Notes Payable | 13. Notes payable The following two tables summarize outstanding notes payable as of December 31, 2021 and December 31, 2020 (in thousands): Maturity Date Interest Rate Conversion Price Principal Remaining Debt Discount Remaining Embedded Conversion Option Carrying Value Senior secured promissory note payable, in default In default 20.25 % n/a $ 15,000 (3,414 ) - $ 11,586 Convertible promisory notes payable, in default In default 15.4 % $ 0.1071 6,445 (1,099 ) 6,255 11,601 Convertible promisory notes payable, related parties, in default In default 14.0 % $ 0.10 1,596 - - 1,596 SBA loan #2 February 20, 2026 1.00 % n/a 1,033 - - 1,033 Advances on future cash receipts March 11, 2022 n/a n/a 1,500 (1,054 ) - 446 Total debt outstanding, including amounts in default 25,574 (5,567 ) 6,255 26,262 Less: current maturities, including notes in default (24,699 ) 5,567 (6,255 ) (25,387 ) Total long-term debt as of December 31, 2021 $ 875 $ - $ - $ 875 Maturity Date Stated Interest Rate Conversion Price Principal Remaining Debt Discount Carrying Value Senior secured promissory note payable, in default In default 20.25 % n/a $ 15,000 (4,324 ) $ 10,676 Convertible promissory notes payable, in default: Seller Note In default 17.00 % $ 0.10 4,000 - 4,000 Convertible promissory notes payable, related parties, in default: Convertible promissory notes (HealthTronics), related parties In default 14.0 % $ 0.10 1,596 - 1,596 SBA loan #1 May 28, 2022 1.00 % 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 twelve months ended December 31, 2021 was $910 thousand and is included in interest expense. Accrued interest related to the Senior Secured Note was $1.6 million and $642 thousand at December 31, 2021 and December 31, 2020, respectively. Interest expense on the Senior Secured Note was $3.1 million and $1.5 million for the years ended December 31, 2021 and 2020, respectively. Convertible promissory notes payable, in default (“Seller Note”) - The Seller Note matured on August 6, 2021 and was not repaid. The Company’s failure to pay the outstanding principal balance when due constituted an event of default under the terms of the Seller Note and, accordingly, it began accruing additional interest of 5.0% in addition to the 12.0% initial rate, as of the date of the default. As of December 31, 2021 and December 31, 2020, the Seller Notes had outstanding accrued interest of $761 thousand and $192 thousand, respectively. 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) - 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. In addition, a $500 thousand disbursement was made on September 3, 2021 in accordance with notes issued to five institutional investors (the “Five Institutions’ Notes”), which were subject to substantially the same terms and conditions as the Leviston Disbursements. Accrued interest related to the Securities Purchase Agreement and Warrants was $169 thousand at December 31, 2021. Interest expense on the Securities Purchase Agreement and Warrants was $169 thousand for the year ended December 31, 2021. December 2021 Advance on Future Receipts Financing Warrant issuances to Leviston and Five Institutions’ in April, May and September 2021 On April 20, 2021, May 14, 2021 and September 3, 2021, respectively, Leviston was issued 3,968,254, 3,968,254 and 1,322,751, warrants for shares of common stock. On September 3, 2021, the Company also issued a total of 2,777,779 warrants for shares of common stock to Five Institutions. After evaluating the terms of the warrants the Company determined that these warrants meet the definition of a derivative liability and accordingly, were recorded as additional discount against the debt at issuance. See details of the associated warrant issuances at Note 15 – Warrant Liabilities. Embedded Conversion Option Liability The disbursements made in April, May and September 2021 under the Leviston Notes and the Five Institutions’ 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 (dollars in thousands): Valuation at December 31, 2021 Principal Conversion Price (1) Interest Rate (annual) (2) Volatility (annual) (3) Time to Maturity (Years) Fair Value of Conversion Option Leviston Issuances $ 1,902 0.109 0.16 % 303.20 % 0.4 $ 5,204 Five Institution Issuances 544 0.109 0.26 % 249.00 % 0.7 1,051 $ 2,446 $ 6,255 (1) Based on the terms provided in the warrant agreement to purchase common stock of the Company as of December 31, 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. Valuation at issue dates Principal Conversion Price (1) Interest Rate (annual) (2) Volatility (annual) (3) Time to Maturity (Years) Fair Value of Conversion Option Leviston Issuances $ 1,902 0.18 0.07 % 73.10 % 1.0 $ 3,206 Five Institution Issuances 544 0.18 0.08 % 80.10 % 1.0 932 $ 2,446 $ 4,138 (1) Based on the terms provided in the warrant agreement to purchase common stock of the Company on the stated issuance dates. (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 and Five Institutions’ Notes, Conversion Option, and Loss on Issuance The Leviston Disbursements and Five Institutions’ Disbursements in April, May and September 2021, bear interest at the rate of 5% per annum and the default rate of 15%. The Leviston Note and Five Institutions’ Notes contains a conversion option (“Conversion Option”) and because they are in default, the Leviston and Five Institutions’ Notes are 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. For the Five Institutions’ Note this conversion rate shall be no lower than $0.01. The Conversion Option within the Leviston and Five Institutions’ Notes are 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 $1.4 million on the September disbursements, which resulted in additional debt discounts being recorded at each disbursement date. Because the combined fair value of the applicable warrants and conversion option exceeded 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 and $1.1 million on the September disbursement. The remaining disbursements up to the Aggregate Amount are subject to the satisfaction of certain terms and conditions set forth in the applicable notes. The 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 and Five Institutions’ Notes are 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 and Five Institutions’ Note contains customary events of default and covenants, including limitations on incurrences of indebtedness and liens. Pursuant to the Leviston Purchase Agreement and purchase agreements with the Five Institutions (the “Five Institutions’ Purchase Agreements”), the Company has agreed, within a reasonable period of time following the applicable 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 or the Five Institutions, as applicable, securing the Company’s obligations under the applicable notes. The rights of Leviston and the Five Institutions to receive payments under the applicable notes are subordinate to the rights of North Haven Expansion pursuant to the subordination agreements that the Company and Leviston, and the Company and the Five Institutions entered into with North Haven Expansion on April 20, 2021 and September 3, 2021, respectively, 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. The Company also entered into registration rights agreements with each of the Five Institutions on September 3, 2021. The terms and conditions of the Five Institutions’ registration rights agreements are substantially similar to the Leviston Registration Rights Agreement, with two exceptions: (1) the Five Institutions may be entitled to a pro-rata share of the $250 thousand one-time aggregate amount (approximately $56 thousand) and (2) the 1% of outstanding principal payment amount for each 30-day period is capped at 5% of outstanding principal. Convertible promissory notes payable (HealthTronics), in default - As the Seller Note 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. September 2021 Advances on Future Receipts Financing The Company determined that these warrants meet the definition of a derivative liability and accordingly, were recorded as additional discount against the debt at issuance. 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 December 31, 2021, $158 thousand is included in current liabilities and the remainder of the $875 thousand loan balance is included in non-current liabilities in the accompanying consolidated balance sheets. |