XML 26 R14.htm IDEA: XBRL DOCUMENT

Note 8 - Preferred Stock and Common Stock Warrants

9 Months Ended

Sep. 30, 2021

Note 8 – Preferred Stock and Common Stock Warrants

Preferred Stock

In August 2018, we sold an aggregate of 50,000 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock), at $1,000 per share for an aggregate purchase price of $50 million and we issued an additional 1,000 shares of Series A Preferred Stock in aggregate as origination fees to the purchasers of the Series A Preferred Stock.

In September 2018, we sold an aggregate of 29,055 shares of Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”), at $1,000 per share for an aggregate purchase price of $29.055 million and we issued an additional 581 shares of Series B Preferred Stock in aggregate as origination fees to the purchasers of the Series B Preferred Stock.

In May 2019, we sold an aggregate of 20,945 shares of Series B Preferred Stock at $1,000 per share for an aggregate purchase price of $20.945 million and we issued an additional 418 shares of Series B Preferred Stock in aggregate as origination fees to the purchasers of such shares of Series B Preferred Stock.

In March 2021, we sold an aggregate of 24,500 shares of Series C Convertible Preferred Stock, par value $0.0001 per share (the “Series C Preferred Stock” and, together with the Series A Preferred Stock and the Series B Preferred Stock, the “Convertible Preferred Stock”), at $1,000 per share for an aggregate purchase price of $24.5 million and we issued an additional 490 shares of Series C Preferred Stock in aggregate as origination fees to the purchasers of the Series C Preferred Stock.

In April 2021, we sold 10,000 shares of Series C Preferred Stock, at $1,000 per share for a purchase price of $10 million and we issued an additional 200 shares of Series C Preferred Stock as an origination fee to the purchaser of the Series C Preferred Stock.

In July 2021, we sold 5,000 shares of Series C Preferred Stock, at $1,000 per share for a purchase price of $5 million and we issued an additional 100 shares of Series C Preferred Stock as an origination fee to the purchaser of the Series C Preferred Stock.

Warrants, exercisable for Company common stock, were issued together with the shares of Convertible Preferred Stock (collectively, “Common Stock Warrants”).

The shares of Convertible Preferred Stock bear dividends at a rate of 12% per annum, which are cumulative and accrue daily from the respective dates of issuance on the $1,000 stated value. Such dividends are payable quarterly and may be paid in cash or in-kind. During the nine months ended September 30, 2021 and 2020, the Company paid-in-kind $13.0 million and $10.5 million of dividends, respectively, to the holders of the Convertible Preferred Stock. On October 12, 2021, the Company declared dividends to the holders of the Convertible Preferred Stock as of the close of business on September 15, 2021. On October 15, 2021, the Company paid-in-kind $5.3 million of dividends to the holders of the Convertible Preferred Stock.

As of September 30, 2021, shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock were convertible into shares of Company common stock at a weighted average conversion price of $6.54 per share, $6.57 per share and $3.29 per share, respectively.

Initial Fair Value Allocation

Net proceeds from the sales of Series C Preferred Stock were allocated on a fair value basis to the warrants issued together with the shares of the Series C Preferred Stock and on a relative fair value basis to the Series C Preferred Stock. The allocation of net cash proceeds from the sale of Series C Preferred Stock is as follows (in thousands):

				Allocation of Proceeds
						Series C
				*Series C*		*Preferred*
				*Warrants*		*Stock*
Gross proceeds	$	39,500
Equity issuance costs		(61	)
Net proceeds - Initial Fair Value Allocation	$	39,439		$	1,631	$	37,808
Per balance sheet upon issuance				$	1,631	$	37,808

Common Stock Warrants

The Company revalues the Common Stock Warrants at each balance sheet date and recognized a gain of $4.4 million and a loss of $1.6 million during the three months ended September 30, 2021 and 2020, respectively, and a loss of $2.4 million and a gain of $6.1 million during the nine months ended September 30, 2021 and 2020, respectively. The Common Stock Warrant liabilities are included in Level 3 of the fair value hierarchy.

The Company used a Monte Carlo simulation model to estimate the fair value of the Common Stock Warrants using the following assumptions:

	*September 30,*			*December 31,*
	*2021*			*2020*
Stock price	$	2.78		$	2.09
Exercise price	$	0.01		$	0.01
Risk-free rate		0.5	%		0.1	%
Volatility		58.2	%		58.6	%
Term (years)		1.9			0.8

Beneficial Conversion Feature

ASC 470-20-20 – Debt – Debt with conversion and Other Options (“ASC 470-20”) defines a beneficial conversion feature (“BCF”) as a nondetachable conversion feature that is in the money at the issuance date. The Company was required by ASC 470-20 to allocate a portion of the proceeds from the Series A Preferred Stock equal to the intrinsic value of the BCF to additional paid-in capital. The Company is recording the accretion of the $2.5 million Series A Preferred Stock discount attributable to the BCF as a deemed dividend using the effective yield method over the period prior to the expected conversion date.