10.

Convertible Preferred Stock and Stockholder’s Equity

In contemplation of completing the private placement described below, the Company amended and restated its articles of incorporation and authorized

13,750,000

shares of Series A convertible preferred stock.

Series

A Convertible Preferred Stock Transaction

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 offering. Each share of Series A convertible preferred stock entitles the holder to an

8.0%

cumulative dividend payable in shares of the Company's common stock on a semi-annual basis. The holders

may,

at their option, 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

$2.02

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

one

share of common stock at an initial exercise price of

$2.22,

subject to adjustment and expires on the

fifth

anniversary of their original issuance date.

The Company sold

12,376,329

units in the 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 offering warrants to purchase an aggregate of

1,179,558

shares of common stock at an initial exercise price of

$2.22

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,

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. 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. On

November 1, 2017

the Company held a Special Stockholders meeting, requesting stockholders, both common and Series A, to approve a proposed amendment to the Company’s 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, which was approved by the stockholders. As a result of this amendment, the Company is able to assert that there will be sufficient authorized shares available to settle the Series A warrants, and as a result, the Series A warrants were reclassified from liabilities to stockholders’ equity in the

fourth

quarter of

2017.

As the fair value of the warrants upon issuance was in excess of the proceeds of the Series A offering, there are

proceeds allocated to the Series A convertible preferred stock. The excess fair value of the warrants over the gross proceeds of the Series A offering and the fair value of the warrants granted to its placement agent was

$10.2

million in the aggregate and was recorded as warrant related expenses in the statement of operations for the year ended

December

31,

2017.

As a result of the completion of our common stock offering in

January 2018,

all outstanding shares of the Company's Series A convertible preferred stock converted into

20,568,632

shares (the "Conversion Shares") of common stock of which (i)

8,306,278

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

593,933

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

11,668,421

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

Dividends

Until the conversion of all outstanding Series A convertible preferred stock in

January 2018,

the cumulative preferred dividend on the Series A convertible preferred stock was payable at a rate of

8.0%

per annum, payable only in shares of common stock, semi-annually in arrears on

April 1

and

October 1

of each year commencing on

October 1, 2017.

This cumulative preferred dividend was

not

subject to declaration. The Company recognized approximately

$1.3

million in dividends during the year ended

December

31,

2017,

of which

$0.2

million was settled upon by the issuance of

86,335

shares of the Company's common stock. As of

December 31, 2017,

there were approximately

$1.1

million in accrued dividends that were subsequently settled in

January 2018.

Voting

Subject to certain preferred stock class votes specified in the Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Preferred Stock (the “Certificate of Designation”) or as required by law, the holders of the Series A convertible preferred stock voted together with the holders of common stock as a single class on an adjusted as-converted basis. In accordance with NASDAQ listing rules, in any matter voted on by the holders of the common stock, each share of Series A convertible preferred stock entitled the holder thereof to a number of votes based upon the closing price of our common stock on the NASDAQ Capital Market on the date of issuance of such shares of Series A convertible preferred stock. Accordingly, shares of Series A convertible preferred stock issued in the initial closing of the private placement on

March 14, 2017

were entitled to

0.84874

votes per share and shares of Series A Preferred Stock issued in the final closing of the private placement on

March 31, 2017

were entitled to

0.50627

votes per share, in each case, subject to adjustment as described in the Certificate of Designation.

Liquidation Preference

The Series A convertible preferred stock was senior to the common stock. In the event of a liquidation, dissolution or winding up of the Company, either voluntary or involuntary, or in the event of a deemed liquidation event, which includes a sale of the Company as defined in the Certificate of Designation, the holders of the Series A convertible preferred stock would be entitled to receive their original investment amount. If upon the occurrence of such event, the assets and funds available for distribution are insufficient to pay such holders the full amount to which they are entitled, then the entire remaining assets and funds legally available for distribution would be distributed ratably among the holders of the Series A convertible preferred stock in proportion to the full amounts to which they would otherwise be entitled.

Conversion

The Series A convertible preferred stock was convertible, at the holder

’s option, into common stock. The Series A convertible preferred stock was also mandatorily convertible into common stock upon (a) the

thirty

-day moving average of the closing price of the Company’s common stock exceeding

$8.00

per share, (b) a financing of at least

$10.0

million in gross proceeds or (c) upon the majority vote of the voting power of the then outstanding shares of Series A convertible preferred stock. The conversion price of the Series A convertible preferred stock was subject to adjustment as described in the Certificate of Designation. During the year ended

December

31,

2017,

4,070,051

shares of Series A convertible preferred stock were converted into common stock. Upon completion of the Company’s public offering of its common stock in

January 2018,

all remaining shares of Series A convertible preferred stock issued and outstanding were converted into common stock.

Make-Whole Provision

Until

March 2020

and subject to certain exceptions, if the Company issued at least

$10.0

million of its common stock or securities convertible into or exercisable for common stock at a per share price less than

$2.02

(such lower price, the “Make-Whole Price”) while any shares of Series A convertible preferred stock remain outstanding, the Company would be required to issue to these holders of Series A convertible preferred stock a number of shares of common stock equal to the additional number of shares of common stock that such shares of Series A convertible preferred stock would be convertible into if the conversion price of such shares was equal to

105%

of the Make-Whole Price (the “Make-Whole Adjustment”). The Make-Whole Adjustment was evaluated and was

not

required to be bifurcated from the Series A convertible preferred stock.

The Make-Whole Adjustment was triggered and settled in

January 2018

in connection with the Company's common stock offering. The Company issued

11,668,421

shares as part of the Make-Whole Adjustment.

Common Stock

In connection with the Merger (See Note

) the Company ascribed non-cash consideration of

$0.4

million to

478,200

warrants outstanding prior to the Merger. During the year ended

December

31,

2016,

the Company issued

2,226,698

shares of its Common Stock of which

1,861,503

are shares held by the pre-Merger stockholders of the Company,

45,643

shares were issued for advisory services provided in connection with the Merger,

102,430

shares were issued for general financial advisory services provided to the Company and

217,122

shares were issued pursuant to conversions of convertible debt as discussed in Note

2017,

the Company issued

17,606

shares for advisory services. The Company did

not

purchase or retire any shares of its common stock.

Common Stock Warrants

As of

December

31,

2017,

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

	Outstanding		Range of exercise price per share
Common stock warrants issued prior to Merger		447,721	$20.00	-	$49.00
Common stock warrants issued in Series A		13,555,887	$2.22
		14,003,608

During the years ended

December

31,

2017

and

2016,

13,000

and

17,479

warrants issued prior to the Merger expired, respectively; these common stock warrants will expire periodically through

2019.

The common stock warrants issued in connection with the

March 2017

Series A private placement expire in

March 2022.

During the year ended

December

31,

2017,

the Company recognized a gain of

$22.1

million upon the change in fair value of the warrant until they were reclassified to permanent equity in

November 2017

and

$10.2

million in warrant related charges associated with the Series A private placement, which consisted primarily of the excess fair value of the common stock warrants over the gross cash proceeds of the Series A offering.