10.	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, 2018,

100,000

shares of preferred stock have been designated as Series A-

Convertible Preferred Stock, of which

shares are issued and outstanding, and

105,000

shares of preferred stock have been designated as Series B-

Convertible Preferred Stock, 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 (“Series A-

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-

Stock were issued at a purchase price of

$100.00

per share, for gross cash proceeds of

$550,000.

Shares of Series A-

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. In connection with the request of the sole holder of the Series A-

Stock, on

August 7, 2017

the Company waived a standstill agreement to permit the holder to increase his conversion cap to

35%

effective

days after such waiver request. The Series A-

Stock accrues dividends at the rate of

per annum payable quarterly on

April 1,

July, 1,

October 1,

and

January 1

of each year. Until

October 1, 2017,

the dividends were 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-

Stock are entitled to designate

one

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

Stock 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-

Stock elect otherwise, holders of Series A-

Stock 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).

Between

September 22, 2017

and

May 31, 2018,

the holder of the Series A-

Stock converted all shares of Series A-

Stock into an aggregate of

2,500,000

shares of common stock and purchased an aggregate of

248,893

shares of common stock in consideration of the conversion of

$896,015

of accrued dividends payable on the Series A-

Stock

As a result of the forgoing conversions, there are

longer any issued and outstanding shares of Series A-

Stock.

Overall balances and conversion of Series A-

shares and accrued dividends into common stock has been as follows:

	Series A-1			Accrued Dividends

Balance – January 1, 2017		90,000		$	270,000
Accrual of dividends – Q1 2017					135,000
Accrual of dividends – Q2 2017					135,000
Accrual of dividends – Q3 2017					135,000
Conversion into common stock – September 2017		-			(540,000	)
Conversion into common stock – October 2017		(27,404	)		-
Accrual of dividends – Q4 2017					101,658
Balance – December 31, 2017		62,596		$	236,658
Accrual of dividends – Q1 2018					93,894
Conversion into common stock – April 2018		(39,088	)		(330,552	)
Accrual of dividends – Q2 2018 (until final conversion)					25,463
Conversion into common stock – May 2018		(23,508	)		(25,463	)
Balance – June 30, 2018		-		$	-

The Series A-

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 Series A-

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 could have elected to have the 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 (the “Series B-

Stock”) at a purchase price of

$100.00

per share, for gross proceeds of

$10,500,000.

Shares of the Series B-

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. During a conversion detailed in the table below, the Company waived a standstill provision to permit a holder of Series B-

Stock to increase conversion limitation to

19.99%

of the Company's issued and outstanding shares of common stock to be effective

days after such waiver. The Series B-

Stock accrues 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-

Stock 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-

Stock are entitled to designate

one

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

not

Stock elect otherwise, holders of Series B-

Stock 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).

Between

March 23, 2018

and

May 23, 2018,

holders of shares of Series B-

Stock converted all shares of Series B-

Stock into an aggregate of

2,916,668

shares of common stock and purchased an aggregate of

131,230

shares of common stock in consideration of the conversion of

$472,426

of accrued dividends payable on the Series B-

Stock.

As a result of the forgoing conversions, there are

longer any issued and outstanding shares of Series B-

Stock.

Overall balances and conversion of Series B-

shares and accrued dividends into common stock has been as follows:

	Series B -1			Accrued Dividends

Balance – January 1, 2017		105,000		$	131,250
Accrual of dividends – Q1 2017					65,625
Accrual of dividends – Q2 2017					65,625
Accrual of dividends – Q3 2017					65,625
Accrual of dividends – Q4 2017					65,625
Balance – December 31, 2017		105,000			393,750
Conversion into common stock – March 2018		(60,420	)		(417,084	)
Accrual of dividends – Q1 2018					62,268
Accrual of dividends – Q2 2018 (until final conversion)					16,408
Conversion into common stock – May 2018		(44,580	)		(55,342	)
Balance – June 30, 2018		-		$	-

The Series B-

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 Series B-

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: The majority of holders

may

elect to have the 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

March 23, 2018,

in addition to the conversion of Series B-

Stock and accrued dividends payable into a total of

1,794,191

shares of common stock, the Company issued

7,659

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

$15,011.

March 28, 2018,

the Company issued

762

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

$1,501.

April 3, 2018,

the holder of Series A-

Stock converted shares and accrued dividends payable into a total of

1,177,598

shares of common stock.

May 10, 2018,

the Company issued

2,035

shares of common stock to its directors in payment of board fees.

May 14, 2018,

the Company issued

648

shares of common stock to its directors in payment of committee fees.

May 23, 2018,

the holders of Series B-

Stock converted shares and accrued dividends payable into a total of

1,253,707

shares of common stock.

May 31, 2018,

the holder of Series A-

Stock converted shares and accrued dividends payable into a total of

660,073

shares of common stock.

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 early-adopted the new provisions issued

July 2017,

for derivative liability instruments under FASB ASU

2017

11,

Earnings Per Share (Topic

260

), Distinguishing Liabilities from Equity (Topic

480

) and Derivatives and Hedging (Topic

815

): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. Under ASU

2017

11,

down round features do

not

meet the criteria for derivative accounting and

liability is to be recorded until an actual issuance of securities triggers the down-round feature. Prior to these provisions, the liabilities were recorded without the actual issuance of the securities triggering the down-round feature.

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 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 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

11,

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.

Securities Purchase Agreement dated

September 23, 2015

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

11,

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.

Issuances of Stock Options

March 23, 2018,

the Company issued options to purchase

9,000

shares of common stock to

six

non-employee members of the Board of Directors. The options have a

three

year vesting period,

seven

year term, and exercise price of

$1.96.

March 23, 2018,

the Company issued options to purchase

212,918

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

$1.96.

The fair value of the options issued during the

three

months ended

March 31, 2018

was estimated on the date of grant at

$381,876

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

2.56%,

expected life of options in years:

4.5,

expected dividends:

volatility of stock price:

143%.

There were

additional options issued during the

three

months ended

June 30, 2018.