|9 Months Ended|
Oct. 29, 2022
(8) Shareholders’ Equity
Common Stock and Preferred Stock
The Company is authorized to issue 40,000,000 shares of common stock and 10,000,000 shares of capital stock, of which 400,000 shares are designated as Series A Junior Participating Cumulative Preferred Stock, and the remaining 9,600,000 shares have been designated as additional shares of common stock, for a total of 49,600,000 authorized shares of common stock. As of October 29, 2022, no shares of preferred stock were issued orand 28,916,847 shares of common stock were issued and . The board
of directors may de-designate or establish new classes and series of capital stock by resolution without shareholder approval; however, in certain circumstances the Company is required to obtain approval under the Loan Agreement.
On June 9, 2021, the Company completed a public offering, in which the Company issued and sold 4,830,918 shares of our common stock at a public offering price of $9.00 per share. After underwriter discounts and commissions and other offering costs, net proceeds from the public offering were approximately $39,955. The Company has used the proceeds for general working capital purposes, including potential acquisitions of businesses and assets that are complementary to our operations.
On February 18, 2021, the Company completed a public offering, in which the Company issued and sold 3,289,000 shares of its common stock at a public offering price of $7.00 per share, including 429,000 shares sold upon the exercise of the underwriter’s option to purchase additional shares. After underwriter discounts and commissions and other offering costs, net proceeds from the public offering were approximately $21,224. The Company used the proceeds for general working capital purposes.
May 2022 Private Placement Securities Purchase Agreement
On May 11, 2022, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain purchasers (collectively, the “Purchasers”), pursuant to which the Company agreed to issue and sell to the Purchasers: (i) 4,136,001 shares of its common stock, at an offering price of $3.07 per share, (ii) pre-funded warrants to purchase 3,763,022 shares of its common stock at an offering price of $3.0699 per pre-funded warrant (the “Pre-Funded Warrants”), which represents the per share offering price of its common stock less the $0.0001 per share exercise price for each pre-funded warrant and (iii) warrants to purchase up to an additional 7,899,023 shares of its common stock in the future, with a per share exercise price of $2.94 (the “Common Warrants”), which only became exercisable for common stock upon receipt of shareholder approval of an increase in the number of authorized shares of the Company’s common stock from 29,600,000 to 49,600,000 pursuant to an amendment to the Company’s Articles of Incorporation, which the Company obtained at the 2022 annual meeting of shareholders on June 14, 2022 (the “Charter Amendment”), and will be exercisable until the earlier of (a) five years from the date of receiving shareholder approval of the Charter Amendment and (b) six years from the date of warrant issuance. Of these securities, 97,720 Shares and 97,720 Common Warrants were purchased by Craig-Hallum Capital Group LLC (the “Placement Agent”) at a purchase price of $3.07.
On May 16, 2022, the initial closing occurred with the issuance of 2,280,000 Common Shares, 3,257,459 Pre-Funded Warrants, and 5,537,459 Common Warrants to a single investor in exchange for approximately $15,763 of cash net of issuance costs of $1,237 which have been expensed in the statements of operations.
On July 22, 2022, the second closing occurred with the issuance of 1,123,102 Common Shares, 505,563 Pre-funded Warrants, and 1,628,665 Common Warrants to all other investors for approximately $4,998 of cash, following the shareholder approval of the Charter Amendment on June 14, 2022.
The Company determined the Securities Purchase Agreement represented a forward contract to each holder (each, a “Forward Contract”). On May 11, 2022, the Company determined 2,852,780 of the Common Warrants met the requirements to be classified within stockholder’s equity under ASC 815, “Derivatives and Hedging.”
Further, as of May 11, 2022, the Company determined it did not have sufficient authorized shares available for all of the equity instruments issued in connection with the SPA to be classified in stockholders’ equity. As such, 2,684,679 Common Warrants and 5,942,138 Prefunded Warrants that were issued on May 16, 2022 were liability-classified. Therefore, the fair value of these warrants was allocated to such liability-classified Forward Contract, with the residual proceeds being allocated to equity for the Common Stock and equity-classified Common Warrants. Changes in the fair values of the liability-classified Forward Contracts were recognized at fair value through earnings until June 14, 2022 , when the warrants met the requirements to be classified in stockholder’s equity.
On June 14, 2022, the Company increased the number of authorized shares through the adoption of the Charter Amendment and, as such, reclassified the remaining amount of the warrant liability to stockholders’ equity.
The Company estimated the fair value of the contract liability based on a Black Scholes valuation model for Common Warrants and market price for Common Shares and Pre-Funded Warrants. The key assumptions used consist of the price of the Company’s stock, a risk-free interest rate based on the average yield of a five- or six-year Treasury note (based on remaining term of the related warrants) and expected volatility of the Company’s common stock over the remaining contractual life of the warrants. For the nine-month period ended October 29, 2022 the Company recognized a gain on the change in fair value of contract liability of $1,937 net of issuance costs of $1,237.
As of October 29, 2022, the Company had outstanding warrants to purchase 9,161,214 shares of the Company’s common stock, of which 8,593,032 were fully exercisable. The warrants expire approximatelyto six years from the date of grant except for 3,763,022 of pre-funded warrants which do not have an expiration. The following table summarizes information regarding warrants outstanding at October 29, 2022:
Commercial Agreement with Shaquille O’Neal
On November 18, 2019, the Company entered into a commercial agreement (“Shaq Agreement”) and restricted stock unit award agreement (“RSU Agreement”) with ABG-Shaq, LLC (“Shaq”) pursuant to which certain products would be sold bearing certain intellectual property rights of Shaquille O’Neal on the terms and conditions set forth in the Shaq Agreement. In exchange for such services and pursuant to the RSU Agreement, the Company issued 400,000 restricted stock units to Shaq that vest in three separate tranches. The first tranche of 133,333 restricted stock units vested on November 18, 2019, which was the date of grant. The second tranche of 133,333 restricted stock units vested February 1, 2021 and the final tranche of 133,334 restricted stock units vested on February 1, 2022. Additionally, in connection with the Shaq Agreement, the Company entered into a registration rights agreement with respect to the restricted stock units pursuant to which the Company agreed to register the common stock issuable upon settlement of the restricted stock units in accordance with the terms and conditions therein. The restricted stock units each settle for one share of the Company’s common stock. The aggregate market value on the date of the award was $2,595 and is being amortized as cost of sales over the three-year commercial term. The estimated fair value is based on the grant date closing price of the Company’s stock.
Stock Compensation Plans
The Company’s 2020 Equity Incentive Plan ("2020 Plan") provides for the issuance of up to 3,000,000 shares of the Company’s common stock. The 2020 Plan is administered by the human resources and compensation committee of the board of directors and
provides for awards for employees, directors and consultants. All employees and directors of the Company and its affiliates are eligible to receive awards under the 2020 Plan. The types of awards that may be granted under the 2020 Plan include incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards. Stock options may be granted to employees at such exercise prices as the human resources and compensation committee may determine but not less than 100% of the fair market value of the common stock as of the date of grant (except in the limited case of "substitute awards" as defined by the 2020 Plan). No stock option may be granted more than 10 years after the effective date of the respective plan’s inception or be exercisable more than 10 years after the date of grant. Except for market-based options, options granted generally vest over three years in the case of employee stock options and vest immediately on the date of grant in the case of director options and have contractual terms of 10 years from the date of grant. The 2020 Plan was approved by the Company’s shareholders at the 2020 Annual Meeting of Shareholders on July 13, 2020.
The Company also maintains the 2011 Omnibus Incentive Plan ("2011 Plan"). Upon the adoption and approval of the 2020 Plan, the Company ceased making awards under the 2011 Plan. Awards outstanding under the 2011 Plan continue to be subject to the terms of the 2011 Plan, but if those awards subsequently expire, are forfeited or cancelled or are settled in cash, the shares subject to those awards will become available for awards under the 2020 Plan. Similarly, the Company ceased making awards under its 2004 Omnibus Stock Plan ("2004 Plan") on June 22, 2014, but outstanding awards under the 2004 Plan remain outstanding in accordance with its terms.
Stock-Based Compensation - Stock Options
Compensation is recognized for all stock-based compensation arrangements by the Company. Stock-based compensation expense related to stock option awards was $57 and $64 for the third quarters of fiscal 2022 and fiscal 2021 and $173 and $116 for the first nine months of fiscal 2022 and 2021. The Company has not recorded any income tax benefit from the exercise of stock options due to the uncertainty of realizing income tax benefits in the future.
The fair value of each time-based vesting option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company’s stock. Expected term is calculated using the simplified method taking into consideration the option’s contractual life and vesting terms. The Company uses the simplified method in estimating its expected option term because it believes that historical exercise data cannot be accurately relied upon at this time to provide a reasonable basis for estimating an expected term due to the extreme volatility of its stock price and the resulting unpredictability of its stock option exercises. The risk-free interest rate for periods within the contractual life of the option is based on the comparable U.S. Treasury yield curve in effect at the time of grant. Expected dividend yields were not used in the fair value computations as the Company has never declared or paid dividends on its common stock and currently intends to retain earnings for use in operations.
A summary of the status of the Company’s stock options outstanding as of October 29, 2022 and changes during the nine months then ended is as follows:
The following table summarizes information regarding stock options outstanding as of October 29, 2022:
The weighted average grant-date fair value of options granted in the third quarter of fiscal 2022 was $2.45. The total intrinsic value of options exercised during the first and third quarters of fiscal 2022 and fiscal 2021 was $0. As of October 29, 2022, total unrecognized compensation cost related to stock options was $361 and was expected to be recognized over a weighted average period of approximately 1.80 years.
Stock-Based Compensation - Restricted Stock Units
Compensation expense relating to restricted stock unit grants was $595 and $53 for the third quarters of fiscal 2022 and fiscal 2021 and $1,555 and $246 for the first three quarters of fiscal 2022 and 2021. As of October 29, 2022, there was $3,202 of total unrecognized compensation cost related to non-vested restricted stock unit grants. That cost is expected to be recognized over a weighted average expected life of 1.93 years. The total fair value of restricted stock units vested during the first nine months of fiscal 2022 and fiscal 2021 was $976 and $1,255. The estimated fair value of restricted stock units is based on the grant date closing price of the Company’s stock for time-based vesting awards and a Monte Carlo valuation model for market-based vesting awards.
The Company has granted time-based restricted stock units to certain key employees as part of the Company’s long-term incentive program. The restricted stock units generally vest in three equal annual installments beginning one year from the grant date and are being amortized as compensation expense over the three-year vesting period. The Company has also granted restricted stock units to non-employee directors as part of the Company’s annual director compensation program. Each restricted stock unit grant vests or vested on the day immediately preceding the next annual meeting of shareholders following the date of grant. The grants are amortized as director compensation expense over the twelve-month vesting period.
The Company granted 76,900 performance share units to the Company’s Chief Executive Officer as part of the Company’s long-term incentive program during the first quarter of fiscal 2021. The number of shares earned was based on the Company’s achievement of pre-established goals for sales growth over the measurement period from January 31, 2021 to January 29, 2022. Any earned
performance share units will vest on February 3, 2024, so long as the executive’s service has been continuous through the vest date. The number of units that may be earned and become eligible to vest pursuant to this award can be between 0% and 200% of the target number of performance share units. The Company recognizes compensation expense on these performance share units ratably over the requisite performance period of the award to the extent management views the performance goals as probable of attainment. The grant date fair value of these performance share units is based on the grant date closing price of the Company’s stock.
The Company granted 181,900 performance share units to the Company’s Chief Executive Officer as part of the Company’s long-term incentive program during the first quarter of fiscal 2020. The number of shares earned was based on the Company’s achievement of pre-established goals for liquidity over the measurement period from February 2, 2020 to January 30, 2021. Any earned performance share units will vest on January 28, 2023, so long as the executive’s service has been continuous through the vest date. The number of units that may be earned and become eligible to vest pursuant to this award can be between 0% and 125% of the target number of performance share units. The Company recognizes compensation expense on these performance share units ratably over the requisite performance period of the award to the extent management views the performance goals as probable of attainment. The grant date fair value of these performance share units is based on the grant date closing price of the Company’s stock.
A summary of the status of the Company’s non-vested restricted stock unit activity as of October 29, 2022 and changes during the nine-month period then ended is as follows:
The entire disclosure for shareholders' equity and share-based payment arrangement. Includes, but is not limited to, disclosure of policy and terms of share-based payment arrangement, deferred compensation arrangement, and employee stock purchase plan (ESPP).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef