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Capital Structure
 3 Months Ended
Mar. 31, 2022
Stockholders' Equity Note [Abstract]  
Capital Structure

Note 17 — Capital Structure

 

On January 9, 2020, the Company increased its authorized number of shares of Common Stock to 53,000,000, consisting of: 50,000,000 shares of Common Stock, and 3,000,000 shares of Preferred Stock. At that time, it also designated 100,000 shares of the 3,000,000 authorized shares of Preferred Stock, as Series A Convertible Preferred Stock (“Series A Preferred Stock”).

 

Series A Convertible Preferred Stock

 

Beginning in the first quarter of 2020, the Company issued an aggregate of 60,000 shares of Series A Preferred Stock, for an aggregate purchase price of $6.0 million. In May 2020, the Company completed an offering of Series A Preferred Stock with the issuance of an additional 40,000 shares of Series A Preferred Stock for an aggregate purchase price of $4.0 million.

 

Amendment of Conversion Formulas

 

On January 11, 2021, the Company’s Board of Directors approved the amendment to the conversion formula of the Series A Preferred Stock and Convertible Notes. After the amendment:

 

  1. the Series A Preferred Stock is convertible, at any time after issuance or immediately prior to the closing of a public transaction, into Common Stock in an amount of shares equal to (i) the product of the Series A Preferred Stock original price plus accrued but unpaid dividends on the shares being converted, multiplied by the number of shares of Series A Preferred Stock being converted, divided by (ii) a conversion price of $7.72 per share (after the reverse split taking effect); and

 

  2. immediately prior to the consummation of a public transaction, the outstanding principal amount of the Convertible Notes together with all accrued and unpaid interest shall convert into a number of fully paid and non-assessable shares of Common Stock equal to the quotient of (i) the outstanding principal amount of the Convertible Notes together with all accrued and unpaid interest thereunder immediately prior to such public transaction divided by (ii) a conversion price of $7.72 (after the reverse split taking effect).

 

On January 11, 2021, the Company’s shareholders approved the amendment to the Series A Preferred Stock.

 

Initial Public Offering

 

On February 1, 2021, the Company completed an IPO for the sale of 5,400,000 shares of Common Stock at a price of $10.00 per share. The Company also granted the underwriters: (a) a 45-day option to purchase up to 810,000 additional shares of Common Stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the IPO, and (b) warrants to purchase 162,000 shares of Common Stock (equal to 3% of the aggregate number of shares of Common Stock issued in the IPO) at an exercise price of $12.50 per share (which is equal to 125% of the IPO price). Subsequently, the underwriters exercised the over-allotment option, and on February 4, 2021, the Company closed on the sale of an additional 810,000 shares of Common Stock for a price of $10.00 per share and granted to the underwriters warrants to purchase 24,300 additional shares of Common Stock (equal to 3% of the amount of shares issued as part of the exercised of the over-allotment option) at an exercise price of $12.50 per share. The exercise of the over-allotment option brought the total number of shares of Common Stock sold by the Company in connection with the IPO to 6,210,000 shares and the total net proceeds received in connection with the IPO to approximately $57.0 million, after deducting underwriting discounts and estimated offering expenses.

 

Immediately prior to the closing of the Company’s IPO, all outstanding shares of Series A Preferred Stock and Convertible Notes were converted into 1,373,038 shares of Common Stock and 1,697,075 shares of Common Stock, respectively, at a conversion price of $7.72 per share.

  

Subsequent Public Offering

 

On February 19, 2021, the Company consummated a secondary public offering (the “February Offering”) for the sale of 5,555,555 shares of Common Stock for a price of $13.50 per share. The Company also granted the underwriters: (a) a 45-day option to purchase up to 833,333 additional shares of Common Stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the February Offering, and (b) warrants to purchase 166,667 shares of Common Stock (equal to 3% of the aggregate number of shares of Common Stock issued in the February Offering) at an exercise price of $16.875 per share (which is equal to 125% of the February Offering). Subsequently, the underwriters exercised the over-allotment option, and on March 22, 2021, the Company closed on the sale of an additional 833,333 shares of Common Stock for a price of $13.50 per share and granted to the underwriters warrants to purchase 25,000 additional shares of Common Stock (equal to 3% of the amount of shares issued as part of the exercised of the over-allotment option) at an exercise price of $16.875 per share. The exercise of the over-allotment option brought the total number of shares of Common Stock sold by the Company in connection with the February Offering to 6,388,888 shares and the total net proceeds received in connection with the February Offering to approximately $80.0 million, after deducting underwriting discounts and estimated offering expenses.

 

Private Placement

 

On January 25, 2022, the Company entered into a Securities Purchase Agreement (the “Securities Agreement”) with an institutional investor and other accredited investors for the sale by the Company of (i) 2,450,350 shares (the “SA Shares”) of Common Stock, (ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to an aggregate of 1,570,644 shares of Common Stock and (iii) warrants to purchase up to an aggregate of 3,015,745 shares of Common Stock (the “Common Warrants” and, collectively with the Pre-Funded Warrants, the “SA Warrants”), in a private placement offering. The combined purchase price for one share of Common Stock (or one Pre-Funded Warrant) and accompanying fraction of a Common Warrant was $6.80.

 

Subject to certain ownership limitations, the SA Warrants are exercisable six months from issuance. Each Pre-Funded Warrant was exercisable into one share of Common Stock at a price per share of $0.001 (as adjusted from time to time in accordance with the terms thereof). Each Common Warrant is exercisable into one share of Common Stock at a price per share of $7.48 (as adjusted from time to time in accordance with the terms thereof) and will expire on the fifth anniversary of the initial exercise date. The institutional investor that received the Pre-Funded Warrants fully exercised such warrants in March 2022.

  

Raymond Chang, Chairman and Chief Executive Officer of the Company, and Stuart Wilcox, a member of the Company’s Board of Directors, participated in the private placement on essentially the same terms as other investors, except for having a combined purchase price of $6.90 per share.

 

The gross proceeds to the Company from the private placement were approximately $27.3 million, before deducting the placement agent’s fees and other offering expenses, and excluding the proceeds, if any, from the exercise of the SA Warrants.

 

Issuance of Common Stock in Connection with Acquisitions 

 

On October 1, 2021, the Company issued an aggregate of 666,403 shares of its Common Stock to the Precision and Cascade shareholders in connection with the Company’s acquisition of Precision and Cascade. Refer to Note 14 – Business Combinations, included elsewhere in the notes to the consolidated financial statements.

 

On December 31, 2021, the Company issued an aggregate of 240,301 shares of its Common Stock to the PurePressure shareholders in connection with the Company’s acquisition of PurePressure. Refer to Note 14 – Business Combinations, included elsewhere in the notes to the consolidated financial statements.

 

On February 1, 2022, the Company issued an aggregate of 297,929 shares of its Common Stock to the Lab Society shareholders in connection with the Company’s acquisition of Lab Society. Refer to Note 14 – Business Combinations, included elsewhere in the notes to the consolidated financial statements.

2020 Omnibus Equity Incentive Plan

 

On December 18, 2020, the Company’s Board of Directors, and on January 11, 2021, the Company’s stockholders, adopted and approved the 2020 Omnibus Equity Incentive Plan (the “2020 Plan”), which replaced the 2019 Stock Option Plan (the “2019 Plan”). The 2020 Plan provides for the grant of stock options, SARs, performance share awards, performance unit awards, distribution equivalent right awards, restricted stock awards, restricted stock unit awards and unrestricted stock awards to non-employee directors, officers, employees and non-employee consultants of the Company or its affiliates. The aggregate number of shares of Common Stock that may be reserved and available for grant and issuance under the 2020 Plan is 4,533,732 shares. Shares will be deemed to have been issued under the 2020 Plan solely to the extent actually issued and delivered pursuant to an award. If any award granted under the 2019 Plan or the 2020 Plan expires, is cancelled, or terminates unexercised or is forfeited, the number of shares subject thereto is again available for grant under the 2020 Plan. The 2020 Plan shall continue in effect, unless sooner terminated, until the tenth anniversary of the date on which it is adopted by the Board of Directors. 

 

Stock-based Compensation

 

The Company’s stock option compensation expense was $953 thousand and $2.1 million for the three months ended March 31, 2022 and 2021, respectively, and there was $3.4 million of total unrecognized compensation cost related to unvested options granted under the Company’s options plans as of March 31, 2022. This stock option expense will be recognized through 2025.

 

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying Common Stock, expected option life, and expected volatility in the market value of the underlying Common Stock. No stock options were granted during the three months ended March 31, 2022.

 

The following table summarizes the Company’s assumptions used in the valuation of options granted during the year ended December 31, 2021:

 

Volatility   40%
Risk-free interest rate   1.10% – 1.63% 
Dividend yield   0.00%
0% Expected life (years)   10 
Forfeiture rate   0.00%

 

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options and warrants have characteristics different from those of its traded stock, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of such stock options. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities with a term similar to the expected term. The expected dividend yield is based upon the Company’s history of having never issued a dividend and management’s current expectation of future action surrounding dividends. The Company calculates the expected volatility of the stock price based on the corresponding volatility of the Company’s peer group stock price for a period consistent with the underlying instrument’s expected term. The expected lives for such grants were based on the simplified method for employees and directors.

 

In arriving at stock-based compensation expense, the Company estimates the number of stock-based awards that will be forfeited due to employee turnover. The Company’s forfeiture assumption is based primarily on its employee turnover historical experience. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment will be made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in the Company’s financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment will be made to lower the estimated forfeiture rate, which will result in an increase to expense recognized in the Company’s financial statements. The expense the Company recognizes in future periods will be affected by changes in the estimated forfeiture rate and may differ significantly from amounts recognized in the current period.

 

Stock Option Activity

 

As of March 31, 2022, there were 516,033 shares of Common Stock available to be granted under the Company’s 2020 Plan.

 

The following table presents option activity under the Company’s stock option plans for the three months ended March 31, 2022 and 2021:

 

(In thousands, except share and per share data)  Number of
Options		  

Weighted-Average
Exercise
Price

   Aggregate
Intrinsic
Value		 
Options outstanding at January 1, 2021   3,133,109   $3.51   $
—
 
Granted   1,200,934    12.79      
Exercised   (174,223)   2.51      
Forfeited   (276,723)   3.67      
Expired   (4,076)   2.28      
Options outstanding at March 31, 2021   3,879,021   $6.42   $
—
 
                
Options outstanding at January 1, 2022   3,564,289    7.18   $12,527 
Granted   
—
    
—
      
Exercised   (4,220)   2.30      
Forfeited   (151,641)   6.85      
Expired   (53,425)   17.73      
Options outstanding at March 31, 2022   3,355,003   $7.03   $2,445 
                
Options vested and exercisable as of March 31, 2022   2,112,370   $5.54      
Options vested and expected to vest as of March 31, 2022   3,193,314   $6.90      

 

The following table summarizes information about options vested and exercisable at March 31, 2022: 

 

      Options Vested and Exercisable  
  Price ($)       Number of
Options		       Weighted-Average
Remaining Contractual
Life (Years)		      

Weighted-Average

Exercise Price

  
$ 2.28       842,021       8.14     $ 2.28  
$ 4.86       834,717       8.57     $ 4.86  
$ 7.68-$14.49       435,632       8.82     $ 13.12  

 

The following table summarizes information about options expected to vest after March 31, 2022:

 

      Options Vested and Expected to Vest  
Price ($)     Number of
Options		     Weighted-Average
Remaining Contractual
Life (Years)		    

Weighted-Average

Exercise Price

  
$ 2.28       1,014,500       8.14     $ 2.28  
$ 4.86       1,075,058       8.57     $ 4.86  
$ 7.68-$14.49       1,103,755       8.82     $ 13.14  

 

Warrants

 

As of March 31, 2022, warrants to purchase 10,156,052 shares of Common Stock were outstanding. The following table presents the Company’s warrant activity for the three months ended March 31, 2022 and 2021: 

 

   Number
of Warrants		  

Weighted-Average

Exercise Price

 
Warrants outstanding at December 31, 2020   828,171   $0.02 
Granted   377,968    0.02 
Exercised   (934,295)   0.02 
Warrants outstanding at March 31, 2021   271,844   $0.02 
Warrants outstanding at December 31, 2021    271,844   $0.02 
Granted    11,467,496    6.02 
Exercised    (1,583,288)   0.00 
Warrants outstanding at March 31, 2022    10,156,052   $6.80 

  

The Company received proceeds from the exercise of warrants of less than $1 thousand and $5 thousand during the three months ended March 31, 2022 and March 31, 2021, respectively.