Note 7 – Notes Payable

The Company and its subsidiaries are party to a number of loans with affiliates and unrelated parties. At March 31, 2020 and December 31, 2019, notes payable consisted of the following:

Notes Payable – Third Parties

The Company did not make the required monthly principal and interest payments due under the TCA Debenture for the period from October 2016 through March 2017. On February 2, 2017, the Company made a payment to TCA in the amount of $0.4 million, which was applied to accrued and unpaid interest and fees, including default interest, as of the date of payment. On March 21, 2017, the Company made a payment to TCA in the amount of $0.75 million, of which approximately $0.1 million was applied to accrued and unpaid interest and fees under the TCA Debenture. Also on March 21, 2017, the Company entered into a letter agreement with TCA, which (i) waived any payment defaults through March 21, 2017; (ii) provided for the $0.75 million payment discussed above; (iii) set forth a revised repayment schedule whereby the remaining principal plus interest aggregating to approximately $2.6 million was to be repaid in various monthly installments from April of 2017 through September of 2017; and (iv) provided for payment of an additional service fee in the amount of $150,000, which was due on June 27, 2017, the day after the effective date of the registration statement filed by the Company; which amount was reflected in accrued expenses at March 31, 2020. In addition, TCA entered into an inter-creditor agreement with the purchasers of the convertible debentures (see Note 8) which sets forth rights, preferences and priorities with respect to the security interests in the Company’s assets. On September 19, 2017, the Company entered into a new agreement with TCA, which extended the repayment schedule through December 31, 2017. The remaining debt to TCA remains outstanding and TCA has made a demand for payment. In May 2020, the SEC appointed a Receiver to close down the TCA Global Master Fund, L.P. over allegations of accounting fraud. The amount recorded by the Company as being owed to TCA was based on TCA’s application of prior payments made by the Company. The Company believes that prior payments of principal and interest may have been applied to unenforceable investment banking and other fees and charges. It is the Company’s position that the amount owed to TCA is less than the amount set forth above.

The Company did not make the second annual principal payment under the Tegal Notes that was due on July 12, 2016. On November 3, 2016, the Company received a default notice from the holders of the Tegal Notes demanding immediate repayment of the outstanding principal of $341,612 and accrued interest of $43,000. On December 7, 2016, the Company received a breach of contract complaint with a request for the entry of a default judgment (see Note 15). On April 23, 2018, the holders of the Tegal Notes received a judgment against the Company. As of March 31, 2020, the Company has paid $11,943 of these notes.

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 $1.5 million, which was net of a $0.3 million original issue discount and $0.1 million in financing fees. The first principal payment of $1.0 million was due on November 8, 2019 and the remaining $0.9 million was due on December 26, 2019. These payments were not paid. In February 2020, the note holder sued the Company and Mr. Diamantis, as guarantor, in New York State Court for the County of New York, for approximately $2.0 million for non-payment of the promissory note. As a result of the payment default, the Company has accrued “penalty” interest in the amount of $0.1 million as of March 31, 2020. See Note 15 for a discussion of a Stipulation entered into among the Company, Mr. Diamantis, as guarantor, and the note holder.

On January 29, 2020, the Company entered into the Installment Note in the principal amount of $1.2 million. The Company used the proceeds to satisfy in full the amounts due under accounts receivable factoring agreements. The factoring agreements are more fully discussed in Note 4. Pursuant to the Installment Note, weekly installment payments ranging from $22,500 to $34,000 are due on or before February 5, 2020 through on or before October 21, 2020, the maturity date. Accordingly, the Company made payments totaling $0.2 million during the three months ended March 31, 2020. The Installment Note, which was issued with an original issue discount in the amount of approximately $0.1 million, is non-interest bearing and subject to late-payment fees of 10%.

Notes Payable – Related Party

During the three months ended March 31, 2020, Mr. Diamantis, a former member of our Board of Directors, provided short term loans to the Company or paid expenses and fees and a portion of the principal due on outstanding debentures on behalf of the Company. The Company paid $0.4 million for interest incurred by Mr. Diamantis on borrowings he procured in order to loan funds to the Company. During the three months ended March 31, 2019, Mr. Diamantis loaned the Company: (i) $0.7 million for the purchase of Jellico Community Hospital and CarePlus Center as more fully discussed in Note 5; (ii) $0.1 million for fees and expenses incurred in connection with the settlement of the prepaid forward purchase contract; and (iii) $0.6 million for working capital purposes.

During the three months ended March 31, 2020 and March 31, 2019, we accrued interest of $0.3 million and $0.1 million, respectively, on the loans from Mr. Diamantis and we repaid $25,000 and $0.7 million, respectively, of loans from Mr. Diamantis. Interest accrues on loans from Mr. Diamantis at a rate of 10% on all amounts funded.

See Note 19 for the discussion of additional loans made to the Company by Mr. Diamantis subsequent to March 31, 2020 and the exchange of loans payable from Mr. Diamantis for newly issued preferred stock.