Note 8 – Debt

At December 31, 2022 and 2021, debt consisted of the following:

 Schedule of Debt

At December 31, 2022 and 2021, notes payable with third parties consisted of the following:

Notes Payable – Third Parties

 Schedule of 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 $250,000 was paid during 2022. As a result of the settlement, in the year ended December 31, 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 14). On April 23, 2018, the holders of the Tegal Notes received a judgment against the Company. As of December 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. 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. As a result of these payments, the past due balance owed to Mr. O’Killough was $1.1 million on December 31, 2022. The Company is obligated to repay Mr. Diamantis for any payments, plus interest, that he made to Mr. O’Killough. On January 27, 2023, the parties entered into a final settlement wherein the Company and Mr. Diamantis agreed to settle the obligation in full for $580,000. The promissory note, forbearance agreement and final settlement are also discussed in Notes 14 and 18.

The Company, including its subsidiaries, received PPP loan proceeds in the aggregate amount of approximately $2.4 million (the “PPP Notes”). 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. As of December 31, 2022, $2.3 million of the principal balance of the PPP Notes was forgiven of which $0.3 million was forgiven in the year ended December 31, 2022 and $2.0 million was forgiven in the year ended December 31, 2021. During the year ended December 31, 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 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. 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 December 31, 2022 and 2021, loan 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 year ended December 31, 2022, Mr. Diamantis loaned the Company $1.1 million, which was used to pay principal and accrued interest due under the note payable to Mr. O’Killough. The note payable to Mr. O’Killough, including payments made during the year ended December 31, 2022, is more fully discussed above under the heading Notes Payable –Third Parties. During the year ended December 31, 2021, Mr. Diamantis loaned the Company $0.9 million, the majority of which was used for working capital purposes. During the years ended December 31, 2022 and 2021, the Company made payments on the principal amount of the loans from Mr. Diamantis of $1.0 million and $0.9 million, respectively. In November 2021, Mr. Diamantis requested the Company repay the outstanding note payable to him, which was $3.0 million at December 31, 2022, and facilitate repayment of the note payable to Mr. O’Killough for which he is a guarantor.

During the years ended December 31, 2022 and 2021, the Company incurred interest expense on the loans from Mr. Diamantis of $0.1 million and $0.1 million, respectively. During the years ended December 31, 2022 and 2021, the Company paid $0.4 million and $0, respectively, of accrued interest owed to Mr. Diamantis. As of December 31, 2022 and 2021, accrued interest on the loans from Mr. Diamantis totaled approximately $0 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 December 31, 2022 and 2021 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 both December 31, 2022 and 2021, 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 $0.5 million and $0.5 million, respectively, during the years ended December 31, 2022 and 2021.

On December 31, 2022, 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. On November 7, 2021, the expiration dates of the March Warrants were extended to March 21, 2024 in connection with exchange, redemption and forbearance agreements, which are more fully discussed below and in Notes 11 and 12. Outstanding warrants are more fully discussed in Notes 11 and 12.

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 December 31, 2022 and is subject to a floor of $0.052 per share. At both December 31, 2022 and 2021, 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 on December 31, 2022. 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 $1.0 million and $1.0 million, respectively, during the years ended December 31, 2022 and 2021.

Exchange, Redemption and Forbearance Agreements

On August 31, 2020, all of the then outstanding debentures that were issued in September 2017 and a portion of the then outstanding 2018 Debentures were exchanged for shares of the Company’s Series N Convertible Redeemable Preferred Stock (the “Series N Preferred Stock”) under the terms of Exchange, Redemption and Forbearance Agreements (the “August 2020 Exchange and Redemption Agreements”) as more fully discussed in Notes 11 and 12.

2019 Debentures

During 2019, the Company closed various offerings of the 2019 Debentures with principal balances, including late-payment penalties, aggregating $4.5 million. The 2019 Debentures, which were due, as amended, on December 31, 2019, were non-convertible. On November 7, 2021, the Company and the debenture holders exchanged the full $4.5 million principal balance, including the late-payment penalties, of the 2019 Debentures and $1.5 million of associated accrued interest for shares of the Company’s Series P Convertible Redeemable Preferred Stock (the “Series P Preferred Stock”) under the terms of Exchange and Amendment Agreements (the “November 2021 Exchange Agreements”). Mr. Diamantis is also a party to the November 2021 Exchange Agreements as he was a guarantor of one of the promissory notes that was included in the exchange. The November 2021 Exchange Agreements are also discussed in Notes 11 and 12.

October 2022 Debentures

On October 12, 2022, the Company issued non-convertible, non-interest bearing debentures to institutional investors 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 are secured by a portion of the Company’s investment in InnovaQor Series B-1 Preferred Stock. During the year ended December 31, 2022, the Company recorded $50,000 of non-cash interest expense in connection with these debentures. 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 Company has made all required payments to date.

During the years ended December 31, 2022 and 2021, the Company incurred interest expense on debentures totaling $1.5 million and $2.2 million, respectively, of which $50,000 was amortization of original issue discount in 2022 and the remainder in both 2022 and 2021 was default interest. At December 31, 2022 and 2021, accrued interest on debentures was $5.1 million and $3.6 million, respectively.

See Notes 3, 8 and 12 for a discussion of the dilutive effect of the outstanding convertible debentures, and warrants as of December 31, 2022. During the years ended December 31, 2022 and 2021, the Company recorded $330.5 million and $490.2 million of deemed dividends as a result of the down round provisions of warrants and debentures as more fully discussed in Notes 2 and 11.