Note 5 - Notes Payable

NSC Note

In March 2015, Fortress closed the private placement of a promissory note for $10 million through National Securities Corporation (“NSC”) and used the proceeds to acquire medical technologies and products. NSC, a wholly owned subsidiary of National Holdings, Inc., acted as the sole placement agent for the NSC Note. The NSC Note allowed Fortress to transfer a portion of the proceeds from the NSC Note to the Company pursuant to which the Company executed an identical NSC Note in favor of NSC. Accordingly, the Company assumed $2.8 million under the NSC Note as part of the Founders Agreement and issued NSC 139,592 warrants to purchase its common stock, which was equal to twenty-five percent (25%) of the amount of NSC Note proceeds the Company received from Fortress divided by the lowest price at which the Company next sold common stock. The warrant issued has a term of 10 years and an exercise price equal to the par value of the Company’s common stock. In February 2016, the Company paid NSC $2.8 million representing repayment of the assumed NSC Note principal and accrued interest as of the date of payment. Approximately $324,000 of unamortized debt discount was accelerated into interest expense upon payment.

As of December 31, 2016, the NSC Note was fully paid off. For the years ended December 31, 2016 and 2015, the Company recorded costs of approximately $324,000 and $89,000, respectively, related to the amortization of the debt discount and $20,000 and $146,000, respectively of interest expense at 8%, both recorded in interest expense in the Statements of Operations.

The following table summarizes the Company’s Amended NSC Note activities as of December 31, 2016 ($ in thousands).

	NSC Note Payable		Discount		NSC Note Payable, Net
December 31, 2015 balance	$	2,792	$	(324)		2,468
Payment of NSC debt		(2,792)		-		(2,792)
Amortization of debt discount		-		324		324
December 31, 2016 balance	$	-	$	-	$	-