Convertible Revolving Notes Payable to Shareholder
|12 Months Ended|
Dec. 31, 2012
|Short Term Notes Payable / Convertible Revolving Notes Payable to Shareholder [Abstract]|
|Convertible Revolving Notes Payable to Shareholder||
8. Convertible Revolving Notes Payable to Shareholder
Prior to December 31, 2010, the Company had entered into a number of unsecured revolving credit agreements and amendments (the “Credit Facility”) with the Koski Family Limited Partnership (“KFLP”), an accredited investor and the Company’s largest shareholder. As of December 31, 2010, the Company had borrowed $2,000,000 under the Credit Facility.
On January 24, 2011, the Company entered into a First Amendment to its Credit Facility (the “First Amendment”) to increase the available borrowing from $2,000,000 to $2,500,000 and simultaneously therewith the Company drew on the Credit Facility, as amended, to borrow the additional $500,000 in available funds and executed another revolving unsecured promissory note initially due on July 30, 2011.
On February 4, 2011, the Company entered into a Second Amendment (the “Second Amendment”) to its Credit Facility to increase the available borrowings from $2,500,000 to $5,000,000. Future draws under the Credit Facility, as amended, are limited to $500,000 per month commencing no earlier than March 2011. Under the Second Amendment, the due date of the amounts borrowed and outstanding under the Credit Facility, were extended by one year from July 30, 2011 to July 30, 2012. The interest rate remained at LIBOR plus 6.0%. The Second Amendment further provided for the automatic conversion of any amounts borrowed and outstanding under the Credit Facility into Company securities that may be issued by the Company in subsequent securities offerings. Any automatic conversion of amounts outstanding under the Credit Facility would be on the same terms of any such offering. In addition, the Second Amendment provides the KFLP with the right to put any undrawn available amounts under the Credit Facility, as amended, to the Company and thereby have a note issued to the KFLP. The KFLP can exercise its put right to the extent it desires to fully participate, through the automatic conversion provision, in any subsequent offering by the Company.
On each of March 15, 2011, April 5, 2011, May 5,2011, June 3, 2011, and July 8, 2011, the Company borrowed an additional $500,000 under the Credit Facility, as amended, and executed a revolving unsecured promissory notes for such amounts that each mature on July 30, 2012.
On June 29, 2011, the Company entered into a Third Amendment (the “Third Amendment”) to its Credit Facility. As a result of the Third Amendment, the Company increased its availability under the Credit Facility by $2,000,000 from $5,000,000 to $7,000,000. Future draws of the $2,000,000 in increased availability provided by the Third Amendment to the Credit Facility are limited to $1,000,000 increments beginning no earlier than August 2011 and October 2011, respectively. All other terms of the Credit Facility remained the same.
On each of August 1, 2011 and October 5, 2011, the Company borrowed an additional $1,000,000 under the Credit Facility, as amended and executed a revolving unsecured promissory note in such amounts that mature on July 30, 2012.
On December 9, 2011, the Company entered into a Fourth Amendment (the “Fourth Amendment”) to its Credit Facility with the KFLP. The entering into of the Fourth Amendment was approved by the Company’s Audit Committee and disinterested directors. The Fourth Amendment increased the available borrowing under the Credit Facility by $500,000 from $7,000,000 million to $7,500,000. On December 9, 2011, the Company drew down on the Credit Facility as amended to borrow $500,000 in the newly available funds. All other terms of the Credit Facility remained the same.
As of December 31, 2011 the Company had borrowed an aggregate of $7,500,000 from the KFLP under the Credit Facility, as amended and owed accrued interest of $356,689 to the KFLP with no remaining availability.
On January 23, 2012, the Company entered into a Fifth Amendment (the “Fifth Amendment”) to the Credit Facility with the KFLP, an accredited investor and the Company’s largest shareholder. The Fifth Amendment was approved by the Company’s Audit Committee and Board of Directors. The Fifth Amendment increased the available borrowing under the Credit Facility by $750,000 from $7,500,000 to $8,250,000. On January 23, 2012, the Company drew down on the Credit Facility as amended to borrow $750,000. All other terms of the Credit Facility remained the same, including but not limited to, the outstanding indebtedness thereunder being due July 30, 2012.
On March 23, 2012, the Company entered into an Exchange of Notes for Equity Agreement (the “Debt Exchange Agreement”) with the KFLP, an accredited investor and its largest shareholder. Pursuant to the terms of the Debt Exchange Agreement, the Company issued 6,285,619 shares of common stock and warrants to acquire 1,571,405 shares of common stock to the KFLP in exchange for the cancellation of an aggregate of $8,737,011 of indebtedness owed to the KFLP under its existing unsecured revolving credit facility (the “Credit Facility) with the KFLP. The outstanding indebtedness consisted of $8,250,000 in principal owed on twelve separate promissory notes previously issued by the Company to the KFLP under the Credit Facility and accrued interest through March 23, 2012 (the closing date) of $487,011. The Credit Facility was terminated and the previously issued promissory notes thereunder were cancelled. The warrants are exercisable immediately at a price per share of $2.00 and expire three (3) years from the date of issuance.
On March 23, 2012, the Company also entered into a new loan agreement (the “Loan Agreement”) with the KFLP. It provides the Company with up to $2.5 million in secured funding in two advances of $1,250,000 each with the first advance occurring on March 23, 2012 and the second advance able to be made within 30 days thereafter, subject to the continued accuracy of representations and warranties made by the Company and that no material adverse events have occurred in connection with its business. Borrowings under the Loan Agreement mature in three years and bear interest at the rate of 5.0% and are secured by select assets of the Company relating to or connected with the ProBiora3, SMaRT Replacement Therapy, MU1140 and LPT3-04 technologies. The loan amount is subject to automatic conversion upon a subsequent qualified equity financing by the Company of $5,000,000 (excluding any converted debt amount). Pursuant to the Loan Agreement the Company also issued a warrant to the KFLP to acquire 599,520 shares of its common stock. The warrants are exercisable immediately at a price per share of $2.00 and expire three (3) years from the date of issuance.
Amounts borrowed under the Loan Agreement were subject to automatic conversion upon a subsequent “qualified financing” by the Company of $5,000,000 (excluding any converted debt amount) of its securities to accredited investors.
On July 30, 2012, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with certain accredited investors (the “Purchasers”) pursuant to which we: (i) sold to the Purchasers an aggregate of 8,666,665 shares of our Common Stock at a price per share of $1.50 (the “Common Shares”) for aggregate gross proceeds of approximately $13,000,000 (the “Offering”).
Because the Offering constituted a “qualified financing” under the terms of our Loan Agreement with the KFLP, our secured debt in the principal amount of $2.5 million, together with accrued but unpaid interest of $38,185 thereon, due to the KFLP was automatically converted contemporaneously with the closing of the Offering into 1,692,123 shares of common stock issued to the KFLP at the same price of $1.50 per share paid by the Purchasers in the Offering. As a result of the conversion of the secured indebtedness, the Loan Agreement together with the related Security Agreement and related agreements were terminated. In addition the Company recognized $443,970 in interest expense due to the conversion of the note payable with warrants to common stock and the write off of the remaining discount to interest expense.
The entire disclosure for long-term debt.
Reference 1: http://www.xbrl.org/2003/role/presentationRef