Note 7 - Equity Transactions

On July 11, 2018 the Board of Directors approved an extension of the employment agreement with Dr. Anil Diwan, the Company’s President. Pursuant to the terms of the employment agreement, the Company’s Board of Directors authorized the issuance of 26,250 shares of the Company’s Series A preferred stock to Dr. Anil Diwan. The shares shall be vested in one-third increments on June 30, 2019, June 30, 2020 and June 30, 2021 and are subject to forfeiture.

The Company recognized non-cash compensation expense related to the issuance of the Series A preferred stock of $47,260 and $94,520, respectively, for the three and six months ended December 31, 2019. The balance of $277,130 will be recognized as the shares vest and service is rendered.

For the three and six months ended December 31, 2019, the Company’s Board of Directors authorized the issuance of 10,000 fully vested shares of its Series A preferred stock for a loan origination fee to a related party with fair value of $39,301.

For the three and six months ended December 31, 2019, the Company's Board of Directors authorized the issuance of 100,000 fully vested shares of its Series A preferred stock with a fair value of $392,669 in exchange for $250,000 of previously deferred development fees to a related party and recognized a loss on the exchange of $142,669.

For the three and six months ended December 31, 2019, the Company's Board of Directors authorized the issuance of 387 and 774, respectively, fully vested shares of its Series A preferred stock for employee compensation. The Company recorded expense of $2,134 and $6,272, respectively, for the three and six months ended December 31, 2019 related to these issuances.

The fair value of the Series A Preferred stock was the following for the dates indicated:


Date	Shares	Value
7/31/2019	129		1,472
8/31/2019	129		1,345
9/30/2019	129		1,321
10/31/2019	129		628
11/30/2019	129		677
12/16/2019	10,000		39,301
12/17/2019	100,000		392,669
12/31/2019	129		829

	110,774	$	438,242

There is currently no market for the shares of Series A Convertible Preferred Stock and they can only be converted into shares of Common Stock upon a Change of Control of the Company as more fully described in the Certificate of Designation. The Company, therefore, estimated the fair value of the Series A Convertible Preferred Stock granted to various employees and others on the date of grant. The Series A Convertible Preferred Stock fair value is based on the greater of i) the converted value to common at a ratio of 1:3.5; or ii) the value of the voting rights since the Holder would lose the voting rights upon conversion. The conversion of the shares is triggered by a Change of Control. The valuations of the Series A Convertible Preferred Stock at each issuance used the following inputs:

The common stock price was in the range $2.03 to $2.60

The calculated weighted average number of shares of common stock in the period;

A 26.63% premium over the common shares for the voting preferences;

The calculated weighted average number of total voting shares and the monthly shares representing voting rights of 14.9% to 18.3% of the total;

The conversion value is based on an assumption for calculation purposes only of a Change of Control in 4 years from October 31, 2016 and a remaining restricted term of 1.08 to .92 years;

29.30% to 46.06% restricted stock discount (based on a restricted stock analysis and call-put analysis curve: 80.41% to 81.54% volatility, 1.73% to 1.69% risk free rate) applied to the converted common shares.

During the six months ended December 31, 2019, the SAB was granted in August 2019 fully vested warrants to purchase 572 shares of common stock with an exercise price of $5.88 per share expiring in August 2022 and in November 2019 572 fully vested warrants to purchase shares of common stock with an exercise price of $2.63 per share expiring in November 2023. The fair value of the warrants was $533 for the three months ended December 31, 2019 and $1,441 for the six months ended December 31, 2019 and was recorded as consulting expense.

The Company estimated the fair value of the warrants granted to the Scientific Advisory Board on the date of grant using the Black-Scholes Option-Pricing Model with the following weighted-average assumptions:


Expected life (year)	4

Expected volatility	47.99-55.12	%

Expected annual rate of quarterly dividends	0.00	%

Risk-free rate(s)	2.51-2.93	%

For the three and six months ended December 31, 2019, the Company's Board of Directors authorized the issuance of 11,932 and 18,133, respectively fully vested shares of its common stock with a restrictive legend for consulting services. The Company recorded an expense of $27,000 and $54,000 for the three and six months ended December 31, 2019, respectively, which was the fair value on the dates of issuance.

For the three and six months ended December 31, 2019, the Company’s Board of Directors authorized the issuance of 4,965 and 7,518, respectively, fully vested shares of its common stock with a restrictive legend for Director Services. The Company recorded an expense of $11,250 and $22,500 for the three and six months, respectively, which was the fair value on the dates of issuance.