Quarterly report pursuant to Section 13 or 15(d)

STOCKHOLDERS??? EQUITY

v3.22.2.2
STOCKHOLDERS’ EQUITY
6 Months Ended
Jun. 30, 2022
Equity [Abstract]  
STOCKHOLDERS’ EQUITY

12. STOCKHOLDERS’ EQUITY

 

2020 Bridge Financing

 

Pursuant to a Securities Purchase Agreement dated February 7, 2020, the Company sold 1,500 shares of a new series of convertible preferred stock of Chanticleer (the “Series 2 Preferred”) to an institutional investor. In March 2020, an aggregate of 713 shares of Series 2 Preferred were converted into shares of common stock. In connection with the Merger, all remaining outstanding shares of the Series 2 Preferred were automatically cancelled and exchanged for substantially similar shares of preferred stock in Amergent. The shareholders of Chanticleer common stock received shares of Amergent on a 1 for 1 basis (spin-off shares) and received 1 share of Sonnet common stock for 26 shares of Chanticleer common stock held at the time of the Merger.

 

During the year ended December 31, 2021, the investors converted 637 shares of the Series 2 Preferred into 1,274,000 common shares and sold those common shares in the market. In addition, the investors sold their remaining 150 Series 2 Preferred to other investors. The shares sold to the investors no longer contain the True-Up Payment provision discussed below. The new investors converted 50 shares of Series 2 Preferred into 100,000 shares of common stock during May 2021, and 100 shares of Series 2 Preferred remain outstanding at December 31, 2021 and June 30, 2022.

 

The Series 2 Preferred is classified in the accompanying condensed consolidated balance sheets as temporary equity due to certain contingent redemption features which are outside the control of the Company.

 

Designations, rights and preferences of Series 2 Preferred:

 

Stated value: Each share of Series 2 Preferred had a stated value of $1,000.

 

True-Up Payment: Amergent was required to pay the original holder an amount in cash equal to the dollar value of 125% of the stated value of the Series 2 Preferred less the proceeds previously realized by the holder from the sale of all conversion and spin-off shares received by holder in Amergent, net of brokerage commissions and any other fees incurred by the holder in connection with the sale of any conversion shares or spin-off shares on April 1, 2021 (which period was extended). This True-Up Payment was settled in July 2021 with a payment of $0.1 million, and the cash previously held in escrow for repayment is no longer subject to restriction for this matter.

 

The Company determined that the True-Up Payment constituted a “make-whole” provision as defined by U.S. GAAP that was required to be settled in cash and, as such, was bifurcated from the host instrument, the Series 2 Preferred. It was accounted for as a derivative liability prior to settlement, with changes in fair value recorded in change in fair value of derivative liabilities in the condensed consolidated statement of operations. A $0.1 million increase in fair value was recorded for the three months ended June 30, 2021 and a $0.1 million decrease in fair value was recorded for the six months ended June 30, 2021.

 

Redemption: There are triggering events, as defined, that can cause the Series 2 Preferred to be redeemable at the option of the holder, some of which are outside the control of the Company.

 

Conversion at option of holder/ beneficial ownership limitation: The Series 2 Preferred is convertible at the option of holder at the lesser of (i) $1.00 (subject to adjustment for forward and reverse stock splits, recapitalizations and the like) or (ii) 90% of the five day average volume weighted average price of the common, provided the conversion price has a floor of $0.50 (subject to adjustment for forward and reverse stock splits, recapitalizations and the like). Conversion is subject to a beneficial ownership limitation of 4.99%. This limitation was increased by the holder to 9.99% prior to the Merger.

 

Liquidation preference: Upon any liquidation, dissolution or winding-up of the Company, the holder is entitled to receive out of the assets, whether capital or surplus, an amount equal to 125% of the stated value plus any default interest and any other fees or liquidated damages then due and owing thereon under the Certificate of Designations, for each share of Series 2 Preferred before any distribution or payment to the holders of common stock.

 

Voting rights: The holder of Series 2 Preferred has the right to vote together with the holders of common stock as a single class on an as-converted basis on all matters presented to the holders of common stock and shall vote as a separate class on all matters presented to the holders of Series 2 Preferred. In addition, without the approval of the holder, the Company is required to obtain the approval of Series 2 Preferred, as is customary, for certain events and transactions not contemplated by the Merger.

 

 

Triggering events: Breach of the Company’s obligations will trigger a redemption event.

 

Anti-dilution: The Series 2 Preferred provides for customary adjustments in the event of dividends or stock splits and anti-dilution protection.

 

Warrants

 

At June 30, 2022, the outstanding warrants consisted of the following:

 

Date Issued   Number of Warrants     Exercise Price     Expiration Date
April 1, 2020     2,462,600     $ 0.125     April 1, 2030
April 1, 2020     462,600     $ 0.500     April 1, 2030
March 30, 2020     350,000     $ 1.250     March 30, 2025
August 17, 2020     134,000     $ 1.250     August 17, 2025
March 15, 2022     250,000     $ 0.500     March 15, 2027
March 21, 2022     250,000     $ 0.500     March 21, 2027
March 22, 2022     250,000     $ 0.500     March 22, 2027
March 24, 2022     600,000     $ 0.500     March 24, 2027
      4,759,200              

 

A summary of the warrant activity during the six months ended June 30, 2022 is presented below:

   

Number of

Warrants

   

Weighted

Average

Exercise Price

   

Weighted

Average

Remaining

Contractual

Term (years)

 
Outstanding at January 1, 2022     3,409,200     $ 0.34       7.6  
Granted     1,350,000     $ 0.50       5.0  
Outstanding at June 30, 2022     4,759,200     $ 0.38       6.4  
                         
Exercisable at June 30, 2022     4,759,200     $ 0.38       6.4  

 

As discussed in Note 9, 1,350,000 warrants were granted in March 2022 in connection with the issuance of 8% Convertible Debt and are equity-classified in the condensed consolidated financial statements. The net proceeds from the issuance were allocated to the 8% Convertible Debt and the warrants based on their relative fair values at the issuance date, resulting in an allocation of approximately $0.3 million to the warrants. Assumptions used in calculating the fair value of the warrants at the issuance date include the following:

 

Stock price per share     $ 0.370.40  
Term     5.0 years  
Expected volatility     90.00 %
Divided yield      
Risk-free interest rate     2.10% – 2.39 %

 

Options

 

In August 2021, the Company adopted the 2021 Inducement Plan (the “Plan”). Under the 2021 Inducement Plan, the Company can grant stock options and stock awards. There are 500,000 shares of common stock reserved for issuance under the Plan. As of June 30, 2022, 50,000 shares remained available for future grants.

 

In November 2021, the Company adopted the 2021 Equity Incentive Plan (the “Incentive Plan”). Under the 2021 Incentive Plan, the Company can grant stock options and stock awards. The stockholders of the Company approved the Incentive Plan on December 30, 2021. There are 2,000,000 shares of common stock reserved for issuance under the Incentive Plan. As of June 30, 2022, 2,000,000 shares remained available for future grants.

 

 

Share-based awards generally vest over a period of three years, and share-based awards that lapse or are forfeited are available to be granted again. The contractual life of all share-based awards is five years. The expiration date of the outstanding share-based awards is August 2026.

 

During the three and six months ended June 30, 2022, the Company recorded share-based compensation expense of approximately $5,000 and $11,000, respectively, in general and administrative expenses.

 

The following table summarizes the share-based awards as of June 30, 2022:

 

   

Number of

Options

   

Weighted

Average

Exercise Price

    Weighted
Average
Remaining
Contractual
Term (years)
 
Outstanding at June 30, 2022     450,000     $ 1.38       4.1  
                         
Exercisable at June 30, 2022     250,000     $ 1.72       4.1