Note 8 — Debt

Original Issue Discount Subordinated Debentures

In June 2022, the Company commenced offerings of original issue discount subordinated debentures. As of June 30, 2024, the Company has completed multiple closings and issued debentures in the aggregate principal amount of $5,277,241, of which $189,613 was issued with issuances costs of $26,113, and $2,086,977 of principal and $472,178 of interest was converted into shares of the Company’s stock for the six months ended June 30, 2024. The debentures contain an original issue discount of 15%, or an aggregate original issue discount of $726,706. As a result, the total purchase price was $4,550,535. The debentures bear interest at a rate of 17.5% per annum and are due from January 2024 through January 2025. The outstanding principal amount and all accrued interest is due and payable on the earlier of (i) the completion of the Company’s next equity financing in which it receives gross proceeds in excess of $20 million, (ii) twenty-four months after the date of issuance or (iii) within 30 days after election of repayment from the holder so long as the election is after the 6-month anniversary of the debenture. The Company may voluntarily prepay the debentures in whole or in part without premium or penalty. The debentures contain customary events of default for a loan of this type. The debentures are unsecured and are subordinated in right of payment to the prior payment in full of all senior indebtedness and are pari passu in right of payment to any other unsecured indebtedness incurred by the Company in favor of any third party. The outstanding principal balance of the debentures was $2,518,110 and $4,415,476, the unamortized debt issuance cost was $17,334 and $84,774 and accrued interest was $778,810 and $1,053,260 as of June 30, 2024 and December 31, 2023, respectively.

On February 21, 2024, the Company received a judgement on an original issue discount subordinated debenture dated August 26, 2022, whereby the outstanding amount of the debenture was amended to $399,306, inclusive of legal fees. On May 30, 2024, the Company entered into a memorandum of understanding with the holder and the parties executed a conversion agreement to convert a portion of the outstanding balance of the debenture totaling $256,765 into 79,840 shares of common stock and the outstanding balance of $142,540 to be exchanged for prepaid warrants exercisable for 44,322 warrant shares. As of June 30, 2024, the outstanding principal balance of the debenture was $0 and accrued interest was $0.

Original Issue Discount Secured Subordinated Note

On July 29, 2022, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which it sold an original issue discount secured subordinated note in the principal amount of $2,272,727 to such investor. The note contains an original issue discount of 12%, or $272,727. As a result, the total purchase price was $2,000,000, the proceeds of which were used to fund the acquisition of Ceautamed. The note shall bear interest at the rate of 16% per annum and matures on July 29, 2027. The outstanding principal and all accrued interest shall be amortized on a 60-month straight-line basis. The Company may prepay the principal and all accrued and unpaid interest on the note without penalty, in whole or in part; provided however, in no event before January 15, 2023, unless with the explicit prior written approval of the holder. The note contains customary events of default for a loan of this type. The note is guaranteed by BSNM, DSO, Nexus, GSP and Ceautamed and is secured by a security interest in all of the assets of the Company and such guarantors; provided that such security interest is subordinate to the rights of the lenders under any senior indebtedness (as defined in the note). On January 26, 2024, the note was modified increasing the principal amount to $2,800,452 inclusive of interest and finance fees, and the interest changed to 13%. For the six months ended June 30, 2024, $1,600,598 was converted into shares of common stock. The outstanding principal balance of the note was $1,199,854 and $2,182,853, the unamortized debt issuance cost was $54,625 and $172,807 and accrued interest was $66,666 and $494,700 as of June 30, 2024 and December 31, 2023, respectively.

Acquisition Notes – Related Parties

On July 1, 2021, the Company issued a 6% secured subordinated promissory note in the principal amount of $3,000,000 to a related party, Sasson E. Moulavi (“Dr. Moulavi”), in connection with the acquisition of DSO. This note accrued interest at 6% per annum and the outstanding principal and interest was amortized on a straight-line basis and was payable quarterly in accordance with the amortization schedule, with all amounts due and payable on July 1, 2024. On November 29, 2022, the Company entered into a letter agreement with Sasson E. Moulavi to amend the terms of the note. Pursuant to the letter agreement, the parties agreed to amend and restate the note to amend the amortization schedule, with the first payment deferred until February 15, 2023 and all amounts due and payable on August 15, 2024. In exchange for the agreement of Dr. Moulavi to enter into the letter agreement, the Company agreed to (i) issue to Dr. Moulavi 100,000 shares of common stock under the Company’s 2022 Equity Incentive Plan and (ii) pay to Dr. Moulavi a fee of $50,000 in cash, which shall be paid upon completion of the Company’s anticipated debt financing and is included in debt balance. On February 6, 2024, $123,930 of principal was converted into 121,500 shares of common stock. On February 21, 2024, $100,400 of principal was converted into 125,500 shares of common stock. On February 28, 2024, $126,028 of principal was converted into 128,600 shares of common stock. On February 29, 2024, the outstanding balance and accrued interest of $1,038,592 and $167,667, respectively, was converted into 12,063 shares of series C preferred stock and 53,659 shares of common stock. The outstanding principal balance of this note was $0 and $1,388,950 and accrued interest was $0 and $37,697 as of June 30, 2024 and December 31, 2023, respectively.

On November 8, 2021, the Company issued a 5% secured subordinated promissory note in the principal amount of $1,900,000 to related parties, Justin Francisco and Steven Rubert, in connection with the acquisition of Nexus. This note accrued interest at 5% per annum and the outstanding principal and interest was amortized on a straight-line basis and was payable quarterly in accordance with the amortization schedule attached to the note, with all amounts due and payable on November 8, 2024. During the year ended December 31, 2023, the outstanding balance including accrued interest was converted into series B preferred stock. As of June 30, 2024, the outstanding principal balance of this note was $0 and accrued interest was $0.

On July 29, 2022, the Company issued secured subordinated convertible promissory notes in the aggregate principal amount of $2,150,000 in connection with the acquisition of Ceautamed, which are partially with a related party. The notes bore interest at the rate of 5% per annum with all principal and accrued interest being due and payable in one lump sum on July 29, 2025; provided that upon an event of default (as defined in the notes), such interest rate shall increase to 10%. On January 29, 2024, the notes were forgiven as part of the transaction in which the assets of Ceautamed were contributed into First Health. The outstanding principal balance of these notes was $0 and accrued interest was $0 as of June 30, 2024 and December 31, 2023.

On July 29, 2022, the Company issued secured subordinated promissory notes in the aggregate principal amount of $2,150,000 in connection with the acquisition of Ceautamed, which are partially with a related party. The notes shall bear interest at the rate of 5% per annum and mature on July 29, 2025; provided that upon an event of default (as defined in the notes), such interest rate shall increase to 10%. The outstanding principal and all accrued interest shall be amortized on a five-year straight-line basis and payable quarterly in accordance with the amortization schedule to the notes. The Company may redeem all or any portion of the notes at any time without premium or penalty. The notes contain customary covenants and events of default for loans of this type, including upon any default under the senior indebtedness (as defined in the notes). The notes are guaranteed by Ceautamed and are secured by a security interest in all of the assets of such guarantors; provided that such security interest is subordinate to the rights of the lenders under any such senior indebtedness. On January 29, 2024, $1,097,997 of this note was forgiven as part of the transaction in which the assets of Ceautamed were contributed into First Health. Also on January 29, 2024, the remaining balance of $1,094,496 was modified to $351,293. The outstanding principal balance of these notes was $51,193 and $2,189,493 and accrued interest was $1,287 and $237,430 as of June 30, 2024 and December 31, 2023, respectively.

On July 29, 2022, the Company issued secured subordinated promissory notes in the aggregate principal amount of $1,300,000 in connection with the acquisition of Ceautamed, which are partially with a related party. The notes bore interest at the rate of 5% per annum with all principal and accrued interest being due and payable in one lump sum ninety (90) days from the date of the note; provided that upon an event of default (as defined in the notes), such interest rate shall increase to 10%. On November 28, 2022, the Company entered into letter agreements with the holders of most of the notes to amend the terms of these notes. Pursuant to letter agreements, the parties agreed to extend the maturity date to June 1, 2023 and agreed to a seven month payment schedule, with the first payment due December 1, 2022. The parties also agreed to increase the default interest rate from 10% to 15%. The Company also agreed that if an event of default (as defined in the notes) has occurred and is continuing, then the Company shall not create any senior indebtedness (as defined in the notes) without the consent of the holders of a majority of the principal amount of the notes. In exchange for the agreement of the holders to enter into the letter agreements, the Company agreed to pay certain amendment fees as more particularly described in the letter agreements. The Company is in the process of negotiating a similar extension of one remaining note in the principal amount of $100,000. The Company may redeem all or any portion of the notes at any time without premium or penalty. The notes contain customary covenants and events of default for loans of this type, including upon any default under the senior indebtedness (as defined in the notes). The notes are guaranteed by Ceautamed and are secured by a security interest in all of the assets of such guarantors; provided that such security interest is subordinate to the rights of the lenders under any such senior indebtedness. On January 29, 2024, $1,210,000 of this note was forgiven as part of the transaction in which the assets of Ceautamed were contributed into First Health. The outstanding principal balance of this note was $90,000 and $90,000 and accrued interest was $8,775 and 6,500 as of June 30, 2024 and December 31, 2023, respectively.

Other Promissory Notes and Cash Advances

Promissory Notes

On July 1, 2021, the Company entered into a loan agreement with Diamond Creek Capital, LLC for a term loan in the principal amount of up to $3,000,000. The loan bore interest at a rate of 15.0% per annum, provided that upon an event of default, such rate would increase by 5%. The loan was due and payable on the earlier of July 1, 2022 or upon completion of the Company’s initial public offering (the “IPO”). The Company repaid $1,325,000 of the principal balance and $27,604 of the interest from the proceeds of the IPO. In connection with such repayment, the lender agreed that the remaining loan was due and payable on July 1, 2023. On April 20, 2023, the Company entered into an amendment to the loan agreement, which provided that the Company would make a payment towards the reduction of principal in the amount of $250,000 within two business days of certain events, which did not occur. On January 29, 2024, this note was fully paid as part of the transaction in which the assets of Ceautamed were contributed into First Health. The outstanding principal balance of this note was $0 and $542,163 and accrued interest was $0 and $0 as of June 30, 2024 and December 31, 2023, respectively.

In 2018, the Company entered into an amended note agreement and convertible promissory note for $200,000 with a third party. The outstanding amount was $100,000 and $100,000 and accrued interest was $167,351 and $149,351 as of June 30, 2024 and December 31, 2023, respectively. The amended loan agreement and convertible promissory note (convertible at fair value of shares) was in default as of June 30, 2024.

On October 12, 2022, the Company issued promissory notes in the principal amount of $258,000 to third parties. These promissory notes bear interest of 15% to 20% and are payable on December 2022 and January 2023. During the year ended December 31, 2023, the Company made various principal and interest payments on the notes. On May 26, 2023, only the remaining principal balance of $105,000 was converted into 471 shares of the Company’s series B preferred stock, the accrued interest was not converted. The outstanding principal balance was $0 and accrued interest was $11,999 as of June 30, 2024 and December 31, 2023.

On November 2, 2022, the Company issued a promissory note to a board member in the principal amount of $50,000. This note bears interest at a rate of 12% and is due on demand. During the year ended December 31, 2023, the principal balance was paid in full, however the accrued interest was not paid. The outstanding amount was $0 and accrued interest was $2,387 as of June 30, 2024 and December 31, 2023.

On December 6, 2022, the Company issued a promissory note to a board member in the principal amount of $30,000. This note bore interest at a rate of 12% and was due on demand. The remaining principal balance of $30,000 as of May 26, 2023 was converted into 135 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On December 21, 2022, the Company issued a promissory note to a board member in the principal amount of $100,000. This note bore interest at a rate of 12% and was due on demand. The remaining principal balance of $100,000 as of May 26, 2023 was converted into 449 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On February 8, 2023, the Company issued a promissory note to a board member in the principal amount of $50,000. This note bore interest at a rate of 12% and was due on demand. The remaining principal balance as of May 26, 2023 was converted into 225 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On February 14, 2023, the Company issued a promissory note to a third party in the principal amount of $50,000. This note bore interest at a rate of 12% and was due on demand. During the year ended December 31, 2023, the Company made various principal and interest payments on the note. The remaining principal balance of $20,000 as of May 26, 2023 was converted into 90 shares of the Company’s series B preferred stock which resulted in the note being fully paid.  

On February 19, 2023, the Company issued a promissory note to a third party in the principal amount of $50,000. This note bore interest at a rate of 12% and was due on August 26, 2023. The remaining principal balance as of May 26, 2023 was converted into 225 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On March 7, 2023, the Company issued a promissory note to a board member in the principal amount of $137,000. This note bears interest at a rate of 12% and is due on demand. During the year ended December 31, 2023, the Company made various principal and interest payments on the notes. On May 26, 2023, $50,000 of principal and $1,137 of interest was converted into 230 shares of the Company’s series B preferred stock. The outstanding amount was $51,294 and $51,294 and accrued interest was $9,278 and 5,312 as of June 30, 2024 and December 31, 2023, respectively.

On April 13, 2023, the Company issued a promissory note to a third party in the principal amount of $59,000. This note bore interest at a rate of 12% and was due on demand. The remaining principal balance as of May 26, 2023, was converted into 265 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On April 21, 2023, the Company issued a promissory note to a board member in the principal amount of $53,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $30,000 and $30,000 and accrued interest was $1,600 and $800 as of June 30, 2024 and December 31, 2023, respectively.

On June 22, 2023, the Company issued an original issue discount promissory note to a board member in the principal amount of $118,000. This note bears interest at a rate of 17.5% and is due on demand. The outstanding amount was $56,400 and $118,000, an unamortized discount was $0 and $0, and accrued interest was $15,756 and $10,862 as of June 30, 2024 and December 31, 2023, respectively.

On July 12, 2023, the Company issued a promissory note to a third party in the principal amount of $25,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $25,000 and $25,000 and accrued interest was $2,910 and $1,414 as of June 30, 2024 and December 31, 2023, respectively.

On August 10, 2023, the Company issued a promissory note to a board member in the principal amount of $50,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $50,000 and $50,000 and accrued interest was $5,342 and $2,351 as of June 30, 2024 and December 31, 2023, respectively.

On August 15, 2023, the Company issued a promissory note to a board member in the principal amount of $30,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $30,000 and $30,000 and accrued interest was $3,156 and $1,361 as of June 30, 2024 and December 31, 2023, respectively.

On August 24, 2023, the Company issued a promissory note to a third party in the principal amount of $60,000. This note bears interest at a rate of 12% and is due on demand. On May 25, 2023, the principal of $60,000 and interest of $6,451 were converted into 346 shares of the Company’s series B preferred stock which resulted in the note being fully paid.

On September 7, 2023, the Company issued a promissory note to a board member in the principal amount of $35,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $35,000 and $35,000 and accrued interest was $3,418 and $1,323 as of June 30, 2024 and December 31, 2023, respectively.

On September 14, 2023, the Company issued a promissory note to a third party in the principal amount of $100,000. This note bears interest at a rate of 12% and is due on demand. On February 29, 2024, the principal of $100,000 and accrued interest of $5,523 were converted into 1,055 shares of the Company’s series C preferred stock. The outstanding amount was $0 and $100,000 and accrued interest was $0 and $3,551 as of June 30, 2024 and December 31, 2023, respectively.

On September 29, 2023, the Company issued a promissory note to a board member in the principal amount of $35,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $35,000 and $35,000 and accrued interest was $3,164 and $1,070 as of June 30, 2024 and December 31, 2023, respectively.

On October 4, 2023, the Company issued a promissory note to a board member in the principal amount of $15,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $15,000 and $15,000 and accrued interest was $1,332 and $434 as of June 30, 2024 and December 31, 2023, respectively.

On October 11, 2023, the Company issued a promissory note to a third party in the principal amount of $24,000. This note bears interest at a rate of 12% and is due on demand. On February 29, 2024, the principal of $24,000 and accrued interest of $6,157 was converted into 302 shares of the Company’s series C preferred stock. The outstanding amount was $0 and $24,000 and accrued interest was $0 and $639 as of June 30, 2024 and December 31, 2023, respectively.

On November 14, 2023, the Company issued a promissory note to a board member in the principal amount of $30,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $30,000 and $30,000 and accrued interest was $2,259 and $464 as of June 30, 2024 and December 31, 2023, respectively.

On November 30, 2023, the Company issued a promissory note to a board member in the principal amount of $15,000. This note bears interest at a rate of 12% and is due on demand. The outstanding amount was $15,000 and $15,000 and accrued interest was $1,050 and $153 as of June 30, 2024 and December 31, 2023, respectively.

Promissory Note - Related Party

On March 5, 2024, the Company issued a promissory note to a related party in the principal amount of $250,000. This note bears interest at a rate of 12% and is due on March 5, 2029. At June 30, 2024, the outstanding amount was $250,000 and accrued interest was $9,616.

Cash Advances

In July 2022, the Company entered into a cash advance agreement for $650,000 with a required repayment amount of $897,750, which requires weekly payments of approximately $40,806. The outstanding amount was $97,846 and $147,500 as of June 30, 2024 and December 31, 2023, respectively.

In August 2022, the Company entered into a cash advance agreement for $100,000 with a required repayment amount of $146,260, which requires weekly payments of approximately $6,200. The outstanding amount was $2,020 and $4,360 as of June 30, 2024 and December 31, 2023, respectively.

In September 2022, the Company entered into a cash advance agreement for $243,750 with a required repayment amount of $372,500, which requires weekly payments of approximately $15,000. The outstanding amount was $12,584 as of June 30, 2024 and December 31, 2023.

In November 2022, the Company entered into cash advance agreements for $592,236 with a required repayment amount of $994,460, which requires weekly payments of approximately $52,422. The outstanding amount was $0 and $83,037 and unamortized debt issuance cost of $0 and $0 as of June 30, 2024 and December 31, 2023, respectively.

In December 2022, the Company entered into cash advance agreements for $293,000 with a required repayment amount of $439,207, which requires weekly payments of approximately $39,905. The outstanding balance was $8,271 and unamortized debt issuance cost was $0 as of June 30, 2024 and December 31, 2023.

In June 2023, the Company refinanced the January 2023 agreements with balances of $284,029 and entered into cash advance agreements and received an additional $107,071 with a required repayment amount of $604,035, which requires weekly payments of approximately $48,625. The outstanding amount was $0 and $497,158 and unamortized debt issuance cost was $0 and $0 as of June 30, 2024 and December 31, 2023, respectively.

In July 2023, the Company entered into cash advance agreements for $74,950 with a required repayment amount of $74,950, which requires weekly payments of approximately $7,495. The outstanding amount was $7,974 and $30,974 as of June 30, 2024 and December 31, 2023, respectively.

In August 2023, the Company refinanced an agreement from June 2023, and as a result, the Company received an additional $48,030. The outstanding amount was $0 and $48,030 and unamortized debt issuance cost was $0 and $0 as of June 30, 2024 and December 31, 2023, respectively.

In November 2023, the Company entered into cash advance agreements for $49,476 with a required repayment amount of $49,476. The outstanding amount was $49,476 as of June 30, 2024 and December 31, 2023.

Equipment Financing Loan

In May 2022, the Company entered into an equipment financing loan for $146,765 used for the purchase of equipment within BSNM’s operations. The loan bears interest at 10.18% and matures on April 1, 2027. The outstanding amount was $106,016 and $108,249 at June 30, 2024 and December 31, 2023, respectively.

In August 2022, the Company entered into an equipment financing loan for $35,050 used for the purchase of equipment within BSNM’s operations. The loan bears interest at 10.18% and matures on August 1, 2027. The outstanding amount was $27,214 and $27,831 at June 30, 2024 and December 31, 2023, respectively.

In July 2022, the Company entered into an equipment financing loan for $8,463 used for the purchase of equipment within Ceautamed’s operations. The outstanding amount was $0 and $4,360 at June 30, 2024 and December 31, 2023, respectively and is included within the liabilities of discontinued operations.

Revolving Lines of Credit

In August 2022, Ceautamed entered into a revolving line of credit with a bank, which permits borrowings up to $50,000 and bears interest at 45.09% with no expiration date. In 2023, the Company borrowed an additional $43,000. The outstanding principal balance of these lines of credit was $0 and $47,407 at June 30, 2024 and December 31, 2023, respectively, and is included within discontinued operations.

In September 2022, DSO entered into a revolving line of credit with a bank, which permits borrowings up to $70,000 and bears interest at 9.49% with no expiration date. The outstanding principal balance of this line of credit was $0 and $16,471 at June 30, 2024 and December 31, 2023, respectively.

In September 2023, DSO entered into a merchant loan agreement for $113,000. Repayment amounts are 17% of the daily account credits processed through the provider until the loan amount is paid in full. The outstanding principal balance was $2,219 and $103,648 at June 30, 2024 and December 31, 2023, respectively.

EIDL Loan

In June 2020, pursuant to the economic injury disaster loan program under the under the provisions of the CARES Act, the Company entered into a promissory note with the U.S. Small Business Administration with a principal amount of $300,000. This loan matures in 30 years and bears interest at a rate of 3.75%. The loans are secured by all of the Company’s assets. The outstanding principal balance of this loan was $300,000 and $300,000 and accrued interest was $45,344 and $33,953 at June 30, 2024 and December 31, 2023, respectively.

PPP Loans

In February 2021, the Company received an additional $261,164 in PPP loans under the CARES Act. This loan bears interest at a rate of 1% per annum and matures in April 2025. The outstanding balance of this loan was $197,457 and $197,457 and accrued interest was $11,430 and $8,429 at June 30, 2024 and December 31, 2023, respectively.

Total Debt

Debt is comprised of the following components as of June 30, 2024:

The Company was not in compliance with all debt covenants as of June 30, 2024, but waivers of non-compliance were obtained for all such debt, except as disclosed in Note 8.

The future contractual maturities of the debt are as follows: