Notes Payable and Debt

6 Months Ended

Jun. 30, 2012

Notes Payable and Debt [Abstract]

Notes Payable and Debt

6. Notes Payable and Debt

Convertible Notes Payable to Significant Stockholders		June 30, 2012		December 31, 2011
Unsecured convertible promissory note; interest rate of 5%; due December 31, 2010		$	4,655,173	$	4,655,173
Unsecured convertible promissory note; interest rate of 5%; due December 31, 2010	BCF		10,000,000		10,000,000
Unsecured convertible promissory note; interest rate of 5%; due December 31, 2010	BCF		2,172,415		2,172,415
Unsecured convertible promissory note; interest rate of 5%; due December 31, 2010			5,000,000		5,000,000
Aggregate carrying value		$	21,827,588	$	21,827,588

No interest expense was incurred related to the convertible notes payable for the three and six months ended June 30, 2012. Interest expense totaling $362,499 and $724,998 was incurred related to the convertible notes payable for the three and six months ended June 30, 2011. In December 2011, Robert Gipson and Thomas Gipson elected to convert a total of $7,172,412 of their convertible notes payable into common stock of the Company. This transaction was part of a debt reduction agreement entered into through the Fifth Amendment to Convertible Note Purchase Agreement (“Amendment”) which also provided that all interest accrued or to be accrued related to these promissory notes would be waived.

The remaining unsecured convertible promissory notes may be converted, at the option of the Purchasers, into (i) shares of the Company’s common stock at a conversion price per share of $2.50, (ii) the right to receive future payments related to the Company’s molecular imaging products in amounts equal to 2% of the Company’s pre-commercial revenue related to such products plus 0.5% of future net sales of such products for each $1,000,000 of outstanding principal and interest that a Purchaser elects to convert into future payments, or (iii) a combination of (i) and (ii). Any outstanding notes that are not converted into the Company’s common stock or into the right to receive future payments became due and payable on December 31, 2010. As of June 30, 2012, the holders of this debt have not made any formal demand for payment.

However, each Purchaser is prohibited from effecting a conversion into common stock if at the time of such conversion the common stock issuable to such Purchaser, when taken together with all shares of common stock then held or otherwise beneficially owned by such Purchaser exceeds 19.9%, or 9.99% ISVP, of the total number of issued and outstanding shares of the Company’s common stock immediately prior to such conversion unless and until the Company’s stockholders approve the conversion of all of the shares of common stock issuable there under. There has been no demand for amounts due and the classification remains current.

The Company is subject to certain debt covenants pursuant to the March 2008 Amended Purchase Agreement and the June 2008 Purchase Agreement (the “Purchase Agreements”). If the Company (i) fails to pay the principal or interest due under the Purchase Agreements, (ii) files a petition for action for relief under any bankruptcy or similar law or (iii) an involuntary petition is filed against the Company, all amounts borrowed under the Purchase Agreements may become immediately due and payable by the Company. In addition, without the consent of the Purchasers, the Company may not (i) create, incur or otherwise, permit to be outstanding any indebtedness for money borrowed, (ii) declare or pay any cash dividend, or make a distribution on, repurchase, or redeem, any class of the Company’s stock, subject to certain exceptions or sell, lease, transfer or otherwise dispose of any of the Company’s material assets or property or (iii) dissolve or liquidate.

Beneficial Conversion Feature (BCF)

Two of the remaining unsecured promissory notes were issued with a conversion price of $2.50 which was below the market price of the Company’s common stock on the dates the agreements were entered into and resulted in the recording of a beneficial conversion feature (“BCF”). The Company recorded a BCF of $1,400,000 on (the “ISVP”) note and a BCF of $380,000 on (the “2008 RG”) note which were recognized as a decrease in the carrying value and an increase to additional paid-in capital. All related BCF expense has been fully recognized as interest expense using the effective interest method as of December 31, 2010.

Promissory Notes

Demand Notes Payable to Significant Stockholder	June 30, 2012		December 31, 2011
Unsecured demand note payable; interest rate of 7%: issued December 2009	$	350,000	$	350,000
Unsecured demand notes payable; interest rate of 7%: issued January 2010 — December 2010		3,310,000		3,310,000
Unsecured demand notes payable; interest rate of 7%: issued January 2011 — December 2011		2,240,000		2,240,000
Unsecured demand notes payable; interest rate of 7%: issued January 2012 — June 2012		285,000		—
		6,185,000		5,900,000
Accrued interest		694,946		486,691
Aggregate carrying value	$	6,879,946	$	6,386,691

Interest expense totaling $105,287 and $100,078 was incurred related to the demand notes payable for the three months ended June 30, 2012 and 2011, respectively. Interest expense totaling $208,255 and $186,224 was incurred related to the demand notes payable for the six months ended June 30, 2012 and 2011, respectively. In November 2011, the Company purchased from Robert 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. The result of this transaction was a reduction in quarterly interest expense of approximately $18,000 which has been partially offset by interest on the additional debt obligations of $2,525,000 entered into by the Company during 2011 and 2012 with Robert Gipson.

According to a Schedule D/A filed with the SEC on December 27, 2011 Robert Gipson beneficially owned approximately 50.1% of the outstanding common stock of the Company as of that date. Robert Gipson, who serves as a Senior Director of Ingalls & Snyder and a General Partner of ISVP, served as a director of the Company from June 15, 2004 until October 28, 2004. According to a Schedule D/A filed with the SEC on December 27, 2011, Thomas Gipson beneficially owned approximately 15.2% of the outstanding common stock of the Company as of that date. According to a Schedule 13G/A filed with the SEC on June 7, 2011, Arthur Koenig beneficially owned approximately 7% of the outstanding common stock of the Company on June 1, 2011. According to a Schedule 13G/A filed with the SEC on February 2, 2012, ISVP owned approximately 9.99% of the outstanding common stock of the Company as of December 31, 2011. According to a Schedule 13G/A filed with the SEC on February 7, 2012, Ingalls & Snyder LLC beneficially owned approximately 9.99% of the outstanding common stock of the Company on December 31, 2011.