Note 7. Preferred and common stock

Series X Preferred Stock

There were no shares of Series X preferred stock issued during the nine months ended September 30, 2024 and 2023. As of September 30, 2024, there were 45,567 shares of Series X preferred stock outstanding.

Common Stock

On November 17, 2022, the Company entered into the Purchase Agreement with LPC which provided that, upon the terms and subject to the conditions and limitations set forth therein, the Company could sell to LPC, at its discretion, up to $20.0 million of shares of its common stock over the 30-month term of the Purchase Agreement.

During the three months ended September 30, 2024, there were no shares of common stock issued in connection with the Purchase Agreement. During the three months ended September 30, 2023, the Company issued approximately 0.2 million shares of common stock, receiving net proceeds of approximately $5.4 million. During the nine months ended September 30, 2024, there were no shares of common stock issued in connection with the Purchase Agreement. During the nine months ended September 30, 2023, the Company issued 0.2 million shares of common stock, receiving net proceeds of approximately $5.4 million net of fees of approximately $0.2 million.

During the three and nine months ended September 30, 2024, the Company issued 314,231 shares of common stock in to settle pre-funded warrants that were exercised. During the three and nine months ended September 30, 2023, no pre-funded warrants existed.

During the three months ended September 30, 2024, the Company issued no shares of its common stock in connection with the vesting of RSUs. During the three months ended September 30, 2023, the Company issued 18,958 shares of its common stock in connection with the vesting of RSUs held by members of the Company’s board of directors and employees. The Company withheld 2,702 of these shares, at a fair value of less than $0.1 million, to cover the withholding taxes related to the settlement of these vested RSUs.

During the nine months ended September 30, 2024, the Company issued 87,049 shares of its common stock in connection with the vesting of RSUs issued to members of the Company’s board of directors and employees. The Company withheld 22,662 of these shares, at a fair value of less than $0.1 million, to cover the withholding taxes related to the settlement of these vested RSUs. During the nine months ended September 30, 2023, the Company issued 63,160 shares of its common stock in connection with the vesting of RSUs issued to members of the Company’s board of directors and employees. The Company withheld 4,385 of these shares at a fair value of less than $0.1 million, to cover the withholding taxes related to the settlement of these vested RSUs.

KUVATRIS THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

On September 3, 2024, the Company entered into warrant inducement offers with the holders of approximately 4.4 million existing warrants of the Company. The inducement offers provided for the reduction of the exercise price of the warrants from $1.30 to $0.20. The holders immediately exercised those warrants for proceeds of approximately $0.8 million, net of fees. During the three and nine months ended September 30, 2024, the Company issued 3,099,310 shares of common stock as a result of the warrant exercise. In conjunction with the financing the Company also issued 176,923 warrants, with an exercise price of $0.25, to the underwriter. During the three and nine months ended September 30, 2023, the Company issued no shares of its common stock in connection with warrants.

Pursuant to the terms of the warrant inducement offers, in the event that the exercise of the existing warrants would cause a holder to exceed the beneficial ownership limitations included therein, the Company would issue the number of shares of common stock that would not cause a holder to exceed such beneficial ownership limitations and hold the remaining balance of shares of common stock in abeyance. Accordingly, as of September 30, 2024, the Company held an aggregate of 1,323,770 shares of common stock in abeyance (the “Abeyance Shares”). The Abeyance Shares are evidenced through the holder’s existing warrants, which are deemed to be prepaid. The Abeyance Shares will be held by the Company until the holder sends notice that the remaining balance of shares of common stock may be issued without surpassing the beneficial ownership limitations. Until such time, the Abeyance Shares are evidenced through the holder’s existing warrants and are included in the Company’s outstanding warrants. In October 2024, another 433,000 shares of common stock were issued from the Abeyance Shares.

The Company accounted for the warrant inducement under ASC 815-40-35, “Issuer’s Accounting for Modifications or Exchanges of Freestanding Equity-Classified Written Call Options,” and determined that the effect of the modification was directly attributable to raising additional capital and accounted for the modification as an equity issuance cost. As a result of the warrant inducement offer, the Company recorded a deemed dividend of approximately $53,000 for the three and nine months ended September 30, 2024, representing the incremental fair value of the modified warrants. The deemed dividend was included in net loss attributable to common stockholders in the calculation of net loss per share in the condensed statements of operations.

The modified warrants were valued on the date of the warrant inducement offer using the Black-Scholes model based on the following assumptions:

 Summary of warrant inducement

In conjunction with the warrant inducement offers, the Company entered into new warrant agreements with the same holders to purchase an aggregate of 8.8 million shares of common stock for an exercise price of $0.20. In conjunction with the financing the Company also issued 176,923 warrants, with an exercise price of $0.25, to the underwriter. The Company determined the new warrants were freestanding equity contracts that met the criteria in ASC 815-40 to be classified within permanent equity.