Earnings Per Share and Equity

3 Months Ended

Mar. 31, 2020

10. Earnings Per Share

Calculations of net income per share of common stock, for the three month periods ended March 31, 2020 and 2019, were as follows (in thousands, except per share data):


	Three Months Ended March 31,
	2020		2019
Net income (loss)	$	4,414	$	(3,084	)
Preferred stock dividends		165		—
Net income (loss) applicable to common stockholders		4,249		(3,084	)
Basic weighted average common shares outstanding		54,863		54,863

Add: Incremental shares for:
Dilutive effect of the 2015 Stock Option		559		—
Dilutive effect of the Series C Preferred		13,567		N/A

Diluted weighted average common shares outstanding		68,989		54,863

Net income (loss) per common share
Basic	$	0.08	$	(0.06	)

Diluted	$	0.06	$	(0.06	)

Basic income (loss) per share of common stock is computed by dividing net income (loss) attributable to the Company by the weighted average number of shares of common stock outstanding during the period.

The number of incremental shares from the assumed issuance of shares related to the 2015 Stock Option and the Series C Preferred are calculated by applying the treasury stock method. In loss periods, these incremental shares are excluded from the calculation of diluted loss per share, as the inclusion of these items would have an anti-dilutive effect. See Note 11 for additional information.

Series C Preferred

January 2020, the Company issued 4,000 shares of the Series C Preferred. The Series C Preferred is immediately convertible into 16,500 shares of common stock and accrues dividends at the rate of 6

% per annum, which are cumulative and compound quarterly to the extent dividends have not been declared by the Board of Directors and paid by the Company

(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

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 is convertible, at any time after issuance, into that number of shares of common stock, determined by dividing the then applicable Series C Liquidation Amount (defined below) by $0.80, subject to certain adjustments set forth in the Certificate of Designations (Conversion Price

);

provided, however, that the Conversion Price shall, upon the first trading day immediately following the 90-trading day period following the first 45-calendar day period following the date of the Company’s notice to its stockholders of the filing of its Annual Report on Form 10-K (Reporting Date

)

during which an aggregate number of shares of common stock greater than 5.0% as of the close of business on the first business day of such period are traded, as reported by Bloomberg Financial Markets (Reporting Adjustment Period

be adjusted to equal the Weighted Average Price (as defined in the Certificate of Designations) of the common stock during the Reporting Adjustment Period. 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) 16,500,000, 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 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 equal to an amount per share equal to 0.5% of the Series C Liquidation Amount (as defined below) 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

In the event of any liquidation, dissolution or winding up of the Company or a sale of the Company, the Series C Preferred shall be entitled to receive, prior and in preference to any distribution of any assets of the Company 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

At any time following the earliest of (a) the date that is four years after the earlier of the Reporting Date or (i) any merger or consolidation to which the Company is a constituent party and to which one or more third-party entities, unaffiliated with the Company, are constituent parties or (ii) any transaction or series of related transactions pursuant to which the Company shall issue or sell a number of shares of common stock greater than 5

% of the number of shares of common stock then outstanding, (b) the date the Dividend Ratchet has been initiated, (c) any time that fewer than 800,000 shares of Series C Preferred are outstanding, and (d) December 31, 2024, the Company shall have the right to redeem all, but not less than all, of the shares of Series C Preferred then outstanding at a per share price equal to the then current Series C Liquidation Amount (Redemption Price

At any time after the outstanding shares of Series C Preferred are deemed Conversion Cap Excess Shares, the Company shall have the right to redeem all, but not less than all, of the Conversion Cap Excess Shares then outstanding at the Redemption Price.

January 2020, the Company also entered into an Investors’ Rights Agreement with Southshore, pursuant to which the Company agreed, if requested by Southshore at any time following the 180-day period after the Company became subject to the reporting requirements under the Exchange Act, to file with the SEC a registration statement on a Form S-1 with respect to at least 40% of the common stock issuable upon conversion of the Series C Preferred then outstanding (or a lesser percent if the anticipated aggregate offering price, net of selling expenses, would exceed $10 million), along with other registration rights. All reasonable expenses related to any such registration shall be borne by the Company. The Investors’ Rights Agreement further provides that, whenever the members of the Board of Directors are to be elected, Southshore will vote so as to elect a majority of directors comprising the Board of Directors that qualify as independent directors

On each of April 15, 2020, June 30, 2020 and September 29, 2020, the Board of Directors declared dividends of $165, $198 and $198, respectively, on the Series C Preferred, which were paid on April 20, 2020, July 1, 2020, and September 30, 2020, respectively.

Based on the applicable accounting guidance, the Company 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. Under the

“if-converted”

method, the conversion of the Series C Preferred is assumed to take place at the later of (i) the beginning of the reporting period, and (ii) the actual date of issuance. Because the Series C Preferred was issued on January 17, 2020, the Company calculated the weighted average number of shares of common stock into which the Series C Preferred was convertible based on the actual number of days the Series C Preferred was outstanding during the first quarter. Pursuant to this calculation, the Series C Preferred was convertible into an aggregate of 13,567 shares of common stock. This amount has been used in computing fully diluted weighted average shares of common stock outstanding for the three month period ended March 31, 2020.

The number of shares of common stock into which the Series C Preferred is convertible, as determined for purposes of calculating the net income (loss) per share of common stock, may not be consistent with the actual number of shares into which the Series C Preferred is convertible pursuant to the Certificate of Designations, Preferences, and Rights of the Series C Preferred (Certificate of Designations) on any particular date.

As of March 31, 2020, pursuant to the Certificate of Designations, the Series C Preferred was convertible into an aggregate of 16,500 shares of common stock.

The Company 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, which is subject to conditional redemption, is presented at redemption value as mezzanine equity outside of the stockholders’ equity section of the consolidated balance sheets.