Note 6 - Redeemable Convertible Preferred Stock

9 Months Ended

Sep. 30, 2014

Redeemable Convertible Preferred Stock [Abstract]

Redeemable Convertible Preferred Stock [Text Block]

6.   Redeemable Convertible Preferred Stock

As of September 30, 2014, the total authorized capital stock of the Company was 364,568,592 shares, which included 22,638,465 shares of Series A Preferred Stock, $0.001 par value per share; 10,909,091 shares of Series A-1 Preferred Stock, $0.001 par value per share; 20,754,461 shares of Series B Preferred Stock, $0.001 par value per share; 17,550,758 shares of Series C Preferred Stock, $0.001 par value per share; and 86,789,527 shares of Series D Preferred Stock, $0.001 par value per share.

On May 13, 2014, the Company issued 42,469,626 shares of Series D Preferred Stock to new and existing investors at a price of $0.588656 per share for gross proceeds of $25.0 million. Immediately upon closing this round of financing, $4.6 million of Convertible Notes, including $0.2 million of accrued and unpaid interest, automatically converted into 10,344,201 shares of Series D Preferred Stock at a conversion price of $0.4414 per share.

The Series D Purchase agreement contemplates the sale in two additional subsequent closings (the “second and third tranches”) of up to 33,975,700 additional shares of the Company’s Series D Preferred Stock for aggregate gross proceeds of $20.0 million. Both the Company and the tranche right holders have the right to exercise these tranche features.  However, the Company’s right is contingent upon the achievement of certain pre-defined milestones and terminates at the closing of an IPO.  The holders of the tranche rights have the ability to exercise the second and third tranche rights to purchase additional shares of the Company’s Series D Preferred Stock at any time prior to an IPO and excluding certain black-out dates. The Series D Purchase Agreement also provides to the Series D investors party to the agreement certain individual purchase rights, as outlined in the Company’s Prospectus.

As described above, in connection with the issuance of the Series D Preferred Stock, the holders received rights to purchase additional shares of Series D Preferred Stock at $0.588656 per share. These investor rights represent freestanding financial instruments, and are accounted for as liabilities. The Company adjusts the carrying value of these investor rights to fair value at each reporting date up to the closing of the tranche financing. Increases or decreases in the fair value of such investor rights are recorded as other income (expense) in the Consolidated Statements of Operations and Comprehensive Loss.

The estimated fair value of the tranche rights was determined upon issuance using a Black-Scholes option pricing model with the following inputs:

Expected term (in years)	1.84	-	3.50
Expected volatility	63.0%	-	86.0%
Risk-free interest rate	0.44%	-	1.12%
Expected dividend yield		0%

At the date of issuance, the investor rights and obligation was recorded at its fair value of $6.6 million as a liability on the balance sheet.  The estimated fair value of the tranche rights was determined as of September 30, 2014 using a Black-Scholes option pricing model with the following inputs:

Expected term (in years)	1.34	-	3.00
Expected volatility	63.0%	-	71.0%
Risk-free interest rate	0.34%	-	1.05%
Expected dividend yield		0%

During the three and nine months ended September 30, 2014, the change in fair value of the investor rights was $5.3 million and $5.3 million, respectively, and was recorded as other expense in the Consolidated Statements of Operations and Comprehensive Loss.

The Company incurred approximately $0.5 million in costs related to the issuance of the Series D Preferred Stock which have been allocated to the shares issued to date and the tranche right liability. The $0.4 million of issuance costs allocated to the shares issued in May 2014 have been recorded as a discount on the Series D Preferred Stock and will be accreted over five years to the earliest redemption date of the Series D Preferred Stock. The remaining $0.1 million of issuance costs have been allocated to the tranche right liability.

Upon the closing of the Company’s IPO (see Note 11), all outstanding shares of the Company’s preferred stock were automatically converted into an aggregate of 8,651,805 shares of its Common Stock and the Series D preferred stock investors’ rights and obligations were either exercised or extinguished.