NOTE

11.

STOCKHOLDERS

’ EQUITY (DEFICIT)

Amendments to Articles of Incorporation

—Reverse Stock Split

Effective

December 18, 2015,

the Company amended its Certificate of Incorporation to affect a

-for-

reverse split of its outstanding common stock (the “Reverse Stock Split”). The Reverse Stock Split was approved by the Company

’s stockholders on

December 11, 2015.

The accompanying financial statements and related notes give retroactive effect to this Reverse Stock Split.

Preferred Stock

Under the Company

’s amended articles of incorporation, the Company is authorized to issue up to

5,000,000

shares of preferred stock in such series and with such rights and preferences as

may

be approved by the Board of Directors. As of

September 30, 2017

and

December 31, 2016,

there were

shares of Company preferred stock outstanding.

Common Stock

February 2016,

the Company entered into

three

securities purchase agreements (the “Purchase Agreements”) for the sale of an aggregate of

1,518,567

shares of the Company

’s common stock (the “Common Stock”) to accredited investors for a total of

$2.8

million. The Company entered into the

first

purchase agreement with Mr. Jian Ping Fu (the “Fu Agreement”), pursuant to which the Company agreed to issue and sell to Mr. Fu

696,590

shares of Common Stock, at a per share price of

$1.81,

which was a

five

percent (

) discount to the closing price of the Common Stock on

February 16, 2016,

the date of the Fu Agreement. The Company entered into the

second

purchase agreement with Pioneer Singapore (the “Pioneer Agreement”), pursuant to which the Company agreed to issue and sell to Pioneer Singapore

696,590

shares of Common Stock, at a per share price of

$1.91,

which was the closing price of the Common Stock on

February 16, 2016

with

discount. The Company entered into a

third

purchase agreement with Mark M. Sieczkarek (the “Sieczkarek Agreement”), pursuant to which the Company agreed to issue and sell to Mr. Sieczkarek

125,387

shares of Common Stock, at a per share price of

$1.91,

which was the closing price of the Common Stock on

February 16, 2016

with

discount. The Common Stock issued by the Company pursuant to the Purchase Agreements has

not

been registered under the Securities Act and

may

not

be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

China Kington Asset Management Co. Ltd. served as placement agent in exchange for a commission equal to

six

percent (

) of the gross proceeds received by the Company upon closing pursuant to the purchases by Pioneer Singapore and Mr. Fu. The amount of such commission was approximately

$155

thousand.

April 4, 2016,

the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) for the sale of an aggregate

6,173,299

shares of Common Stock, par value

$0.01

per share and warrants (the

“April 2016

Warrants”) exercisable for

3,086,651

Shares to accredited investors for an aggregate purchase price of

$11.8

million (the “Private Placement”). The warrants have a

-year term and an exercise price of

$1.91,

callable by the Company if the closing price of the Common St

ock, as reported on the NYSE American, is

$4.00

or greater for

five

sequential trading days. The Private Placement closed in

two

tranches, the

first

of which closed on

May 5, 2016,

resulting in proceeds to the Company of

$7.8

million (the “Primary Closing”), and the

second

of which closed on

August 1, 2016,

resulting in proceeds of

$4.0

million to the Company (the “Secondary Closing”). In the Primary Closing, the Company issued

4,079,058

shares of Common Stock and

April 2016

Warrants exercisable for

2,039,530

shares of Common Stock. In the Secondary Closing, the Company issued

2,094,241

shares of Common Stock and

April 2016

Warrants exercisable for

1,047,121

shares of Common Stock. Both the Primary Closing and the Secondary Closing were subject to the same terms, containing customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the purchasers and other obligations of the parties and termination provisions.

China Kington Asset Management Co. Ltd. served as placement agent in exchange for a commission equal to

six

percent (

) of the gross proceeds received by the Company upon closing pursuant to the purchases by certain investors. The amount of such commission was approximately

$618

thousand.

Also on

April 4, 2016,

the Company entered into a separate registration rights agreement (the “Registration Rights Agreement”) with Messrs. Andros and Geckler, Dr. Rider, and the Children

’s Brain Disease Foundation (the “Participating Purchasers”), pursuant to which the Company agreed to file as many registration statements with the SEC as

may

be necessary to cover the resale of the shares and the

April 2016

Warrants held by the Participating Purchasers, to use its commercially reasonable efforts to have all such registration statements declared effective within the time frames set forth in the Securities Purchase Agreement and the Registration Rights Agreement, and to keep such registration statements effective for the terms defined therein. The Company filed such Registration Statement to cover the resale of the shares and

April 2016

Warrants held by the Participating Purchasers with the SEC on

June 9, 2016

and received effectiveness of such Registration Statement on

June 20, 2016 (

Registration Number

333

211943

During the

third

quarter of

2016,

the Company recorded

$6.6

million in net proceeds upon the exercise of

3,613,284

of the Company

’s warrants for

3,613,284

shares of the Company’s Common Stock, including all of the warrants issued in

May 2016

and

August 2016.

As consideration for the facilitation of the exercise of certain of these warrants held by non-U.S. citizens domiciled outside of the United States, China Kington received a

six

percent (

) commission on the aggregate proceeds to the Company pursuant to such exercises. The amount of such commission was approximately

$338

thousand.

During the

fourth

quarter of

2016,

the Company recorded

$0.9

million in net proceeds upon the exercise of

363,523

of the Company

’s warrants for

363,523

shares of the Company’s Common Stock. As consideration for the facilitation of the exercise of certain of these warrants held by non-U.S. citizens domiciled outside of the United States, China Kington received a

six

percent (

) commission on the aggregate proceeds to the Company pursuant to such exercises. The amount of such commission was approximately

$32

thousand.

Stock Warrants

February 2016,

the strike prices of the

July 2011,

March 2015

Short-Term and Long-Term, and

October 2015

warrants were reduced to

$1.81

per share, pursuant to the price protection provisions in such warrants, because the Company sold common stock to Mr. Jian Ping Fu at that price.

May 2016,

the Company issued

2,039,530

warrants at the Primary Closing pursuant to the Securities Purchase Agreement. Please see the preceding subsection, “Common Stock,” for further details.

August 2016,

the Company issued

1,047,121

warrants at the Secondary Closing pursuant to the Securities Purchase Agreement. Please see the preceding subsection, “Common Stock,” for further details.

Effective

September 29, 2016,

the Company modified the exercise price of all warrants issued pursuant to the securities purchase agreement, dated

May 18, 2015,

from

$19.50

$3.15

per share, which reflected a discount of approximately

sixteen

percent (

16%

) to the closing price of the Company

’s Common Stock on

September 27, 2016.

The Company has estimated the value of warrant modification as of the date of the modification by applying the Black-Scholes-Merton option pricing model using the single-option valuation approach. As a result of this modification, the Company recorded a non-cash loss of

$270

thousand in general and administrative expense in the consolidated statement of operation and comprehensive loss.

The details of all

outstanding warrants as of

September 30, 2017,

were as follows:

(in thousands, except for exercise price)	Warrants			Weighted- Average Exercise Price
Warrants outstanding December 31, 2016		565		$	1.81
Warrants granted		—			—
Warrants exercised		(21	)		1.81
Warrants expired		—			—
Warrants outstanding September 30, 2017		544		$	1.81