Related Party Transactions

12 Months Ended

Dec. 31, 2011

Related Party Transactions [Abstract]

Related Party Transactions

13. Related Party Transactions

In July 2011, Michael Mullen and William Guinness our current board members, signed settlement agreements to resolve unpaid fees due to them for services rendered during the period of July 2008 through January 31, 2010. As of the settlement date, approximately $172,000 had been accrued for directors fees owed to the two board members who agreed to a reduced payment totaling $22,400. As a result of these transactions approximately $149,000 was recognized as forgiveness of debt.

The following table summarizes the convertible notes payable due related parties as of December 31, 2011:

	Note Date	Principal Balance
Thomas Gipson - (interest rate of 5%; due December 31, 2010)	March 23, 2007	$	1,655,173
Arthur Koenig - (interest rate of 5%; due December 31, 2010)	March 23, 2007		3,000,000
Ingalls & Synder Value Partners - (interest rate of 5%; due December 31, 2010)	August 14, 2007		10,000,000
Thomas Gipson - (interest rate of 5%; due December 31, 2010)	March 20, 2008		2,172,415
Robert L. Gipson - (interest rate of 5%; due December 31, 2010)	June 25, 2008		5,000,000
Aggregate carrying value		$	21,827,588

In December 2011 the Company entered into the Fifth Amendment to Convertible Note Purchase Agreement (“Amendment”) with the Purchasers of convertible promissory notes of the Company purchased pursuant to a Promissory Note Purchase Agreement executed in March, 2007. The Amendment provided that each Purchaser would waive their respective right to be paid any and all interest accrued or to be accrued pursuant to the promissory notes issued under the Note Purchase Agreement. This transaction resulted in a reduction of $6,132,499 in accrued interest expense. The Amendment further provided that two of the Purchasers would convert a portion of the amounts owed to them into common stock of the Company at $2.50 per share as provided in the Note Purchase Agreement. Robert Gipson converted $5,827,585 of debt into 2,331,034 shares of common stock and Thomas Gipson converted $1,344,827 of debt into 537,931 shares of common shares. As a result of this transaction, $28,690 was recorded to the common stock account and $7,143,722 was recorded to additional paid-in-capital a component of Stockholders’ deficit.

The Company considered the guidance offered under Accounting Standards Codification ASC 470-50-40-2 and ASC 470-50-40-3, “Debt – Modifications and Extinguishments – Derecognition”. The Company determined that the extinguishment of the debt more closely represented a capital transaction. The $6,132,499 in forgiven accrued interest occurred with a related party and was therefore classified as a capital transaction and recorded to additional paid-in capital a component of stockholders’ deficit.

The following table summarizes the notes payable due Robert Gipson as of December 31, 2011:

	Principal Balance
Unsecured demand note payable; interest rate of 7%: issued December 2009	$	350,000
Unsecured demand notes payable; interest rate of 7%: issued January 2010 - December 2010		3,310,000
Unsecured demand notes payable; interest rate of 7%: issued January 2011 - December 2011		2,240,000
Aggregate carrying value	$	5,900,000

In November 2011, the Company purchased from Robert L. Gipson (the “Holder”) an unsecured promissory note, pursuant to which the Company’s wholly owned subsidiary, Neurobiologics Inc., had borrowed an aggregate principal amount of $1,000,000 (“the Note”) dated February 11, 2009. At the time of the purchase, $195,807 of interest had accrued on the Note. The purchase price for the Note and all accrued interest was $1,000.

The Company considered the guidance offered under Accounting Standards Codification ASC 470-50-40-2 and ASC 470-50-40-3, “Debt – Modifications and Extinguishments – Derecognition”. The Company determined that the extinguishment of the debt more closely represented a capital transaction. The $195,807 in forgiven accrued interest and the gain of $999,000 due to the difference between the purchase price of $1,000 and the carrying value of the extinguished debt of $1,000,000 occurred in a transaction with a related party and was therefore classified as a capital transaction and recorded to additional paid-in capital a component of stockholders’ deficit.

Convertible Preferred Stock transactions

In 2009 the Company issued a total of 196,000 shares of Series F convertible preferred stock to Robert Gipson and received gross proceeds of $4,900,000. On June 1, 2011 the Company issued to Robert L. Gipson 4,600,000 shares of its common stock in exchange for the conversion by Mr. Gipson of 184,000 shares of the Company’s Series F Convertible, Redeemable Preferred Stock (“Series F Stock”). Each share of the Series F Stock was converted into 25 shares of common stock pursuant to the conversion terms of the Series F Stock contained in the Certificate of Designation for the Series F Stock. The cumulative accrued interest at the date of conversion of $640,874 was reclassified to additional paid-in capital since the shares were no longer redeemable. As of December 31, 2011 there remained 12,000 shares of Series F Stock outstanding and held by Mr. Gipson.

Common Stock transactions

On December 16, 2011 the Company purchased at $0.01 per share, 60,000 shares from Robert Gipson, 530,000 shares from Thomas Gipson, 100,000 shares from Ingalls and Snyder Value Partners and 50,000 shares from Arthur Koenig. The closing price for the Company’s stock on December 16th was $0.14 per share. The price per share paid by the Company to these sellers represented a 93% discount to the market price for the shares.

In December 2011 the Company entered into the Fifth Amendment to Convertible Note Purchase Agreement (“Amendment”) with the Purchasers of convertible promissory notes of the Company purchased pursuant to a Promissory Note Purchase Agreement executed in March, 2007. The Amendment provided that each Purchaser would waive their respective right to be paid any and all interest accrued or to be accrued pursuant to the promissory notes issued under the Note Purchase Agreement. This transaction resulted in a reduction of $6,132,499 in accrued interest expense. The Amendment further provided that two of the Purchasers would convert a portion of the amounts owed to them into common stock of the Company at $2.50 per share as provided in the Note Purchase Agreement. Robert Gipson converted $5,827,585 of debt into 2,331,034 shares of common stock and Thomas Gipson converted $1,344,827 of debt into 537,931 shares of common shares. As a result of this transaction, $28,690 was recorded to the common stock account and $7,143,722 was recorded to additional paid-in-capital a component of Stockholders’ deficit.

On December 27, 2011 the Company agreed to purchase 2,331,034 shares of common stock held by Robert Gipson and 537,931 shares of common stock held by Thomas Gipson at a purchase price per share of $0.0025 for a total of $7,172. The closing price for the Company’s stock on December 27th was $0.20 per share. The price per share paid by the Company to the sellers represented a 99% discount to the market price for the shares. The 2,868,965 shares of common stock the Company repurchased were retired under the constructive retirement method. This method was determined to be appropriate as management does not intend to reissue the shares within a reasonable period of time.

In December 2010, the Company had purchased 270,000 common shares from Robert Gipson at $.03 per share for a total of $8,125. The closing price for the Company’s stock on December 28 was $0.15 per share. The price per share paid by the Company to Mr. Gipson represented an 80% discount to the market price for the shares. The 270,000 shares of common stock the Company repurchased were retired under the constructive retirement method. This method was determined to be appropriate as management did not intend to reissue the shares within a reasonable period of time.