NOTE

. EQUITY-BASED COMPENSATION

Equity Compensation Plans

October 2007,

the Company adopted the

2007

Omnibus Incentive Plan (the

“2007

Plan”) to provide for the granting of equity awards, such as stock options, unrestricted and restricted common stock, stock units, dividend equivalent rights, and stock appreciation rights to employees, directors and outside consultants, as determined by the Board of Directors (the “Board”). At the inception of the

2007

Plan,

80,000

shares were reserved for awards under the

2007

Plan.

For the years from

2009

2012,

the number of shares of common stock authorized for awards under the

2007

Plan increased annually in an amount equal to the lesser of (a)

40,000

shares; (b)

of the number of shares of the Company’s common stock outstanding on the last day of the preceding year; or (c) such lesser number as determined by the Board. Accordingly, an additional

40,000,

37,427,

and

37,207

shares of common stock were authorized for awards under the

2007

Plan in

January 2012,

2011

and

2010,

respectively. Beginning in

2013,

the shareholders voted to remove the

40,000

-share cap and the

2007

Plan’s shares authorized for awards increased annually by

of the number of shares of the Company’s common stock outstanding on the last day of the preceding year. Accordingly, an additional

32,646

and

59,157

shares of common stock were authorized for awards under the

2007

Plan in

January 2014

and

2013,

respectively. On

March 30, 2015,

the Company filed a registration statement to add an additional

82,461

shares to the

2007

Plan’s shares authorized for awards. In

January 2016,

the Company added

139,449

shares to the

2007

Plan’s shares authorized for awards, per the

2007

Plan’s evergreen provision. On

May 26, 2016,

the stockholders of the Company approved an amendment to the

2007

Plan to increase the number of shares of Company common stock authorized for awards thereunder by

1,124,826

shares. In

January 2017,

the Company added

610,774

shares to the

2007

Plan’s shares authorized for awards, per the

2007

Plan’s evergreen provision. As a result of the foregoing, the aggregate number of shares authorized for awards under the

2007

Plan was

2,318,486

shares, prior to its expiration on

March 15, 2017 (

after taking into account prior awards under the

2007

Plan).

Upon expiration of the

2007

Plan, new awards cannot be issued pursuant to the

2007

Plan, but awards outstanding as of its

March 15, 2017

plan expiration date will continue to be governed by its terms. Under the terms of the

2007

Plan, the exercise price of incentive stock options

may

not

be less than

100%

of the fair market value of the common stock on the date of grant and, if granted to an owner of more than

10%

of the Company’s stock, then

not

less than

110%

of the fair market value of the common stock on the date of grant. Stock options granted under the

2007

Plan expire

later than

ten

years from the date of grant. Stock options granted to employees generally vest over

four

years, while options granted to directors and consultants typically vest over a shorter period, subject to continued service.

March 2017,

the Company adopted the

2017

Omnibus Incentive Plan (the

“2017

Plan”), which was approved by shareholders on

June 2, 2017,

to provide for the granting of equity awards, such as nonqualified stock options (“NQSOs”), incentive stock options (“ISOs”), restricted stock, performance shares, stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and other share-based awards to employees, directors, and consultants, as determined by the Board. The

2017

Plan will

not

affect awards previously granted under the

2007

Plan. The

2017

Plan allows for awards of up to

2,318,486

shares of the Company’s common stock, plus an automatic annual increase in the number of shares authorized for awards on the

first

day of each of the Company’s fiscal years beginning

January

2018

through

January

2027

equal to (i)

of the number of shares of common stock outstanding on the last day of the immediately preceding fiscal year or (ii) such lesser number of shares of common stock than provided for in Section

(a)(i) of the

2017

Plan as determined by the Board. As of

December 31, 2019,

there were

1,789,174

shares available for future awards under the

2017

Plan.

Under the terms of the

2017

Plan, the exercise price of NQSOs, ISOs and SARs

may

not

be less than

100%

of the fair market value of the common stock on the date of grant and, if ISOs are granted to an owner of more than

10%

of the Company’s stock, then

not

less than

110%

of the fair market value of the common stock on the date of grant. The term of awards will

not

be longer than

ten

years, or in the case of ISOs,

not

longer than

five

years with respect to holders of more than

ten

percent of the Company’s stock. Stock options granted to employees generally vest over

four

years, while options granted to directors and consultants typically vest over a shorter period, subject to continued service. The Company issues new shares to satisfy option exercises under the

2007

Plan and the

2017

Plan.

Stock Option Summary

The following table summarizes information about the Company’s stock options and restricted stock outstanding at

December 31, 2019,

2018

and

2017,

and activity during the

three

years then ended:

(in thousands, except years and per share data)	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding at December 31, 2016		1,489		$	8.38		8.7	$	702
Options granted		1,616		$	3.03
Restricted stock units granted		49		$	—
Options exercised		(68	)	$	2.72
Restricted stock units vested		(39	)	$	—
Options forfeited/cancelled		(87	)	$	22.08
Restricted stock units cancelled		-		$	—
Outstanding at December 31, 2017		2,960		$	5.16		8.6	$	2,586

Options granted		1,118		$	2.03
Restricted stock units granted		12		$	—
Options exercised		(4	)	$	2.35
Restricted stock units vested		-		$	—
Options forfeited/cancelled		(701	)	$	5.12
Restricted stock units cancelled		(11	)	$	—
Outstanding at December 31, 2018		3,374		$	4.13		8.2	$	8

Options granted		145		$	0.37
Restricted stock units granted		204		$	—
Options exercised		(83	)	$	2.30
Restricted stock units vested		(209	)	$	—
Options forfeited/cancelled		(1,247	)	$	4.01
Restricted stock units cancelled		(1	)	$	—
Outstanding at December 31, 2019		2,183		$	4.03		6.6	$	43

Vested and expected to vest at December 31, 2019		2,165		$	4.05		6.5	$	43

Vested at December 31, 2019		1,818		$	4.44		6.2	$	—

Exercisable at December 31, 2019		1,818		$	4.44		6.2	$	—

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock option awards and the closing market price of the Company’s common stock as quoted on the NYSE American as of

December 31, 2019

for options that have a quoted market price in excess of the exercise price. There were

thousand stock option awards exercised during the year ended

December 31, 2019

for which the Company received cash payments of

$189

thousand. There was

intrinsic value for stock option awards exercised for the year ended

December 31, 2019.

There were

thousand stock option awards exercised for the year ended

December 31, 2018

for which the Company received cash payments of

$11

thousand. There was

intrinsic value for stock option awards exercised for the year ended

December 31, 2018.

There were

thousand stock option awards exercised for the year ended

December 31, 2017

for which the Company received cash payments of

$185

thousand. The aggregate intrinsic value of stock option awards exercised was

$116

thousand for the year ended

December 31, 2017.

As of

December 31, 2019,

total unrecognized compensation cost related to unvested stock options and restricted stock was approximately

$491

thousand. This amount is expected to be recognized as stock-based compensation expense in the Company’s consolidated statements of operations and comprehensive loss over the remaining weighted average vesting period of

2.20

years.

Stock Option Awards to Employees and Directors

The Company grants options to purchase common stock to its employees and directors at prices equal to or greater than the market value of the stock on the dates the options are granted. The Company has estimated the value of stock option awards as of the date of grant by applying the Black-Scholes-Merton option pricing model using the single-option valuation approach. The application of this valuation model involves assumptions that are judgmental and subjective in nature. See Note

“Summary of Significant Account Policies,” for a description of the accounting policies that the Company applied to value its stock-based awards.

During the years ended

December 31, 2019,

2018

and

2017,

the Company granted options to employees and directors to purchase an aggregate of

145,000,

1,085,000,

and

1,529,000

shares of common stock, respectively.

The weighted-average assumptions used in determining the value of options are as follows:

	Year Ended December 31,
Assumption	2019			2018			2017
Expected price volatility		112.41	%		89.30	%		87.78	%
Expected term (in years)		6.14			5.98			6.90
Risk-free interest rate		1.99	%		2.80	%		2.12	%
Dividend yield		0.00	%		0.00	%		0.00	%
Weighted-average fair value of options granted during the period	$	0.31		$	1.51		$	2.34

Expected Price Volatility

—This is a measure of the amount by which the stock price has fluctuated or is expected to fluctuate. The computation of expected volatility was based on the historical volatility of our own stock.

Expected Term

—This is the period of time over which the options granted are expected to remain outstanding. The expected life assumption is based on the Company’s historical data.

Risk-Free Interest Rate

—This is the U.S. Treasury rate for the week of the grant having a term approximating the expected life of the option.

Dividend Yield

—We have

not

made any dividend payments nor do we have plans to pay dividends in the foreseeable future.

Forfeitures are estimated at the time of grant and reduce compensation expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.

As part of Mr. Mark Sieczarek’s separation agreement, in

July 2019,

the Company paid him the amount due under the agreement via

168

thousand shares of fully vested registered stock. The expense related to this separation agreement was accrued for and expensed during

July 2019,

and the shares were issued to him via fully vested registered stock in

July 2019.

See further details on Mr. Mark Sieczarek’s resignation below.

In addition, the Company granted restricted stock to employees totaling

12,000,

and

10,000

shares of common stock in the years ended

December 31, 2018

and

2017,

respectively.

For the years ended

December 31, 2019,

2018

and

2017,

the Company recognized stock-based compensation expense of

$449

thousand,

$671

thousand, and

$2,371

thousand, respectively, for option awards to employees and directors.

July 2017,

Mr. Paulson announced his retirement from his position as CFO of the Company as of

December 31, 2017.

As part of his employment agreement, the Company modified his stock options, effective upon his retirement. All outstanding stock options held by Mr. Paulson became fully vested upon retirement, and the option exercise period was extended from

three

months to

three

years, calculated from the date of retirement. Options with an expiration date prior to the end of the exercise period maintained the same expiration date. As this agreement was entered into during the

third

quarter of

2017

and Mr. Paulson agreed to continue providing service through

December 31, 2017,

the Company recorded stock-based compensation expense in connection with the stock option modification in both the

third

and

fourth

quarters of

2017.

In connection with the stock option modification, the Company recognized stock-based compensation expense of

$244

thousand during the

three

months ended

September 30, 2017

and

$260

thousand during the

three

months ended

December 31, 2017.

March 2018,

the Company modified stock options held by Mr. Liu, who resigned as a director of the Company, effective

March 21, 2018.

The option exercise period for Mr. Liu was extended from

three

months to

three

years, calculated from his date of resignation. In connection with the stock option modification, the Company recognized stock-based compensation expense of

$26

thousand.

April 2019,

the Company modified stock options held by Mr. Yonghao (Carl) Ma, who resigned as a director of the Company, effective

April 29, 2019.

The option exercise period for Mr. Liu was extended from

three

months to

three

years, calculated from his date of resignation. Also, his stock option awards became fully vested at the date of his resignation. In connection with the stock option modification, the Company recognized stock-based compensation expense of

$14

thousand, which is included in the

$449

thousand of stock-based compensation recognized in

2019

noted above.

May 2019,

the Company modified stock options held by Mr. Yanbin (Lawrence) Liu, who resigned as a director of the Company, effective

May 1, 2019.

The option exercise period for Mr. Yanbin Liu was extended from

three

months to

three

thousand, which is included in the figure above.

July 2019,

the Company modified stock options held by Mr. Mark Sieczarek, who resigned as a director of the Company, effective

July 20, 2019.

The option exercise period for Mr. Mark Sieczarek was extended from

three

months to

three

$60

thousand, which is included in the figure above.

September 2019,

the Company modified stock options held by Mr. Todd Zavodnick, who resigned as a director of the Company, effective

September 11, 2019.

The option exercise period for Mr. Todd Zavodnick was extended from

three

months to

three

$24

thousand, which is included in the figure above.

Stock-Based Awards to Non-Employee Consultants

During the year ended

December 31, 2019,

the Company did

not

grant options to purchase shares of common stock to non-employees. During the years ended

December 31, 2018

and

2017

the Company granted options to purchase an aggregate of

33,000

and

86,000

shares of common stock, respectively, to non-employees in exchange for advisory and consulting services. The stock options are recorded at their fair value on the measurement date and recognized over the respective service or vesting period. The fair value of the stock options granted was calculated using the Black-Scholes-Merton option pricing model based upon the following assumptions:

	Year Ended December 31,
Assumption	2018			2017
Expected price volatility		85.03	%		87.41	%
Expected term (in years)		10.0			10.0
Risk-free interest rate		2.94	%		2.27	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of options granted during the period	$	1.99		$	2.40

During the

fourth

quarter of the year ended

December 31, 2019,

the Company paid

two

consultants, Ms. Moon and Ms. Xiao, via a combination of

thousand registered shares and cash for services rendered, based on the terms of their consulting agreement.

The Company did

not

grant restricted stock to non-employees during the year ended

December 31, 2018.

The Company granted

thousand shares of fully vested registered stock to non-employee Dr. Ron Najafi in the year ended

December 31, 2017,

as part of his settlement agreement, as described below. In addition, the Company also granted restricted stock to a non-employee consultant totaling

thousand shares of common stock in the year ended

December 31, 2017,

in exchange for advisory and consulting services.

For the years ended

December 31, 2019,

2018

and

2017,

the Company recognized stock-based compensation expense of

$37

thousand,

$0,

and

$243

thousand, respectively, related to non-employee options and restricted stock grants.

November 2015,

Dr. Ron Najafi resigned from his position as President and CEO of the Company. As part of his separation agreement, in

December 2016,

the Company paid him a portion of the amount due under the agreement via a combination of registered shares and cash during fiscal year

2016.

The expense related to this separation agreement was accrued for and expensed in the year ended

December 31, 2015,

and the shares were issued to him via fully vested registered stock in

December 2016.

January 2017,

the remaining portion of the amount due under the agreement was paid via a combination of registered shares and cash.

Summary of Stock-Based Compensation Expense

A summary of the stock-based compensation expense included in results of operations for the option and stock awards discussed above is as follows:

	Year Ended December 31,
(in thousands)	2019		2018		2017
Research and development	$	42	$	32	$	113
Sales and marketing		93		141		152
General and administrative		351		498		2,277
Total stock-based compensation expense	$	486	$	671	$	2,542

Since the Company continues to operate at a net loss, it does

not

expect to realize any current tax benefits related to stock options.