Note

– Equity and Stock-Based Compensation

Successor Company Common Stock

Under the Second Amended and Restated Certificate of Incorporation of the Successor Company, it has the authority to issue a total of

32,500,000

shares of capital stock, consisting of: (i)

31,500,000

shares of New Common Stock, par value

$0.0001

per share, and

1,000,000

shares of preferred stock, par value

$0.0001

per share, which will have such rights, powers and preferences as the board of directors of the Company (the “Board of Directors”) shall determine.

In accordance with the Plan, as of the Effective Date, the Company issued

7,500,000

Recapitalization Shares of New Common Stock to the Recapitalization Investors for gross cash proceeds of

$7,300,000

and net cash to the Company of

$7,052,500,

which has been referred to as the Recapitalization Financing. The net cash amount excludes the effect of

$100,000

in offering expenses paid from the proceeds of the DIP Financing, which was converted into Series A Preferred Stock as of the Effective Date.

A significant majority of the Recapitalization Investors executed backstop commitments to purchase up to

12,800,000

additional shares of New Common Stock for an aggregate purchase price of up to

$3,000,000.

The Company cannot call the Backstop Commitment prior to

June

30,

2017

With respect to each Recapitalization Investor who executed a Backstop Commitment, the commitment terminates on the earlier of (i) the date on which the Company receives net proceeds (after deducting all costs, expenses and commissions) from the sale of New Common Stock in the aggregate amount of the Backstop Commitment, (ii) the date that all shares of Series A Preferred Stock (as defined below) have been redeemed by the Company, or (iii) the date that all shares of Series A Preferred Stock are no longer owned by entities affiliated with Deerfield (“Termination Date”). Under the terms of the Backstop Commitment, the Company is obligated to pay to the committed Recapitalization Investors a commitment fee of

$250,000

in the aggregate upon the Termination Date.

Under the Plan of Reorganization, the Company committed to the issuance of up to

3,000,000

shares of New Common Stock, and subsequently issued

2,264,612

shares of New Common Stock (the “Exchange Shares”) on the Effective Date to record holders of the Old Common Stock as of

March

28,

2016,

who executed and timely delivered the required release documents no later than

July

2016,

in accordance with the Confirmation Order and the Plan. The holders of Old Common Stock who executed and timely delivered the required release documents are referred to as the “Releasing Holders.”

The

2,264,612

Exchange Shares were issued as of the Effective Date to Releasing Holders who asserted ownership of a number of shares of Old Common Stock that matched the Company’s records or could otherwise be confirmed, at a rate of

one

share of New Common Stock for every

41.8934

shares of Old Common Stock held by such holders as of

March

28,

2016.

In accordance with the Plan, if the calculation would otherwise have resulted in the issuance to any Releasing Holder of a number of shares of New Common Stock that is not a whole number, then the number of shares actually issued to such Releasing Holder was determined by rounding down to the nearest number.

June

20,

2016,

the Company issued

162,500

shares of New Common Stock (the “Administrative Claim Shares”) pursuant to the Order Granting Application of the Ad Hoc Equity Committee Pursuant to

U.S.C. §§

503(b)(3)(D)

and

503(b)(4)

for Allowance of Fees and Expenses Incurred in Making a Substantial Contribution, entered by the Bankruptcy Court on

June

20,

2016.

The Administrative Claim Shares were issued to holders of administrative claims under sections

503(b)(3)(D)

and

503(b)(4)

of the Bankruptcy Code. Of the

162,500

shares,

100,000

shares were issued to outside counsel to the Ad Hoc Equity Committee of the Company’s equity holders as compensation of all remaining allowed fees for legal services provided by such counsel. The remaining

62,500

were issued to designees of the Ad Hoc Equity Committee who had granted loans in an aggregate amount of

$62,500

to the Ad Hoc Equity Committee in

December

2015

as repayment of such loans.

Successor Company Stock Purchase Warrants

As part of the Recapitalization Financing, the Company also issued Warrants to purchase

6,180,000

shares of New Common Stock to certain of the Recapitalization Investors in that financing. The Warrants terminate on

May

2021

and are exercisable at any time on or after

November

2016

at exercise prices ranging from

$0.50

per share to

$1.00

per share. The number of shares of New Common Stock underlying a Warrant and its exercise price are subject to customary adjustments upon subdivisions, combinations, payment of stock dividends, reclassifications, reorganizations and consolidations. The Warrants are classified in equity.

Successor Company Series A Preferred Stock

On the Effective Date, the Company filed a Certificate of Designations of Series A Preferred Stock with the Delaware Secretary of State, designating

29,038

shares of the Company’s undesignated preferred stock, par value

$0.0001

per share, as Series A Preferred Stock (the “Series A Preferred Stock”). On the Effective Date, the Company issued

29,038

shares of Series A Preferred Stock to the Deerfield Lenders in accordance with the Plan pursuant to the exemption from the registration requirements of the Securities Act provided by Section

1145

of the Bankruptcy Code. The Deerfield Lenders did not receive any shares of New Common Stock or other equity interests in the Company.

The Series A Preferred Stock has no stated maturity date, is not convertible or redeemable, and carries a liquidation preference of

$29,038,000,

which is required to be paid to holders of such Series A Preferred Stock before any payments are made with respect to shares of New Common Stock (and other capital stock that is not issued on parity or senior to the Series A Preferred Stock) upon a liquidation or change in control transaction. For so long as Series A Preferred Stock is outstanding, the holders of Series A Preferred Stock have the right to nominate and elect

one

member of the board of directors of the Company (the “Board of Directors”) and to have such director serve on a standing committee of the Board of Directors established to exercise powers of the Board of Directors in respect of decisions or actions relating to the Backstop Commitment. The Series A Preferred Stock has voting rights, voting with the New Common Stock as a single class, with each share of Series A Preferred Stock having the right to

five

votes, which currently represents approximately

one

percent

(1%)

of the voting rights of the capital stock of the Company. The holders of Series A Preferred Stock have the right to approve certain transactions and incurrences of debt. Under the Certificate of Designations, for so long as the Backstop Commitment remains in effect, a majority of the members of the standing backstop committee of the Board of Directors

may

approve a drawdown under the Backstop Commitment. Among other restrictions, the Certificate of Designations for our Series A Preferred Stock limits the Company’s ability to (i) issue securities that are senior or pari passu with the Series A Preferred Stock, (ii) incur debt other than for working capital purposes not in excess of

$3.0

million, (iii) issue securities that are junior to the Series A Preferred Stock and that provide certain consent rights to the holders of such junior securities in connection with a liquidation or contain certain liquidation preferences, (iv) pay dividends on or purchase shares of its capital stock, and (v) change the authorized number of members of its Board of Directors to a number other than

five,

in each case without the consent of holders representing at least

two

thirds

of the outstanding shares of Series A Preferred Stock. The Series A Preferred Stock is classified in equity.

Predecessor Company Common Stock

The Predecessor Company’s Certificate of Incorporation authorized

440,000,000

shares of capital stock, consisting of

425,000,000

authorized shares of Old Common Stock and

15,000,000

Series A, B, C, and D convertible preferred stock. Each share of Old Common Stock represented the right to

one

vote, and holders of the Old Common Stock were entitled to receive dividends as

may

be declared by the Board of Directors.

dividends were declared or paid on our Old Common Stock in

2016

2015.

Pursuant to the Plan of Reorganization, as of the Effective Date all equity interests of the Company, including but not limited to all shares of the Old Common Stock (including its redeemable common stock), warrants, and options that were issuable or issued and outstanding immediately prior to the Effective Date, were cancelled.

2014

Private Placement

March

2014,

we raised

$2.0

million from the private placement of

3,846,154

shares of common stock (at a price of

$0.52

per share) and

five

-year stock purchase warrants to purchase

2,884,615

shares of common stock at

$0.52

per share. As a result of certain non-standard anti-dilution provisions and cash settlement features contained in the warrants, we classified the detachable stock purchase warrants as derivative liabilities, initially at their estimated relative fair value of approximately

$1.1

million. We re-measured the warrants to fair value at each balance sheet date; the estimated fair value of the warrant liabilities was

de minimis

December

31,

2015.

Issuance costs, in the form of warrants and fees, were valued at approximately

$136,000

and were recorded to additional paid-in-capital.

Predecessor Stock Purchase Warrants

The Company had the following stock purchase warrants outstanding at

May

2016

Outstanding		Exercise Price		Expiration Date	Classification

	20,000	$	0.40	June 2016	Equity
	136,364	$	0.66	February 2018	Equity
	6,363,638	$	0.75	February 2018	Equity
	5,047,461	$	0.65	December 2017	Equity
	232,964	$	0.65	December 2017	Equity
	2,884,615	$	0.52	March 2019	Liability
	1,474,615	$	0.52	March 2019	Liability
	3,525,000	$	0.52	June 2019	Liability
	1,079,137	$	0.70	February 2020	Equity
	250,000	$	0.70	February 2020	Equity
	25,115,384	$	0.52	March 2021	Liability
	67,500,000	$	0.52	June 2021	Liability
	113,629,178

All of such warrants were cancelled in their entirety as of the Effective Date.

Stock-Based Compensation

Predecessor Company

The Company’s

2002

Long Term Incentive Plan (“LTIP”) and

2013

Equity Incentive Plan (“EIP” and, together with the LTIP, the “Incentive Plans”) permitted the awards of stock options, stock appreciation rights, restricted stock, phantom stock, performance units, dividend equivalents, and other stock-based awards to employees, directors and consultants. We were authorized to issue up to

10,500,000

shares of common stock under the LTIP, and up to

18,000,000

shares under the EIP (as approved by our shareholders on

June

2014).

All stock options granted under the LTIP and EIP were cancelled in their entirety as of the Effective Date.

As of

May

2016,

the Company only issued stock options under the Incentive Plans. Stock option terms were determined by the Board of Directors for each option grant, and options generally vested immediately upon grant or over a period of time ranging up to

four

years, were exercisable in whole or installments, and expired no longer than

ten

years from the date of grant. There were no stock options granted or exercised for the period from

January

2016

through

May

2016.

As of

May

2016,

there was approximately

$0.3

million of total unrecognized compensation cost related to non-vested stock options, and in the absence of our emergence from bankruptcy, that cost would have been recognized over a weighted-average period of

2.4

years. As a result of the cancellation of all outstanding stock options and the application of fresh start accounting as of the Effective Date, unrecognized compensation costs related to the stock options outstanding as of

May

2016,

are not recognized after the Effective Date. A summary of stock option activity under the Incentive Plans as of Effective Date, and changes during

2016,

is presented below:

Stock Options – Incentive Plans	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at January 1, 2016		11,069,166		$	0.78		6.1	$	-
Granted		-		$	-			$	-
Exercised		-		$	-			$	-
Forfeited or expired		(11,069,166	)	$	0.78			$	-
Outstanding at May 4, 2016		-		$	-		-	$	-
Exercisable at May 4, 2016		-		$	-		-	$	-
Vested and expected to vest at May 4, 2016		-		$	-		-	$	-

There were

stock options granted under the Incentive Plans during

2016.

We granted

1,033,259

stock options during

2015,

and the weighted-average grant-date fair value of stock options granted under the Incentive Plans during

2015

was

$0.18.

The fair value of stock options granted and vested during

2015

was approximately

$187,000.

stock options were exercised during

2015.

As of

December

31,

2015,

there was approximately

$810,000

of total unrecognized compensation cost related to non-vested stock options, and that cost was expected to be recognized over a weighted-average period of

2.6

May

2016,

are not recognized after the Effective Date.

Additionally, the Company has issued certain stock purchase warrants in exchange for the performance of services not covered by the Incentive Plans. A summary of service provider warrant activity as of the Effective Date, and changes during

2016,

is presented below:

Warrants to Service Providers	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at January 1, 2016		406,364		$	.67		3.3	$	-
Granted		-		$	-			$	-
Exercised		-		$	-			$	-
Forfeited or expired		(406,364	)	$	.67			$	-
Outstanding at May 4, 2016		-		$	-			$	-
Exercisable at May 4, 2016		-		$	-			$	-

There were

such warrants granted in

2016,

and there were

exercises in

2016.

As of

December

31,

2015,

there was

unrecognized compensation cost related to these warrants. All stock purchase warrants granted were cancelled in their entirety as of the Effective Date.

Successor Company

July

2016,

the Board of Directors approved, and on

August

2016,

the Board amended, the Company’s

2016

Omnibus Incentive Plan (the

“2016

Omnibus Plan”) to include an evergreen provision, intended to increase the maximum number of shares issuable under the Omnibus Plan on the

first

day of each fiscal year (starting on

January

2017)

by an amount equal to

six

percent

(6%)

of the shares reserved as of the last day of the preceding fiscal year, provided that the aggregate number of all such increases

may

not exceed

1,000,000

shares. As of

November

21,

2016,

the Majority Stockholders executed a written consent adopting and approving the

2016

Omnibus Plan, as amended and restated, which provides for the Company to grant equity and cash incentive awards to officers, directors and employees of, and consultants to, the Company and its subsidiaries. We were authorized to issue up to

1,500,000

shares of common stock under the

2016

Omnibus Plan as of

December

31,

2016.

A summary of stock option activity under the

2016

Omnibus Plan as of

December

31,

2016,

and changes during

2016,

is presented below:

Stock Options – 2016 Omnibus Plan	Shares			Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at May 5, 2016		-		$	-		-	$	-
Granted		1,370,000		$	1.00		10.00	$	-
Exercised		-
Forfeited or expired		(105,000	)					$	-
Outstanding at December 31, 2016		1,265,000		$	1.00		9.51	$	-
Exercisable at December 31, 2016		331,665		$	1.00		9.51	$	-
Vested and expected to vest at December 31, 2016		1,265,000		$	1.00		9.51	$	-

There were

1,370,000

stock options granted under the

2016

Omnibus Plan during

2016.

The fair value of stock options granted and vested during

2016

was approximately

$233,000

and

$56,000,

respectively. No stock options were exercised during

2016.

As of

December

31,

2016,

there was approximately

$140,000

of total unrecognized compensation cost related to non-vested stock options, and that cost was expected to be recognized over a weighted-average period of

1.4

years. The following table summarizes information about stock options outstanding as of

December

31,

2016:

Options Outstanding

Options Exercisable

Weighted

Number of

Average

Exercise

Outstanding

Remaining

Exercise

Number

Exercise

Price

Contract Life

Price

Exercisable

Price

$1.00

1,265,000

9.51

1.00

331,665

1.00

The Company has

not

issued any stock purchase warrants in exchange for the performance of services not covered by the

2016

Omnibus Plan during

2016.

The Company recorded stock-based compensation expense in the periods presented as follows:

	Period from May 5, 2016 through December 31, 2016		Period from January 1, 2016 through May 4, 2016		Year Ended December 31, 2015
	Successor		Predecessor		Predecessor

Sales and marketing	$	8,963	$	18,504	$	156,297
Research and development		9,769		6,858		74,989
General and administrative		56,267		29,719		551,469
	$	74,999	$	55,081	$	782,755