Restatement of Consolidated Financial Statements | 3 Months Ended |
Mar. 31, 2014 |
Accounting Changes and Error Corrections [Abstract] | ' |
Restatement of Consolidated Financial Statements | ' |
Note 3. Restatement of Consolidated Financial Statements |
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On May 6, 2014, the Audit Committee of the Company’s Board of Directors (the “Audit Committee”), in connection with an internal review initiated by Company management, concluded that, because of a misapplication of the accounting guidance related to certain of the Company’s warrants, the Company’s previously issued consolidated financial statements for all periods beginning with the quarterly period ended September 30, 2011 through December 31, 2013 (collectively, the “Affected Periods”) should no longer be relied upon. As such, the Company anticipates it will restate its financial statements for the following periods: (i) the fiscal years ended December 31, 2013, December 31, 2012 and December 31, 2011, (ii) all quarterly periods of 2013 and 2012 and (iii) the quarterly period ending September 30, 2011. However, these restatements result in non-cash, non-operating expense corrections and will have no impact on the Company’s current or previously reported cash position, operating expenses or total operating, investing or financing cash flows, and net operating loss carryforward. |
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The warrants at issue (collectively, the “Warrants”) consist of the following: |
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1. warrants to purchase an aggregate of 15,080 shares of common stock, issued on October 13, 2009 at an exercise price of $6.25 per share issued to placement agents; |
2. Series A, class A warrants to purchase 115,440 shares of common stock, issued on October 13, 2009 at an exercise price of $6.25 per share; |
3. Series A, class B warrants to purchase 130,004 shares of common stock, issued on October 13, 2009 at an exercise price of $6.25 per share; |
4. warrants to purchase an aggregate of 393,416 shares of common stock, issued on March 4, 2010 at an exercise price of $6.25 per share; |
5. warrants to purchase 6,113 shares of common stock, issued on June 16, 2011 at an exercise price of $22.50 per share issued to placement agents; |
6. warrants to purchase 50,123 shares of common stock, issued on August 22, 2011 at an exercise price of $13.635 per share issued to placement agents; |
7. warrants to purchase 565,759 shares of common stock, issued on August 22, 2011 at an exercise price of $18.75 per share; |
8. warrants to purchase an aggregate of 1,125,578 shares of common stock, issued on June 1, 2012 at an exercise price of $2.50 per share; |
9. warrants to purchase an aggregate of 1,217,816 shares of common stock, issued on various dates in 2010 and 2011 at an exercise price of $6.25 per share; |
10. warrants to purchase an aggregate of 1,568,823 shares of common stock, issued on various dates in 2012 at an exercise price of $7.50; and |
11. warrants to purchase an aggregate of 768,778 shares of common stock, issued on various dates in 2010 at an exercise price of $6.25. |
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The above warrant shares and exercise prices have been retroactively adjusted to reflect the April 30, 2013 reverse stock split. |
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Of the Warrants, approximately 5,335,000 were originally and correctly classified as liabilities on the Company’s balance sheets. In connection with the Company’s October 2012 financing and a contemporaneous modification of those Warrants to remove “down-round” anti-dilution protection, such Warrants were erroneously reclassified as a component of equity as opposed to liabilities on the balance sheets. The corresponding statements of operations did not include the subsequent non-cash changes in the estimated fair value of such Warrants. Those Warrants, however, continued to contain a cash settlement feature regarding fundamental transactions that allowed those Warrant holders to have a different settlement option than the Company’s stockholders upon certain fundamental transactions, including a change of control of the Company, thereby precluding equity treatment for the Warrants. In the course of management’s investigation, the Company also reviewed the Warrant agreements for approximately 622,000 Warrants that were originally classified as equity instruments upon their issuance. Those Warrants contained a similar fundamental transaction settlement provision that precluded equity treatment for such Warrants. |
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Under the guidance of Accounting Standards Codification, Derivatives and Hedging, (“ASC 815”), warrant instruments that could potentially require net cash settlement in the absence of express language precluding such settlement and those which include “down-round provisions” should be initially classified as derivative liabilities at their estimated fair values, regardless of the likelihood that such instruments will ever be settled in cash. In periods subsequent to issuance, changes in the estimated fair value of the derivative instruments should be reported in the statement of operations. The Audit Committee, together with management, determined that the financial statements in the Affected Periods should be restated to reflect the Warrants as liabilities, with subsequent changes in their estimated fair value recorded as non-cash income or expense in each Affected Period. |
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The impact of the restatement on the unaudited condensed consolidated balance sheet, statement of operations and statement of cash flows as of and for the three-month period ended March 31, 2013 is presented below. The restatement had no impact on net cash flows from operating, investing or financing activities as the adjustments resulting from the non-cash change in the fair value of the warrant liability for each period and the statements of operations only impacted net income (loss) from continuing operations. In addition to the restatement noted above, the consolidated statements of operations and the consolidated balance sheets have also been retroactively adjusted to give effect to the Company’s April 2013 reverse stock split. |
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Impact of the Restatement |
($ in thousands) |
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| | Three Months Ended March 31, 2013 | |
| | As Previously | | Adjustment | | As Restated | |
Reported |
Consolidated Statement of Operations Data (unaudited): | | | | | | | |
Warrant revaluation and other finance income (expense) | | $ | 58 | | $ | 1,280 | | $ | 1,338 | |
Loss from continuing operations before income taxes | | (5,846 | ) | 1,280 | | (4,566 | ) |
Loss from continuing operations | | (5,846 | ) | 1,280 | | (4,566 | ) |
Net loss | | $ | (5,850 | ) | $ | 1,280 | | $ | (4,570 | ) |
Loss from continuing operations per share, basic | | $ | (0.22 | ) | $ | 0.05 | | $ | (.17 | ) |
Loss from continuing operations per share, diluted | | $ | (0.22 | ) | $ | 0.04 | | $ | (.18 | ) |
Net loss per share, basic | | $ | (0.22 | ) | $ | 0.05 | | $ | (.17 | ) |
Net loss per share, diluted | | $ | (0.22 | ) | $ | 0.04 | | $ | (.18 | ) |
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| | As of December 31, 2013 | |
| | As Previously | | Adjustment | | As Restated | |
Reported |
Consolidated Balance Sheet Data: | | | | | | | |
Warrant liability | | $ | 210 | | $ | 15,006 | | $ | 15,216 | |
Total liabilities | | 4,342 | | 15,006 | | 19,348 | |
Additional paid-in capital | | 167,342 | | (30,648 | ) | 136,694 | |
Accumulated deficit | | (102,710 | ) | 15,642 | | (87,068 | ) |
Total stockholders’ equity | | 64,672 | | (15,006 | ) | 49,666 | |
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| | Three Months Ended March 31, 2013 | |
| | As Previously | | Adjustment | | As Restated | |
Reported |
Consolidated Cash Flows Data (unaudited): | | | | | | | |
Net loss | | $ | (5,850 | ) | $ | 1,280 | | $ | (4,570 | ) |
Decrease in fair value of warrants | | (58 | ) | (1,280 | ) | (1,338 | ) |
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