v3.26.1
Note 9 - Temporary Equity and Stockholders' Deficit
 6 Months Ended
Jun. 30, 2026
Notes to Financial Statements  
Equity [Text Block]

9.

TEMPORARY EQUITY AND STOCKHOLDER’S EQUITY

 

 

(a)

Redeemable Convertible Preferred Stock

 

In September 2021, the Company amended the Articles of Incorporation (as amended, the "Articles of Incorporation") to allow for the issuance of 30,000,000 shares of Series A-1 Preferred Stock (as defined below). Upon certain change in control events that are outside of the Company’s control, including sale of substantially all of the Company’s assets or the occurrence of a Deemed Liquidation Event (as defined in the Company’s Articles of Incorporation), the holders of the shares of Series A-1 Preferred Stock may cause redemption of the shares of the Series A-1 Preferred Stock. Accordingly, these shares are considered contingently redeemable and are classified as temporary equity on the accompanying condensed consolidated balance sheets. The Series A-1 Preferred Stock may be converted at the option of the holder at any time and without the payment of additional consideration by the holder into a number of fully paid and non-assessable shares of common stock based on the terms within the Articles of Incorporation. The following are the rights and privileges related to the Series A-1 redeemable convertible preferred stock (the “Series A-1 Preferred Stock”):

 

 

●

Dividend Provision: The holders of the preferred stock in preference to the holders of common stock are entitled to receive, if and when declared by the board of directors, dividends at the rate of 12% of the original issue price, defined as $1.00, per annum. Such dividends are cumulative and compound annually. No dividends have been declared to date. In addition, the holders of the preferred stock are entitled to receive a dividend equal to any dividend paid on common stock, when and if declared by the board, on the basis of the number of shares of common stock into which the preferred stock may be convertible. Undeclared dividends with respect to the outstanding Series A-1 Preferred Stock as of June 30, 2026, totaled $0 million, due to the Preferred Conversion described below, and as of  December 31, 2025, totaled approximately $0 million. In the event of liquidation, dissolution or winding up of the Company, the holders of the Series A-1 Preferred Stock will be entitled to the original issue price plus accrued dividends before any funds are available to common stockholders.

 

 

●

Conversion Rights: All holders of the Company’s preferred stock have a right to convert the outstanding balances of preferred shares at any time following the date of issuance into a number of fully paid shares of common stock, as specified in the Articles of Incorporation. The conversion rate is the original issue price for the relevant shares divided by the conversion price of the relevant shares, subject to anti-dilution adjustments. In the event of a sale of shares in a public offering resulting in gross proceeds of $25 million to the Company, such conversion into common stock would be mandatory. The 18,406,857 shares of Series A-1 Preferred Stock outstanding on July 7, 2025, were converted, by the holders, into 792,378 shares of common stock. As of June 30, 2026, there were no outstanding Preferred Stockholders.

 

 

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Liquidation Preferences: In the event of any liquidation, dissolution, winding-up or sale or merger of the Company, whether voluntarily or involuntarily, each holder of Preferred Stock is entitled to receive, in preference to the holders of common stock, a per-share amount equal to the original issue price, plus all declared but unpaid dividends. As of June 30, 2026, the redemption preference on liquidation would be approximately $0 million, due to the Preferred Conversion described below.

 

 

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Voting Rights: Each holder of outstanding shares of Preferred Stock is entitled to the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Holders of Preferred Stock vote together with the holders of Common Stock on an as-converted-to-Common-Stock-basis and not as a separate class.

 

In July 2025, Hunniwell Picard I exercised the option to convert all of its Series A-1 Preferred Stock to 792,378 shares of common stock. At the time of conversion, no dividends were declared or paid.

 

 

(b)

Common Stock

 

The Company is authorized to issue 300,000,000 shares of common stock, $0.0001 par value per share. The voting, dividend and liquidation rights of the common stock are subject to and qualified by the rights, powers, and preferences of the holders of the Series A-1 Preferred Stock. The Company shall not declare or pay a dividend on any share of Preferred Stock without also declaring or paying a dividend on any share of common stock that is equal to the dividend declared and or paid on the share of Preferred Stock divided by the number of shares of common stock into which such share of Preferred Stock is then convertible.

 

The holders of common stock are entitled to one vote per share at all meetings of stockholders, provided that they may not vote to amend the Certificate of Incorporation relating to the terms of any outstanding series of Preferred Stock if the holders of that series are entitled to vote thereon. The number of authorized shares of common stock may only be changed by the affirmative vote of the holders of a majority of shares outstanding. There are no sinking fund provisions applicable to the common stock.

 

9.

TEMPORARY EQUITY AND STOCKHOLDER’S EQUITY (cont.)

 

The Company had shares of common stock reserved for issuance as follows:

 

  

June 30, 2026

  

December 31, 2025

 
Issued Warrants  1,030,422   154,206 

Options issued and outstanding

  251,738   151,129 

Available for future grants of equity awards

  108,262   208,871 

Total

  1,390,422   514,206 

  

 

(c)

Common Stock Issuance

 

In March 2025, the Company entered into subscription agreements with certain investors for the sale of 7,057 shares of the Company’s common stock at a price of $71.00 per share for total consideration of $0.5 million.

 

In April 2025, the Company entered into subscription agreements with certain investors for the sale of 13,906 shares of the Company’s common stock at a price of $71.00 per share for total consideration of $1.0 million.

 

In February and March 2026, the Company issued a total of 27,607 shares of common stock to settle $2.1 million of Senior Secured Note principal as a result of High Trail’s election to accelerate repayment in shares.

 

In February, March, and April 2026, a total of 45,198 stock options were exercised for proceeds of approximately $60,000.

 

In April, May, and June 2026, the Company issued a total of 173,512 shares of common stock to settle $1.65 million of Senior Secured Note principal as a result of High Trail’s election to accelerate repayment in shares.

 

In May 2026, the Company completed a public offering where it sold an aggregate (i) 333,333 shares of its Common Stock, including one investor in the public offering exercised 20,000 pre-funded warrants in exchange for the equivalent number of shares of common stock, (ii) series A common warrants to purchase up to 333,333 shares of Common Stock (the “Series A Common Warrants”), and (iii) series B common warrants to purchase up to 333,333 shares of Common Stock (the “Series B Common Warrants” together with the Series A Common Warrants, the “Common Warrants”) for a combined offering price of $15.0 per share for gross proceeds of $5.0 million (the "May 2026 Offering"). Net proceeds from the May 2026 Offering were $3.06 million after deduction of $0.94 million of offering costs with $1.0 million in a cashless transaction to settle the principal of the Company’s Senior Secured Note. The Company evaluated the terms of the Common Warrants and determined that these are equity classified instruments.

 

In June 2026, the Company issued a total of 1,603 shares of common stock at $51.78 per share in connection with the issuance of principal and interest of $0.56 million of the Quick Capital Note under the terms of the Quick Capital Note.