On September 10, 2021, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with various accredited investors (the “2021 Investors), pursuant to which we issued and sold Units consisting of Series A Convertible Preferred Stock (“Series A Preferred”) and warrants (the “Preferred Warrants”) to purchase shares of our common stock with a par value of $0.001 per share. The total number of Units sold was 1,180. Each Unit consists of one share of Series A Preferred and 354,000 Preferred Warrants. The purchase price of each Unit was $1,000, for an aggregate amount sold of $1,180,000. Each share of Series A Preferred is convertible into 1,000 shares of common stock upon the consummation of a capital raise of not less than $5,000,000. The Certificate of Designation of the Series A Preferred Stock (“Certificate of Designation”) was filed with the Secretary of the State of Colorado on September 14, 2021. The Certificate of Designations established the new preferred series entitled “Series A Convertible Preferred Stock” with no par value per share, and sets forth the rights, restrictions, preferences, and privileges of the Series A Preferred, summarized as follows:

The Preferred Warrants have a five-year term and an exercise price per Preferred Warrant share of $1.05. The warrants contain an anti-dilution provision pursuant to which upon we do a future capital raise at less than $1.00 per shares, each Preferred Investor will be granted additional Preferred Warrants on a ‘full-ratchet’ basis.

The proceeds received in the sale of the Series A Preferred totaled $1,180,000, for the issuance of 1,180 Series A Preferred, plus 354,000 warrants. The warrants were valued using a Black Scholes model, at $117,131 and per the relative fair value allocation, $1,073,446 was allocated to the Series A proceeds

2020 Capital Raise

On May 29, 2020, we entered into a subscription agreement, as amended with Hershey Strategic Capital, LP and Shore Ventures III, LP with respect to the sale of shares of common stock and warrants to purchase common stock (collectively, the “securities”). The sales of the securities to the Hershey Investor consists of a minimum of $2,185,000 of securities and a maximum of $3,000,000 of securities, as described further below. The purchase price of the securities at each closing is as follows: (i) the purchase price of each share of common stock is $0.3983 per share, and (ii) for each one dollar invested by the Hershey Investor, the Hershey Investor receives a warrant to purchase a number of shares of common stock equal to 75% of the number of shares of common stock purchased by the Hershey Investor at an exercise price per share equal to $0.5565. The warrants have a term of five years. During the year ended December 31, 2020, we sold $3,000,000 of securities to the Hershey Investor, representing 7,532,010 shares of common stock and warrants to purchase 5,649,007 shares of common stock at an exercise price of $0.5565 per share. The warrants were recorded as equity and equity issuance costs in the amount of $2,173,074. Notwithstanding the foregoing, the Hershey Subscription Agreement provides that the Hershey Investor’s investment shall not exceed 20% or more of the common stock (or securities convertible into or exercisable for common stock) or the voting power of the Company on a post-transaction basis.

The Hershey Subscription Agreement also provides the Hershey Investor with certain participation rights in future financings of the Company until the one-year anniversary of the second closing. The Hershey Subscription Agreement further provides that the Company shall, during a negotiation period ending October 4, 2020, endeavor to cause the existing holders of the promissory notes of the Company having an outstanding balance in the amount of approximately $2,331,000 as of June 1, 2020 that are due on or about January 31, 2021, to extend the maturity date of such notes to a date that is not earlier than January 31, 2022. As of October 4, 2020, $600,000 of the $2,331,000 outstanding notes have extended the maturity date. If, at the end of the negotiation period per the contract, all the existing notes have not been amended to extend the maturity dates thereof, then the Company shall issue to the Hershey Investor additional warrants to purchase shares of common stock. Any such additional warrants will be for a number of shares of common stock based on the dollar amount of the outstanding balance of the existing notes that were not extended, with each one dollar of existing notes that were not extended representing one share subject to such additional warrant. The exercise price of any such additional warrants will be equal to 100% of the 30-day volume weighted average price of the Company’s common stock on the last day of the negotiation period, provided that such exercise price shall not be lower than $0.45 per share nor higher than $0.56 per share. The Hershey Investor extended the negotiation period to December 11, 2020. As of December 11, 2020, no existing holders had extended their promissory notes, therefore, we issued the Hershey Investor additional warrants in accordance with the agreement. On December 14, 2020 we issued an additional 1,631,000 warrants to purchase common stock at an exercise price of $0.4917 to the Hershey Investor. These warrants expire on December 11, 2025. The warrants were recorded as a deemed dividend in the amount of $732,494.

Stock-based compensation

Stock-based compensation expense consisted of the following:


	Year ended December 31,
	2021		2020
Employee Awards	$	307,963	$	1,411,442
Consulting Awards		—		92,947
	$	307,963	$	1,504,389

Employee Stock Options

In November 2020, the Board authorized the adoption of and, on November 23, 2020, our stockholders ratified our 2020 Omnibus Incentive Plan (the “2020 Plan”). The 2020 Plan became effective immediately and will expire on November 23, 2030, unless terminated earlier by the Board of Directors. The 2020 Plan will permit the Board of Directors, or a committee or subcommittee thereof, to grant to eligible employees, non-employee directors, and consultants of the Company and its subsidiaries non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards, and other stock-based awards. Subject to adjustment, the maximum number of shares of our common stock to be authorized for issuance under the 2020 Plan is 10 million shares. As of the date of this filing a Registration Statement on Form S-8 has not been filed. As of December 31, 2021, there was 9,100,000 shares available to issue under the 2020 Plan.

On October 29, 2014, the Board authorized the adoption of and, on June 26, 2015, our stockholders ratified our 2014 Equity Incentive Plan for the issuance of 10 million shares of our common stock and, in April 2018, stockholders approved an increase of 5 million shares of common stock that may be granted (the “Incentive Plan”). The Incentive Plan provides for the issuance of up to 15 million shares of our common stock and is designed to provide an additional incentive to executives, employees, directors, and key consultants, aligning our long-term interests with participants. A Registration Statement on Form S-8 for the initial 10 million shares automatically became effective in May 2016, and a Registration Statement on Form S-8 for the additional 5 million shares and 900,000 shares under the Feinsod Agreement automatically became effective in June 2018 (collectively, the “Registration Statements”). The Registration Statements relate to 15,000,000 shares of our common stock, which are issuable pursuant to or, upon exercise of, options that have been granted or may be granted under our Incentive Plan. As of December 31, 2021, there were 6,600,271 shares available to issue under the Incentive Plan.

Stock-based compensation costs for award grants to employees and directors (“Employee Awards”) are recognized on a straight-line basis over the service period for the entire award, with the amount of compensation cost recognized at any date equaling at least the portion of the award that is vested. The following summarizes the Black-Scholes assumptions used to value the Employee Awards granted:


	Year ended December 31,
	2021			2020
Exercise price	$	0.22 - 0.95		$	0.31 - 0.67
Stock price on date of grant	$	0.22 - 0.95		$	0.27 - 0.67
Volatility		100 - 111	%		111 - 114	%
Risk-free interest rate		0.29 - 0.97	%		0.16 - 1.53	%
Expected life (years)		3.0			3.0
Dividend yield		—			—

On September 3, 2021 we modified two employees stock options in conjunction with revised employment agreements. As a result of the modification, we recognized $21,525 in compensation expense for the year ended December 31, 2021.

During the year ended December 31, 2021 we granted options to purchase 1,158,000 common shares to employees and directors. The options expire five years from the date of grant and vest over a period of one year. Fair value of the awards at the date of grants totaled $628,496.

The following summarizes Employee Awards activity:


				Weighted-
		Weighted-		Average
		Average		Remaining
	Number of	Exercise Price		Contractual	Aggregate
	Shares	per Share		Term (in years)	Intrinsic Value
Outstanding as of December 31, 2020	7,266,420	$	1.03	5.5	$	167,000
Granted	1,158,000		0.82
Exercised	(394,670)		0.52
Forfeited or expired	(3,126,205)		1.04
Outstanding as of December 31, 2021	4,903,545	$	1.11	5.3	$	22,000

Exercisable as of December 31, 2021	3,893,665	$	1.21	5.6	$	4,000

As of December 31, 2021, there was approximately $132,816 of total unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average period of two months.

Consulting Services

As needed, we may issue warrants and options to third parties in exchange for consulting services. Stock-based compensation costs for award grants to third parties for consulting services (“Consulting Awards”) are recognized on a straight-line basis over the contractual term.

The fair value of each warrant grant is estimated using Black-Scholes. We use historical data to estimate the expected price volatility. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of valuation for the estimated life of the option. The following summarizes the Black-Scholes assumptions to value the Consulting Awards granted:


	Year ended December 31,
	2021			2020
Exercise price	$	—		$	0.61
Stock price, date of valuation	$	—		$	0.61
Volatility		—	%		101	%
Risk-free interest rate		—	%		1.47	%
Expected life (years)		—			1.0
Dividend yield		—			—

The following summarizes Consulting Awards activity:


				Weighted-
			Weighted-	average
			average	Remaining
	Number of		Exercise Price	Contractual	Aggregate
	Shares		per Share	Term (in years)	Intrinsic Value
Outstanding as of December 31, 2020	100,000	$	1.22	2.3
Granted	—
Exercised	—
Forfeited or expired	(40,000)		0.61
Outstanding and exercisable as of December 31, 2021	60,000	$	1.55	2.3	$	—

Feinsod Employment Agreement

On August 6, 2019, we entered into an agreement (the “Feinsod Agreement”) with Michael Feinsod for his permanent service as our Chief Executive Officer. Pursuant to the agreement, Mr. Feinsod received 1,000,000 stock options that vest when our stock price has a trading price of equal to or above $4.51 per share for five consecutive days. The options have an exercise price of $0.83 per share and a ten-year life. These options were issued under the Incentive Plan. The options were valued using the Monte Carlo method. For the year ended December 31, 2021 and 2020, we recognized approximately nil and $57,342, respectively, of stock-based compensation expense related to these options. These options were forfeited in July 2020, with Mr. Feinsod’s resignation.

Warrants with Debt

The following summarizes warrants issued with debt activity:


				Weighted-
		Weighted-		average
		average		Remaining
	Number of	Exercise Price		Contractual	Aggregate
	Shares	per Share		Term (in years)	Intrinsic Value
Outstanding as of December 31, 2019	8,473,214	$	0.64
Granted	7,143,011		0.42
Exercised	(1,131,000)		0.40
Expired	(7,064,214)		0.63
Outstanding as of December 31, 2020	7,421,011		0.46	2.0	$	478,925
Granted	1,868,518		0.56
Exercised	—		—
Expired	(1,204,000)		0.65
Outstanding and exercisable as of December 31, 2021	8,085,529	$	0.58	2.8	$	—

In May 2020, we issued common stock at a price $0.3983. These triggered the “downround” feature on the 2019 Units and the 15% Notes. The difference in fair value of the effect of the down round feature for the 15% Warrants is reflected in our consolidated financial statements as a deemed dividend and as a reduction to income available to common stockholders in the basic earnings per share calculation. The difference in the fair value of the effect of the down round feature for the 2019 Warrants are reflected in the gain/loss on derivative instrument in our consolidated statement of operations.