Note

Warrants

We have certain warrants outstanding to purchase our common stock, at various prices, as described in the following table:

	Warrants outstanding			Exercise price per share			Weighted a verage p rice per share		Aggregate intrinsic value (1)
Balance, December 31, 2017		22,104,817		$0.25	–	1.00	$	0.45		--
Granted		7,451,013		0.25	–	0.48		0.29
Expired		(2,683,400	)		0.40			0.40
Balance, December 31, 2018		26,872,430		$0.25	–	1.00	$	0.43		--
Granted		24,490,687		0.25	–	0.48		0.29
Exercised		(7,544,456	)		0.30			0.30
Expired		(587,500	)		0.40			0.40
Balance, December 31, 2019		43,231,161		$0.25	–	1.00	$	0.43		--

(

) – Aggregate intrinsic value based on closing common stock price of

$0.22

December 31, 2019.

Warrants issued as part of debt extension and extinguishment

March 5, 2019,

we executed amendments extending the maturity dates of notes issued to Vernal Bay and Chappy Bean (see Note

subsection titled “

Notes payable, mature

August 12

and

16,

2020

(previously due

September 6, 2019)

”)

As consideration for this extension, we agreed to reduce the exercise price from

$0.25

$0.20

per share, and increase the number of shares purchasable by the warrants from

1,987,500

2,484,375.

In doing so, the maximum investment amount under each warrant remained the same.

In conjunction with the refinance of the Vernal and Chappy Bean notes in

August 2019,

Vernal received a warrant to purchase

2,095,588

shares of our common stock, expiring in

five

years, and which

may

be exercised at

$0.25

per share, and Chappy Bean received a warrant to purchase

330,882

shares of our common stock under the same terms.

Warrants issued as part of line of credit extinguishment

July

and

August 2019,

we issued warrants to purchase an aggregate

1,130,515

shares of our common stock to

three

line of credit holders who had agreed to convert their line of credit into an amended and restated note plus a warrant (see Note

“Line of credit, due on demand”). The warrant expires in

five

years and

may

be exercised at

$0.25

per share.

Warrants issued as part of

2018

OID extinguishment

September 12

and

September 16, 2019,

the holders of a convertible note in the aggregate principal amount of

$100,000,

agreed to satisfy the note through the issuance of an amended and restated convertible promissory note due in

months,

September 12

and

September 16, 2020,

including a

25%

original issue discount (see Note

) and a warrant to purchase

551,471

shares of our common stock. The warrant expires in

five

years and

may

be exercised at

$0.25

per share.

Warrants issued as consent for variable rate debt waiver

January 7

and

January 31, 2019,

Lincoln Park Capital Fund, LLC agreed to waive the provisions of the Purchase Agreement dated

August 25, 2017,

prohibiting variable rate transactions. As consideration for the waivers, we issued to Lincoln Park a warrant to purchase

300,000

shares of our common stock at

$0.25

per share, expiring

five

years from the date of grant. The fair value of these warrants totaled

$54,000

and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense in

2019

over the term of the notes. (See Note

)

Warrants issued concurrently with the Nine-month OID notes

In conjunction with the issuance of our

nine

-month OID notes (see Note

), we issued each investor a warrant to purchase common stock for

$0.25

per share, expiring

years from the date of issuance. During the

three

months ended

March 31, 2019,

we issued warrants to purchase

637,500

shares of our common stock to the

three

investors. The fair value of these warrants totaled

$89,000

and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense over the term of the notes. On

June 7, 2019,

we reduced the conversion prices of the notes from

$0.25

$0.17,

and this resulted in an increase in the number of warrants purchasable by the investors by

300,000

937,500,

which resulted our recording the fair value of

$84,000,

which is recorded as a deemed dividend.

Warrants Issued concurrently with Twelve-month OID notes

During the year ended

December 31, 2019,

we issued warrants to purchase

12,325,370

shares of our common stock to purchasers of our Twelve-month OID Notes (see Note

). The warrants allow the holder to purchase common stock for

$0.25

per share, expiring

years from the date of issuance. The number of shares purchasable under each warrant was equal to the

75%

of the principal balance of the investor’s note, divided by

$0.17

(thus, for example, a

$300,000

investment would yield a note with principal balance of

$375,000,

and a warrant allowing for the purchase of up to

1,654,412

shares). The fair value and BCF of these warrants totaled

$2,240,000

and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense over the term of the notes.

Warrants Issued concurrently with the Convertible Note due

August 9, 2021

In conjunction with an

August 2019

investment and the issuance of a convertible note due

August 9, 2021 (

see Note

), we issued an investor a warrant to purchase

1,200,000

shares of our common stock for

$0.30

per share, expiring

years from the date of issuance. The fair value and BCF of these warrants totaled

$198,000

and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense over the term of the note.

Warrants issued concurrently with promissory notes

In conjunction with a

$225,000

investment in

October 2018

and note issued in the principal amount of

$300,000

(see Note

“

Convertible note payable, matures

January 11, 2019

”), we issued a stock purchase warrant allowing for the purchase of up to an aggregate

1,000,000

shares of our common stock for

$0.25

per share, expiring

October 12, 2023.

The relative fair value of this warrant totaled

$225,000

and was recorded as a discount on our convertible notes and will be amortized to interest expense through the

January 11, 2019

maturity of the note.

may

“call” the warrant if the closing price of our common stock equals or exceeds

$0.50

for

ten

consecutive trading days and the shares underlying the warrant are subject to an effective registration statement with the Securities and Exchange Commission. If we call the warrant, the holder has

days to exercise its rights to purchase shares under the warrant or forever forfeit such rights.

September 19, 2018,

pursuant to the terms of the convertible notes payable due

January 5, 2019 (

see Note

“

Convertible Note

, mature

January 5, 2019

”), we issued warrants to purchase up to an aggregate

1,387,500

shares of our common stock at an exercise price of

$0.25

per share. These warrants expire

September 19, 2023.

may

“call” the warrants if the closing price of our common stock equals or exceeds

$2.50

for

consecutive trading days and the shares underlying the warrant are subject to an effective registration statement with the Securities and Exchange Commission. If we call the warrants, each investor would have

days to exercise its rights to purchase shares under the warrant or forever forfeit such rights.

The relative fair value of these warrants resulted in

$217,000

recorded as a discount on our consolidated balance sheet in the period issued. The discount will amortize to interest expense through the maturity date of the convertible notes.

September 12, 2018,

Vista Capital agreed to extend the maturity date of its note dated

December 18, 2017 (

See Note

“

Convertible Note, matures

April 15, 2019 (

Vista Capital)

”). Pursuant to our amendment of the Note extending the maturity date, we issued Vista Capital a warrant to purchase

1,812,000

shares of our common stock at

$0.25

per share. This warrant expires

September 12, 2023.

The fair value of this warrant resulted in

$488,000

of loss on extinguishment of debt in

2018.

March 8, 2018,

we issued a warrant to purchase up to

150,000

shares of our common stock (subject to vesting) at an exercise price of

$0.35

per share to the holder of a note of the same date in the principal amount of

$50,000

(see Note

“

Note payable, matures

March 8,

202

(or on demand)

”). The warrant expires

February 28, 2023.

At the end of each month,

6,250

shares vest as long as the note payable is outstanding. At

December 31, 2018,

56,250

shares had vested. The fair value the warrant totaled

$7,000

and was recorded as interest expense.

Reduction of Warrant Exercise Price

May 2018,

certain holders of outstanding warrants to purchase common stock received in prior unit offerings paid us cash in exchange for a reduction of the exercise price in their warrant(s). In the aggregate, we received

$149,000

from holders of

warrants which allow for the purchase of an aggregate

4,326,358

shares of our common stock. Exercise prices of these warrants were reduced to

$0.30.

Management determined that the appropriate accounting treatment for the reduction in the exercise price of the warrants was a capital transaction rather than a contract modification treatment analogous to changes in stock option contracts. As such, the fair value was equal to the cash received totaling

$149,000.

Warrants Issued Concurrently with Spring

2018

Unit Offering

During

2018,

pursuant to the terms of our Spring

2018

Unit Offering (see Note

“

Convertible Note, matures

April 20, 2021 (

Spring

2018

Unit Offering)

”), we issued a warrant to purchase up to

333,333

shares of our common stock at an exercise price of

$0.48

per share to the investor in the Spring

2018

Offering. The warrant expires

April 20, 2023.

The relative fair value of the warrant resulted in

$49,000

recorded as a discount on our convertible notes on our consolidated balance sheet in the period issued. Subsequent to the issuance of this warrant, the unit price for this offering was reduced, and as a result, the Company was obligated to increase the number of shares available for purchase under the warrant from

333,333

400,000.

The exercise price of the warrant was concurrently reduced. The fair value of this warrant resulted in

$17,000

recorded as interest expense during the year ended

December 31, 2018.

The Company

may

“call” the warrants issued in the Spring

2018

Offering, requiring the holder to exercise their warrant within

days or forever lose the rights to do so, if the following conditions have been met: (i) the shares of common stock underlying the warrants are registered with the SEC and (ii) the Company’s common stock closes for

consecutive trading days at or above

two

times the exercise price.

Warrants Issued Concurrently with Line of Credit Offering

During

2018,

pursuant to the terms of our Line of Credit (see Note

“

Line of Credit, matures

September 1, 2019

”), we issued warrants to purchase up to an aggregate of

430,000

shares of our common stock. Of this amount

390,000

shares of our common stock are at an exercise price of

$0.35

per share and

40,000

shares are at an exercise price of

$0.25

per share. These warrants expire

March 1, 2023.

The relative fair value of these warrants resulted in

$98,000

recorded as a discount on our convertible notes payable and line of credit on our consolidated balance sheet in the period issued.

The Company

may

“call” these warrants, requiring the holder to exercise their warrants within

consecutive trading days at or above

two

times the exercise price.

Warrants Issued to Summer

2017

Unit Offering Investors

Pursuant to the terms of our Summer

2017

Unit Offering (see Note

), we issued warrants to purchase an aggregate

1,246,906

shares of our common stock, at an exercise price of

$0.65

per share. These warrants expire

June 20, 2022.

The relative fair value of these warrants resulted in

$524,000

recorded as a long-term discount on our convertible notes.

The offering documents assured the investors that in the event a subsequent pricing supplement offered a lower conversion or exercise price, prior investors would be given those favorable terms. On

December 29, 2017,

we issued a

second

pricing supplement, lowering the conversion price to

$0.394.

As a result of this reduction, we notified each investor of the decrease in conversion price, and increased the number of warrant shares available to each investor. In the aggregate, the number of warrant shares increased by

82,283,

such that the warrants, in the aggregate, allow for the purchase of

1,329,189

shares. The relative fair value of these additional warrants resulted in

$32,000

recorded as a long-term discount on our convertible notes.

February 12, 2018,

we issued a

third

pricing supplement, lowering the unit price to

$0.30.

As a result of this reduction, the number of shares purchasable pursuant to warrants issued to prior investors increased by an aggregate

416,478

shares. Additionally, during the

three

months ended

March 31, 2018,

we accepted

two

final investments in the aggregate amount of

$80,000,

pursuant to the

third

pricing supplement, and issued these investors warrants to purchase an aggregate

266,667

shares. The relative fair value of these warrants, including the increase in purchasable shares, resulted in

$103,000

recorded as a discount on our consolidated balance sheet in the period issued.

Warrants Issued to One-Year Noteholders

In conjunction with

three

separate investments of

one

-year convertible notes, we issued warrants to purchase an aggregate

1,200,000

shares. Each of these warrants contained provisions that required a reduction to the exercise price and increase to the number of warrant shares in the event that we sold our common stock at a lower price than the exercise price (subject to some exceptions). During the year ended

December 31, 2018,

we adjusted downward the warrant exercise price to

$0.25,

resulting in a fair value totaling

$297,000,

recorded as a deemed dividend in our statement of stockholders’ equity. During the year ended

December 31, 2019,

we adjusted downward the warrant exercise price

three

times to

$0.12,

resulting in an increase of

2,595,406

warrants available for exercise. The increase in warrants resulted in a fair value totaling

$342,000,

recorded as a deemed dividend in our statement of stockholders’ equity.

Exercise of Warrants

During the year ended

December 31, 2019,

we issued

7,544,456

shares of our common stock from the exercise of outstanding stock purchase warrants and in exchange we received proceeds totaling

$560,000.

June 24, 2019,

Vista Capital exercised its stock purchase warrant issued

September 12, 2018,

electing to utilize the cashless exercise feature in the warrant. The cashless exercise formula required the issuance of

2,877,790

shares of common stock. The increase of

2,520,780

available shares under the warrant was the result of the downward adjustment of the exercise price (pursuant to price protection features in the warrant), resulting in a fair value totaling

$355,000,

which is recorded as a deemed dividend in our statement of stockholders’ equity.

Fair Value – Interest Expense

To determine interest expense related to our outstanding warrants issued in conjunction with debt offerings, the fair value of each award grant is estimated on the date of grant using the Black-Scholes option pricing model and the relative fair values are amortized over the life of the warrant. For the determination of expense of warrants issued for services, extinguishment of debt and settlement management also uses the option-pricing model. The principal assumptions we used in applying this model were as follows:

	2018			2019
Risk free interest rate	2.54	–	3.00%	1.42	–	2.13%
Expected volatility	105	–	127%	101	–	110%
Expected dividend yield		—			—
Forfeiture rate		—			—
Expected life in years	3	–	5	1	–	5

The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant. Expected volatilities are based on historical volatility of our common stock. The expected life in years is based on the contract term of the warrant.