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Note 10 - Equity, Share-based Compensation, Warrants and Securities Offerings
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Shareholders' Equity and Share-Based Payments [Text Block]

NOTE 10. EQUITY, SHARE-BASED COMPENSATION, WARRANTS AND SECURITIES OFFERINGS

 

In August 2022, our board of directors approved a 1 for 10 reverse split of our common stock. Our common stock began trading on a post-split basis on August 26, 2022. All share and per share information has been retrospectively adjusted for all prior periods presented giving retroactive effect to the reverse stock split. Such adjustments include calculations of our weighted average number of shares outstanding and loss per share, as well as disclosures regarding our share-based compensation and warrants.

 

Preferred Stock and Tax Benefits Preservation Plan (Rights Agreement)

 

Our board of directors, without further action or vote by holders of our common stock, has the right to establish the terms, preference, rights and restrictions and issue shares of preferred stock. We previously designated and issued six series of preferred stock of which no shares remain outstanding. In addition, we designated and issued a seventh series of preferred stock, Series G, of which 150 shares remain outstanding as of December 31, 2023.

 

The Series G preferred stock is non-voting and may be converted into shares of our common stock at the holders’ election at any time, subject to certain beneficial ownership limitations, at a ratio of 1 preferred share for 94.89915 shares of common stock. The Series G preferred stock is entitled to receive dividends if we pay dividends on our common stock, in which case the holders of the preferred stock are entitled to receive the amount and form of dividends that they would have received if they held the common stock that is issuable upon conversion of the Series G preferred stock. If we are liquidated or dissolved, the holders of Series G preferred stock are entitled to receive, before any amounts are paid in respect of our common stock, an amount per share of preferred stock equal to $1,000, plus any accrued but unpaid dividends thereon.

 

In July 2023, in connection with the Rights Agreement described below, we designated an eighth series of preferred stock, Series H Junior Participating Preferred Stock, no par value (Series H Preferred Shares). Series H Preferred shares will be entitled, if declared, to a preferential per share quarterly dividend payment equal to the greater of (i) $1.00 per share or (ii) an amount equal to 1,000 times the dividend declared per share of our common stock. Each share of Series H Preferred Stock entitles the holder to 1,000 votes on all matters submitted to a vote of our shareholders. In the event of any merger, consolidation or other transaction in which shares of common stock are converted or exchanged, each share of Series H Preferred Stock will be entitled to receive 1,000 times the amount received per one share of our common stock.

 

In July 2023, we entered into the Rights Agreement designed to reduce the likelihood that we will experience an “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended, by (i) discouraging any person or group of persons from becoming an “Acquiring Person”, which is defined in the Rights Agreement generally as a person or group of affiliated or associated persons that, at any time after the date of the Rights Agreement, has acquired, or obtained the right to acquire, beneficial ownership of 4.95% or more of the shares of our then-outstanding common stock and (ii) discouraging any existing shareholder currently beneficially holding 4.95% or more of the shares of our common stock from acquiring more shares of our common stock. In connection therewith, the board of directors of the company (the Board) declared a dividend of one preferred share purchase right (a Right) for each outstanding share of common stock to shareholders of record at the close of business on July 17, 2023. Each Right entitles the holder to purchase one one-thousandth of a share of our Series H Preferred Stock at a price of $6.00, subject to certain adjustments.

 

The Rights will separate and begin trading separately from our common stock generally (i) when a person or group of affiliated or associated persons has become an Acquiring Person or (ii) following the commencement, or announcement of an intention to commence, a tender offer or exchange offer the consummation of which would result in any person becoming an Acquiring Person. If issued, each Right, other than Rights beneficially owned by the Acquiring Person (which will thereupon become void) will become exercisable for common stock having a value equal to two times the exercise price of the Right. Prior to exercise, a Right does not give its holder any dividend, voting or liquidation rights. If not otherwise redeemed, exchanged or terminated, the Rights will expire in July 2026, or at such later date as may be established by the Board.

 

Each share of Series H Preferred Stock will be entitled, when, as and if declared, to a preferential per share quarterly dividend payment equal to the greater of (i) $1.00 per share or (ii) an amount equal to 1,000 times the dividend declared per share of Common Stock. Each share of Series H Preferred Stock will entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the shareholders of the Company. In the event of any merger, consolidation or other transaction in which shares of Common Stock are converted or exchanged, each share of Series H Preferred Stock will be entitled to receive 1,000 times the amount received per one share of Common Stock.

 

The Exercise Price payable, and the number of shares of Series H Preferred Stock or other securities or property issuable, upon exercise of the Rights are each subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Series H Preferred Stock, (ii) upon the grant to holders of the Series H Preferred Stock of certain rights or warrants to subscribe for or purchase Series H Preferred Stock or convertible securities at less than the then-current market price of the Series H Preferred Stock or (iii) upon the distribution to holders of the Series H Preferred Stock of evidences of indebtedness or assets (excluding regular periodic cash dividends or dividends payable in Series H Preferred Stock) or of subscription rights or warrants (other than those referred to above). The number of outstanding Rights and the number of one one-thousandths of a share of Series H Preferred Stock issuable upon exercise of each Right are also subject to adjustment in the event of a stock split, reverse stock split, stock dividends and other similar transactions involving the Common Stock.

 

In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, each holder of a Right, other than the Rights beneficially owned by the Acquiring Person, affiliates and associates of the Acquiring Person and certain transferees thereof (which will thereupon become null and void), will thereafter have the right to receive, upon exercise of a Right, that number of shares of Common Stock having a market value of two times the Exercise Price.

 

In the event that, after a person or a group of affiliated or associated persons has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction, or 50% or more of the Company’s assets or earning power are sold, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then-current exercise price of the Right, that number of shares of common stock of the acquiring company having a market value at the time of that transaction equal to two times the Exercise Price.

 

With certain exceptions, no adjustment in the Exercise Price will be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Exercise Price. No fractional shares of Series H Preferred Stock will be issued (other than fractions which are integral multiples of one one-thousandth of a share of Series H Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts) and, in lieu thereof, an adjustment in cash will be made based on the market price of the Series H Preferred Stock on the trading day immediately prior to the date of exercise.

 

Securities Offerings

 

In December 2023, we entered into a securities purchase agreement (the Purchase Agreement) with Funicular, pursuant to which the Company sold and issued (i) a secured promissory note in the principal amount of $4,000,000, as more fully described under “The Funicular Note” below, (ii) 2,222,222 shares (the Funicular Shares) of the Company’s common stock, no par value (the Common Stock), at a purchase price equal to $0.18 per share and (iii) warrants (the Funicular Warrants) to purchase 5,010,206 shares of Common Stock (the Funicular Warrant Shares), for an aggregate purchase price of $4,000,000 (collectively, the Private Placement). The Funicular Warrants will be exercisable at a price of $0.18 per share, subject to adjustments as provided under the terms of the Funicular Warrants. The Funicular Warrants are exercisable at any time on or after December 1, 2023, until the expiration thereof, provided that the Company has a sufficient number of shares of authorized Common Stock under the Company’s Restated and Amended Articles of Incorporation to permit such exercise. The Funicular Warrants have a term of five years from the date of issuance. In connection with the Private Placement, on December 1, 2023, the Company entered into a Registration Rights Agreement with Funicular (the Registration RightsAgreement), pursuant to which the Company agreed to submit to or file with the U.S. Securities and Exchange Commission within 180 days after the Closing Date a registration statement registering the resale of the Funicular Shares and the Funicular Warrant Shares (the Resale Registration Statement), and the Company agreed to use its reasonable best efforts to have the Resale Registration Statement declared effective as promptly as reasonably possible after the filing thereof. In certain circumstances, Funicular can demand the Company’s assistance with underwritten offerings and block trades, and Funicular will be entitled to certain piggyback registration rights. On December 1, 2023, the Company entered into a secured promissory note (the Funicular Note) in favor of Funicular and guaranteed by its subsidiaries Golden Ridge and MGI, evidencing the loan made to the Company by Funicular in the aggregate principal amount of $4 million, funded to the Company on December 1, 2023, net of a discount equal to 10% of the aggregate principal amount. The Funicular Note has a stated maturity date of December 1, 2028. Interest accrues at a rate per annum equal to 13.50%. On each interest payment date, the accrued and unpaid interest shall, at the election of the Company in its sole discretion, be either paid in cash or paid in-kind. In addition, the Funicular Note requires payment of a $50,000 fee on account of costs and expenses of Funicular, which fee was in-kind, at the Company’s election, within thirty days. The obligations under the Funicular Note are guaranteed by Golden Ridge and MGI and are secured by a security interest in the assets (other than certain excluded assets, the Collateral) of the Company, Golden Ridge and MGI, subject to the intercreditor agreement described below. The Funicular Note contains negative and restrictive covenants which limit the ability of the Company, Golden Ridge and MGI to, among other things, transfer or otherwise dispose of the Collateral, incur indebtedness and create, incur, assume or allow liens on the Collateral or any real property owned by the Company, Golden Ridge or MGI.

 

In October 2022, we issued and sold 675,000 shares of our common stock and a prefunded warrant (the 2022 Prefunded Warrant) exercisable into 325,000 shares of our common stock pursuant to our effective “shelf” registration statement on Form S-3. The holder exercised the 2022 Prefunded Warrant with an exercise price of $0.0001 per share (net of the $1.4999 per share prefunded) in full in 2022. In a concurrent private placement, we issued and sold warrants for the purchase up to 2,000,000 shares of our common stock at an exercise price of $1.60 per share, which are exercisable in April 2023, and expire in October 2025. The net proceeds from the concurrent offerings of $1.0 million, after deducting placement agent fees and other offering expenses of $0.5 million, were allocated to equity. We determined the exercise price of the 2022 Prefunded Warrant was nominal and, as such, we will consider the shares underlying that warrant to be outstanding effective October 20, 2022, for the purposes of calculating basic earnings (loss) per share (EPS). We intend to use the net proceeds from the October 2022 offerings for general corporate purposes, which may include funding capital expenditures, working capital and repaying indebtedness. In addition, we issued warrants for the purchase of up to 63,000 shares of our common stock to the placement agent at an exercise price of $1.875 per share which expire in October 2027.

 

In September 2021, we issued and sold 230,750 shares of common stock, a warrant for the purchase of up to 230,769 shares of common stock (Series Warrant A), and a prefunded warrant (the 2021 Prefunded Warrant) for the purchase of up to 230,786 shares of common stock pursuant to our effective “shelf” registration statement on Form S-3. The initial $10.00 per share exercise price of Series Warrant A was subject to adjustment in September 2022, and will be subject to adjustment again in September 2023, if 110% of the 5-day volume weighted average price of our common stock is less than the then-current exercise price. The 2021 Prefunded Warrant, which the holder exercised in full in 2021, had an exercise price of $0.001 (net of the $6.499 per share prefunded). We determined that the 2021 Prefunded Warrant qualified for equity accounting, however, Series Warrant A did not qualify for equity accounting because the holder may elect cash settlement of this warrant in the event of a change of control. As a result, we carry Series Warrant A as a liability at fair value in our consolidated balance sheets and the change in fair value of this warrant is recorded in our consolidated statements of operations. The net proceeds from the offering of $2.8 million, after deducting commissions and other cash offering expenses of $0.2 million were allocated to derivative warrant liability, in an amount equal to the $0.6 million estimated fair value of Series Warrant A as of September 13, 2021, with the remainder of the proceeds recorded in equity. We determined the exercise price of the Prefunded Warrant was nominal and, as such, considered the 230,786 shares initially underlying the 2021 Prefunded Warrant to be outstanding effective September 13, 2021, for the purposes of calculating basic EPS. We used the net proceeds from the September 2021 offering for general corporate purposes, which included funding capital expenditures and working capital and repaying indebtedness.

 

Equity Incentive Plan

 

Our Board adopted our Amended and Restated 2014 Equity Incentive Plan (the 2014 Plan) after shareholders approved the plan, and amendments thereto. On July 14, 2022, shareholders approved an increase in the number of shares of common stock authorized for issuance under the 2014 Plan of 600,000 shares. The total shares of common stock now authorized for issuance under the 2014 Plan is 1,230,000 shares. Under the terms of the plan, we may grant stock options, shares of common stock and share-based awards to officers, directors, employees or consultants providing services on such terms as are determined by the Board. Our Board administers the plan, determines vesting schedules on plan awards and may accelerate the vesting schedules for award recipients. The stock options granted under the 2014 Plan have terms of up to 10 years and vesting periods of up to 4 years. The restricted stock units granted under the plan vest over periods of up to 5 years. As of December 31, 2023, awards for the purchase of 1,230,000 shares of common stock have been granted and remain outstanding (common stock options, common stock and restricted stock units) and no available shares of common stock are reserved for future grants under the 2014 Plan.

 

Share-based compensation expenses related to employees and directors are included in selling, general and administrative expenses. Share-based compensation by type of award follows (in thousands).

 

  

2023

  

2022

 

Restricted stock units

 $316  $1,160 

Stock options

  96   101 

Compensation expense related to common stock awards issued under equity incentive plan

 $412  $1,261 

 

Information regarding common stock issued under the 2014 Plan, including shares issued upon vesting of restricted stock units follows. All shares of common stock issued in 2023 or 2022 were vested as of the date issued.

 

  

2023

  

2022

 
  

Shares

Issued

  

Weighted

Average
Grant
Date Fair Value

Per Share

  

Shares

Issued

  

Weighted

Average
Grant
Date Fair Value

Per Share

 

Directors

  104,249  $1.11   34,875  $6.71 

Employees

  186,686   4.16   89,307   5.75 

Vendors

  59,465   1.29   13,516   6.47 
   350,400       137,698    

 

Restricted Stock Units

 

We have outstanding (i) restricted stock units issued under the 2014 Plan (RSUs) to employees and directors and (ii) other restricted stock units issued to a service provider (SUs). Each RSU and SU represents a contingent right to receive one share of common stock. Summaries of nonvested and vested stock unit and activity follow.

 

  

RSUs

  

SUs

 
  

Number of

Units

  

Unrecognized Compensation

(in thousands)

  

Average

Grant Date

Fair Value

per share

  

Weighted

Average

Expense

Period

(Years)

  

Numer of

Units

  

Unrecognized Compensation

(in thousands)

  

Average

Grant Date

Fair Value

per share

  

Weighted

Average

Expense

Period

(Years)

 

Nonvested at January 1, 2022

  126,603  $658  $5.20   0.9   -  $-  $-   - 

Granted

  527,871   1,680   3.18   2.7   160,000   216   1.35   3.0 

Impact of Modification:

                  -   -   -   - 

Before modification

  (17,050)  (150)  8.77   0.6   -   -   -   - 

After modification

  17,050   64   3.73   -   -   -   -   - 

Forfeited

  (11,744)  (68)  5.77   1.1   -   -   -   - 

Vested with service

  (275,912)  -       -   -   -   -   - 

Expensed

  -   (1,160) 

NA

   -   -   (15) 

NA

   - 

Nonvested at December 31, 2022

  366,818   1,024   2.79   2.8   160,000   201   1.26   2.7 

Granted

  316,845   186   0.59   -   6,132   5   0.74   - 

Forfeited

  (234,059)  (892)  3.81   1.3   -   -   -   - 

Vested with Service

  (449,104)  -       -   (59,465)  -   -   - 

Expensed

  -   (317) 

NA

   -   -   (80) 

NA

   - 

Nonvested at December 31, 2023

  500  $1   1.28   0.2   106,667  $126  $1.18   1.8 

 

  

Number of

RSUs

 

Vested at January 1, 2022

  86,505 

Vested with service

  275,912 

Issued at termination of service

  (83,725)

Issued at vesting

  (53,967)

Vested at December 31, 2022

  224,725 

Vested with service

  508,569 

Issued at vesting

  (350,400)

Vested at December 31, 2023

  382,894 

 

At December 31, 2023, unvested RSUs and SUs had an intrinsic value of less than $0.1 million, and vested RSUs had an intrinsic value of $0.1 million. As of December 31, 2023, the intrinsic value of all RSUs and SUs outstanding was $0.1 million, unrecognized compensation was $0.1 million and the remaining vesting period was 1.3 years. At December 31, 2023, issuance of 382,894 shares of common stock subject to the vested RSUs, is deferred to the date the holder is no longer providing service to our company.

 

We issued 160,000 SUs to a service provider in 2022, which the service provider elected to purchase with a $0.2 million cash signing fee. The SUs vest in three annual installments ending in September 2025 and we are expensing the fair value of the SUs over three years. The service provider may also earn performance-based cash compensation beginning October 1, 2022, if certain performance criteria are met. The performance compensation will be paid quarterly in an amount of cash which may then be used to purchase, at the election of the service provider, a number of fully vested SUs equal to (a) the performance compensation, divided by (b) the volume weighted average closing price of our common stock over the 90 consecutive trading days ending on the last day of the applicable performance period. The aggregate number of SUs purchased by the service provider, including the initial 160,000 SUs issued in 2022 may not exceed 1,000,000.

 

In 2022, we modified RSUs held by resigning directors and an employee such that the awards vested on the date of their termination of service. Prior to the modification, the resigning directors and employee would have forfeited the unvested RSUs on the date service terminated. As a result of the modifications, we adjusted cumulative expense on the RSUs to equal the fair value of the awards on the modification dates in accordance with applicable accounting guidance, as indicated in the table above.

 

Options

 

As of December 31, 2023 and 2022, we had outstanding options for the purchase of up 114,056 and 55,424 shares of common stock. We granted 100,000 stock options in 2023 and no stock options in 2022. Stock options for the purchase of up to 41,368 and 8,972 shares of common stock forfeited or expired in 2023 and 2022. As of December 31, 2023, outstanding stock options had an intrinsic value of zero, a weighted average exercise price of $3.66 per share, and a weighted average contractual remaining term of 1.0 years.

 

Unrecognized Compensation

 

As of December 31, 2023, the total amount of unrecognized compensation for all outstanding common stock awards, options, RSUs and SUs was $0.1 million, and the remaining average expense period was 0.7 years (including unrecognized compensation on SUs of $0.1 million with a remaining average expense period of 1.8 years)).

 

Warrants

 

The 2022 Prefunded Warrant was exercised in its entirety in 2022 and we issued 325,000 shares of common stock upon the cash exercises. The initial $10.00 per share exercise price of Series Warrant A adjusted, pursuant to its original terms, to $2.72 per share in September 2022, and adjusted again in September 2023 to $0.57 per share, if 110% of the 5-day volume weighted average price of our common stock is less than the then-current exercise price.

 

On December 1, 2023, the Company consummated a transaction pursuant to an exchange agreement (the Cove Lane Exchange Agreement) with Cove Lane Master Fund LLC (Cove Lane) to exchange the existing Series A Warrant held by Cove Lane or its designees for 150,000 shares of Common Stock to be issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended (the Securities Act), upon the terms and conditions set forth in the Cove Lane Exchange Agreement.

 

On December 1, 2023, the Company consummated a transaction pursuant to an exchange agreement (the Sabby Exchange Agreement) with Sabby Volatility Warrant Master Fund, Ltd. (Sabby) to exchange the existing Common Stock Purchase Warrant held by Sabby or its designees for (i) 323,810 shares of Common Stock and (ii) warrants to purchase up to 1,200,000 shares of Common Stock (the Sabby Warrants) each to be issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act upon the terms and conditions set forth in the Sabby Exchange Agreement.

 

The Sabby Warrants will be exercisable at a price of $0.2016 per share, subject to adjustments as provided under the terms of the Sabby Warrants. The Sabby Warrants are exercisable at any time on or after December 1, 2023, until the expiration thereof. The Sabby Warrants have a term of three years from the date of issuance.

 

On December 1, 2023, the Company consummated a transaction pursuant to an exchange agreement (the Hudson Bay Exchange Agreement and, collectively with the Cove Lane Exchange Agreement and the Sabby Exchange Agreement, the Exchange Agreements) with Hudson Bay Master Fund Ltd. (Hudson Bay) to exchange the existing Common Stock Purchase Warrant held by Hudson Bay or its designees for 155,000 shares of Common Stock to be issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act upon the terms and conditions set forth in the Hudson Bay Exchange Agreement.

 

Warrant activity, excluding activity related to prefunded warrants follows.

 

  

2023

  

2022

 
  

Shares Under

Warrants

  

Weighted

Average

Exercise

Price

  

Weighted

Average

Remaining

Contractual

Life (Years)

  

Shares Under

Warrants

  

Weighted

Average

Exercise

Price

  

Weighted

Average

Remaining

Contractual

Life (Years)

 

Outstanding at January 1

  2,298,769  $1.76   2.9   875,067  $9.76   1.4 

Issued

  4,324,802   0.21   4.1   2,063,000  $1.61   3.1 

Impact of Warrant A exercise price adjustment:

                        

Before adjustment

  -   -   -   230,769  $10.00   4.0 

After adjustment

  -   -   -   (230,769) $2.72   4.0 

Forfeited

  (2,230,769)  1.72   2.9            

Expired

  (5,000)  20.00   -   (639,298)  9.60   - 

Outstanding at December 31

  4,387,802  $0.21   4.1   2,298,769  $1.76   2.9 

 

The following table summarizes information related to exercisable and outstanding warrants as of December 31, 2023.

 

    

Outstanding

 

Exercise

Prices

  

Shares Under

Warrants

  

Weighted

Average

Exercise

Price

  

Weighted

Average

Remaining

Contractual

Life (Years)

 
$0.18   3,124,802  $0.18   4.9 
$0.20   1,200,000   0.20   1.8 
$1.88   63,000   1.88   3.8 
     4,387,802  $0.21   4.1