Stockholders' Equity

3 Months Ended

Mar. 31, 2015

Stockholders Equity Note [Abstract]

Stockholders' Equity

7. Stockholders’ Equity

Common stock

The Company is authorized to issue up to 110,000,000 shares, of which 100,000,000 shares have been designated as common stock and 10,000,000 shares as preferred stock. Holders of the Company's common stock are entitled to dividends if and when declared by the Board of Directors. The holders of each share of common stock shall have the right to one vote for each share.

Shares of common stock reserved for future issuance were as follows as of March 31, 2015:

Series A convertible preferred stock	666,041
Series B convertible preferred stock	966,667
Options to purchase common stock	2,798,480
Shares reserved for issuance pursuant to 2014 Stock Plan	274,009
Warrants	1,691,639
Total	6,396,836

Convertible preferred stock

Convertible preferred stock as of March 31, 2015 consisted of the following:

Convertible Preferred Stock	Original Issue Price		Shares Designated		Shares Issued		Shares Outstanding		Liquidation Preference
Series A-1	$	0.0100		5,000,000		5,000,000		212,466	$	195,264
Series A-2	$	1.6996		1,176,748		1,176,748		258,600	$	439,516
Series B	$	1,000.00		2,750		2,750		1,102	$	1,102,000

During the three months ended March 31, 2015, 2,168,624 shares of Series A-1 Preferred Stock and 70,000 shares of Series A-2 redeemable convertible preferred stock (the “Series A-2 Preferred Stock”, and together with the Series A-1 Preferred Stock, the “Series A Preferred Stock”) were converted into common stock.

As discussed in Note 5, in conjunction with the issuance of Series A-1 Preferred Stock and Series A-2 Preferred Stock, proceeds of $4,950,000 were received in exchange for the issuance of promissory notes payable. Total proceeds from this transaction were allocated to each instrument using the relative fair value method. Proceeds allocated to Series A-1 Preferred Stock and Series A-2 Preferred Stock were $3,308,874 and $1,134,016, respectively. Following the allocation of fair value, the effective conversion prices per share upon issuance of Series A-1 Preferred Stock and Series A-2 Preferred Stock were $0.55 and $0.96, respectively.

On December 17, 2013, in contemplation of the Merger, the Company issued 2,750 shares of its Series B Preferred Stock (the “Series B Preferred Stock” and collectively with the Series A Preferred Stock, the “Preferred Stock”) at a price of $1,000 per share, subject to the terms of its Certificate of Designations for the Series B Preferred Stock (the “Certificate of Designations”), and warrants to purchase an aggregate of 700,935 shares of the Company’s common stock to certain accredited investors in a private offering transaction for proceeds of $2,750,000. The warrants have an exercise price of $2.66 per common share.

The Series B Preferred Stock was fair valued in conjunction with the Merger. Consequently, the revaluation did not impact earnings per share.

A complete description of the rights, preferences, privileges and restrictions of the Series A Preferred Stock and Series B Preferred Stock are included in the Company’s Fifth Amended and Restated Articles of Incorporation (the “Charter”). The following is a summary of certain rights, privileges, preferences and restrictions:

Liquidation preference

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Series A Preferred Stock are entitled to receive an amount equal to the sum of (i) the greater of (x) the product of (I) $0.01 in the event of Series A-1 or $1.6996 in the event of Series A-2 and (II) the number of shares of Series A Preferred Stock then held by each holder and (y) the product of (I) the fair market value of one share of common stock, as mutually determined by the Company and the Preferred Stock holders and (II) the number of shares of common stock issuable upon conversion of such Series A Preferred Stock, and (ii) any declared accrued and unpaid dividends, prior and in preference to any distributions made to the holders of common stock.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Series B Preferred Stock are entitled to receive an amount equal to $1,000 per share. After full payment to the holders of Series A Preferred Stock and Series B Preferred Stock, holders of Series B Preferred Stock shall be entitled to participate in the distribution of any remaining assets of the Company on an as converted basis pari passu with the holders of common stock.

If the assets and funds distributed among the holders of the Preferred Stock are insufficient to permit payment to such holders of the full preferential amount, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock and Series B Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive.

Conversion

All shares of Series A Preferred Stock are convertible into common stock at the option of the holder at any time after the date of issuance by dividing the stated value of such preferred shares $0.007073 (reflecting the Reverse Split) in the event of Series A-1 or $1.202065 (reflecting the Reverse Split) in the event of Series A-2 by the conversion amount, each subject to adjustment (including the Reverse Split). All Series B Preferred Stock are convertible, into common stock at the option of the holder, at any time after the date of issuance, by multiplying the conversion amount by the quotient of (x) $1,000 divided by (y) 2.00, each subject to similar adjustment. Each share of the Series A Preferred Stock and Series B Preferred Stock will automatically be converted into common stock, at the then-effective applicable conversion price, upon the occurrence of both i) the full collateralization of the Secured Convertible Notes, and ii) upon the closing of the sale of the Company’s common stock in a firm-commitment, underwritten public offering registered under the Securities Act which results in aggregate proceeds to the Company of at least $20,000,000 at a price per share exceeding such threshold as defined in the Company’s Charter (currently $0.289).

Anti-dilution

Holders of Series A-1 Preferred Stock are entitled to receive certain shares of common stock if and when the Company issues or sells any shares of common stock for a consideration per share less than a certain threshold price (currently $0.289).

As a result of the issuance of the Fortress Shares and warrants as discussed in Note 6 and the Registered Direct Offering (as defined below), the conversion price for the Series B Preferred Stock was reduced to $0.46 (for more details relating to the Registered Direct Offering, see Note 11). The conversion price will be further reduced (and the holders of Series B Preferred Stock will be entitled to receive additional shares of common stock upon conversion) if and when the Company issues or sells securities for a consideration per share less than the current conversion price.

Voting rights

Holders of the Series A Preferred Stock and Series B Preferred Stock are entitled to one vote for each share of common stock into which their shares can be converted.

Substantial Holder Rights

The Certificate of Designations, Preferences and Rights for the Series A Preferred Stock contemplates certain rights for any holder of Series A Preferred Stock that purchased a certain threshold number of shares of Series A Preferred Stock for as long as that holder continued to hold at least twenty percent of shares of Series A Preferred Stock originally purchased (such holders referred to as “Substantial Holders”). During the quarter ended March 31, 2015, there were no longer any Substantial Holders and the rights afforded to such Substantial Holders are no longer in effect.

Warrants

In January 2014, the Company issued warrants to purchase 238,412 shares of common stock at an exercise price of $3.04 to a placement agent. The warrants expire in January 2019. The exercise price was reduced to its floor of $2.27 as a result of the sale of the Fortress Shares. The warrants may be exercised without cash consideration in lieu of forfeiting a portion of shares. The fair value of the warrants at issuance was $348,963, estimated using the Black-Scholes option pricing model. The fair value of the warrants was revalued at March 31, 2015 as discussed in Note 5.

In connection with the Merger, the Company issued warrants to purchase 648,738 shares of common stock at an exercise price of $2.66. The warrants expire in June 2016.

On November 1, 2014 the Company issued 277,500 warrants to purchase common stock to an advisor in connection with the Fortress Agreement. The warrants have a weighted average exercise price of $2.07, and the fair value of the warrants at issuance was $164,196.

On February 27, 2015, in connection with the Fortress Amended Agreement, the Company issued 500,000 warrants to purchase common stock with an exercise price of $1.14 and 26,989 warrants to purchase common stock with an exercise price of $2.00. The fair value of the warrants at issuance was $172,319 and $4,960, respectively.

Common stock warrants outstanding as of March 31, 2015 are listed as follows:

Warrants Outstanding		Remaining Contractual Life (years)		Weighted Average Exercise
	500,000		6.92	$	1.14
	26,989		4.91	$	2.00
	247,500		4.59	$	2.00
	238,412		3.83	$	2.27
	30,000		2.59	$	2.66
	648,738		0.75	$	2.66
	1,691,639		3.67	$	2.05