PHOTOMEDEX INC

The Company generally considers assets to be “held for sale” when the transaction has been approved by its Board of Trustees, or by officers vested with authority to approve the transaction, and there are no known significant contingencies relating to the sale of the property within one year of the consideration date and the consummation of the transaction is otherwise considered probable. When a property is designated as held for sale, the Company stops depreciating the property and estimates the property’s fair value, net of selling costs. If the determination is made that the estimated fair value, net of selling costs, is less than the net carrying value of the property, an impairment loss is recognized, reducing the net carrying value of the property to estimated fair value less selling costs. For periods in which a property is classified as held for sale, the Company classifies the assets and liabilities, as applicable, of the property as “held for sale” on the consolidated balance sheet for such periods. Several of the investment properties held for sale were either sold or are in escrow at purchase prices lower than the value recorded. Thus, the Company recorded total asset impairments of $318 during the three and six months ended June 30, 2019.

On July 10, 2018, the Company acquired all the interests in T9, a debtor in bankruptcy, which through its wholly owned subsidiaries, owns a property, the T9 Property, which is a 65-acre, mixed-use, transit-oriented master planned community. Gadsden purchased the limited liability company interests in T9 for an enterprise value of approximately $88,000, less the senior mortgage debt at the closing of approximately $55,587. The purchase price for the T9 LLC Interests was $32,413, which was paid by the issuance of (i) $8,407 in value of Gadsden Series A Preferred Stock (336,284 shares); (ii) $18,146 in value of Gadsden Series B Preferred Stock (1,814,573 shares); and (ii) $5,860 in value of Gadsden common stock (586,004 shares). Gadsden Series B Preferred Stock was subsequently reduced by $15,693 (1,569,308 shares) reflecting final closing adjustments as allowed for in the purchase and sale agreement and an additional $1,325 (132,500 shares) due to a share exchange to Series A preferred. There was a DIP (“debtor in possession”) financing facility of $10,000 in the bankruptcy case, of which $2,000 was assumed and an additional $3,000 was drawn through December 28, 2018. The interest on such DIP financing was 10% per annum, compounded annually. 

On June 4, 2018, we entered into a Loan and Security Agreement with The Pigman Companies, LLC, as the administrative agent, and investors under such agreement (the “Secured Bridge Loan Agreement”). From such date to September 30, 2018, we raised approximately $1,855 of secured loans (the “Bridge Loans”) that were due September 30, 2018. The Bridge Loans are the direct obligations of OPCO and fully guaranteed by the Company. The Company pledged all its assets as security under the Secured Bridge Loan Agreement. The Bridge Loans incur interest at 10% per annum, determined based on a 360-day year, and provide an additional 5% per annum during the period that the Bridge Loans are in default. The interest on the Bridge Loans is payable on the maturity date. Common shares will be issued for the bridge loan equity bonus fee 30 days after the date the Company is listed on a public exchange (after the registration statement becomes effective) and will be equal to the principal balance of the bridge loan on October 31, 2018. On October 31, 2018, the aggregate amount of principal and interest of $1,936 was paid. As principal and interest was paid in full, the equity bonus fee is the only remaining obligation and will be recorded on the Company’s financial statements 30 days after an approved registration statement is effective and will be paid in common stock of the Company in the amount of $1,855. On April 15, 2019, Kris Pigman was nominated and accepted a position as a board director of the Company.

Pursuant to the terms of the Loan Agreement, the Company has absolutely and unconditionally guaranteed prompt payment when due, whether at stated maturity, by required prepayment, upon acceleration, demand or otherwise, and at all times thereafter, of any and all of the Loans or other obligations of OPCO to the Lenders arising under the Loan Agreement or under any other document entered into in connection with the Private Placement (the “Guaranty”). In connection with the Guaranty, the Lenders having Loans representing a majority in principal amount of the aggregate amount of Loans outstanding at the time of determination, may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness of the Loan Agreement: (i) amend, extend, renew, compromise, discharge, accelerate or otherwise change the time for payment or the terms of the Loans or any part thereof; (ii) take, hold, exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any security for the payment owing under the Guaranty; (iii) apply such security and direct the order or manner of sale thereof as such Lenders may determine; and (iv) release or substitute one or more of any endorsers or other guarantor of any of such obligations. All intercompany debt of Gadsden owing to the Company is subordinated until such time as the obligations under the Loan Agreement are paid in full in cash.

In connection with the Purchase Agreement, the Company, as Guarantor, entered into a Loan and Security Agreement (the “Loan Agreement”) with Gadsden Growth Properties, L.P. (“OPCO”), as Borrower, and the Lenders. Pursuant to the Loan Agreement, the loans made and evidenced by the Notes purchased by the Lenders (the “Loans”) will bear interest at a non-compounded per annum rate of interest equal to ten percent (10%), or, if lower, the maximum amount permitted by applicable law, with interest on the Loans accruing from the date the Loans are made. Accrued and unpaid interest on the unpaid principal balance of all Loans outstanding under the Private Placement from time to time shall be due and payable quarterly on the first day of each January, April, July and October while the Loans remain outstanding with the final payment of accrued, but unpaid, interest being due and payable on the maturity date, which is the earlier of (i) June 30, 2021 or (ii) two (2) business days following a Liquidity Event (as described below), unless extended pursuant to any modification, extension or renewal note executed by OPCO and accepted by the Lenders in their sole and absolute discretion. A Liquidity Event is defined in the Loan Agreement as (i) any sale, lease or other disposition of any asset of OPCO or any subsidiary thereof (other than a sale, lease or other disposition to a wholly-owned subsidiary or affiliate of OPCO), whether alone or in the aggregate with other sales, leases or other dispositions, resulting in net cash proceeds payable to OPCO or the Company of at least $25 million in the aggregate or (ii) one or more debt or equity financings by OPCO or the Company, resulting in net cash proceeds of at least $25 million in the aggregate.

Any amount of interest on the principal amount of any Loan made under the Private Placement which is not paid when due shall be added to the principal balance of such Loan and shall bear interest payable on demand at a default per annum interest rate equal to fifteen percent (15%). Gadsden may prepay the Loans in cash, in whole or in part, without penalty, provided that any prepayment of principal shall include all accrued and unpaid interest thereon to the date of such prepayment.