Note 13 – Stockholders’ Deficit

Authorized Capital

The Company has 500,000,000 authorized shares of Common Stock at $0.01 par value and 5,000,000 authorized shares of Preferred Stock at a par value of $0.01.

Preferred Stock

In conjunction with the Merger, all outstanding Medytox Series B preferred shares were cancelled in exchange for shares of Rennova Series B Convertible Preferred Stock (the “Series B Preferred Stock”), which were not entitled to receive dividends unless dividends were declared on the Company’s common stock. On September 6, 2016, all of the outstanding shares of Series B Preferred Stock were converted into an aggregate of 12,742 shares of the Company’s common stock, in accordance with the terms of the Series B Preferred Stock.

Between January 1, 2016 and July 10, 2016, holders of the Company’s Series C Preferred Stock converted a total of 260 shares of Series C Preferred Stock into 373 shares of common stock. On July 11, 2016, the Company entered into Exchange Agreements with the holders of the Series C Preferred Stock and the holders of the Company’s 14,337 warrants to purchase shares of common stock issued December 30, 2015 (the “December 2015 Warrants”), to exchange such securities for shares of newly-authorized Series G Convertible Preferred Stock with a stated value of $1,000 per share (the “Series G Preferred Stock”) and new warrants to purchase shares of common stock (the “Exchange”). The Exchange closed on July 19, 2016 in conjunction with the public offering discussed below, and the outstanding 8,740 shares of Series C Preferred Stock and the December 2015 Warrants were exchanged for 13,793 shares of Series G Preferred Stock and new warrants to purchase 167,555,446 shares of the Company’s common stock (the “Exchange Warrants”). On July 6, 2016, stockholders representing approximately 74% of the voting power of the Company approved the Exchange. The Exchange was made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 3(a)(9) thereof based on the representations of the holders. No commission or other remuneration was paid or given directly or indirectly for soliciting the Exchange.

The Series G Preferred Stock is convertible into common stock at the stated value divided by $13.50. The exercise price of the Exchange Warrants is $0.0038 per share, which reflects adjustments for the down round provisions. No gain or loss was recognized by the Company as result of the Exchange, however the Company did record a gain on the change in fair value of the December 2015 Warrants of $1.7 million in July 2016. Subsequent to the closing of the Exchange through December 31, 2016, 5,232 shares of Series G Preferred Stock were converted into 25,836 shares of the Company’s common stock.

On August 26, 2016, in accordance with the terms of a stock purchase agreement between the Company and Epinex Diagnostics, Inc. (“Epinex Diagnostics”), the Company cancelled the 45,000 shares of its Series E Preferred Stock that had previously been issued to Epinex Diagnostics.

On December 20, 2016, the Company completed a public offering whereby the Company issued 12,350 shares of its newly designated Series H Convertible Preferred Stock (the “Series H Preferred Stock”) and received net proceeds of $11.8 million, net of offering costs of $0.5 million. The underwriters to the offering also received warrants to purchase an aggregate of 15,247 shares of common stock at an exercise price of $50.70 per share. The Series H Preferred Stock has a stated value of $1,000 per share and is convertible into shares of the Company’s common stock at a conversion price of $2.70 per share. A total of $8.3 million of the net proceeds received from this offering was used to redeem 8,346 shares of Series G Preferred Stock. Subsequent to the closing of the offering and prior to December 31, 2016, 2,331 shares of Series H Preferred Stock were converted into 57,555 shares of common stock.

During the year ended December 31, 2017, 7,785 shares of Series H Preferred Stock were converted into 370,446 shares of common stock in accordance with the terms of the Series H Preferred Stock. Also during the year ended December 31, 2017, 2,174 shares of Series H Preferred Stock with a stated value of $2.2 million were exchanged for Exchange Debentures with an aggregate principal amount of $2.7 million and warrants (see Note 8).

In connection with the acquisition of Genomas, Inc., on September 27, 2017, which is more fully discussed in Note 17, the Company issued 1,750,000 shares of its Series F Preferred Stock valued at $174,097. Each share of the Series F Preferred Stock is convertible into shares of our common stock (subject to adjustment as provided in the related certificate of designation of preferences, rights and limitations) at any time after the first anniversary of the issuance date at the option of the holder at a conversion price equal to the greater of $29.25 or the average closing price of the Company’s common stock for the 10 trading days immediately preceding the conversion. The maximum number of shares of common stock issuable upon the conversion of the Series F Preferred Stock is 59,829. Any shares of Series F Preferred Stock outstanding on the fifth anniversary of the issuance date will be mandatorily converted into common stock at the applicable conversion price on such date. At any time, from time to time after the first anniversary of the issuance date, the Company has the right to redeem all or any portion of the outstanding Series F Preferred Stock at a price per share equal to $1.95 plus any accrued but unpaid dividends. The Series F Preferred Stock has voting rights. Each share of Series F Preferred Stock has one vote, and the holders of the Series F Preferred Stock shall vote together with the holders of the Company’s common stock as a single class.

The following table summarizes the activity in the Company’s various classes of Preferred Stock included in Stockholders’ Deficit for the years ended December 31, 2017 and 2016:

Common Stock

The Company had 19,750,844 and 186,692 shares of common stock outstanding at December 31, 2017 and 2016, respectively. The Company issued shares of its common stock during the years ended December 31, 2017 and 2016 as follows:

During the year ended December 31, 2016, the Company issued an aggregate of 586 shares of its common stock to consultants for services valued at approximately $73,000. Also during the year ended December 31, 2016, the Company issued 108 shares of common stock for the cashless exercise of outstanding warrants, issued 112 shares of common stock as an adjustment to previously converted preferred stock and cancelled 91 shares of common stock previously issued to an employee.

In 2016, the Company issued an aggregate of 1,618 shares of its common stock under the 2007 Equity Plan, as defined below, to: (i) three of its executive officers as compensation; (ii) one employee in connection with an employment agreement; (iii) an employee in conjunction with a separation agreement; and (iv) shares of restricted common stock to an employee which vested in January of 2017. The Company recognized compensation cost in the amount of $0.3 million in connection with the foregoing grants.

On July 19, 2016, the Company closed a public offering of its equity securities whereby the Company issued 42,478 shares of its common stock and warrants to purchase an additional 42,478 shares of its common stock and received net proceeds of $7.5 million. In conjunction with this offering, the Company also issued an additional 675 warrants to cover over-allotments.

During the year ended December 31, 2016, the Company exchanged an aggregate of $2.23 million of indebtedness and other obligations to various related parties for an aggregate of 12,815 shares of common stock and warrants to purchase 55,092,381 shares of the Company’s common stock. At December 31, 2017, these warrants have an exercise price of $0.276 per share, which reflects the effect of dilutive issuances made during 2017. The exercise price is subject to additional adjustment for future dilutive issuances. The warrants were immediately exercisable and have a five-year term. The issuance of the shares of common stock and warrants was exempt from the registration requirements of the Securities Act of 1933, as amended, in accordance with Section 4(a)(2) thereof, as a transaction by an issuer not involving any public offering.

The February 22, 2017 reverse stock split, which is more fully described in Note 1, resulted in the issuance of 526 shares of common stock due to the rounding up of fractional shares.

On March 13, 2017, the Company issued 26,667 shares of common stock in settlement of $0.4 million of outstanding notes and warrants (see Note 7).

On March 15, 2017, the Company agreed to issue 2,056 shares of common stock to the holders of a like number of warrants to purchase the Company’s common stock in exchange for the warrants valued at $57,868.

During the year ended December 31, 2017, the Company issued 18,285,517 shares of its common stock upon conversion of $7.3 million principal amount of the March Debentures and issued 663,000 shares of its common stock for $0.6 million upon exercise of 663,000 March Warrants (see Note 8).

On July 25, 2017, the Company issued 8,333 shares of its common stock valued at $42,510 for severance owed to a former employee under the terms of the Company’s 2007 Equity Plan, which is more fully described below.

On August 14, 2017, the Company issued 181,933 shares of restricted stock to employees and directors, and later returned 5,373 shares of this stock to treasury, as more fully discussed under the heading Restricted Stock below.

On August 23, 2017, the Company issued 33,334 shares of its common stock in payment of professional service fees valued at $118,493.

Restricted Stock

On August 14, 2017, the Board of Directors, based on the recommendation of the Compensation Committee of the Board and in accordance with the provisions of the 2007 Equity Plan, approved grants to employees and directors of the Company of an aggregate of 181,933 shares of restricted common stock of the Company. The grants fully vest on the first anniversary of the date of grant, subject to the grantee’s continued status as an employee or director, as the case may be, on the vesting date. During the year ended December 31, 2017, 5,373 shares of the restricted stock were forfeited by their terms and cancelled and the shares were returned to treasury.

During the year ended December 31, 2017, the Company recognized stock-based compensation in the amount of $244,768 for the grant of the restricted stock based on a valuation of $3.75 per share. At December 31, 2017, the Company had approximately $0.4 million of unrecognized compensation cost related to the restricted stock.

Common Stock and Common Stock Equivalents

The Company has outstanding options, warrants, convertible preferred stock and convertible debentures. Exercise of the options and warrants, and conversions of the convertible preferred stock and debentures could result in substantial dilution of our common stock and a decline in its market price. In addition, the terms of certain of the warrants, convertible preferred stock and convertible debentures issued by us provide for reductions in the per share exercise prices of the warrants and the per share conversion prices of the debentures and preferred stock (if applicable and subject to a floor in certain cases), in the event that we issue common stock or common stock equivalents (as that term is defined in the agreements) at an effective exercise/conversion price that is less than the then exercise/conversion prices of the outstanding warrants, preferred stock and debentures. These provisions, as well as the issuances of debentures and preferred stock with conversion prices that vary based upon the price of our common stock on the date of conversion, have resulted in significant dilution of our common stock and have given rise to reverse splits of our common stock.

The following table presents the dilutive effect of our various potential common shares as of April 1, 2018:

As of April 1, 2018, the Company lacked a sufficient number of authorized shares of its common stock to cover all potentially dilutive common shares outstanding. Pursuant to a proxy statement filed with the Securities and Exchange Commission on March 14, 2018, the Company intends to hold a special meeting of stockholders on May 2, 2018 to approve an increase in the number of shares of its authorized common stock from 500,000,000 shares to 3,000,000,000 shares and to authorize its Board of Directors to effect a discretionary reverse stock split as more fully discussed in Note 20.

Stock Options

The Company maintained and sponsored the Tegal Corporation 2007 Incentive Award Equity Plan (the “2007 Equity Plan”). Tegal Corporation is the predecessor entity to the Company. The 2007 Equity Plan, as amended, provided for the issuance of stock options and other equity awards to the Company’s officers, directors, employees and consultants. The 2007 Equity Plan terminated pursuant to its terms in September 2017. The following table summarizes the stock option activity for the years ended December 31, 2017 and 2016:

The Company recognized stock option expense of approximately $0.2 million and $0.9 million for the years ended December 31, 2017 and 2016, respectively. Stock options granted during the year ended 2016 were recorded at their grant date fair value using a binomial model with the following assumptions: (i) dividend yield 0%; (ii) expected volatility 168%; and (iii) risk free rate of interest 1.88%. The following table summarizes information with respect to stock options outstanding and exercisable by employees and directors at December 31, 2017:

As of December 31, 2017, there was unrecognized compensation cost of $0.4 million related to stock options. The Company expects to recognize those costs over a weighted average period of 1.08 years as of December 31, 2017.

The Company is seeking approval of its 2018 Incentive Plan pursuant to a proxy statement filed with the Securities and Exchange Commission on March 14, 2018, as more fully discussed in Note 20.

Warrants

The Company, as part of various debt and equity financing transactions, has issued warrants to purchase shares of the Company’s common stock.

During the year ended December 31, 2017, the Company issued 1,955,338,400 warrants with a weighted average exercise price of $0.0418 per share at December 31, 2017 in connection with the issuances of debentures as more fully discussed in Note 8. The terms of the debenture warrants are more fully discussed in Note 8.

The number of warrants issued, converted and outstanding as well as the exercise prices of the warrants reflected in the table below have been adjusted to reflect the full ratchet and other dilutive and down round provisions pursuant to the warrant agreements as of December 31, 2017. As a result of the current exercise prices for the majority of the outstanding warrants (subject to a floor in some cases), as well as the full ratchet provisions of the majority of the outstanding warrants (again, subject to a floor in some cases), subsequent decreases in the price of the Company’s common stock and subsequent issuances of the Company’s common stock or common stock equivalents at prices below the current exercises prices of the warrants will result in increases in the number of warrants issued and decreases in the exercise prices.

The following summarizes the information related to warrants issued and the activity during the years ended December 31, 2017 and 2016:

See above and Note 3 for a discussion of the dilutive effect of the outstanding warrants as of April 1, 2018.