NOTE R

—

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.

Common Stock

Effective

November 20, 2020,

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

-for-

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 at the opening of trading on

November 20, 2020.

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

July 23, 2020,

the Company completed an underwritten public offering of shares of common stock and warrants resulting in net proceeds of approximately

$22.7

million, after deducting underwriting discounts and commissions and estimated offering expenses.

4,264,313

shares of common stock were issued as a result of this offering, and a further

797,038

shares of common stock were issued upon the exercise of

512,500

prefunded warrants and

284,538

warrants exercised in conjunction with the offering.

March 30, 2020,

the Company issued

121,500

shares of common stock upon exercise of warrants at

$12.00

per share, resulting in proceeds of

$1,458,000

to the Company.

See Note O Convertible Notes Payable for common stock issuances related to conversion of convertible notes payable and shares of common stock issued for fees in connection with the agreements during fiscal

2020

and

2019.

Issuances of Nonvested Stock

Nonvested stock consists of shares of common stock that are subject to restrictions on transfer and risk of forfeiture until the fulfillment of specified conditions. The fair value of nonvested shares is determined based on the market price of the Company's common stock on the grant date. Nonvested stock is expensed ratably over the term of the restriction period.

The Company issued

38,250

and

3,125

shares of restricted common stock in

August

and

November

2020,

respectively to certain employees and directors of the Company. These shares vest in equal annual installments over a

three

-year period from the date of grant, and had a fair value on the date of issuance of

$198,900,

and

$11,250,

respectively. Nonvested stock compensation for the year ended

December 31, 2020

was

$23,764.

Issuances to Directors, Executive Officers & Consultants

During the year ended

December 31, 2020,

the Company issued

5,270

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

$28,511.

During the year ended

December 31, 2019,

the company issued

4,612

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

$35,013.

Employees

exercise options

During

2020

and

2019,

employee stock options were exercised.

Warrants

Securities Purchase Agreement dated

November 13, 2014:

As part of 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 warrants to purchase

124,610

shares of common stock. The warrants expired in

November 2019.

Securities Purchase Agreement dated

September 23, 2015:

September 23, 2015,

the Company issued warrants (the

“2015

Warrants”) to purchase

8,681

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

$28.80

per share and had a term of

five

years. The

2015

Warrants expired in

September 2020.

The

2015

Warrants had a "full ratchet" anti-dilution adjustment provision which could be triggered in the event the Company sold or granted any additional shares of common stock, options, warrants or other securities that were convertible into common stock at a price lower than

$28.80

per share. The anti-dilution 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.

Anti-dilution features were triggered as follows:

February 14, 2020,

the

February 2020

Note was issued at a conversion price of

$9.20

that triggered the anti-dilution provisions included in the

2015

Warrants. In addition, the amendments to the Original Note reduced the conversion price of the Original Note to

$5.20

which also triggered the anti-dilution provision of the

2015

Warrants. As a result of the forgoing transactions, the number of shares of common stock issuable upon the full exercise of the

2015

Warrants increased to

48,078,

the exercise was reduced to

$5.20

per share, and the Company recorded a non-cash deemed dividend in amount of

$41,688.

Warrants Issued for Services:

During the

second

quarter of

2020,

the Company issued a warrant to purchase

15,625

shares of common stock to an investor in payment for a business referral valued at

$94,655.

During the

third

quarter of

2020,

the Company issued a warrant to purchase

3,125

shares of common stock to a former employee for a business referral valued at

$12,921.

Warrants Issued with Convertible Notes:

2020,

the Company issued warrants to purchase

415,625

shares in connection with the

May 2020

and

June 2020

Notes. In

2019,

the Company issued a warrant to purchase

250,000

shares in connection with the Securities Purchase Agreement dated

July 10, 2019.

Valuation Assumptions for Warrants:

The Company records the warrants at their fair value which is determined using the Black-Scholes valuation model on the date of the grant. The fair value of each warrant was estimated with the following assumptions:

	Year ended December 31,
	2020			2019
Weighted average Risk free interest rate		0.33	%		1.82	%
Weighted average price	$	9.25		$	12.00
Weighted average exercise period		5			5
Weighted average Volatility of stock price		110	%		83	%

The warrant volatility for each issuance is determined based on the review of the experience of the weighted average of historical daily price changes of the Company's common stock over the expected exercise period. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the years to maturity.

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, 2018		472,622			12.72		2.05

Granted		250,000			12.00
Exercised		—			—
Forfeited		—			—
Expired		(299,063	)		12.00
Outstanding, as of December 31, 2019		423,559			12.80		3.94		—
Granted – public offering		4,264,313			5.20
Granted – prefunded warrants from the public offering		512,500			0.08
Granted – other		434,375			9.25
Increase due to trigger of anti-dilution provision feature		27,244			5.20
Exercised – public offering		(284,538	)		5.20
Exercised – prefunded warranted from the public offering		(512,500	)		0.08
Exercised – other		(121,500	)		12.00
Forfeited		—			—
Expired		(54,066	)		6.86
Outstanding, as of December 31, 2020		4,689,387			6.04		4.48		—