Redeemable, Convertible Preferred Stock and Stockholders' Equity | 12 Months Ended |
Dec. 31, 2014 |
Equity [Abstract] | |
Redeemable, Convertible Preferred Stock and Stockholdersb Equity | -7 | Redeemable, Convertible Preferred Stock and Stockholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | Stockholders Agreement | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Prior to the IPO all stockholders were party to a stockholders agreement that significantly restricted the transferability of shares of the Company’s capital stock and provided for other corporate governance matters. The stockholders agreement also gave the Company right of first offer on the purchase of shares from stockholders. |
(b) | Series C Redeemable, Convertible Preferred Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In the third quarter of 2007, the Company issued 28,482,897 shares of Series C redeemable, convertible (Series C) preferred stock for cash of $1.445 per share. Each share converted into shares of common stock on a 31.39-for-one basis upon closing of the IPO. Holders of Series C preferred stock possessed certain rights, including, among others, preference in liquidation (including a sale of the Company), antidilution protection, and preemptive rights relative to holders of common stock, Series A redeemable, convertible (Series A) preferred stock and Series B redeemable, convertible (Series B) preferred stock. In the event of a liquidation event, holders of Series C preferred stock were entitled to receive the amount of the original purchase price, plus 7% per annum compounded annually plus accrued but unpaid dividends. Each holder of Series C preferred stock was entitled to receive, if and when declared, payment of an equivalent per share dividend based on the number of common shares into which each share of preferred stock is convertible, as of the date of declaration. The rate of conversion of Series C preferred stock into common stock was to be adjusted in the event the Company issued dilutive shares of common stock according to a formula defined in the Company’s Restated Certificate of Incorporation. Holders of Series C preferred stock were entitled to vote as though the preferred stock was converted into common stock. Holders of Series C preferred stock were entitled to present a redemption request to the Company in January 2015 for redemption of 25% of their total cumulative holdings per year, in the amount of the original purchase price plus 7% per annum compounded annually plus accrued but unpaid dividends. |
During March and April 2009, the Company issued $2,999,989 of unsecured convertible promissory notes at an interest rate of 8.0%. Upon the closing of the sale of Series D redeemable, convertible (Series D) preferred stock, these notes and the accrued interest converted to 2,632,210 shares of Series C preferred stock at $1.156 per share. The existing stockholders waived their antidilution rights as part of the issuance of the notes. In connection with the issuance and conversion of these unsecured convertible promissory notes, the Company issued warrants to purchase 622,826 shares of Series C preferred stock for $1.445 per share. At the date of issuance, the Company estimated the value of the warrants at $603,767 using the Black-Scholes option pricing model, and the following assumptions: 10-year term, 87.5% volatility, and a risk-free interest rate of 2.87%. |
During 2012, a warrant for 158,129 shares was exercised for 29,432 shares of Series C preferred stock. The fair value of the warrant at the exercise date was reclassified to redeemable convertible preferred stock Series C. |
During 2012, a warrant for 2,532 shares was exercised for Series C preferred stock at an exercise price of $1.445 per warrant. The total proceeds of $3,659 were recorded as redeemable convertible preferred stock Series C and the fair value of the warrant at the exercise date was reclassified to redeemable convertible preferred stock Series C. |
(c) | Series D Redeemable, Convertible Preferred Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In May 2009, the Company issued 8,650,519 shares of Series D preferred stock for $10,000,000 at $1.156 per share with Celgene. In connection with the closing, the existing stockholders waived their antidilution rights. Each share converted into shares of common stock on a 31.39-for-one basis upon the closing of the IPO. Holders of Series D preferred stock possessed certain rights, including, among others, preference in liquidation (including a sale of the Company), antidilution protection, and preemptive rights relative to holders of common stock, Series A preferred stock and Series B preferred stock. In the event of a liquidation event, holders of Series D preferred stock were entitled to receive the amount of the original purchase price, plus 7% per annum compounded annually plus accrued but unpaid dividends. Each holder of Series D preferred stock was entitled to receive, if and when declared, payment of an equivalent per share dividend based on the number of common shares into which each share of preferred stock is convertible, as of the date of declaration. The rate of conversion of Series D preferred stock into common stock was to be adjusted in the event the Company issued dilutive shares of common stock according to a formula defined in the Company’s Restated Certificate of Incorporation. Holders of Series D preferred stock were entitled to vote as though the preferred stock was converted into common stock. Holders of Series D preferred stock were entitled to present a redemption request to the Company in January 2015 for redemption of 25% of their total cumulative holdings per year, in the amount of the original purchase price plus 7% per annum compounded annually plus accrued but unpaid dividends. |
In connection with the closing, the Company also issued warrants to purchase 2,076,125 shares of Series C preferred stock for $1.445 per share. The warrants were accounted for as a preferred stock issuance cost, with the estimated fair value of $2,052,662 determined using the Black-Scholes option pricing model, and the following assumptions: 10-year term, 90.5% volatility, and a risk-free interest rate of 3.29%. |
(d) | Series E Redeemable, Convertible Preferred Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In January 2010, the Company issued 11,665,019 shares of Series E redeemable, convertible (Series E) preferred stock for approximately $17,999,124 at $1.543 per share. Each share converted into shares of common stock on a 31.39-for-one basis upon the closing of the IPO. Holders of Series E preferred stock possessed certain rights, including, among others, preference in liquidation (including a sale of the Company), antidilution protection, and preemptive rights relative to holders of common stock, Series A preferred stock and Series B preferred stock. In the event of a liquidation event, holders of Series E preferred stock were entitled to receive the amount of the original purchase price, plus 7% per annum compounded annually plus accrued but unpaid dividends. Each holder of Series E preferred stock was entitled to receive, if and when declared, payment of an equivalent per share dividend based on the number of common shares into which each share of preferred stock is convertible, as of the date of declaration. The rate of conversion of Series E preferred stock into common stock was to be adjusted in the event the Company issued dilutive shares of common stock according to a formula defined in the Company’s Restated Certificate of Incorporation. Holders of Series E preferred stock were entitled to vote as though the preferred stock was converted into common stock. Holders of Series E preferred stock were entitled to present a redemption request to the Company in January 2015 for redemption of 25% of their total cumulative holdings per year, in the amount of the original purchase price plus 7% per annum compounded annually plus accrued but unpaid dividends. |
(e) | Series A Redeemable, Convertible Preferred Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In June and October 2003, the Company issued 3,999,999 shares of Series A preferred stock for cash of $1.25 per share and the conversion of $100,000 in aggregate principal amount of convertible promissory notes and $1,532 in aggregate accrued interest thereon. In September 2004, the Company issued 2,399,999 shares of Series A preferred stock for cash of $1.25 per share. Each share converted into shares of common stock on a 31.39-for-one basis upon closing of the IPO. Holders of Series A preferred stock possessed certain rights including, among others, preference in liquidation (including a sale of the Company), antidilution protection, and preemptive rights relative to holders of common stock. In the event of a liquidation event, holders of Series A preferred stock shall be entitled to receive the amount of the original purchase price, plus 7% per annum compounded annually plus accrued but unpaid dividends. Each holder of Series A preferred stock was entitled to receive, if and when declared, payment of an equivalent per share dividend based on the number of common shares into which each share of preferred stock is convertible, as of the date of declaration. The rate of conversion of Series A preferred stock into common stock was to be adjusted in the event the Company issued dilutive shares of common stock according to a formula defined in the Company’s Restated Certificate of Incorporation. Holders of Series A preferred stock were entitled to vote as though the preferred stock was converted into common stock. Holders of Series A preferred stock were entitled to present a redemption request to the Company in January 2015 for redemption of 25% of their total cumulative holdings per year, in the amount of the original purchase price plus 7% per annum compounded annually plus accrued but unpaid dividends. |
During 2010, a warrant for 8,000 shares was exercised for Series A preferred stock at an exercise price of $1.25 per warrant. The total proceeds of $10,000 was recorded as redeemable convertible preferred stock Series A and the fair value of the warrant at the exercise date was reclassified to redeemable convertible preferred stock Series A. |
(f) | Series B Redeemable, Convertible Preferred Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | |
During 2005, the Company closed on several issuances of Series B preferred stock for cash and convertible promissory notes payable at $1.338 per share as follows: |
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| | | | | Amount | | | Shares | | | | | | | | | | | | | | | | | | | | |
Initial closing | | Jun-05 | | | 25,050,000 | | | 18,721,973 | | | | | | | | | | | | | | | | | | | | |
Second closing | | Jul-05 | | | 3,500,001 | | | 2,615,845 | | | | | | | | | | | | | | | | | | | | |
Third closing | | August 2005 | | | 4,750,000 | | | 3,550,073 | | | | | | | | | | | | | | | | | | | | |
Fourth closing | | September 2005 | | | 1,000,000 | | | 747,384 | | | | | | | | | | | | | | | | | | | | |
Fifth closing | | Sep-05 | | | 2,000,000 | | | 1,494,768 | | | | | | | | | | | | | | | | | | | | |
Sixth closing | | Oct-05 | | | 1,000,001 | | | 747,385 | | | | | | | | | | | | | | | | | | | | |
Final closing | | Dec-05 | | | 1,100,001 | | | 822,123 | | | | | | | | | | | | | | | | | | | | |
| | | | | 38,400,003 | | | 28,699,551 | | | | | | | | | | | | | | | | | | | | |
The initial closing in June 2005 included the conversion of $2,750,000 in aggregate principal amount of convertible promissory notes and $50,342 of aggregate accrued interest thereon. Each share of Series B converted into shares of common stock on a 31.39-for-one basis upon closing of the IPO. Holders of Series B preferred stock possessed certain rights, including, among others, preference in liquidation (including a sale of the Company), antidilution protection, and preemptive rights relative to holders of common stock. In the event of a liquidation event, holders of Series B preferred stock shall be entitled to receive the amount of the original purchase price, plus 7% per annum compounded annually plus accrued but unpaid dividends. Each holder of Series B preferred stock was entitled to receive, if and when declared, payment of an equivalent per share dividend based on the number of common shares into which each share of preferred stock is convertible, as of the date of declaration. The rate of conversion of Series B preferred stock into common stock was to be adjusted in the event the Company issues dilutive shares of common stock according to a formula defined in the Company’s Restated Certificate of Incorporation. Holders of Series B preferred stock were entitled to vote as though the preferred stock was converted into common stock. Holders of Series B preferred stock were entitled to present a redemption request to the Company in January 2015 for redemption of 25% of their total cumulative holdings per year, in the amount of the original purchase price plus 7% per annum compounded annually plus accrued but unpaid dividends. |
(g) Preferred Stock |
The Board of Directors may issue Preferred Stock in one or more series and determine the voting power, designation, preferences and any other rights as may be permitted by Delaware General Corporation Law. On July 8, 2014, the Company authorized 5,000,000 shares of preferred stock with a $0.001 par value, of which no shares were issued or outstanding as of December 31, 2014. |
(h) | Stock Option Plan | | | | | | | | | | | | | | | | | | | | | | | | | | | |
During 2002, the Company established a stock option plan (the 2002 Option Plan) providing for the grant of options to purchase common shares to outside directors, executives, certain key employees, and consultants. |
In April 2014, the Company adopted the 2014 Equity Incentive Plan (2014 EIP) and reserved 393,358 shares of common stock for issuance under the plan. The 2014 EIP is the successor to and continuation of the 2002 Option Plan. The options still outstanding under the 2002 Option Plan will continue to be governed by their existing terms, but any shares subject to outstanding options granted under the 2002 Option Plan that would for any reason subsequently return to the share reserve of the 2002 Option Plan under its terms, will not return to the share reserve of the 2002 Option Plan but will become available for issuance pursuant to awards granted under the 2014 EIP. The number of shares of common stock reserved for issuance under the 2014 EIP will automatically increase on January 1 of each year, starting on January 1, 2015 and continuing through January 1, 2024, by the lesser of 4% of the total number shares of our common stock outstanding on the immediately preceding December 31, or a lesser amount of shares determined by our Board of Directors. |
In April 2014, the Company adopted the 2014 Employee Stock Purchase Plan (2014 ESPP) and reserved 201,163 shares of common stock for issuance under the plan. The number of shares of common stock reserved for issuance under the 2014 ESPP will automatically increase on January 1 of each year, starting on January 1, 2015 and continuing through January 1, 2024, by the least of (i) 1% of the total number of shares of our common stock outstanding on the immediately preceding December 31; (ii) 402,326 shares of common stock; or (iii) a lesser amount of shares determined by our Board of Directors. |
As of December 31, 2014, there were 841,580 shares authorized, of which 601,313 , were available for future issuance under the 2014 EIP. All of the foregoing shares will become eligible for sale in the public market to the extent permitted by any applicable vesting requirements, the lock-up agreements and Rules 144 and 701 under the Securities Act of 1933, as amended, or the Securities Act. |
Pursuant to the evergreen provisions of the 2014 ESPP and 2014 EIP, on January 1, 2015, common stock reserved for issuance under the 2014 ESPP automatically increased 57,515 shares to 258,678 shares of common stock and common stock reserved for issuance under the 2014 EIP automatically increased 230,062 shares to 1,071,642 shares of common stock. |
The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options for employee grants and used the following assumptions to obtain the weighted average grant date fair values: |
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| | Year Ended December 31, | | | | | | | | | | | | | | | | | |
| | 2014 | | | 2013 (a) | | | 2012 | | | | | | | | | | | | | | | | | |
Risk-free interest rate | | | 1.82% | | | | — | | | | 1.30% | | | | | | | | | | | | | | | | | |
Expected life (in years) | | | 6 | | | | — | | | 5.8 - 6.0 | | | | | | | | | | | | | | | | | |
Expected volatility | | | 95.70% | | | | — | | | 90.9% - 91.2% | | | | | | | | | | | | | | | | | |
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| (a)There were no stock options granted in 2013. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options for nonemployee grants and used the following assumptions to estimate fair value each respective year: |
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| | Year Ended December 31, | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | | | |
Risk-free interest rate | | 2.8% -3.0% | | 1.8% -2.7% | | 1.4% -2.2% | | | | | | | | | | | | | | | | | | | | | | |
Expected life (in years) | | 10 | | 10 | | 10 | | | | | | | | | | | | | | | | | | | | | | |
Expected volatility | | 85.2% -85.4% | | 82.6% -85.1% | | 83.3% -85.2% | | | | | | | | | | | | | | | | | | | | | | |
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The Black-Scholes model requires inputs for risk-free interest rate, dividend yield, volatility, and expected lives of the options. Since the Company has a limited history of stock activity, expected volatility is based on historical data from several public companies similar in size and nature of operations to the Company. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant for a period commensurate with the expected term of the grant. The expected term (without regard to forfeitures) for employee options granted represents the period of time that options granted are expected to be outstanding and is derived from the contractual terms of the options granted. Since the Company has limited employee share option exercises, the expected term was determined using the average of the vesting periods and expirations. |
Prior to the closing of the IPO, to value its common stock for measuring equity based awards, the Company used a combination of the option pricing method and the Probability-Weighted Expected Return Method (“PWERM”) as outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (AICPA Practice Aid). The option pricing method treats common stock and preferred stock as call options on a subject company’s equity value, with exercise prices based on the liquidation preference of the preferred stock. The model estimates the fair value of each class of securities as a function of the current estimated fair value of the company. The characteristics of each class of stock are examined, including: (1) the conversion ratio; (2) the liquidation preferences assigned to the preferred classes of stock; and (3) the exercise price for all outstanding options and warrants. Under this method, value is allocated to common shares only in circumstances where the total equity value exceeds the liquidation rights associated with the preferred shares. The option-pricing method provides the stockholder the right, but not the obligation, to buy the underlying net assets at a predetermined price or “strike” price. The strike price is determined by analyzing the break points at which value would be allocated to each class of stock, based on the distribution characteristics associated with the equity. The PWERM analyzes the returns afforded to common equity holders under multiple future scenarios. Under the PWERM, share value is based upon the probability-weighted present value of expected future net cash flows (distributions to shareholders), considering each of the possible future events and giving consideration to the rights and preferences of each share class. While this method relies on certain key assumptions, it is best used when the range of possible future outcomes and the corresponding time frames are highly uncertain. |
Share-based compensation expense is recognized net of estimated pre-vesting forfeitures, which results in recognition of expense on options that are ultimately expected to vest over the expected option term. Forfeitures are estimated at the time of grant using actual historical forfeiture experience and are revised in subsequent periods if actual forfeitures differ from those estimates. |
The following table summarizes common stock option and warrant activities for common stock options and warrants issued to employees, directors, and consultants: |
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| | | | | | | | | | Weighted | | | | | | | | | | | | | | | | | |
| | | | | | Weighted | | | average | | | | | | | | | | | | | | | | | |
| | Number of | | | average | | | remaining | | | | | | | | | | | | | | | | | |
| | common stock | | | exercise | | | contractual | | | | | | | | | | | | | | | | | |
| | options | | | price | | | term (years) | | | | | | | | | | | | | | | | | |
Outstanding at December 31, 2011 | | | 362,274 | | | | 7.08 | | | | | | | | | | | | | | | | | | | | | |
Granted | | | 27,105 | | | | 18.24 | | | | | | | | | | | | | | | | | | | | | |
Exercised | | | (4,566 | ) | | | 4.73 | | | | | | | | | | | | | | | | | | | | | |
Canceled | | | (7,933 | ) | | | 9.15 | | | | | | | | | | | | | | | | | | | | | |
Outstanding at December 31, 2012 | | | 376,880 | | | | 7.87 | | | | | | | | | | | | | | | | | | | | | |
Exercised | | | (382 | ) | | | 4.73 | | | | | | | | | | | | | | | | | | | | | |
Canceled | | | (147,004 | ) | | | 7.82 | | | | | | | | | | | | | | | | | | | | | |
Outstanding at December 31, 2013 | | | 229,494 | | | | 7.9 | | | | | | | | | | | | | | | | | | | | | |
Granted | | | 7,279 | | | | 15.1 | | | | | | | | | | | | | | | | | | | | | |
Exercised | | | (8,009 | ) | | | 4.73 | | | | | | | | | | | | | | | | | | | | | |
Canceled | | | (9,584 | ) | | | 5.86 | | | | | | | | | | | | | | | | | | | | | |
Outstanding at December 31, 2014 | | | 219,180 | | | | 8.35 | | | | 3.8 | | | | | | | | | | | | | | | | | |
Exercisable at December 31, 2014 | | | 207,958 | | | | 7.92 | | | | 3.6 | | | | | | | | | | | | | | | | | |
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The following table summarizes information about stock options issued to employees, directors, and consultants that is outstanding at December 31, 2014: |
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| | Common stock options | | | Common stock options | | | | | | | | | | | | | |
| | outstanding | | | exercisable | | | | | | | | | | | | | |
| | | | | | Weighted | | | | | | | | | | | | | | | | | | | | | |
| | | | | | average | | | | | | | Weighted | | | | | | | | | | | | | |
| | | | | | remaining | | | | | | | average | | | | | | | | | | | | | |
| | Number | | | contractual | | | Number | | | exercise | | | | | | | | | | | | | |
Exercise price | | outstanding | | | life (years) | | | exercisable | | | price | | | | | | | | | | | | | |
$ 4.73 | | | 56,175 | | | | 1.34 | | | | 56,175 | | | $ | 4.73 | | | | | | | | | | | | | |
5.04 | | | 4,820 | | | | 2.34 | | | | 4,820 | | | | 5.04 | | | | | | | | | | | | | |
5.98 | | | 67,575 | | | | 3.17 | | | | 67,575 | | | | 5.98 | | | | | | | | | | | | | |
6.93 | | | 14,882 | | | | 4.25 | | | | 14,882 | | | | 6.93 | | | | | | | | | | | | | |
8.52 | | | 6,971 | | | | 4.75 | | | | 6,971 | | | | 8.52 | | | | | | | | | | | | | |
10.07 | | | 2,814 | | | | 6.21 | | | | 2,814 | | | | 10.07 | | | | | | | | | | | | | |
12.56 | | | 41,464 | | | | 5.61 | | | | 41,464 | | | | 12.56 | | | | | | | | | | | | | |
15.10 | | | 7,279 | | | | 9.2 | | | | — | | | | 15.1 | | | | | | | | | | | | | |
18.24 | | | 17,200 | | | | 7.24 | | | | 13,257 | | | | 18.24 | | | | | | | | | | | | | |
| | | 219,180 | | | | | | | | 207,958 | | | | | | | | | | | | | | | | | |
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The weighted average grant date fair value of options granted during the years ended December 31, 2014 and 2012 was $11.66 and $13.55 per share, respectively. The total grant date fair value of options that vested during 2014, 2013 and 2012 was $72,095, $193,828 and $308,803, respectively. The total intrinsic value, or the difference between the aggregate exercise price and the aggregate fair market price on the day of exercise, of options exercised during the years ended December 31, 2014, 2013 and 2012 was $60,940, $1,560 and $139,620, respectively. The total intrinsic value of options outstanding as of December 31, 2014 and 2013 was $286,299 and $1,703,515, respectively. The total intrinsic value of options exercisable as of December 31, 2014 and 2013 was $286,299 and $1,696,012, respectively. As of December 31, 2014 and 2013, the Company had unrecognized stock-based compensation of $79,145 and $60,510, respectively, related to nonvested stock options, which is expected to be recognized over an estimated weighted average period of 2.2 and 1.8 years, respectively. |
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The Company’s net loss for the years ended December 31, 2014, 2013 and 2012 includes $48,878, $209,715, $369,180 respectively, of stock-based compensation costs. Stock-based compensation included in the Company’s statements of operations and comprehensive income and loss for the years ended December 31, 2014, 2013 and 2012 was $8,919, $47,082 and $143,169 in research and development expenses and $39,959, $162,633, $226,011 in general and administrative expenses, respectively. |
The Company did not recognize a tax benefit from share-based compensation expense because the Company has concluded that it is not more likely than not that the related deferred tax assets, which have been reduced by a full valuation allowance, will be realized. |
(i) | Warrants | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company had the following preferred stock warrants that vested upon issuance outstanding as of December 31, 2013 and July 8, 2014 (the close of the IPO). Also included below are the Black-Scholes assumptions used to estimate the fair value of the warrants: |
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| | | | | | | | | | | | | | | | | | Issuance of | | | | | | | | | |
| | 2004 | | | Convertible | | | 2006 | | | Convertible | | | Series D | | | Total | | | Total | |
| | Financing | | | promissory | | | Financing | | | promissory | | | preferred | | | Long- | | | Short- | |
Warrants issued in connection with | | agreement | | | notes | | | agreement | | | notes | | | stock | | | term | | | term | |
Issue date | | March 2004 | | | June 2005 | | | April 2006 | | | May 2009 | | | May 2009 | | | | | | | | | |
Redeemable, convertible preferred stock | | Series A | | | Series B | | | Series B | | | Series C | | | Series C | | | | | | | | | |
underlying the warrant |
Number of warrants | | | 22,000 | | | | 411,060 | | | | 179,372 | | | | 622,826 | | | | 2,076,125 | | | | | | | | | |
Exercise price | | $ | 1.25 | | | 1.338 | | | 1.338 | | | 1.445 | | | 1.445 | | | | | | | | | |
Black-Scholes assumptions as of December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2012 |
Remaining term (years) | | 1.2 | | | 2.5 | | | 3.3 | | | 6.4 | | | 6.4 | | | | | | | | | |
Estimated volatility | | | 83 | % | | | 86.5 | % | | | 85.5 | % | | | 92 | % | | | 92 | % | | | | | | | | |
Risk-free interest rate | | | 0.16 | % | | | 0.31 | % | | | 0.35 | % | | | 0.92 | % | | | 0.92 | % | | | | | | | | |
Number of warrants remaining | | | 22,000 | | | | 411,060 | | | | 179,372 | | | | 620,294 | | | | 2,076,125 | | | | | | | | | |
Estimated fair value at December 31, 2012 | | $ | 2,837 | | | | 100,270 | | | | 52,680 | | | | 723,631 | | | | 2,421,993 | | | | 3,301,411 | | | | — | |
Black-Scholes assumptions as of December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2013 |
Remaining term (years) | | 0.2 | | | 1.5 | | | 2.3 | | | 5.4 | | | 5.4 | | | | | | | | | |
Estimated volatility | | | 61 | % | | | 66.5 | % | | | 84.5 | % | | | 97 | % | | | 97 | % | | | | | | | | |
Risk-free interest rate | | | 0.07 | % | | | 0.24 | % | | | 0.52 | % | | | 1.58 | % | | | 1.58 | % | | | | | | | | |
Number of warrants remaining | | | 22,000 | | | | 411,060 | | | | 179,372 | | | | 620,294 | | | | 2,076,125 | | | | | | | | | |
Estimated fair value at December 31, 2013 | | $ | 13 | | | | 28,098 | | | | 32,735 | | | | 321,603 | | | | 1,076,405 | | | | 1,458,841 | | | | 13 | |
Black-Scholes assumptions as of at July 8, | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 (close of IPO) |
Remaining term (years) | | | | | | | 1 | | | 1.8 | | | 4.9 | | | 4.9 | | | | | | | | | |
Estimated volatility | | | | | | | 70.5 | % | | | 68.5 | % | | | 82 | % | | | 82 | % | | | | | | | | |
Risk-free interest rate | | | | | | | 0.12 | % | | | 0.33 | % | | | 1.52 | % | | | 1.52 | % | | | | | | | | |
Number of warrants remaining | | | | | | | 411,060 | | | | 179,372 | | | | 620,294 | | | | 2,076,125 | | | | | | | | | |
Estimated fair value at July 8, 2014 | | $ | (* | ) | | | 1,395 | | | | 2,539 | | | | 70,381 | | | | 235,564 | | | | 309,879 | | | | — | |
(close of IPO) |
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(*) | This warrant expired unexercised on March 18, 2014 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In connection with the closing of our IPO, each of the preferred stock warrants automatically converted into a warrant to purchase share of common stock with substantially the same terms, except the term was extended to five years from the close of the IPO for all of the warrants except the Financing agreement warrants. |
In addition to the warrants above, the Company has recorded the estimated value of the warrants related to the 2013 Note discussed in Note 6 that were ultimately issued upon the completion of the IPO. The estimated value of these warrants as of December 31, 2013included in the long-term portion of fair value of warrants. On July 8, 2014 we completed our IPO and pursuant to the 2013 Note’s terms, we issued to the holder of the Note a warrant exercisable for 12,373 shares of our common stock at an exercise price of $10.00 per share. The warrants had an estimated fair value of $106,087 as of December 31, 2013 determined using the Black-Scholes option pricing model, and the following assumptions: 10-year term, 85.17% volatility, and a risk-free interest rate of 2.67%. The estimated fair value as of July 8, 2014 (the close of the IPO) of $104,055 was determined using the Black-Scholes option pricing model, and the following assumptions: 9.4 year remaining term, 91.0% volatility, and a risk-free interest rate of 2.60%. These warrants were classified as liabilities as they were exercisable into redeemable preferred stock until the closing of our IPO on July 8, 2014, at which time they were reclassified as a component of additional paid-in capital. |
2014 Notes Warrants |
As part of the issuance of the 2014 Notes (see Note 6), the Company issued warrants to the holders of the 2014 Notes with the following terms: |
· | Five year exercise period. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | Exercisable into a newly issued series of preferred stock if an initial public offering or subsequent round of equity financing is not completed prior to January 31, 2015. If an initial public offering occurs prior to January 31, 2015, the warrants will be exercisable into common stock. If an initial public offering does not occur and a subsequent round of financing occurs, then the warrants will be exercisable into the equity securities issued in the subsequent round of financing. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | The exercise price will be equal to the issuance price of the securities that the warrants are ultimately exercisable into. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
· | The number of shares received upon exercise will be equal to the face value of the 2014 Notes ($7,500,000) plus interest accrued divided by the applicable exercise price. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Company engaged a third-party valuation firm to value the warrants as of the commitment date of the 2014 Notes. Due to the various exercise prices and securities that the warrants are exercisable into, the methodology to value the warrants included a combination of Black-Scholes and Monte Carlo Simulation models that take into consideration probability factors of the various outcomes related to the exercise terms of the warrants. This valuation resulted in an initial valuation of these warrants of $4,454,397. |
The placement agent of the 2014 Notes also received warrants as compensation for the placement of the 2014 notes. The warrant coverage received by the placement agent is equal to 10% of the total face value of the 2014 Notes ($750,000) and 10% of the warrant coverage received by the holders of the 2014 Notes ($750,000). The terms of the placement agent warrants are the same as the warrants held by the 2014 Notes holders except for modified warrant coverage and exercise prices on warrants issued related to the face value of the 2014 Notes. The valuation of these warrants was consistent with the above methodology and resulted in an initial valuation of $876,778. |
These warrants were classified as liabilities as they were exercisable into redeemable preferred stock until the closing of our IPO on July 8, 2014, at which time they were reclassified as a component of additional paid-in capital. |
Pursuant to ASC Topic 480, the estimated fair value of these warrants are reported as liabilities at their estimated fair value at December 31, 2013, and any changes in fair value during the period are reflected in change in value of warrants and put and call options. |
(j) | Common Stock | | | | | | | | | | | | | | | | | | | | | | | | | | | |
On July 8, 2014, the Company authorized 100,000,000 shares of common stock with a $0.001 par value, of which 5,751,574 shares were issued or outstanding as of December 31, 2014. There are an additional 927,069 shares of common stock issuable upon exercise of outstanding warrants, all of which will be eligible for sale in the public market to the extent permitted by the same restrictions. |