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Redeemable Convertible Preferred Stock
12 Months Ended
Dec. 31, 2017
Redeemable Convertible Preferred Stock [Abstract]  
Redeemable Convertible Preferred Stock

9. Redeemable Convertible Preferred Stock



On June 13, 2013, the Company’s board of directors approved a resolution designating 9,357,935 shares of Preferred Stock as Series B redeemable convertible preferred stock (“Series B”) with an initial stated value of $1.40 and par value of $0.01 per share. Holders of the Series B shares were entitled to receive cumulative, cash dividends at the rate of 10% of the Series B stated value. The Series B shares were redeemable by the Company at any time on or after June 26, 2018, upon the election of the holders of at least two-thirds of the outstanding Series B shares for an amount equal to the original issue price per share plus any accrued and unpaid dividends.



On April 8, 2016, certain holders of over two-thirds of the Company’s then-outstanding shares of the Series B shares elected to automatically convert all outstanding shares of Series B into shares of common stock in accordance with the Company’s Amended and Restated Articles of Incorporation (the “Conversion”). The transaction was accounted for based on the difference between the fair value of the consideration transferred to the holders of the preferred stock and the carrying amount of the preferred stock on April 7, 2016. As a result of the Conversion, the 7,527,853 shares of Series B outstanding as of immediately prior to the Conversion were converted into an aggregate of 150,556 shares of common stock. From December 31, 2015 to April 7, 2016, the Company had accreted $1,858,000 from additional paid-in capital to Series B shares to adjust the redemption value of the Series B. The December 31, 2017 consolidated balance sheet reflects dividends payable of $38,000 to former holders of the Series B, which are classified as current liabilities.



In connection with the private placement of Series B shares, the Company recorded a liability for an embedded derivative that required bifurcation under the applicable accounting guidance. As a result of the Conversion on April 8, 2016, the Series B preferred stock derivative liability balance was extinguished, with the decrease in fair value from January 1, 2016 through April 8, 2016 of $1.5 million recorded as a component of change in fair value of derivative liabilities in the Company’s consolidated statements of operations for the year ended December 31, 2016.  



Common Stock Issuance Agreement



On April 8, 2016, the Company entered into the Common Stock Issuance Agreement (“CSIA”) with certain former holders of the Company’s Series B (the “Holders”) pursuant to which the Company agreed to issue the Holders an aggregate of 85,346 shares of the Company’s common stock. Pursuant to the CSIA, the Company and the Holders also agreed to amend warrants to purchase 31,519 shares of common stock previously issued to the Holders in June 2013 in order to reduce the exercise price of such warrants from $70.00 per share to $40.50 per share and extend the expiration date thereof from June 26, 2018 to March 31, 2021 (the “Warrant Amendments”). As consideration for the shares and the Warrant Amendments, the Holders waived their right to receive approximately $2.2 million in aggregate cash payments to which they were entitled upon the Conversion in respect of accrued dividends on their former shares of Series B. The Holders also waived certain registration rights under provisions in the CSIA. The transaction was accounted for based on the difference between the fair value of the consideration transferred, which includes the common stock issued and Warrant Amendments, to the Holders of the preferred stock and the carrying amount of the preferred stock on April 7, 2016.



Under the terms of the CSIA, the Company also agreed to issue a formula-based number of shares of its common stock to the Holders for no additional consideration upon completion of one or more bona fide equity financings in which the Company sells shares of its common stock below a specified price (a “Dilutive Issuance”) in a transaction that occurs prior to the earlier of June 30, 2018 or such time as the Company has raised, following the date of the CSIA, $10.0 million in the aggregate (the “Price Protection Obligations”). In each of June 2016, November 2016 and May 2017, the Company completed offerings of its common stock that constituted Dilutive Issuances under the CSIA.  In 2016 the Company issued 75,020 shares under the Price Protection Obligations in connection with the June 2016 financing. Due in part to limitations on the number of shares issuable to the Holders under the rules of the NYSE American, no additional shares of common stock were issued to the holders in connection with the November 2016 and May 2017 offerings prior to June 2017 as discussed below. 



On June 27, 2017, the Company and the Holders entered into the CSIA Amendment to, among other things, terminate the Price Protection Obligations. In consideration for the termination for the Price Protection Obligations and a release of claims by the Holders, the Company agreed to (i) issue to the Holders, within five business days of the Amendment, an aggregate of 28,684 shares of its common stock (the “First Issuance”), which, under the rules of the NYSE American, was the maximum number of shares the Company was permitted to issue to the Holders pursuant to the CSIA without further shareholder approval, and (ii) issue to the Holders in a subsequent closing an aggregate 523,210 shares of common stock (the “Second Issuance”), subject to obtaining shareholder approval of the Second Issuance at the Company’s 2017 Annual Meeting of Shareholders and the Company’s receipt of a release of claims from the Holders at the time of the Second Issuance. On September 7, 2017 the Company’s shareholders approved the Second Issuance. The Company received a release of claims from each of the Holders and issued 523,210 shares of common stock on September 19, 2017. The shares were valued at $519,000 as of September 19, 2017 based on the closing price of the Company’s common stock of $0.99 per share at September 19, 2017 multiplied by the 523,210 shares of common stock issued to the Holders. The related charge of $519,000 was included as a component of general and administrative expense in the Company’s consolidated statements of operations for the year ended December 31, 2017.



The terms of the CSIA required the delivery of shares in the event of a future dilutive financing. The Company determined this was a conditional forward contract and recorded a diluted financing derivative liability for potential future dilutive financings. The dilutive financing derivative liability was valued at $126,000 as of December 31, 2016 and the decrease in fair value of $611,000, excluding the $1.5 million adjustment for the fair value of the dilutive shares issuable as a result of the June 2016 offering, was recorded as a component of change in fair value of derivative liabilities in the consolidated statements of operations for the year ended December 31, 2016.  The CSIA Amendment removed the condition which required the CSIA to be treated as a derivative liability. Accordingly, the fair value of the shares were marked-to-market through June 29, 2017 at $22,000, and the decrease in fair value of $104,000 was recorded as a component of change in fair value of derivative liabilities in the consolidated statements of operations for the year ended December 31, 2017.