Notes
to Unaudited Condensed Consolidated Financial Statements
March
31, 2017
(Unaudited)
Note
1 – Organization and Nature of Business
Eco-Stim Energy Solutions,
Inc. (the “Company,” “Eco-Stim,” “we” or “us”) is a technology-driven independent
oilfield services company providing well stimulation, coiled tubing and field management services to the domestic and international
upstream oil and gas industry. We are focused on reducing the ecological impact and improving the economic performance of the
well stimulation process in “unconventional” drilling formations. We serve major, national and independent oil and
natural gas exploration and production companies around the world, and we offer products and services with respect to the various
phases of a well’s economic life cycle. Our focus is to bring these technologies and processes to the most active shale
resource basins both domestically and outside of North America using our technology to differentiate our service offerings. We
do business primarily in the United States and Argentina.
Note
2 – Basis of Presentation and Significant Accounting Policies
The condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S.
GAAP”). The accompanying condensed consolidated financial statements are unaudited and have been prepared from our books
and records in accordance with Rule 10-1 of Regulation S-X for interim financial information. Accordingly, they do not include
all the information and notes required by U.S. GAAP for complete financial statements. In the opinion of our management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. The results
of operations for interim periods are not necessarily indicative of results of operations for a full year. These condensed consolidated
financial statements should be read in conjunction with our Consolidated Financial Statements and Notes thereto included in our
Current Report on Form 8-K filed with the SEC on May 9, 2017.
Principles
of Consolidation
We
consolidate all wholly-owned subsidiaries, controlled joint ventures and variable interest entities where the Company has determined
it is the primary beneficiary. All material intercompany accounts and transactions have been eliminated in consolidation.
Going
Concern
The Company has incurred
losses since inception and if the debt conversion described below is not completed, the Company will require additional capital
to continue operating. As of March 31, 2017, the Company had cash and cash equivalents of approximately $11.2 million and working
capital of approximately $11.4 million. In March 2017, the Company secured $17 million of additional cash from a transaction (the
“Fir Tree Transaction”) with FT SOF VII Holdings, LLC (the “Fir Tree Affiliate” and, together with Fir
Tree Inc. and its affiliates and managed funds, “Fir Tree”), (further discussed in Note 6), which we believe should
be sufficient to fund operations into the second quarter of 2018. However, interest is payable on all of the convertible notes
held by Fir Tree on August 15 and February 15 on each calendar year, commencing August 15, 2017 and the convertible notes mature
on May 28, 2018, to the extent such convertible notes remain outstanding prior to such dates and/or are not converted into Common
Stock prior to such dates. Although the Company anticipates the full conversion of the Fir Tree debt into equity upon approval
of shareholders, this cannot be assured and as such, if the debt remains outstanding, the Company may be unable to make some
or all of its interest or principal payments as they become due.
Use
of Estimates
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 revenue and expenses during the reporting period. Estimates are used in, but are not limited
to, determining the following: allowance for doubtful accounts, recoverability of long-lived assets and intangibles, useful lives
used in depreciation and amortization, income taxes and stock-based compensation. The accounting estimates used in the preparation
of the condensed consolidated financial statements may change as new events occur, as more experience is acquired, as additional
information is obtained and as the Company’s operating environment changes.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
The Company maintains deposits in several financial institutions in both Argentina and the U.S. Funds held in the U.S. may at
times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). The
Company has not experienced any losses related to amounts in excess of FDIC limits.
The
Company places its cash and cash equivalents with high credit quality financial institutions.
Revenue
Recognition
The Company’s revenue
is heavily dependent on three major sources: well stimulation, coiled tubing, and field management. All revenue is recognized
when persuasive evidence of an arrangement exists, specific performance completed, the price is fixed or determinable, and collection
is reasonably assured as follows:
Well
Stimulation Revenue
The
Company provides well stimulation services based on contractual arrangements, such as term contracts and pricing agreements, or
on a spot market basis. Revenue is recognized and customers invoiced upon the completion of each job, which can consist of one
or more stimulation stages.
Under
term pricing agreement arrangements, customers commit to targeted utilization levels at agreed-upon pricing, but without termination
penalties or obligations to pay for services not used by the customer. In addition, the agreed-upon pricing is typically subject
to periodic review.
Spot
market basis arrangements are priced on an agreed-upon hourly spot market rate. The Company also charges fees for setup and mobilization
of equipment depending on the job, additional equipment used on the job, if any, and materials that are consumed during the well
stimulation process. Generally, these fees and other charges vary depending on the equipment and personnel required for the job
and market conditions in the region in which the services are performed.
The
Company also generates revenues from chemicals and proppants that are consumed while performing well stimulation services.
Coiled
Tubing Revenue
The
Company began providing coiled tubing and other well stimulation services in early 2015. Jobs for these services are typically
short term in nature, lasting anywhere from a few hours to multiple days. Revenue is recognized upon completion of each job based
upon a completed field ticket. The Company charges the customer for mobilization, services performed, personnel on the job, equipment
used on the job, and miscellaneous consumables at agreed-upon spot market rates.
Field
Management Revenue
The
Company enters into arrangements to provide field management services. Field management revenue relates primarily to geophysical
predictions and production monitoring, utilizing down-hole diagnostics tools. Revenue is recognized and customers are invoiced
upon the completion of each job. The service invoices are for a set amount, which includes charges for the mobilization of the
equipment to the location, the service performed, the personnel on the job, additional equipment used on the job, consumables
used throughout the course of the service, and processing and interpretation of data acquired via down-hole diagnostic tools.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash equivalents, accounts receivable, other assets, accounts payable,
accrued expenses, capital lease obligations and notes payable. The recorded values of cash and cash equivalents, accounts receivable,
other assets, accounts payable, and accrued expenses approximate their fair values based on their short-term nature. The carrying
value of capital lease obligations and notes payable approximate their fair value, and the interest rates approximate market rates.
Functional
and Presentation Currency
Items
included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic
environment in which the entity operates (the “Functional Currency”). The Functional Currency for the Norwegian and
Argentine subsidiaries is the U.S. Dollar. The condensed consolidated financial statements are presented in U.S. Dollars, which
is the Company’s presentation currency.
Net
Loss per Common Share
For the three months
ended March 31, 2017 and 2016, the weighted average shares outstanding excluded certain stock options and potential shares from
convertible debt of 30,269,987 and 4,404,632, respectively, from the calculation of diluted earnings per share because
these shares would be anti-dilutive. Anti-dilutive warrants of 100,000 for each of the three months ended March 31, 2017 and 2016
were also excluded from the calculation.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the 2017 presentation.
Accounts
Receivable
Accounts
receivable are stated at amounts management expects to collect from outstanding balances both billed and unbilled (unbilled accounts
receivable represent amounts recognized as revenue for which invoices have not yet been sent to clients). At March 31, 2017 and
December 31, 2016, there were approximately $1,475,102 and $2,865,707, respectively, in outstanding unbilled amounts. Management
provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment
of the current status of individual accounts. To date, the Company has not recognized any losses due to uncollectible accounts.
Balances still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to accounts receivable. The Company evaluated all accounts receivable and determined that no reserve for
doubtful accounts was necessary at March 31, 2017 or December 31, 2016.
Prepaids
Prepaid
expenses are primarily comprised of Argentinian value added tax and prepaid insurance. The prepaid value added tax will be reduced
as the Company continues to invoice customers in Argentina.
Inventory
Inventories
are stated at the lower of cost or net realizable value using the average cost method and appropriate consideration is given to
deterioration, obsolescence and other factors in evaluating net realizable value.
Property,
Plant and Equipment
Property,
Plant and Equipment (“PPE”) is stated at historical cost less depreciation. Historical cost includes expenditures
that are directly attributable to the acquisition of the items.
Depreciation
is computed using the straight-line method over the estimated useful lives of the assets for financial reporting purposes. Expenditures
for major renewals and betterments that extend the useful lives are capitalized. Expenditures for normal maintenance and repairs
are expensed as incurred. The cost of assets sold or abandoned and the related accumulated depreciation are eliminated from the
accounts and any gains or losses are reflected in the accompanying consolidated statements of operations for the respective period.
The
estimated useful lives of our major classes of PPE are as follows:
Major
Classes of PPE
|
|
Estimated
Useful Lives
|
Machinery
and equipment
|
|
2-7
years
|
Vehicles
|
|
5
years
|
Leasehold
improvements
|
|
5
years (or the life of the lease)
|
Furniture
and office equipment
|
|
3-5
years
|
Leases
The
Company leases certain equipment under lease agreements. The Company evaluates each lease to determine its appropriate classification
as an operating or capital lease for financial reporting purposes. Any lease that does not meet the criteria for a capital lease
is accounted for as an operating lease.
Stock-Based
Compensation
The
Company accounts for its stock options, warrants, and restricted stock grants under the fair value recognition provisions of the
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. The
Company currently uses the straight-line amortization method for recognizing stock option and restricted stock compensation costs.
The measurement and recognition of compensation expense for all share-based payment awards made to our employees, directors or
outside service providers are based on the estimated fair value of the awards on the grant dates. The grant date fair value is
estimated using either an option-pricing model which is consistent with the terms of the award or a market observed price, if
such a price exists. Such cost is recognized over the period during which an employee, director or outside service provider is
required to provide service in exchange for the award, i.e., “the requisite service period” (which is usually the
vesting period). The Company also estimates the number of instruments that will ultimately be earned, rather than accounting for
forfeitures as they occur.
Impairment
of Long-Lived Assets
The
Company reviews its long-lived assets for impairment when changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. ASC Topic 360 requires the Company to review long-lived assets for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset or group of assets may not be recoverable. The impairment review includes
a comparison of future cash flows expected to be generated by the asset or group of assets with their associated carrying value.
If the carrying value of the asset or group of assets exceeds expected cash flows (undiscounted and without interest charges),
an impairment loss is recognized to the extent that the carrying value exceeds the fair value. If estimated future cash flows
are not achieved with respect to long-lived assets, additional write-downs may be required. During the three months ended March
31, 2017, the Company evaluated its long-lived assets for impairment and determined no impairment was necessary.
Major
Customers and Concentration of Credit Risk
The
majority of the Company’s business is conducted with major and independent oil and gas companies in Argentina. With our
new contract in the U.S., going forward our business is expected to be roughly equal between Argentina and our independent oil
and gas customers in the U.S. The Company evaluates the financial strength of its customers and provides allowances for probable
credit losses when deemed necessary. The Company derives a large amount of revenue from a small number of major and independent
oil and gas companies. At March 31, 2017, the Company had a concentration of receivables with one customer.
For
the three months ended March 31, 2017, one major customer accounted for approximately 89% and at December 31, 2016, two major
customers represented 79% of our services revenue, respectively. Our accounts receivable at March 31, 2017 and December 31, 2016
were concentrated with one major customer representing 89% and two major customers representing 86%, respectively.
Income
Taxes
Deferred
income taxes are determined using the asset and liability method in accordance with ASC Topic 740. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred income taxes are measured using enacted tax rates expected
to apply to taxable income in years in which such temporary differences are expected to be recovered or settled. The effect of
a change in tax rates on deferred income taxes is recognized in the consolidated statement of operations of the period that includes
the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined
that it is more likely than not that some portion of the deferred tax asset will not be realized.
The
Company is subject to U.S. federal and foreign income taxes along with state corporate income taxes in Texas. When tax returns
are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while
others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately
sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available
evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions
that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50%
likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits
in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the
taxing authorities upon examination.
The Fir Tree Transaction,
if completed as currently proposed, may limit the Company’s ability to utilize net operating loss tax benefits due to Section
382 of the U.S. Tax Code limitations.
Recently
Issued and Adopted Accounting Guidance
In July 2015, the FASB
issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which requires inventory not measured using
either the last in, first out (LIFO) or the retail inventory method to be measured at the lower of cost and net realizable value.
Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion,
disposal, and transportation. The new standard is effective for us beginning with this first quarter of 2017, and is applied prospectively.
We adopted ASU 2015-11 in this first quarter of 2017, with such adoption having no material impact on the accompanying
condensed consolidated financial statements.
In November 2015, the
FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which eliminates the requirement
to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, all deferred
tax assets and liabilities will be required to be classified as noncurrent. We adopted this ASU 2015-17 in this first quarter
of 2017, with such adoption having no effect on our condensed consolidated financial statements.
In March 2016, the FASB
issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718). ASU 2016-09 simplifies several aspects
of accounting for share-based payment transactions including the accounting for income taxes, forfeitures, statutory tax withholding
requirements and classification on the statement of cash flows. Under ASU 2016-09, all excess tax benefits or deficiencies are
recognized as income tax expense or benefit in the income statement and the pool of windfall tax benefits as a component of additional
paid-in capital is eliminated. In regards to forfeitures, companies may make a one-time policy election to use forfeitures which
applies only to instruments with service conditions; the requirement to estimate the probability of achieving performance conditions
remains. For statutory tax withholding requirements, ASU 2016-09 allows for net settlement up to the employer’s maximum
statutory tax withholding requirement. Formerly, only the minimum statutory tax withholding requirement was allowed to be met
through net settlement while retaining equity classification. We adopted ASU 2016-09 in this first quarter of 2017, with such
adoption having no material impact on the accompanying condensed consolidated financial statements.
Accounting
Guidance Issued But Not Adopted as of March 31, 2017
In May 2014, FASB issued
ASU 2014-09, Revenue from Contracts with Customers, which requires us to recognize the amount of revenue to which we expect to
be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition
guidance in U.S. GAAP when it becomes effective. The new standard will be effective on January 1, 2018. Early application is not
permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating
the effect ASU 2014-09 will have on our condensed consolidated financial statements and related disclosures. The Company has performed
an initial evaluation of this standard and its impact on the financial statements. This included tasks such as identifying contracts,
identifying performance obligations and reviewing the applicable revenue streams. In this review, nothing has been identified
that would require a change in the current accounting for revenue. The Company will continue to evaluate, particularly as we enter
into new contracts.
On
February 25, 2016, the FASB issued ASU 2016-02 Leases (Topic 842), which requires an entity to recognize assets and liabilities
arising from a lease for both financing and operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures
to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising
from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company
is currently evaluating the effect this standard will have on its condensed consolidated financial statements.
Note 3 – Accounts Receivable
Accounts
receivable by category were as follows:
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
Billed
|
|
$
|
1,245,728
|
|
|
$
|
2,010,001
|
|
Unbilled
|
|
|
1,475,102
|
|
|
|
855,706
|
|
Total
accounts receivable
|
|
$
|
2,720,830
|
|
|
$
|
2,865,707
|
|
Note
4 – Stock-Based Compensation
The Company has two stock
incentive plans, the 2013 Stock Incentive Plan (the “2013 Plan”) and the 2015 Stock Incentive Plan (the “2015
Plan”), (or collectively, “the Plans”), for the granting of stock-based incentive awards, including incentive
stock options, non-qualified stock options and restricted stock, to employees, consultants and members of the Company’s
Board of Directors (the “Board”). The 2013 Plan was adopted in 2012 and amended in 2013 and authorizes 1,000,000 shares
to be issued under the 2013 Plan. The 2015 Plan, f/k/a “the 2014 Stock Incentive Plan,” was adopted in 2014; in 2015
and 2016, it was amended and a total of 700,000 additional shares were authorized, resulting in a maximum of 1,200,000 shares
being authorized for issue under the modified 2015 Plan. A proposal submitted to our stockholders at the Annual Meeting, if
approved, would increase the number of shares available under the 2015 Plan by 5,000,000 shares (from 1,200,000 shares to 6,200,000
shares). Both the 2013 Plan and the 2015 Plan have been approved by the shareholders of the Company. As of March 31, 2017,
85,843 shares remained available for grant under the 2013 Plan and 778,500 shares remained available for grant under
the 2015 Plan.
The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because changes in the subjective input assumptions can materially affect the fair
value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options and restricted stock. The expected life of awards granted represents the period of time
that they are expected to be outstanding. The Company determined the initial expected life based on a simplified method in accordance
with the FASB ASC Topic 718, giving consideration to the contractual terms, vesting schedules, and pre-vesting and post-vesting
forfeitures.
During
the three months ended March 31, 2017 and 2016, the Company recorded $128,172 and $220,156, respectively, of stock-based compensation,
which is included in selling, general, and administrative expense and cost of sales in the accompanying consolidated statement
of operations. Total unamortized stock-based compensation expense at March 31, 2017 was $781,869 compared to $928,786 at December
31, 2016, and will be fully expensed through 2020.
Note
5 – Commitments and Contingencies
Capital
Lease Obligations
In
the fourth quarter of 2013, the Company purchased and upgraded equipment from non-related third parties, investing approximately
$3.5 million. In December 2013, the Company sold the equipment to a related party leasing company, Impact Engineering, AS. Simultaneously,
the equipment package was leased back to the Company as a capital lease for a 60-month period with payments beginning in February
of 2014. The Company agreed to prepay one year of payments in the amount of approximately $1.0 million and maintain a balance
of no less than six months of prepayments until the final six months of the lease.
These
prepayments were made prior to December 31, 2013. Further lease payments are $81,439 per month and commenced on July 1, 2014.
The final six months of prepaid is shown as other non-current assets in the consolidated balance sheets with a balance of $488,633.
The
minimum present value of the lease payments is $1.7 million with terms of sixty months and implied interest of 14%. The next five
years of lease payments are:
|
|
Capital
Lease Payments
|
|
2017
|
|
$
|
732,950
|
|
2018
|
|
|
977,267
|
|
Total
future payments
|
|
|
1,710,217
|
|
Less
debt discount due to warrants
|
|
|
(122,793
|
)
|
Less
amount representing interest
|
|
|
(201,144
|
)
|
|
|
|
1,386,280
|
|
Less
current portion of capital lease obligations
|
|
|
(817,111
|
)
|
Capital
lease obligations, excluding current installments
|
|
$
|
569,169
|
|
Operating
Leases
The
Company’s operating leases correspond to equipment facilities and office space in Argentina and the United States. The combined
future minimum lease payments as of March 31, 2017 are as follows:
|
|
|
Operating
Leases
|
|
2017
|
|
|
$
|
343,187
|
|
2018
|
|
|
|
192,070
|
|
Thereafter
|
|
|
|
—
|
|
Total
|
|
|
$
|
535,257
|
|
Note
6 – Debt
Short-Term
Note
On
November 30, 2016, the Company entered into a loan agreement (the “Loan Agreement”) with two of the Company’s
largest shareholders, one of which is currently the holder of approximately 20% of the Company’s outstanding shares of common
stock, par value $0.001 per share (the “Common Stock”). A portion of the proceeds from the Loan Agreement was used
to pay the remaining outstanding amount payable (approximately $1 million) by the Company under an equipment purchase agreement
dated October 10, 2014, as amended, with Gordon Brothers Commercial & Industrial, LLC for the purchase of certain turbine
powered pressure pumping equipment (“TPU”).
At
December 31, 2016, the Company had a balance of $2,000,000 and accrued interest of $24,548. The indebtedness created under the
Loan Agreement was repaid on March 6, 2017 with a portion of the proceeds from the Fir Tree Transaction (as described in Note
1).
On
January 1, 2017, the Company financed its operations insurance premiums with US Premium Finance for a total of $211,681 at an
interest rate of 5.87%. As of March 31, 2017, the Company had a balance of $170,167 and accrued interest of $832.
Long-Term
Notes Payable
Convertible
Note Facility
On
May 28, 2014 (the “Closing Date”), the Company entered into a Convertible Note Facility Agreement (the “ACM
Note Agreement”) with ACM Emerging Markets Master Fund I, L.P. and ACM Multi-Strategy Delaware Holding LLC (collectively,
the “ACM Entities”). The proceeds from the ACM Note Agreement were used primarily for capital expenditures, certain
working capital needs and approved operating budget expenses.
The ACM Note Agreement
allowed the Company to issue ACM Entities a multiple draw secured promissory note with maximum aggregate principal amount of $22,000,000,
convertible into Common Stock at a price of $6.00 per share at the option of ACM Entities (the “Existing ACM Note”).
The outstanding debt under the facility was convertible immediately and accrued interest at 14% per annum with interest payments
due annually in arrears.
As
of December 31, 2016, the Company had drawn down the full $22,000,000 available under the ACM Note Agreement, which was primarily
used for capital expenditures, certain working capital needs and approved operating budget expenses.
On
March 6, 2017, the Company closed the Fir Tree Transaction, which was part of a comprehensive recapitalization designed to create
a path to a potential conversion to equity of substantially all the Company’s debt, subject to shareholder approval and
satisfaction of certain other conditions. In connection with the Fir Tree Transaction, the Company entered into the Amended and
Restated Convertible Note Facility Agreement (“A&R Note Agreement”) with the Fir Tree Affiliate, which became
effective on March 6, 2017 and replaced the ACM Note Agreement. Pursuant to the terms of the A&R Note Agreement, the Company
issued to the Fir Tree Affiliate a secured promissory note (the “Amended and Restated Convertible Note”) in a principal
amount of $22 million, which replaced the Existing ACM Note, and a secured promissory note (the “New Convertible Note,”
and together with the Amended and Restated Convertible Note, the “Notes”) in a principal amount of approximately $19.4
million, representing an additional $17 million aggregate principal amount of convertible notes issued by the Company to the Fir
Tree Affiliate on March 6, 2017 and approximately $2.4 million principal amount of convertible notes in payment of accrued and
unpaid interest on the Existing ACM Note acquired by the Fir Tree Affiliate from the ACM Entities. The unpaid principal amount
of the Notes bears an interest rate of 20% per annum and matures on May 28, 2018.
After
giving effect to the Fir Tree Transactions, as of March 31, 2017 the Company had approximately $41.4 million of outstanding convertible
notes. The Fir Tree Affiliate has agreed to convert all the outstanding convertible notes into Common Stock at a conversion price
of $1.40 per share, subject to receipt of shareholder approval at the Annual Meeting and satisfaction of certain other conditions.
Assuming all the outstanding convertible notes are converted into Common Stock, on a pro-forma basis, the Company would issue
approximately 29.5 million shares to the Fir Tree Affiliate and would then have approximately 44.6 million shares outstanding
(assuming no other issuance of shares) and no outstanding debt.
Deferred
Debt Costs
The
Company capitalizes certain costs in connection with obtaining its financings, such as lender’s fees and related attorney
fees. These costs are amortized to interest expense using the straight-line method.
Deferred
debt costs were approximately $551,661, net of accumulated amortization of $39,339 as of March 31, 2017
Long-Term
Debt Summary
The
following is a summary of scheduled long-term notes payable maturities by year:
2017
|
|
|
|
–
|
|
2018
|
|
|
|
41,354,301
|
|
Total
notes payable
|
|
|
$
|
41,354,301
|
|
Note
7 – Equity
On
July 13, 2016, the Company entered into an At-Market Issuance Sales Agreement (the “Agreement”) as disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2016, Part II – Item 8 – Financial Statements and Supplemental
Data – Notes to consolidated financial statements – Note 11 – “Equity Offerings”. During the three
months ended March 31, 2017, the Company sold an additional 563,753 shares through the Agreement for a total net proceeds of $982,385.