Notes Payable | 10. Notes Payable The following two tables summarize outstanding notes payable as of June 30, 2021 and December 31, 2020, respectively (in thousands): Maturity Date Stated Interest Rate Incremental Payment in Kind Interest Incremental Default Interest Conversion Price Principal Remaining Debt Discount Remaining Embedded Conversion Option Carrying Value Senior secured promissory note payable, in default In default 12.25 % +3.00 % +5.00 % n/a $ 15,000 (3,869 ) - $ 11,131 Convertible promissory notes payable, in default: Seller Note issued 8/6/2020 In default 12.00 % n/a +5.00 % $ 0.10 4,000 - - 4,000 Leviston Note issued 4/20/2021 In default 5.00 % n/a +10.00 % $ 0.1361 815 (656 ) $ 1,437 1,596 Leviston Note issued 5/14/2021 In default 5.00 % n/a +10.00 % $ 0.1361 815 (710 ) 1,407 1,512 Total convertible promisory notes payable, in default 5,630 (1,366 ) 2,844 7,108 Convertible promissory notes payable, related parties, in default: Convertible promissory notes (HealthTronics), related parties In default 12.0 % n/a +2.0 % $ 0.10 1,372 - - 1,372 Convertible promissory notes (Stolarski), related parties In default 12.0 % n/a +2.0 % $ 0.10 224 - - 224 Total convertible promisory notes payable, related parties, in default 1,596 - - 1,596 SBA loan #1 May 28, 2022 1.00 % n/a n/a n/a 464 - - 464 SBA loan #2 February 20, 2026 1.00 % n/a n/a n/a 1,034 - - 1,034 Total SBA loans outstanding 1,498 - - 1,498 Total debt outstanding, including amounts in default 23,724 (5,235 ) 2,844 21,333 Less: current maturities, including notes in default (22,713 ) 5,235 (2,844 ) (20,322 ) Total long-term debt as of June 30, 2021 $ 1,011 $ - $ - $ 1,011 Maturity Date Stated Interest Rate Incremental Payment in Kind Interest Incremental Default Interest Conversion Price Principal Remaining Debt Discount Carrying Value Senior secured promissory note payable, in default In default 12.25 % +3.00 % +5.00 % n/a $ 15,000 (4,324 ) $ 10,676 Convertible promissory notes payable, in default: Seller Note issued 8/6/2020 In default 12.00 % n/a +5.00 % $ 0.10 4,000 - 4,000 Convertible promissory notes payable, related parties, in default: Convertible promissory notes (HealthTronics), related parties In default 12.0 % n/a +2.0 % $ 0.10 1,372 - 1,372 Convertible promissory notes (Stolarski), related parties In default 12.0 % n/a +2.0 % $ 0.10 224 - 224 Total convertible promisory notes payable, related parties, in default 1,596 - 1,596 SBA loan #1 May 28, 2022 1.00 % n/a n/a n/a 464 - 464 Total debt outstanding, including amounts in default 21,060 (4,324 ) 16,736 Less: current maturities, including notes in default (20,917 ) 4,324 (16,593 ) Total long-term debt as of December 31, 2020 $ 143 $ - $ 143 Senior secured promissory note payable, in default (“Senior Secured Note”) - The debt issuance costs and debt discount related to the Senior Secured Note were capitalized as a reduction in the principal amount and are being amortized to interest expense over the life of the Senior Secured Note. The amortization of the debt issuance costs and debt discount for the three and six months ended June 30, 2021 was $227 thousand and $445, respectively, and is included in interest expense. Accrued interest related to the Senior Secured Note was $950 thousand and $642 thousand at June 30, 2021 and December 31, 2020, respectively. Interest expense on the Senior Secured Note was $773 thousand and $1.5 million for the three months and six months ended June 30, 2021, respectively. Convertible promissory notes payable, in default (“Seller Note”) - The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be bifurcated. Upon adoption of ASC 2020-6 effective January 1, 2021, the convertible promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model. April 2021 Securities Purchase Agreement and Warrants (In default) - On April 20, 2021, the Company entered into a Securities Purchase Agreement (the “Leviston Purchase Agreement”), with Leviston Resources, LLC, an accredited investor (“Leviston”) for the sale by the Company in a private placement (the “Private Placement”) of (i) the Company’s future advance convertible promissory note in an aggregate principal amount of up to $3.4 million (the “Leviston Note”) and (ii) a warrant to purchase an additional 16,666,667 shares of common stock of the Company (the “Leviston Warrant”). The Leviston Warrant has an exercise price of $0.18 per share and a four-year term. The closing of the Private Placement occurred on April 20, 2021 (the “Leviston Closing Date”). As noted above, on April 20, 2021, the Company issued the Leviston Note to the Purchaser in an aggregate principal amount of up to $3.4 million (the “Aggregate Amount”), which shall be advanced in disbursements by the Purchaser (“Leviston Disbursements”), as set forth in the Leviston Note. On May 14, 2021, the Leviston Note was amended to increase the Aggregate Amount to $4.2 million. On April 21, 2021, the Purchaser advanced a Leviston Disbursement of $750 thousand, which is net of an original issue discount of 8%. On May 14, 2021, the Purchaser advanced a second Leviston Disbursement of $750 thousand, also net of an original issue discount of 8%. A $250 thousand Leviston Disbursement was made on September 3, 2021, which was subject to the same terms and conditions of the April and May Leviston Disbursements. Warrant issuances to Leviston in April and May 2021 On each of April 20, 2021 and May 14, 2021, the Company also issued 3,968,254 warrants to Leviston for a total of 7,936,508 shares of common stock. The Leviston Warrants contain certain ratchet provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. As a result, the Company determined that these warrants meet the definition of a derivative liability. See details of the associated warrant issuances at Note 11 – Warrants. Embedded Conversion Option The disbursements made in April and May 2021 under the Leviston Notes included a Conversion Option that meets the definition of a derivative liability and, accordingly, is required to be bifurcated. The fair value of Conversion Option liability was determined by using a binomial pricing model. Issuance date (1) Issuance date (1) Binomial Assumptions April 20, 2021 May 14, 2021 June 30, 2021 Change Principal $ 815,217 $ 815,217 $ 1,630,434 Conversion Price (1) $ 0.18 $ 0.18 $ 0.1361 Interest Rate (annual) (2) 0.07 % 0.06 % 0.07 % Volatility (annual) (3) 69.60 % 69.60 % 77.20 % Time to Maturity (Years) 1.0 1.0 0.9 Fair Value of Conversion Option $ 1,354,858 $ 1,385,167 $ 2,844,636 104,611 (1) Based on the terms provided in Convertible Promissory notes dated April 20 and May 14, 2021. (2) Interest rate for U.S. Treasury Bonds, as of each presented period ending date, as published by the U.S. Federal Reserve. (3) Based on the historical daily volatility of the Company as of each presented period ending date. Interest rates on Leviston Notes, Conversion Option, and Loss on Issuance The Leviston Disbursements in April and May 2021 bear interest at the rate of 5% per annum and the default rate of 15%. The Leviston Note contains a conversion option (“Conversion Option”) and because it is in default, the Leviston Note it is convertible into common shares of the Company at a conversion price of 75% of the lowest VWAP during the ten trading days ending on the conversion date. The Conversion Option within the Leviston Note is required to be bifurcated at fair value, which was approximately $1.4 million on the April disbursement and $1.4 million on the May disbursement, and which resulted in additional debt discount being recorded at each disbursement date. Because the combined fair value of the Leviston Warrants and the Conversion Option exceed the face value of the note, the additional amount beyond the face value is recorded as a loss on issuance of $1.4 million on the April disbursement and $1.1 million on the May disbursement. The remaining disbursements up to the Aggregate Amount are subject to the satisfaction of certain terms and conditions set forth in the Leviston Note. Leviston Disbursements bear an interest at a rate of five percent (5%) per annum and have a maturity date of twelve (12) months from the date of issuance. The Leviston Note is convertible at the option of the holder into shares of the common stock of the Company at a conversion price per share equal to the lesser of (i) $0.18, and (ii) ninety percent (90%) of the closing price for a share of common stock reported on the OTCQB on the effective date of the Registration Statement (as defined below). The Leviston Note contains customary events of default and covenants, including limitations on incurrences of indebtedness and liens. Pursuant to the Leviston Purchase Agreement, the Company has agreed, within a reasonable period of time following the Leviston Closing Date, and in any event prior to any Leviston Disbursement under the Leviston Note subsequent to the initial Leviston Disbursement, to enter into a security agreement in favor of the Leviston, securing the Company’s obligations under the Leviston Note. The rights of Leviston to receive payments under the Leviston Note are subordinate to the rights of North Haven Expansion pursuant to a subordination agreement, that the Company and Leviston entered into with North Haven Expansion on April 20, 2021, in connection with the Private Placement (the “Subordination Agreement”). In connection with the Leviston Purchase Agreement, the Company entered into a registration rights agreement with the Leviston on April 20, 2021 (the “Leviston Registration Rights Agreement”) pursuant to which the Company agreed to file a registration statement (the “Registration Statement”) with the SEC no later than thirty days following the Leviston Closing Date for the registration of 100% of the maximum number of the shares issuable upon conversion of the Leviston Note and exercise of the Leviston Warrants issued pursuant to the Leviston Purchase Agreement (the “Leviston Registrable Securities”). The Company shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act of 1933, as amended (the “Securities Act”), until all Leviston Registrable Securities have been sold, or may be sold without the requirement to be in compliance with Rule 144(c)(1) of the Securities Act and otherwise without restriction or limitation pursuant to Rule 144 of the Securities Act, as determined by the counsel to the Company. The Company has yet to file the Registration Statement and, under the terms of the Leviston Registration Rights Agreement, it is obligated to pay in cash a one-time aggregate amount of $250 thousand to the holders of the Leviston Notes, plus 1% of the outstanding principal for each 30-day period during which the Company continues not to have in-place an effective Registration Statement. On August 31, 2021, Leviston notified the Company that it was in default of the Leviston Purchase Agreement effective June 11, 2021 for failure to timely file a Registration Statement. From the date of the default, interest on the amounts due to Leviston is calculated at the default interest rate of 15% in addition to the registration penalties stated above. Convertible promissory notes payable (HealthTronics), in default – As the Seller Note (as defined in Note 10) was not repaid prior to January 1, 2021, HealthTronics may elect to convert the outstanding principal amount plus any accrued but unpaid interest thereon into shares of the Company’s common stock, at a conversion price of $0.10 per share. The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be bifurcated. Upon adoption of ASC 2020-6 effective January 1, 2021, the convertible promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model. Convertible promissory notes payable (Stolarski), in default – As the Stolarski Note was not repaid prior to January 1, 2021, the holder may elect to convert the outstanding principal amount plus any accrued but unpaid interest thereon into shares of common stock at a conversion price of $0.10 per share. The Company evaluated embedded conversion features within the convertible promissory note and determined that the conversion feature does not require to be bifurcated. Upon adoption of ASC 2020-6 effective January 1, 2021, the convertible promissory note is accounted for as a single liability due to the elimination of the beneficial conversion feature accounting model. SBA Loan #1 - SBA Loan #2 – All or a portion of SBA Loan #2 may be fully or partially forgiven by the SBA upon application by the Company not later than June 2022 in accordance with SBA regulations. The ultimate forgiveness of SBA Loan #2 is also contingent upon regulatory authorities concurring with management’s good faith assessment that the current economic uncertainty made the loan request necessary to support ongoing operations. If, despite the Company’s good-faith belief that given the circumstances the Company satisfied all eligibility requirements for SBA Loan #2, the Company is later determined to have violated any applicable laws or regulations or it is otherwise determined that the Company was ineligible to receive SBA Loan #2, the Company may be required to repay SBA Loan #2 in its entirety and/or be subject to additional penalties. In the event SBA Loan #2, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. As of June 30, 2021, $23 thousand is included in current liabilities and the remainder of the $1.0 million loan balance is included in non-current liabilities in the accompanying Condensed Consolidated Balance Sheets. |