Note 9 - Equity

The holders of common shares are entitled to one vote per share at meetings of the Company. Holders of Series B convertible preferred shares had no voting rights at meetings of the Company.

A restricted stock award is an award of common shares that are subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares on non-vested restricted stock have the same voting rights as Common Stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding. The Company expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, straight-line over the period during which the restrictions lapse. For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company’s Common Stock on the grant date.

On January 13, 2017, the Company completed a public offering of 223,688 common shares, raising net proceeds of $1,652,994. In addition to the common shares issued, the Company also issued 111,844 warrants with an exercise price of $12.00 per common share. All of the warrants issued have a five-year term.

On March 30, 2017, the Company completed a private placement of 181,050 unregistered shares of Common Stock, raising net proceeds of $1,760,317. The unregistered shares were admitted to trading on September 30, 2017 upon notification from the Securities and Exchange Commission that the Registration Statement, filed April 19, 2017, had been deemed effective. In addition to the common shares issued, the Company also issued 99,578 warrants with an exercise price of $15.68 per common share with a five-year term.

On April 11, 2017, the Company issued 1,250 restricted shares to a consultant for services to be rendered during the year ending December 31, 2017. These shares vested on the date of the grant. The fair value of these shares was $18,000 and was based on the share price on the date of the grant. During the year ended December 31, 2017, $5,455 was recognized as stock-based compensation expense. The remaining $12,545 fair value of restricted shares issued was recognized during the three months ended March 31, 2018 as sales and marketing expenses on the Consolidated Statement of Operations and Comprehensive Loss.

On October 12, 2017, the Company entered into Warrant Exercise Agreements with the existing holders of 90,525 warrants from the March 2017 private placement with an original exercise price of $15.68 per share to exercise their current warrants at $8.00 per share and receive a new warrant which would be convertible into the same number of common shares as the original warrant. The new warrant has an exercise price of $10.08 and expire five years from the date of issuance. The increase in fair value of the reduction in the exercise price of the warrants from $15.68 to $8.00 was $93,386. The Company used the Black-Scholes option pricing model to calculate the increase in fair value with the following assumptions for the decrease in exercise price: no dividend yield, expected volatility of 97.16%, risk free interest rate of 1.95%, and expected warrant life of 4.47 years. The fair value of the new warrants issued of 90,525 was $671,546. The Company used the Black-Scholes option pricing model to calculate the fair value with the following assumptions for the issuance of the new warrants: no dividend yield, expected volatility of 97.16%, risk free interest rate of 1.95%, and expected warrant life of 5 years. In accordance with FASB ASC 718-20-35, expenses related to the modification and re-issue of the warrants totaled $764,932 which are included as warrant modification expenses on the Consolidated Statement of Operations and Comprehensive Loss. The Company received net proceeds of $680,748 net of a solicitation fee of $43,452 from the exercise of 90,525 warrants.

On October 17, 2017, the Board of Directors issued 36,888 restricted shares of Common Stock to key employees and officers of the Company as part of the 2017 Equity Incentive Plan. The restricted stock vested immediately and were valued at the closing stock price of $7.04 per share. The fair value of the restricted shares totaled $259,694 and were expensed immediately.

On December 21, 2017, the Company completed a public offering of 2,691,962 common shares and 3,675 Series B convertible preferred shares, raising net proceeds of $6,065,586.

In addition to the common shares issued, the Company also issued 5,750,000 warrants with an exercise price of $1.50 per common share in support of the base offering. All the warrants issued have a five-year term.

During the year ended December 31, 2017, 1,920 shares of the Company’s Series B Preferred Stock, no par value, were converted into 1,602,658 shares of Common Stock at an exercise price of $1.50 per share.

During the year ended December 31, 2017, warrant holders from the January 13, 2017 public offering exercised 25,101 warrants with an exercise price of $12.00 per common share, raising net proceeds of $301,200.

During the year ended December 31, 2018, the Company issued 7,500 shares of Common Stock to Mr. Yeaton pursuant to his employment agreement. These shares had a fair value of $16,702 on date of grant.

During the year ended December 31, 2018, the Company issued 3,125 shares of Common Stock to a former executive officer of the Company. These shares had a fair value of $11,000 on date of grant.

On November 2, 2018, the Company entered into the Purchase Agreement pursuant to which the Company agreed to sell an aggregate of 694,446 shares of Common Stock and warrants to purchase approximately 694,446 shares of Common Stock (the “Warrants”). The combined purchase price for one share of Common Stock and each Warrant was priced at $2.88 (the “Offering”). The Purchase Agreement contains customary representations, warranties, and covenants by the Company. Through the Offering, the Company raised proceeds of $1,950,000, net of offering costs of $50,000.

Each Warrant has an initial exercise price of $3.76 per share, will be exercisable immediately after the date of issuance and will expire five years from the date it becomes exercisable. Subject to limited exceptions, a holder of the Warrants will not have the right to exercise any portion of such securities if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Company’s Common Stock outstanding immediately after the exercise. The exercise price of the Warrants, and in some cases the number of shares of Common Stock issuable upon exercise of the Warrants, will be subject to adjustment in the event of stock splits, stock dividends, combinations, rights offerings and similar events affecting the Common Stock.

In addition, the Warrants provide that, in the event of a fundamental transaction (as such term is described in the Warrant), the holder of such Warrant, at the holder’s option, may receive, for each warrant share (as such term is described in the Warrant) that would have been issuable upon such exercise immediately prior to the occurrence of such fundamental transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration receivable as a result of such fundamental transaction by a holder of the number of shares of Common Stock for which the Warrant is exercisable immediately prior to such fundamental transaction. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a fundamental transaction, then the holder shall be given the same choice as to the alternate consideration it receives upon any exercise of the Warrant following such fundamental transaction. The Company shall cause any successor entity (as such term is described in the Warrant), at the option of the holder, to deliver to the holder in exchange for the Warrant a security of the successor entity evidenced by a written instrument substantially similar in form and substance to the Warrant which is exercisable for a corresponding number of shares of capital stock of such successor entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of the Warrant (without regard to any limitations on the exercise of this Warrant) prior to such fundamental transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock.

The Offering was made pursuant to a shelf registration statement on Form S-3 (File No. 333-214214), previously filed with the Securities and Exchange Commission on October 24, 2016 and declared effective on November 16, 2016. Such securities are being offered only by means of a prospectus.

On November 7, 2018, effective as of November 8, 2018, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to its Amended and Restated Certificate of Incorporation with the Secretary of State of the State of New Jersey to effect a reverse stock split of its Common Stock at a ratio of eight-for-one (8-for-1). As a result of the reverse stock split, there are approximately 12,482,708 shares of Common Stock outstanding. The reverse stock split affected all shareholders uniformly and did not alter any shareholder’spercentage interest in the Company’s equity, except to the extent that the reverse stock split would have resulted in a shareholder owning a fractional share. Fractional shares have not been issued as a result of the reverse stock split; instead, the board of directors of the Company determined to effect an issuance of shares to holders that would otherwise have been entitled to a fractional share such that any fractional shares were rounded up to the nearest whole number.

During the year ended December 31, 2018, 1,755 shares of the Company’s Series B Preferred Stock, no par value, were converted into 1,464,930 shares of Common Stock.

During the year ended December 31, 2018, warrant holders from the December 21, 2017 public offering exercised 4,778,015 warrants with an exercise price of $1.50 per common share, raising net proceeds of $7,155,200.