|9 Months Ended|
Sep. 30, 2019
|Debt Disclosure [Abstract]|
NOTE 7 — NOTES PAYABLE
Notes payable consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):
The weighted-average stated interest rate of notes payable was 10% as of September 30, 2019 and December 31, 2018. The weighted-average effective interest rates of notes payable as of September 30, 2019 and December 31, 2018 were 12% and 35%, respectively, after giving effect to discounts relating to beneficial conversion features of these notes. The notes payable and convertible notes payable contain no restrictive financial covenants or acceleration clauses associated with a material adverse change event. The convertible debentures contain negative covenants.
Immediately prior to the completion of the Merger, all but one of the convertible notes payable were converted into shares of EMI common stock at their respective conversion prices. At the completion of the Merger, the converted shares were exchanged for shares of the Company common stock in the same manner as other outstanding shares of common stock of EMI based on the Merger “exchange ratio.” The unconverted convertible note payable of EMI is convertible into shares of common stock of EMI at conversion price of $10.00 per share as of September 30, 2019.
Our 10% senior secured convertible debentures were amended and restated immediately prior to the Merger to include, among other changes, an option to convert their debentures into shares of common stock of the Company at a conversion price of $9.52 per share during the term of the debentures. The conversion feature of the debentures is treated as a conversion feature derivative liability.
Contractual principal payments due on notes payable and debentures are as follows (in thousands):
The Company estimated the total fair value of any beneficial conversion feature and accompanying warrants in allocating the proceeds from the sale of convertible notes payable. The proceeds allocated to the beneficial conversion feature were determined by taking the estimated fair value of shares underlying the convertible notes less the fair value of the number of shares that would be issued if the conversion rate equaled the fair value of common stock as of the date of issuance.
The Company issued warrants with our 10% senior secured convertible debentures. The fair value of the warrants issued in conjunction with debentures were determined using the Binominal Monte-Carlo Cliquet Option Pricing Model with the following inputs for the nine months ended September 30, 2019 and year ended December 31, 2018 (See Note 8).
With respect to the notes that included both a beneficial conversion feature and a warrant, the proceeds were allocated to the beneficial conversion feature and the warrant based on their respective pro rata fair values.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef