Convertible Preferred Stock, Stockholders’ Equity and Common Stock Warrants

2018

Common Stock Offering

January 2018,

the Company entered into an Underwriting Agreement (the “Agreement”) pursuant to which it issued

1,000,000

shares of Common Stock and warrants to purchase

1,000,000

shares of Common Stock with an initial exercise price of

$12.00

per share for cash proceeds of

$10.8

million. In addition, as compensation for its services, the Company granted to the underwriter in the transaction an option (the “Over-Allotment Option”) to purchase, in the aggregate,

150,000

shares of Common Stock (the “Option Shares”) and warrants to purchase up to

150,000

shares of Common Stock (the “Option Warrants”). The underwriter exercised its right to purchase a portion of the Option Warrants and received an additional

131,375

warrants to purchase Common Stock with an initial exercise price

$12.00

per share.

In addition, at the closing, the Company issued to designees of the underwriter warrants to purchase up to

50,000

shares of Common Stock. The underwriter’s warrants have an exercise price of

$15.00

per share, a term of

five

years from the date of issuance and otherwise substantially similar terms to the form of the investor warrant.

During its evaluation of equity classification for the Common Stock warrants, the Company considered the conditions as prescribed within ASC

815

40,

Derivatives and Hedging, Contracts in an Entity’s own Equity

(“ASC

815

40”

). The conditions within ASC

815

are

not

subject to a probability assessment. The warrants do

not

fall under the liability criteria within ASC

480

Distinguishing Liabilities from Equity

as they are

not

puttable and do

not

represent an instrument that has a redeemable underlying security. The warrants do meet the definition of a derivative instrument under ASC

815,

but are eligible for the scope exception as they are indexed to the Company’s own stock and would be classified in permanent equity if freestanding.

As a result of the Company's Common Stock offering in

January 2018,

all outstanding shares of the Company's Series A convertible preferred stock (discussed below) converted into

1,400,462

shares of Common Stock of which (i)

553,752

shares were issued for the automatic conversion of Series A convertible preferred stock (ii)

68,815

shares were issued upon settlement of accrued dividends and (iii)

777,895

shares were issued for the settlement of the “make-whole” adjustment feature. A deemed dividend of

$8.2

million was recognized for the value of the common shares issued for the settlement of the make-whole adjustment feature.

Series A Convertible Preferred Stock

March 2017,

the Company completed a

$25.0

million private placement of its securities in which the Company offered and sold units consisting of

one

share of the Company’s Series A convertible preferred stock and a warrant to purchase

one

share of Common Stock for each share of Series A convertible preferred stock purchased in the private placement (the

“2017

Private Placement”). Each share of Series A convertible preferred stock entitled the holder to an

8.0%

cumulative dividend payable in shares of Common Stock. The holders, at their option, were able to convert each share of Series A convertible preferred stock into

one

share of the Company’s Common Stock based on the initial conversion price of

$30.30

per share, subject to adjustment. Each warrant entitles the holder to purchase

one

share of Common Stock at an initial exercise price of

$33.30,

subject to adjustment and expires on the

fifth

anniversary of their original issuance date.

The Company sold

12,376,329

units in the

2017

Private Placement and received approximately

$22.1

million in aggregate net cash proceeds, after deducting commissions and other expenses of approximately

$2.9

million. In addition, as compensation for its services, the Company granted to its placement agent in the

2017

Private Placement warrants to purchase an aggregate of

78,637

shares of Common Stock at an initial exercise price of

$33.30

per share, which expire on the

fifth

anniversary of their original issuance date.

During its evaluation of equity classification for the common stock warrants, the Company considered the conditions as prescribed within ASC

815

40.

The conditions within ASC

815

are

not

subject to a probability assessment. As the Company was obligated to issue a variable number of shares to settle the cumulative dividends on the Series A convertible preferred stock, the Company could

not

assert that there would be sufficient authorized shares available to settle the warrants issued in connection with the Series A offering. Accordingly, these warrants were classified as liabilities. In

November 2017

the Company effected an amendment to its Certificate of Incorporation to permit the Company to pay dividends on the Company’s Series A Convertible Preferred Stock in either cash or shares of the Company’s Common Stock, which was approved by the stockholders. As a result of this amendment, the warrants were reclassified on the consolidated balance sheet from liabilities to stockholders’ equity in the

fourth

quarter of

2017.

As the fair value of the warrants upon their issuance was in excess of the proceeds of the

2017

Private Placement, there were

proceeds allocated to the Series A convertible preferred stock. The excess fair value of the warrants over the gross proceeds of the

2017

Private Placement and the fair value of the warrants granted to its placement agent was

$10.2

million in the aggregate and were recorded as warrant related expenses in the Company's consolidated statement of operations for the year ended

December

31,

2017.

In contemplation of completing the

2017

Private Placement, pursuant to the Company’s Certificate of Incorporation, on

March 13, 2017,

the Company adopted the Certificate of Designations of Preferences, Rights and Limitations of the Series A Convertible Preferred Stock of the Company, authorizing

13,750,000

shares of Series A Convertible Preferred Stock for issuance. Upon the mandatory conversion of all of the shares of Series A Convertible Preferred Stock into our Common Stock during

2018,

shares of Series A Convertible Preferred Stock remained authorized, issued or outstanding.

Common Stock

In addition to the above offerings of Common Stock, during the years ended

December 31, 2018

and

2017,

respectively, the Company issued

7,792

and

1,174

shares, respectively, for advisory services. The Company did

not

purchase or retire any shares of its Common Stock during the years ended

December 31, 2018

and

2017.

Common Stock Warrants

As of

December

31,

2018,

the Company had the following warrants outstanding to acquire shares of its common stock:

	Outstanding		Range of exercise price per share			Expiration dates
Common stock warrants issued prior to 2016		1,767	$562.50	-	$735.00	2019
Common stock warrants issued in 2017 related to Series A convertible preferred stock offering		903,870		$33.30		March 2022
Common stock warrants issued in 2018 related to the common stock offering		1,181,375	$12.00	-	$15.00	January 2023
		2,087,012

During the years ended

December

31,

2018

and

2017,

28,123

and

867

warrants issued prior to

2016

expired, respectively.