NOTE Q

— 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

December 31, 2019,

100,000

shares of preferred stock have been designated as Series A-

Convertible Preferred Stock, of which

90,000

were issued in

2015

and

remain outstanding, and

105,000

shares of preferred stock have been designated as Series B-

Convertible Preferred Stock, of which

105,000

were issued in

2015

and

remain outstanding.

Series A-

Convertible Preferred Stock

October 22

and

29,

2015,

the Company issued

84,500

shares of 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.

2017,

the holder of the Series A-

Stock converted

$540,000

in accrued dividends payable into

150,000

shares common stock and converted

27,404

Series A-

Stock into

761,222

shares of common stock. Between

January 1, 2018

and

May

31,2018,

the holder of the Series A-

Stock converted all remaining shares of the Series A-

Stock into an aggregate of

1,738,778

shares of common stock and purchased an aggregate of

98,893

shares of common stock in consideration of the conversion of

$356,015

of accrued dividends payable on the Series A-

Stock.

As a result of the forgoing conversions, at

December 31, 2018

and

2019

there are

longer any issued and outstanding shares of Series A-

Stock.

Overall balances and conversion of Series A-

Stock 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 – December 31, 2018 and December 31, 2019		-		$	-

Series B-

Convertible Preferred Stock

November 11, 2015,

the Company issued

105,000

shares of Series B-

Stock at a purchase price of

$100.00

per share, for gross proceeds of

$10,500,000.

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

131,229

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, at

December 31, 2018

and

2019

there are

longer any issued and outstanding shares of Series B-

Stock.

Overall balances and conversion of Series B-

Stock 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 – December 31, 2018 and December 31, 2019		-		$	-

Common Stock

Holders of common stock have equal rights to receive dividends when, as and if declared by the Board of Directors, out of funds legally available therefor. Holders of common stock have

one

vote for each share held of record and do

not

have cumulative voting rights.

Holders of common stock are entitled, upon liquidation of the Company, to share ratably in the net assets available for distribution, subject to the rights, if any, of holders of any preferred stock then outstanding. Shares of common stock are

not

redeemable and have

preemptive or similar rights. All outstanding shares of common stock are fully paid and nonassessable.

Issuances of Common Stock

See Note N for common stock issued as commitment fees for notes payable during the

2019

fiscal year.

August 22, 2018,

the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim Group LLC (the “Underwriter”) with respect to the issuance and sale of an aggregate of

1,200,000

units (“Units”) with each unit consisting of

one

share of common stock and a warrant to purchase

0.75

shares of common stock at an exercise price of

$1.50

per share, in an underwritten public offering pursuant to the Underwriting Agreement. Each Unit was sold for a price of

$1.50.

The Warrants have a term of

five

years and are immediately exercisable. Pursuant to the Underwriting Agreement, the Company granted the Underwriters a

-day option to purchase up to an additional

180,000

shares of Common Stock and/or

135,000

Warrants to cover over-allotments, if any (the “Over-Allotment”). On

August 22, 2018,

the Underwriter exercised its Over-Allotment option in full on both the Common Stock and the Warrants. Pursuant to this agreement,

1,380,000

shares of common stock and warrants to purchase

1,035,000

shares of stock were issued on

August 24, 2018

for aggregate gross proceeds of

$2,070,000.

The gross proceeds were reduced by a

commission (

$144,900

) and

$50,000

of underwriting expenses to net to

$1,875,100

cash received.

Costs of

$143,945

were incurred during

2018

in relation to the issuance of common stock.

Also see preferred stock section above for conversions of shares of preferred stock and accrued dividends into shares of common stock in

2018.

Issuances to Directors, Executive Officers & Consultants

During the year ended

December 31, 2019,

the Company issued

36,897

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

$35,013.

During the year ended

December 31, 2018,

the Company issued

20,976

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

$37,532.

Employees’ exercise options

During

2019

and

2018,

employee stock options were exercised.

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 had a term of

five

years and an initial exercise price of

$3.60

per share, and were fully exercisable since

February 2015.

The warrants had 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 was

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.

August 24, 2018

the Company issued Common Stock and Warrants to investors at a purchase price of

$1.50

per unit which triggered the anti-dilution protection provision under this Securities Purchase Agreement. As a result, the total number of outstanding and fully vested warrants was increased from

996,877

2,392,502,

and the exercise price was reduced from

$3.60

$1.50

per share. The Company recognized a non-cash deemed dividend of

$1,288,139

2018

in connection with these adjustments.

The warrants expired in

November 2019.

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 initial 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 was

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.

August 24, 2018

the Company issued Common Stock and Warrants to the investors at a purchase price of

$1.50

per unit which triggered the anti-dilution protection provision under this Securities Purchase Agreement. As a result, the total number of outstanding and fully vested warrants was increased from

69,445

166,668,

and the exercise price was reduced from

$3.60

$1.50

per share. The Company recognized a non-cash deemed dividend of

$140,827

2018

in connection with these adjustments.

February 2020,

the Company entered into a convertible note at a conversion price of

$1.15

that triggered the anti-dilution feature under Securities Purchase Agreement dated

September 23, 2015.

Additionally, the Company entered into an amendment (as discussed in Note N) that reduced the conversion price of the Amended Note to

$0.65,

thus triggering the anti-dilution feature under the Securities Purchase Agreement dated

September 23, 2015.

In the

first

quarter of

2020,

the total number of outstanding and fully vested warrants will increase, the exercise price will ultimately reduce to

$0.65

per share, and the Company will record a non-cash deemed dividend in connection with both triggering events.

Warrants

The Company has issued warrants to certain creditors, investors, investment bankers and consultants. A summary of warrant activity is as follows:

	Total Warrants			Weighted average exercise price		Weighted average remaining life (in years)		Aggregate intrinsic value

Outstanding, as of December 31, 2017		1,398,969			3.81		2.06

Granted		1,035,000			1.50
Increase due to trigger of anti-dilution provision feature		1,492,848			1.50
Exercised		—			—
Forfeited		—			—
Expired		(145,841	)		6.00
Outstanding, as of December 31, 2018		3,780,976			1.59		2.05		—
Granted		2,000,000			1.50
Exercised		—			—
Forfeited		—			—
Expired		(2,392,502	)		1.50
Outstanding, as of December 31, 2019		3,388,474			1.60		3.94		—
Vested or expected to vest at December 31, 2019		3,388,474			1.60				—
Exercisable at December 31, 2019		3,388,474			1.60				—