Note

Debt Obligations

The following table summarizes our debt obligations outstanding as of

December 31, 2017

and

2018

(in thousands).

	201 7		201 8
C urrent liabilities :
Notes payable, mature January 5, 2019 (1)	$	—	$	400
Line of credit, matures September 1, 2019 or later (on 30 day demand)		—		430
Convertible notes payable:
Convertible notes, mature June 1, 2018		4,469		—
Convertible notes, mature July 18, 2018		280		—
Convertible notes, mature December 31, 2019 ( 2 )		—		75
Convertible notes, mature January 11, 2019 ( 1 )		—		300
Convertible note, matures April 15, 2019 (1)		500		550
Convertible note, matures July 20, 2019 ( 2 )		—		440
Total convertible notes payable	$	5,249	$	1,365
Total current liabilities	$	5,249	$	2,195

L ong-term liabilities :
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (See Notes 3 and 10)		—		1,007
Convertible notes payable, mature September 17, 2019		284		—
Convertible notes payable, mature December 31, 2019 (1)		292		—
Convertible notes payable, mature June 20, 2020 ( 1 )		523		25
Convertible notes payable, mature July 20, 2019		440		—
Convertible notes payable, mature April 20, 2021 ( 1 )		—		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	$	1,539	$	1,292

Total	$	6,788	$	3,487

(

)

See Note

“Subsequent Events”

(

)

These notes are convertible at our option at maturity.

For the years ended

December 31, 2017

and

2018

we recorded

$3,862,000

and

$3,494,000

of interest expense related to the amortization of discounts on convertible notes payable and coupon interest from our convertible notes and line of credit.

Conversion of Debt Obligations

Of the

$6,788,000

in debt obligations outstanding as of

December 31, 2017,

during the year ended

December 31, 2018,

$6,190,000

were 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.

Notes payable, mature

January 5, 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. We exercised our option to extend the maturity date of these notes by

days by giving written notice on

January 3, 2019,

and as a result the principal amount of the notes increased by

10%,

effective as of the date of the notice, and amended the notes to further extend the maturity date (see Note

“Subsequent Events”).

Convertible Note, matures

January 11, 2019 (

Triton)

October 16, 2018,

we entered into a Securities Purchase Agreement (“Triton Purchase Agreement”) with Triton Fund, LP (“Triton”) for a

$225,000

bridge loan, and issued a promissory note in the principal amount of

$300,000

(the “Triton Note”). The Triton Note incurs interest at an annual rate of

5%,

and was scheduled to mature

January 11, 2019.

We agreed to repay the note through any financing we close in excess of

million. The

$75,000

original issue discount is recorded as a discount on our convertible note and will be amortized to interest expense over the term of the note.

In addition to the note, we issued a stock purchase warrant to Triton (the “Triton Warrant”) allowing Triton to purchase up to an aggregate

million shares of our common stock for

$0.25

per share, until

October 12, 2023 (

see Note

In addition to the foregoing, we donated

150,000

shares of our common stock to the student-run Triton Fund, LLC. The closing price of our common stock on the date of grant was

$0.28

and we recorded

$42,000

of interest expense.

January 8, 2019,

we paid the Triton Note in full (see Note

“Subsequent Events”).

Convertible Note, matures

April 15, 2019 (

Vista Capital)

December 18, 2017,

we received

$500,000

pursuant to a securities purchase agreement (the “Vista Purchase Agreement”) and a registration rights agreement (the “Vista RRA”) with Vista Capital Investments, LLC (“Vista Capital”), and issued a convertible promissory note (the “Vista

2017

Note”) in the aggregate principal amount of

$500,000

annual interest, which was originally 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 Vista Purchase Agreement and Vista Note. The Vista

2017

Note was originally scheduled to mature on

September 18, 2018.

Pursuant to the Vista RRA, we filed a registration statement to register the shares of common stock into which the Vista

2017

Note is convertible, and the

250,000

shares issued as a commitment fee, which was recorded as a discount on convertible notes in the amount of

$99,000

and was amortized to interest expense over the term of the note. The registration statement was deemed effective by the SEC on

February 8, 2018.

Because the closing price of our common stock was lower on the date the registration of these shares was deemed effective, we were required to issue an additional

140,849

shares of our common stock as additional commitment shares. The beneficial conversion feature resulted in a

$20,000

relative fair value recorded as an additional discount. The discount was amortized monthly to interest expense through

September 18, 2018.

The Vista

2017

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 Vista

2017

Note, then we shall notify Vista Capital of such additional or more favorable term and such term, at its option, shall become a part of the Vista

2017

Note. As a result of our sale of common stock at

$0.25,

the conversion price of the Vista

2017

Note was reduced from

$0.394

$0.25.

June 2018,

Vista Capital elected to convert

$52,000

of the outstanding principal and interest balance of the Vista Note and we issued

208,100

shares of our common stock.

September 12, 2018,

Vista Capital agreed to extend the maturity date of the Vista

2017

Note to

December 18, 2018.

In return, we increased the principal outstanding balance by

20%

$92,000.

In addition, we issued the note holder a warrant to purchase

1,812,000

shares of our common stock at

$0.25

per share, which was fair valued using the Black Scholes option model at

$488,000

(see Note

). We accounted for this as a modification of the note. Per the guidance of ASC

470

50,

Debt Modifications and Extinguishments, modified terms are considered substantially different if the present value of the cash flows after modification differ by at least

10%

prior to the modification. The major change in the instrument is the increase in OID of

$92,000,

and with a discount rate of

(equal to the interest rate) and a

one

-month extension, the present value is

$165,975,

which is over the

10%

test. Therefore, the substantial modification is an extinguishment of the debt. Biolargo accounted for the

$166,667

as a loss on extinguishment. This was recorded as a loss on debt extinguishment of debt on our Consolidated Statement of Operations and Comprehensive Loss.

December 18, 2018,

Vista Capital elected to convert

$166,667

of the outstanding principal and interest of the Vista

2017

Note in conjunction with our agreement that the principal amount of the note had increased by

$166,667

as a result of the OID provisions in the Triton Note (above), and we issued

666,668

shares of our common stock. As of

December 31, 2018,

the outstanding balance on the Vista Note totaled

$550,000.

Vista Capital agreed to further extend the

December 15, 2018

maturity date of this note (see Note

14,

“Subsequent Events”).

Per the guidance of ASC

470

50,

Debt Modifications and Extinguishments, modified terms are considered substantially different, if the present value of the cash flows after modification differ by at least

10%

prior to the modification. With the increase in principal, the Vista Note met the

10%

cash flow test and therefore the Company accounted for the transaction as an extinguishment of debt. The increased principal, and the warrant fair value treated as a fee for the extension, produced a

$578,942

loss on extinguishment of the convertible debt. The new

Convertible Note is recorded at principal value with a

-day maturity.

Two-Year Convertible Note, matures

July 20, 2019

July 20, 2017,

the Company accepted

$400,000

from

one

accredited investor, and issued a promissory note with a

10%

original issue discount in the principal amount of

$440,000

due in

two

years, which accrues interest at

12%.

The note originally provided that interest was to be paid quarterly beginning

October 1, 2017,

in either cash, common stock, or an option to purchase common stock, in the holder’s discretion. On

January 25, 2018,

the interest provisions in the note were modified such that the

12%

annual simple interest is due at maturity.

At maturity, the note automatically converts, at the holder’s option, into either BioLargo common shares at

$0.42

per share,

2,000

shares of Clyra Medical common stock held by BioLargo, or any combination thereof. The fair value of the beneficial conversion feature resulted in a

$171,000

discount recorded on our balance sheet as a discount on convertible notes payable, net of current portion. The discount will be amortized monthly as interest expense through

July 20, 2019.

Lines of credit, mature

September 1, 2019

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.

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). This note, held by

one

investor, is due

December 31, 2019.

At maturity, we have the option to convert this note into common stock at

$0.57

per share.

Convertible Notes, mature

June 20, 2020 (

Summer

2017

Unit Offering)

May 24, 2017,

we commenced a private securities offering (titled the “Summer

2017

Unit Offering”) which offered the sale of

$1.5

million of “Units,” each Unit consisting of a convertible promissory note and stock purchase warrant. Concurrently, we issued Pricing Supplement

No.

setting the initial unit/conversion price at

$0.42

per share, and the initial warrant exercise price at

$0.65

per share. The promissory notes issued to investors mature

June 20, 2020,

and bear interest at the rate of

12%

per annum on the amount invested. Any interest due will be paid quarterly in arrears in cash or shares of common stock. If paid by the issuance of common stock, interest is 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 principal amount of the note

may

be paid by the issuance of shares of common stock, or cash, upon maturity at the Company’s election. Promissory notes

may

be converted at any time by the investor, at maturity by the Company, or by the Company prior to maturity, so long as the following conditions are met: (i) the Shares issued as payment are registered with the SEC; and (ii) the Company’s common stock closes for

ten

consecutive trading days at or above

three

times the Unit price.

In addition to the convertible promissory note, each investor received a warrant allowing for the purchase of the number of shares of BioLargo common stock equal to the investment amount divided by the unit/conversion price (e.g.,

one

warrant share for each share of common stock which the investor is eligible to receive through conversion of the note). (See Note

) The warrants expire on

June 20, 2022.

The Company

may

“call” the warrants, requiring the investor to exercise their warrants within

days or forever lose the rights to do so, only if the following conditions have been met: (i) the underlying Shares 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.

We received a total of

$604,000

of investments in this offering, from

ten

accredited investors. Of that amount,

$524,000

were received in

2017,

and

$80,000

were received in

2018.

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 pricing supplement lowering the unit price to

$0.394.

February 12, 2018,

we issued a

third

pricing supplement lowering the unit price to

$0.30,

and the warrant exercise price to

$0.48

per share. As a result of these reductions, we notified each investor of the decrease in conversion price, and increased the number of warrant shares available to each investor.

May 2018,

investors holding notes in the principal amount of

$478,000

elected to convert their notes to common stock (reflected in the table above). As a result of these conversions, we issued an aggregate

2,372,817

shares of our common stock (

1,595,670

for principal, and

777,146

for interest). On

November 11, 2018,

a holder elected to convert a note in the principal amount of

$100,000

and we issued

333,334

shares of common stock. As of

December 31, 2018,

one

note in the principal amount of

$25,000

remained outstanding on this offering.

Convertible Note, matures

April 20, 2021 (

Spring

2018

Unit Offering)

March 26, 2018,

we commenced a private securities offering (titled the “Spring

2018

Unit Offering”) which offered the sale of

$1.5

million of “Units,” each Unit consisting of a convertible promissory note and stock purchase warrant. We set the initial unit/conversion price at

$0.30

per share, and the initial warrant exercise price at

$0.48

per share. The promissory notes issued to investors mature

April 20, 2021,

and incur interest at the rate of

12%

per annum. Interest due will be paid quarterly in arrears in cash or shares of common stock, at our option. If paid by the issuance of common stock, interest is 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 principal amount of the note

may

be paid by the issuance of shares of common stock, or cash, upon maturity at the Company’s election. The notes

may

be converted at any time by the investor, at maturity by the Company, or by the Company prior to maturity, so long as the following conditions are met: (i) the shares issued as payment are registered with the SEC; and (ii) the Company’s common stock closes for

ten

consecutive trading days at or above

three

times the Unit price.

In addition to the convertible promissory note, each investor will receive a warrant allowing for the purchase of the number of shares of BioLargo common stock equal to the investment amount divided by the unit/conversion price (e.g.,

one

warrant share for each share of common stock which the investor is eligible to receive through conversion of the note).

We received

one

investment in this offering, in

March 2018,

for

$100,000,

and issued a warrant to purchase

333,333

shares (see Note

). This investment was received from an entity owned/controlled by a member of our board of directors. In light of the decreasing price of our common stock, in

September 2018,

we issued a pricing supplement reducing the unit price to

$0.25

per share and reducing the warrant exercise price to

$0.40

per share. As a result of the issuance of this pricing supplement, the unit and warrant price of the prior investor were changed to reflect these new prices. We received

further investments in this offering.

Convertible Notes, mature

June 15, 2021 (

OID Note)

June 15, 2018,

we received

$75,000

and issued a convertible promissory note (titled the “OID 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,

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 note. The OID Notes mature

June 15, 2021,

and incurs 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 OID 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.

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 note holder a warrant (see Note