Quarterly report pursuant to Section 13 or 15(d)

Note 9 - Preferred Stock

v3.20.1
Note 9 - Preferred Stock
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Preferred Stock [Text Block]
9.
Preferred Stock
 
In connection with the closing of the public offering in
November 2019,
the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “Series A Certificate of Designation”) with the Secretary of State of the State of Delaware. The Series A Certificate of Designation provides for the issuance of the shares of Series A convertible preferred stock. The shares of Series A convertible preferred stock rank on par with the shares of the common stock, in each case, as to dividend rights and distributions of assets upon liquidation, dissolution or winding up of the Company.
 
With certain exceptions, as described in the Series A Certificate of Designation, the shares of Series A preferred stock have
no
voting rights.
 
Each share of Series A convertible preferred stock is convertible at any time at the holder’s option into
one
share of common stock, which conversion ratio will be subject to adjustment for stock splits, stock dividends, distributions, subdivisions and combinations and other similar transactions as specified in the Series A Certificate of Designation.
 
In
November
and
December 2019,
the holders of Series A convertible preferred stock converted
600,000
shares and
3,021,237
shares into common stock, respectively. In
January
and
February 2020,
the holders of Series A convertible preferred stock converted
1,183,151
shares and
669,022
shares into common stock, respectively. As of
March 31, 2020,
all Series A convertible preferred stock had been converted into common stock and there are
no
remaining shares of Series A convertible preferred stock outstanding.
 
As previously reported (see Note
6
– Note Payable), the CRG debt obligations converted into
31,300
shares of the newly authorized Series B convertible preferred stock and warrants to purchase up to
9,893,776
shares of common stock were also issued. In connection with the CRG debt conversion, on
November 26, 2019,
the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (the “Series B Certificate of Designation”) with the Secretary of State of the State of Delaware. The Series B Certificate of Designation provides for the issuance of the shares of Series B convertible preferred stock. The holders of Series B convertible preferred stock are entitled to receive compounding dividends at a rate of
12.5%
per annum payable quarterly at the Company’s option through additional paid in-kind shares of Series B convertible preferred stock or in cash. During the year ended
December 31, 2019,
the Company paid dividend in-kind of an additional
378
shares of Series B convertible preferred stock and a cash dividend of approximately
$2,400
for the remaining fractional shares. During the
three
months ended
March 31, 2020,
the Company paid dividend in kind of an additional
989
shares of Series B convertible preferred stock and a cash dividend of approximately
$1,000
for the remaining fractional shares. As of
March 31, 2020,
there are
32,667
shares of Series B convertible preferred stock outstanding. The shares of Series B convertible preferred stock have
no
voting rights and rank senior to all other classes and series of our equity in terms of repayment and certain other rights. 
 
The Series B convertible preferred stock provides that for so long as any shares are outstanding, the consent of the holders of the Series B convertible preferred stockholders would be required to amend the Company’s organizational documents, approve any merger, sale of assets, or other major corporate transaction, or incur additional indebtedness, among other items. 
 
The fair value of the Series B convertible preferred stock was determined in connection with the CRG debt conversion as part of the accounting for that transaction as a troubled debt restructuring. (See Note
6
– Note Payable.) Based on our valuation analysis, as of
November 26, 2019,
the date of issuance, the estimated fair value of the Series B convertible preferred stock was
$1,023.23
per share or a total value of approximately
$32,027,000
for the
31,300
shares of Series B convertible preferred stock that were issued.
 
Under the terms of the Series B Preferred Stock and Warrant Purchase Agreement, as amended, CRG will
not
convert the Series B preferred stock or exercise the warrants until the Company’s stockholders act to authorize additional number of shares of common stock sufficient to cover the conversion shares.