Note 19 – Subsequent Events

Accounts Receivable Financing (Prepaid Forward Purchase Contract) and Loans From Mr. Diamantis

Subsequent to March 31, 2019, Mr. Diamantis advanced the Company $9.9 million, which was used to repay obligations under a prepaid forward purchase contract related to an accounts receivable financing, as more fully discussed in Note 7. In addition, Mr. Diamantis loaned the Company $5.2 million, of which $1.8 million was used for fees and expenses incurred in connection with the settlement of the prepaid forward purchase contract and the remainder was used for working capital purposes. Subsequent to March 31, 2019 and through September 30, 2019, the Company incurred interest of $1.3 million on the loans from Mr. Diamantis and the Company repaid Mr. Diamantis $1.7 million of which $0.8 million was from the proceeds of a promissory note issued on September 27, 2019 as more fully discussed below.

Debenture Offerings Subsequent to March 31, 2019

The Company issued debentures on May 12, 2019 in the aggregate principal amount of $500,000. These debentures were due on June 3, 2019. In addition, the Company issued debentures on June 5, 2019 in the aggregate principal amount of $125,000 and on June 7, 2019 in the aggregate principal amount of $200,000. Both of these issuances of debentures were due on July 20, 2019. All of these debentures are guaranteed by Mr. Diamantis. They are also exchangeable, at the Company’s option, for shares of the Company’s Series I-2 Preferred Stock.

On June 3, 2019, the Company closed an offering of $1,250,000 aggregate principal amount of debentures due December 31, 2019 with certain existing institutional investors pursuant to a Bridge Debenture Agreement (the “June 13 Agreement”), and received proceeds of $1,250,000. These debentures are also guaranteed by Mr. Diamantis and are exchangeable at the Company’s option into shares of Series I-2 Preferred Stock. Commencing on August 17, 2019, these debentures shall bear interest on the outstanding principal amount at a rate of 2.5% per month (increasing to 5% per month on October 12, 2019), payable quarterly beginning on October 1, 2019. All overdue accrued and unpaid interest shall entail a late fee equal to the lesser of 24% per annum or the maximum rate permitted by law.

The June 13 Agreement also amended the debentures issued on February 24, 2019, March 27, 2019, May 12, 2019, June 5, 2019 and June 7, 2019 to extend their maturity date to December 31, 2019 and to incorporate the same interest terms as contained in the debentures issued under the June 13 Agreement. Additionally, the June 13 Agreement provided that, on or prior to June 30, 2019, at the mutual election of the Company and the investors, the investors may purchase an additional $1,250,000 principal amount of debentures as provided in the June 13 Agreement.

On June 21, 2019, the Company and the investors agreed that the Company would issue, and the investors would purchase $250,000 principal amount of debentures and on June 24, 2019, the Company and the investors would purchase an additional $1,020,000 aggregate principal amount of debentures. The Company received total proceeds of $1,270,000 and these debentures are guaranteed by Mr. Diamantis. These debentures have the same terms as those issued under the June 13 Agreement.

All of the debentures issued by the Company in May and June 2019 are secured and guaranteed by the Company’s subsidiaries on the same terms as provided in the Securities Purchase Agreement, dated as of August 31, 2017. The total proceeds received by the Company from the issuance of the debentures in May and June 2019 were $3.3 million.

Modification of Warrants

On March 27, 2019, the expiration date of the Series B warrants issued in March 2017 and September 2017 was extended from June 2019 to September 2019, as more fully discussed in Notes 11 and 13. On May 12, 2019, the expiration date of these warrants was further extended to March 31, 2022. The Company used the Black Scholes model to calculate the fair value of the warrants as of the modification date. Using the pre-modification term and related assumptions, and the post-modification terms and related assumptions, the Company determined that the change in fair value of the warrants as a result of the Mary 12, 2019 modification was $5.4 million, which will be recorded as interest expense in the second quarter of 2019.

Jamestown Regional Medical Center Medicare Agreement;

Following an inspection at Jamestown Regional Medical Center on February 5, 2019, the hospital was informed on February 15 that several conditions of participation in its Medicare agreement were deficient. The hospital was informed that if the deficiencies where not corrected by May 16 the Medicare agreement would terminate. A follow-up inspection on May 15 resulted in the determination that the hospital had failed to adequately correct the deficiencies highlighted and a notice of involuntary termination was issued that was effective on June 12, 2019. A significant percentage of patients at Jamestown Regional Medical Center are covered by Medicare and without any ability to get paid for these services the Company suspended operations at the hospital. On June 10, 2019 the Company hired a new CEO to oversee the reopening of the hospital and took steps to re-enter the Medicare program. The hospital received initial approval of its application to reactivate the Medicare agreement in August of 2019 and is currently planning the reopening of the hospital.

Issuance of Common Stock

Subsequent to March 31, 2019 and through September 30, 2019, the Company issued an aggregate of 4.8 billion shares of common stock for conversions of preferred stock. The following table presents the dilutive effect of our various potential common shares as of September 30, 2019:

On October 4, 2019, the Board of Directors authorized the issuance and sale of certain shares of Series K Convertible Preferred Stock to Alcimede LLC pursuant to the terms of an Exchange Agreement. The Board considered all options to secure additional financing required to continue operations and determined this authorization to be necessary to secure needed financing in the required time frame. As a result of this authorization, as of the date of filing this report, the Company believes that it has the ability to have sufficient authorized shares of its common stock to cover all potentially dilutive common shares outstanding.

Accounts Receivable Factoring Arrangements

In addition to the accounts receivable factoring arrangement discussed in Note 4, subsequent to March 31, 2019 and through September 30, 2019, the Company entered into four additional accounts receivable factoring arrangements. Under the terms of the four agreements, the aggregate amount of accounts receivable sold on a non-recourse basis, was $3.0 million. The aggregate purchase price paid to the Company was $2.1 million and the total origination and other fees incurred by the Company were $0.1 million. As of September 30, 2019, an aggregate of $1.6 million was purchased but not yet paid to the factors under all factoring arrangements.

Promissory Note

On September 27, 2019, the Company issued a promissory note to a lender in the principal amount of $1.9 million and received proceeds of $1.6 million. The first principal payment of $1.0 million is due on or before November 8, 2019 and the remaining $0.9 million is due on or before December 26, 2019. The note does not bear interest except upon the occurrence of an event of default (as defined in the note). The note is unsecured and is guaranteed by Mr. Diamantis. The Company used $0.8 million of the proceeds to repay amounts due to Mr. Diamantis.

Past Due Debentures

The Company had $17,050,000 principal amount of debentures due September 19, 2019 outstanding on the maturity date. These debentures have not been paid and remain outstanding, accruing interest at the default rate of 18% per annum. In addition, the Company will incur a default penalty of approximately $5.1 million during the three months ended September 30, 2019 as a result of the payment default.