| 8. STOCKHOLDERS' EQUITY | Preferred Stock Under the Company’s Certificate of Incorporation, the Board
of Directors is authorized, without further stockholder action, to provide for the issuance of up to 10,000,000 shares of preferred
stock, par value $0.0001 per share, in one or more series, to establish from time to time the number of shares to be included in
each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. Series A Stock On December 11, 2018, the Company closed its underwritten offering
of 5,181,346 units for net proceeds of approximately $9 million. Each unit consists of (1) one share of the Company’s Series
A convertible preferred stock, par value $0.0001 per share (the “Series A Stock”), (2) a two-year warrant to purchase
one share of common stock at an exercise price of $1.93 (the “Series 1 Warrants”), and (3) a five-year warrant to purchase
one share of common stock at an exercise price of $1.93 (the “Series 2 Warrants”). In accordance with ASC 480, the
estimated fair value of $1,800,016 for the beneficial conversion feature was recognized as a deemed dividend on the Series A Stock
during the year ended December 31, 2019. The table below sets forth a summary of the designation, powers,
preferences and rights of the Series A Stock.
Conversion
Subject to the ownership limitations described below, the Series
A Stock is convertible at any time at the option of the holder into shares of the Company’s common stock at a conversion
ratio determined by dividing the stated value of the Series A Stock by a conversion price of $1.93 per share. The conversion price
is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions. The Company will not effect any conversion of the Series A Stock,
nor shall a holder convert its shares of Series A Stock, to the extent that such conversion would cause the holder to have acquired,
through conversion of the Series A Stock or otherwise, beneficial ownership of a number shares of common stock in excess of 4.99%
(or, at the election of the holder prior to the issuance of any shares of Series A Stock, 9.99%) of the common stock outstanding
after giving effect to such exercise.
Dividends In the event the Company pays dividends on its shares of common stock, the holders of the Series A Stock will be entitled to receive dividends on shares of Series A Stock equal, on an as-if-converted basis, to and in the same form as paid on the common stock. No other dividends will be paid on the shares of Series A Stock.
Liquidation Upon any liquidation, dissolution or winding up of the Company after payment or provision for payment of debts and other liabilities of the Company, the holders of Series A Stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount equal to the amount that a holder of common stock would receive if the Series A Stock were fully converted to common stock, which amounts will be paid pari passu with all holders of common stock.
Voting rights Shares of Series A Stock will generally have no voting rights, except as required by law and except that the consent of holders of a majority of the then outstanding Series A Stock will be required to amend the terms of the Series A Stock or to take other action that adversely affects the rights of the holders of Series A Stock. As of December 31, 2019, there were 38,606 shares of Series
A Stock outstanding. During the nine months ended September 30, 2020; an additional 38,396 shares of Series A Stock were converted
into 38,396 shares of common stock. As of September 30, 2020, there were 210 shares of Series A Stock outstanding. Common Stock The Company’s Certificate of Incorporation authorizes it to
issue 400,000,000 shares of $0.0001 par value common stock. As of September 30, 2020, and December 31, 2019, there were 12,619,369
and 6,741,860 shares of common stock issued and outstanding, respectively. On March 13, 2020, the Company completed a registered direct offering
to a single healthcare-focused institutional investor (the “Investor”) for the issuance and sale of 750,000 shares
of its common stock at a purchase price of $1.1651 per share and pre-funded warrants to purchase up to 1,610,313 shares of its
common stock, at a purchase price of $1.1650 per pre-funded warrant (which represents the per share offering price for the common
stock less $0.0001, the exercise price of each pre-funded warrant), for gross proceeds of approximately $2.75 million, priced at-the-market
under Nasdaq rules. Additionally, in a concurrent private placement, the Company issued to the Investor unregistered warrants to
purchase up to 2,360,313 shares of its common stock. The unregistered warrants have an exercise price of $1.04 per share and exercise
period commencing immediately upon the issuance date and a term of five and one-half years. The net proceeds from the offerings,
after deducting placement agent fees and other direct offering expenses were approximately $2.125 million. The fair value allocated
to the common stock, pre-funded warrants and warrants was $0.5 million, $1.1 million and $1.1 million, respectively. On July 8, 2020, the Company completed a registered direct offering
with the Investor for the issuance and sale of 2,523,611 shares of its common stock at a purchase price of $1.0278 per share and
pre-funded warrants to purchase up to 652,313 shares of its common stock, at a purchase price of $1.0277 per pre-funded warrant
(which represents the per share offering price for the common stock less $0.0001, the exercise price of each pre-funded warrant).
The Company issued in a concurrent private placement unregistered pre-funded warrants to purchase up to 4,607,692 shares of common
stock at the same purchase price as the registered pre-funded warrants, and unregistered common stock warrants to purchase up to
7,783,616 shares of common stock for aggregate gross proceeds of approximately $8.0 million, priced at-the-market under Nasdaq
rules. The unregistered warrants have an exercise price of $0.903 per share and exercise period commencing immediately upon the
issuance date and a term of five and one-half years. The net proceeds from the offerings, after deducting placement agent fees
and other direct offering expenses were approximately $6.5 million. The fair value allocated to the common stock, pre-funded warrants
and warrants was $1.5 million, $3.0 million and $3.5 million, respectively. During the nine months ended September 30, 2020, the Company issued
1,610,313 shares of common stock upon the exercise of pre-funded warrants. As of September 30, 2020, there were 5,260,005 pre-funded
warrants outstanding. Warrants March 2020 Warrants As part of the March 2020 registered direct offering, the Company
issued unregistered warrants to purchase 2,360,313 shares of its common stock at an exercise price of $1.04 per share and contractual
term of five and one-half years. The unregistered warrants were offered in a private placement under Section 4(a)(2) of the Securities
Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated thereunder and, along with the shares
of common stock underlying the warrants, have not been registered under the Securities Act, or applicable state securities laws.
In accordance with ASC 480, these warrants are classified as equity and their relative fair value of approximately $1.1 million
was recognized as additional paid in capital. The estimated fair value is determined using the Black-Scholes Option Pricing Model
which is based on the value of the underlying common stock at the valuation measurement date, the remaining contractual term of
the warrants, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock. July 2020 Warrants As part of the July 2020 offering, the Company issued unregistered
warrants to purchase 7,783,616 shares of its common stock at an exercise price of $0.903 per share and contractual term of five
and one-half years. The unregistered warrants were offered in a private placement under Section 4(a)(2) of the Securities Act,
and Regulation D promulgated thereunder and, along with the shares of common stock underlying the warrants, have not been registered
under the Securities Act, or applicable state securities laws. In accordance with ASC 480, these warrants are classified as equity
and their relative fair value of approximately $3.5 million was recognized as additional paid in capital. The estimated fair value
is determined using the Black-Scholes Option Pricing Model which is based on the value of the underlying common stock at the valuation
measurement date, the remaining contractual term of the warrants, risk-free interest rates, expected dividends and expected volatility
of the price of the underlying common stock. Warrants Issued for Services In connection with the March 2020 offering described above, the Company
issued designees of the placement agent warrants to purchase 177,023 shares of common stock at an exercise price of $1.4564 and
a contractual term of five years. In accordance with ASC 815, these warrants are classified as equity and its estimated fair value
of $66,201 was recognized as additional paid in capital. Additionally, the Company issued to its previous underwriter a warrant
to purchase 94,413 shares of common stock at an exercise price of $1.4564 per share and contractual term of five years. In accordance
with ASC 815, this warrant is classified as equity and its estimated fair-value of $35,308 was recognized as additional paid in
capital. The estimated fair value is determined using the Black-Scholes Option Pricing Model which is based on the value of the
underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates,
expected dividends and expected volatility of the price of the underlying common stock. In connection with the July 2020 offering described above, the Company
issued designees of the placement agent warrants to purchase 583,771 shares of common stock at an exercise price of $1.2848 and
a contractual term of five years. In accordance with ASC 815, these warrants are classified as equity and its estimated fair value
of $399,445 was recognized as additional paid in capital. Additionally, the Company issued to its previous underwriter a warrant
to purchase 311,345 shares of common stock at an exercise price of $1.2848 per share and contractual term of five years. In accordance
with ASC 815, this warrant is classified as equity and its estimated fair-value of $213,038 was recognized as additional paid in
capital. The estimated fair value is determined using the Black-Scholes Option Pricing Model which is based on the value of the
underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates,
expected dividends and expected volatility of the price of the underlying common stock. On June 2, 2020, the Company received approximately $1.7 million
and issued 877,202 shares of common stock upon the exercise of previously outstanding warrants issued in connection with the Company’s
December 2018 offering. As of September 30, 2020, the Company has 20,953,223 warrants outstanding.
The following table summarizes the Company’s warrant activity for the nine months ended September 30, 2020:
Warrants Weighted Average Exercise Price
Outstanding at December 31, 2019 10,519,945 $ 1.94
Issued 11,310,480 0.98
Exercised (877,202 ) 1.93
Outstanding at September 30, 2020 20,953,223 $ 1.42 2016 Stock Incentive Plan In June 2016, the Company adopted the 2016 Stock Incentive Plan (the
“2016 Plan”). Under the 2016 Plan, with the approval of the Compensation Committee of the Board of Directors,
the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance
units, cash-based awards or other stock-based awards. On June 16, 2016, the Company’s stockholders approved the 2016 Plan
and authorized for issuance under the 2016 Plan a total of 150,000 shares of common stock. On June 13, 2019, the Company’s
stockholders approved an amendment to the 2016 Plan which increased the number of shares of common stock authorized for issuance
under the 2016 Plan to a total of 750,000 shares, up from 150,000 previously authorized. The following table summarizes the shares available for grant under
the 2016 Plan for the nine months ended September 30, 2020:
Shares Available for Grant
Balances, at December 31, 2019 697,500
Options granted (341,000 )
Balances, at September 30, 2020 356,500 2016 Plan Stock Options Stock options granted under the 2016 Plan may be either incentive
stock options (“ISOs”), or nonqualified stock options (“NSOs”). ISOs may be granted only to employees.
NSOs may be granted to employees, consultants and directors. Stock options under the 2016 Plan may be granted with a term of up
to ten years and at prices no less than fair market value at the time of grant. Stock options granted generally vest over three
to four years. The following table summarizes the outstanding stock options under
the 2016 Plan for the nine months ended September 30, 2020:
Outstanding Options
Number of Shares Weighted Average Exercise Price
Balances at December 31, 2019 52,500 $ 5.89
Options granted 341,000 $ 1.18
Balances at September 30, 2020 393,500 $ 1.81 The Company chose the “straight-line” attribution method
for allocating compensation costs of each stock option over the requisite service period using the Black-Scholes Option Pricing
Model to calculate the grant date fair value. The Company recorded compensation
expense for these stock option grants of $52,659 and $16,279 for the three months ended September 30, 2020 and 2019, and $165,492
and $62,018 for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, there were unrecognized compensation costs
of approximately $211,257 related to non-vested stock option awards under the 2016 Plan that will be recognized on a straight-line
basis over the weighted average remaining vesting period of 1.39 years. The Company used the following assumptions to estimate the fair value
of options granted under the 2016 Plan for the nine months ended September 30, 2020:
For the nine months ended September 30,
2020 2019
Risk-free interest rate (weighted average) 1.02 % 2.39 %
Expected volatility (weighted average) 97.63 % 106.74 %
Expected term (in years) 7 7
Expected dividend yield 0.00 % 0.00 %
Risk-Free Interest Rate The risk-free interest rate assumption was based on U.S. Treasury instruments with a term that is consistent with the expected term of the Company’s stock options.
Expected Volatility The expected stock price volatility for the Company’s common stock was determined by examining the historical volatility and trading history for its common stock over a term consistent with the expected term of its options.
Expected Term The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. It was calculated based on the Company’s historical experience with its stock option grants.
Expected Dividend Yield The expected dividend yield of 0% is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not anticipate paying any dividends in the near future.
Forfeitures Stock compensation expense recognized in the statements of operations for the nine months ended September 30, 2020 is based on awards ultimately expected to vest, and it has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on the Company’s historical experience. 1999 Amended Stock Plan In October 2000, the Company adopted the 1999 Stock Plan, as amended
and restated on June 17, 2008 (the “1999 Plan”). Under the 1999 Plan, with the approval of the Compensation Committee
of the Board of Directors, the Company could grant stock options, restricted stock, stock appreciation rights and new shares of
common stock upon exercise of stock options. On March 13, 2014, the Company’s stockholders approved an amendment to the 1999
Plan which increased the number of shares of common stock authorized for issuance under the 1999 Plan to a total of 200,000 shares,
up from 15,000 previously authorized. On September 15, 2015, the Company’s stockholders approved an additional amendment
to the 1999 Plan which increased the number of shares of common stock authorized for issuance under the 1999 Plan to a total of
250,000 shares, up from 200,000 previously authorized. The 1999 Plan expired on June 17, 2018 and no new grants may be made under
that plan after that date. However, unexpired awards granted under the 1999 Plan remain outstanding and subject to the terms of
the 1999 Plan. 1999 Plan Stock Options Stock options granted under the 1999 Plan may be either ISOs or NSOs.
ISOs could be granted only to employees. NSOs could be granted to employees, consultants and directors. Stock options under the
1999 Plan could be granted with a term of up to ten years and at prices no less than fair market value for ISOs and no less than
85% of the fair market value for NSOs. Stock options granted generally vest over one to six years. The following table summarizes the outstanding stock options under
the 1999 Plan for the nine months ended September 30, 2020:
Outstanding Options
Number of Shares Weighted Average Exercise Price
Balances at December 31, 2019 191,706 $ 93.40
Options cancelled (134,020 ) $ 113.42
Balances at September 30, 2020 57,686 $ 46.89 The Company chose the “straight-line” attribution method
for allocating compensation costs of each stock option over the requisite service period using the Black-Scholes Option Pricing
Model to calculate the grant date fair value. The Company recorded compensation
expense for these stock option grants of $10,502 and $24,486 for the three months ended September 30, 2020 and 2019, and $33,211
and $80,708 for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, there were unrecognized compensation costs
of approximately $2,896 related to non-vested stock option awards under the 1999 Plan that will be recognized on a straight-line
basis over the weighted average remaining vesting period of 0.31 years . |
