Note 6 – Notes Payable

The Company and its subsidiaries are party to a number of loans with third parties and affiliates. At March 31, 2022 (unaudited) and December 31, 2021, notes payable consisted of the following:

 Schedule of Notes Payable

Notes Payable – Third Parties

In May 2020, the SEC appointed a Receiver to close down the TCA Global Credit Master Fund, L.P. The Company and the Receiver entered into a settlement agreement dated effective as of September 30, 2021, under which the Company agreed to pay $500,000 as full and final settlement of principal and accrued interest, of which $250,000 was paid during 2021 and $150,000 was paid during the three months ended March 31, 2022. The remaining $0.1 million is due in two consecutive monthly installments of $50,000 payable on or before the fifth day of each month. As a result of the settlement, in the three months ended September 30, 2021, the Company recorded a gain from legal settlement, resulting from the adjustments of principal and accrued interest, of $2.2 million.

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 at that time 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 12). On April 23, 2018, the holders of the Tegal Notes received a judgment against the Company. As of March 31, 2022, the Company has paid $50,055 of the principal amount of these notes.

On September 27, 2019, the Company issued a promissory note payable to Anthony O’Killough 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 of 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 made. In February 2020, Mr. O’Killough sued the Company and Mr. Diamantis, as guarantor, in New York State Supreme Court for the County of New York, for approximately $2.2 million for non-payment of the promissory note. In May 2020, the Company, Mr. Diamantis, as guarantor, and Mr. O’Killough entered into a Stipulation providing for a payment of a total of $2.2 million (which included accrued “penalty” interest as of that date) in installments through November 1, 2020. The Company made payments totaling $450,000 in 2020. On January 18, 2022, Mr. Diamantis paid $750,000 and the remaining balance was due 120 days thereafter. Mr. O’Killough agreed to forebear from any further enforcement action until then. The Company is obligated to repay Mr. Diamantis the $750,000 payment, plus interest, as well as any further payments that may be made by him. As of March 31, 2022, $1.6 million remained past due to Mr. O’Killough. See Notes 12 and 15 for payments made subsequent to March 31, 2022 in connection with the promissory note.

As of April 20, 2020 and through May 1, 2020, the Company and its subsidiaries received PPP loan proceeds in the form of promissory notes (the “PPP Notes”) in the aggregate amount of approximately $2.4 million. The PPP Notes and accrued interest were forgivable as long as the borrower used the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintained its payroll levels. As of March 31, 2022, $2.3 million of the principal balance of the PPP Notes was forgiven of which $0.3 million was forgiven in January 2022 and $2.0 million was forgiven in 2021. In April 2022, the remaining principal balance was repaid.

On August 10, 2021, the Company entered into two notes payable with Western Healthcare, LLC in the aggregate principal amount of $2.4 million. The notes were issued under the terms of a settlement agreement related to an agreement that the Company had previously entered into for medical staffing services. The notes bear interest at a rate of 18% per annum and are due no later than August 30, 2022. The Company paid $0.2 million to the note holders upon issuance of the notes. Monthly installments aggregating $0.2 million are due beginning August 31, 2021. As of March 31, 2022, $0.9 million of principal and $0.1 million of interest has been paid. The Company has not made all of the monthly installments due under the notes.

Note Payable – Related Party

At March 31, 2022 (unaudited) and December 31, 2021, note payable - related party consisted of the following:

Schedule of Notes Payable Related Parties 

Mr. Diamantis was a member of the Company’s Board of Directors until his resignation on February 26, 2020. During the three months ended March 31, 2022, Mr. Diamantis loaned the Company $750,000, which was used to pay accrued interest due under the note payable to Mr. O’Killough, The note payable to Mr. O’Killough is more fully discussed above under the heading Notes Payable –Third Parties. In the three months ended March 31, 2021, Mr. Diamantis loaned the Company $0.5 million which was used for working capital purposes. In November 2021, Mr. Diamantis requested the Company repay the outstanding note payable to him, which was $2.9 million at March 31, 2022, and to facilitate repayment of the note payable to Mr. O’Killough for which he is a guarantor. The $750,000 loan from Mr. Diamantis in the three months ended March 31, 2022 was paid in connection with a forbearance agreement related to amounts owed to Mr. O’Killough by the Company and personally guaranteed by Mr. Diamantis as more fully discussed in Notes 12 and 15.

During the three months ended March 31, 2022 and 2021, the Company incurred interest expense of $0.1 million and $53,000, respectively, on the loans from Mr. Diamantis. As of March 31, 2022 and December 31, 2021, accrued interest on the loans from Mr. Diamantis totaled $0.4 million and $0.3 million, respectively. Interest accrues on loans from Mr. Diamantis at a rate of 10% on the majority of the amounts loaned. In addition, the Company incurs interest expense related to the amounts Mr. Diamantis borrows from third-parties to loan to the Company. 

Debentures

The carrying amount of all outstanding debentures with institutional investors as of March 31, 2022 (unaudited) and December 31, 2021 was as follows:

Schedule of Debentures 

Payment of all outstanding debentures with institutional investors totaling $8.2 million at both March 31, 2022 and December 31, 2021 was past due by the debentures’ original terms. A 30% late payment penalty was added to the principal amount of each debenture. Included in the amounts owed as of March 31, 2022 and December 31, 2021 were late payment penalties of $1.9 million. The debentures bear default interest at the rate of 18% per annum and are secured by a first priority lien on all of the Company’s assets. During the three months ended March 31, 2022 and 2021, the Company incurred default interest expense on debentures of $0.4 million and $0.6 million, respectively. At March 31, 2022 and December 31, 2021, accrued interest on debentures was $4.0 million and $3.6 million, respectively.

March 2017 Debenture

In March 2017, the Company issued a debenture due in March 2019 (the “March 2017 Debenture”) with a principal balance of $2.6 million at both March 31, 2022 and December 31, 2021, including a 30% late-payment penalty. The March 2017 Debenture is convertible into shares of the Company’s common stock, at a conversion price, which has been adjusted pursuant to the terms of the March 2017 Debenture to $0.0092 per share on March 31, 2022, or 280.5 million shares of common stock. The conversion price is subject to reset in the event of offerings or other issuances of common stock, or rights to purchase common stock, at a price below the then conversion price, as well as other customary anti-dilution protections.

The March 2017 Debenture was issued with warrants to purchase shares of the Company’s common stock. Outstanding warrants are more fully discussed in Note 10.

2018 Debentures

During 2018, the Company closed various offerings of the 2018 Debentures with principal balances aggregating $14.5 million, including late-payment penalties, due in September 2019. The conversion terms of the 2018 Debentures are the same as those of the March 2017 Debenture, as more fully described above, with the exception of the conversion price, which was $0.052 per share at March 31, 2022 and is subject to a floor of $0.052 per share. At both March 31, 2022 and December 31, 2021, the outstanding principal balance of the 2018 Debentures, including late-payment penalties, was $5.6 million and the debentures were convertible into 108.5 million shares of the Company’s common stock on March 31, 2022.