Secured Promissory Notes and Other Obligations
|9 Months Ended|
Sep. 30, 2016
|Debt Disclosure [Abstract]|
|Secured Promissory Notes and Other Obligations||
Note 3 Secured Promissory Notes and Other Obligations
Secured Promissory Notes
On December 11, 2015, we executed two Subscription Agreements (the Subscription Agreements) with the investors named therein (the Investors) providing for the purchase of 12% Secured Promissory Notes Series A ( Notes) in the aggregate principal amount of up to $3.0 million and warrants to purchase shares of our Common Stock (the Warrants).
Notes in the amount of $1.5 million and 51,000 Warrants, at an exercise price of $1.35 per share, which was equal to the closing price of our Common Stock on the date of investment, were issued by the Company and its wholly-owned subsidiaries, Pharmaloz Manufacturing, Inc. and Quigley Pharma, Inc. (collectively, the Obligors), and funded on December 11, 2015. We incurred loan origination costs of $22,000 which was recorded as a reduction of the Notes and the origination costs are charged to interest expense over the term of the loan. The Warrants have an exercise term equal to three years and are exercisable commencing on the date of issuance. The fair value of the Warrants at the date of grant was $14,000 which is recorded as a reduction of the Notes and is charged to interest expense over the term of the loan. At September 30, 2016, the $1.5 million Notes are reported net of $16,000 of the unamortized interest for the loan origination costs and unamortized interest for the Warrants. At September 30, 2016, other current liabilities include $54,000 for accrued interest under the terms of the Notes.
The Notes are secured by substantially all of our tangible and intangible assets. The Notes bear interest at the rate of 12% per annum, payable semi-annually and the principal is due and payable on June 15, 2017. The Notes may be pre-paid at any time prior to maturity without penalty. The effective interest, inclusive of the Warrant and loan origination costs, is 14.3% per annum. For the three and nine months ended September 30, 2016, we charged to interest expense $53,000 and $158,000, respectively, in connection with the Notes.
In connection with the issuance of the Notes, we entered into a security agreement with John E. Ligums, Jr. (an Investor and a shareholder in the Company), as collateral agent for the Investors (the Security Agreement) to secure the timely payment and performance in full of the Obligors obligations pursuant to the Notes. Under the Security Agreement, the Obligors grant to the Collateral Agent, for the benefit of the Investors a lien upon and security interest in the property and assets listed as collateral in the Security Agreement, including without limitation, all of the Obligors personal property, inventory, equipment, general intangibles, cash and cash equivalents, and proceeds.
Godfrey Settlement Agreement
In November 2004, we commenced an action against John C. Godfrey, Nancy Jane Godfrey, and Godfrey Science and Design, Inc. (together the Godfreys) for injunctive relief regarding the ownership of the Cold-EEZE® trademark. The Godfreys subsequently asserted against us counterclaims and sought monetary damages and injunctive and declaratory relief relative to the Cold-EEZE® trademark and other intellectual property.
On December 20, 2012, we and the Godfreys, including the Estate of Nancy Jane Godfrey, entered into a Settlement Agreement and Mutual General Release (the Godfrey Settlement Agreement), pursuant to which we resolved all disputes, including claims asserted by us and counterclaims asserted against us in the action. At each of September 30, 2016 and December 31, 2015, other current liabilities include $100,000, inclusive of accrued interest at the annual rate of 3.25%, for final installment payment due in December 2016 pursuant to the terms of the Godfrey Settlement Agreement.