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Stockholders' Equity
 9 Months Ended
Sep. 30, 2016
Stockholders' Equity [Abstract]  
Stockholders' Equity

4. Stockholders’ Equity

 

Securities Purchase Agreement

 

In August 2016, Neonode entered into the Securities Purchase Agreement with institutional and accredited investors as part of a private placement pursuant to which Neonode agreed to issue a total of 8,627,352 shares of Neonode common stock, as described below, and warrants for an aggregate purchase price of $7.9 million in net proceeds. The total number of shares includes (i) an aggregate of 427,352 Employee Investor Shares at $1.17 per share for gross proceeds of approximately $500,000, (ii) an aggregate of 4,600,000 Outside Investor Shares at a price of $1.00 per share for gross proceeds of $4,600,000, and (iii) up to 3,600,000 Pre-Funded Warrant Shares issuable upon exercise of the Pre-Funded Warrants for which Neonode received $3,564,000 pre-funded in gross proceeds and up to $36,000 in proceeds upon future cash exercises. The Pre-Funded Warrants were issued to certain outside investors whose purchase of shares of Neonode common stock would make them the beneficial owners of more than 9.99% of the outstanding common stock of Neonode. Each of the Pre-Funded Warrants were pre-funded upon closing of the private placement at $0.99 per Pre-Funded Warrant Share and have an exercise price of $0.01 per Pre-Funded Warrant Share. The Pre-Funded Warrants are immediately exercisable upon issuance and will not expire prior to exercise.

 

In addition, under the terms of the Securities Purchase Agreement, Neonode issued the Purchase Warrants to all investors in the private placement to purchase up to a total of 4,313,676 shares of Neonode common stock at an exercise price of $1.12 per share. The total number of Purchase Warrant Shares represents a ratio of 50% warrant coverage to the Investor Shares such that investors will be entitled to receive one Purchase Warrant Share upon cash exercise for every two Initial Shares or Pre-Funded Warrants purchased. The Purchase Warrants will expire five and one-half years from issuance and are non-exercisable for the first six months. The terms of the Purchase Warrants require that exercise may only be for cash and not on a cashless basis unless, after a period of six months from closing of the private placement, the Purchase Warrant Shares are not subject to a registration statement or there has been a failure to maintain the effective registration of the Purchase Warrant Shares by Neonode as described below. 

 

The exercise price of the Pre-Funded Warrants and the Purchase Warrants is subject to adjustment for stock splits, stock dividends, recapitalizations, and similar transactions or a “Fundamental Transaction” as provided for in the terms of the Pre-Funded Warrants and the Purchase Warrants. The holders may exercise the Pre-Funded Warrants or the Purchase Warrants in whole or in part.  

 

In connection with the Securities Purchase Agreement, Neonode entered into a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which Neonode will file a registration statement with the Securities and Exchange Commission relating to the offer and sale by the holders of the Initial Shares, the Pre-Funded Warrant Shares, and the Purchase Warrant Shares. Pursuant to the Registration Rights Agreement, Neonode is obligated to file the registration statement within 30 days and to use best efforts to cause the registration statement to be declared effective within 90 days. Failure to meet those and related obligations, or failure to maintain the effective registration of the Initial Shares, the Pre-Funded Warrant Shares, and Purchase Warrant Shares will subject Neonode to payment for liquidated damages. The registration statement was filed and declared effective in September 2016.

 

 Pursuant to the terms of the Securities Purchase Agreement, Neonode has agreed that during the 90-day period following the required effectiveness of the registration statement described above, Neonode will not announce, issue, or enter into any agreement to issue any shares of Neonode common stock or equivalents, subject to certain exceptions including securities issuable pursuant to the Securities Purchase Agreement or pursuant to exercises, exchanges, or conversions of Neonode’s outstanding securities, issuances pursuant to any employee benefit plan of Neonode, and issuances pursuant to acquisitions or strategic transactions. In addition, Neonode has agreed not to enter into any “Variable Rate Transaction” as defined in the Securities Purchase Agreement for a period of up to two years.

 

Other Common Stock Activity

 

During the nine months ended September 30, 2016, a warrant holder exercised warrants to purchase 80,000 shares of common stock using the cashless net exercise provision allowed in the warrant and received 11,565 shares of our common stock.

 

Preferred Stock

 

We have one class of preferred stock outstanding. The terms of the Series B Preferred stock are as follows:

 

Dividends and Distributions

 

The holders of shares of Series B Preferred stock are entitled to participate with the holders of our common stock with respect to any dividends declared on the common stock in proportion to the number of shares of common stock issuable upon conversion of the shares of Series B Preferred stock held by them.

 

Liquidation Preference

 

In the event of any liquidation, dissolution, or winding up of our operations, either voluntary or involuntary, subject to the rights of the Series B Preferred stock and Senior Preferred stock, shall be entitled to receive, after any distribution to the holders of senior preferred stock and prior to and in preference to any distribution to the holders of common stock, $0.001 for each share of Series B Preferred stock then outstanding.

 

Voting

 

The holders of shares of Series B Preferred stock have one vote for each share of Series B Preferred stock held by them.

 

Conversion

 

Initially, each share of Series B Preferred stock was convertible into one share of our common stock. On March 31, 2009, our stockholders approved a resolution to increase the authorized share capital, and to increase the conversion ratio to 132.07 shares of our common stock for each share of Series B Preferred stock.

 

Conversion of Preferred Stock Issued to Common Stock

 

The following table summarizes the amounts as of September 30, 2016.

 

  Shares of
Preferred
Stock Not
Exchanged
as of
September 30,
2016		  Conversion Ratio  Shares of
Common
Stock after
Conversion
of all
Outstanding
Shares of
Preferred
Stock Not
yet
Exchanged at
September 30,
2016		 
             
Series B Preferred stock  83   132.07   10,962 

 

Warrants

 

A summary of all warrant activity is set forth below:

  

  September 30, 2016 
  Warrants  Weighted Average Exercise Price  Weighted Average 
Remaining Contractual Life		 
Outstanding and exercisable, January 1, 2016  464,073  $3.02   0.19 
Granted (Prefunded)  3,600,000   0.01   - 
Granted (Purchase)  4,313,676   1.12   - 
Expired/cancelled  (384,073)  3.13   - 
Exercised  (80,000)  2.00   - 
Outstanding and exercisable, September 30, 2016  7,913,676  $0.62   5.39 

 

Outstanding Warrants to Purchase
Common Stock as of September 30, 2016:

 

Description Issue Date  Exercise
Price		  Shares  Expiration
Date		 
             
August 2016 Investor Prefunded Warrants  8/16/2016  $0.01   3,600,000   2/16/2022 
August 2016 Investor Warrants  8/17/2016  $1.12   4,100,000   2/17/2022 
Employee Warrants  8/17/2016  $1.12   213,676   2/17/2022 
Total Warrants Outstanding          7,913,676     

 

Certain outside investors whose purchase of shares would make them the beneficial owners of more than 9.99% of Neonode’s outstanding common stock received pre-funded warrants in lieu of common stock. These pre-funded warrants for outside investors were sold at $0.99 per share for a total cash payment of $3.6 million and contain a Pre-Funded warrant exercise price of $0.01 per share to represent a total payment of $1.00 per share. The warrants issued in the August 2016 financing transaction are not exercisable for six months from the issuance date, until February 2017. The Pre-Funded Warrants are immediately exercisable upon issuance and will not expire prior to exercise.