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Note 9 - Preferred Stock and Common Stock Warrants
 12 Months Ended
Dec. 31, 2022
Notes to Financial Statements  
PreferredStockAndWarrants [Text Block]

Note 9 — Preferred Stock and Common Stock Warrants

 

Preferred Stock

 

As of  December 31, 2020, the Company had outstanding 65,507 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”) and 62,612 shares of Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”).

 

In  March 2021, the Company 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 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, the Company sold 10,000 shares of Series C Preferred Stock, at $1,000 per share for a purchase price of $10 million and 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, the Company sold 5,000 shares of Series C Preferred Stock, at $1,000 per share for a purchase price of $5 million and issued an additional 100 shares of Series C Preferred Stock as an origination fee to the purchaser of the Series C 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.

 

As of  December 31, 2022, the Company had outstanding 82,948 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), 79,239 shares of Series B Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”) and 59,366 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”).

 

 

 

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 

 

Net proceeds from the sales of Series C Preferred Stock during 2021 were allocated on a fair value basis to the Series C Warrants and on a relative fair value basis to the Series C Preferred Stock.  The allocation of net cash proceeds from the sales of Series C Preferred Stock during 2021 is as follows (in thousands):

 

      

Allocation of Proceeds

 
          

2021 Series C

      

2021 Series C

 

Preferred

      

Warrants

 

Stock

Gross proceeds

 $39,500         

Equity issuance costs

  (62

)

        

Net proceeds - Initial Fair Value Allocation

 $39,438  $1,631  $37,807 

Per balance sheet upon issuance

      $1,631   $37,807 

 

As of  December 31, 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 a weighted average conversion price of $5.48 per share, $5.53 per share and $2.98 per share, respectively (with respect to each series, the “Conversion Price”).

 

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 Conversion Price on the earlier of (i) ten (10) business days following a FID Event, as defined in the certificates of designations of the Convertible Preferred Stock, and (ii) the date that is the tenth (10th) anniversary 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 date of issuance on the $1,000 stated value. Such dividends are payable quarterly and may be paid in cash or in-kind. During the years ended December 31, 2022 and 2021 the Company paid-in-kind $24.3 million and $18.3 million of dividends, respectively, to holders of the Convertible Preferred Stock. On January 12, 2023, the Company declared dividends to holders of the Convertible Preferred Stock as of the close of business on December 15, 2022. On January 17, 2023, the Company paid-in-kind $6.7 million of dividends to holders of the Convertible Preferred Stock.

 

The holders of Convertible Preferred Stock vote on an “as-converted” basis with the holders of the Company common stock on all matters brought before the holders of Company common stock. In addition, the holders of Convertible Preferred Stock have separate class voting rights with respect to certain matters affecting their rights.

 

Shares of the Convertible Preferred Stock do not qualify as liability instruments under ASC 480 because they are not mandatorily redeemable. However, as SEC Regulation S-X, Rule 5-02-27 does not permit a probability assessment for a change of control provision, the Convertible Preferred Stock must be presented as mezzanine equity between liabilities and stockholders’ equity in the Company's Consolidated Balance Sheets because a change of control event could force the Company to redeem the Convertible Preferred Stock for cash or assets of the Company. At each balance sheet date, the Company re-evaluates whether the Convertible Preferred Stock continue to qualify for equity classification.

 

Common Stock Warrants

 

Warrants, exercisable for Company common stock, were issued together with the shares of Convertible Preferred Stock (collectively, “Common Stock Warrants”).  As of December 31, 2022 and 2021, the outstanding Common Stock Warrants represented the right to acquire in the aggregate a number of shares of Company common stock equal to approximately 71 basis points (0.71%) and 86 basis points (0.86%), respectively, of all outstanding shares of Company common stock, measured on a fully diluted basis, on the applicable exercise date with an exercise price of $0.01 per share.

 

The Common Stock Warrants have a fixed three-year term that commenced on the closings of the issuances of the associated Convertible Preferred Stock. The Common Stock Warrants may only be exercised by holders of the Common Stock Warrants at the expiration of such three-year term, except that the Company can force the exercise of the Common Stock Warrants prior to expiration of such term if the volume weighted average trading price of shares of Common Stock for each trading day during any 60 of the prior 90 trading days is equal to or greater than 175% of the of the applicable Convertible Preferred Stock conversion price and, with respect to the Series B Warrants, the Company simultaneously elects to force a mandatory exercise of all other warrants then outstanding and un-exercised and held by any holder of parity stock. Pursuant to ASC 815-40, the fair value of the Common Stock Warrants was recorded as a non-current liability on our Consolidated Balance Sheet on the issuance dates. The Company revalues the Common Stock Warrants at each balance sheet date and recognized a loss of $5.7 million and $2.5 million for the years ended  December 31, 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 to estimate the fair value of the Common Stock Warrants as of  December 31, 2022 and 2020 are as follows:

 

  

December 31,

  

December 31,

 
  

2022

  

2021

 

Stock price

 $4.94  $2.85 

Exercise price

 $0.01  $0.01 

Risk-free rate

  4.6%  0.1%

Volatility

  52.5%  62.6%

Term (years)

  1.5   1.6