DEBT

12 Months Ended

Dec. 31, 2021

DEBT

DEBT

3. DEBT

The table below summarizes the Company’s debt at December 31, 2021 and December 31, 2020:

Debt Description	December 31,		December 31,
	2021		2020		Maturity	Rate
Comerica Bank Loan and Security Agreement	$	5,000,000	$	5,000,000	June 2022		3.85	%
First PPP Loan		-		542,100	April 2022		1.00	%
Convertible notes, net of discount of $1,927,892		-		972,108	November 2022		8.00	%
Total debt		5,000,000		6,514,208
Less: current portion of long term debt		5,000,000		423,067
Debt - long term	$	-	$	6,091,141

Bank Loan

The Company has an outstanding LSA in the amount of $5,000,000, with an extended maturity date of June 9, 2022. The LSA is secured by an extended irrevocable letter of credit issued by UBS AG (Geneva, Switzerland) (“UBS AG”) with a renewed term expiring on May 31, 2022, which term is renewable for one year periods, unless notice of non-renewal is given by UBS AG at least 45 days prior to the then current expiration date.

The LSA with Comerica has the following additional terms:

· a variable interest rate at prime plus 0.6% payable monthly;

· secured by substantially all of the assets of the Company, including the Company’s intellectual property;

· acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, including but not limited to, failure by the Company to perform its obligations, observe the covenants made by it under the LSA, failure to renew the UBS AG SBLC, and insolvency of the Company.

The Company is in compliance with its LSA covenants as of December 31, 2021.

Paycheck Protection Program Loans

On April 29, 2020 the Company borrowed $542,100 through issuance of a promissory note in accordance with the Paycheck Protection Program (“PPP”) established by Section 1102 of the CARES Act and implemented and administered by the Small Business Administration (the “PPP loan”). The PPP loan was scheduled to mature on April 29, 2022. The Company used the proceeds from the PPP loan for qualifying expenses, applied for forgiveness of the PPP loan in accordance with the terms of the CARES Act. Such forgiveness was granted to the Company on February 18, 2021.

On February 26, 2021 the Company entered into second PPP loan by borrowing additional $542,000. The Company used the proceeds from the second PPP loan for qualifying expenses, applied for forgiveness of the PPP loan in accordance with the terms of the CARES Act. Such forgiveness was granted to the Company on August 4, 2021. 

Convertible Notes under 2007 and 2014 NPAs Overview

Since November 14, 2007 and through December 10, 2014, the Company financed its working capital deficiency primarily through the issuance of its notes of up to $33,300,000 in principal (the “2007 NPA Notes”) under the Convertible Secured Subordinated Note Purchase Agreement, dated November 14, 2007, as amended (the “2007 NPA”). On December 11, 2014 the Company entered into 2014 NPA for the sum of notes up to $40,000,000 in principal (“2014 NPA Notes”). At the request of the note holder any amounts borrowed under the 2007 NPA and the 2014 NPA allow the principal amount to be converted to common shares at a conversion price of $1.43 per share.

Maturity of 2014 and 2007 NPA Notes had been extended several times. The most recent such extension moved maturity date to November 14, 2022. Notes under both 2014 and 2007 NPAs were issued with identical terms. Such main terms are as follows: (a) allow for optional conversion into common stock upon request of a noteholder at a price of $1.43 (b) pay 8 %nterest twice per year in January and July (c) subordinated to the Bank Loan.

Majority of 2007 and 2014 NPA notes were related party notes and all of the 2007 and 2014 NPA notes were exchanged for Series A Preferred Stock during December 2020 Debt Exchange and January 2021 Debt Exchange, as further described below.

May 2020 Note Exchange

On May 6, 2020,  the Company and related party holders of $4,063,250 in subordinated promissory notes exchanged those notes for the 2014 NPA Notes issued under 2014 NPA (the "May 2020 Note Exchange").  Avy Lugassy, one of Company's principal shareholders is a beneficial owner of the entities holding newly issued 2014 NPA Notes.  The newly issued 2014 NPA Notes mature on November 14, 2022 and have the terms identical to other 2014 NPA Notes.  The May 2020 Note Exchange was accounted for as debt extinguishment and the newly issued 2014 NPA Notes were recorded at fair value in accordance with ASC 470 "Debt".  The total fair value of the 2014 NPA Notes issued as a result of the May 2020 Note Exchange was determined to be $8,928,000.  The May 2020 Note Exchange transaction resulted in loss recorded on the statement of operations of $4,864,750 and a premium on the newly issued convertible debt of $4,864,750.  The embedded beneficial conversion feature present in the newly issued debt in the amount of $4,063,250 resulted in a debt discount and a charge to paid-in capital.

December 2020 Debt Exchange

On December 23, 2020, the Company and all but one debt investor entered into a debt exchange transaction where the Company exchanged its convertible and non-convertible debt plus accrued but unpaid interest into Series A Preferred Stock. The December 2020 Debt Exchange transaction was accounted for as debt extinguishment and the newly issued shares of Series A Preferred Stock were recorded at fair value in accordance with ASC 470 “Debt”. The total of 1,158,141 shares Series A Preferred Stock were issued in December 2020 Debt Exchange fair valued at $103,299,344. The combined face value of debt exchanged was $47,989,660 in addition to accrued but unpaid interest of $1,694,467 for a total of $49,684,127. The carrying value of the debt exchanged was $48,810,508 due to inclusion of unamortized debt discounts and debt premiums in the amounts of $4,519,542 and $3,645,924, respectively. The difference between the carrying amount of extinguished debt and fair value of the shares of Series A Preferred Stock issued resulted in loss recorded on the statement of operations of $54,488,834 for the year ended December 31, 2020.

January 2021 Debt Exchange

On January 28, 2021 the Company exchanged its remaining 2014 NPA Notes for our Series A Preferred Stock. The carrying value of 2014 NPA Notes of $1,075,713 consisting of face value of $2,900,000 net of unamortized discount of $1,849,773 plus accrued interest of $103,605 was exchanged for 70,014 shares of Series A Preferred Stock (the “January 2021 Debt Exchange”). The January 2021 Debt Exchange was accounted for as debt extinguishment and the newly issued shares of Series A Preferred Stock were recorded at fair value in accordance with ASC 470 “Debt”. The issued shares were fair valued at $7,660,970. The difference between the carrying amount of extinguished debt and fair value of the Series A Preferred Stock issued resulted in loss recorded on the statement of operations of $6,507,137.

As a result of the December 2020 and January 2021 Debt Exchanges, the original 2007 and 2014 NPAs and related notes with participating investors were cancelled.