NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ORGANIZATION
Ascent Solar Technologies, Inc. (“Ascent”) was incorporated on October 18, 2005 from the separation by ITN Energy Systems, Inc. (“ITN”) of its Advanced Photovoltaic Division and all of that division’s key personnel and core technologies. ITN, a private company incorporated in 1994, is an incubator dedicated to the development of thin-film, photovoltaic (“PV”), battery, fuel cell and nano technologies. Through its work on research and development contracts for private and governmental entities, ITN developed proprietary processing and manufacturing know-how applicable to PV products generally, and to Copper-Indium-Gallium-diSelenide (“CIGS”) PV products in particular. ITN formed Ascent to commercialize its investment in CIGS PV technologies. In January 2006, in exchange for
5,140
shares of common stock of Ascent, ITN assigned to Ascent certain CIGS PV technologies and trade secrets and granted to Ascent a perpetual, exclusive, royalty-free worldwide license to use, in connection with the manufacture, development, marketing and commercialization of CIGS PV to produce solar power, certain of ITN’s existing and future proprietary and control technologies that, although non-specific to CIGS PV, Ascent believes will be useful in its production of PV modules for its target markets. Upon receipt of the necessary government approvals and pursuant to novation in early 2007, ITN assigned government-funded research and development contracts to Ascent and also transferred the key personnel working on the contracts to Ascent.
Currently, the Company is producing consumer oriented products focusing on charging mobile devices powered by or enhanced by the Company's solar modules. Products in these markets are priced based on the overall product value proposition rather than a commodity-style price per watt basis. The Company continues to develop new consumer products and has adjusted utilization of its equipment to meet near term sales forecasts.
Reverse Stock Split
On May 26, 2016, the Company, a Delaware corporation, filed a Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (the "Certificate of Amendment") with the Secretary of State of the State of Delaware to effect a reverse stock split of the Company's common stock, par value
$0.0001
per share at a ratio of one-for-twenty (the "Reverse Stock Split"). The Certificate of Amendment did not change the number of authorized shares, or the par value, of the Company’s common stock. The Certificate of Amendment provides that every twenty shares of the Company’s issued and outstanding common stock were automatically combined into one issued and outstanding share of the Company’s common stock. All shares and per share amounts in the condensed financial statements and accompanying notes have been retroactively adjusted to give effect to the Reverse Stock Split.
NOTE 2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been derived from the accounting records of Ascent Solar Technologies, Inc., Ascent Solar (Asia) Pte. Ltd., and Ascent Solar (Shenzhen) Co., Ltd. (collectively, "the Company") as of
June 30, 2016
and
December 31, 2015
, and the results of operations for the
three and six
months ended
June 30, 2016
and
2015
. Ascent Solar (Shenzhen) Co., Ltd. is wholly owned by Ascent Solar (Asia) Pte. Ltd., which is wholly owned by Ascent Solar Technologies, Inc. All significant inter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these interim financial statements do not include all of the information and footnotes typically found in U.S. GAAP audited annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. The Condensed Consolidated Balance Sheet at
December 31, 2015
has been derived from the audited financial statements as of that date but does not include all of the information and footnotes included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2015
. These condensed consolidated financial statements and notes should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2015
.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Operating results for the
six
months ended
June 30, 2016
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2016
.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies were described in Note 3 to the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2015
. There have been no significant changes to our accounting policies as of
June 30, 2016
.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. The update will establish a comprehensive revenue recognition standard for virtually all industries in GAAP. ASU 2014-09 will change the amount and timing of revenue and cost recognition, implementation, disclosures and documentation. In August 2015, the FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date.
The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. ASU 2014-09 is now effective for the Company in fiscal year 2018. The Company is researching whether the adoption of ASU 2014-09 will have a material effect on the Company’s consolidated financial statements.
In August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
. ASU 2014-15 requires management to evaluate, in connection with preparing financial statements for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and to provide certain disclosures if it concludes that substantial doubt exists. ASU 2014-15 is effective for all entities for the annual period ending after December 15, 2016, and for annual and interim periods thereafter, with early adoption permitted. The Company has not early adopted ASU 2014-15. The Company is researching whether the adoption of ASU 2014-15 will have a material effect on the Company’s consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11
, Inventory (Topic 330): Simplifying the Measurement of Inventory
, which states that inventory should be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective within annual periods beginning on or after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact, if any, that the adoption of this guidance will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
. ASU 2016-02 requires lessees to recognize all leases, including operating leases, on the balance sheet as a lease asset or lease liability, unless the lease is a short-term lease. ASU 2016-02 also requires additional disclosures regarding leasing arrangements. ASU 2016-02 is effective for interim periods and fiscal years beginning after December 15, 2018, and early application is permitted. The Company is currently evaluating the impact, if any, that the adoption of this guidance will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which simplifies several aspects of the accounting for share-based payment transactions, including 1) accounting for income taxes, 2) classification of excess tax benefits in the statement of cash flows, 3) forfeitures, 4) minimum statutory tax withholding requirements, 5) cash flow classification of employee taxes withheld in the form of shares, 6) the practical expedient for estimating the expected term, and 7) intrinsic value. The guidance is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not expect the implementation of ASU 2016-09 to have a material effect on its consolidated financial statements.
Reclassifications
: Certain reclassifications have been made to the 2015 financial information to conform to the 2016 presentation. Such reclassifications had no effect on the net loss.
NOTE 4. LIQUIDITY AND CONTINUED OPERATIONS
On September 4, 2015, the Company entered into a note purchase agreement between the Company and two accredited investors (the “Accredited Investors”). Pursuant to the note purchase agreement, the Company issued to the Accredited Investors
$1.5 million
original principal amount of secured subordinated convertible notes on September 4, 2015, and an additional
$0.5 million
original principal amount of secured subordinated convertible notes on September 28, 2015. On April 29, 2016, the Company entered into Exchange Agreements (the “Exchange Agreements”), with the Accredited Investors to cancel the September 2015 Convertible Notes. Additionally, on April 29, 2016, the Company entered into a securities purchase
agreements with the Accredited Investors for the private placement of
$2.0 million
of the Company’s newly designated Series G Convertible Preferred Stock (“Series G Preferred Stock”). See Note 10 for further information.
On November 4, 2015, the Company entered into a securities purchase agreement with a private investor (the "Private Investor") to issue
2,800
shares of Series E Preferred Stock in exchange for
$2.8 million
. See Note 11 for further information.
On November 10, 2015, the Company and the Private Investor entered into a committed equity line purchase agreement (the "CEL"). Under the terms and subject to the conditions of the CEL purchase agreement, at its option, the Company has the right to sell to the Private Investor, and the Private Investor is obligated to purchase from the Company, up to
$32.2 million
of the Company’s common stock, subject to certain limitations, from time to time, over the
36
-month period commencing on December 18, 2015, the date that the registration statement was declared effective by the SEC. The remaining availability under the CEL as of
June 30, 2016
is
$29.1 million
.
Actual sales of shares of common stock to the Private Investor under the CEL purchase agreement will depend on a variety of factors to be determined by the Company from time to time, including, among others, our ability to register shares of common stock with the SEC, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations.
As of January 27, 2016, the Company was not able to access the CEL because the Company does not have any registered shares available for use in connection with the CEL purchase agreement. The Company is in the process of registering an additional
2,400,000
shares for such purpose with the SEC. If such additional registration statement is declared effective by the SEC and such additional shares become available for use by the Company, the Company’s sales of shares pursuant to the CEL purchase agreement during 2016 would be limited to such
2,400,000
shares. The Company’s use of the CEL in 2016 and beyond would require, among other things, the Company to file additional registration statements in the future that cover additional shares and have such registration statements declared effective. The Company would also need to maintain the effectiveness of such additional registration statements.
On January 19, 2016, the Company entered into a securities purchase agreement (the “Series F SPA”) with the Private Investor for the sale of
$7 million
of the Company’s newly designated Series F
7%
Convertible Preferred Stock (the “Series F Preferred Stock”). See Note 12 for further information.
On June 9, 2016, the Company entered into a securities purchase agreement (the “Series H SPA”) with the Private Investor for the sale of up to
$2.5 million
of the Company’s newly designated Series H
7%
Convertible Preferred Stock (the “Series H Preferred Stock”). However, subsequent to
June 30, 2016
, the Company entered into an exchange agreement to cancel the Series H Preferred Stock. See Note 13 and Note 18 for further information.
The Company has continued PV production at its manufacturing facility. The Company does not expect that sales revenue and cash flows will be sufficient to support operations and cash requirements until it has fully implemented its new consumer products strategy. During the
six
months ended
June 30, 2016
the Company used
$10.6 million
in cash for operations. The Company's primary significant long term cash obligation consists of a note payable of
$5.6 million
to a financial institution secured by a mortgage on its headquarters and manufacturing building in Thornton, Colorado. Total payments of
$0.4 million
, including principal and interest, will come due in the remainder of 2016. The Company also owes
$0.6 million
as of
June 30, 2016
related to a litigation settlement reached in April 2014, which is being paid in equal installments over
40
months which began in April 2014.
Additional projected product revenues are not anticipated to result in a positive cash flow position for the year
2016
overall and, as of
June 30, 2016
, the Company has negative working capital. As such, cash liquidity sufficient for the year ending
December 31, 2016
will require additional financing. Subsequent to
June 30, 2016
, on July 13, 2016, the Company entered into a securities purchase agreement with the Private Investor for the private placement of up to
$2,080,000
of the Company’s
4%
Original Issue Discount Senior Secured Convertible Promissory Notes. See Note 18 for further information.
The Company continues to accelerate sales and marketing efforts related to its consumer products strategy through increased hiring and expansion of its sales channel. The Company has begun activities related to securing additional financing through strategic or financial investors, but there is no assurance the Company will be able to raise additional capital on acceptable terms or at all. If the Company's revenues do not increase rapidly, and/or additional financing is not obtained, the Company will be required to significantly curtail operations to reduce costs and/or sell assets. Such actions would likely have an adverse impact on the Company's future operations.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
The following table summarizes property, plant and equipment as of
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
Building
|
|
$
|
5,828,960
|
|
|
$
|
5,828,960
|
|
Furniture, fixtures, computer hardware and computer software
|
|
480,976
|
|
|
480,976
|
|
Manufacturing machinery and equipment
|
|
31,265,800
|
|
|
31,265,800
|
|
Net depreciable property, plant and equipment
|
|
37,575,736
|
|
|
37,575,736
|
|
Manufacturing machinery and equipment in progress
|
|
20,688
|
|
|
—
|
|
Property, plant and equipment
|
|
37,596,424
|
|
|
37,575,736
|
|
Less: Accumulated depreciation and amortization
|
|
(31,206,918
|
)
|
|
(28,484,708
|
)
|
Net property, plant and equipment
|
|
$
|
6,389,506
|
|
|
$
|
9,091,028
|
|
The Company analyzes its long-lived assets for impairment, both individually and as a group, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Depreciation expense for the three months ended
June 30, 2016
and
2015
was $
1,359,492
and
$1,401,003
, respectively. Depreciation expense for the
six
months ended
June 30, 2016
and
2015
was
$2,722,210
and
$2,830,490
, respectively. Depreciation expense is recorded under “Depreciation and amortization expense” in the Condensed Consolidated Statements of Operations.
NOTE 6. INVENTORIES
Inventories consisted of the following at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
As of December 31,
|
|
|
2016
|
|
2015
|
Raw materials
|
|
$
|
833,181
|
|
|
$
|
925,064
|
|
Work in process
|
|
696,915
|
|
|
671,746
|
|
Finished goods
|
|
2,546,425
|
|
|
2,675,570
|
|
Total
|
|
$
|
4,076,521
|
|
|
$
|
4,272,380
|
|
NOTE 7. DEBT
On February 8, 2008, the Company acquired a manufacturing and office facility in Thornton, Colorado, for approximately
$5.5 million
. The purchase was financed by a promissory note, deed of trust and construction loan agreement (the “Construction Loan”) with the Colorado Housing and Finance Authority (“CHFA”), which provided the Company borrowing availability of up to
$7.5 million
for the building and building improvements. In 2009, the Construction Loan was converted to a permanent loan pursuant to a Loan Modification Agreement between the Company and CHFA (the “Permanent Loan”). The Permanent Loan, collateralized by the building, has an interest rate of
6.6%
and the principal will be amortized through its term to January 2028. Further, pursuant to certain negative covenants in the Permanent Loan, the Company may not, among other things, without CHFA’s prior written consent (which by the terms of the deed of trust is subject to a reasonableness requirement): create or incur additional indebtedness (other than obligations created or incurred in the ordinary course of business); merge or consolidate with any other entity; or make loans or advances to the Company’s officers, shareholders, directors or employees. The outstanding balance of the Permanent Loan was
$5,633,054
as of
June 30, 2016
.
The Company is currently not in compliance with certain covenants under the terms of the Permanent Loan as a result of a late real-estate tax payment due to Adams County in the amount of approximately
$177,000
plus accrued interest. Under the terms of the Permanent Loan, CHFA may accelerate payments due under the Permanent Loan, take possession of the premises or require future real-estate taxes be paid in monthly installments to CHFA. The Company is currently in communication with CHFA to explore all possible options to cure the covenant breach.
As of
June 30, 2016
, future principal payments on long-term debt are due as follows:
|
|
|
|
|
|
|
2016
|
$
|
190,860
|
|
2017
|
344,730
|
|
2018
|
368,183
|
|
2019
|
393,232
|
|
2020
|
419,985
|
|
Thereafter
|
3,916,064
|
|
|
$
|
5,633,054
|
|
NOTE 8. MAKE-WHOLE DIVIDEND LIABILITY
In June 2013, the Company entered into a Series A Preferred Stock Purchase Agreement. Holders of Series A Preferred Stock are entitled to cumulative dividends at a rate of
8.0%
per annum, with the dividend rate being indexed to the Company's stock price and subject to adjustment. Conversion or redemption of the Series A Preferred Stock within
4 years
of issuance requires the Company pay a make-whole dividend to the holders, whereby dividends for the full
four
year period are to be paid in cash or common stock (valued at
10%
below market price).
The Company concluded the make-whole dividends should be characterized as embedded derivatives under ASC 815. The make-whole dividends were expensed at the time of issuance and recorded as "Make-whole dividend liability" in the Condensed Consolidated Balance Sheets.
The fair value of these dividend liabilities, which are indexed to the Company's common stock, must be evaluated at each period end. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The fair value determination required forecasting stock price volatility, expected average annual return and conversion date. During the
six
months ended
June 30, 2016
, there was
no
change in the fair value of the make-whole liability from the fair value at
December 31, 2015
.
At
June 30, 2016
, there were
212,390
shares of Series A outstanding. At
June 30, 2016
, the Company was entitled to redeem the outstanding Series A preferred shares for
$1.7 million
, plus a make-whole amount of
$0.8 million
, payable in cash or common shares. The fair value of the make-whole dividend liabilities for the Series A preferred shares, which approximates cash value, was
$0.8 million
as of
June 30, 2016
.
NOTE 9. CONVERTIBLE NOTE AND SERIES D PREFERRED STOCK
Convertible Note and Series D Preferred Stock
On November 14, 2014, the Company entered into a securities purchase agreement (the "November 2014 Purchase Agreement") with one institutional and accredited investor (the "Investor"). Pursuant to the terms of the November 2014 Purchase Agreement, the Company sold to the Investor (i)
$3,000,000
(
3,000
shares) of Series D Convertible Preferred Stock (the "Series D Preferred Stock"), and (ii)
$32,000,000
original principal amount of senior secured convertible notes (the "Notes"). The Series D Preferred Stock was fully converted as of
June 30, 2015
. On September 4, 2015, the Company entered into a Cancellation and Waiver Agreement (the “Cancellation Agreement”), between the Company and the Investor to retire the Notes. The Cancellation Agreement was amended on October 8, 2015 and November 22, 2015. As of
December 31, 2015
the total Notes outstanding balance was
$52,520
and there was a corresponding embedded derivative liability valued at
$60,984
.
The Investor had available to them a new conversion price beginning on November 4, 2015 as a result of the Series E Preferred Stock transaction further described in Note 11. The Investor could elect to convert a portion of the Notes into shares of common stock using a conversion price equal to
80%
of the average of the two lowest volume weighted average prices ("VWAP") of our common stock for the
ten
consecutive trading day period prior to each specific conversion date (the "Variable Price"). During the
six
months ended
June 30, 2016
, the Investor elected to convert the remaining Notes outstanding balance of
$52,520
using the Variable Price, resulting in the issuance of
48,993
shares of common stock. The Company paid interest in the amount of
$266
on the Notes, resulting in the issuance of
248
shares of common stock during the
six
months ended
June 30, 2016
.
A net gain on extinguishment of
$54,681
was recorded to "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations for the
six
months ended
June 30, 2016
as a result of the final conversion of the Notes.
NOTE 10. SEPTEMBER 2015 CONVERTIBLE NOTES AND SERIES G PREFERRED STOCK
September 2015 Convertible Notes Extinguishment
On September 4, 2015, the Company entered into a note purchase agreement between the Company and the Accredited Investors. Pursuant to the note purchase agreement, the Company issued to the Accredited Investors
$1.5 million
original principal amount of secured subordinated convertible notes on September 4, 2015, and an additional
$0.5 million
original principal amount of secured subordinated convertible notes on September 28, 2015 (collectively, the “September 2015 Convertible Notes”). The September 2015 Convertible Notes bear interest at a rate of
8%
per annum.
All amounts due under the September 2015 Convertible Notes were convertible at any time, in whole or in part, at the option of the Accredited Investors, into shares of Common Stock at a fixed conversion price, which was subject to adjustment for stock splits, stock dividends, combinations or similar events, of
$2.40
per share (the “Conversion Price”). The Company, however, was prohibited from issuing shares of Common Stock pursuant to the September 2015 Convertible Notes unless stockholder approval of such issuance of securities was obtained as required by applicable NASDAQ listing rules. The Company received stockholder approval of such share issuances at a special stockholders meeting held on December 18, 2015. This provision resulted in a contingent beneficial conversion feature that was recognized once the contingency was resolved based on its intrinsic value at the commitment date. Accordingly, a beneficial conversion feature in the amount of
$1.38 million
was recorded as a debt discount on December 18, 2015. The debt discount was recognized as additional interest expense over the life of the September 2015 Convertible Notes.
There were no registration rights applicable to the September 2015 Convertible Notes. Accordingly, any shares of Common Stock issued upon conversion of the September 2015 Convertible Notes would be restricted and could only be sold in compliance with Rule 144 or in accordance with another exemption from registration.
On April 29, 2016, the Company entered into Exchange Agreements (the “Exchange Agreements”) with the Accredited Investors. Under the terms of the Exchange Agreements, the September 2015 Convertible Notes (approximately
$2.10 million
of outstanding principal and accrued interest) were cancelled. In exchange, the Company has issued to the Accredited Investors rights to receive a fixed number of shares of common stock of the Company in accordance with the terms of Rights to Receive Common Stock dated April 29, 2016 (the “April 2016 Rights”). The April 2016 Rights obligate the Company to issue to the holders (without the payment of any additional consideration) an aggregate of approximately
2.10 million
shares of common stock (the "April 2016 Rights Shares"). The number of April 2016 Rights Shares is fixed, and is only subject to customary non-price based ratable adjustments. The April 2016 Rights are immediately exercisable and expire on April 29, 2021.
A net loss on extinguishment of
$0.89 million
was recorded to "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations for the three and
six
months ended
June 30, 2016
as a result of the cancellation of the September 2015 Convertible Notes and issuance of the April 2016 Rights. During the three months ended
June 30, 2016
, the Accredited Investors exercised their April 2016 Rights to receive and the Company has delivered
1,552,865
shares of common stock.
Series G Convertible Preferred Stock Financing
On April 29, 2016, the Company entered into securities purchase agreements with the Accredited Investors for the private placement of
$2,000,000
of the Company’s newly designated Series G Preferred Stock. The Company issued a total of
500
shares of Series G Preferred Stock to the Accredited Investors in exchange for
$500,000
at closing. The Company sold an additional
1,500
shares of Series G Preferred Stock to the Accredited Investors during the months of May and June 2016, which resulted in additional gross proceeds to the Company of
$1,500,000
.
Shares of the Series G Preferred Stock (including the amount of any accrued and unpaid dividends thereon) will be convertible at the option of the Accredited Investors into common stock at a fixed conversion price of
$1.00
per share. Holders of the Series G Preferred Stock will be entitled to dividends in the amount of
10%
per annum. One year after issuance, the Company is required to redeem for cash all or any portion of the outstanding shares of the Series G Preferred Stock at a price per share equal to
$1,000
plus any accrued but unpaid dividends thereon. Except as otherwise required by law (or with respect to approval of certain actions), the Series G Preferred Stock does not have voting rights.
A beneficial conversion feature in the amount of
$196,000
was recorded as a debt discount. The debt discount will be recognized as additional interest expense over the life of the Series G Preferred Stock.
There are no registration rights applicable to the Series G Preferred Stock. Accordingly, any shares of Common Stock issued upon conversion of the Series G Preferred Stock are restricted and can only be sold in compliance with Rule 144 or in accordance with another exemption from registration.
NOTE 11. SERIES E PREFERRED STOCK
On November 4, 2015, the Company entered into a securities purchase agreement with the Private Investor to issue
2,800
shares of Series E Preferred Stock to an investor in exchange for
$2,800,000
. The proceeds were fully received upon effectiveness of the Company’s registration statement covering the re-sale of the common stock underlying the Series E Preferred Stock in December of 2015.
Shares of the Series E Preferred Stock (including the amount of any accrued and unpaid dividends thereon) are convertible, at the option of the holder, into common stock at a variable conversion price equal to
80%
of the average of the two lowest VWAPs of the Company's common stock for the
ten
consecutive trading day period prior to the conversion date. If certain defined default events occur, the conversion price would thereafter be reduced (and only reduced), to equal
70%
of the average of the two lowest VWAPs of the Company's common stock for the
twenty
consecutive trading day period prior to the conversion date. The Private Investor had available to them a new conversion price beginning on June 9, 2016 as a result of the Series H Preferred Stock transaction further described in Note 13. Shares of the Series E Preferred Stock are now convertible, at the option of the Private Investor, into common stock at a variable conversion price equal to
70%
of (i) the lowest VWAP of our common stock for the ten consecutive trading day period prior to the conversion date or (ii) the lowest closing bid price of our common stock for the ten consecutive trading day period prior to the conversion date. During the
six
months ended
June 30, 2016
, the Private Investor exercised its option to convert
1,585
Series E Preferred Shares, representing a value of
$1,585,193
, resulting in the issuance of
8,749,791
shares of common stock.
Holders of the Series E Preferred Stock will be entitled to dividends in the amount of
7%
per annum. During the
six
months ended
June 30, 2016
, the Company paid dividends in the amount of
$35,657
on the Series E Preferred Stock, resulting in the issuance of
361,778
shares of common stock.
The Company has issued
18,000
shares of common stock to the Private Investor as a commitment fee relating to the Series E Preferred Stock. Costs associated with the Series E Preferred Stock, such as legal fees and commitment shares are capitalized and reported as deferred financing costs on the Condensed Consolidated Balance Sheets. The total gross debt issuance cost incurred by the Company related to the Series E Preferred Stock was
$104,000
. These debt issuance costs will be recognized as additional interest expense over the life of the Series E Preferred Stock.
At any time after March 31, 2016, the Private Investor has the option to redeem for cash all or any portion of the outstanding shares of the Series E Preferred Stock at a price per share equal to
$1,250
plus any accrued but unpaid dividends thereon.
At any time after the third anniversary of the date of the initial issuance of Series E Preferred Stock, the Company will have the option to redeem for cash all outstanding shares of the Series E Preferred Stock at a price per share equal to
$1,250
plus any accrued but unpaid dividends thereon.
The Company classified the Series E Preferred Stock as a liability pursuant to ASC 480 on the closing date due to the structure of the financing agreement, whereby the Company has an unconditional obligation that the Company may settle by issuing a variable number of common shares with a monetary value that is fixed and known at inception. There are
737
shares of Series E Preferred Stock outstanding as of
June 30, 2016
.
Pursuant to a number of factors outlined in ASC Topic 815,
Derivatives and Hedging
, the conversion option in the Series E Preferred Stock was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. At
December 31, 2015
, the derivative liability associated with the Series E Preferred Stock was
$553,000
.
The derivative liability associated with the Series E Preferred Stock is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. At
June 30, 2016
, the Company conducted a fair value assessment of the embedded derivative associated with the Series E Preferred Stock. As a result of the fair value assessment, the Company
recorded a
$43,000
loss as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of
$596,000
as of
June 30, 2016
.
The derivative associated with the Series E Preferred Stock approximates management’s estimate of the fair value of the embedded derivative liability at
June 30, 2016
based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of
76%
, present value discount rate of
12%
and dividend yield of
0%
.
NOTE 12. SERIES F PREFERRED STOCK
On January 19, 2016, the Company entered into a securities purchase agreement (the “Series F SPA”) with the Private Investor for the sale of
$7,000,000
of the Company’s newly designated Series F
7%
Convertible Preferred Stock (the “Series F Preferred Stock”).
On January 20, 2016, the Company sold and issued
7,000
shares of Series F Preferred Stock to the Private Investor. The aggregate purchase price of the Series F Preferred was
$7,000,000
. On January 20, 2016, the Private Investor paid
$500,000
to the Company. The remaining
$6,500,000
was paid by the Private Investor to the Company in
14
weekly increments of
$500,000
or
$250,000
beginning January 25, 2016 and ending April 28, 2016.
Holders of the Series F Preferred Stock are entitled to dividends in the amount of
7%
per annum. During the quarter ended
June 30, 2016
, the Company paid dividends in the amount of
$86,827
on the Series F Preferred Stock, resulting in the issuance of
170,825
shares of common stock.
Shares of the Series F Preferred Stock (including the amount of any accrued and unpaid dividends thereon) are convertible, at the option of the holder, into common stock at a fixed conversion price equal to
$5.00
per share. If certain defined default events occur, the conversion price would thereafter be reduced (and only reduced), to equal
70%
of the average of the two lowest VWAPs of our common stock for the
twenty
consecutive trading day period prior to the conversion date.
If requested by the Private Investor, the Company will make weekly redemptions of shares of Series F Preferred Stock (including any accrued and unpaid dividends thereon). If the redemption price is paid by the Company in cash, the number of shares to be redeemed in each weekly increment is
250
shares of Series F Preferred Stock, and the redemption price is a price per share equal to
$1,250
plus any accrued but unpaid dividends thereon. The Company has the option to make such redemption payments in shares of common stock provided certain specified equity conditions are satisfied at the time of payment. The number of shares of common stock to be issued would be calculated using a per share price equal to
80%
of the one lowest VWAP of our common stock for the
ten
consecutive trading day period prior to the payment date. For redemption payments made in shares of common stock, the Company will redeem either (i)
250
shares of Series F Preferred Stock or (ii) such greater number of shares of Series F Preferred Stock (and also including any accrued and unpaid dividends) that would result upon redemption in the issuance of a number of shares of common stock equal to
12%
of the aggregate composite trading volume for the Company’s common stock during the preceding calendar week.
The Private Investor had available to them a new conversion price beginning on June 9, 2016 as a result of the Series H Preferred Stock transaction further described in Note 13. Shares of the Series F Preferred Stock are now convertible, at the option of the Private Investor, into common stock at a variable conversion price equal to
70%
of (i) the lowest VWAP of our common stock for the ten consecutive trading day period prior to the conversion date or (ii) the lowest closing bid price of our common stock for the ten consecutive trading day period prior to the conversion date. During the quarter ended
June 30, 2016
the Private Investor exercised its option to convert
5,402
Series F Preferred Shares, representing a value of
$5.40 million
, resulting in the issuance of
8,662,908
shares of common stock.
The Company classified the Series F Preferred Stock as a liability pursuant to ASC 480 on the closing date due to the structure of the financing agreement, whereby the Company has an unconditional obligation that the Company may settle by issuing a variable number of common shares with a monetary value that is fixed and known at inception. There are
1,598
shares of Series F Preferred Stock outstanding as of
June 30, 2016
.
Pursuant to a number of factors outlined in ASC Topic 815,
Derivatives and Hedging
, the conversion option in the Series F Preferred Stock was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. At closing, a derivative liability and a corresponding debt discount in the amount of
$1,666,000
were recorded. The debt discount will be charged to interest expense ratably over the life of the Series F Preferred Stock.
The derivative liability associated with the Series F Preferred Stock is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. At
June 30, 2016
, the Company conducted a fair value assessment of the embedded derivative associated with the Series F Preferred Stock. As a result of the fair value assessment, the Company recorded a
$545,000
gain as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of
$1,121,000
as of
June 30, 2016
.
The derivative associated with the Series F Preferred Stock approximates management’s estimate of the fair value of the embedded derivative liability at
June 30, 2016
based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of
76%
, present value discount rate of
12%
and dividend yield of
0%
.
NOTE 13. SERIES H PREFERRED STOCK
On June 9, 2016, the Company entered into a securities purchase agreement with the Private Investor for the sale of up to
$2.5 million
of the Company’s newly designated Series H
7%
Convertible Preferred Stock. On June 9, 2016 the Company sold and issued
250
shares of Series H Preferred Stock to the Private Investor in exchange for
$250,000
, on June 27, 2016 the Company sold and issued
250
shares of Series H Preferred Stock to the Private Investor in exchange for
$250,000
, and on June 29, 2016, the Company sold and issued
125
shares of Series H Preferred Stock to the Private Investor in exchange for
$125,000
.
Shares of the Series H Preferred Stock (including the amount of any accrued and unpaid dividends thereon) will be convertible at the option of the holder into common stock at a variable conversion price equal to
70%
of (i) the lowest volume weighted average price (“VWAP”) of our common stock for the ten consecutive trading day period prior to the conversion date or (ii) the lowest closing bid price of our common stock for the ten consecutive trading day period prior to the conversion date. If certain “Triggering Events” occur, then the conversion price would thereafter be reduced (and only reduced), to equal
60%
of the average of the two lowest VWAPs of our common stock for the twenty consecutive trading day period prior to the conversion date. In no event, however, shall the conversion price be less than
$0.005
per share. The Private Investor did not convert any shares of Series H Preferred Stock into shares of common stock during the quarter ended
June 30, 2016
.
Holders of the Series H Preferred Stock are entitled to dividends in the amount of
7%
per annum.
At any time after the occurrence of certain defined “Triggering Events”, the holder will have the option to redeem for cash all or any portion of the outstanding shares of the Series H Preferred Stock at a price per share equal to
$1,250
plus any accrued but unpaid dividends thereon. At any time after the third anniversary of the date of the initial issuance of Series H Preferred Stock, the Company will have the option to redeem for cash all outstanding shares of the Series H Preferred Stock at a price per share equal to
$1,250
plus any accrued but unpaid dividends thereon.
The Company classified the Series H Preferred Stock as a liability pursuant to ASC 480 on the closing date due to the structure of the financing agreement, whereby the Company has an unconditional obligation that the Company may settle by issuing a variable number of common shares with a monetary value that is fixed and known at inception. There are
625
shares of Series H Preferred Stock outstanding as of
June 30, 2016
.
Pursuant to a number of factors outlined in ASC Topic 815,
Derivatives and Hedging
, the conversion option in the Series H Preferred Stock was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. At closing, a derivative liability and a corresponding debt discount in the amount of
$146,000
were recorded. The debt discount will be charged to interest expense ratably over the life of the Series H Preferred Stock.
The derivative liability associated with the Series H Preferred Stock is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. At
June 30, 2016
, the Company conducted a fair value assessment of the embedded derivative associated with the Series H Preferred Stock. As a result of the fair value assessment, the Company recorded a
$598,000
loss as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of
$744,000
as of
June 30, 2016
.
The derivative associated with the Series H Preferred Stock approximates management’s estimate of the fair value of the embedded derivative liability at
June 30, 2016
based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of
76%
, present value discount rate of
12%
and dividend yield of
0%
.
Subsequent to
June 30, 2016
the Company entered into an exchange agreement to cancel the Series H Preferred Stock, see Note 18 for further information.
NOTE 14. STOCKHOLDERS’ EQUITY
Common Stock
At
June 30, 2016
, the Company had
450,000,000
shares of common stock,
$0.0001
par value, authorized for issuance. Each share of common stock has the right to
one
vote. As of
June 30, 2016
, the Company had
28,010,028
shares of common stock outstanding. The Company has not declared or paid any dividends related to the common stock through
June 30, 2016
.
Preferred Stock
At
June 30, 2016
, the Company had
25,000,000
shares of preferred stock,
$0.0001
par value, authorized for issuance. Preferred stock may be issued in classes or series. Designations, powers, preferences, rights, qualifications, limitations and restrictions are determined by the Company’s Board of Directors.
750,000
shares have been designated as Series A preferred stock,
2,000
shares have been designated for Series B-1 and B-2 preferred stock,
690
shares have been designated as Series C preferred stock,
3,000
shares have been designated as Series D preferred stock,
2,500
shares have been designated as Series D-1 preferred stock,
2,800
shares have been designated as Series E preferred stock,
7,000
shares have been designated as Series F preferred stock,
2,000
shares have been designated as Series G preferred stock, and
2,500
shares have been designated as Series H preferred stock. As of
June 30, 2016
, the Company had
212,390
shares of Series A preferred stock, 0 shares of Series B-1 and Series B-2 preferred stock, 0 shares of Series C preferred stock, 0 shares of Series D preferred stock, 0 shares of Series D-1 preferred stock,
737
shares of Series E preferred stock,
1,598
shares of Series F preferred stock,
2,000
shares of Series G preferred stock, and
625
shares of Series H preferred stock outstanding. The Company has no declared unpaid dividends related to the preferred stock as of
June 30, 2016
.
Series A Preferred Stock
In June 2013, the Company entered into a Securities Purchase Agreement with an investor to sell an aggregate of
750,000
shares of Series A Preferred Stock at a price of
$8.00
per share, resulting in gross proceeds of
$6,000,000
. This purchase agreement included warrants to purchase up to
13,125
shares of common stock of the Company. The transfer of cash and securities took place incrementally, the first closing occurring on June 17, 2013 with the transfer of
125,000
shares of Series A Preferred Stock and a warrant to purchase
2,187
shares of common stock for
$1,000,000
. The final closings took place in August 2013, with the transfer of
625,000
shares of Series A Preferred Stock and a warrant to purchase
10,938
shares of common stock for
$5,000,000
.
Holders of Series A Preferred Stock are entitled to cumulative dividends at a rate of
8.0%
per annum when and if declared by the Board of Directors in its sole discretion. The dividends may be paid in cash or in the form of common stock (valued at
10%
below market price, but not to exceed the lowest closing price during the applicable measurement period), at the discretion of the Board of Directors. The dividend rate on the Series A Preferred Stock is indexed to the Company's stock price and subject to adjustment. In addition, the Series A Preferred Stock contains a make-whole provision whereby, conversion or redemption of the preferred stock within
4 years
of issuance will require dividends for the full four year period to be paid by the Company in cash or common stock (valued at
10%
below market price, but not to exceed the lowest closing price during the applicable measurement period).
The Series A Preferred Stock may be converted into shares of common stock at the option of the Company if the closing price of the common stock exceeds
$232.00
, as adjusted, for
20
consecutive trading days, or by the holder at any time. The Company has the right to redeem the Series A Preferred Stock at a price of
$8.00
per share, plus any accrued and unpaid dividends, plus the make-whole amount (if applicable). At
June 30, 2016
, the preferred shares were not eligible for conversion to common shares at the option of the Company. The holder of the preferred shares may convert to common shares at any time, at no cost, at a ratio of
1
preferred share into 1 common share (subject to standard ratable anti-dilution adjustments). Upon any conversion (whether at the option of the Company or the holder), the holder is entitled to receive any accrued but unpaid dividends and also any make-whole amount (if applicable). See Note 8. Make-Whole Dividend Liability.
During the
six
months ended
June 30, 2016
, the holder of the Series A Preferred Shares converted
0
preferred shares into
0
shares of common stock.
Except as otherwise required by law (or with respect to approval of certain actions), the Series A Preferred Stock shall have no voting rights. Upon any liquidation, dissolution or winding up of the Company, after payment or provision for payment of debts and other liabilities of the Company, the holders of Series A Preferred Stock shall be entitled to receive, pari passu with any distribution to the holders of common stock of the Company, an amount equal to
$8.00
per share of Series A Preferred Stock plus any accrued and unpaid dividends.
Series D-1 Preferred Stock
On February 19, 2015, the Company entered into a securities purchase agreement to issue
2,500
shares of Series D-1 Preferred Stock to an investor in exchange for
$2,500,000
. The proceeds were received on the closing date, February 25, 2015.
All amounts due under the Series D-1 Preferred Stock were convertible at any time, in whole or in part, at the option of the investor into shares of Common Stock at a fixed conversion price, which was subject to adjustment for stock splits, stock dividends, combinations or similar events. The Series D-1 Preferred Stock was convertible into shares of Common Stock at the initial price of
$46.20
per share.
The investor had the option to convert the Series D-1 Preferred Stock into shares of Common Stock at a “D-1 Alternate Conversion Price” equal to the lowest of (i)
$46.20
per share or (ii)
85%
of the lowest VWAPs of the Common Stock on any trading day during the
five
consecutive trading day period, including the trading day immediately prior to the date of the applicable conversion date. During the quarter ended
June 30, 2015
, the investor exercised its option to convert
2,500
Preferred Shares, representing a value of
$2,500,000
, at a D-1 Alternate Conversion Price resulting in the issuance of
115,292
Common Shares.
Holders of the Series D-1 Preferred Stock were entitled to receive dividends in the amount of
7%
per annum, subject to increase to
15%
per annum upon the occurrence and continuance of certain events of default. Dividends on the Series D-1 Preferred Stock were payable monthly in shares of Common Stock or cash, at the Company’s option. During the quarter ended
June 30, 2015
, the Company paid dividends in the amount of
$6,944
on the Series D-1 Preferred Stock, resulting in the issuance of
195
shares of common stock.
The Company classified the Series D-1 Preferred Stock as a liability pursuant to ASC 480 on the closing date due to the structure of the financing agreement, whereby the Company had an unconditional obligation that the Company may settle by issuing a variable number of common shares with a monetary value that is fixed and known at inception. The Series D-1 Preferred Stock was fully converted into shares of common stock as of
June 30, 2015
.
Pursuant to a number of factors outlined in ASC Topic 815,
Derivatives and Hedging,
the conversion options in the Series D-1 Preferred Stock were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. At closing, a derivative liability and a corresponding debt discount in the amount of
$3.4 million
were recorded. The debt discount of
$3.4 million
was charged to interest expense. As of
June 30, 2015
, the value of the derivative liability associated with the Series D-1 Preferred Stock was
$0
as the Series D-1 Preferred Stock was fully converted as of
June 30, 2015
.
A net gain of
$2.7 million
was recorded to "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Consolidated Statements of Operations for the quarter ended
June 30, 2015
upon extinguishment of the D-1 Preferred Stock liability and the related embedded derivative.
The derivative associated with the Series D-1 Preferred Stock approximated management’s estimate of the fair value of the embedded derivative liability at the closing date based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of
45%
, present value discount rate of
12%
, dividend yield of
0%
, and a life of
0.2 years
.
Series E Preferred Stock
Refer to Note 11 descriptions of Series E Preferred Stock.
Series F Preferred Stock
Refer to Note 12 descriptions of Series F Preferred Stock.
Series G Preferred Stock
Refer to Note 10 descriptions of Series G Preferred Stock.
Series H Preferred Stock
Refer to Note 13 descriptions of Series H Preferred Stock.
The Committed Equity Line
On November 10, 2015, the Company and the Private Investor entered into a committed equity line purchase agreement (the "CEL"). Under the terms and subject to the conditions of the CEL purchase agreement, at its option the Company has the right to sell to the Private Investor, and the Private Investor is obligated to purchase from the Company, up to
$32.2 million
of the Company’s common stock, subject to certain limitations, from time to time, over the
36
-month period commencing on December 18, 2015, the date that the registration statement was declared effective by the SEC.
From time to time, the Company may direct the Private Investor, at its sole discretion and subject to certain conditions, to purchase an amount of shares of common stock up to the lesser of (i)
$1,000,000
or (ii)
300%
of the average daily trading volume of the Company’s common stock over the preceding
ten
trading day period. The per share purchase price for shares of common stock to be sold by the Company under the CEL purchase agreement shall be equal to
80%
of the average of the
two
lowest VWAPs of the common stock for the
ten
consecutive trading day period prior to the purchase date. During the
six
months ended
June 30, 2016
, the Company directed the Private Investor to purchase
$1.06 million
of common stock which resulted in the issuance of
525,454
shares of common stock. The remaining availability under the CEL as of
June 30, 2016
was
$29,143,853
.
The Company may not direct the Private Investor to purchase shares of common stock more frequently than once each ten business days. The Company’s sales of shares of common stock to the Private Investor under the CEL purchase agreement are limited to no more than the number of shares that would result in the beneficial ownership by the Private Investor and its affiliates, at any single point in time, of more than
9.99%
of the Company’s then outstanding shares of common stock.
As consideration for entering into the CEL purchase agreement, the Company has issued to the Private Investor
132,000
shares of common stock (the “Commitment Shares”). The Commitment Shares were issued to the Private Investor in
five
increments which commenced upon the date that the registration statement was declared effective by the SEC.
NOTE 15. EQUITY PLANS AND SHARE-BASED COMPENSATION
Share-Based Compensation:
The Company measures share-based compensation cost at the grant date based on the fair value of the award and recognizes this cost as an expense over the grant recipients’ requisite service periods for all awards made to employees, officers, directors and consultants.
The share-based compensation expense recognized in the Condensed Consolidated Statements of Operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Share-based compensation cost included in:
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
79,595
|
|
|
$
|
52,896
|
|
|
$
|
125,284
|
|
|
$
|
154,205
|
|
Selling, general and administrative
|
|
260,547
|
|
|
143,463
|
|
|
432,696
|
|
|
303,295
|
|
Total share-based compensation cost
|
|
$
|
340,142
|
|
|
$
|
196,359
|
|
|
$
|
557,980
|
|
|
$
|
457,500
|
|
The following table presents share-based compensation expense by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Type of Award:
|
|
|
|
|
|
|
|
|
Stock Options
|
|
$
|
141,574
|
|
|
$
|
121,497
|
|
|
$
|
236,958
|
|
|
$
|
286,997
|
|
Restricted Stock Units and Awards
|
|
198,568
|
|
|
74,862
|
|
|
321,022
|
|
|
170,503
|
|
Total share-based compensation cost
|
|
$
|
340,142
|
|
|
$
|
196,359
|
|
|
$
|
557,980
|
|
|
$
|
457,500
|
|
Stock Options:
The Company recognized share-based compensation expense for stock options of
$237,000
to officers, directors and employees for the
six
months ended
June 30, 2016
related to stock option awards ultimately expected to vest. The weighted average estimated fair value of employee stock options granted for the
six
months ended
June 30, 2016
and
2015
was
$1.14
and
$14.60
per share, respectively. Fair value was calculated using the Black-Scholes Model with the following assumptions:
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
2016
|
|
2015
|
Expected volatility
|
|
115%
|
|
93%
|
Risk free interest rate
|
|
1%
|
|
2%
|
Expected dividends
|
|
—
|
|
—
|
Expected life (in years)
|
|
5.8
|
|
5.9
|
Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate of return is based on the yield of U.S. Treasury bonds with a maturity equal to the expected term of the award. Historical data is used to estimate forfeitures within the Company’s valuation model. The Company’s expected life of stock option awards is derived from historical experience and represents the period of time that awards are expected to be outstanding.
As of
June 30, 2016
, total compensation cost related to non-vested stock options not yet recognized was
$293,000
which is expected to be recognized over a weighted average period of approximately
1.5
years. As of
June 30, 2016
,
79,823
shares were vested or expected to vest in the future at a weighted average exercise price of
$42.51
. As of
June 30, 2016
,
165,076
shares remained available for future grants under the Option Plan.
Restricted Stock:
In addition to the stock options discussed above, the Company recognized share-based compensation expense related to restricted stock grants of
$321,000
for the
six
months ended
June 30, 2016
. The weighted average estimated fair value of restricted stock grants for the
six
months ended
June 30, 2016
and
2015
was
$1.97
and
$22.20
per share, respectively.
Total unrecognized share-based compensation expense from unvested restricted stock as of
June 30, 2016
was
$274,000
which is expected to be recognized over a weighted average period of approximately
0.6
years. As of
June 30, 2016
,
193,458
shares were expected to vest in the future. As of
June 30, 2016
,
459,080
shares remained available for future grants under the Restricted Stock Plan.
NOTE 16. RELATED PARTY TRANSACTIONS
TFG Radiant owns approximately
1.0%
of the Company's outstanding common stock as of
June 30, 2016
.
In February 2012, the Company announced the appointment of Victor Lee as President and Chief Executive Officer. Mr. Lee had served on the Company's Board of Directors since November 2011 and is currently the managing director of Tertius Financial Group Pte Ltd, the joint venture partner with Radiant Group in TFG Radiant.
In April 2012,
the Company appointed the Chairman of TFG Radiant, Mr. Winston Xu (aka Xu Biao), as a member of its Board of Directors.
On April 6, 2015, the Company entered into a securities purchase agreement with TFG Radiant for a private placement of a total of
50,000
shares of the Company’s common stock which resulted in gross proceeds of approximately
$1,000,000
to the Company. The transaction closed on April 17, 2015.
On June 10, 2015, the Company entered into a securities purchase agreement with TFG Radiant for a private placement of a total of
50,000
shares of the Company’s common stock which resulted in gross proceeds of approximately
$1,000,000
to the Company. The transaction closed on July 10, 2015.
NOTE 17. COMMITMENTS AND CONTINGENCIES
On October 21, 2011, the Company was notified that a complaint claiming
$3.0 million
for an investment banking fee (the “Lawsuit”) was filed by Jefferies & Company, Inc. (“Jefferies”) against the Company in New York State Supreme Court in the County of New York. In December 2010, Ascent and Jefferies entered into an engagement agreement (the “Fee Agreement”) pursuant to which Jefferies was hired to act as the Company's financial advisor in relation to certain potential transactions. In addition, Jefferies claimed an award for attorney's fees and prejudgment interest in the approximate amount of
$1.2 million
.
On April 16, 2014, the parties settled the lawsuit where the Company agreed to pay Jefferies a total of
$2.0 million
in equal installments over
40
months. The Company has paid
$300,000
during the
six
months ended
June 30, 2016
.
The Company records a liability in its financial statements for costs related to claims, including settlements and judgments, where the Company has assessed that a loss is probable and an amount can be reasonably estimated. The Company accrued $
1.7 million
, the net present value of the
$2.0 million
settlement, as of December 31, 2013. As of
June 30, 2016
,
$50,000
was accrued for the long-term portion of this settlement and
$567,000
was recorded as Accrued litigation settlement, current portion, in the Condensed Consolidated Balance Sheets.
NOTE 18. SUBSEQUENT EVENTS
Offering of Senior Secured Convertible Notes
On July 13, 2016, the Company entered into a securities purchase agreement (the “Note SPA”) with the Private Investor for the private placement of up to
$2,080,000
of the Company’s
4%
Original Issue Discount Senior Secured Convertible Promissory Notes (the “July 2016 Convertible Notes”). On July 13, 2016, the Company sold and issued
$364,000
principal amount of Notes to Investor in exchange for
$350,000
of gross proceeds. The Company will sell and issue the remaining
$1,716,000
principal amount of Notes to Investor in exchange for
$1,650,000
of gross proceeds in six additional weekly tranches scheduled to occur during July and August 2016.
Exchange of Outstanding Series H Preferred Stock
As described in Note 13, on June 9, 2016, the Company entered into a securities purchase agreement with the Private Investor for the sale of up to
$2.5 million
of the Company’s newly designated Series H
7%
Convertible Preferred Stock. As of July 13, 2016, the Company has sold and issued
830
shares of Series H Preferred Stock to the Investor in exchange for
$830,000
of gross proceeds.
In connection with the offering of the July 2016 Convertible Notes, the Company and the Private Investor also entered into an Exchange Agreement dated July 13, 2016 (the “Exchange Agreement”). Under the terms of the Exchange Agreement, the outstanding shares of Series H Preferred Stock (approximately
$833,000
of capital and accrued dividends) have been cancelled. In exchange, the Company has issued to the Private Investor approximately
$866,000
of July 2016 Convertible Notes.
Accordingly, as of July 13, 2016, the Company has (i) an aggregate of
$1,230,000
principal amount of July 2016 Convertible Notes outstanding and (ii) no shares of Series H Preferred Stock which remain outstanding.
Terms of the Senior Secured Convertible Notes
Unless earlier converted or prepaid, all of the July 2016 Convertible Notes will mature July 13, 2017 (the “Maturity Date”). The July 2016 Convertible Notes bear interest at a rate of
10%
per annum, subject to increase to
24%
per annum upon the occurrence and continuance of an event of default. Principal on the July 2016 Convertible Notes is payable on the Maturity Date. Interest on the Notes is payable quarterly. Principal and interest are payable in cash or, if specified equity conditions are met, shares of Common Stock.
The July 2016 Convertible Notes contain standard and customary events of default including but not limited to: (i) failure to make payments when due under the July 2016 Convertible Notes; and (ii) bankruptcy or insolvency of the Company. If there is an event of default, a holder of the July 2016 Convertible Notes may require the Company to immediately repay the July 2016 Convertible Notes in cash, at a price equal to
125%
of the principal amount and accrued and unpaid interest.
All principal and accrued interest on the July 2016 Convertible Notes are convertible at any time, in whole or in part, at the option of the Private Investor, into shares of Common Stock at a variable conversion price equal to the lowest of (i)
$0.045
(the “Fixed Conversion Price”), (ii)
70%
of the lowest volume weighted average price (“VWAP”) of our Common Stock for the ten consecutive trading day period prior to the conversion date or (iii)
70%
of the lowest closing bid price of our Common Stock for the ten consecutive trading day period prior to the conversion date. If certain defined triggering events occur, the conversion price would thereafter be reduced (and only reduced), to equal
60%
of the lower of (i) the lowest closing bid price of the Common Stock for the thirty consecutive trading day period prior to the conversion date or (ii) the lowest VWAP of the Common Stock for the thirty consecutive trading day period prior to the conversion date. In addition, on the 90th day and also on the 180th day from the date of the Note SPA, the Private Investor may reset the Fixed Conversion Price to thereafter be equal to the VWAP of the Common Stock for such day or if such 90th or 180th day is not a trading day, then the VWAP for the immediately preceding trading day.
The July 2016 Convertible Notes will be secured by a security interest in substantially all of the Company’s assets. The subsidiaries of the Company have guaranteed the Company’s obligations under the July 2016 Convertible Notes.
In connection with the Note SPA, the Company entered into a related registration rights agreement (the “Note RRA”) agreeing to register the shares of Common Stock which may be issued upon conversion of the July 2016 Convertible Notes. The Note RRA requires the Company to file a resale registration statement with the Securities and Exchange Commission (the “SEC”) within 60 days of the date of the Note SPA, and to have such registration statement declared effective within 30 days after such filing.
Series I Convertible Preferred Stock Financing
On July 26, 2016, the Company entered into a securities purchase agreement with one accredited investor for the private placement of
$536,000
of the Company’s newly designated Series I Convertible Preferred Stock (“Series I Preferred Stock”). At closing, the Company issued a total of
536
shares of Series I Preferred Stock to the investor in exchange for the cancellation of an outstanding
$536,000
promissory note (including accrued interest) of the Company held by the investor.
The holder of the Series I Preferred Stock will be entitled to dividends in the amount of
10%
per annum. Shares of the Series I Preferred Stock (including the amount of any accrued and unpaid dividends thereon) will be convertible at the option of the holder into common stock at a fixed conversion price of
$0.03
per share. One year after issuance, the Company is required to redeem for cash all or any portion of the outstanding shares of the Series I Preferred Stock at a price per share equal to
$1,000
plus any accrued but unpaid dividends thereon.