Senior Amortizing Convertible Notes | (8) Senior Amortizing Convertible Notes On November 4, 2015, the Company entered into the Purchase Agreement to issue and sell to four institutional investors 7% senior amortizing convertible notes due 2017 in three separate closings. The Notes were initially convertible into shares of the Company’s common stock at a price equal to $304.50 per share with an aggregate principal amount of $25.0 million. Each Note was sold with Note Warrant with an exercise price of $325.50 per share. The Company issued and sold Notes and Note Warrants for aggregate total proceeds of $12.5 million in the First Closing and Second Closing and after entering into the First Amendment, which provided that the scheduled third closing would be split into two separate closings, issued and sold Notes and Note Warrants for aggregate total proceeds of $6.25 million in the Third Closing. After the Third Closing, the Company entered into the Second Amendment, which set a deadline of December 30, 2016 for the final closing and provided the consent of the holders of the Notes to the Company reducing the conversion price of the Notes from time to time in order to incentivize the holders of the Notes to convert their Notes into shares of the Company’s common stock. As the final closing did not occur prior to the December 30, 2016 deadline, the remaining $6.25 million of Notes was not funded. Additionally, after entering into the Second Amendment, the Company reduced the conversion price of the Notes frequently in order to incentivize the holders of the Notes to convert all of the outstanding amounts outstanding under the Notes. As of December 31, 2016, all of the Notes were fully repaid. During the year ended December 31, 2016, $18.7 million of aggregate principal amount of Notes were converted by holders of the Notes into approximately 2,632,000 shares of the Company’s common stock. Description of the Notes The Notes were payable in monthly installments, accrued interest at a rate of 7.0% per annum from the date of issuance and had a maturity date 24 months after the First Closing. The Notes were repayable, at the Company’s election, in either cash or shares of the Company’s common stock at a discount to the then-current market price. The Notes were also convertible from time to time, at the election of the holders, into shares of the Company’s common stock at an initial conversion price of $304.50 per share. The conversion price was adjusted to $76.30 per share on January 29, 2016, the 16th trading day following the First Reverse Stock Split, per the terms of the Notes. The Notes also allowed the Company to reduce the conversion price from time-to-time, upon the holders’ consent, which was provided for in the Second Amendment. The holder of each Note had the right to convert any portion of such Note unless the holder, together with its affiliates, beneficially owned in excess of 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the conversion, as such percentage ownership was determined in accordance with the terms of the Notes. The holders were also able to increase or decrease such percentage to any other percentage, but in no event above 9.99%, provided that any increase of such percentage would not be effective until 61 days after providing notice to the Company. The Company determined that the conversion feature in the Notes requires bifurcation and liability classification and measurement, at fair value, and requires evaluation at each reporting period. Under Accounting Standards Codification (ASC) 825, Financial Instruments, the FASB provides an alternative to bifurcation and companies may instead elect fair value measurement for the entire instrument, including the debt and conversion feature. The Company elected the fair value alternative in order to simplify its accounting and reporting of the Notes upon issuance. The fair value of the Note Warrants was recorded as a discount to the Notes and amortized to interest expense following the effective interest rate method over the term of the Notes. The First Closing occurred on November 9, 2015. At the First Closing, the Company issued and sold Notes with an aggregate principal amount of $1.5 million, along with Note Warrants exercisable for 1,679 shares. During the quarter ended September 30, 2016, all remaining principal and interest amounts outstanding under the Notes issued at the First Closing were paid off via conversions to common shares. The Second Closing occurred on January 11, 2016 after the Company received approval of the offering by the Company’s stockholders and the satisfaction of certain customary closing conditions. At the Second Closing, the Company issued and sold Notes with an aggregate principal amount of $11.0 million, along with Note Warrants exercisable for 12,312 shares. The fair value of Note Warrants issued on January 11, 2016 was determined to be $515,000 using a Black-Scholes valuation model. During the quarter ended December 31, 2016, all remaining principal and interest amounts outstanding under Notes issued at the Second Closing were paid off via conversions to common shares. The Third Closing occurred on May 2, 2016 after the Company entered into the First Amendment and satisfied certain closing conditions. At the Third Closing, the Company issued and sold Notes with an aggregate principal amount of $6.25 million, along with Note Warrants exercisable for 6,995 shares. The fair value of the Note Warrants issued on May 2, 2016 was determined to be $150,195 using a Black-Scholes valuation model. During the quarter ended December 31, 2016, all remaining principal and interest amounts outstanding under Notes issued at the Third Closing were paid off via conversions to common shares. On December 31, 2015, the fair value of the outstanding Notes was determined to be $1.3 million using a Binomial Lattice model. The following table summarizes the installment amounts and additional conversions by the holders of the Notes through December 31, 2016: First Closing: Common Principal Interest Total Shares Installment amount at December 31, 2015 $ $ $ Holder conversions during the quarter ended December 31, 2015 Total installments and conversions, December 31, 2015 Installment amount at February 29, 2016 Installment amount at March 31, 2016 Holder conversions during the quarter ended March 31, 2016 Total installments and conversions, March 31, 2016 Installment amount at April 30, 2016 Installment amount at May 31, 2016 Installment amount at June 30, 2016 Holder conversions during the quarter ended June 30, 2016 Total installments and conversions, June 30, 2016 Installment amount at July 31, 2016 Installment amount at August 31, 2016 Holder conversions during the quarter ended September 30, 2016 Total installments and conversions, September 30, 2016 and December 31, 2016 $ $ $ Second Closing: Common Principal Interest Total Shares Installment amount at March 2, 2016 $ $ $ * Holder conversions during the quarter ended March 31, 2016 Total installments and conversions, March 31, 2016 Installment amount at April 29, 2016 Installment amount at May 31, 2016 Installment amount at June 30, 2016 Holder conversions during the quarter ended June 30, 2016 Total installments and conversions, June 30, 2016 Installment amount at July 31, 2016 Installment amount at August 31, 2016 Installment amount at September 30, 2016 Holder conversions during the quarter ended September 30, 2016 Total installments and conversions, September 30, 2016 Installment amount at Oct 31, 2016 Installment amount at Nov 30, 2016 Installment amount at December 31, 2016 Holder conversions during the quarter ended December 31, 2016 Total installments and conversions, December 31, 2016 $ $ $ Third Closing Common Principal Interest Total Shares Installment amount at June 30, 2016 $ $ $ Holder conversions during the quarter ended June 30, 2016 — — — — Total installments and conversions, June 30, 2016 Installment amount at July 31, 2016 Cash Payment – July 31, 2016 installment * Installment amount at August 31, 2016 Installment amount at September, 2016 Holder conversions during the quarter ended September 30, 2016 Total installments and conversions, September 30, 2016 Installment amount at Oct 31, 2016 Installment amount at Nov 30, 2016 Installment amount at December 31, 2016 Holder conversions during the quarter ended December 31, 2016 Total installments and conversions, December 31, 2016 $ $ $ * Cash payments Description of the Note Warrants Each Note Warrant is exercisable immediately and for a period of 60 months from the date of the issuance of the Note Warrant. After completion of the Third Closing, the Note Warrants entitle their holders to purchase, in aggregate, 27,982 shares of the Company’s common stock. The Note Warrants were initially exercisable at an exercise price equal to $325.50, subject to adjustment on the eighteen month anniversary of issuance, and certain other adjustments. The exercise price and number of shares of common stock issuable on the exercise of the Note Warrants is subject to adjustment upon the issuance of any shares of common stock or securities convertible into shares of common stock below the then-existing exercise price, with certain exceptions. Additionally, the exercise price and number of shares of common stock issuable upon the exercise of the Note Warrants are subject to adjustment in the event of any stock split, reverse stock split, recapitalization, reorganization or similar transaction. The holder of each Note Warrant does not have the right to exercise any portion of such Note Warrant if the holder, together with its affiliates, beneficially owns in excess of 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the Note Warrants. However, any holder may increase or decrease such percentage to any other percentage, but in no event above 9.99%, provided that any increase of such percentage will not be effective until 61 days after providing notice to the Company. The exercise price of the Note Warrants issued November 9, 2015 was reduced to $76.30 per share on January 29, 2016, the 16 th trading day following the First Reverse Stock Split, per the terms of the Note Warrants. Per the terms of the Note Warrants, the exercise price of each of the Note Warrants issued January 11, 2016 and May 2, 2016 remained $325.50 until January 20, 2017, the 16 th trading day following the Second Reverse Stock Split, at which point the price of all of the Note Warrants was adjusted to $2.18 per share. All of the Note Warrants remain subject to adjustment on the eighteen month anniversary of issuance. |