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LONG TERM DEBT

6 Months Ended

Jun. 30, 2022

10. LONG-TERM DEBT

Long-term Debt – Related Parties

On July 14, 2018, the Company entered into an exchange agreement with Dr. Faupel, whereby Dr. Faupel agreed to exchange outstanding amounts due to him for loans, interest, bonus, salary and vacation pay in the amount of $660,895 for a $207,111 promissory note dated September 4, 2018. On July 20, 2018, the Company entered into an exchange agreement with Dr. Cartwright, whereby Dr. Cartwright agreed to exchange outstanding amounts due to him for loans, interest, bonus, salary and vacation pay in the amount of $1,621,499 for a $319,000 promissory note dated September 4, 2018 that incurs interest at a rate of 6% per annum.

On July 24, 2019, Dr. Faupel and Mr. Cartwright agreed to an addendum to the debt restructuring exchange agreement and to modify the terms of the original exchange agreement. Under this modification Dr. Faupel and Mr. Cartwright agreed to extend the note to be due in full on the third anniversary of that agreement.

On February 19, 2021, the Company entered into new promissory notes replacing the original notes from September 4, 2018, with Mark Faupel and Gene Cartwright. For Dr. Cartwright the principal amount on the new note was $267,085, matures on February 18, 2023, and will accrue interest at a rate of 6.0%. For Dr. Faupel the principal amount on the new note was $153,178, matures on February 18, 2023, and will accrue interest at a rate of 6.0%. The modifications extended the maturity date on both of the notes.

On February 19, 2021, the Company exchanged $100,000 and $85,000 of long-term debt for Dr. Cartwright and Dr. Faupel in exchange for 100 and 85 shares of Series F2 Preferred Stock, respectively.

The table below summarizes the detail of the exchange agreement:

For Dr. Faupel:

Salary	$	134
Bonus		20
Vacation		95
Interest on compensation		67
Loans to Company		196
Interest on loans		149
Total outstanding prior to exchange		661

Amount forgiven in prior years		(454	)
Amount exchanged for Series F-2 Preferred Stock		(85	)
Total interest accrued through December 31, 2021		39
Balance outstanding at December 31, 2021	$	161

Interest accrued through June 30, 2022		5
Balance outstanding at June 30, 2022	$	166

For Dr. Cartwright

Salary	$	337
Bonus		675
Loans to Company		528
Interest on loans		81
Total outstanding prior to exchange		1,621

Amount forgiven in prior years		(1,302	)
Amount exchanged for Series F-2 Preferred Stock		(100	)
Total interest accrued through December 31, 2021		62
Balance outstanding at December 31, 2021	$	281

Interest accrued through June 30, 2022		8
Balance outstanding at June 30, 2022	$	289

On June 22, 2022, we entered into exchange agreements with Dr. Cartwright and Dr. Faupel. Pursuant to the agreements, $29,776 of related-party payables, $31,285 of short-term related-party debt and $8,939 of accrued expenses owed to these executives will be converted into shares of common stock and/or warrants valued at $70,000, upon successful completion of a financing of at least $4,000,000.

On March 22, 2021, the Company entered into an exchange agreement with Richard Fowler. As of December 31, 2020, the Company owed Mr. Fowler $546,214 ($412,624 in deferred salary and $133,590 in accrued interest). The Company exchanged $50,000 of the amount owed of $546,214 for 50 share of Series F-2 Preferred Shares (convertible into 200,000 common stock shares), and a $150,000 unsecured note. The note accrues interest at the rate of 6% (18% in the event of default) beginning on March 22, 2022 and is payable in monthly installments of $3,580 for four years, with the first payment due on March 15, 2022. The effective interest rate of the note is 6.18%. During the six months ended June 30, 2022, Mr. Fowler forgave $24,785 of the outstanding balance and may forgive up to $234,875 of the remaining deferred compensation if the Company complies with the repayment plan described above. The reduction in the outstanding balance met the criteria for troubled debt. The basic criteria are that the borrower is troubled, i.e., they are having financial difficulties, and a concession is granted by the creditor. The outstanding principal amount owed on the note was $137,423 as of June 30, 2022, of which $35,749 is included in “Current portion of long-term debt, related parties“ and the remainder of which is included in “Long-term debt, related parties“ on the consolidated balance sheets.

Future debt obligations as of June 30, 2022 for debt owed to related parties are as follows (in thousands):

Year	Amount
2022	$	17
2023		492
2024		39
2025		41
2026		3
Thereafter		-
Total	$	592

As of June 30, 2022, $490,278 of the debt owed to related parties is included in “Current portion of long-term debt, related parties“ and $101,674 is included in “Long-term debt, related parties“ within the unaudited consolidated balance sheet. As of December 31, 2021, the outstanding debt owed was included in “Long-term debt, related parties“ within the consolidated balance sheet.

Small Business Administration Loan

On May 4, 2020, the Company received a loan from the Small Business Administration (SBA) pursuant to the Paycheck Protection Program (PPP) as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in the amount of $50,184. The loan accrued interest at a rate of 1.00%, and matured in 24 months, with the principal and interest payments being deferred until the date of forgiveness with interest accruing, then converting to monthly principal and interest payments, at the interest rate provided herein, for the remaining eighteen (18) months. As of June 30, 2022 and December 31, 2021, the outstanding balance was nil and $11,181, respectively, and is included in “Current portion of long-term debt“ within the consolidated balance sheets. Accrued interest on the note was nil and $385 as of June 30, 2022 and December 31, 2021, respectively.

10% Senior Unsecured Convertible Debenture

On May 17, 2021, the Company issued 10% Senior Unsecured convertible debentures to investors, which mature on May 17, 2024 (the “Maturity Date“). The Company subscribed $1,130,000 of the $1,000 convertible debentures. The terms of the debentures are as follows: 1) the principal amount of some or all of the convertible debentures and accrued interest are convertible into common stock shares at the holder’s option, at a price of $0.50 per common stock share (the “conversion price“), subject to adjustment in certain events, at any time prior to maturity date; 2) upon successful uplist to a U.S. National Exchange, the note will automatically convert into the uplisting financing; 3) each debenture unit will have a right to 1,000 warrants for common stock shares, warrants have an exercise price of $0.80 and an expiration date of May 17, 2023; 4) if a Change of Control (as defined in the Convertible Debenture Certificate) occurs prior to the Maturity Date, unless the holder elects in writing to convert the Convertible Debentures into common shares, the Company will repay in cash upon the closing of such Change of Control all outstanding principal and accrued interest under each Convertible Debenture plus a Change of Control premium equal to an additional 3% of the outstanding principal sum under such Convertible Debenture. Prior to the closing of an Change of Control, in lieu of repayment as set forth in the preceding sentence, the holder has the right to elect in writing to convert, effective immediately prior to the effective date of such Change of Control, all outstanding principal and accrued Interest under the Convertible Debentures into common shares at the Conversion Price; 5) Subject to a holder‘s option of electing conversion prior to the Redemption Date (as such term is defined below), on or after the date that is 24 months from the Closing Date if the daily volume weighted average trading price of the common shares is $1.50 per common share or more for each trading day over a 30 consecutive trading day period, the Company may, at any time (the “Redemption Date“), at its option, redeem all, or any portion of the Convertible Debentures for either: (i) a cash payment (in the form of a certified cheque or bank draft) that is equal to all outstanding principal and accrued interest under each Convertible Debenture up to the Redemption Date; or (ii) by issuing and delivering common shares to the holders of Convertible Debentures at a deemed price of $0.50 per common share that is equal to all outstanding principal and accrued interest under each Convertible Debenture up to the Redemption Date, or any combination of (i) or (ii), upon not less than 30 days and not more than 60 days prior written notice in the manner provided in the Debenture Certificate, to the holder of Convertible Debentures.

At June 30, 2022 and December 31, 2021, the balance due on the 10% Senior Secured Convertible Debenture was $1,130,000 and total accrued interest was $57,528 and $73,326, respectively. The bond payable discount and unamortized debt issuance costs as of June 30, 2022 and December 31, 2021 are presented below (in thousands):

	June 30, 2022			December 31, 2021
10% Senior Unsecured Convertible Debentures	$	1,130		$	1,130
Debt Issuance costs to be amortized		(55	)		(69	)
Debt Discount		(191	)		(241	)
Long-term convertible debt	$	884		$	820

6% Unsecured Promissory Note

On July 9, 2020, we entered into an exchange agreement with Mr. Bill Wells (a former employee). In lieu of agreeing to dismiss approximately half of what was owed to him, or $220,000, Mr. Wells received the following: (i) cash payments of $20,000; (ii) an unsecured promissory note in the amount of $90,000 to be executed within 30 days of completing new financing(s) totaling at least $3.0 million, (iii) 66,000 common share stock options that vest at a rate of 3,667 per month and have a $0.49 exercise price (if two consecutive payments in (ii) are not made the stock options will be canceled and a cash payment will be required; and (iv) the total amount of forgiveness by creditor of approximately $110,000 shall be prorated according to amount paid.

During the year ended December 31, 2021, the Company closed a financing round that exceeded the $3.0 million threshold and issued an unsecured promissory note in the amount of $97,052 to Mr. Wells. The note, for which monthly installment payments of $5,000 are due, matures 18 months after the issuance date and incurs interest at a rate of 6.0% per annum. During the six months ended June 30, 2022, the Company made payments of $50,000 to Mr. Wells, which resulted in forgiveness of $50,000 of the remaining balance of accrued compensation. The reduction in the outstanding balance met the criteria for troubled debt. The basic criteria are that the borrower is troubled, i.e., they are having financial difficulties, and a concession is granted by the creditor.

As of June 30, 2022, the outstanding principal balance on the note was $47,052, and is included in “Current portion of long-term debt“ within the consolidated balance sheets. As of December 31, 2022, the outstanding balance on the note was $97,052, of which $75,000 was included in “Current portion of long-term debt“ and $22,052 was included in “Long-term debt.“ As of June 30, 2022 and December 31, 2021, accrued interest on the note was $4,103 and $2,106, respectively.