Note

Debt Obligations

The following table summarizes our debt obligations outstanding as of

December 31, 2018

and as of

March 31, 2019 (

in thousands).

	December 31, 201 8		March 31, 201 9
C urrent liabilities:
Notes payable, mature June 6, 2019	$	400	$	440
Note payable, matures on demand 60 days’ notice (or March 8, 2023)		—		50
Line of credit, matures September 1, 2019 or later (on 30-day demand)		430		430
Convertible notes payable:
Convertible notes, mature December 31, 2019 ( 1 )		75		75
Convertible note, matured January 11, 2019		300		—
Convertible note, matures July 15, 2019		550		420
Convertible note, matures July 20, 2019 ( 1 )		440		440
Convertible note, matures October 7, 2019		—		370
Convertible note, matures November 5, 2019 and December 7, 2019		—		554
Convertible nine-month notes, due October, November 2019		—		213
Total convertible notes payable	$	1,365	$	2,072
Total current liabilities	$	2,195	$	2,992

L ong-term liabilities :
Note payable issued by Clyra Medical to Scion, matures June 17, 2020 (See Note 8)		1,007		1,007
Convertible notes payable, mature June 20, 2020 (1)		25		25
Convertible notes payable, mature April 20, 2021 (1)		100		100
Convertible notes, mature June 15, 2021 (1)		110		110
Note payable, matures March 8, 2023 (or on demand 60 days’ notice)		50		—
Total long-term liabilities	$	1,292	$	1,242

Total	$	3,487	$	4,234

(

)

These notes are convertible at our option at maturity.

For the

three

months ended

March 31, 2018

and

2019

we recorded

$832,000

and

$985,000

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

The following discussion includes debt instruments to which amendments were made or included other activity that management deemed appropriate to disclose. Each of the debt instruments contained in the above table are disclosed more fully in the financial statements contained in the Company’s Annual Report filed

March 29, 2019,

as amended.

Notes payable, mature

June 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 (the

first

held by Vernal Bay Investments, LLC (“Vernal”) in the original principal amount of

$280,000,

and the

second

held by Chappy Bean, LLC (“Chappy Bean”) in the original principal amount of

$120,000

). By letter dated

January 3, 2019,

we notified the holders of the

two

notes in the aggregate principal amount of

$400,000

of our election to extend the maturity date of the notes by

days, to

March 6, 2019.

As provided in the notes, our election to extend increased the principal amount of each note by

10%,

such that the aggregate principal balance of the

two

notes increased to

$440,000

as of

January 5, 2019.

March 5, 2019,

we executed amendments to these

two

notes that (i) extended the maturity dates to

June 6, 2019,

and (ii) provide that we

may

further extend the maturity dates to

September 6, 2019

by giving written notice of such extension and increasing the principal due on the notes at that time by

10%.

As consideration of the extension of the maturity dates reflected in the

March 5, 2019

amendments, we (i) increased the annual percentage rate of interest from

12%

18%,

effective as of

March 7, 2019,

and (ii) lowered the exercise price, and increased the number of shares available, on warrants that had been previously issued to the

two

investors (at the time of their original investment).

Convertible note payable, 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 incurred interest at an annual rate of

5%,

and was scheduled to mature

January 11, 2019.

The

$75,000

original issue discount was recorded as a discount on our convertible note and was amortized to interest expense in the

three

-month ended

March 31, 2019.

January 8, 2019,

we paid the Triton Note in full.

Convertible Note, matures

July 15, 2019 (

Vista Capital)

January 7, 2019,

we and Vista Capital agreed to amend the convertible promissory note originally issued

December 14, 2017 (

“Vista

2017

Note”) and extend its maturity date to

April 15, 2019.

The principal amount of the note was increased to

$605,100.

The note will continue to earn interest at the rate of

five

percent per annum. The amendment re-defined the conversion price to equal

80%

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

consecutive trading days immediately preceding the conversion date. The amendment also reduced the prepayment penalty from

20%

15%,

such that a prepayment requires the payment of an additional

15%

of the then outstanding balance, and reduced the penalty for a default from

30%

25%

of the outstanding balance. The intrinsic value of the beneficial conversion feature resulted in a fair value totaling

$487,000,

all of which was recorded as interest expense during the

three

months ended

March 31, 2019.

March 28, 2019,

we and Vista agreed to further extend the maturity date of the Vista

2017

Note, to

July 15, 2019.

In consideration for the extension, we agreed to increase the principal balance of the note by

percent, to

$420,000.

The increase in principal totaling

$38,000

was recorded as a loss on debt extinguishment during on our statement of operations for the

three

months ended

March 31, 2019.

During the

three

months ended

March 31, 2019,

Vista Capital elected to convert

$225,000

of the outstanding principal and interest of the Vista

2017

Note and we issued

1,679,248

shares of our common stock. Of that amount,

1,638,479

shares were issued as payment of principal, and

40,769

shares as payment of interest. As of

March 31, 2019,

the outstanding balance on the Vista Note totaled

$420,000.

Convertible Note, matures

October 7, 2019 (

Vista Capital)

January 7, 2019,

Vista Capital invested an additional

$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 Vista

2019

Note also requires that we include the shares underlying conversion of the note on the next registration statement we file with the SEC (but

not

the registration statement filed

November 6, 2018).

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 will be amortized over the term of the note as interest expense, all of which will be recorded in

2019.

With respect to the above transactions with Vista Capital, 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 this waiver, we issued to Lincoln Park a warrant to purchase

250,000

shares of our common stock at

$0.25

per share, expiring

five

years from the date of grant. In the event the shares underlying the warrant are

not

registered, the warrant allows the holder to do a “cashless” exercise. (See Note

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 is 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, is 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 will be amortized over the term of the note as interest expense, all of which will be recorded in

2019.

may

prepay the Tangiers Note up to

180

days after the effective date. If a prepayment is made within

days, we must pay a prepayment penalty of

25%;

from

180

days, we must pay a prepayment penalty of

30%.

may

pay such prepayment penalties, if we so choose, by issuing common stock at the conversion price. If such shares are

not

eligible for removal of restrictions pursuant to a registration statement or Rule

144

within

trading days following the

six

-month anniversary of the effective date, Tangiers

may

rescind the stock issuance and force the Company to pay the prepayment penalty in cash. Upon the occurrence of an event of default, as such term is defined under the Tangiers Note, additional interest will accrue from the date of the event of default at a rate equal to the lower of

22%

per annum or the highest rate permitted by law, and an additional

25%

shall be added to the principal amount of the note.

In connection with the Tangiers Note, the Company caused its transfer agent to reserve

3,000,000

shares of the Company’s common stock, in the event that the Tangiers Note is converted.

With respect to the above transaction with Tangiers, Lincoln Park consented to waive the provisions of the Purchase Agreement dated

August 25, 2017

prohibiting variable rate transactions. As consideration for the consent, we agreed to issue Lincoln Park a stock purchase warrant allowing for the purchase of

50,000

shares of our common stock at

$0.25

per share, expiring

five

years from the date of grant. In the event the shares underlying the warrant are

not

registered, the warrant allows the holder to do a “cashless” exercise. (See Note

Nine-month Notes payable

During the

three

months ended

March 31, 2019,

we issued convertible promissory notes (each, an “OID Note”) in the aggregate principal amount of

$212,500,

with a

25%

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

$0.25

per share, and mature

nine

months from the date of issuance. On

January 14, 2019,

we received

$50,000

and issued an OID Note in the principal amount of

$62,500.

January 22, 2019,

we received

$20,000

and issued an OID Note in the principal amount of

$25,000.

February 4, 2019,

we received

$100,000

and issued an OID Note in the principal amount of

$125,000.

The original issuance discount totaled

$42,500,

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.

Each OID Note is convertible by the investor at any time at

$0.25

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 OID Note), or conducts an equity offering at a per-share price less than

$0.25.

The Note earns interest at

five

percent (

) per annum, due at maturity. The Company

may

prepay an OID Note 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 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 current conversion price and (ii)

seventy

percent (

70%

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

trading days immediately preceding the conversion.

In addition to the note, each OID investor will receive a warrant to purchase common stock for

$0.25

per share, expiring

years from the date of issuance (the “Warrant”). The number of shares purchasable under the warrant is equal to the

75%

of the principal balance of the note divided by

$0.25

(thus, a

$100,000

investment would yield a note with principal balance of

$125,000,

and a warrant allowing for the purchase of up to

375,000

shares). The warrant will allow for cashless exercise so long as the shares underlying the warrant are

not

registered. The Company does

not

have the obligation to register the shares underlying the warrant (or the OID Notes). (See Note