EQUITY, SHARE-BASED COMPENSATION AND WARRANTS | NOTE 8. EQUITY, SHARE-BASED COMPENSATION AND WARRANTS Preferred Common Accumulated Accumulated Deficit Attributable to Non-controlling Interest in Accumulated Other Comp- rehensive Equity Shares Preferred Series F Series G Common Stock Stock Deficit Nutra SA Loss (Deficit) Balance, December 31, 2016 - - 10,790,351 $ - $ 264,232 $ (259,819 ) $ (699 ) $ (4,346 ) $ (632 ) Issuance of common stock awards under equity incentive plans - - 550,273 - 613 - - - 613 Dividend on preferred stock - beneficial conversion feature - - - - 778 (778 ) - - - Modification of senior debenture holder warrants - - - - 582 - - - 582 Modification of subordinated note holder warrants - - - - 117 - - - 117 Change in classification of preferred stock to equity from liability 3,000 2,000 - 1,545 - - - - 1,545 Change in classification of warrants to equity from liability - - - - 7,851 - - - 7,851 Conversion of preferred stock into common stock (315 ) (11 ) 220,439 (64 ) 203 (139 ) - - - Other - - 14,124 - 43 - - - 43 Proceeds from sale of membership interests - - - - - - 650 - 650 Foreign currency translation - - - - - - 49 113 162 Net loss - - - - - (3,504 ) (567 ) - (4,071 ) Balance, June 30, 2017 2,685 1,989 11,575,187 $ 1,481 $ 274,419 $ (264,240 ) $ (567 ) $ (4,233 ) $ 6,860 A summary of warrant activity for the six months ended June 30, 2017, follows. Equity Warrants Liability Warrants Shares Underlying Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Shares Underlying Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Outstanding, December 31, 2016 6,364,110 5.77 2.4 4,474,868 $ 1.82 3.3 Issued - NA NA 11,783,163 0.96 5.0 Impact of repricing debenture purchaser warrants: Prior to repricing (875,000 ) 5.49 2.1 - NA NA After repricing 875,000 0.96 5.5 - NA NA Impact of repricing subordinated note holder warants: Prior to repricing (289,669 ) 5.25 3.3 - NA NA After repricing 289,669 0.96 3.3 - NA NA Impact of anti-dilution clauses: Prior to impact - NA NA (1,489,868 ) 1.50 0.8 After impact - NA NA 2,327,919 0.96 0.8 Transfer from liability to equity 14,468,163 1.16 4.8 (14,468,163 ) 1.16 4.8 Exercised - NA NA - NA NA Forfeited, expired or cancelled - NA NA - NA NA Outstanding, June 30, 2017 20,832,273 $ 2.32 3.9 2,627,919 $ 1.03 0.7 Exercisable, June 30, 2017 19,957,273 $ 2.38 3.9 2,627,919 $ 1.03 0.7 Common Stock In February 2017, shareholders approved and we filed an amendment to our articles of incorporation increasing our authorized shares of common stock from 25,000,000 to 50,000,000. On February 14, 2017, we issued a former employee 108,696 shares of our common stock, in lieu of paying $100,000 cash for a 2016 bonus. In June 2017, we issued 96,372 shares of common stock as transitional director compensation to the chairman of our board, who was awarded transitional director compensation in the amount of (i) $10,000 or 7,035 shares per month for July 2016 through December 2016 and (ii) $8,333 or 9,027 shares per month for January 2017 through March 2017. The amount was payable in either cash or stock at the chairman’s election. The chairman elected to receive shares of common stock. In June 2017, we issued 345,205 shares of common stock to our directors at a grant date fair value of $0.90 per share. The restricted stock awards vest on the earlier of June 2018 or one day before the date of the next annual shareholder meeting. In the second quarter of 2017, we issued 220,439 shares of common stock upon conversion of 315 shares of Series F preferred stock and 11 shares of Series G preferred stock. The common stock had a fair value at issuance of $0.2 million. The difference between the fair value of the common stock issued and the carrying amount of the preferred stock was recorded as an increase in accumulated deficit. In the third quarter of 2017, through the date of this filling, we issued 1,834,124 shares of common stock upon conversion of 2,186 shares of Series F preferred stock and 397 shares of Series G preferred stock. The common stock had a fair value at issuance of $1.9 million. The difference between the fair value of the common stock issued and the $0.6 million carrying amount of the preferred stock was recorded as an increase in accumulated deficit. Share Sequencing From June 2015 until March 2017, the minority interest holders in Nutra SA could elect , the number of common stock and warrants issuable upon this election, was variable and indeterminate. For accounting purposes, we were not able to conclude that we had sufficient authorized and unissued shares to settle all contracts subject to the GAAP derivative guidance during the period the minority interest holders had this right, which terminated March 31, 2017. Our adopted sequencing approach (Share Sequencing) was based on earliest issuance date, therefore, we were required to carry warrants issued between June 2015 and March 2017, at fair value, as derivative warrant liabilities, and preferred stock issued between June 2015 and March 2017, Transactions with Preferred Stock Holders. In February 2017, we issued and sold 2,000 shares of Series G preferred stock. The Series G preferred stock is non-voting and may be converted into a total of 1,897,983 shares of our common stock at the holders’ election at any time, subject to certain beneficial ownership limitations, at a ratio of 1 preferred share for 948.9915 shares of common stock. The Series G preferred stock is entitled to receive dividends if we pay dividends on our common stock, in which case the holders of Series G preferred stock are entitled to receive the amount and form of dividends that they would have received if they held the common stock that is issuable upon conversion of the Series G preferred stock. If we are liquidated or dissolved, the holders of Series G preferred stock are entitled to receive, before any amounts are paid in respect of our common stock, an amount per share of Series G preferred stock equal to $1,000, plus any accrued but unpaid dividends thereon. In February 2017, in conjunction with the sale of the Series G preferred stock, we also sold warrants to purchase 1,423,488 shares of common stock (exercise price of $0.96 per share, exercisable beginning in February 2017 and expiring in February 2022). A subordinated note holder exchanged subordinated notes with a principal and carrying value of $0.1 million and cash for 180 shares of the Series G preferred stock and related warrants, which was treated as an extinguishment of debt. The net cash proceeds from the sale was $1.7 million, after deducting allocated cash offering expenses of $0.1 million. On the date of issuance, we allocated $1.0 million of the proceeds to derivative warrant liability, to record the warrants at fair value, recorded a $0.1 million loss on extinguishment and reduced debt $0.1 million related to the subordinated noteholders exchange, and recorded $1.2 million as preferred stock. We recorded a $0.8 million dividend on preferred stock for the preferred stock beneficial conversion feature equal to the proceeds allocated to the preferred stock issued to purchases who did not exchange debt, as the fair value of the common stock underlying the convertible preferred stock at issuance exceeded the amount recorded in preferred stock. Transactions with Senior Debenture Holders In February 2017, we sold and issued in a private placement, for an aggregate subscription amount of $6.0 million: (i) senior debentures in the principal amount of $6.6 million and (ii) warrants to purchase an aggregate of 6,875,000 shares of common stock (exercise price of $0.96 per share, exercisable beginning February 2017 and expiration February 2022). We received aggregate net proceeds of $5.5 million, after deducting placement agent fees and allocated expenses of $0.5 million. Concurrently, we amended existing warrants, held by the debenture purchasers, for the purchase of up to 875,000 shares to (i) reduce the exercise prices from an average $5.49 per share to $0.96 per share, providing the warrants are not exercisable until August 2017, and (ii) change the expiration dates to August 2022, which increased the average remaining term of the warrants from 2.1 years to 5.5 years. We recorded $4.6 million as an increase to derivative warrant liabilities, to record the warrants at their fair value on the date of issuance, the $0.5 million as an increase in common stock to record the change in fair value of existing warrants and the remaining $0.4 million to debt, debt issuance costs and debt discount. We used the net proceeds from the offering to (i) pay off the senior revolving loan and term loan debt totaling $3.8 million and (ii) pay $0.2 million of principal and $0.3 million of interest due on subordinated notes and (iii) for working capital and general corporate purposes. We filed a registration statement on Form S-3, which became effective in May 2017, to register the shares under the warrants issued to the senior debenture purchasers. Transaction with Subordinated Note Holders In connection with the February 2017 senior debenture private placement, we entered into agreements which resulted in (i) a reduction in the annual interest rate on the subordinated notes from 11.75% to 7% (ii) an extension of the maturity date of the subordinated notes to May 2019 from May 2018 (iii) the payment of an aggregate amount equal to $0.5 million on the subordinated notes; (iv) the issuance of warrants to purchase up to 3,484,675 shares of our common stock (exercise price of $0.96 per share, expiration February 2022); and (v) the amendment of existing warrants held by the subordinated note holders for the purchase 289,669 shares of common stock to reduce the exercise price from $5.25 per share to $0.96 per share. We accounted for the transaction as an extinguishment of debt and issuance of new debt. In February 2017, we (i) recorded a loss on extinguishment of debt of $1.5 million, (ii) adjusted subordinated notes payable debt down by $0.9 million, to its fair value as of the transaction date, (iii) increased derivative liability $2.3 million, representing the fair value of the newly issued warrants, and (iv) increased common stock $0.1 million for the change in the fair value of the existing warrants. Full Ratchet Anti-Dilution As a result of the February 2017 transactions described above, the exercise price of certain warrants that contain full ratchet anti-dilution provisions was reduced from $1.50 per share to $0.96 per share and the number of shares of common stock underlying these warrants increased from 1,489,868 shares to 2,327,919 shares. Equity Incentive Plan In June 2017, shareholders approved a 1,700,000 increase in the authorized shares issuable under the 2014 Equity Incentive Plan (the 2014 Plan). The total shares authorized under the 2014 Plan is now 3,300,000 shares. Option Issuances In the first quarter of 2017, we granted our chief executive officer an option to purchase 100,000 shares of our common stock at an exercise price of $0.76 per share. The option vests as to 25,000 shares in August 2017 and the remaining shares vest in monthly installments through August 2020 and had a grant date fair value of $0.56 per share. In the second quarter of 2017, we granted options to purchase an aggregate 355,500 shares of our common stock to executive officers and employees. The options vest in four equal annual installments beginning in the second quarter of 2018 at an average exercise price of $0.85 per share and had a grant date fair value of $0.62 per share. Restricted Stock Unit Awards In late June 2017, we issued restricted stock units (RSUs), under the 2014 Plan, to our executive officers covering a total of 1,175,000 shares of our common stock. The shares subject to the RSUs vest based upon a vesting price equal to the volume weighted average trading price of our common stock over sixty-five consecutive trading days. Each RSU’s shares vest (i) 10% if the vesting price equals or exceeds $5.00 per share, (ii) 30% if the vesting price equals or exceeds $10.00 per share and (iv) 60% if the vesting price equals or exceeds $15.00 per share. The shares had a grant date fair value of $188 thousand which will be expensed ratably over a 3.5-year period beginning in July 2017. Warrants In July 2017, the holder of a liability warrant to purchase 781,252 shares, at an exercise price of $0.96 per share, exercised the warrant into common stock with a fair value on the date of the conversion of $0.98 per share. We issued 103,008 shares of common stock to the holder in a cashless transaction. The following table summarizes information related to outstanding warrants as June 30, 2017 and December 31, 2016: June 30, 2017 December 31, 2016 Range of Exercise Prices Type of Warrant Shares Under Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Shares Under Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) $ 0.96 Liability (1) 2,327,919 $ 0.96 0.4 - $ - - $ 0.96 Equity 12,947,832 0.96 4.6 - - - $ 1.50 Liability (2) 300,000 1.60 2.9 - - - $ 1.50 to $1.60 Liability (1)(2) - - - 1,789,868 1.52 1.3 $ 2.00 Liability (3) - - - 2,660,000 2.00 4.6 $ 2.00 Equity 2,660,000 2.00 4.2 - - - $ 5.25 Liability (3) - - - 25,000 5.25 3.6 $ 5.25 to $5.87 Equity 3,156,670 5.33 2.2 4,296,339 5.36 2.7 $ 6.55 to $16.80 Equity 2,067,771 6.61 1.5 2,067,771 6.61 2.0 23,460,192 $ 2.17 3.53 10,838,978 $ 1.30 0.5 (1) Includes two warrants which contain full ratchet anti-dilution provisions and are classified as derivative warrant liabilities in our balance sheets. Under the anti-dilution clauses contained in these warrants, in the event of equity issuances (i.e. issuances of our common stock, certain awards of stock options to employees, and issuances of warrants and/or other convertible instruments) at prices below the exercise prices of these warrants, we are required to lower the exercise price on these warrants and increase the number of shares underlying these warrants. In July 2017, the holder exercised one of the warrants, for the purchase 781,252 shares, into common stock. (2) Includes a warrant to purchase of 300,000 shares of our common stock which contains a most favored nations anti-dilution provision. Under that provision, in the event of issuances of stock options and/or convertible instruments with anti-dilution provisions with respect to the exercise price of the warrant we may be required to lower the exercise price on this warrant and/or increase the number of shares underlying this warrant. (3) The warrants were classified as derivative warrant liabilities in our balance sheets due to the Share Sequencing as of December 31, 2016, and were reclassified to equity (deficit) effective March 31, 2017. |