Redeemable Convertible Preferred Stock, Common Stock and Stockholders' Equity (Deficit)

12 Months Ended

Dec. 31, 2016

Redeemable Convertible Preferred Stock, Common Stock and Stockholders' Equity (Deficit)

Redeemable Convertible Preferred Stock, Common Stock and Stockholders' Equity (Deficit)

(8)  Redeemable Convertible Preferred Stock, Common Stock and Stockholders’ Equity (Deficit)

Series A and Series B Redeemable Convertible Preferred Stock

In connection with the Company’s recapitalization in 2014, all $0.0001 par value Series A Participating Preferred Stock (Series A) and $0.0001 par value Series B Participating Preferred Stock (Series B) were converted to Series 1 convertible preferred stock (see below).

The Series B ranked senior to the Series A and the common stock in liquidation. The Series A and B were convertible into common stock at the option of the holder, automatically converted into common stock upon a public offering of stock with a public offering price of not less than $25,000,000, or the consent of a majority of the holders and had a liquidation value of $1.75 per share plus unpaid dividends. Dividends were cumulative, accrued beginning in June 2008 and October 2013 for the Series A and Series B, respectively, at a rate of 6% per year and became payable upon declaration by the board of directors of the Company, redemption or liquidation.

At the earlier of a Company Default (as defined) or August 30, 2017, the Series A and B Preferred Stock were redeemable at the option of a majority of the holders at the greater of a price per share of $1.75 plus unpaid dividends, if any, or the then fair market value. Total accretion of the Series A unamortized issuance cost towards redemption value was $1,309 for the year ended December 31, 2014. Total accretion of the Series A dividends towards the redemption value was $24,134 for the year ended December 31, 2014.

Total accretion of the Series B unamortized issuance cost and beneficial conversion feature towards the redemption value was $38,568 for the year ended December 31, 2014. Total accretion of the Series B dividends towards the redemption value was $23,943 for the year ended December 31, 2014.

In January 2014, the Company issued 200,002 shares of Series B and warrants to purchase 49,998 shares of Series B for total proceeds of $350,000 less stock issuance costs of $3,089 for net proceeds to the Company of $346,911. In April 2014, the warrants to purchase 49,998 shares of Series B were exercised for total proceeds to the Company of $500. Since the Series B underlying the warrants could have been redeemed for cash upon an event that was not within the Company’s control, these warrants were classified as a derivative liability with changes to fair value, if any, recorded through earnings at each reporting period through the exercise date.

Recapitalization Transactions

In May 2014, a series of transactions, referred to as the Recapitalization Transactions, were executed resulting in the issuance of 720,002 shares of Series 1 convertible preferred stock (Series 1) and 797,871 shares of new common stock, as follows:

· A shareholder who was an original founder of the Company elected to forfeit 359,042 shares of the original common stock. The forfeited shares were canceled and retired by the Company.

· All outstanding options that were previously issued were cancelled.

· The Company issued 74,923 shares of common stock to certain existing investors and employees for total proceeds of $1,409. As a result of the issuance, the Company recognized $123,958 of noncash general and administrative expense during the year ended December 31, 2014.

· Prior to the recapitalization, all outstanding shares of the Series A and the Series B were converted into shares of common stock. The Company converted 720,002 shares of Series A and 1,248,109 shares of Series B into 1,046,847 shares of common stock.

· On May 6, 2014, the Company recapitalized. In connection with the recapitalization, each share of common stock was exchanged into shares of Series 1 by multiplying each share of common stock issued and outstanding immediately prior to the recapitalization by 0.57434. As a result, 720,002 shares of Series 1 were issued pursuant to such exchange.

· In connection with the recapitalization, 478,723 shares of new common stock were issued to a new investor (New Investor). The Company recognized $792,000 of noncash general and administrative expense during the year ended December 31, 2014 as a result of the issuance. In addition, the Company issued 319,148 shares of new common stock to the same shareholder that forfeited 359,042 shares of common stock prior to the recapitalization.

Series 1 Convertible Preferred Stock

From May 2014 through October 2014, the Company issued an aggregate of 6,244,051 shares of Series 1 for total proceeds of $13,214,912 less stock issuance costs of $289,878 for net proceeds of $12,925,034. The Series 1 converted into 3,704,215 shares of common stock in connection with the IPO.

Voting

Holder of the Series 1, voting as a class, were entitled to elect four members of the board of directors. Holders of the common stock, voting as a single class, were entitled to elect one member of the board of directors.

Dividends

Holders of Series 1 were entitled to receive a dividend on each outstanding share of Series 1, if and when declared by the board of directors, issuable upon the conversion of a share of Series 1 on the record date in the case of a dividend on common stock or any class or series convertible into common stock.

Liquidation

In the event of a liquidation, dissolution, or winding‑up, or in the event the Company was merged with, or was acquired by another entity, the holders of each share of Series 1 were entitled to receive an amount equal to the greater of the $3.98 per share plus any dividends declared but unpaid thereon or such amount per share as would have been payable had all shares of Series 1 been converted to common stock immediately prior to such liquidation. With respect to the liquidation preference, after payment has been made to the holders of Series 1, the remaining assets available for distribution would have been distributed to the holders of common stock.

Redemption

The Series 1 was subject to redemption under certain “deemed liquidation events” and as such, the Series 1 was considered contingently redeemable for financial accounting purposes. The Company concluded that none of these events were probable at December 31, 2014.

Common Stock Transactions

In September 2014, the Company issued 579,614 shares of common stock to the New Investor for providing certain advisory service, including management services. The Company recognized $958,914 of noncash general and administrative expense for these issuances during the year ended December 31, 2014. An additional 114,047 shares of common stock were issued to third parties for providing consulting services. As a result of the issuances, the Company recognized $188,693 of noncash general and administrative expense during the year ended December 31, 2014.

In October 2014, the New Investor forfeited 41,667 shares of common stock.

In August 2015, the Company completed its IPO, selling 3,450,000 shares at an offering price of $14.00 per share, resulting in gross proceeds of $48.3 million. Net proceeds received after underwriting fees and offering expenses were approximately $42.1 million.

During the year ended December 31, 2016, the Company entered into the Sales Agreement with Jefferies pursuant to which the Company sold and issued 794,906 shares of common stock in the open market at a weighted average selling price of $13.39 per share, for gross proceeds of $10.6 million. Net proceeds received after deducting commissions and offering expenses were $10.0 million.

In the first quarter of 2017, the Company completed an additional follow-on public offering, selling 3,220,000 shares at an offering price of $18.00 per share resulting in gross proceeds of $58.0 million. Net proceeds received after deducting underwriting and commissions and offering expenses were $54.3 million.