NOTE 12. EQUITY, SHARE-BASED COMPENSATION AND WARRANTS

On March 8, 2019, we issued and sold 3,046,668 shares of common stock for $3.00 per share and a prefunded warrant (the Prefunded Warrant) exercisable into 1,003,344 shares of common stock for $2.99 per share, in a private placement. The Prefunded Warrant had an exercise price of $0.01 per share and was immediately exercisable; however, we had to obtain approval from our shareholders before the holder could exercise the Prefunded Warrant to the extent such exercise would result in the holder owning in excess of 19.99% of our common shares outstanding. The holder exercised the entire Prefunded Warrant automatically when our shareholders approved the exercise in June 2019. We determined the Prefunded Warrant qualified for equity accounting. The net proceeds from the offering of $11.6 million, after deducting commissions and other cash offering expenses of $0.5 million, are recorded in equity. We determined the exercise price of the warrant was nominal and, as such, have considered the 1,003,344 shares underlying the warrant to be outstanding effective March 8, 2019, for the purposes of calculating basic EPS.

Summaries of equity activity for the nine months ended September 30, 2019 and 2018, follow (in thousands, except share amounts).

	Shares
	Preferred Series G			Common			Preferred Stock			Common Stock			Accumulated Deficit			Equity
Balance, December 31, 2018		405			29,098,207		$	201		$	296,739		$	(273,229	)	$	23,711
Sale of common stock and Prefunded Warrant, net of costs		-			3,046,668			-			11,593			-			11,593
Common stock awards under equity incentive plans		-			36,881			-			364			-			364
Exercise of common stock warrants		-			600,000			-			1,980			-			1,980
Conversion of preferred stock into common stock		(180	)		170,818			(89	)		89			-			-
Exercise of common stock options		-			77,078			-			60			-			60
Other		-			-			-			28			-			28
Net loss		-			-			-			-			(3,227	)		(3,227	)
Balance, March 31, 2019		225			33,029,652			112			310,853			(276,456	)		34,509
Exercise of Prefunded Warrant		-			1,003,344			-			10			-			10
Common stock awards under equity incentive plans		-			134,984			-			219			-			219
Exercise of common stock options		-			78,734			-			87			-			87
Other		-			-			-			32			-			32
Net loss		-			-			-			-			(3,659	)		(3,659	)
Balance, June 30, 2019		225			34,246,714			112			311,201			(280,115	)		31,198
Retirement of unvested shares		-			(830,124	)		-			-			-			-
Common stock awards under equity incentive plans		-			22,632			-			282			-			282
Exercise of common stock options		-			10,000			-			9			-			9
Retirement of shares received in settlement with the sellers of Golden Ridge		-			(340,000	)		-			(1,027	)		-			(1,027	)
Net loss		-			-			-			-			(3,326	)		(3,326	)
Balance, September 30, 2019		225			33,109,222		$	112		$	310,465		$	(283,441	)	$	27,136

	Shares
	Preferred Series G		Common		Preferred Stock		Common Stock		Accumulated Deficit			Equity
Balance, December 31, 2017		630		18,046,731	$	313	$	279,548	$	(265,128	)	$	14,733
Common stock awards under equity incentive plans		-		78,377		-		245		-			245
Exercise of common stock warrants		-		1,827,999		-		1,755		-			1,755
Other		-		-		-		75		-			75
Net loss		-		-		-		-		(1,913	)		(1,913	)
Balance, March 31, 2018		630		19,953,107		313		281,623		(267,041	)		14,895
Common stock awards under equity incentive plans		-		208,829		-		148		-			148
Exercise of common stock warrants		-		4,092,077		-		3,928		-			3,928
Other		-		-		-		23		-			23
Net loss		-		-		-		-		(2,160	)		(2,160	)
Balance, June 30, 2018		630		24,254,013		313		285,722		(269,201	)		16,834
Common stock awards under equity incentive plans		-		7,188		-		141		-			141
Exercise of common stock warrants		-		2,799,392		-		5,320		-			5,320
Exercise of common stock options		-		32,500		-		27		-			27
Other		-		-		-		18		-			18
Net loss		-		-		-		-		(1,627	)		(1,627	)
Balance, September 30, 2018		630		27,093,093	$	313	$	291,228	$	(270,828	)	$	20,713

Common stock issued under equity incentive plans for the nine months ended September 30, 2019 and 2018, follows.

	2019						2018
	Shares Issued		Grant Date Fair Value Per Share		Vesting Period (Years)		Shares Issued		Grant Date Fair Value Per Share		Vesting Period (Years)
Three Months Ended March 31
Directors		30,887	$	3.22		1.0		50,469	$	1.38		1.0
Consultant		5,994	$	3.48		-		27,908	$	1.42		-
		36,881						78,377
Three Months Ended June 30
Directors		118,111	$	2.86		1.0		208,829	$	1.78		1.0
Consultant		16,873	$	2.86		1.0		-	NA		NA
		134,984						208,829
Three Months Ended September 30
Directors		15,290	$	2.82		0.9		-	NA		NA
Consultant		7,342	$	2.69		-		7,188	$	2.83		-
		22,632						7,188

Options

Stock option activity for the nine months ended September 30, 2019 and 2018, follows.

	2019									2018
	Shares Under Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life (Years)		Shares Under Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life (Years)
Outstanding at January 1		950,727		$	3.06				8.5		639,658		$	8.83				7.2
Granted (1)		188,662			3.25	$	2.05		10.0		278,873			1.42	$	0.97		10.0
Cash exercised		(77,078	)		0.78				7.7		-		NA				NA
Forfeited		(25,548	)		5.66				5.3		(2,047	)		5.02				8.0
Outstanding at March 31		1,036,763			3.20				8.6		916,484			2.45				8.7
Granted (1)		98,221			3.04	$	1.84		10.0		-		NA		NA		NA
Cash exercised (2)		(78,734	)		1.10				8.2		-		NA				NA
Forfeited		(133,016	)		2.92				0.3		(23,964	)		1.21				9.4
Outstanding at June 30		923,234			3.40				8.4		892,520			2.49				8.4
Granted (1)		99,000			2.53	$	1.40		10.0		-		NA		NA		NA
Cash exercised		(10,000	)		0.85				7.6		(32,500	)		0.85				8.6
Forfeited		(13,450	)		11.42				4.7		(109,854	)		1.61				8.7
Outstanding at September 30		998,784		$	3.23				8.4		750,166		$	2.69				8.1

(1)

The options granted vest and become exercisable in annual or monthly installments ending four years from the date of grant.

(2)

Includes options for 31,955 shares of common stock at a weighted average exercise price of $1.16 per share for which we accelerated vesting upon termination of employment for an employee in June of 2019. We expensed $0.1 million of incremental expense upon acceleration of vesting.

Restricted Stock Units

Restricted stock unit (RSU) activity for the nine months ended September 30, 2019 and 2018, follows.

	2019								2018
	RSU Shares Issued to Employees			Unrecognized Stock Compensation (in thousands)			Weighted Average Expense Period (Years)		RSU Shares Issued to Employees			Unrecognized Stock Compensation (in thousands)			Weighted Average Expense Period (Years)
Nonvested at January 1		1,215,000		$	683			2.3		1,175,000		$	161			3.0
Cancelled		-			-					(705,000	)		(31	)
Expensed		-			(77	)							(11	)
Nonvested at March 31		1,215,000			606			2.0		470,000			119			2.8
Granted		132,062			107			2.3		-			-
Forfeited		(250,000	)		(155	)				(170,000	)		(30	)
Expensed		-			(66	)				-			(11	)
Nonvested at June 30		1,097,062			492			1.9		300,000			78			2.5
Granted		81,000			38			2.7		-			-
Forfeited		-			-					(130,000	)		(39	)
Expensed		-			(70	)				-			(4	)
Nonvested at September 30		1,178,062		$	460			1.7		170,000		$	35			2.3

As of September 30, 2019, we have outstanding RSUs covering a total of 1,178,062 shares of our common stock. The shares subject to the RSUs vest based upon a vesting price equal to the volume weighted average trading price of our common stock over sixty-five consecutive trading days. Subject to a minimum service period in certain grants, as described in the next sentence, the RSU shares vest as to (i) 117,806 shares on the date the vesting price equals or exceeds $5.00 per share (ii) 353,419 shares the date the vesting price equals or exceeds $10.00 per share and (iii) 706,837 shares the date the vesting price equals or exceeds $15.00 per share. In certain RSUs, vesting occurs the later of the one-year anniversary of the grant and the date the shares reach the vesting price indicated in the preceding sentence. The RSUs expire on the fifth anniversary of each grant.

Nonvested Stock

Summaries of nonvested stock activity for the nine months ended September 30, 2019 and 2018, follow (in thousands, except share and per share amounts).

	2019									2018
	Shares Granted			Weighted Average Grant Date Fair Value Per Share		Fair Value		Unrecog- nized Stock Comp- ensation		Shares Granted			Weighted Average Grant Date Fair Value Per Share		Fair Value		Unrecog- nized Stock Comp- ensation
							(1)		(2)							(1)		(2)
Nonvested at January 1		193,965		$	1.84	$	582	$	173		384,744		$	0.94	$	569	$	176
Granted		-		NA		NA					-		NA		NA
Vested		-		NA		NA					-		NA		NA
Nonvested at March 31		193,965			1.84		722		81		384,744			0.94		315		80
Granted to directors		118,111			2.86		338				208,875			1.78		372
Granted to consultants		16,873			2.86		48				-		NA		NA
Vested		(193,965	)		1.84		566				(384,744	)		0.94		686
Nonvested at June 30 (3)		134,984			2.86		393		374		208,875			1.78		451		360
Granted to directors		15,290			2.82		43				-		NA		NA
Vested		-		NA		NA					-		NA		NA
Nonvested at September 30		150,274		$	2.86	$	383	$	313		208,875		$	1.78	$	599	$	267

(1)

Represents pre-tax fair value, based on our closing stock prices, which would have been received by the holders of the stock had all such holders sold their underlying shares on the date indicated, the dates of grant or the dates of vesting, as applicable.

(2)

As of September 30, 2019 and 2018, unrecognized compensation is amortizing over a remaining period of 0.7 years.

(3)

Excluded 830,104 shares, issued to a supplier, nonvested and unearned as of June 30, 2019. In February 2016, we issued 950,000 shares of common stock to that supplier. The shares were being held in escrow until earned (as defined in our agreement) by the supplier at a fixed price of $2.80 per share. Cumulatively, as of September 30, 2019, 119,896 shares were released from escrow. We recalled and retired the shares remaining in escrow, after the related supply agreement terminated in August 2019. During the three months ended June 30, 2019 and March 31, 2019, we released from escrow and expensed the value of 11,492 and 9,148 shares earned by a vendor, at $2.92 per share, the fair value of the shares on January 1, 2019, when we adopted ASU 2018-07. During the three months ended June 30, 2018 and March 31, 2018, we released from escrow and expensed the value of 10,660 shares ($2.16 per share) and 9,842 ($1.57 per share) shares earned by that vendor. The shares released from escrow in 2018 were valued at the fair value of the shares when earned, under the guidance for nonemployee awards in effect in 2018, prior to our adoption of ASU 2018-07.

Warrants

Warrant activity, excluding activity related to the Prefunded Warrant, for the nine months ended September 30, 2019 and 2018, follows.

	2019							2018
	Shares Under Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Shares Under Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
		(1)
Outstanding at January 1		10,252,714		$	2.25		2.3		21,157,273		$	2.30		3.4
Issued (2)		-		NA		NA			315,000			4.73		2.4
Cash exercised		(600,000	)		3.30		-		(1,827,999	)		0.96		4.1
Expired		(950,614	)		5.25		-		-		NA		NA
Outstanding at March 31		8,702,100			1.85		2.4		19,644,274			2.47		3.0
Cash exercised		-		NA		NA			(4,092,077	)		0.96		3.7
Expired		(989,875	)		5.60		-		(6,000	)		16.80		-
Outstanding at June 30		7,712,225			1.37		2.4		15,546,197			2.86		2.5
Cash exercised		-		NA		NA			(2,660,000	)		2.00		3.0
Cashless exercised (3)		-		NA		NA			(300,000	)		1.60		1.8
Impact of modification (4):
After modification		-		NA		NA			600,000			3.30		0.6
Prior to modification		-		NA		NA			(850,000	)		5.27		1.6
Expired		-		NA		NA			(2,573	)		16.00		-
Outstanding at September 30 (5)		7,712,225		$	1.37		2.2		12,333,624		$	2.93		2.2

(1)

Under the terms of certain outstanding warrants, the holders may elect to exercise the warrants under a cashless exercise feature. As of September 30, 2019, warrant holders may elect to exercise cashless warrants for 3,774,344 shares of common stock at an exercise price of $0.96 per share and 384,536 shares of common stock at an average exercise price of $5.25 per share. If we register for resale the shares subject to warrants, the holders of some of the warrants may no longer have the right to elect a cashless exercise. If we fail to maintain a registration statement for the resale of shares under certain other warrants, the shares under those warrants may again become exercisable using a cashless exercise feature.

(2)

We recognized $0.1 million of expense for these warrant issuances in the three months ended June 30, 2018.

(3)

We issued 139,392 shares of common stock upon cashless exercise of these warrants, based on the fair value at the date of exercise of $2.63 per share.

(4)

The fair value of the warrants immediately before the modification equaled the fair value of the warrants immediately after the modification and, therefore, no gain or loss was recorded.

(5)

In October 2019, warrants for the purchase of up to 94,536 shares of common stock at an exercise price of $5.27 per share expired and warrants for the purchase of up to 85,409 shares of common stock at an exercise price of $0.96 per share were cash exercised.