Note 13 – Mandatorily Redeemable Preferred Stock

The Company has 5,000,000 authorized shares of Preferred Stock at a par value of $0.01. Issuances of the Company’s Preferred Stock included as part of stockholders’ deficit are discussed in Note 14. The following is a summary of the issuances of the Company’s Mandatorily Redeemable Preferred Stock.

Series I-1 Convertible Preferred Stock and Series I-2 Convertible Preferred Stock

On October 30, 2017, the Company closed an offering of $4,960,000 stated value of 4,960 shares of Series I-1 Preferred Stock. Each share of Series I-1 Preferred Stock had a stated value of $1,000. The offering was pursuant to the terms of the Securities Purchase Agreement, dated as of October 30, 2017 (the “Purchase Agreement”), between the Company and certain existing institutional investors of the Company. The Company received proceeds of $4.0 million from the offering. Each share of Series I-1 Preferred Stock was convertible into shares of the Company’s common stock at any time at the option of the holder at a conversion price equal to 85% of the lesser of the volume weighted average market price of the common stock on the day prior to conversion or on the day of conversion. The conversion price was subject to “full ratchet” and other customary anti-dilution protections.

On October 30, 2017, the Company entered into Exchange Agreements with the holders of the September 2017 Debentures and the September 2018 Debentures (collectively, the “September Debentures”) to provide that the holders could, from time to time, exchange their September Debentures for shares of a Series I-2 Preferred Stock. The Exchange Agreements permitted the holders of the September Debentures to exchange specified principal amounts of the September Debentures on various closing dates starting on December 2, 2017 (debentures are more fully discussed in Note 9). At the holder’s option each holder could reduce the principal amount of September Debentures exchanged on any particular closing date, or elect not to exchange any September Debentures at all on a closing date. If a holder chose to exchange less principal amount of September Debentures or none at all, it could carry forward such lesser amount to a future closing date and then exchange more than the originally specified principal amount for that later closing date. For each $0.80 of principal amount of the debenture surrendered to the Company at any closing date, the Company would issue to the holder a share of Series I-2 Preferred Stock with a stated value of $1.00. From December 2, 2017 through March 1, 2018, any exchange under the Exchange Agreements was at the option of the holder. Subsequent to March 2018, any exchange was at the option of the Company. Each share of Series I-2 Preferred Stock was convertible into shares of the Company’s common stock at any time at the option of the holder at a conversion price equal to 85% of the lesser of the volume weighted average market price of the common stock on the day prior to conversion or on the day of conversion. The conversion price was subject to “full ratchet” and other customary anti-dilution protections.

The Company’s Board of Directors designated up to 21,346 shares of the 5,000,000 authorized shares of preferred stock as the Series I-2 Preferred Stock and the Company issued 3,907.67 shares of its Series I-2 Preferred Stock. Each share of Series I-2 Preferred Stock had a stated value of $1,000.

During the year ended December 31, 2020, the holder converted 236.30 shares of Series I-2 Preferred Stock into 313,000 shares of the Company’s common stock and during the year ended December 31, 2019, the holder converted 1,078.63 shares of Series I-2 Preferred Stock into 940,075 shares of the Company’s common stock.

On August 31, 2020, the remaining outstanding shares of Series I-1 and Series I-2 Preferred Stock, which totaled 6,257.62 shares, were exchanged for the Company’s Series N Preferred Stock as more fully discussed below and in Note 9.

On August 31, 2020, the Company entered into the Exchange and Redemption Agreement with certain institutional investors in the Company wherein the investors agreed to reduce their holdings of the Company’s debentures, which are more fully discussed in Note 9, by approximately $19.3 million (including accrued interest and penalties) by exchanging the debentures and all of the outstanding shares of the Company’s Series I-1 and Series I-2 Preferred Stock, which was 6,257.62 shares, for 30,435.52 shares of the Company’s Series N Preferred Stock. The Exchange and Redemption Agreement is more fully discussed in Note 9. The Series N Preferred Stock is more fully discussed in Note 14.