Senior Secured Note Payable

The indebtedness outstanding under the senior secured note payable to Brainlab, originally issued to Brainlab on April 5, 2011, and subsequently amended and restated on March 6, 2013 and April 4, 2016 (the “Brainlab Note”), at December 31, 2017 was $2.0 million and had a maturity date of December 31, 2018. Interest, at an annual rate of 5.5%, was payable quarterly in arrears. On September 25, 2018, the Company repaid all the outstanding debt, together with interest. In connection with the repayment, the security agreement, under which the Brainlab Note had been collateralized by all the assets of the Company, was terminated. 

2014 Junior Secured Notes Payable

The indebtedness outstanding under the 2014 Junior Secured Notes Payable (the “2014 Secured Notes”) at each of December 31, 2018 and 2017 was $1.975 million. On September 25, 2018, the Company entered into an amendment (the “Third Omnibus Amendment”) with the holder of the 2014 Secured Notes representing a majority of the aggregate principal balance of such notes (the “Majority Note Holder”) who, under the terms of the 2014 Secured Notes, has the ability to amend any term of the 2014 Secured Notes. Pursuant to the Third Omnibus Amendment, the Majority Note Holder and the Company agreed to extend the maturity date of all the 2014 Secured Notes by eighteen months from their original maturity date in March 2019 to September 2020. No other terms of the 2014 Secured Notes were modified. The 2014 Secured Notes bear interest at an annual rate of 12%, payable semi-annually in arrears, and are collateralized by a first-priority security interest in all the Company’s assets.

Under the terms of a securities purchase agreement, the 2014 Secured Notes were issued in a private placement that included warrants (the “investor warrants”) to purchase 0.01 shares of the Company’s common stock for each dollar in principal amount. Under GAAP, the Company allocated the private placement proceeds proportionately between the 2014 Secured Notes and the investor warrants based on their relative fair values, with the amount allocated to the fair value of the investor warrants recorded as equity and as a discount to the carrying amount at the date of issuance. This discount is being amortized to interest expense over the contractual life, as amended as described above, of the 2014 Secured Notes using the effective interest method. The unamortized discount at December 31, 2018 and 2017 was $23,719 and $67,770, respectively. The carrying amount of the 2014 Secured Notes in the accompanying consolidated balance sheets is also presented net of deferred financing costs, as discussed further below.

The Company’s placement agents earned cash commissions of $145,500 as well as warrants (the “placement agent warrants”) to purchase shares of the Company’s common stock. The placement agent warrants have the same terms and conditions as the investor warrants. The placement agent cash commissions, the fair value of the placement agent warrants, and other offering expenses were recorded as deferred financing costs and are presented as reductions of the carrying amount of the 2014 Secured Notes in the accompanying consolidated balance sheets. These deferred financing costs, having an unamortized balance of $11,430 and $32,660 at December 31, 2018 and 2017, respectively, are being amortized to interest expense over the contractual life, as amended as described above, of the 2014 Secured Notes using the effective interest method.

2010 Junior Secured Notes Payable

The indebtedness outstanding under the 2010 Junior Secured Notes Payable (the “2010 Secured Notes”) at each of December 31, 2018 and 2017 was $3.0 million. The 2010 Secured Notes accrue interest at an annual rate of 3.5% and are collateralized by a security interest in all the Company’s assets, which security interest is junior and subordinate to the security interest that collateralizes the 2014 Secured Notes. All outstanding principal and interest on the 2010 Secured Notes will be due and payable in a single payment upon maturity in November 2020.

Under the terms of a securities purchase agreement, the 2010 Secured Notes were issued in a private placement of units that included the 2010 Secured Notes and one share of the Company’s common stock. Under GAAP, the Company allocated the $3.0 million in proceeds from the sale of the units between the 2010 Secured Notes and the shares of common stock based on their relative fair values. The amount allocated to the value of the shares of common stock was recorded as equity and as a discount to the carrying value of the 2010 Secured Notes at their date of issuance. The unamortized discount at December 31, 2018 and 2017 was $1,459,209 and $1,956,458, respectively. This discount is being amortized to interest expense over the 10-year term of the notes using the effective interest method.

At each of December 31, 2018 and 2017, the Company’s chairman of the board of directors and one of the Company’s officers held 2010 Secured Notes, which they purchased at the date of original issuance having an aggregate principal balance of $197,000. 

Scheduled Notes Payable Maturities

Scheduled principal payments as of December 31, 2018 with respect to notes payable are summarized as follows: