Earnings Per Share and Equity

9 Months Ended

Sep. 30, 2023

Calculations of net (loss) income per common share for the periods presented were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net (loss) income	$	(3,688)	$	8,022	$	(11,975)	$	32,366
Preferred stock dividends	358		198		915		594
Net (loss) income applicable to common stockholders	$	(4,046)	$	7,824	$	(12,890)	$	31,772
Weighted average common shares outstanding
Shares used in calculating basic earnings per share	43,654		45,776		44,299		46,637
Stock option	—		—		—		131
Series C Preferred	—		16,500		—		16,500
Shares used in calculating diluted earnings per share	43,654		62,276		44,299		63,268
(Loss) earnings allocated to common stockholders per common share
Basic	$	(0.09)	$	0.17	$	(0.29)	$	0.68
Diluted	$	(0.09)	$	0.13	$	(0.29)	$	0.50

Basic earnings per share of common stock is computed by dividing the net loss or income applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share is computed by dividing loss or income by the weighted average number of shares outstanding assuming the conversion of the Series C Preferred into an aggregate of 16,500 shares of common stock under the if-converted method, and the exercise of a stock option granted in 2015 (2015 Option) into 198 shares of common stock under the treasury stock method for the nine months ended September 30, 2022. In March 2022, Harbor entered into an agreement with the holder to cancel the 2015 Option in exchange for $969. The shares underlying the 2015 Option are included in computing diluted earnings per share under the treasury stock method for the portion of the reporting period during which it was outstanding. Further, during loss periods, the conversion of shares under the Series C Preferred or the 2015 Option (for the period it was outstanding) would be anti-dilutive and thus is not assumed for purposes of computing diluted earnings per share.

Series C Convertible Redeemable Preferred Stock

In January 2020, Harbor issued 4,000 shares of the Series C Preferred. The rights, preferences, privileges, qualifications, restrictions and limitations relating to the Series C Preferred are set forth in the Certificate of Designations, Preferences and Rights of Series C Convertible Redeemable Preferred Stock (“Certificate of Designations”), which Harbor filed with the Secretary of State of the State of Delaware.

The Series C Preferred accrues cumulative quarterly dividends at the rate per share of 6.0% of the Series C Issue Price per annum, which are cumulative and compound quarterly to the extent dividends have not been declared by the board of directors (“Preferential Dividends”). From and after December 31, 2023, upon the election of holders of a majority of the outstanding Series C Preferred, the rate of the Preferential Dividends shall be increased by an additional 1.0% per annum per share for each and every six-month period following such election (“Dividend Ratchet”). At the option of the board of directors, in lieu of paying the Preferential Dividends and the Conversion Cap Excess Dividends (as defined below) in cash, all or some of such dividends may be paid in additional shares of Series C Preferred (“PIK Dividends”).

Each share of Series C Preferred was initially convertible at the election of the holders, at any time after issuance, into that number of shares of common stock determined by dividing the then applicable Series C Liquidation Amount (as defined

below) by $0.80, subject to certain adjustments set forth in the Certificate of Designations (“Conversion Price”). The Conversion Price as of the date of this filing is $0.15091. The Conversion Price may be subject to further adjustment as described in the Certificate of Designations.

The conversion of Series C Preferred is subject to a limitation on the number of shares of the common stock that may be issued upon conversion of Series C Preferred equal to the sum of (a) 16,500, plus (b) the quotient of (i) the aggregate amount of all accrued and unpaid Preferential Dividends divided by (ii) $0.80, plus (c) the quotient of (i) the number of shares of Series C Preferred issued as PIK Dividends multiplied by the Series C Issue Price, divided by (ii) $0.80. Any outstanding shares of Series C Preferred that may not be converted into common stock pursuant to the limitation described herein (“Conversion Cap Excess Shares”), from and after December 31, 2022, in addition to the Preferential Dividends, shall accrue cumulative quarterly dividends in an amount per share equal to 0.5% of the Series C Liquidation Amount of each outstanding Conversion Cap Excess Share in the first quarter after December 31, 2022, and increasing an additional 0.5% of the Series C Liquidation Amount in each subsequent quarter (“Conversion Cap Excess Dividends”). As of September 30, 2023, 755 shares of the Series C Preferred were immediately convertible into 16,500 shares of common stock (representing 27.5% of the fully diluted shares of capital stock of Harbor), and the remaining 3,245 shares of the Series C Preferred are deemed Conversion Cap Excess Shares. Harbor may redeem all, but not less than all, of the Conversion Cap Excess Shares at any time upon notice to the holders for a cash payment in an amount equal to the Series C Liquidation Amount per share.

In the event of any liquidation, dissolution or winding up of Harbor or a sale of Harbor, the Series C Preferred shall be entitled to receive, prior and in preference to any distribution of any assets of Harbor to the common stock or other junior capital stock, an amount equal to the Series C Issue Price, plus an amount equal to all accrued but unpaid Preferential Dividends, Conversion Cap Excess Dividends and any other accrued but unpaid dividends (“Series C Liquidation Amount”).

On March 31, 2023, June 30, 2023, and September 27, 2023, the board of directors declared a Preferential Dividend of $198 and a Conversion Cap Excess Dividend of $54, $107, and $160, respectively, on the Series C Preferred, which were paid on March 31, 2023, June 30, 2023, and September 29, 2023, respectively. On March 30, 2022, June 30, 2022, and September 30, 2022, the board of directors declared a dividend of $198 on the Series C Preferred, which was paid on March 31, 2022, June 30, 2022, and September 30, 2022, respectively.

Based on the applicable accounting guidance, Harbor is required to apply the “if-converted” method to the Series C Preferred to determine the weighted average number of shares outstanding for purposes of calculating the net income (loss) per share of common stock. However, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive.

Harbor accounts for its Series C Preferred in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity. Based on the applicable accounting guidance, preferred stock that is conditionally redeemable is classified as temporary or “mezzanine” equity. Accordingly, the Series C Preferred, is presented at redemption value as mezzanine equity outside of the stockholders’ equity section of the condensed consolidated balance sheets.