NOTE

11.

WARRANT LIABILITY

July 2011,

the Company sold common stock and warrants in a registered direct financing. As part of this transaction,

139,520

warrants were issued with an exercise price of

$33.25

and were exercisable from

January 1, 2012

July 5, 2016.

The terms of the warrants require registered shares to be delivered upon each warrant’s exercise and also require possible cash payments to the warrant holders (in lieu of the warrant’s exercise) upon specified fundamental transactions involving the Company’s common stock, such as an acquisition of the Company. Under ASC

480,

Distinguishing Liabilities from Equity

the Company’s ability to deliver registered shares upon an exercise of the warrants and the Company’s potential obligation to cash-settle the warrants if specified fundamental transactions occur are deemed to be beyond the Company’s control. The warrants contain a provision according to which the warrant holder would have the option to receive cash, equal to the Black Scholes fair value of the remaining unexercised portion of the warrant, as cash settlement in the event that there is a fundamental transaction (contractually defined to include various merger, acquisition or stock transfer activities). Due to this provision, ASC

480

requires that these warrants be classified as liabilities. The fair values of these warrants have been determined using the Lattice model, and the changes in the fair value are recorded in the condensed consolidated statement of operations and comprehensive loss. The Lattice model provides for assumptions regarding volatility and risk-free interest rates within the total period to maturity. In addition, after

January 5, 2012,

and if the closing bid price per share of the common stock in the principal market equals or exceeds

$66.50

for any

ten

trading days (which do

not

have to be consecutive) in a period of

fifteen

consecutive trading days, the Company has the right to require the exercise of

one

third

of the warrants then held by the warrant holders.

October 2015,

the holders of all warrants issued pursuant to the Company’s securities purchase agreement dated

March 3, 2015 (

the

“2015

Securities Purchase Agreement”) agreed to reduce the length of notice required to such investors prior to the Company’s issuance of new securities from

twenty

business days to

two

business days, for the remainder of such investors’ pre-emptive right period (which expired

March 3, 2016).

The Company entered into these agreements to enable it to expeditiously raise capital in the

October 2015

Offering (as described below) and future offerings. As consideration for these agreements, the Company amended certain provisions of both the warrants with a

-month term (the “Short-Term Warrants”) and warrants with a

five

-year term (the “Long-Term Warrants”) issued pursuant to the

2015

Securities Purchase Agreement (together, the

“March 2015

Warrants”) and the warrants issued pursuant to the placement agent agreement dated

June 29, 2011 (

the

“July 2011

Warrants”). Specifically, the amendments decreased the exercise price for both the

March 2015

Warrants and the

July 2011

Warrants to

$5.00

per share. In addition, the amendments extended the exercise expiration date for the Short-Term Warrants and the

July 2011

Warrants, which have since expired on

March 6, 2020.

A price protection provision also was added to both the

July 2011

Warrants and

March 2015

Warrants, such that if the Company subsequently sold or otherwise disposed of Company common stock at a lower price per share than

$5.00

or any securities exchangeable for common stock with a lower exercise price than

$5.00,

the exercise price of such warrants would be reduced to that lower price.

October 2015,

the Company also entered into an underwriting agreement with Roth Capital Partners, LLC, relating to the public offering and sale of up to (i)

492,000

shares of the Company’s common stock; and (ii) warrants to purchase up to

442,802

shares of the Company’s common stock (the

“October 2015

Warrants”) with an exercise price of

$5.00

per share (the

“October 2015

Offering”). The shares of common stock and warrants were issued separately. Each warrant was exercisable immediately upon issuance and will expire

months from the date of issuance. The price to the public in the

October 2015

Offering was

$5.00

per share of common stock and related warrant. The net proceeds to the Company were approximately

$2.1

million after deducting underwriting discounts and commissions and offering expenses.

February 2016,

the strike price of the

July 2011,

March 2015

and

October 2015

warrants was reduced to

$1.81

per share, pursuant to the price protection provisions in such warrants, because the Company sold common stock to Mr. Jian Ping Fu at that price.

May 2019,

the strike price of the

July 2011

Warrants,

March 2015

Warrants and

October 2015

Warrants was further reduced to

$0.2061

per share, pursuant to the price protection provisions in such warrants, because the Company sold common stock to Triton Funds LP at that price.

March 6, 2020,

35,107

July 2011

Warrants and

7,419

March 2015

Warrants expired without being exercised. As of

March 31, 2020,

there were

July 2011

Warrants or

March 2015

Warrants outstanding.

The key assumptions used to value the

July 2011

Warrants as of

December 31, 2019

were as follows:

	As of
	December 31,
Assumption	2019
Expected price volatility		115	%
Expected term (in years)		0.18
Risk-free interest rate		1.52	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	0.44

As noted above, the Company issued warrants in connection with the

October 2015

Offering. The Company evaluated the terms of the

October 2015

Warrants and noted that under ASC

480,

the Company’s potential obligation to cash-settle the warrants if specified fundamental transactions occur are deemed to be beyond the Company’s control. Due to this provision, ASC

480

requires that these warrants be classified as liabilities. The fair values of these warrants have been determined using the Lattice valuation model, and the changes in the fair value are recorded in the condensed consolidated statement of operations and comprehensive loss. The fair value of the warrants at issuance on

October 27, 2015

was

$1.3

million.

The key assumptions used to value the

October 2015

warrants as of

March 31, 2020

and

December 31, 2019

were as follows:

	As of
	March 31,			December 31,
Assumption	2020			2019
Expected price volatility		191	%		184	%
Expected term (in years)		0.58			0.83
Risk-free interest rate		0.15	%		1.59	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.46		$	0.49

During the

second

quarter of

2019,

a total of

158,400

warrants to purchase

158,400

shares of common stock were exercised related to the

July 2011

Warrants and the

October 2015

Warrants resulting in gross proceeds of

$33

thousand. Upon exercise, the warrant liability associated with these warrants was adjusted to its fair value as of the date of exercise of

$0.4

million, with any change in fair value recorded in the condensed consolidated statement of operations and comprehensive loss. The

$0.4

million fair value was subsequently transferred to equity as of the date of exercise.

During the

third

quarter of

2019,

a total of

102,602

warrants to purchase

102,602

shares of common stock were exercised related to the

October 2015

Warrants resulting in gross proceeds of

$21

thousand. Upon exercise, the warrant liability associated with these warrants was adjusted to its fair value as of the date of exercise of

$0.2

million, with any change in fair value recorded in the condensed consolidated statement of operations and comprehensive loss. The

$0.2

million fair value was subsequently transferred to equity as of the date of exercise.

August 2019,

the Company issued: (

) warrants to purchase up to

4,198,566

shares of Company common stock to certain domestic investors in connection with its registered direct offering of

4,198,566

shares of common stock (the

“2019

Domestic Warrants”); (

) warrants to purchase up to

2,700,000

shares of Company common stock to certain foreign investors in connection with a private placement of the Series A Preferred Stock (the

“2019

Foreign Warrants”); and (

) warrants to purchase up to

167,942

shares of Company common stock to Ladenburg Thalmann & Co., Inc. for its services as placement agent in the registered direct offering (the

“2019

Ladenburg Warrants”). See Note

12,

“Stockholders’ Equity (Deficit)” for further discussion of the terms of the financing transactions in

August 2019.

The

2019

Domestic Warrants are exercisable

six

months after the date of issuance and will expire on

February 13, 2025,

with an exercise price of

$1.15.

The terms of the

2019

Domestic Warrants require registered shares to be delivered upon each warrant’s exercise and also require possible cash payments to the warrant holders (in lieu of the warrant’s exercise) upon specified fundamental transactions involving the Company’s common stock, such as an acquisition of the Company. The

2019

Domestic Warrants contain a provision according to which the warrant holder would have the option to receive cash, equal to the Black Scholes fair value of the remaining unexercised portion of the warrant, as cash settlement in the event that there is a fundamental transaction (contractually defined to include various merger, acquisition or stock transfer activities). Due to this provision, ASC

480

requires the

2019

Domestic Warrants be classified as liabilities. The fair values of these warrants have been determined using the Black-Scholes option pricing model, and the changes in the fair value are recorded in the condensed consolidated statement of operations and comprehensive loss. The fair value of the

2019

Domestic Warrants at issuance on

August 13, 2019

was

$3.1

million.

The key assumptions used to value the

2019

Domestic Warrants as of

August 13, 2019

were as follows:

	As of
	August 13,
Assumption	2019
Expected price volatility		149.29	%
Expected term (in years)		5.50
Risk-free interest rate		1.58	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	0.75

The key assumptions used to value the

2019

Domestic Warrants as of

March 31, 2020

and

December 31, 2019

were as follows:

	As of
	March 31,			December 31,
Assumption	2020			2019
Expected price volatility		175.35	%		154.10	%
Expected term (in years)		4.88			5.13
Risk-free interest rate		0.37	%		1.70	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.56		$	0.57

The

2019

Ladenburg Warrants were exercisable immediately upon issuance and will expire on

August 8, 2024,

with an exercise price of

$1.25.

The terms of the

2019

Ladenburg Warrants are consistent with the

2019

Domestic Warrants, and therefore were classified as liabilities in accordance with ASC

480.

The fair values of these warrants have been determined using the Black-Scholes option pricing model, and the changes in the fair value are recorded in the condensed consolidated statement of operations and comprehensive loss. The fair value of the

2019

Ladenburg Warrants at issuance on

August 13, 2019

was

$124

thousand.

The key assumptions used to value the

2019

Ladenburg Warrants as of

August 13, 2019

were as follows:

	As of
	August 13,
Assumption	2019
Expected price volatility		155.19	%
Expected term (in years)		5.00
Risk-free interest rate		1.57	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	0.74

The key assumptions used to value the

2019

Ladenburg Warrants as of

March 31, 2020

and

December 31, 2019

were as follows:

	As of
	March 31,			December 31,
Assumption	2020			2019
Expected price volatility		179.77	%		159.94	%
Expected term (in years)		4.36			4.61
Risk-free interest rate		0.34	%		1.69	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.55		$	0.57

The

2019

Foreign Warrants were exercisable upon stockholders’ approval, which was received on

October 9, 2019,

and will expire on

February 13, 2025,

with an exercise price of

$1.15.

The terms of the warrants are consistent with the

2019

Domestic Warrants, and therefore were classified as liabilities in accordance with ASC

480.

2019

Foreign Warrants at issuance on

August 13, 2019

was

$2.0

million.

The key assumptions used to value the

2019

Foreign Warrants as of

August 13, 2019

were as follows:

	As of
	August 13,
Assumption	2019
Expected price volatility		149.29	%
Expected term (in years)		5.50
Risk-free interest rate		1.58	%
Dividend yield		0.00	%
Weighted-average fair value of warrants	$	0.75

The key assumptions used to value the

2019

Foreign Warrants as of

March 31, 2020

and

December 31, 2019

were as follows:

	As of
	March 31,			December 31,
Assumption	2020			2019
Expected price volatility		175.35	%		154.10	%
Expected term (in years)		4.88			5.13
Risk-free interest rate		0.37	%		1.70	%
Dividend yield		0.00	%		0.00	%
Weighted-average fair value of warrants	$	0.56		$	0.57

The number of shares and fair value of the outstanding warrant liability as of

March 31, 2020

were as follows (in thousands):

	Shares		Warrant
			Liability
Warrant liability - current
October 2015 Warrants		38	$	17
		38	$	17

Warrant liability – non-current
2019 Domestic Warrants		4,199	$	2,339
2019 Foreign Warrants		2,700		1,504
2019 Ladenburg Warrants		168		92
		7,067	$	3,935