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Note 8 - Preferred Stock and Common Stock Warrants

6 Months Ended

Jun. 30, 2022

Note 8 – Preferred Stock and Common Stock Warrants

Preferred Stock

As of December 31, 2021, the Company had outstanding 73,713 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), 70,433 shares of Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”) and 42,490 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”).

In March 2022, the Company sold an aggregate of 10,500 shares of Series C Preferred Stock (the “2022 Series C Preferred Stock”), together with associated warrants to purchase Company common stock (the “2022 Series C Warrants”) at $1,000 per share for an aggregate purchase price of $10.5 million and issued an additional 210 shares of Series C Preferred Stock in aggregate as origination fees to the purchasers of the Series C Preferred Stock.

Net proceeds from the sales of the 2022 Series C Preferred Stock were allocated on a fair value basis to the 2022 Series C Warrants and on a relative fair value basis to the 2022 Series C Preferred Stock. The allocation of net cash proceeds is as follows (in thousands):

				Allocation of Proceeds
						2022 Series C
				*2022 Series C*		*Preferred*
				*Warrants*		*Stock*
Gross proceeds	$	10,500
Equity issuance costs		(20	)
Net proceeds - Initial Fair Value Allocation	$	10,480		$	644	$	9,836
Per balance sheet upon issuance				$	644	$	9,836

As of June 30, 2022, shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock were convertible into shares of Company common stock at an average conversion price of approximately $6.14 per share, $6.19 per share and $3.27 per share, respectively.

The Company has the option to convert all, but not less than all, of the Convertible Preferred Stock into shares of Company common stock at the applicable conversion price on any date on which the volume weighted average trading price of shares of Company common stock for each trading day during any 60 of the prior 90 trading days is equal to or greater than 175% of the Series B Conversion Price, in each case subject to certain terms and conditions. Furthermore, the Company must convert all of the Convertible Preferred Stock into shares of Company common stock at the applicable conversion price on the earlier of (i) ten (10) business days following an FID Event, as defined in the certificates of designations of the Convertible Preferred Stock, and (ii) the respective dates that are the tenth (10th) anniversaries of the closings of the issuances of the Convertible Preferred Stock, as applicable.

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 six months ended June 30, 2022 and 2021, the Company paid-in-kind $11.5 million and $7.7 million of dividends, respectively, to the holders of the Convertible Preferred Stock. On July 7, 2022, the Company declared dividends to the holders of the Convertible Preferred Stock as of the close of business on June 15, 2022. On July 15, 2022, the Company paid-in-kind $6.2 million of dividends to the holders of the Convertible Preferred Stock.

Common Stock Warrants

The Company has issued warrants exercisable to purchase Company common stock in connection with its issuances of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (collectively, the “Common Stock Warrants”). The Company revalues the Common Stock Warrants at each balance sheet date and recognized a gain of $1.9 million and a loss of $4.8 million during the three months ended June 30, 2022 and 2021, respectively, and a loss of $4.4 million and $6.8 million for the six months ended June 30, 2022 and 2021, respectively. The Common Stock Warrant liabilities are included in Level 3 of the fair value hierarchy.

The assumptions used in the Monte Carlo simulation model to estimate the fair value of the Common Stock Warrants are as follows:

	*June 30,*			*December 31,*
	*2022*			*2021*
Stock price	$	4.44		$	2.85
Exercise price	$	0.01		$	0.01
Risk-free rate		2.9	%		0.1	%
Volatility		59.0	%		62.6	%
Term (years)		2.2			1.6