Note 6 – Debt

At September 30, 2023 (unaudited) and December 31, 2022, debt consisted of the following:

Schedule of Debt

At September 30, 2023 (unaudited) and December 31, 2022, notes payable with third parties consisted of the following:

Notes Payable – Third Parties

Schedule of Notes Payable Third Parties

On December 7, 2016, the holders of the Tegal Notes filed suit against the Company seeking payment for the amounts due under the notes and accrued interest. On April 23, 2018, the holders of the Tegal Notes received a judgment against the Company in the amount of $384,384 plus post-judgment interest. On June 1, 2023, the Company and the holders of the Tegal Notes agreed to settle all amounts owed pursuant to the judgment for a total of $462,500 comprised of an initial payment of $200,000 followed by six monthly payments of $43,750. The Company has made all required payments to date, including the initial payment of $200,000, which was applied to accrued interest.

On September 27, 2019, the Company issued a promissory note payable to Anthony O’Killough in the principal amount of $1.9 million with payments due in November and December 2019. In February 2020, Mr. O’Killough sued the Company and Christopher Diamantis, as guarantor and in May 2020, the Company, Mr. Diamantis, as guarantor, and Mr. O’Killough entered into a Stipulation providing for 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 further enforcement action until then. On various dates during the remainder of 2022, Mr. Diamantis made additional payments to Mr. O’Killough totaling $300,000 and the Company gave Mr. Diamantis $350,000 for further payment to Mr. O’Killough. The Company is obligated to repay Mr. Diamantis for the payments, plus interest, that he made to Mr. O’Killough. As a result of these payments, the past due balance owed to Mr. O’Killough was $1.1 million on December 31, 2022. During the nine months ended September 30, 2023, the parties entered into a final settlement wherein the Company and Mr. Diamantis settled the obligation in full for $580,000. As a result of the settlement, the Company recorded a $0.6 million gain from legal settlement during the nine months ended September 30, 2023.

On August 10, 2021, the Company entered into two notes payable to 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 agreements that the Company had previously entered into for medical staffing services. The notes bear interest at a rate of 18% per annum and payments consisting of principal and interest were due no later than August 30, 2022. The Company paid $0.2 million to the note holders upon issuance of the notes. On May 12, 2023, the Company and Western Healthcare, LLC agreed to reduce the aggregate principal amount of the notes by $400,000 in exchange for a cash payment of $200,000. As a result of the reduction of the principal balance in excess of the amount paid, during the nine months ended September 30, 2023, the Company recorded a gain from forgiveness of debt of $0.2 million. The Company has not made all of the monthly installments due under the notes and the notes are past due.

Loan Payable – Related Party

At September 30, 2023 (unaudited) and December 31, 2022, loan payable - related party consisted of the following:

Schedule of Loan Payable Related Parties

Mr. Diamantis was a member of the Company’s Board of Directors until his resignation on February 26, 2020. During the nine months ended September 30, 2023 and 2022, Mr. Diamantis loaned the Company $0.6 million and $0.9 million, respectively, which the Company used to pay amounts owed under the note payable to Mr. O’Killough. These payments and the note payable to Mr. O’Killough are more fully discussed above under the heading Notes Payable –Third Parties. During the nine months ended September 30, 2023 and 2022, the Company made payments on the principal amount of the loans from Mr. Diamantis of $1.4 million and $0, respectively.

During the three months ended September 30, 2023 and 2022, the Company incurred interest expense of $0 and $15,000, respectively, on the loans from Mr. Diamantis. During the nine months ended September 30, 2023 and 2022, the Company incurred interest expense on the loans from Mr. Diamantis of $0.1 million and $0.1 million, respectively.

No accrued interest was owed to Mr. Diamantis at September 30, 2023 and December 31, 2022. Interest accrues on loans from Mr. Diamantis at a rate of 10% of the amount loaned.

Debentures

The carrying amount of all outstanding debentures as of September 30, 2023 (unaudited) and December 31, 2022 was as follows:

Schedule of Debentures

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 September 30, 2023 and December 31, 2022, including a 30% late-payment penalty of $0.6 million. The March 2017 Debenture is past due by its original terms. The March 2017 Debenture bears default interest at the rate of 18% per annum and is secured by a first priority lien on all of the Company’s assets. The Company incurred default interest expense on this past due debenture of $0.1 million and $0.1 million, respectively, during the three months ended September 30, 2023 and 2022 and $0.3 million and $0.3 million, respectively, during the nine months ended September 30, 2023 and 2022. As of September 30, 2023, accrued default interest on the March 2017 Debenture totaled $2.1 million. Subsequent to September 30, 2023, the maturity date of the March 2017 Debenture was extended to December 31, 2025 as more fully discussed in Note 15.

On September 30, 2023, the March 2017 Debenture is convertible into shares of the Company’s common stock, at a conversion price, which has been adjusted pursuant to its terms, of $0.00009 per share or 28.7 billion shares of the Company’s 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 (the “March Warrants”), which are exercisable into shares of the Company’s common stock until March 21, 2024. During the nine months ended September 30, 2022, the Company recorded $330.5 million of deemed dividends as a result of the down round provisions of the March Warrants. No deemed dividends were recorded in the three months ended September 30, 2023 and 2022 and the nine months ended September 30, 2023 as there was no change in the exercise prices of the March Warrants during the periods. Deemed dividends and outstanding warrants are more fully discussed in Notes 1, 9 and 10.

2018 Debentures

During 2018, the Company closed various offerings of debentures (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 September 30, 2023 and is subject to a floor of $0.052 per share. At September 30, 2023 and December 31, 2022, the outstanding principal balance of the 2018 Debentures, including 30% late-payment penalties of $1.3 million, was $5.6 million and the debentures were convertible into 108.5 million shares of the Company’s common stock. 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. The Company incurred default interest expense on these past due debentures of $0.3 million and $0.3 million, respectively, during the three months ended September 30, 2023 and 2022 and $0.8 million and $0.8 million, respectively, during the nine months ended September 30, 2023 and 2022. As of September 30, 2023, accrued default interest on the 2018 Debentures totaled $4.1 million. Subsequent to September 30, 2023, the maturity dates of the 2018 Debentures were extended to December 31, 2025 as more fully discussed in Note 15.

See Notes 3 and 10 for a discussion of the dilutive effect of the outstanding convertible debentures and warrants as of September 30, 2023.

October 2022 Debentures

On October 12, 2022, the Company issued non-convertible debentures in the amount of $550,000, including $50,000 of original issue discounts, for net proceeds of $500,000. These debentures were due by their initial terms on February 12, 2023 and were secured by a portion of the Company’s investment in InnovaQor Series B-1 Preferred Stock. On December 15, 2022, the Company and the institutional investors agreed to revise the repayment terms of these debentures as follows: (i) payment of $150,000 on December 15, 2022; and (ii) monthly payments of $100,000 due by the 12^th day of January, February, March and April 2023. The debentures were fully repaid in April 2023.