|12 Months Ended|
Dec. 31, 2018
The Company’s capital structure is comprised of preferred stock and common stock. The Company’s authorized capitalization consists of (i) 80,000,000 shares of common stock, par value $0.0001 per share, and (ii) 10,000,000 shares of Preferred Stock, $0.0001 par value per share.
The Company’s certificate of incorporation authorizes the Board of Directors to establish one or more classes or series of preferred stock. Unless required by law or by any stock exchange on which our common stock is listed in the future, the authorized shares of preferred stock will be available for issuance at the discretion of our Board of Directors without further action by our stockholders. The Board of Directors is able to determine, with respect to any class or series of preferred stock, the terms and rights of that series.
STOCK REPURCHASE PROGRAM
On May 2, 2018, the Company’s board of directors authorized the repurchase of issued and outstanding shares of the Company’s common stock having an aggregate value of up to $10.0 million pursuant to a share repurchase program. The authorization did not specify an expiration date. The repurchases under the share repurchase program were made in the open market or in privately negotiated transactions and were funded from the Company’s working capital. All shares of common stock repurchased under the Company’s share repurchase program were retired and restored to authorized but unissued shares of common stock at December 31, 2018. During 2018, the Company repurchased 686,492 shares of its common stock under the share repurchase program, for an aggregate purchase price of approximately $2.0 million, or a weighted average cost of $2.93 per share. In accordance with ASC 505-30-30-8, we charged the excess over the par value entirely to retained earnings in recognition of the fact that a corporation can capitalize or allocate retained earnings for such purposes. As of December 31, 2018, the Company had a remaining authorization of $8.0 million for future share repurchases.
During 2017, the Company retired all shares of the Series A Preferred stock with a final redemption of $13.8 million or 83,502 shares; $8.4 million reduced the original recorded value of the Series A Preferred stock and $5.4 million reduced the accreted value.
In June 2017, Finjan entered into a Series A-1 Preferred Stock Purchase Agreement with Soryn HLDR Vehicle II LLC, a Delaware
limited liability company (“Soryn HLDR”), pursuant to which the Company agreed to issue to Soryn HLDR in a private placement
an aggregate of 153,000 shares of the Company’s Series A-1 Preferred Stock at a purchase price of $100.00 per share, for aggregate
proceeds of $15.3 million. The closing of the private placement occurred on June 19, 2017.
The accounting for the Series A-1 Preferred Stock was accounted under Section 480-10-S99 - Distinguishing Liabilities from Equity (FASB Accounting Standards Codification 480) as amended by ASU 2009-04 - Accounting for Redeemable Equity Instruments (“ASU 2009-04”). Under ASU 2009-04, a redeemable equity security is to be classified as temporary equity if it is conditionally redeemable:
a) at a fixed or determinable price on a fixed or determinable date,
b) at the option of the holder, or
c) upon the occurrence of an event that is not solely within the control of the issuer.
The Company’s Series A-1 Preferred stock financing is redeemable at the option of the holder. Therefore, the Company classified the Series A-1 Preferred Stock as temporary equity in the consolidated balance sheet.
During the quarter ended March 31, 2018, the Company retired all shares of the Series A-1 Preferred stock, $19.9 million or 153,000 shares; $15.3 million reduced the original recorded value of the Series A-1 Preferred stock and $4.6 million reduced the accreted value. The Company incurred issuance costs of $1.0 million which were recorded as an offset to the preferred stock. Such costs have been recognized as a deemed dividend upon the redemption and retirement of the Preferred stock. The Company accretes changes in redemption value over the period from the date of issuance to the earliest redemption dates of the security. The increase in the redemption value is a deemed dividend that increases the carrying value of the Series A-1 Preferred Stock to equal the redemption value at the end of each reporting period with an offsetting decrease to additional paid-in-capital. The Company recorded a deemed dividend of $4.6 million during the second half of 2017, representing an increase to the Series A-1 Preferred Stock's redemption (liquidation) value.
On issuance of the Series A-1 Preferred stock, the Company agreed to issue to Soryn HLDR Vehicle II LLC, a Delaware limited liability company, a fully vested common stock warrant (the “Warrant”), to initially purchase 2.0 million shares of common stock, $0.0001 par value per share of the Company at an exercise price of $3.18 per share, which increased to 2.4 million shares in accordance with its terms. The Warrant has a term of three years. Upon the closing of the sale and issuance of the Series A-1 Preferred Stock on June 19, 2017, the Warrant was issuable for 2.0 million shares, increased by an additional 0.3 million shares on June 30, 2017 and an additional 0.05 million shares on July 21, 2017.
The holder of the Warrant has the right to acquire a variable amount of common stock at a fixed price for the first 15 months. Under ASC 815-40-15-8A, the Warrant is not considered indexed to the Company’s stock, and thus it had a derivative feature and was classified as a liability for the first 15 months. The Company valued the Warrant at inception using a Monte Carlo valuation model, recording a $3.3 million warrant liability at inception, which was then marked-to-market at each reporting period with the change in fair value recorded in the consolidated statements of operations. The change in fair value of the warrant liability during 2018 was a loss of $3.4 million and recorded in the consolidated statements of operations. On September 19, 2018, upon expiration of the 15 month period, the Warrant was marked-to-market and its value increased to $4.5 million and reclassified such amounts to equity.
As of December 31, 2018 the aggregate intrinsic value of the warrant was $0, with a weighted average contracted term of 1.5 years.
Holders of the Company’s common stock are entitled to one vote on each matter submitted to a vote at a meeting of stockholders. The Company’s common stock does not have cumulative voting rights, which means that the holders of a majority of voting shares voting for the election of directors can elect all of the members of the Board of Directors. The Company’s common stock has no preemptive rights and no redemption or conversion privileges. The holders of the outstanding shares of the Company’s common stock are entitled to receive dividends out of assets legally available at such times and in such amounts as the Board of Directors may, from time to time, determine, and upon liquidation and dissolution are entitled to receive all assets available for distribution to the stockholders. A majority vote of shares represented at a meeting at which a quorum is present is sufficient for all actions that require the vote of stockholders.
On June 30, 2017, the Company completed an underwriting agreement (the “Underwriting Agreement”) with B. Riley & Co., LLC (the “Underwriter”) pursuant to which the Company agreed to issue and sell an aggregate of 3.6 million shares of its common stock, par value $0.0001per share (the “Common Stock”), at a public offering price of $3.15 per share gross proceeds, with net proceeds to the Company of $2.90 per share, for a total of $10.4 million. Under the terms of the Underwriting Agreement, the Company also granted the Underwriters a 30-day over-allotment option to purchase an additional 0.5 million shares of Common Stock, which was exercised July 21, 2017. The Company received $1.6 million net proceeds from the exercise of the over-allotment.
The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef