7 .	Preferred Stock

Series B Convertible Preferred Stock

Our Series B Convertible Preferred Stock,

$1,000

stated value (“Series B Preferred Stock”), has rights and privileges as set forth in the pertinent Certificate of Designation of Preferences, Rights and Limitations, including

a liquidation preference equal to the stated value per share. The Series B Preferred Stock has

voting rights and is

not

entitled to a dividend. As of

December 31, 2017,

there were

100

shares of

Series B Preferred Stock outstanding, convertible at any time at the option of the holder into

285,714

shares of common stock.

Series C Convertible Preferred Stock

February 2015,

we issued

3,000

shares of our Series C Convertible Preferred Stock,

$1,000

stated value (“

Series C Preferred Stock”) and warrants to purchase up to an aggregate of

51,333,331

shares of our common stock for total net proceeds of

$2,679,810.

We allocated

$1,695,869

of the purchase price to the fair value of the warrants issued in the transaction (recorded to Additional Paid-in Capital) and recorded the net amount of

$983,941

as the initial carrying value of the Series C Preferred Stock.

The

Series C Preferred Stock has rights and privileges as set forth in the pertinent Certificate of Designation of Preferences, Rights and Limitations, including a liquidation preference equal to the stated value per share. The Series C Preferred Stock has

voting rights and is

not

entitled to a dividend.

The Series C Preferred Stock is convertible at any time at the option of the holders into shares of our common stock, and contains price adjustment provisions which

may,

under certain circumstances, reduce the conversion price if we sell, or grant options to purchase, our common stock at a price lower than the then conversion price of the Series C Preferred Stock. During

2016,

132

shares of Series C Preferred Stock were converted into

1,400,000

shares of common stock. During

2017,

298

shares of Series C Preferred Stock were converted into

19,862,000

shares of common stock.

May 2017,

in connection with the issuance of our Series D Convertible Preferred Stock discussed below, the conversion price of our Series C Preferred Stock was automatically reduced from

$0.05

per share to

$0.015

per share.

As of

December 31, 2017,

there were

2,570

shares of

Series C Preferred Stock outstanding, convertible into

171,349,733

shares of common stock.

Series D Convertible Preferred Stock

May 2017,

we issued

1,000

shares of our Series D Convertible Preferred Stock,

$1,000

stated value (“

Series D Preferred Stock”), for gross proceeds of

$1.0

million. Net proceeds, after deduction of certain expenses, were

$980,000.

Each share of Series D Preferred Stock is entitled to a liquidation preference equal to the initial purchase price, has

voting rights, and

not

entitled to a dividend. The Series D Preferred Stock is convertible at any time at the option of the holders into shares of our common stock, with an initial conversion price of

$0.015

per share.

The Series D Preferred Shares contains price adjustment provisions, which

may,

under certain circumstances, reduce the conversion price on future dates according to a formula based on the then-current market price for our common stock.

We assessed the Series D Preferred Stock under ASC Topic

480,

“

Distinguishing Liabilities from Equity

” (“ASC

480”

), ASC Topic

815,

“

Derivatives and Hedging

” (“ASC

815”

), and ASC Topic

470,

“

Debt

” (“ASC

470”

). The Series D Preferred Stock contains an embedded feature allowing an optional conversion by the holder into common stock which meets the definition of a derivative. However, we determined that the preferred stock is an “equity host” (as described by ASC

815

) for purposes of assessing the embedded derivative for potential bifurcation and that the optional conversion feature is clearly and closely associated to the preferred stock host; therefore, the embedded derivative does

not

require bifurcation and separate recognition under ASC

815.

We determined there to be a beneficial conversion feature (“BCF”) requiring recognition at its intrinsic value. Since the conversion option of the preferred stock was immediately exercisable, the amount allocated to the BCF was immediately accreted to preferred dividends, resulting in an increase in the carrying value of the preferred stock.