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Stockholders' Equity

12 Months Ended

Dec. 31, 2018

(7) Stockholders’ Equity

(a) Preferred Stock

The Company is authorized to issue 5,000,000 shares of $0.01 par value preferred stock with such designations, rights and preferences as may be determined by the Board of Directors. There were no Preferred Shares issued and outstanding at December 31, 2018 and 2017.

(b) Common Stock

The Company has authorized shares of 350,000,000 with specific limitations and restrictions on the usage of 8,000,000 of the 350,000,000 authorized shares.

In August 2016, the Company effected a 12 to 1 reverse stock split of the outstanding shares, in order to become compliant with the NYSE regulations. This did not affect the number of authorized shares.

On September 6, 2016, we entered into a Securities Purchase Agreement (the “September Purchase Agreement”) with certain investors for the sale by us of 3,333,334 shares of our common stock registered under our S-3 shelf registration statement on at a purchase price of $1.50 per share. Concurrently with the sale of the common stock, pursuant to the September Purchase Agreement, we also sold unregistered warrants to purchase 2,500,000 shares of common stock for aggregate gross proceeds of $5,000,000. Subject to certain ownership limitations, the warrants are initially exercisable six-month after issuance at an exercise price equal to $2.00 per share of common stock, subject to adjustments as provided under the terms of the warrants. The warrants are exercisable for five years from the initial exercise date. Pursuant to an engagement agreement, we paid our placement agent an aggregate fee equal to 7% of the gross proceeds received by us from the sale of the securities in the offering and granted to our placement agent or its designees warrants to purchase up to 5% of the aggregate number of shares sold in the transactions amounting to 166,667 unregistered warrants. The placement agent warrants have substantially the same terms as the investor warrants, except that the placement agent warrants will expire on September 1, 2021 and have an exercise price equal to $1.875 per share of common stock.

On February 1, 2017, we entered into Securities Purchase Agreements (each, a “February Purchase Agreement”) with certain investors for the sale by us of 1,818,185 shares of our common stock at a purchase price of $0.55 per share. Concurrently with the sale of the common stock, pursuant to the February Purchase Agreement, we also sold unregistered warrants to purchase 1,363,639 shares of common stock for aggregate gross proceeds of approximately $1,000,000. The warrants have an exercise price of $0.75 per share, are exercisable six months after issuance, and will expire five years from the initial exercise date. Pursuant to an engagement agreement, we paid our placement agent an aggregate fee equal to 7% of the gross proceeds received by us from the sale of the securities in the offering and granted to our placement agent or its designees warrants to purchase up to 5% of the aggregate number of shares sold in the transactions amounting to 90,910 unregistered warrants. The placement agent warrants have substantially the same terms as the investor warrants, except that the placement agent warrants will expire on February 1, 2022 and have an exercise price equal to $0.6875 per share of common stock. The Company subsequently registered the shares issuable upon exercise of the warrants on form S-1.

The Board of Directors approved up to $500,000 for all directors, officers and employees to buy company shares from the Company at the market price. As of November 5, 2018, the Company issued 980,392 shares of its common stock at prices between $0.20 and $0.69 per share directly to executives and employees, for $373,852 in a series of private transactions pursuant to stock purchase agreements.

On June 1, 2017, the exercise price of Warrants issued in September 2016 was changed to $0.50. As a result, the warrant holders exercised these Warrants and purchased 2,370,000 shares of Company common stock. The Company realized net proceeds of $1,055,000 from this exercise. In conjunction with the foregoing, the Company also issued 2,370,000 series A warrants with an exercise price of $0.60 per share, an initial exercise date of December 1, 2017 and expiring March 6, 2022 (the “Series A Warrants”) and 7,584,000 series B warrants with exercise price of $0.60, an initial exercise date December 1, 2017 per share and expiring March 1, 2018. The foregoing transactions are hereinafter referred to as the “Exchange Transaction”. In addition, on July 10, 2017, the warrant holders exercised the remaining 130,000 warrants issued in September 2016 and purchased 130,000 shares of common stock. The Company realized net proceeds of $65,000 from this exercise. In conjunction with the foregoing the Company issued 130,000 Series A Warrants and 416,000 Series B Warrants (with an exercise price of $0.60 and an initial exercise date January 10, 2018 on the three-month anniversary of the of the initial exercise date).

Pursuant to an engagement agreement, the Company paid its placement agent an aggregate fee equal to 7% and 10.5%, respectively, of the gross proceeds received by the Company from the sale of the securities in the offerings and granted to its placement agent or its designees warrants to purchase up to 5% of the aggregate number of shares sold in the transactions amounting to 166,667 and 107,759, respectively, unregistered warrants. The placement agent warrants have substantially the same terms as the investor warrants, except that the 166,667 placement agent warrants issued in September 2017 will expire September 1, 2021 and have an exercise price equal to $1.875 per share of common stock and the 107,759 placement agent warrants issued in June 2017 will expire June 1, 2022 and have an exercise price of $0.625.

On August 23, 2017, the Holders of the Series A Warrants and Series B Warrants exchanged all of their Warrants for new warrants (respectively, the “Series A Exchange Warrants” and the “Series B Exchange Warrants” and, collectively, the “Exchange Warrants”) identical to the Warrants except as follows: The exercise price of both Exchange Warrants is $0.45 per share, subject to adjustment therein, and the number of Series B Exchange Warrants issued was proportionately reduced to an aggregate of 2,800,000 warrants so that all Exchange Warrants in the Exchange Transaction do not exceed 19.9% of the number of the Company’s issued and outstanding shares of Common Stock as of May 31, 2017, the date of the Exchange Transaction offer letters. The issuance of the Exchange Warrants by the Company and the shares of Common Stock issuable upon exercise of the Exchange Warrants is exempt from registration pursuant to Sections 3(a)(9) and 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The 2,800,000 warrants with an expiration date of March 1, 2018 and an exercise price on $0.45 were exercised in January and February 2018. The Company realized proceeds of $1,260,000 from these exercises.

On November 27, 2017, the Company reactivated the EDA. During the year ended December 31, 2018, the Company sold an aggregate of 2,176,392 shares under the EDA for proceeds of $827,000 net of $25,000 in commissions. Pursuant to a prospectus supplement dated February 7, 2018, the Company was able to sell up to 6,549,157 of its common stock (inclusive of shares already sold under the prospectus supplement) under the EDA. The actual number of shares, that the Company can sell, and the proceeds to be received there from are dependent upon the market price of its common stock.

Effective with the semi-monthly period ended April 30, 2017, all of the members of the Company’s Board of Directors agreed to accept 100% of their directors’ fees in the form of options to purchase Company Common Stock. This program was terminated as of August 31, 2017. In this regard, options to purchase 226,023 shares of Company common stock were issued with exercise prices ranging from $0.36 to $0.67, a holding period of 10 years and vesting over three years. In addition, commencing with the semi-monthly period ended June 15, 2017, certain officers of the Company and certain other employees of the Company, agreed to accept 20% of their salary in options to purchase Company Common Stock. This program was also terminated as of August 31, 2017. In this regard, options to purchase 214,866 shares of Company common stock were issued with exercise prices ranging from $0.36 to $0.67, a holding period of 10 years and vesting over three years.

As part of the cash conservation program adopted on August 28, 2017, starting with the month of September 2017, the directors agreed to defer 100% of their fees until cash is available. In consideration of this deferral, 226,023 options were issued to each of the two independent directors in February 2018 with an exercise price of $0.37; 152,053 options were issued to each of the two independent directors in May 2018 with an exercise price of $0.30, and 98,098 options were issued in July 2018 with an exercise price of $0.31. All of the foregoing options and the options discussed below are exercisable for a period of 10 years with a vesting period of three years. This program was suspended as of July 15, 2018 and all remaining deferred fees were paid in July 2018. This Program was reactivated as of August 16, 2018 with the understanding that options would not be issued on the deferred amounts until the 2018 Equity Incentive Plan was approved by the stockholders and the securities issuable thereunder were registered with the SEC. The 2018 Equity Incentive Plan was approved by the stockholders and the securities issuable thereunder were registered with the SEC and, on October 17, 2018, 172,786 options were issued to each of the two independent directors with an exercise price on $0.22 for a period of ten years with a vesting period of one year.

Also as part of the cash conservation program adopted on August 28, 2017, starting with the month of September 2017, certain officers agreed to defer 40% of their salaries until cash is available. In consideration of this deferral, 884,459 options were issued to these officers in February 2018 with an exercise price of $0.37; 599,168 options were issued to these officers in May 2018 with an exercise price of $0.30, and 389,249 options were issued to these officers in July 2018 with an exercise price of $0.31. This program was suspended as of July 15, 2018 and all remaining deferred salaries were paid on July 2018. This Program was reactivated as of August 16, 2018 for 50% of their salaries with the understanding that options would not be issued on the deferred amounts until the 2018 Equity Incentive Plan was approved by the shareholders and the plan registered with the SEC. The 2018 Equity Incentive Plan has been approved by the shareholders and registered with the SEC and on October 17, 2018, 808,712 options were issued to these officers with an exercise price on $0.22 for a period of ten years with a vesting period of one year

Also as part of the cash conservation program adopted on August 28, 2017, all employees agreed to be paid 50% of their salaries in the form of unrestricted common stock of the Company. Starting with the month of September 2017, the salaries of all the employees of the Company were paid 50% in the form of unrestricted common stock of the Company. The total number of shares issued as of June 30, 2018 to the employees under this program was 2,116,881 shares at stock prices ranging from $0.31 to $0.55 per share. This program was suspended by the Board of Directors on June 30, 2018.

On March 24, 2018, the Company sold 1,250,000 shares of common stock under its S-3 shelf registration. The Company realized net proceeds of $475,000 from this stock offering and paid $25,000 in placement agent fees.

On April 20, 2018, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”) with certain investors (the “Investors”) for the sale by the Company of an aggregate of 6,600,000 shares (the “Common Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a purchase price of $0.39 per share. Concurrently with the sale of the Common Shares, pursuant to the Purchase Agreements the Company also sold 6,600,000 warrants, 50% of which are Class A Warrants and 50% of which are Class B Warrants (collectively, the “Warrants”). The Company received gross proceeds from the sale of the Warrants solely to the extent such Warrants are exercised for cash. Both classes of Warrants will not be exercisable until six months after issuance and will have an exercise price of $0.39 per share, subject to adjustments as provided under the terms of the Warrants. The Class A Warrants and Class B Warrants will expire, respectively, two and five years after the date on which they are first exercisable. The closing of the sales of these securities under the Purchase Agreements took place on April 24, 2018. The Company received net proceeds from the transactions of $2,343,820 after deducting certain fees due to the placement agent and the Company’s transaction expenses.

The 2009 Equity Incentive Plan, effective June 24, 2009, as amended, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other stock awards. A maximum of 22,000,000 shares of common stock is reserved for potential issuance pursuant to awards under the 2009 Equity Incentive Plan. Unless sooner terminated, the 2009 Equity Incentive Plan will continue in effect for a period of 10 years from its effective date. During 2018, there were 4,675,221 options granted by the Company under this Plan.

The 2018 Equity Incentive Plan, effective September 12, 2018, authorizes the grant of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted Stock Awards, (v) Restricted Stock Unit Awards, (vi) Performance Stock Awards, (vii) Performance Cash Awards, and (viii) Other Stock Awards. Initially, a maximum of 7,000,000 shares of common stock is reserved for potential issuance pursuant to awards under the 2018 Equity Incentive Plan. Unless sooner terminated, the 2018 Equity Incentive Plan will continue in effect for a period of 10 years from its effective date. On October 17, 2018, the Board of Directors issued 1,154,284 options to the officers and directors at the exercise price of $0.22 expiring in 10 years, and on November 14, 2018, the Board of Directors issued 1,000 options to each employee, officer and director at the exercise price of $0.22 expiring in ten years.

As of December 31, 2018 and 2017, there were 48,734,712 and 32,884,786 shares outstanding, respectively.

See (b) above

(d) Common Stock Options and Warrants

(i) Stock Options

The Equity Incentive Plan of 2009, effective June 24, 2009, as amended, authorizes the grant of non-qualified and incentive stock options, stock appreciation rights, restricted stock and other stock awards. A maximum of 22,000,000 shares of common stock is reserved for potential issuance pursuant to awards under the Equity Incentive Plan of 2009. Unless sooner terminated, the Equity Incentive Plan of 2009 will continue in effect for a period of 10 years from its effective date.

The Equity Incentive Plans of 2009 and 2018 are administered by the Board of Directors. The Plans provide for awards to be made to such Officers, other key employees, non-employee Directors, consultants and advisors of the Company and its subsidiaries as the Board may select.

Stock options awarded under the Plans may be exercisable at such times (not later than 10 years after the date of grant) and at such exercise prices (not less than fair market value at the date of grant) as the Board may determine. The Board may provide for options to become immediately exercisable upon a “change in control”, which is defined in the Plans to occur upon any of the following events: (a) the acquisition by any person or group, as beneficial owner, of 20% or more of the outstanding shares or the voting power of the outstanding securities of the Company; (b) either a majority of the Directors of the Company at the annual stockholders meeting has been nominated other than by or at the direction of the incumbent Directors of the Board, or the incumbent Directors cease to constitute a majority of the Company’s Board; (c) the Company’s stockholders approve a merger or other business combination pursuant to which the outstanding common stock of the Company no longer represents more than 50% of the combined entity after the transaction; (d) the Company’s stockholders approve a plan of complete liquidation or an agreement for the sale or disposition of all or substantially all of the Company’s assets; or (e) any other event or circumstance determined by the Company’s Board to affect control of the Company and designated by resolution of the Board as a change in control.

The fair value of each option and equity warrant award is estimated on the date of grant using a Black-Scholes-Merton pricing option valuation model. Expected volatility is based on the historical volatility of the price of the Company’s stock. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the option and equity warrant. The Company uses historical data to estimate expected dividend yield, life and forfeiture rates. The expected life of the options and equity warrants was estimated based on historical option and equity warrant holders’ behavior and represents the period of time that options and equity warrants are expected to be outstanding. The fair values of the options and equity warrants granted were estimated based on the following weighted average assumptions:

	Year Ended December 31,
	2018		2017
Risk-free interest rate		2.6%-3.0%		1.72%-1.89%
Expected dividend yield		-		-
Expected life		5 years		1.25-5 years
Expected volatility		85.68%-86.89%		91.60%-144.15%
Weighted average grant date fair value for options and equity warrants issued		$0.23 per option for 5,864,505 options		$0.35per option/warrant for 1,340,517 options/equity warrants

The exercise price of all stock options and equity warrants granted was equal to or greater than the fair market value of the underlying common stock on the date of the grant.

Information regarding the options approved by the Board of Directors under Equity Plan of 2009 is summarized below. The plan expires June 24, 2019:

	2017							2018
	Shares			Option Price		Weighted Average Exercise Price		Shares			Option Price		Weighted Average Exercise Price
Outstanding, beginning of year		695,061			1.56-48.36		4.70		1,877,295			0.33-48.36		1.92
Granted		1,190,567			0.33-0.67		0.29		4,675,221			0.30-0.38		0.34
Forfeited		(8,333	)		1.56		1.56		(213,855	)		8.16-$48.36		28.26
Exercised		—			—		—		—			—		—
Outstanding, end of year		1,877,295			0.33-48.36		1.92		6,338,661			0.30-48.36		0.36
Exercisable, end of year		1,046,487			0.33-48.36		0.42		2,376,353			0.30-48.36
Weighted average remaining contractual life (years)		2-10 years							1-10 years
Available for future grants		4,139,454							159,322

Information regarding the options approved by the Board of Directors under the Equity Plan of 2018 is summarized below:

	2018
	Shares		Option Price		Weighted Average Exercise Price
Outstanding, beginning of year		—		—		—
Granted		1,189,284		0.22		0.22
Forfeited		—		—		—
Exercised		—		—		—
Outstanding, end of year		1,189,284		0.22		0.22
Exercisable, end of year		294,404		0.22		0.22
Weighted average remaining contractual life (years)		10 years
Available for future grants		5,810,716

Stock option activity during the years ended December 31, 2017 and 2018 is as follows:

Stock option activity for employees

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contracted Term (Years)		Aggregate Intrinsic Value
Outstanding December 31, 2016		836,256		$	16.82		4.47		—
Granted		584,794			0.50		—		—
Forfeited		(217,132	)		33.35		—		—
Outstanding December 31, 2017		1,203,918		$	5.91		6.89		—
Granted		4,164,585			0.32		—		—
Forfeited		(257,917	)		18.01		—		—
Outstanding December 31, 2018		5,110,586		$	0.75		9.01		—
Vested and expected to vest at December 31, 2018		5,110,586		$	0.75		9.01		—
Exercisable at December 31, 2018		1,804,927		$	1.04		8.09		—

The weighted-average grant-date fair value of employee options granted during the year 2018 was $958,000 for 4,164,585 options at $0.23 per option and during year 2017 was $230,000 for 584,794 options at $0.39 per option.

Unvested stock option activity for employees:

	Number of Options			Weighted Average Exercise Price		Average Remaining Contracted Term (Years)		Aggregate Intrinsic Value
Unvested December 31, 2016		90,625		$	1.72		9.33		—
Granted		584,794			0.50		—		—
Vested		(309,271	)		0.88		—		—
Forfeited		—			—		—		—
Unvested December 31, 2017		366,148		$	0.48		9.62		—
Granted		4,164,585			0.32		—		—
Vested		(1,225,074	)		0.36		—		—
Forfeited		—			—		—		—
Unvested December 31, 2018		3,305,659		$	0.32		9.31		—

The weighted-average grant-date fair value of employee unvested stock options granted during the year 2018 was $958,000 for 4,164,585 at $0.23 per option and during the year 2017 was $230,000 for 584,794 options at $0.39 per option,.

Stock option activity for non-employees during the year:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contracted Term (Years)		Aggregate Intrinsic Value
Outstanding December 31, 2016		271,500		$	10.41		4.66		—
Granted		605,772			0.42		—		—
Exercised		—			—		—		—
Forfeited		(42,396	)		19.41		—		—
Outstanding December 31, 2017		834,876		$	2.70		6.69		—
Granted		1,699,920			0.31		—		—
Exercised		—			—		—		—
Forfeited		(109,104	)		10.33		—		—
Outstanding December 31, 2018		2,425,692		$	0.68		8.55		—
Vested and expected to vest at December 31, 2018		2,425,692		$	0.68		8.55		—
Exercisable at December 31, 2018		874,164		$	1.52		7.78		—

The weighted-average grant-date fair value of non-employee options granted during year 2018 was $391,000 for 1,699,920 options at $0.23 per option and during the year 2017 was $182,000 for 605,772 options at $0.30 per option.

Unvested stock option activity for non-employees:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contracted Term (Years)		Aggregate Intrinsic Value
Unvested December 31, 2016		26,389		$	1.65		8.61		—
Granted		606,772			0.42		—		—
Vested		(163,335	)		0.57		—		—
Forfeited		(4,861	)		7.58		—		—
Unvested December 31, 2016		464,965		$	0.36		7.84		—
Granted		1,699,920			0.31		—		—
Vested		(613,357	)		0.35		—		—
Forfeited		—			—		—		—
Unvested December 31, 2018		1,551,528		$	0.31		8.84		—

Stock-based compensation expense was approximately $929,000 and $571,000 for the years ended December 31, 2018, and 2017 resulting in an increase in general and administrative expenses and loss per share of $0.02 and $0.02, respectively.

As of December 31, 2018 and 2017, there was $1,273,000 and $435,000, respectively, of unrecognized stock-based compensation cost related to options granted under the Equity Incentive Plans. Stock-based compensation related to options granted under the Equity Incentive Plans will be recorded over the vesting period which is typically one year or upon reaching agreed upon company and/or individual performance milestones being met which is indefinite.

(ii) Stock Warrants

Stock warrants are issued as needed by the Board of Directors and have no formal plan.

The fair value of each warrant award is estimated on the date of grant using a Black-Scholes-Merton pricing option valuation model. Expected volatility is based on the historical volatility of the price of the Company’s stock. The risk-free interest rate is based on U.S. Treasury issues with a term equal to the expected life of the warrant. The Company uses historical data to estimate expected dividend yield, life and forfeiture rates. The expected life of the warrants was estimated based on historical option holder’s behavior and represents the period of time that options are expected to be outstanding. There were 17,512,308 granted in 2017 at $0.45 to $0.75 per warrant, and 9,825,808 granted in 2018 at $0.39 per warrant.

Information regarding warrants outstanding and exercisable into shares of common stock is summarized below:

	2017							2018
	Shares			Warrant Price		Weighted Average Exercise Price		Shares			Warrant Price		Weighted Average Exercise Price
Outstanding, beginning of year		2,830,516		$	1.08-$24.00	$	2.16		7,334,490		$	0.45-$10.68	$	0.63
Granted		17,512,308		$	0.45-$0.75	$	0.57		9,825,808		$	0.39	$	0.39
Forfeited		(10,508,334	)	$	0.60-$24.00	$	0.61		(25,000	)	$	6.00	$	6.00
Exercised		(2,500,000	)	$	0.50	$	0.50		(2,800,000	)	$	0.45	$	0.45
Outstanding, end of year		7,334,490		$	0.45-$10.68	$	0.63		14,335,298		$	0.39-$10.68	$	0.49
Exercisable		7,334,490		$	0.45-$10.68	$	0.63		14,335,298		$	0.39-$10.68	$	0.49
Weighted average remaining contractual life		2.7 years							2.3 years
Years exercisable		2017-2023							2019-2023

Stock warrants are issued at the discretion of the Board. In 2018 there were 9,825,808 warrants issued at a weighted average exercise price of $0.39 and in 2017, there were 17,512,308 warrants issued at a weighted average exercise price of $0.57 per share. 2,800,000 warrants were exercised in 2018 and 2,500,000 warrants were exercised in 2017.

(e) Rights Offering

On November 14, 2017, at the direction of the Board, the Company amended and restated the Rights Agreement between the Company and, American Stock Transfer & Trust Company, LLC, its current Rights Agent (as amended and restated, the “Rights Agreement”). Each Right entitles the registered holder to purchase from the Company a unit consisting of one one-hundredth of a share (a “Unit”) of Series A Junior Participating Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”) at a Purchase Price of $21.00 per Unit, subject to adjustment.