SEPTEMBER 2015 CONVERTIBLE NOTES AND SERIES G PREFERRED STOCK

September 2015 Convertible Notes Extinguishment

On September 4, 2015, the Company entered into a note purchase agreement between the Company and the Accredited Investors. Pursuant to the note purchase agreement, the Company issued to the Accredited Investors $1.5 million original principal amount of secured subordinated convertible notes on September 4, 2015, and an additional $0.5 million original principal amount of secured subordinated convertible notes on September 28, 2015 (collectively, the “September 2015 Convertible Notes”). The September 2015 Convertible Notes bear interest at a rate of 8% per annum.

All amounts due under the September 2015 Convertible Notes were convertible at any time, in whole or in part, at the option of the Accredited Investors, into shares of Common Stock at a fixed conversion price, which was subject to adjustment for stock splits, stock dividends, combinations or similar events, of $2.40 per share (the “Conversion Price”). The Company, however, was prohibited from issuing shares of Common Stock pursuant to the September 2015 Convertible Notes unless stockholder approval of such issuance of securities was obtained as required by applicable NASDAQ listing rules. The Company received stockholder approval of such share issuances at a special stockholders meeting held on December 18, 2015. This provision resulted in a contingent beneficial conversion feature that was recognized once the contingency was resolved based on its intrinsic value at the commitment date. Accordingly, a beneficial conversion feature in the amount of $1.38 million was recorded as a debt discount on December 18, 2015. The debt discount was recognized as additional interest expense over the life of the September 2015 Convertible Notes.

There were no registration rights applicable to the September 2015 Convertible Notes. Accordingly, any shares of Common Stock issued upon conversion of the September 2015 Convertible Notes would be restricted and could only be sold in compliance with Rule 144 or in accordance with another exemption from registration.

On April 29, 2016, the Company entered into Exchange Agreements (the “Exchange Agreements”) with the Accredited Investors. Under the terms of the Exchange Agreements, the September 2015 Convertible Notes (approximately $2.10 million of outstanding principal and accrued interest) were cancelled. In exchange, the Company has issued to the Accredited Investors rights to receive a fixed number of shares of common stock of the Company in accordance with the terms of Rights to Receive Common Stock dated April 29, 2016 (the “April 2016 Rights”). The April 2016 Rights obligate the Company to issue to the holders (without the payment of any additional consideration) an aggregate of approximately 2.10 million shares of common stock (the "April 2016 Rights Shares"). The number of April 2016 Rights Shares is fixed, and is only subject to customary non-price based ratable adjustments. The April 2016 Rights are immediately exercisable and expire on April 29, 2021.

A net loss on extinguishment of $0.89 million was recorded to "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 as a result of the cancellation of the September 2015 Convertible Notes and issuance of the April 2016 Rights. During the three months ended September 30, 2016, the Accredited Investors exercised their April 2016 Rights to receive and the Company has delivered 1,552,865 shares of common stock.

Series G Convertible Preferred Stock Financing

On April 29, 2016, the Company entered into securities purchase agreements with the Accredited Investors for the private placement of $2,000,000 of the Company’s newly designated Series G Preferred Stock. The Company issued a total of 500 shares of Series G Preferred Stock to the Accredited Investors in exchange for $500,000 at closing. The Company sold an additional 1,500 shares of Series G Preferred Stock to the Accredited Investors during the months of May and June 2016, which resulted in additional gross proceeds to the Company of $1,500,000.

On September 21, 2016, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to the Certificate of Designations of Preferences, Rights and Limitations of Series G Preferred Stock with the Secretary of State of the State of Delaware. The Certificate of Amendment amends the conversion price at which the Series G Preferred Stock can be converted into shares of common stock. Shares of the Series G Preferred Stock (including the amount of any accrued and unpaid dividends thereon) were previously convertible at the option of the Accredited Investors into common stock at a fixed conversion price of $1.00 per share. As amended, the conversion price is equal to the lowest of (i) $0.045, (ii) 70% of the lowest volume weighted average price of our common stock for the ten consecutive trading day period prior to the conversion date or (iii) 70% of the lowest closing bid price of our common stock for the ten consecutive trading day period prior to the conversion date.

As a result of the modification to the conversion price discussed above, pursuant to guidance from 470-50, Subsequent Accounting for Modifications and Exchanges if Extinguishment Accounting is Applied, the original Series G Preferred Stock was extinguished along with the original beneficial conversion for a gain of $1,886,000, which was recorded to "change in fair value of derivatives and gain/(loss) on extinguishment of liabilites, net" in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016. The new Series G Preferred Stock was recorded at fair value of $3,331,239 as of September 21, 2016.

Additionally, pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the new conversion option in the Series G Preferred Stock was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. On September 21, 2016, the date of the modification, a derivative liability and a corresponding debt discount in the amount of $1,262,950 were recorded. The debt discount will be charged to interest expense ratably over the life of the Series G Preferred Stock.

The derivative liability associated with the Series G Preferred Stock is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. At September 30, 2016, the Company conducted a fair value assessment of the embedded derivative associated with the Series G Preferred Stock. As a result of the fair value assessment, the Company recorded a $38,521 gain as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $1,301,471 as of September 30, 2016.

The derivative associated with the Series G Preferred Stock approximates management’s estimate of the fair value of the embedded derivative liability at September 30, 2016 based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of 76%, present value discount rate of 12% and dividend yield of 0%.

Holders of the Series G Preferred Stock will be entitled to dividends in the amount of 10% per annum. One year after issuance, the Company is required to redeem for cash all or any portion of the outstanding shares of the Series G Preferred Stock at a price per share equal to $1,000 plus any accrued but unpaid dividends thereon. Except as otherwise required by law (or with respect to approval of certain actions), the Series G Preferred Stock does not have voting rights.

There are no registration rights applicable to the Series G Preferred Stock. Accordingly, any shares of Common Stock issued upon conversion of the Series G Preferred Stock are restricted and can only be sold in compliance with Rule 144 or in accordance with another exemption from registration.

On July 26, 2016, the Accredited Investors (the “Series G Sellers”) entered into Assignment Agreements (the “Assignment Agreements”), with another accredited investor (the “Series G Purchaser”). Under the terms of the Assignment Agreements, the Series G Sellers will sell all 2,000 outstanding shares of Series G Preferred Stock to the Series G Purchaser in a series of installments occurring during September and October 2016. The purchase price will be $1,000 per share of Series G Preferred Stock (plus the amount of any accrued and unpaid dividends thereon).