Note 8: Stockholders’ Equity

Capital Structure

Authorized Shares. In conjunction with the completion of the IPO in September 2016, the Company amended its amended and restated certificate of incorporation and amended and restated bylaws. The amendment provides for 210,000,000 authorized shares of capital stock, of which 200,000,000 shares have been designated as $0.0001 par value common stock, and 10,000,000 shares have been designated as $0.0001 par value preferred stock.

Prior to the September 2016 amendment, the Company was authorized to issue 36,729,263 shares of capital stock, of which 22,000,000 shares were designated as $0.0001 par value common stock, 229,263 shares as $0.0001 par value non-voting common stock, and 14,500,000 shares of $0.0001 par value convertible preferred stock. The authorized shares of convertible preferred stock were designated as follows: 1,229,862 as Series 1 Convertible Preferred Stock (“Series 1”), 1,226,242 as Series 2 Convertible Preferred Stock (“Series 2”), 1,349,382 as Series 3 Convertible Preferred Stock (“Series 3”), 1,833,333 as Series 4 Preferred Stock (“Series 4”), 3,677,622 as Mezzanine A Convertible Preferred Stock (“Mezzanine A”) and 5,000,000 as Mezzanine B Convertible Preferred Stock (“Mezzanine B”).

Convertible Preferred Stock

The Company issued multiple series of convertible preferred stock between 2008 and 2015. In September 2016, in conjunction with the Company’s IPO, all outstanding shares of convertible preferred stock automatically converted into an aggregate of 8,776,269 shares of common stock at their conversion prices. The significant features of the convertible preferred stock series in place immediately prior to the conversion to common shares are summarized in the subsection below.

Significant Features of Series 1, Series 2, Series 3, Series 4, Mezzanine A and Mezzanine B Convertible Preferred Stock

Voting. The holders of Series 1, Series 2, Series 3, Series 4, Mezzanine A and Mezzanine B were entitled to vote equally with the shares of common stock.

Dividends. Holders of preferred shares were entitled to dividends if and when declared by the Board of Directors. As of December 31, 2016, other than the Distribution (see Note 1—Organization and Significant Accounting Policies), no dividends had been declared.

Conversion. Each share of Series 1, Series 2, Series 3, Series 4, Mezzanine A and Mezzanine B were convertible at the option of the holder at any time after the date of issuance into such a number of common shares as is determined by dividing the original issue price by the conversion price in effect at the time of the conversion. The conversion prices were subject to adjustment for subdivisions, dividends, combinations, reclassifications, merger, sale, etc. As discussed in Note 1—Organization and Significant Accounting Policies, the Company’s 1-for-1.2 reverse stock split of the Company’s shares of common stock resulted in a proportional adjustment to the existing conversion ratio of each series of convertible preferred stock, effective September 7, 2016.

Automatic Conversion. Each share of Series 1, Series 2, Series 3, Series 4, Mezzanine A and Mezzanine B automatically converted into common stock at the then effective conversion prices for each series upon the completion of the IPO of the Company’s common stock because gross proceeds from the IPO exceeded $40,000.

Consent Rights. Without consent of the holders of a majority of Series 1, Series 2, Series 3, Series 4, Mezzanine A and Mezzanine B shares, the Company could not take certain actions, including liquidation, dissolution, recapitalization or reorganization; increase or decrease the number of authorized shares of preferred or common stock; authorize or issue shares of capital stock with preferences or priorities over the existing shares of preferred stock; or effect any amendment to the certificate of incorporation or bylaws of the Company which would have had an adverse effect on the holders of Series 1, Series 2, Series 3, Series 4, Mezzanine A and Mezzanine B.

Liquidation Preference. Upon liquidation, dissolution, or winding up of the Company, holders of the Mezzanine B would have been entitled to receive, prior and in preference to any distribution of the assets to holders of Mezzanine A, Series 4, Series 3, Series 2, Series 1 or common stock, an amount equal to the greater of the original purchase price or the per share amount on an as converted basis. After such distribution to the holders of Mezzanine B, the holders of Mezzanine A would have been entitled to receive, prior and in preference to any distribution of the assets to holders of Series 4, Series 3, Series 2, Series 1 or common stock, an amount equal to the greater of the original purchase price or the per share amount on an as converted basis. After such distribution to the holders of Mezzanine A, the holders of the Series 4 would have been entitled to receive, prior and in preference to any distribution of the assets to holders of Series 3, Series 2, Series 1 or common stock, an amount equal to the greater of the original purchase price or the per share amount on an as converted basis. After such distribution to the holders of Series 4, the holders of Series 3 would have been entitled to receive, prior and in preference to any distribution of the assets to holders of Series 2, Series 1 or common stock, an amount equal to the greater of the original purchase price or the per share amount on an as converted basis. After such distribution to the holders of Series 3, the holders of Series 2 would have been entitled to receive, prior and in preference to any distribution of the assets to holders of Series 1 or common stock, an amount equal to the greater of the original purchase price or the per share amount on an as converted basis. After such distribution to the holders of Mezzanine B, Mezzanine A, Series 4, Series 3 and Series 2, the holders of Series 1 would have been entitled to receive, prior and in preference to any distribution of the assets to holders of common stock, an amount equal to the greater of the original purchase price or the per share amount on an as converted basis. Any assets remaining after such preferential distributions would be distributed to holders of common stock.

Anti-Dilution. Series 1, Series 2, Series 3, Series 4, Mezzanine A and Mezzanine B had a weighted average anti-dilution provision which protected against stock splits, stock dividends and recapitalizations. Prior to the IPO, in September 2016, the Company’s Board of Directors and existing stockholders approved a waiver of the existing preferred stock holders’ rights within the certificate of incorporation pertaining to (i) a notice requirement for the mandatory conversion of preferred stock to common stock in the IPO and (ii) the application of anti-dilution provisions with respect to issuance of common stock in the IPO.

Preferred Stock Warrants. In 2010 and 2011, in conjunction with the issuance of the Series 3 convertible preferred shares, the Company issued 149,931 warrants which were exercisable for an equal number of shares of Series 3 at a price of $6.00. The fair value of the warrants outstanding increased in 2014 resulting in a re-measurement loss in other expense of $641. During the year ended December 31, 2014, warrant holders exercised 114,946 warrants for an aggregate price of $550. Warrants exercised during 2014 include 23,322 warrants exercised through cashless exercise for 4,011 shares of Series 3. The liquidation value of Series 3 convertible preferred shares issued during 2014 was $478. In addition, 7,497 warrants expired unexercised. The Company recognized $58 of interest income during the year ended December 31, 2014 related to the expiration of these unexercised warrants. There were no warrants outstanding as of December 31, 2016, 2015 and 2014.

Related Party Stock Repurchase

In April 2016, the Company repurchased 9,500 shares of common stock for an aggregate price of $155 from an executive of the Company who is also a member of the Company’s Board of Directors. The repurchase of these shares is recorded as treasury stock on the Company’s consolidated balance sheet as of December 31, 2016.

Significant Features of Non-Voting Common Stock

Each share of non-voting common stock would have automatically been converted into one share of common stock, as adjusted for any dividends and stock-splits, upon the closing of a qualified public offering of the Company’s common stock. As of December 31, 2016, other than the Distribution (see Note 1—Organization and Significant Accounting Policies), there were no previously declared dividends or stock-splits. As discussed in Note 1—Organization and Significant Accounting Policies, the Company’s stockholders approved a 1-for-1.2 reverse stock split of the Company’s shares of common stock, including all outstanding non-voting common stock, effective September 7, 2016. Subsequently, in conjunction with the Company’s IPO, all outstanding shares of non-voting common stock were converted into an aggregate of 191,052 shares of common stock.

Preferred Stock

The Company’s amended and restated certificate of incorporation provides the Company’s Board of Directors with the authority to issue $0.0001 par value preferred stock from time to time in one or more series by adopting a resolution and filing a certificate of designations. Voting powers, designations, preferences, dividend rights, conversion rights and liquidation preferences shall be stated and expressed in such resolutions. There were 10,000,000 shares designated as preferred stock as of December 31, 2016 and zero shares designated as preferred stock as of December 31, 2015. There were no shares issued or outstanding as of December 31, 2016 and 2015.

Common Stock

Authorized, Issued and Outstanding Common Shares

The Company’s common stock has a par value of $0.0001 per share and consists of 200,000,000 and 22,000,000 authorized shares as of December 31 2016 and 2015, respectively. There were 15,939,992 and 2,235,838 shares of voting common stock outstanding as of December 31, 2016 and 2015, respectively.

The Company has reserved shares of common stock for future issuance as follows:

	December 31,
	2016		2015
Outstanding stock options		825,130		458,234
For possible future issuance under 2008 Stock Plan (Note 9)		—		405,893
For possible future issuance under 2016 Stock Plan (Note 9)		615,207		—
		1,440,337		864,127