Series G Preferred Stock

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Preferred Stock

SERIES E PREFERRED STOCK AND THE COMMITTED EQUITY LINE

Series E Preferred Stock

On November 4, 2015, the Company entered into a securities purchase agreement with a private investor to issue 2,800 shares of Series E Preferred Stock to an investor in exchange for $2,800,000. The proceeds were fully received upon effectiveness of the Company’s registration statement covering the re-sale of the common stock underlying the Series E Preferred Stock in December of 2015.

Shares of the Series E Preferred Stock (including the amount of any accrued and unpaid dividends thereon) are convertible at the option of the holder into common stock at a variable conversion price equal to 80% of the average of the 2 lowest volume weighted average prices of the Company's common stock for the ten consecutive trading day period prior to the conversion date. If certain defined default events occur, then the conversion price would thereafter be reduced (and only reduced), to equal 70% of the average of the 2 lowest VWAPs of the Company's common stock for the twenty consecutive trading day period prior to the conversion date. During the years ended December 31, 2016 and 2015, the private investor exercised their option to convert 2,203 and 477 Series E Preferred Shares, representing a value of $2,203,000 and $477,000, resulting in the issuance of 41,895,161 and 247,879 shares of common stock, respectively.

Holders of the Series E Preferred Stock will be entitled to dividends in the amount of 7% per annum, payable when, as and if declared by the Board of Directors in its discretion. During the years ended December 31, 2016 and 2015, the Company paid dividends in the amount of $68,000 and $4,000 on the Series E Preferred Stock, resulting in the issuance of 2,279,830 and 2,121 shares of common stock, respectively.

The Company has issued 18,000 shares of common stock to the private investor as a commitment fee relating to the Series E Preferred Stock. Costs associated with the Series E Preferred Stock, such as legal fees and commitment shares are capitalized and reported as deferred financing costs on the Consolidated Balance Sheets. The total gross debt issuance cost incurred by the Company related to the Series E Preferred Stock was $104,000. These debt issuance costs will be recognized as additional interest expense over the life of the Series E Preferred Stock.

At any time after March 31, 2016, the private investor will have the option to redeem for cash all or any portion of the outstanding shares of the Series E Preferred Stock at a price per share equal to $1,250 plus any accrued but unpaid dividends thereon.

At any time after the third anniversary of the date of the initial issuance of Series E Preferred Stock, the Company will have the option to redeem for cash all outstanding shares of the Series E Preferred Stock at a price per share equal to $1,250 plus any accrued but unpaid dividends thereon.    

The Company classified the Series E Preferred Stock as a liability pursuant to ASC 480 on the closing date due to the structure of the financing agreement, whereby the Company has an unconditional obligation that the Company may settle by issuing a variable number of common shares with a monetary value that is fixed and known at inception. There are 120 and 2,323 shares of Series E Preferred Stock outstanding as of December 31, 2016 and 2015.

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the Series E Preferred Stock were 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. At closing, a derivative liability and a corresponding debt discount in the amount of $1,485,000 was recorded. The debt discount will be charged to interest expense ratably over the life of the Series E Preferred Stock.

The derivative liability associated with the Series E Preferred Stock is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. At December 31, 2016 and 2015, the Company conducted a fair value assessment of the embedded derivative associated with the Series E Preferred Stock. As a result of the fair value assessment, the Company recorded a $412,000 and $932,000 gain as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $141,000 and $553,000 as of December 31, 2016 and 2015 respectively.

The derivative associated with the Series E Preferred Stock approximates management’s estimate of the fair value of the embedded derivative liability at December 31, 2016 and 2015 based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of 59% and 54%, present value discount rate of 12% and 12% and dividend yield of 0% and 0%, respectively.

The Committed Equity Line

On November 10, 2015, the Company and the private investor entered into a committed equity line purchase agreement (the "CEL"). Under the terms and subject to the conditions of the CEL purchase agreement, at its option the Company has the right to sell to the private investor, and the private investor is obligated to purchase from the Company, up to $32.2 million of the Company’s common stock, subject to certain limitations, from time to time, over the 36-month period commencing on December 18, 2015, the date that the registration statement was declared effective by the SEC.

From time to time, the Company may direct the private investor, at its sole discretion and subject to certain conditions, to purchase an amount of shares of common stock up to the lesser of (i) $1,000,000 or (ii) 300% of the average daily trading volume of the Company’s common stock over the preceding ten trading day period. The per share purchase price for shares of common stock to be sold by the Company under the CEL purchase agreement shall be equal to 80% of the average of the two lowest VWAPs of the common stock for the ten consecutive trading day period prior to the purchase date. During the years ended December 31, 2016 and 2015, the Company directed the private investor to purchase $1,056,000 and $2,000,000 of common stock which resulted in the issuance of 525,454 and 842,546 shares of common stock, respectively.

The Company may not direct the private investor to purchase shares of common stock more frequently than once each ten business days. The Company’s sales of shares of common stock to the private investor under the CEL purchase agreement are limited to no more than the number of shares that would result in the beneficial ownership by the private investor and its affiliates, at any single point in time, of more than 9.99% of the Company’s then outstanding shares of common stock.

As consideration for entering into the CEL purchase agreement, the Company has agreed to issue to the private investor 132,000 shares of common stock (the “Commitment Shares”). The Commitment Shares will be issued to the private investor in four increments which commenced upon the date that the registration statement was declared effective by the SEC. During the year ended December 31, 2016 and 2015, the Company issued 107,000 and 25,000 Commitment Shares to the private investor, respectively.

SERIES F PREFERRED STOCK

Series F Preferred Stock

On January 19, 2016, the Company entered into a securities purchase agreement with a private investor to issue 7,000 shares of Series F Preferred Stock in exchange for $7,000,000. The Company received gross proceeds of $500,000 at Closing. The remaining $6,500,000 of the proceeds was received through 14 weekly increments of $250,000 or $500,000 beginning on January 25, 2016 and ending on April 25, 2016. The net proceeds received by the Company from the sale of the Series F Preferred Stock has been used for general corporate purposes and working capital requirements.    

Shares of the Series F Preferred Stock (including the amount of any accrued and unpaid dividends thereon) will be convertible at the option of the holder into common stock at a fixed conversion price equal to $5 per share. If certain defined default events occur, then the conversion price would thereafter be reduced (and only reduced), to equal 70% of the average of the two lowest weighted average prices (“VWAPs”) of our common stock for the twenty consecutive trading day period prior to the conversion date. During the year ended December 31, 2016, the private investor exercised their option to convert 6,840 Series F Preferred Stock, representing a value of $6,840,000, resulting in the issuance of 113,059,991 shares of common stock.

Holders of the Series F Preferred Stock will be entitled to dividends in the amount of 7% per annum, payable when, as and if declared by the Board of Directors in its discretion. During the year ended December 31, 2016, the Company paid dividends in the amount of $150,000 on the Series F Preferred Stock, resulting in the issuance of 4,967,115 shares of common stock.

The Company started making weekly redemptions of 250 shares of Series F Preferred Stock (including any accrued and unpaid dividends thereon) beginning February 15, 2016. The redemption price shall be payable in cash at a price per share equal to $1,250 plus any accrued but unpaid dividends thereon.

The Company shall have the option to make such redemption payments in shares of common stock provided certain specified equity conditions are satisfied at the time of payment. The number of shares to be issued would be calculated using a per share price equal to 80% of the one lowest VWAP of our common stock for the ten consecutive trading day period prior to the payment date.

For redemption payments made in shares of common stock, the Company will have the option to increase the number of shares of Series F Preferred Stock to be redeemed in each weekly installment so long as the number of shares of common stock to be issued does not exceed 12% of the aggregate composite trading volume for the Company’s common stock during the preceding calendar week.

The Company classified the Series F Preferred Stock as a liability pursuant to ASC 480 on the closing date due to the structure of the financing agreement, whereby the Company has an unconditional obligation that the Company may settle by issuing a variable number of common shares with a monetary value that is fixed and known at inception. There were 160 shares of Series F Preferred Stock outstanding as of December 31, 2016.

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the Series F Preferred Stock were 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. At closing, a derivative liability and a corresponding debt discount in the amount of $1,666,000 was recorded. The debt discount will be charged to interest expense ratably over the life of the Series F Preferred Stock.

The derivative associated with the Series F Preferred Stock approximates management’s estimate of the fair value of the embedded derivative liability at close of the stock sale and purchase based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of 60%, present value discount rate of 12% and dividend yield of 0%.

Amendment of Outstanding Series F Preferred Stock Conversion Price

On October 5, 2016, the Company filed a Certificate of Amendment to the Certificate of Designations of Preferences, Rights and Limitations of Series F Preferred Stock with the Secretary of State of the State of Delaware. The Certificate of Amendment amends the conversion price at which the Series F Preferred Stock can be converted into shares of common stock. The Company had approximately $336,000 of Series F Preferred Stock remaining outstanding as of October 5, 2016.

As amended, the conversion price will now be equal to the lowest of (i) 50% of the lowest weighted average price (“VWAP”) of our common stock for the 10 consecutive trading day period prior to the conversion date or (ii) 50% of the lowest closing bid price of our common stock for the 10 consecutive trading day period prior to the conversion date. If certain “Triggering Events” specified in the terms of the Series F Preferred Stock occur, then the conversion price of the Series F Preferred Stock shall be thereafter reduced, and only reduced, to equal 50% of the average of the lowest traded price of the common stock for the twenty consecutive trading day period prior to the conversion date.

At December 31, 2016, the Company performed a fair value assessment of the embedded derivative associated with the Series F Preferred Stock. As a result of the fair value assessment, the Company recorded a $1,411,000 gain as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $255,000 as of December 31, 2016.

The derivative associated with the Series F Preferred Stock approximates management’s estimate of the fair value of the embedded derivative liability at close of the stock sale and purchase based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of 57%, present value discount rate of 12% and dividend yield of 0%.

SERIES G PREFERRED STOCK

Series G Preferred Stock

On April 29, 2016, the Company entered into a securities purchase agreement with private investors to issue 2,000 shares of Series G Preferred Stock for $2,000,000. At Closing, the Company issued a total of 500 shares of Series G Preferred Stock to the private investors in exchange for $500,000. The Company issued an additional 1,500 shares of Series G Preferred Stock to the private investors during the months of May and June 2016, which resulted in additional gross proceeds to the Company of $1,500,000.

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.

Beginning September 19, 2016, the two private investors (the “Series G Sellers”) entered into Assignment Agreements with accredited investors (the “Series G Purchasers”). Under the terms of the Assignment Agreements, the Series G Sellers may sell all 2,000 outstanding shares of Series G Preferred Stock to the Series G Purchasers in a series of installments occurring during September through December 2016 for a purchase price of $1,000 per share of Series G Preferred Stock (plus the amount of any accrued and unpaid dividends thereon). During the year ended December 31, 2016, the Series G Sellers had sold 1,096 shares of Series G Preferred Stock to the Series G Purchasers.

The Series G Purchasers exercised their options to convert 852 of Series G Preferred Stock, representing a value of $852,000, resulting in the issuance of 224,019,803 shares of common stock during the year ended December 31, 2016. The Series G Purchasers also exercised $36,000 of accrued dividends related to the 852 shares exercised, resulting in the issuance of 10,731,010 shares of common stock during the year ended December 31, 2016. One of the Series G Sellers exercised its option to convert 40 shares of Series G Preferred Stock, representing $40,000, resulting in the issuance of 10,389,610 shares of common stock during the year ended December 31, 2016. The Series G Seller also exercised $2,000 of accrued dividends related to the 40 shares resulting in the issuance of 585,860 shares of common stock for the year ended December 31, 2016.

On September 21, 2016, the Company filed a 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 private 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 the Company’s common stock for the ten consecutive trading day period prior to the conversion date or (iii) 70% of the lowest closing bid price of the Company’s common stock for the ten consecutive trading day period prior to the conversion date.

The Company classified the Series G Preferred Stock as a liability pursuant to ASC 480 on the closing date due to the structure of the financing agreement, whereby the Company has an unconditional obligation that the Company may settle by issuing a variable number of common shares with a monetary value that is fixed and known at inception. There were 1,108 shares of Series G Preferred Stock outstanding as of December 31, 2016.

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the Series G Preferred Stock were 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. At closing, a derivative liability and a corresponding debt discount in the amount of $1,263,000 was 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 December 31, 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 $901,000 gain as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations for the year ended December 31, 2016 to properly reflect the fair value of the embedded derivative of $362,000 as of December 31, 2016.

The derivative associated with the Series G Preferred Stock approximates management’s estimate of the fair value of the embedded derivative liability at December 31, 2016 based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of 47% , present value discount rate of 12% and dividend yield of 0%.

SERIES H PREFERRED STOCK AND JULY 2016 CONVERTIBLE NOTES

Series H Preferred Stock

On June 9, 2016, the Company entered into a securities purchase agreement with a private investor to issue 2,500 shares of Series H Preferred Stock for $2,500,000. The Company received gross proceeds of $250,000 at Closing. Additional gross proceeds of $580,000 were received by the Company through July 7, 2016. The Company agreed to exchange outstanding Series H Preferred Stock for Senior Secured Convertible Notes (“July 2016 Notes”) on July 13, 2016. At the date of the exchange, the Company had sold and issued 830 shares of Series H Preferred Stock to private investor in exchange for $830,000 of gross proceeds. Refer to the section below for details of the exchange.

Holders of the Series H Preferred Stock will be entitled to dividends in the amount of 7% per annum. If a Triggering Event occurs, the dividend rate shall automatically increase to 20% per annum.

The conversion price for the Series H Preferred Stock shall equal the lower of (i) 70% of the lowest VWAP of the common stock for the 10 consecutive trading day period prior to the conversion date of (ii) 70% of the lowest closing bid price of the common stock for the 10 consecutive trading day period prior to the conversion date, subject to adjustment herein; provided, however, if a Triggering Event occurs the conversion price shall be thereafter reduced, and only reduced, to equal 60% of the average of the two lowest VWAPs of the common stock for the twenty consecutive trading day period prior to the conversion date, subject to adjustment herein. In no event, however, shall the conversion price be less than $0.005 per share.

At any time after the occurrence of certain defined Trigger Events, the Series H Preferred Stock holder will have the option to redeem for cash all or any portion of the outstanding shares of the Series H Preferred Stock at a price per share equal to $1,250 plus any accrued but unpaid dividends thereon.

At any time after the third anniversary date of the initial issuance of Series H Preferred Stock, the Company will have the option to redeem for cash all outstanding shares of the Series H preferred Stock at a price per share equal to $1,250 plus any accrued but unpaid dividends thereon.

The Company classified the Series H Preferred Stock as a liability pursuant to ASC 480 on the closing date due to the structure of the financing agreement, whereby the Company has an unconditional obligation that the Company may settle by issuing a variable number of common shares with a monetary value that is fixed and known at inception.

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the Series H 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. At closing, a derivative liability and a corresponding debt discount in the amount of $146,000 were recorded. The debt discount will be charged to interest expense ratably over the life of the Series H Preferred Stock.

July 2016 Convertible Notes

On July 13, 2016, the Company entered into a securities purchase agreement with a private investor for the placement of up to $2,080,000 of the Company’s 4% Original Issue Discount Senior Secured Convertible Promissory Notes (“July 2016 Notes”). The Company sold and issued $364,000 principal amount of July 2016 Notes to private investor in exchange for $350,000 of gross proceeds.

The Company sold and issued the remaining $1,716,000 principal amount of July 2016 Notes to private investor in exchange for $1,650,000 of gross proceeds in six additional weekly tranches between July and August 2016.

In connection with the offering of the July 2016 Notes, the Company and the private investor also entered into an Exchange Agreement dated July 13, 2016 (the “Exchange Agreement”). Under the terms of the Exchange Agreement, the outstanding shares of Series H Preferred Stock (approximately $833,000 of capital and accrued dividends) were canceled. In exchange, the Company issued to the private investor approximately $866,000 of July 2016 Notes. A net gain on extinguishment of the Series H Preferred Stock and related embedded derivative of $126,000 was recorded to "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Consolidated Statements of Operations for the year ended December 31, 2016.

Accordingly, the Company had (i) an aggregate of $2,946,000 principal amount of July 2016 Notes outstanding and (ii) 0 shares of Series H Preferred Stock outstanding as of July 13, 2016. The Company and the private investor have agreed to cancel any remaining obligations under the Series H securities purchase agreement to issue and purchase any additional shares of Series H Preferred Stock.

Unless earlier converted or prepaid, all of the July 2016 Notes will mature on July 13, 2017 (the “Maturity Date”). The July 2016 Notes bear interest at a rate of 10% per annum, subject to increase to 24% per annum upon the occurrence and continuance of an event of default (as described below). Principal on the July 2016 Notes is payable on the Maturity Date. Interest on the July 2016 Notes is payable quarterly. Principal and interest are payable in cash or, if specified equity conditions are met, shares of common stock. During the year ended December 31, 2016, the private investor converted a principal amount $152,000 of convertible notes in exchange for 64,000,000 common shares. There was $2,794,000 of July 2016 Notes outstanding as of December 31, 2016.

At December 9, 2016 the July 2016 Notes were in default due to the Company's insufficient amount of authorized and unissued shares not meeting the minimum amount of reserve share requirement outlined in the July 2016 Note Agreement. Further, on December 14, 2016 the Company's stock price fell below $0.005 per share triggering another event of default per the July 2016 Note Agreement. Upon default the interest rate increases to 24% per annum and the holder of the July 2016 Notes has the option to accelerate the Note and demand cash payment of the Mandatory Default Amount consisting of a 25% premium of the principal balance plus any accrued and unpaid interest. The Company has accrued interest at the 24% starting on December 9, 2016 through December 31, 2016. At December 31, 2016 all amounts related to the July 2016 Notes have been included in short term liabilities.

All principal and accrued interest on the July 2016 Notes are convertible at any time, in whole or in part, at the option of the private investor into shares of common stock at a variable conversion price equal to the lowest of (i) $0.045, (ii) 70% of the lowest volume weighted average price (“VWAP”) of our common stock for the 10 consecutive trading day period prior to the conversion date or (iii) 70% of the lowest closing bid price of our common stock for the 10 consecutive trading day period prior to the conversion date. If certain defined triggering events occur, then the conversion price would thereafter be reduced (and only reduced), to equal 60% of the lower of (i) the lowest closing bid price of the common stock for the 30 consecutive trading day period prior to the conversion date or (ii) the lowest VWAP of the common stock for the thirty consecutive trading day period prior to the conversion date. In addition, on the 90^th day and also on the 180^th day from the day of the July 2016 Notes securities purchase agreement, the private investor may reset the Fixed Conversion Price to thereafter be equal to the VWAP of the common stock for such day or if such 90^th or 180^th day is not a trading day, then the VWAP for the immediately preceding trading day.

The Company classified the July 2016 Notes as a liability pursuant to ASC 480 on the closing date due to the structure of the financing agreement, whereby the Company has an unconditional obligation that the Company may settle by issuing a variable number of common shares with a monetary value that is fixed and known at inception.

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the July 2016 Notes were 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. At closing, a derivative liability and a corresponding debt discount in the amount of $3,155,000 was recorded. The debt discount will be charged to interest expense ratably over the life of the July 2016 Notes.

The derivative liability associated with the July 2016 Notes is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. At December 31, 2016, the Company conducted a fair value assessment of the embedded derivative associated with the July 2016 Notes. As a result of the fair value assessment, the Company recorded a $1,923,000 loss as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations for the year ended December 31, 2016 to properly reflect the fair value of the embedded derivative of $5,079,000 as of December 31, 2016.

The derivative associated with the July 2016 Notes approximates management’s estimate of the fair value of the embedded derivative liability at December 31, 2016 based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of 59%, present value discount rate of 12% and dividend yield of 0%.

SERIES I PREFERRED STOCK AND SERIES I CONVERTIBLE NOTES

Series I Preferred Stock

On July 26, 2016, the Company entered into a securities purchase agreement with a private investor for the placement of approximately $536,000 of the Company’s Series I Preferred Stock. At Closing, the Company issued a total of 536 shares of Series I Preferred Stock to the private investor in exchange for the cancellation of an outstanding $536,000 promissory note (including accrued interest) of the Company held by the private investor.

Shares of the Series I Preferred Stock (including the amount of any accrued and unpaid dividends thereon) are convertible at the option of the holder into common stock at a fixed conversion price of $0.03 per share. Holders of the Series I Preferred Stock are 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 I Preferred Stock at a price per share equal to $1,000 plus any accrued but unpaid dividends thereon.

The Series I Preferred Stock is classified outside of permanent equity, in mezzanine equity, on the Company’s Consolidated Balance Sheets as a result of this redemption feature in accordance with ASC Topic 480, Distinguishing liabilities from equity, as well as other applicable guidance. As of December 31, 2016, there were 0 shares of Series I Preferred Stock outstanding. See Series I Convertible Notes section below for more on the exchange of Series I Preferred Shares for Series I Convertible Notes.

A beneficial conversion feature in the amount of $286,000 was recorded as a discount upon issuance of the shares. The unamortized discount was written off upon the exchange of the Preferred Shares for the Series I Convertible Notes for the period ended December 31, 2016.

Series I Convertible Notes

On September 13, 2016, the Series I Holder entered into an assignment agreement with another investor. Pursuant to the assignment agreement, the investor has the option to purchase, from time to time, all or any portion of the outstanding shares of Series I Preferred Stock from the Series I Holder for cash. The Company had 326 shares of Series I Preferred Stock that remained outstanding as of September 13, 2016.

On September 13, 2016, the Company and the investor also entered into an exchange agreement, whereby the investor has the right, from time to time, to surrender to the Company for cancellation and exchange any shares of Series I Preferred Stock it acquires pursuant to the assignment agreement. Any surrendered shares of Series I Preferred Stock would be exchanged for newly issued Series I Convertible Notes. The principal amount of the Series I Convertible Notes to be issued in exchange shall be equal to (i) $1,000 for each share of Series I Preferred Stock surrendered for exchange plus (ii) the amount of any dividends accrued and unpaid on such Series I Preferred Stock surrendered for exchange.

Unless earlier converted or prepaid, all of the Series I Convertible Notes will mature one year after issuance. The Series I Convertible Notes bear interest at a rate of 10% per annum, subject to increase to 24% per annum upon the occurrence and continuance of an event of default (as described below). Principal and interest on the Series I Convertible Notes is payable on the maturity date or upon any earlier conversion. Principal and interest are payable in cash or, if specified equity conditions are met, shares of common stock. During the year ended December 31, 2016, the investor exercised their option to exchange 326 Series I Preferred Shares, representing a value of $326,000, resulting in the creation of $333,000 of Series I Convertible Notes.

During the year ended December 31, 2016, the investor exercised their option to convert $107,000 of Series I Convertible Notes, resulting in the issuance of 14,816,862 shares of common stock. A principal balance of $226,000 of the Series I Convertible Notes was outstanding at December 31, 2016.

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the Series I Convertible Notes were 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. At closing, a derivative liability and a corresponding debt discount in the amount of $275,000 was recorded. The debt discount will be charged to interest expense ratably over the life of the Series I Convertible Notes.

The derivative liability associated with the Series I Convertible Notes is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. At December 31, 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 $78,000 gain as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations for the year ended December 31, 2016 to properly reflect the fair value of the embedded derivative of $197,000 as of December 31, 2016.

The derivative associated with the Series I Convertible Notes approximates management’s estimate of the fair value of the embedded derivative liability at December 31, 2016 based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of 64% present value discount rate of 12% and dividend yield of 0%.

SERIES J PREFERRED STOCK AND SERIES J-1 PREFERRED STOCK

Series J Preferred Stock

On September 13, 2016, the Company entered into a securities purchase agreement with a private investor to issue 1,350 shares of Series J Preferred Stock for $1,350,000. At closing, the Company issued a total of 225 shares of Series J Preferred Stock to the private investor in exchange for gross proceeds of $225,000. The Company issued an additional 1,125 shares of Series J Preferred Stock in exchange for gross proceeds of $1,125,000 in five subsequent closings occurring in October and November 2016.

Shares of the Series J Preferred Stock (including the amount of any accrued and unpaid dividends thereon) will be convertible at the option of the holder into common stock at a fixed conversion price of $0.015 per share. Holders of the Series J 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 J Preferred Stock at a price per share equal to $1,000 plus any accrued but unpaid dividends thereon. During the year ended December 31, 2016, the investor did not exercise their option to exchange any Series J Preferred Shares for common stock. There were 1,350 shares of Series J Preferred Stock outstanding at December 31, 2016.

The Company classified the Series J Preferred Stock as a liability pursuant to ASC 480 on the closing date due to the structure of the financing agreement, whereby the Company has an unconditional obligation that the Company may settle by issuing a variable number of common shares with a monetary value that is fixed and known at inception.

Series J-1 Preferred Stock

On October 14, 2016, the Company entered into a securities purchase agreement with a private investor to issue 1,000 shares of Series J-1 Preferred Stock for $1,000,000. At Closing, the Company issued a total of 100 shares of Series J-1 Preferred Stock to the private investor in exchange for gross proceeds of $100,000. The Company has issued an additional 900 shares of Series J Preferred Stock in exchange for gross proceeds of $900,000 in six subsequent closings occurring between November 2016 and February 2017. The Company had 700 shares of Series J-1 Preferred Stock issued and outstanding as of December 31, 2016.

Shares of the Series J-1 Preferred Stock (including the amount of any accrued and unpaid dividends thereon) will be convertible at the option of the holder into common stock at a fixed conversion price of $0.0125 per share. Holders of the Series J-1 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 Series J-1 Preferred Stock at a price per share equal to $1,000 plus any accrued but unpaid dividends thereon.

The Company classified the Series J-1 Preferred Stock as a liability pursuant to ASC 480 on the closing date due to the structure of the financing agreement, whereby the Company has an unconditional obligation that the Company may settle by issuing a variable number of common shares with a monetary value that is fixed and known at inception.

ADAR BAYS CONVERTIBLE NOTES AND EXCHANGE OF SERIES A PREFERRED STOCK

Adar Bays Convertible Notes

On October 5, 2016, the Company entered into a securities purchase agreement with a private investor (“Adar Bays”) for the private placement of $330,000 principal amount of Adar Bays Convertible Notes. At Closing, the Company sold and issued $330,000 principal amount of Adar Bays Convertible Notes to Adar Bays in exchange for $300,000 of gross proceeds.

Unless earlier converted or prepaid, (i) $110,000 principal amount of the Adar Bays Convertible Notes will mature on December 5, 2016, (ii) $110,000 principal amount of the Adar Bays Convertible Notes will mature on January 3, 2017, and (iii) $110,000 principal amount of the Adar Bays Convertible Notes will mature on February 3, 2017. The maturity dates of these notes were subsequently extended to December 31, 2017. The Adar Bays Convertible Notes bear interest at a rate of 6% per annum, subject to increase to 24% per annum upon the occurrence and continuance of an event of default (as described below). During the year ended December 31, 2016 the holder redeemed $128,000 of the Adar Bays Convertible Notes along with accrued interest of $2,000 resulting in the issuance of 42,857,508 shares of common stock including the 50% Make-Whole Dividend discussed in Note 19. After conversions the remaining balance was $202,000 of the Adar Bays Convertible Notes as of December 31, 2016.

All principal and accrued interest on the Adar Bays Convertible Notes are convertible at any time, in whole or in part, at the option of Adar Bays into shares of common stock at a variable conversion price equal to 80% of the lowest closing bid price of the Company’s common stock for the fifteen consecutive trading day period prior to the conversion date. After the six month anniversary of the issuance of any Adar Bays Convertible Note, the conversion price for such note shall thereafter be equal to 50% of the lowest closing bid price of the Company’s common stock for the fifteen consecutive trading day period prior to the conversion date.

Principal on the Adar Bays Convertible Notes is payable on the maturity date. Principal on the Adar Bays Convertible Notes is payable in cash. Interest on the Adar Bays Convertible Notes is payable from time to time in the form of shares of common stock using the conversion price formula described above.

The Adar Bays Convertible Notes contain standard and customary events of default including but not limited to: (i) failure to make payments when due under the Adar Bays Convertible Notes; and (ii) bankruptcy or insolvency of the Company.

Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging, the conversion option in the Adar Bays Convertible Notes were 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. At closing, a derivative liability and a corresponding debt discount in the amount of $330,000 was recorded. The fair value of the derivative was greater than the face value at issuance and the difference of $341,000 was charged to interest expense at issuance. The remaining debt discount will be charged to interest expense ratably over the life of the Adar Bays Convertible Notes.

The derivative liability associated with the Adar Bays Convertible Notes is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. At December 31, 2016, the Company conducted a fair value assessment of the embedded derivative associated with the Adar Bays Convertible Notes. As a result of the fair value assessment, the Company recorded a $126,000 gain as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations for the year ended December 31, 2016 to properly reflect the fair value of the embedded derivative of $545,000 as of December 31, 2016.

The derivative associated with the Adar Bays Convertible Notes approximates management’s estimate of the fair value of the embedded derivative liability at December 31, 2016 based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of 67%, present value discount rate of 12% and dividend yield of 0%.

Exchange of Outstanding Series A Preferred Stock for Convertible Notes

In 2013, the Company completed private placement to one accredited investor (the “Series A Holder”) of its Series A Convertible Preferred Stock. Prior to the exchange agreement described below the Company had 165,541 shares of Series A Preferred Stock that remained outstanding as of October 6, 2016.

On October 6, 2016, the Series A Holder entered into an exchange agreement (the “Exchange Agreement”) with Adar Bays. Pursuant to the exchange agreement, beginning December 5, 2016, Adar Bays has the option to exchange, from time to time, all or any portion of the Adar Bays Convertible Notes for outstanding shares of Series A Preferred Stock from the Series A Holder. As of December 31, 2016, the Series A Holder held $202,000 of the Adar Bays Convertible Notes.

The parties will first calculate the number of shares of common stock that the principal and accrued but unpaid interest of the Adar Bays Convertible Notes to be exchanged are convertible into using the formula set described below (the “As-Converted Common Share Number”). The parties shall next calculate that number of shares of Series A Preferred Stock to be exchanged (including accrued and unpaid dividends and make-whole amounts) that, upon conversion in accordance with the terms of the Series A Preferred Stock, would result in the issuance, as of the effective date of the exchange, of the As-Converted Common Share Number.

The principal and accrued but unpaid interest on the exchanged portion of the Adar Bays Convertible Notes shall be calculated into the As-Converted Common Share Number by using the following formula. The As-Converted Common Share Number shall be equal to 80% of the lowest closing bid price of the Company common stock for the fifteen trading days immediately preceding the date on which a notice of exchange is delivered. Subsequent to any exchange, the parties shall have the rights to convert the securities received (Adar Bays Convertible Notes or Series A Preferred Stock, as applicable) upon the exchange in accordance with the terms of such securities.

STOCKHOLDERS’ EQUITY (DEFICIT)

Common Stock

At December 31, 2016, the Company had 2,000,000,000 shares of common stock, $0.0001 par value, authorized for issuance. Each share of common stock has the right to one vote. As of December 31, 2016, the Company had 554,223,320 shares of common stock outstanding. The Company has not declared or paid any dividends related to its common stock through December 31, 2016.

On August 26, 2014, the Company, a Delaware corporation, filed a Certificate of Amendment with the Secretary of State of the State of Delaware to effect a reverse stock split of the Company's common stock, par value $0.0001 per share at a ratio of one-for-ten . The Certificate of Amendment did not change the number of authorized shares, or the par value, of the Company’s common stock. The Certificate of Amendment provides that every ten shares of the Company’s issued and outstanding common stock were automatically combined into one issued and outstanding share of the Company’s common stock. All shares and per share amounts in the financial statements and accompanying notes have been retroactively adjusted to give effect to the reverse stock split.

On May 26, 2016, the Company, a Delaware corporation, filed a Certificate of Amendment with the Secretary of State of the State of Delaware to effect a reverse stock split of the Company’s common stock, par value $0.0001 per share at a ratio of one-for-twenty. The Certificate of Amendment did not change the number of authorized shares, or the par value, of the Company’s common stock. The Certificate of Amendment provides that every twenty shares of the Company’s issued and outstanding common stock were automatically combined into one issued and outstanding share of the Company’s common stock. All shares and per share amounts in the consolidated financial statements and accompanying notes have been retroactively adjusted to give effect to the reverse stock split.

TFG Radiant Purchases of Common Stock

In April and June 2015, the Company entered into securities purchase agreements with TFG Radiant for private placements of totaling of 100,000 shares of the Company’s common stock which resulted in gross proceeds of approximately $2 million to the Company.

As of December 31, 2016, TFG Radiant's ownership was less than 1% of the Company's outstanding Common Stock.

Shelf Registration

In October 2014, the Company filed a “shelf” Registration Statement on Form S-3 with the SEC. With the shelf registration, the Company may from time to time sell common stock, preferred stock, warrants or some combination in one or more offerings for up to $25.0 million. The registration became effective October 16, 2014. This shelf registration replaces the Company's prior shelf registration statement. As of December 31, 2016, approximately $22.0 million was unused on the shelf registration.

Preferred Stock

At December 31, 2016, the Company had 25,000,000 shares of preferred stock, $0.0001 par value, authorized for issuance. Preferred stock may be issued in classes or series. Designations, powers, preferences, rights, qualifications, limitations and restrictions are determined by the Company’s Board of Directors. 750,000 shares have been designated as Series A preferred stock, 3,000 shares have been designated as Series D preferred stock, 2,500 shares have been designated as Series D-1 preferred stock, and 2,800 shares have been designated as Series E preferred stock, 7,000 shares have been designated as Series F preferred stock, 2,000 shares have been designated as Series G preferred stock, 1,350 shares have been designated as Series J preferred stock, and 1,000 shares have been designated as Series J-1 preferred stock. As of December 31, 2016, the Company had 125,044 shares of Series A preferred stock, 0 shares of Series D preferred stock, 0 shares of Series D-1 preferred stock, and 120 shares of Series E preferred stock, 160 shares of Series F preferred stock, 1,108 shares of Series G preferred stock, 1,350 shares of Series J preferred stock, and 700 shares of Series J-1 preferred stock, outstanding. The Company has no declared unpaid dividends related to the preferred stock as of December 31, 2016.

Series A preferred stock: In June 2013, the Company entered into a securities purchase agreement with an investor to sell an aggregate of 750,000 shares of Series A Preferred Stock at a price of $8.00 per share, resulting in gross proceeds of $6,000,000. This purchase agreement included warrants to purchase up to 13,125 shares of common stock of the Company. The transfer of cash and securities took place incrementally, the first closing occurring on June 17, 2013 with the transfer of 125,000 shares of Series A preferred stock and a warrant to purchase  2,188 shares of common stock for $1,000,000. The final closing took place in August 2013, with the transfer of 625,000 shares of Series A preferred stock and a warrant to purchase  10,937 shares of common stock for $5,000,000.

Holders of Series A preferred stock are entitled to cumulative dividends at a rate of 8.0% per annum when and if declared by the Board of Directors in its sole discretion. The dividends may be paid in cash or in the form of common stock (valued at 10% below market price, but not to exceed the lowest closing price during the applicable measurement period), at the discretion of the Board of Directors. The dividend rate on the Series A preferred stock is indexed to the Company's stock price and subject to adjustment. In addition, the Series A preferred stock contains a make-whole provision whereby, conversion or redemption of the preferred stock within 4 years of issuance will require dividends for the full four year period to be paid by the Company in cash or common stock (valued at 10% below market price, but not to exceed the lowest closing price during the applicable measurement period).

The Series A preferred stock may be converted into shares of common stock at the option of the Company if the closing price of the common stock exceeds $232.00, as adjusted, for 20 consecutive trading days, or by the holder at any time. The Company has the right to redeem the Series A preferred stock at a price of $8.00 per share, plus any accrued and unpaid dividends, plus the make-whole amount (if applicable). At December 31, 2016, the preferred shares were not eligible for conversion to common shares, at the option of the Company. The holder of the preferred shares may convert to common shares at any time, at no cost, at a ratio of 1 preferred share into 1 common share (as adjusted for the Reverse Stock Split, subject to standard ratable anti-dilution adjustments). Upon any conversion (whether at the option of the Company or the holder), the holder is entitled to receive any accrued but unpaid dividends and also any make-whole amount (if applicable). See Note 18. Make-whole dividend liability.

During the twelve months ended December 31, 2016 the holders of the Series A preferred stock converted 87,346 preferred shares into 4,367 shares of common stock. As a result of these conversions, the Company paid make-whole dividends in the amount of 49,796,077 shares of common stock in lieu of a cash payment of $349,000.

Except as otherwise required by law (or with respect to approval of certain actions), the Series A preferred stock shall have no voting rights. Upon any liquidation, dissolution or winding up of the Company, after payment or provision for payment of debts and other liabilities of the Company, the holders of Series A preferred stock shall be entitled to receive, pari passu with any distribution to the holders of common stock of the Company, an amount equal to $8.00 per share of Series A preferred stock plus any accrued and unpaid dividends.

The warrants offered as part of the securities purchase agreement have a three year term and require payment of an exercise price of $9.00 per common share to the Company. As of December 31, 2016 these warrants had expired.

Series D and D-1 preferred stock: Refer to Note 9 for descriptions of the Convertible Notes, Series D Preferred Stock, Series D-1 Preferred Stock, and Right Shares.

Series E preferred stock: Refer to Note 11 for descriptions of the Series E Preferred Stock and the Committed Equity Line.

Series F preferred stock: Refer to Note 12 for descriptions of the Series F Preferred Stock.

Series G preferred stock: Refer to Note 13 for descriptions of the Series G Preferred Stock.

Series H preferred stock: Refer to Note 14 for descriptions of the Series H Preferred Stock and July 2016 Convertible Notes.

Series I preferred stock: Refer to Note 15 for descriptions of the Series I Preferred Stock and the Series I Convertible Notes.

Series J and J-1 preferred stock: Refer to Note 16 for descriptions of the Series J Preferred Stock and the Series J-1 Preferred Stock.