9.	STOCKHOLDERS’ EQUITY

Preferred Stock

Within the limits and restrictions provided in the Company’s Certificate of Incorporation, the Board of Directors has the authority, without further action by the shareholders, to issue up to

5,000,000

shares of preferred stock,

$.0001

par value per share, in

one

or more series, and to fix, as to any such series, any dividend rate, redemption price, preference on liquidation or dissolution, sinking fund terms, conversion rights, voting rights, and any other preference or special rights and qualifications. As of

June 30, 2017,

100,000

shares of preferred stock have been designated as Series A-

Convertible Preferred Stock, of which

90,000

shares are issued and outstanding, and

105,000

shares of preferred stock have been designated as Series B-

Convertible Preferred Stock, all of which are issued and outstanding.

Series A-

Convertible Preferred Stock

October 22

and

29,

2015,

the Company issued

84,500

shares of Series A-

Convertible Preferred Stock at a purchase price of

$100.00

per share, for aggregate gross proceeds of

$8,450,000.

November 11, 2015,

5,500

additional shares of Series A-

Convertible Preferred Stock were issued at a purchase price of

$100.00

per share, for gross cash proceeds of

$550,000.

Shares of the Series A-

Convertible Preferred Stock are convertible at any time at the option of the holder into shares of common stock by dividing the Series A-

Original Issue Price by an initial conversion price of

$3.60

per share, subject to adjustment for stock dividends, stock splits, combinations, and reclassifications of the Company’s capital stock, and subject to a “blocker provision” which prohibits conversion if such conversion would result in the holder being the beneficial owner of in excess of

9.99%

of the Company’s common stock. The Series A-

Shares accrue dividends at the rate of

per annum payable quarterly on

April 1,

July, 1,

October 1,

and

January 1

of each year. Unless holders of at least a majority of the outstanding shares of Series A-

Preferred Stock elect otherwise by written notice to the Company, until

October 1, 2017,

the dividends are payable in cash provided that if payment in cash would be prohibited under applicable Delaware corporation law or cause the Company to breach any agreement for borrowed money, such dividends are payable in kind through the issuance of additional shares of common stock having a value equal to the volume weighted average trading price of the Company’s common stock for the

ten

(

) days preceding the applicable dividend payment date. Commencing

January 1, 2018,

dividends are payable at the option of the Company in cash or kind through the issuance of additional shares of common valued as described above.

The holders of the Series A-

shares are entitled to designate

one

person to serve on the Board of Directors of the Company. The holders of the Series A-

Shares are entitled to vote on an as converted to common stock basis together with the holders of our common stock on all matters presented to our stockholders. Upon any liquidation or dissolution of the Company, any merger or consolidation involving the Company or any subsidiary of the Company in which the shares of capital stock of the Company outstanding immediately prior to such merger or consolidation do

not

represent immediately following such merger or consolidation at least a majority of the voting power of the capital stock of the resulting or surviving corporation, or the sale of all or substantially all assets in a single transaction or a series of related transactions, unless the holders of at least a majority of the outstanding Series A-

Shares elect otherwise, holders of Series A-

Shares shall be entitled to receive prior to any payment to any holders of the Company’s common stock an amount per share equal to

$100.00

per share plus any declared and unpaid dividends (pari-passu with the Series B-

holders). As of

June 30, 2017,

$540,000

was accrued for the holders of the Series A-

shares, for

October 1, 2016,

January 1, 2017,

April 1, 2017,

and

July 1, 2017

dividends. As of

December 31, 2016,

$270,000

of dividends were accrued for the holders of the Series A-

shares for

October 1, 2016

and

January 1, 2017

dividends.

The Series A-

Preferred Stock contains options that based on an evaluation of FASB ASC

815

15,

“Embedded Derivatives” and FASB ASC

815

15,

“Contracts in Entity’s Own Equity - Scope and Scope Exceptions,” are considered embedded features: Preferred Stock’s conversion option: The Preferred Stock is convertible at the Holder’s option at any time at the fixed conversion price of

$3.60

per share; Quarterly Dividend Conversion Option: From issuance until

December 31, 2017,

the majority of Holders

may

elect to have the Stock’s Quarterly dividend payment made in shares of Common Stock, having a value equal to the volume weighted average trading price of the Common Stock during the

ten

(

) trading day period preceding the applicable dividend payment date. These features were analyzed by the Company and determined that they were

not

required to be bifurcated from the preferred stock and recorded as derivatives as they are clearly and closely related to an equity host.

Series B-

Convertible Preferred Stock

November 11, 2015,

the Company issued

105,000

shares of Series B-

Convertible Preferred Stock at a purchase price of

$100.00

per share, for gross proceeds of

$10,500,000.

Shares of the Series B-

Convertible Preferred Stock are convertible at any time at the option of the holder into shares of common stock by dividing the Series B-

Original Issue Price by an initial conversion price of

$3.60

9.99%

of the Company’s common stock. The Series B-

Shares accrue dividends at the rate of

2.5%

per annum payable quarterly on

April 1,

July, 1,

October 1,

and

January 1

of each year payable in cash provided that if payment in cash would be prohibited under applicable Delaware corporation law or cause the Company to breach any agreement for borrowed money, or if the majority of the outstanding shares of the Series B-

Shares elect otherwise, such dividends are payable in kind through the issuance of additional shares of common stock having a value equal to the volume weighted average trading price of the Company’s common stock for the

ten

(

) days preceding the applicable dividend payment date.

The holders of the Series B-

shares are entitled to designate

one

person to serve on the Board of Directors of the Company. The holders of the Series B-

not

Shares elect otherwise, holders of Series B-

Shares shall be entitled to receive prior to any payment to any holders of the Company’s common stock an amount per share equal to

$100.00

per share plus any declared and unpaid dividends (pari-passu with the Series A-

holders). As of

June 30, 2017,

$262,500

was accrued for the holders of the Series B-

shares, for

October 1, 2016,

January 1, 2017,

April 1, 2017,

and

July 1, 2017

dividends. As of

December 31, 2016,

$131,250

of dividends were accrued for the holders of the Series B-

shares for

October 1, 2016

and

January 1, 2017

dividends.

The Series B-

Preferred Stock contains options that based on an evaluation of FASB ASC

815

15,

“Embedded Derivatives” and FASB ASC

815

15,

$3.60

per share; Quarterly Dividend Conversion Option: The majority of Holders

may

elect to have the Stock’s Quarterly dividend payment made in shares of Common Stock, having a value equal to the volume weighted average trading price of the Common Stock during the

ten

(

) trading day period preceding the applicable dividend payment date. These features were analyzed by the Company and determined that they were

not

required to be bifurcated from the preferred stock and recorded as derivatives as they are clearly and closely related to an equity host.

Common Stock

Effective

December 29, 2016,

the Company implemented a reverse stock split of its outstanding common stock at a ratio of

-for-

12.

The number of authorized shares and the par value of the Company's common stock and preferred stock were

not

affected by the reverse stock split. Stockholders who otherwise would be entitled to receive fractional shares were rounded up to the nearest whole share. The reverse stock split became effective on the OTCQB at the opening of trading on

December 29, 2016.

April 28, 2017,

the Company issued to Wong Kwok Fong, a director and executive officer of the Company,

277,778

shares of common stock at a purchase price of

$3.60

per share for gross cash proceeds of

$1,000,000.

May 2, 2017,

the Company entered into a committed equity facility pursuant to which it

may

issue and sell up to

$5.0

million worth of shares of common stock, subject to certain limitations and satisfaction of certain conditions, over a

-month term following the effectiveness of a registration statement covering the public resale of the shares of common stock issued under the facility. From time to time over the term of the facility, the Company

may

issue requests to the investor to purchase a specified dollar amount of shares up to a maximum of

$100,000

over a

five

trading day period based on the daily volume weighted average price of the Company’s common stock (VWAP) to the extent the VWAP equals or exceeds the greater of a formula amount or

$3.83

per share. The per share purchase price for the shares issued under the facility will be equal to

94%

of the lowest VWAP that equals or exceeds

$3.83

per share. Aggregate sales under the facility are limited to

19.99%

of the total outstanding shares of the Company’s common stock as of

May 2, 2017,

unless stockholder approval is obtained, and sales under the facility are prohibited if such a sale would result in beneficial ownership by the investor of more than

9.99%

of the Company’s common stock.

March 15, 2017,

the Company issued

1,895

shares of common stock to its directors in payment of board fees, valued at

$5,003.

March 8, 2016,

the Company issued

8,333

shares of common stock to its directors in payment of board fees valued at

$16,000.

May 11, 2017,

the Company issued

1,925

shares of common stock to its directors in payment of board fees, valued at

$5,005.

May 11, 2016,

the Company issued

41,174

shares of common stock to its directors in payment of board fees valued at

$6,999.

May 11, 2016,

the Company issued

100,000

shares of common stock to the Chief Executive Officer as compensation valued at

$17,000.

May 2017,

the Company issued

55,000

shares of common stock in payment of a commitment fee for the equity facility valued at

$198,000.

The Company immediately expensed the fee as it relates to the contingent use of the equity committed equity facility.

May 2017,

the Company issued

61,667

shares of common stock to a consultancy firm in lieu of payment for services with respect to the equity facility agreement. The fair value at issuance averaged

$2.54

per share, with the total amount of

$156,584.

The Company deferred the cost to prepaid expense and is amortizing the expense over the length of the consultancy service agreement.

Stock Issuance Costs

Additional costs of

$74,420

were incurred during the

three

months ended

June 30, 2017

in relation to the issuance of stock. For the

six

months ended

June 30, 2017,

total stock issuance costs totaled

$80,366.

Derivative Liabilities

In connection with the issuances of equity instruments or debt, the Company

may

issue options or warrants to purchase common stock. In certain circumstances, these options or warrants

may

be classified as liabilities, rather than as equity. In addition, the equity instrument or debt

may

contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances

may

be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company accounts for derivative liability instruments under the provisions of FASB ASC

815,

“Derivatives and Hedging.”

Securities Purchase Agreements dated

October 25, 2013

and

November 8, 2013

Pursuant to a series of Private Investors Securities Purchase Agreements (the “PI SPA”), on

October 25, 2013

and

November 8, 2013,

the Company issued to certain private investors an aggregate of

1,026,972

units consisting of

1,026,972

shares of common stock (the “Shares”) and warrants to purchase an additional

1,026,972

shares of common stock (the “Warrants”) for an aggregate purchase price of

$3,697,100.

The warrants were immediately exercisable at an exercise price of

$6.00

per share, and had a term of

three

years which expired in

2016.

In connection with the share issuances described above, and pursuant to a placement agency letter agreement, the Company paid the placement agent cash commissions equal to

of the gross proceeds of the offering, reimbursed the placement agent for its reasonable out of pocket expenses, and issued to the placement agent warrants (the “Placement Agent Warrants”) to purchase an aggregate of

82,158

shares of common stock. The Placement Agent Warrants have substantially the same terms as the warrants issued to the investors, except the Placement Agent Warrants were immediately exercisable on a cashless basis.

The cashless exercise features contained in the warrants were considered to be derivatives and the Company recorded warrant liabilities on the consolidated balance sheet. The Company initially recorded the warrant liabilities equal to their estimated fair value of

$325,891.

Such amount was also recorded as a reduction of additional paid-in capital. The Company is required to mark-to-market the warrant liabilities at the end of each reporting period. For the

three

months ended

June 30, 2016,

the Company recorded a loss on the change in fair value of the cashless exercise features of

$433.

For the

six

months ended

June 30, 2016,

the Company recorded a gain on the change in the fair value of the cashless exercise feature of

$1,904.

As of

December 31, 2016,

the fair value of the cashless exercise features was

as the underlying warrants expired during the

fourth

quarter of

2016.

Securities Purchase Agreement dated

November 13, 2014

Pursuant to a Securities Purchase Agreement, dated

November 13, 2014,

by and between the Company and a number of private and institutional investors (the

“November 2014

Private Investor SPA”), the Company issued to certain private investors

664,584

shares of common stock and warrants to purchase an additional

996,877

shares of common stock for aggregate gross proceeds of

$1,595,000.

The common stock has a purchase price reset feature. If at any time prior to the

two

year anniversary of the effective date of the registration statement covering the public resale of such shares (

January 29, 2015),

the Company sells or issues shares of common stock or securities that are convertible into common stock at a price lower than

$2.40

per share, the Company will be required to issue additional shares of common stock for

additional consideration.

Based on an evaluation as discussed in FASB ASC

815

15,

“Embedded Derivatives” and FASB ASC

815

15,

“Contracts in Entity’s Own Equity - Scope and Scope Exceptions,” the Company determined that the purchase price reset feature on the common stock issued was

not

considered indexed to its own stock because neither the occurrence of a sale of equity securities by the issuer at market nor the issuance of another equity contract with a lower strike price is an input to the fair value of a fixed-for-fixed option or forward on equity shares. As such, the purchase price reset feature should be bifurcated from the common stock and accounted for as a derivative liability.

The Company valued the purchase price reset feature using a Monte Carlo simulation at the date of issuance, and at quarterly reporting intervals until the expiration of the feature in

January 2017,

and determined that the purchase price reset feature had

value as the Company issued Series A-

and Series B-

preferred stock in

October

and

November

2015,

at a conversion price of

$3.60,

and issued common stock in

November 2016

and

April 2017

also at a price of

$3.60.

The warrants have a term of

five

years and an exercise price of

$3.60

per share, and have been fully exercisable since

February 2015.

The warrants have customary anti-dilution protections including a “full ratchet” anti-dilution adjustment provision which are triggered in the event the Company sells or grants any additional shares of common stock, options, warrants or other securities that are convertible into common stock at a price lower than

$3.60

per share. The anti-dilution adjustment provision is

not

triggered by certain “exempt issuances” which among other issuances, includes the issuance of shares of common stock, options or other securities to officers, employees, directors, consultants or service providers.

As a result of the early adoption of ASU

2017

referred to in Note

– Recently Issued Accounting Pronouncements, the “full ratchet” anti-dilution feature is

longer a determinant for derivative liability accounting. As the “full ratchet” anti-dilution feature was determined to have

value in the past, the adoption had

effect on the balance sheets or statements of operations.

Warrants

March 9, 2015,

the Company issued a warrant to purchase

47,917

shares of common stock to a consultant which vested in equal quarterly installments over

one

year and is exercisable at

$2.52

per share through

March 8, 2020.

For the

six

months ended

June 30, 2016,

the Company recorded an expense of

$11,625

related to the stock warrants, which completed the service period.

September 23, 2015,

the Company issued a warrant to purchase

69,445

shares of common stock in connection with the issuance of a promissory note. The warrants are immediately exercisable at an exercise price of

$3.60

per share and have a term of

five

years.

The warrants have customary anti-dilution protections including a "full ratchet" anti-dilution adjustment provision which are triggered in the event the Company sells or grants any additional shares of common stock, options, warrants or other securities that are convertible into common stock at a price lower than

$3.60

per share. The anti-dilution adjustment provision is

not

triggered by certain "exempt issuances" which among other issuances, includes the issuance of shares of common stock, options or other securities to officers, employees, directors, consultants or service providers.

As a result of the early adoption of ASU

2017

referred to in Note

– Recently Issued Accounting Pronouncements, the “full ratchet” anti-dilution feature is

longer a determinant for derivative liability accounting. As the “full ratchet” anti-dilution feature was determined to have

value in the past, the adoption had

effect on the balance sheets or statements of operations.

The cashless exercise features contained in the warrants were initially considered to be derivatives and the Company recorded a warrant liability of

$92,199

on the consolidated balance sheet in

2015.

The warrants issued by the Company were valued using an option-pricing model. The Company marked-to-market the warrant liabilities at the end of each reporting period. For the quarter ended

June 30, 2016,

the Company recorded a loss on the change in fair value of the cashless exercise features of

$49,035.

For the

six

months ended

June 30, 2016,

the Company recorded a loss on the change in the fair value of the cashless exercise features of

$51,410.

During

2016,

the Company determined the cashless exercise features did

not

meet the criteria for recording a warrant liability. Accordingly, the grant date fair value of the warrant liability was transferred to additional paid-in capital and the cumulative loss due to change in the recorded fair value of the liability was reversed during

2016.

Issuances of Stock Options

March 15, 2017,

the Company issued options to purchase

40,000

shares of the Company’s common stock to

four

non-employee members of the Board of Directors. On

March 15, 2017,

the Company also issued options to purchase

4,167

shares of the Company’s common stock to an employee. The options have a

three

-year vesting period,

seven

-year term, and exercise price of

$2.64.

March 16, 2017,

the Board of Directors issued options to purchase

1,120,000

shares of the Company’s common stock to certain officers, employees, and contractors. The options have a

three

-year vesting period,

seven

-year term, and exercise price of

$2.65.

April 10, 2017,

the Company issued options to purchase

10,000

shares of the Company’s common stock to the newly appointed Director. The options have a

three

-year vesting period,

seven

-year term, and exercise price of

$2.64.

The fair value of the options issued during the

three

months ended

June 30, 2017

April 10, 2017

was estimated on the date of grant at

$20,538

using the Black-Scholes option-pricing model with the following assumptions: risk free interest rate:

1.81%,

expected life of options in years:

4.5,

expected dividends:

volatility of stock price:

138%.