Stockholders' Equity, Convertible Preferred Stock and Redeemable Non-controlling Interest

9 Months Ended

Sep. 30, 2020

Stockholders' Equity, Convertible Preferred Stock and Redeemable Non-controlling Interest

Stockholders' Equity, Convertible Preferred Stock and Redeemable Non-controlling Interest

Note 13.    Stockholders’ Equity, Convertible Preferred Stock and Redeemable Non-controlling Interest

Convertible Preferred Stock

The Board of Directors has authorized 50.0 million shares of convertible preferred stock, $0.001 par value, issuable in series. The Series A preferred stock shall be entitled to one vote per common stock on an as-converted basis and is only entitled to receive dividends when and if declared by the Board.

Redeemable Non-controlling Interest

The Company and Qingdao Chengyang Xinyang Investment Company Limited (“Qingdao”) formed an entity named Qingdao Chengyang Mobo New Energy Vehicle Sales Service Company Limited (“New Energy.”) Qingdao entered into a capital subscription agreement for a total of RMB 200.0 million ($28.0 million), and made the first capital contribution of RMB 50.0 million in the three months ended March 31, 2020. The remaining RMB 150.0 million ($21.0 million) are payable in three installments of RMB 50.0 million ($7.0 million) upon New Energy attaining certain revenue or market value benchmarks.

The investment agreement stipulates that New Energy must pay Qingdao dividends at the rate of 6.0%. After one year, Qingdao may sell its investment to an institutional investor, and after three years may redeem its investment for the face amount plus 6.0% interest less dividends paid. The redemption feature is neither mandatory nor certain. Due to the redemption feature, the Company has classified the investment outside of permanent equity.

The following table summarizes activity for the redeemable non-controlling interest for the nine months ended September 30, 2020 (in thousands):

January 1, 2020	$	—
Initial investment		7,047
Accretion of dividend		323
Loss attributable to non-controlling interest		(79)
Adjustment to redemption value		79
September 30, 2020	$	7,370

Standby Equity Distribution Agreement  (“SEDA”)

The Company entered into a SEDA with YA II PN on April 3, 2020 and amended the SEDA to reduce the aggregate amount of facility from $50.0 million to $45.0 million on June 9, 2020.  The SEDA establishes what is sometimes termed an equity line of credit or an equity draw-down facility. The Company has the right to issue and sell to YA II PN up to $45.0 million of the Company’s common stock over 36 months following the date of the agreement entered on April 3, 2020 in installments, the maximum amount of each of which is limited to $1.0 million.  For each share of common stock purchased under the SEDA, YA II PN will pay 90% of the lowest VWAP of the Company’s shares during the five trading days following the Company’s advance notice to YA II PN.  In general, the VWAP represents the sum of the value of all the sales of the Company’s common stock for a given day (the total shares sold in each trade times the sales price per share of the common stock for that trade), divided by the total number of shares sold on that day.

YA II PN’s obligation under the SEDA is subject to certain conditions, including the Company maintaining the effectiveness of a registration statement for the securities sold under the SEDA. In addition, the Company may not request advances if the common shares to be issued would result in YA II PN owning more than 4.99% of the Company’s outstanding common stock, with any such request being automatically modified to reduce the advance amount.

The SEDA contains customary representations, warranties and agreements of the Company and YA II PN, indemnification rights and other obligations of the parties.  YA II PN has covenanted not to cause or engage in any direct or indirect short selling or hedging of the Company’s shares of common stock.

In connection with the SEDA, the Company issued 1.0 million shares of the Company’s common stock as a commitment fee (the “Commitment Shares”) to a subsidiary of the YA II PN on April 3, 2020. The Company recognized such

Commitment Shares as deferred offering costs and additional paid-in capital for a total of $0.9 million and fully charged against the gross proceeds received from SEDA in the three months ended June 30, 2020 because SEDA was terminated.

During the three months ended June 30, 2020 under the SEDA, the Company issued 34.5 million shares of common stock for a total of $32.5 million.

Common Stock

The Board of Directors has authorized 1,500 million shares of common stock, $0.001 par value.

2020 Equity Transactions

Refer to Note 12 for information related to issuance of common stock resulting from the conversion of convertible notes, Note 14 for information related to the issuance of common stock resulting from the conversion of convertible notes with related parties, Note 15 for information related to the issuance to common stock for warrant exercise, and Note 6(c) for the information related to the issuance of common stock for DBOT contingent consideration.

2019 Equity Transactions

Refer to Note 9 for information related to the issuance of common stock for assets and Note 12 for information related to the issuance of common stock in connection with convertible notes, and Note 6 for information related to the issuance of common stock for acquisitions.

On March 5, 2019, the Company entered into an agreement to acquire a company based in Malaysia, and placed 25.5 million common shares into an escrow account. The agreement was terminated in July 2019 and the common shares removed from escrow.