Annual report pursuant to Section 13 and 15(d)

Capitalization and Equity Structure

v3.3.1.900
Capitalization and Equity Structure
 12 Months Ended
Dec. 31, 2015
Stockholders' Equity Note [Abstract]  
Capitalization and Equity Structure
13. Capitalization and Equity Structure
 
The Company’s authorized capital stock at December 31, 2015 consisted of 500,000 shares of common stock and 10,000 shares of preferred stock. At December 31, 2015, 105,191 shares of common stock were issued and outstanding and 13 shares of preferred stock were issued and outstanding.
 
Common Stock
 
The holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends at such times and in such amounts as the Board of Directors from time to time may determine. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. There is no cumulative voting for the election of directors. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of the Company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors. Each outstanding share of common stock is duly and validly issued, fully paid and non-assessable.
 
Preferred Stock
 
The Company may issue shares of preferred stock from time to time in one or more series, each of which will have such distinctive designation or title as shall be determined by its Board of Directors and will have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of preferred stock as may be adopted from time to time by the Board of Directors.
 
Convertible Preferred Stock
 
On December 23, 2015, the Company entered into an agreement to sell 15 shares of Series A Convertible Preferred Stock (the “Preferred Shares”) and Warrants to purchase 14,851 shares of the Company’s common stock. The Preferred Shares and Warrants were sold to certain institutional investors (the “Holders”) in a registered direct offering at a per unit purchase price of $1,000 for each Preferred Share and related Warrants for aggregate gross proceeds of $15,000 (the “Financing”).  After considering transaction costs, the Company received $13,906 without considering $173 of related expenses to be paid in 2016. The Preferred Shares and Warrants were sold in units, with each unit consisting of one Preferred Share and a Warrant to purchase up to 0.9901 shares of Common Stock.  Each Preferred Share is convertible into Common Stock at any time at the election of the investor. The Company intends to use the proceeds for investments in clinical, sales and marketing initiatives to accelerate adoption of the Ekso exoskeleton in the rehabilitation market, for research, development and commercialization activities with respect to an Ekso robotic exoskeleton for home use, for the development and commercialization of able-bodied exoskeletons for industrial use and for other general corporate purposes.
 
The terms  of the Series A  Convertible Preferred Stock are as follows:
 
⋅
Dividends: Except for stock dividends or other distributions payable in shares of common stock, for which adjustments are to be made to the conversion price, as described below, the Holders shall be entitled to receive dividends on Preferred Shares equal (on an as-if-converted-to-common-stock basis) to and in the same form as dividends actually paid on shares of the common stock. No other dividends shall be paid on the Preferred Shares. For the year ended December 31, 2015, no dividends were paid on the Preferred Shares.
 
⋅
Co nv ersion: The Preferred Shares may be converted at any time, at the option of the holder, into shares of common stock at a conversion price of $1.01 per share (“Series A Conversion Price”). The Series A Conversion Price will be adjusted for customary structural changes such as stock splits or stock dividends. In the event that the Company enters into a merger, consolidation or transaction of a similar effect (a “Fundamental Transaction”) the Holders shall be entitled to receive, upon conversion of the Preferred Shares, the number of shares of common stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration that would have been received by a holder of the number of shares of common stock into which the Preferred Shares are convertible immediately prior to such event. 
 
·
Anti-Dilution Protection: The Series A Conversion Price is also subject to “down-round” anti-dilution adjustment which means that if the Company sells common stock or common stock equivalents at a price below the Series A Conversion Price, the Series A Conversion Price will be reduced to an amount equal to the issuance price of such additional shares of common stock or common stock equivalents.
 
⋅
V oting Rights: Except as required by law, the Series A Preferred Stock does not have voting rights. However, as long as any Preferred Shares are outstanding, the Company will not, without the affirmative vote of the Holders of at least 75% of the then outstanding Preferred Shares, (a) alter or change adversely the powers, preferences or rights given to the Preferred Shares or alter or amend the Certificate of Designation of the Series A Convertible Preferred Stock, (b) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (c) increase the number of authorized shares of Series A Convertible Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing.
 
·
Liquidation Rights: Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation Event”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of common stock would receive if the Preferred Shares were fully converted to common stock, on a pro rata basis with all holders of common stock.
   
At the date of the Financing, because the effective conversion rate of the Preferred Shares was less than the market value of the Company’s common stock a beneficial conversion feature of $3,300 has been recorded as a discount to the preferred stock and an increase to additional paid in capital. Because the Preferred Shares are perpetual, at December 23, 2015, the Company fully amortized the discount related to the beneficial conversion feature on the Preferred Shares to additional paid in capital to record a deemed dividend, and reflected this amount as a preferred deemed dividend in the consolidated statement of operations. During the year ended December 31, 2015, 2 Preferred Shares were converted into common stock at the Series A Conversion Price of $1.01 per share. The conversion resulted in the amortization of the discounts related to the warrants and stock issuance costs of $1,355 which has also been accounted for as a preferred deemed dividend.
 
Warrants
 
Warrant share activity for the year ended December 31, 2015 was as follows:
 
Source
 
Exercise
Price
 
Term
(Years)
 
December
31, 2014
 
Issued
 
Exercised
 
December
31, 2015
 
2015 Series A Preferred warrants
 
$
1.25
 
 
5
 
 
-
 
 
14,851
 
 
-
 
 
14,851
 
2014 PPO and Merger
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Placement agent warrants
 
$
1.00
 
 
5
 
 
3,030
 
 
-
 
 
(49)
 
 
2,981
 
Bridge warrants
 
$
1.00
 
 
3
 
 
2,600
 
 
-
 
 
-
 
 
2,600
 
PPO warrants
 
$
2.00
 
 
5
 
 
7,545
 
 
-
 
 
-
 
 
7,545
 
Pre 2014 warrants
 
$
1.38
 
 
various
 
 
621
 
 
-
 
 
(3)
 
 
618
 
 
 
 
 
 
 
 
 
 
13,796
 
 
14,851
 
 
(52)
 
 
28,595
 
 
2015 Warrants
 
In connection with the Financing, on December 23, 2015 the Company issued Warrants to purchase up to an aggregate of  14,851 shares of common stock. The Warrants have a 5 year term and an exercise price of $1.25 per share. The terms of the Warrants are as follows:
 
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Anti-Dilution Provision: The Warrants contain a “down round” anti-dilution adjustment provision, which provides that, solely during the period commencing on the date of the securities purchase agreement was executed in connection with the Financing and ending upon the closing of a financing resulting in aggregate proceeds to the Company of at least $10 million (a “Qualified Financing Event”), if the Company issues or sells common stock or common stock equivalents at a price per share less than the then applicable exercise price of the Warrants, the exercise price of the Warrants will be reduced to an amount equal to the issuance price of such additional shares of common stock or common stock equivalents.
 
·
Put Option: While the Warrants are outstanding, if the Company enters into a Fundamental Transaction, defined as a merger, consolidation or similar transaction, the Company or any successor entity will, at the option of each Holder, exercisable at any time within 30 days after the consummation of the Fundamental Transaction, purchase the Warrant from the Holder exercising such option by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of such Holder’s Warrant on the date of the consummation of the Fundamental Transaction.
 
⋅
Call Option: Subject to certain conditions, the Company may call for cancellation of all or any portion of the unexercised Warrants. The consideration paid by the Company will be equal to the Black Scholes Value of that portion of the Warrant called on the date the Company provides notice of its call. If the Company consummates a Fundamental Transaction (as described above) within six months after exercising its call option, and the consideration received by a holder of one share of common stock in such Fundamental Transaction is greater than the price per Warrant received by the Holder pursuant to the call, then the Company shall pay the Holder an amount equal to the difference between (x) the consideration received by a holder of common stock upon the Fundamental Transaction and (y) the price per Warrant paid in connection with the call, less the exercise price of the Warrant, payable in the same form as received by a holder of the common stock. If the Fundamental Transaction is a stock for stock merger, the Holder would receive shares of the successor entity valued at $0.25 per share on the same basis as a holder of common stock.
 
⋅
Cashless Exercise: If at the time of exercise there is no effective registration statement registering the shares underlying the Warrants, then the Warrants may be exercised on a cashless basis.
 
The Warrants have been classified as a liability and are marked to  market at each reporting date. Because the Warrants were recorded as a warrant liability, the portion of proceeds from the sale of the Preferred Shares that was recorded as equity was reduced accordingly. Equity issuance costs allocated to the Warrants were $487 and have been expensed as financing costs at the date of issuance.
 
The  Company estimated the fair value of the warrant liability on the date of issuance  by using a Binomial Lattice Option Pricing Model. The warrant liability is measured at fair value using certain estimated inputs, which are classified within Level 3 of the valuation hierarchy.  The following assumptions were used in the Binomial Lattice Option Pricing Model to measure the fair  value of the embedded anti-dilution feature in the Warrants as of December 23,  2015 and December 31, 2015:
 
 
 
December 31, 2015
 
 
December 23, 2015
 
Current share price
 
$
1.02
 
 
$
1.26
 
Conversion price
 
$
1.25
 
 
$
1.25
 
Risk-free interest rate
 
 
1.76
%
 
 
1.74
%
Periodic rate
 
 
0.88
%
 
 
0.87
%
Term (years)
 
 
4.9
 
 
 
5.0
 
Volatility of stock
 
 
75
%
 
 
75
%
 
The Warrants were valued at $11,700 on the date of the transaction. Due to a decrease in the Company’s common stock price from the date of the transaction to December 31, 2015, the fair value of the Warrants decreased by $2,505, which was recorded as a gain in the Company’s consolidated statements of operations for the year.
 
2014 PPO and Merger Warrants
 
As discussed in Note 3. The Merger, Offering and Other Related Transactions, the Company issued in connection with the Merger and PPO, warrants to purchase a total of 36,055 shares of common stock of which 30,300 were at an exercise price of $2.00 per share (the “Warrant Shares”), and the balance of which were at an exercise price of $1.00 per share. These warrants contained “weighted average” anti-dilution protection in the event that the Company issued common stock or securities convertible into or exercisable for shares of common stock at a price lower than the subject warrant’s exercise price, subject to certain customary exceptions, as well as customary provisions for adjustment in the event of stock splits, subdivision or combination, mergers, etc. The anti-dilution protection feature required the Company to record the underlying securities as a liability and to adjust their respective values to market at each reporting period. The factors utilized were as follows:
 
Dividend yield
 
–
 
Risk-free interest rate
 
0.60% - 1.73%
 
Share price at final valuation
 
$1.51
 
Expected term (in years)
 
2.15- 4.80
 
Volatility
 
65% - 79%
 
 
As a result of the anti-dilution feature, the Company recorded a non-cash charge of $16,485 during the year ended December 31, 2014 due to the market price of the Company’s common stock price exceeding the exercise price of the then outstanding warrants. In October 2014, the Company offered the holders of the 30,300 Warrant Shares an opportunity exercise their warrants at a temporarily reduced cash exercise price of $1.00 per share of common stock from $2.00 per share and to amend the anti-dilution provision of the warrant. The offering was: (1) intended to help the Company reduce its outstanding warrant liability, an impediment to the Company’s long term goal of pursuing listing of its common stock on a national securities exchange, by removing the price-based anti-dilution provisions contained in the warrants, and (2) provide funds to support the Company’s operations. At the conclusion of the offer, a majority of the holders of the Warrant Shares consented to removal of the price-based anti-dilution provisions contained in the original warrants, and the Company received $22,756 in cash, while incurring $1,467 of warrant solicitation costs. In November 2014 the remaining warrant liability of $27,099 was re-classified as a component of additional paid-in capital in the Company’s consolidated balance sheet, and no longer carries a warrant liability as no anti-dilution feature remains with the outstanding warrants.
 
As discussed in Note 3. The Merger, Offering and Other Related Transaction, warrants to purchase preferred stock of Ekso Bionics outstanding prior to the Merger were converted into warrants to purchase 621 shares of common stock of the Company in connection with the Merger. As of December 31, 2015, there remained outstanding warrants to purchase  618 shares of the Company’s common stock outstanding, with the following terms: (1) expire on various dates from June 1, 2022 to August 30, 2023; (2) have an exercise price of $1.38 per share; and (3) at the option of the holder, may be exercised on a “cashless exercise” basis in which shares are retained to cover the exercise price based on the market value of the Company’s common stock on the date of exercise.