Stockholders' Equity

3 Months Ended

Mar. 31, 2017

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

Preferred stock and convertible preferred stock consist of the following:

	March 31, 2017		December 31, 2016
Preferred stock, $0.001 par value; 5,000,000 shares authorized at March 31, 2017 and December 31, 2016; no shares issued and outstanding at March 31, 2017 and December 31, 2016	$	—	$	—
Series B convertible preferred stock, $0.001 par value, 147,000 shares designated at March 31, 2017 and December 31, 2016, and 500 shares issued and outstanding at March 31, 2017 and December 31, 2016	1		1
Series D convertible preferred stock, $0.001 par value, 21,300 shares designated at March 31, 2017 and December 31, 2016, 14,052.93 and 17,202.65 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively	14		17
Series E convertible preferred stock, $0.001 par value, 7,000 and zero shares designated at March 31, 2017 and December 31, 2016, respectively, and 7,000 and zero shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively	7		—

Private Offerings of Common Stock and Warrants

In the first quarter of 2017, the Company completed a private equity offering with an institutional investor and its affliates (collectively the “Investor”) and issued (i) 7,000 shares of Series E convertible preferred stock (the “Series E Preferred Stock”) at a price of $1,000 per share, and (ii) warrants to purchase up to 10,000,000 shares of common stock, par value $0.0001 per share (the “Common Stock”), at an exercise price of $0.70 per share (the “Q1 2017 Offering”). As a part of this offering, the Company reset (i) the conversion price of 19,458.90 shares of Series D convertible preferred stock that were held by the Investor to $0.70 per share, and (ii) the exercise price of warrants to purchase up to 23,475,870 shares of common stock that were held by the Investor to $0.70 per share. The Q1 2017 Offering resulted in gross proceeds of $7.0 million. After underwriting discounts, commission and expenses, net proceeds of the Q1 2017 Offering were $6.3 million.

Each share of Series E Preferred Stock has a stated value of $1,000 and is convertible at the option of the holder into the number of shares of common stock determined by dividing the stated value by the conversion price of $0.70, which is subject to adjustment as provided in the Certificate of Designation for the Series E Preferred Stock. The Series E Preferred Stock has no dividend rights, liquidation preference or other preferences over common stock and has no voting rights except as provided in the Certificate of Designation for the Series E Preferred Stock and as required by law.

The Q1 2017 Offering was accounted for as an extinguishment of the Investor’s equity holdings in recognition of the unrelated equity instruments that were revised in the transaction, the cumulative effect of adjustments to several series of convertible preferred shares in successive transactions, and the significant transfer of value in excess of the funding received by the Company. Under the extinguishment model, a deemed dividend was recognized within retained earnings which represented the fair value of issued Series E Preferred Stock and warrants plus the incremental the fair value of repricing the outstanding Series D Preferred Stock held by the Investor plus the incremental the fair value of repricing outstanding warrants, less the fair value of the consideration transferred, less the carrying value of the outstanding Series D Preferred Stock. The amount of the deemed dividend totaled $4.0 million. During the three months ended March 31, 2017, 3,149.72 shares of the Series D Preferred Stock were converted into a total of 1,745,000 shares of common stock. As of March 31, 2017, 14,052.93 shares of Series D Preferred Stock remained outstanding.

Between December 19, 2016 and closing of the Q1 2017 Offering on March 7, 2017, the Investor converted 5,405.975 shares of Series D Preferred Stock into 2,995,000 common shares at the original conversion rate. Following the resetting of the conversion rate, with effect from December 19, 2016, the Company owed the Investor an additional 4,727,821 common shares associated with these conversions. These common shares were not delivered to the Investor due to a provision in the financing agreement related to the Q1 2017 Offering which limits the Investor’s ownership in the Company to 4.99% of the outstanding common stock. The undelivered shares of common stock represent a non-cash obligation of the Company which will be satisfied by the Company when the Investor’s ownership position is reduced below the share ownership limitation level. During the three months ended March 31, 2017, 300,000 common shares were delivered to the Investor by the Company and as of March 31, 2017, 4,427,821 common shares associated with these conversions remained undelivered. Subsequent to the quarter-end through April 19, 2017, 1,407,820 common shares were delivered to the investor by the Company and as of April 19, 2017, 3,020,001 common shares associated with these conversions remained undelivered.

The Company determined that equity classification was appropriate for the warrants issued in the Q1 2017 Offering, following guidance in the Derivatives and Hedging topic of the Codification. In making this equity classification determination, the Company noted the warrants may only be settled in shares of common stock and had no requirements to be settled in registered shares when exercised. The fair value of the five year warrants was estimated to be $3.49 million on the offering date using a Black-Scholes model with the following assumptions: stock price of $0.62, exercise price of $0.70, expected volatility of 70.2%, risk free interest rate of 2.04%, expected term of five years, and no dividends.

In March 2016, the Company issued an aggregate of 178,079 shares of fully vested common stock with a value of $318,761 in partial settlement of 2015 management incentive compensation. The shares issued reflected the $1.79 closing price of the Company’s common stock as reported on the NASDAQ Capital Market on March 9, 2016.

Total compensation cost related to nonvested awards not yet recognized at March 31, 2017 was $524,521. The total compensation costs are expected to be recognized over a weighted-average period of 3.0 years.