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Convertible Preferred Stock Warrants
9 Months Ended
Sep. 30, 2014
Text Block [Abstract]  
Convertible Preferred Stock Warrants

Note 6. Convertible Preferred Stock Warrants

In 2010 and 2012, in conjunction with the related party convertible note financings, the Company issued preferred stock warrants. The Company re-measures the associated fair value of the convertible preferred stock warrant liability at each reporting period.

As of December 31, 2013 and as of September 30, 2014, the Company used a Monte Carlo simulation to calculate the fair value of its convertible preferred stock warrant liability using the following inputs:

 

     December 31,
2013
   September 30,
2014

Volatility

   38% - 47%    38% - 66%

Expected Term (years)

   0.75 - 2.00    4.00 - 8.00

Expected dividend yield

   0.0%    0.0%

Risk-free rate

   0.12% - 0.38%    1.54% - 2.13%

In addition to the assumptions above, the Company’s estimated fair value of the convertible preferred stock warrant liability is calculated using other key assumptions including the probability and value of the next equity financing, enterprise value, and discount for lack of marketability. Management, with the assistance of an independent valuation firm, makes these subjective determinations based on available current information; however, as such information changes, so might management’s determinations and such changes could have a material impact of future operating results.

As of September 30, 2014, outstanding convertible preferred stock warrants consisted of:

 

Issuance date

   Contractual
Term
   Exercise price per 
share
     Number of shares
underlying
warrant
     Fair Value at
December 31, 2013
     Fair Value at
September 30, 2014
 

January 2009

   10 years    $ 21.60         9,259       $ 42,444       $ 3,597   

February and March 2010

   10 years      Adjustable         Adjustable         461,421         530,197   

November 2010

   10 years      Adjustable         Adjustable         263,875         303,609   

January 2012

   10 years      Adjustable         Adjustable         263,978         453,036   

July 2012

   10 years      Adjustable         Adjustable         432,159         743,184   

April 2014

   10 years      Adjustable         Adjustable            904,380   

August 2014

   10 years      Adjustable         Adjustable            128,255   
           

 

 

    

 

 

 

Total

            $ 1,463,877       $ 3,066,258   
           

 

 

    

 

 

 

For the above warrants issued between February 2010, July 2012 and April 2014, the number of shares for which the warrants may be exercised are to be determined by dividing the unpaid principal by (a) 75% of the price per share of the equity securities issued in the next equity financing or (b) if converting into Series C preferred stock, $16.20 per share. The exercise price for these warrants is determined by dividing the unpaid principal and accrued interest by 75% of the price per share of common stock issued in such financing or $16.20 per share if converted into the Series C preferred stock.

 

As of December 31, 2013 and as of September 30, 2014, all warrants issued from February 2010 through August 2014 by the Company were issued to related parties consisting of investors and the Chairman of the Board. No convertible preferred stock warrants expired or were exercised during 2013 or during the nine months ended September 30, 2014.