of the Company’s Series L preferred stock. As a result of the exchange, the Company recorded a gain on extinguishment of debt of $5,444 to the consolidated statement of operations for the year ended December 31, 2017.

 

On November 10, 2017, two note holders converted $15,128 of principal and accrued interest into 1,512 shares of the Company’s Series K preferred stock. As a result of the exchange, the Company recorded a loss on extinguishment of debt of $1,363 to the consolidated statement of operations for the year ended December 31, 2017.

 

On December 1, 2017, two employees exchanged warrants to purchase 382,300 shares of the Company’s common stock for 386 shares of the Company’s Series M preferred stock. As a result of the exchange, the Company recorded a loss on extinguishment of debt of $2,281 to the consolidated statement of operations for the year ended December 31, 2017.

 

Conversions of Series M preferred stock

 

During the nine months ended September 30, 2018, the holders of the Series M preferred stock converted 77 shares of Series M preferred stock into shares of the Company’s common stock (refer to Note 11, Stockholders’ Deficit, for further detail).

 

Temporary Equity

 

The Company evaluated and concluded that it’s Series K and L Preferred Stock did not meet the criteria in ASC 480-10 and thus were not considered liabilities. The Company evaluated and concluded that the embedded conversion feature in Preferred Series K and L and determined that the embedded conversion feature needs to be bifurcated (refer to Note 9, Derivative Instruments, for further information regarding the embedded conversions features of the Series K and L preferred stock). In accordance with ASR 268 these equity securities are required to be classified outside of permanent equity since they are redeemable for cash. These shares are not currently redeemable and are not probable of being redeemed and thus have been recorded based on their fair value at the time of issuance. If redemption becomes probable, or the shares will become redeemable, they will be recorded to redemption value.