Quarterly report pursuant to Section 13 or 15(d)

Capitalization and Equity Structure

v3.5.0.2
Capitalization and Equity Structure
 9 Months Ended
Sep. 30, 2016
Stockholders' Equity Note [Abstract]  
Capitalization and Equity Structure
11. Capitalization and Equity Structure
 
Reverse Stock Split:
 
After the close of the stock market on May 4, 2016, the Company effected a 1-for-7 reverse split of its common stock. As a result, all common stock share amounts included in this filing have been retroactively reduced by a factor of seven, and all common stock per share amounts have been increased by a factor of seven, with the exception of our common stock par value. Amounts affected include common stock outstanding, including the issuance of new shares of common stock as a result of the conversion of preferred stock and the exercise of stock options and warrants.
 
Summary:
 
The Company’s authorized capital stock at September 30, 2016 consisted of 71,429 shares of common stock and 10,000 shares of convertible preferred stock. At September 30, 2016, 21,393 shares of common stock were issued and outstanding and no shares of convertible preferred stock were issued and outstanding.
 
2016 Common Stock Offering:
 
On August 12, 2016, the Company issued 3,750 shares of common stock at a price to the public of $4.00, resulting in proceeds to the Company of $13,696, net of the underwriting discount and issuance costs. On August 17, 2016, the Company issued an additional 267 shares of common stock as a result of the partial exercise of the underwriters’ overallotment option for additional proceeds of $998, net of the underwriting discount. The Company plans to use the proceeds from this offering for its operations.
 
As discussed below, the Series A Convertible Preferred Stock issued in December 2015 (the “Preferred Shares”) and the common stock warrants issued in December 2015 (the “2015 Warrants”) included price-based anti-dilution provisions providing for the adjustment of the conversion price and the exercise price, as applicable, in the event the Company sells common stock or common stock equivalents (subject to exceptions for certain exempt issuances) at a price lower than the then-conversion price of the Preferred Shares or the then-exercise price of the 2015 Warrants. Because the sale price to the underwriters of the common stock in the August 2016 common stock offering was less than the then-conversion price of the Preferred Shares and the then-exercise price of the 2015 Warrants, there was an anti-dilution adjustment to the number of shares of common stock issuable upon conversion of the Preferred Shares and the exercise price of the 2015 Warrants was reduced, as discussed in more detail below.
 
Convertible Preferred Stock:
 
In December 2015, the Company issued 15 Preferred Shares and 2015 Warrants to purchase 2,122 shares of the Company’s common stock for which the Company received gross proceeds of $15,000. Each Preferred Share was initially convertible into 0.141 shares of common stock (after giving effect to the reverse stock split) at any time at the election of the investor. Conversion of the Preferred Shares triggers the amortization of a discount related to a beneficial conversion feature and to the 2015 Warrants. The terms of the Preferred Shares and 2015 Warrants included price-based anti-dilution provisions providing for the adjustment of the conversion price and the exercise price, as applicable, in the event the Company sold common stock or common stock equivalents (subject to exceptions for certain exempt issuances) at a price lower than the then-conversion price of the Preferred Shares or the then-exercise price of the 2015 Warrants. Because the sale price to the underwriters of the common stock in the August 2016 common stock offering was less than the conversion price of the Preferred Shares at the time, the conversion price of the Preferred Shares was adjusted downwards from $7.07 to $3.74 per share, which resulted in each outstanding Preferred Share becoming convertible into 0.267 shares of common stock at any time at the election of the investor. As a result, the 3 Preferred Shares then outstanding became convertible, for no additional consideration, into a total of 921 shares of the Company’s common stock.
 
At December 31, 2015, 13 Preferred Shares were outstanding. As of September 30, 2016, no Preferred Shares remain outstanding and the warrant discount was fully amortized. During the three month period ended September 30, 2016, 1 Preferred Share was converted into 60 shares of common stock at a conversion price of $7.07 per share and 3 Preferred Shares were converted into 921 shares of common stock at a conversion price of $3.74 per share. During the nine month period ended September 30, 2016, 10 Preferred Shares were converted into 1,389 shares of common stock at a conversion price of $7.07 per share, and 3 Preferred Shares were converted into 921 shares of common stock at a conversion price of $3.74 per share. The conversions triggered the amortization of the warrant discount of $3,016 and $10,345 during the three and nine month periods ended September 30, 2016, respectively, which were recorded in the condensed consolidated statements of operations and comprehensive loss as non-cash preferred deemed dividends.
 
Warrants:
 
Warrant share activity for the nine month period ended September 30, 2016 is as follows:
 
Source
 
Exercise Price
 
Term (Years)
 
At December 31, 2015
 
At September 30, 2016
 
December 2015 warrants
 
$
3.74
 
5
 
 
2,122
 
 
2,122
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014 PPO and Merger
 
 
 
 
 
 
 
 
 
 
 
 
Placement agent warrants
 
$
7.00
 
5
 
 
426
 
 
426
 
Bridge warrants
 
$
7.00
 
3
 
 
371
 
 
371
 
PPO warrants
 
$
14.00
 
5
 
 
1,078
 
 
1,078
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pre 2014 warrants
 
$
9.66
 
various
 
 
88
 
 
88
 
 
 
 
 
 
 
 
 
4,085
 
 
4,085
 
 
In connection with the December 2015 issuance of Preferred Shares discussed above, the Company issued 2015 Warrants to purchase up to an aggregate of 2,122 shares of common stock. The 2015 Warrants have a 5 year term. Because the sale price to the underwriters of the common stock in the August 2016 offering was less than the exercise price of the 2015 Warrants at the time, the exercise price of the 2015 Warrants was adjusted downwards from $8.75 to $3.74 per share.
 
The Company estimates the fair value of the warrant liability by using a Black Scholes 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 Black Scholes Option Pricing Model to measure the fair value of the warrants as of September 30, 2016:
 
Current share price
 
$
4.70
 
Conversion price
 
$
3.74
 
Risk-free interest rate
 
 
1.04
%
Term (years)
 
 
4.23
 
Volatility of stock
 
 
75
%
 
The warrants were valued at $9,195 at December 31, 2015. Due to a decrease in the Company’s common stock price from December 31, 2015 to September 30, 2016, the fair value of the warrants decreased by $3,030, which resulted in a non-cash gain recorded in the Company’s consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2016. For the three months ended September 30, 2016, the fair value of the warrants increased by $1,620, due to an increase in the Company’s common stock price from June 30, 2016 to September 30, 2016, which resulted in a non-cash loss recorded in the Company’s consolidated statements of operations and comprehensive loss for the period.
 
Subsequent events:
 
During the fourth quarter through October 30, 2016, the Company received proceeds of $1,825 and issued 488 shares of common stock for the exercise of 488 warrants at an exercise price of $3.74.