Note

Debt Obligations

The following table summarizes our debt obligations outstanding as of

December 31, 2018

and

2019

(in thousands).

	201 8		20 1 9
C urrent liabilities:
Notes payable and line of credit
Notes payable, previously due September 6, 2019	$	400	$	—
Note payable, due on demand 60 days’ notice (or March 8, 2023)		—		50
Line of credit, due on demand 30 days’ notice after September 1, 2019		430		50
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (Note 9)		—		1,007
Total notes payable and line of credit	$	830	$	1,107

Convertible notes payable:
Convertible note, matured January 11, 2019		300		—
Convertible note, matured July 20, 2019 (1)		440		—
Convertible notes, matured December 31, 2019 (1)		75		—
Convertible note, matured February 28, 2020		550		—
Convertible note, matures April 7, 2020		—		270
Convertible note, matures June 20, 2020 (1)(2)		—		25
Convertible 12-month OID notes, mature beginning June 2020 (1)		—		3,112
Convertible notes, mature August 12 and 16, 2020 (2)		—		550
Total convertible notes payable	$	1,365	$	3,957

Total current liabilities	$	2,195	$	5,064

L ong-term liabilities :
Convertible note payable, matures August 9, 2021		—		600
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (See Note 9)		1,007		—
Convertible notes payable, mature June 20, 2020 (1)		25		—
Convertible notes payable, mature April 20, 2021 (1)		100		100
Convertible notes, mature June 15, 2021 (1)		110		—
Note payable, matures March 8, 2023 (or on demand 60 days’ notice)		50		—
Total long-term liabilities	$	1,292	$	700

Total	$	3,487	$	5,764

( 1 )	These notes are convertible at our option at maturity.
( 2 )	These notes are convertible by the noteholders, and not convertible by the Company.

For the years ended

December 31, 2018

and

2019,

we recorded

$3,494,000

and

$3,996,000

of interest expense related to the amortization of discounts on convertible notes payable and coupon interest from our convertible notes and line of credit (see also Note

Conversion of Debt Obligations

During the year ended

December 31, 2018,

$6,190,000

of debt was converted into shares of our common stock. During the year ended

December 31, 2019,

$1,735,000

of debt was converted into shares of our common stock.

Early Conversion of Unit Notes

May 2018,

prior to their maturity dates, we issued

17,255,811

shares of our common stock in satisfaction of

$4,626,000

of convertible promissory notes issued in our “unit” offerings at varying conversion prices, maturing on the following dates (in thousands):

	2018
Convertible notes payable, mature June 1, 2018	$	3,647
Convertible notes payable, mature September 17, 2019		284
Convertible notes payable, mature December 31, 2019		217
Convertible notes payable, mature June 20, 2020		478
Total debt converted into shares, May 2018	$	4,626

These conversions were voluntary on the part of the noteholders and prior to the various maturity dates on notes that were issued in prior “unit” offerings conducted by the Company (

2015

Unit Offering, Winter

2016

Unit Offering, and Summer

2017

Unit Offering). We offered these noteholders incentives to convert their notes early. Noteholders with conversion prices of

$0.25

and

$0.30

were offered incentive shares equal to

one

and

one

-half times the number of shares issuable for the payment of interest that would accrue from the last interest payment date of

March 20, 2018,

through the maturity of the note, at a fixed price of

$0.25

per share (for example, a note that would have yielded

$1,000

in interest, would receive

1,000

times

1.5

divided by

0.25

equals

6,000

incentive shares). We offered holders of notes with conversion prices higher than

$0.30

the ability to reduce their conversion price to

$0.30

by paying additional funds equal to

six

percent or

twenty

percent of their original investment (

for notes with original conversion prices of

$0.35,

and

20%

for notes with original conversion prices of

$0.55

and

$0.57

). The additional funds did

not

increase the amount of the note payable, nor did the reduced conversion price affect the number of shares purchasable under the warrant issued with their “unit” investment. Holders of

notes elected to pay an aggregate

$357,000

to reduce the conversion prices of their notes to

$0.30.

As a result of the reduction in conversion prices, an additional

2,749,197

shares were issuable pursuant to the notes upon conversion. The fair value of these additional shares was

$632,000.

Additional interest expense of

$276,000

was recorded as part of the debt conversion and is the amount by which the fair value of the additional shares exceeded the cash received by the Company. Holders of

notes with original conversion prices of

$0.30

and

$0.25

elected to convert early and received

966,318

additional “incentive shares” for their agreement to do so.

Conversion of

2015

Unit Offering Notes at Maturity

June 1, 2018,

we elected to convert the

$822,000

outstanding promissory notes remaining in our

2015

Unit Offering on their

June 1, 2018

maturity date into

2,488,819

shares of our common stock. Of the shares issued,

2,411,004

were issued in satisfaction of principal amounts due on notes with conversion prices of

$0.25,

$0.35,

and

$0.55,

and

77,815

shares were issued in satisfaction of

$20,000

of accrued and unpaid interest.

Conversion of

one

-year convertible notes, mature

July 18, 2018

July 2, 2018,

the holders of

two one

-year notes in the aggregate principal amount of

$280,000

which were due to mature on

July 18, 2018,

tendered an offer to the Company to convert

100%

of the balance due on the outstanding notes into shares of our common stock in lieu of receiving cash. We accepted the offer and agreed to convert the principal balance of

$280,000

and

$9,000

in outstanding interest into an aggregate

1,153,600

shares of our common stock, at

$0.25

per share.

Conversion of convertible note, matures

October 16, 2018 (

FirstFire)

January 16, 2018,

we entered into a securities purchase agreement (the “FirstFire Purchase Agreement”) and a registration rights agreement (the “FirstFire RRA”) with FirstFire Global Opportunity Fund, LLC (“FirstFire”), and issued a

nine

-month promissory note (the “FirstFire Note”) in the principal amount of

$150,000

annual interest convertible into shares of common stock of the Company at

$0.394

per share, subject to the terms, and certain limitations and conditions set forth in the FirstFire Purchase Agreement and FirstFire Note.

Pursuant to the FirstFire Purchase Agreement, the Company issued

75,000

shares of common stock to FirstFire as a commitment fee (the “FirstFire Commitment Shares”) at

$0.39

per share and

$29,000

is recorded as a discount on convertible notes and will amortize to interest expense over the term of the note. Pursuant to the FirstFire RRA, because our common stock traded lower as of the date the FirstFire Commitment Shares were registered (

$0.3147

February 8, 2018),

we issued

36,536

additional commitment shares of our common stock and

$11,000

is recorded as additional discount on convertible notes and will amortize to interest expense over the term of the note.

The FirstFire Note contains a price protection provision such that if we issue a security with any term more favorable to the holder of such security that was

not

similarly provided in the FirstFire Note, then the Company shall notify FirstFire of such additional or more favorable term and such term, at its option, shall become a part of the FirstFire Note. As a result of our sale of common stock at

$0.25,

the conversion price of the FirstFire Note was reduced from

$0.394

$0.25.

June 2018,

FirstFire elected to convert

$96,000

of the outstanding principal balance of the FirstFire Note and we issued

383,047

shares, plus

11,902

shares for outstanding interest. On

July 15, 2018,

FirstFire elected to convert the remaining outstanding principal amount of

$54,000,

plus interest, and we issued

217,960

shares at

$0.25

per share.

Conversion of Convertible Notes, mature

December 31, 2019 (

Winter

2016

Unit Offering)

Of the

$292,000

of promissory notes issued in our Winter

2016

Unit Offering, all but

$75,000

were converted in

May 2018 (

see table above). The remaining note, held by

one

investor, converted on the

December 31, 2019

maturity date, at the

$0.57

conversion price, into

131,579

shares of common stock.

Payment - Convertible Note, matures

January 11, 2019

October 16, 2018,

we received

$225,000

and issued a promissory note in the principal amount of

$300,000

that incurs interest at an annual rate of

5%,

and was scheduled to mature

January 11, 2019.

The

$75,000

original issue discount is recorded as a discount on our convertible note and was amortized to interest expense over the term of the note. In addition to the note, we issued the investor a stock purchase warrant (see Note

January 8, 2019,

we paid this note in full.

Convertible Note, matures

April 18, 2020

April 18, 2019,

we received

$188,000

and issued a convertible note to Bellridge Capital, LP (“Bellridge”) in the principal amount of

$220,000

(the “Bellridge Note”), representing a

10%

original issue discount, and a deduction of

$10,000

for legal fees paid to the investor. The note was originally due

April 18, 2020

and earned interest at

10%

per annum.

The Bellridge Note is convertible at the option of Bellridge at a conversion price equal to

70%

of the lowest closing bid price of the Company’s common stock during the

trading days prior to the conversion date. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling

$120,000,

and is recorded as a discount on convertible notes on our balance sheet. This discount was amortized over the term of the note as interest expense.

October 2, 2019,

we paid the

$220,000

balance of the note in full and also incurred an early payment penalty totaling

$69,000,

recorded as interest expense on our statement of operations.

Note payable, matures

March 8, 2023 (

or on demand)

March 8, 2018,

we received

$50,000

and entered into a note payable. The note is due on upon demand from the noteholder, with

sixty

days’ notice. In the absence of the demand, the maturity date is

March 8, 2023.

In lieu of interest, we issued the noteholder a warrant (see Note

). The noteholder has indicated a desire to continue to roll the note forward for the foreseeable future.

Lines of credit, due on demand

March 1, 2018,

we received

$390,000,

and on

September 1, 2018,

we received

$40,000,

pursuant to a line of credit accruing interest at a rate of

18%

per annum, for which we have pledged our inventory and accounts receivable as collateral. Interest is paid quarterly; the holder

may

choose to receive interest payments in (i) cash, (ii) our common stock, calculated based on the

-day average closing price, or (iii) options to purchase our common stock, priced at the

-day average closing price, the number of shares doubled, and expiring

years from the date of grant. The holder of the line of credit has the right to call due the outstanding principal amount on

-days’ notice at any time after

September 1, 2019.

Each creditor, for

additional consideration, received a warrant to purchase our common stock. The warrant allows for the purchase of the number of common shares equal to the investment amount (e.g.,

one

warrant share for each dollar invested), at a price of

$0.35

and expires

March 1, 2023.

During

July

and

August 2019,

line of credit holders in the principal amount of

$205,000,

agreed to satisfy the line of credit through the issuance of an amended and restated convertible promissory note totaling

$256,000

due in

months,

August 2020,

including a

25%

original issue discount. They also received a warrant to purchase

1,130,515

shares of our common stock (see Note

). The amended and restated note is convertible by the holder at

$0.17

per share. The interest rate was reduced from

18%

per annum.

The total of the fair value of the warrant and the fair value of the new note and its beneficial conversion feature exceeded the carrying value of the old note by

$315,000,

resulting in a loss on debt extinguishment recorded on our statement of operations.

During the

three

months ended

December 31, 2019,

$175,000

was paid to line of credit holders. As of

December 31, 2019,

the line of credit outstanding balance totaled

$50,000.

There is

prepayment penalty, and we

may

pay this debt at any time.

Notes payable, mature

August 12

and

16,

2020

(previously due

September 6, 2019)

September 19, 2018,

we received

$400,000

and issued promissory notes originally due

January 5, 2019

and incurring interest at an annual rate of

12%,

and stock purchase warrants (see Note

), to

two

investors (Vernal Bay Investments, LLC (“Vernal”) and Chappy Bean, LLC (“Chappy Bean”)).

We and the noteholders agreed to extend the maturity dates of the notes multiple times in

2019.

August, 2019,

we made a partial payment to

one

of the noteholders, and agreed to refinance the remaining

$440,000

principal and interest through the issuance of amended and restated convertible promissory notes due in

months, which included a

25%

original issue discount, and is convertible by the holders at

$0.17

per share. The interest rate was reduced from

18%

per annum. The terms of the investment are similar to that offered to the Twelve-month OID note investors (see section below), and thus we issued warrants in conjunction with the amended and restated notes (see Note

). Including the OID, the principal amount due on the notes is

$550,000.

The total of the fair value of the warrants and the fair value of the new notes and their beneficial conversion features exceeded the carrying value of the old notes by

$422,000,

resulting in a loss on debt extinguishment recorded on our statement of operations.

Convertible Notes, due

November 5, 2019

and

December 7, 2019 (

Tangiers Global)

January 31, 2019,

we issued a

12%

Convertible Promissory Note to Tangiers Global, LLC (“Tangiers”) in the aggregate principal amount of up to

$495,000

(the “Tangiers Note”). The note allows for

two

payments, each due in

nine

months after receipt, and incurs a guaranteed interest of

12%

at inception. The initial payment of

$300,000

was received on

February 5, 2019,

representing a

$330,000

principal amount and

10%

original issue discount. It was due

November 5, 2019.

We received the

second

payment, in the amount of

$150,000,

March 7, 2019,

increasing the principal amount due under the note to

$495,000.

This

second

amount, plus guaranteed interest, was due

December 7, 2019.

In the aggregate, the principal amount of the note, plus guaranteed interest, totals

$554,000.

The Tangiers Note is convertible at the option of Tangiers at a conversion price equal to

75%

of the lowest closing bid price of the Company’s common stock during the

consecutive trading days prior to the conversion date. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling

$185,000,

and is recorded as a discount on convertible notes on our balance sheet. This discount was amortized over the term of the note and recorded as interest expense in

2019.

July 29, 2019,

Tangiers Global, LLC, elected to convert

$369,000

principal amount due on its promissory note issued

January 31, 2019,

into

2,640,000

shares of common stock.

October 2, 2019,

Tangiers Global, LLC, elected to convert the remaining

$184,000

principal amount due on its promissory note issued

January 31, 2019,

into

1,200,000

shares of common stock.

Convertible Nine-Month OID Notes

During

January

and

February 2019,

we issued convertible promissory notes due in

nine

months (each, an “OID Note”) in the aggregate principal amount of

$213,000,

with a

25%

original issue discount. These notes were initially convertible into shares of the Company’s common stock at a conversion price of

$0.25

per share. Our agreement with the investors provided that the initial conversion price

may

be adjusted downward in the event the Company subsequently issues a convertible promissory note at a lower conversion rate (with this lower conversion rate becoming the adjusted conversion rate under the OID Note), or conducts an equity offering at a per-share price less than

$0.25.

Each investor also received a stock purchase warrant equal to

75%

of the principal amount, divided by the conversion price of

$0.25

(see Note

June 7, 2019,

we began issuing

twelve

-month OID notes at a lower conversion price (

$0.17;

see “Convertible Twelve-month OID notes”, below). As such, we reduced conversion prices of these notes to

$0.17,

resulting in an increase of

300,000

shares available for purchase under the warrants.

On their maturity dates, we issued an aggregate

1,340,698

shares of our common stock in satisfaction of the principal and interest due on these notes.

Convertible Notes, mature

June 15, 2021

June 15, 2018,

we received

$75,000

and issued a convertible promissory note in the principal amount of

$82,500.

August 7, 2018,

we received

$25,000

and issued an OID Note in the principal amount of

$32,500.

These notes are convertible into shares of the Company’s common stock at a conversion price of

$0.30

per share. The original issuance discount totaled

$10,000,

and is recorded as a discount on convertible notes payable on our balance sheet. The discount will be amortized and recorded to interest expense over the term of the notes. The notes mature

June 15, 2021,

and incur interest at the rate of

15%

per annum. Interest due will be paid quarterly in arrears in shares of common stock, paid at a conversion price equal to the average closing price of the Company’s common stock over the

trading days prior to the interest payment due date. The notes are convertible by the investors at any time, and convertible by the Company (i) at maturity, (ii) in the event the Company’s stock price closes at

two

times the conversion price for

consecutive days, provided that either the shares underlying the convertible note are registered with the SEC, or more than

six

months has elapsed since the date of the investment.

September 2019,

these notes were satisfied through the issuance of amended and restated convertible notes totaling

$125,000

due in

months,

September 2020,

including a

25%

original issue discount. Similar to the Twelve-month OID notes (see following section), the investors also received a warrant to purchase an aggregate

551,471

shares of our common stock (see Note

). The amended and restated note is convertible by the holder at

$0.17

per share. The interest rate was reduced from

18%

per annum.

The total of the fair value of the warrants and the fair value of the new notes and their beneficial conversion feature exceeded the carrying value of the old note by

$64,000,

resulting in a loss on debt extinguishment recorded on our statement of operations.

Convertible Twelve-month OID notes

From

June 7, 2019

through

September 30, 2019,

we received

$2,235,000

and issued convertible promissory notes (each, a

“12

-Month OID Note”) in the aggregate principal amount of

$2,794,000,

with a

25%

original issue discount, to

accredited investors. The original issuance discount totaled

$559,000

and is recorded as a discount on convertible notes payable on our balance sheet. The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of

$2,235,000,

and is recorded as a discount on convertible notes on our balance sheet. The discounts will be amortized and recorded to interest expense over the term of the notes. These notes mature

twelve

months from the date of issuance.

During the

three

months

July 1, 2019

through

September 30, 2019,

in exchange for

$305,000

of convertible note payables that were coming due, we issued an additional

$381,000

convertible promissory notes (each, a

“12

-Month OID Note), with a

25%

original issue discount. The original issue discount totaled

$76,000

and is recorded as a discount on convertible notes payable on our balance sheet. The intrinsic value of the beneficial conversion features resulted in an aggregate fair value of

$381,000

and is recorded as debt extinguishment expense on our statement of operations. The discount will be amortized and recorded to interest expense over the term of the notes. These notes mature

twelve

months from the date of issuance.

Each Twelve-month OID Note is convertible by the investor at any time at

$0.17

per share. This initial conversion price shall be adjusted downward in the event the Company subsequently issues a convertible promissory note at a lower conversion rate (with this lower conversion rate becoming the adjusted conversion rate under the note), or conducts an equity offering at a per-share price less than

$0.17.

The notes earn interest at a rate of

five

percent (

) per annum, due at maturity. The Company

may

prepay the notes only upon

days’ notice to the investor, during which time the investor

may

exercise his/her right to convert the note to stock. The Company is obligated to prepay the notes in the event it receives at least

$3.5

million gross proceeds in a financing transaction. At maturity, the Company

may

redeem the notes through the issuance of common stock at a conversion price equal to the lower of the “conversion price” (initially

$0.17,

may

be adjusted), and

70%

of the lowest daily volume weighted average price of the Company’s common stock during the

trading days preceding the conversion date.

We must prepay the OID Notes upon the conclusion of a “qualifying offering” (an offering raising

$3.5

million or more); in the event a qualified offering is

not

concluded prior to the maturity date, or the Note is otherwise

not

paid in full, the Company shall redeem the notes by issuing the number of shares of common stock equal to the outstanding balance divided by the lower of (i) the then-current conversion price (which is

$0.17

as of the date of this report), and (ii)

seventy

percent (

70%

) of the lowest daily volume weighted average price (“VWAP”) during the

trading days immediately preceding the conversion.

October 22, 2019,

a holder of a Twelve-month OID Note elected to convert

$63,000

principal amount and accrued interest into

401,446

shares of common stock.

Convertible Note, matures

April 7, 2020 (

Vista Capital)

January 7, 2019,

Vista Capital Investments, LLC (“Vista Capital”) invested

$300,000

and we issued a convertible promissory note (the “Vista

2019

Note”) in the principal amount of

$330,000,

maturing

nine

months from the date of issuance (

October 7, 2019).

The Vista

2019

Note earned a

one

-time interest charge of

12%,

recorded as a discount on convertible notes and will be amortized over the term of the note. The Vista

2019

Note allows Vista Capital to convert the note to our common stock at any time at a price equal to

65%

of the lowest closing bid price of the Company’s common stock during the

consecutive trading days immediately preceding the conversion date. The Vista

2019

Note contains standard provisions of default, and precludes the issuance of shares to the extent that Vista Capital would beneficially own more than

4.99%

of our common stock. We

may

pre-pay the Vista

2019

Note within

days of the issuance date by giving

business day notice of the intent to pre-pay, and then tendering

120%

of the outstanding balance of the note. Vista Capital has the option to convert the note to common stock during the

-day period. The Vista

2019

Note also includes a term that allows Vista Capital to adopt any term of a future financing more favorable than what is provided in the note. For example, these provisions could include a more favorable interest rate, conversion price, or original issue discount. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling

$300,000,

and is recorded as a discount on convertible notes on our balance sheet. This discount was amortized over the term of the note as interest expense. On

August 13, 2019,

we and Vista Capital amended the note extending the maturity date to

April 7, 2020 (