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10. LOANS FROM OFFICER | 12 Months Ended
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Sep. 30, 2015
Notes to Financial Statements |
10. LOANS FROM OFFICER | In 2009 the Company’s President, and a director, Maximilian de Clara, loaned the Company $1,104,057 under a note payable. The original loan from Mr. de Clara bore interest at 15% per year and was secured by a lien on substantially all of the Company’s assets. At Mr. de Clara’s option, the note may be converted into shares of the Company’s common stock. The number of shares which will be issued upon any conversion will be determined by dividing the amount to be converted by $4.00. The Company did not have the right to prepay the note without Mr. de Clara’s consent. In accordance with the loan agreement, the Company issued Mr. de Clara warrants to purchase 164,824 shares of the Company’s common stock at a price of $4.00 per share. These warrants expired on December 24, 2014. In consideration for an extension of the due date, Mr. de Clara received warrants to purchase 184,930 shares of the Company’s common stock at a price of $5.00 per share. These warrants expired on January 6, 2015. In consideration of Mr. de Clara’s agreement to subordinate his note to the convertible preferred shares and convertible debt as part of a prior year settlement agreement the Company extended the maturity date of the note to July 6, 2015. In August 2014, the loan and warrants were transferred to the de Clara Trust, of which the Company’s CEO, Geert Kersten, is the trustee and a beneficiary. Mr. de Clara receives the interest payments. On June 29, 2015, the Company extended the maturity date of the note to July 6, 2017, lowered the interest rate to 9% per year and changed the conversion price to $0.59, the closing stock price on the previous trading day. The de Clara Trust may demand payment upon giving the Company 10 days of notice. The new terms were effective July 7, 2015. The Company determined these modifications to be substantive and therefore accounted for the modifications as an extinguishment of the pre-modification note and issuance of the post-modification note. The Company recorded an extinguishment loss and a premium on the note payable of $165,943. The premium increased the face value of the note to $1,270,000 and will be amortized as a reduction of interest expense through the expiration date of the note. Concurrently, the Company extended the expiration date of the Series N warrants to August 18, 2017. The incremental cost of this modification was $475,333 and was included in debt extinguishment loss on the note, for a total loss of $641,276. On October 11, 2015, the maturity date of the note was extended for one year to July 6, 2018. The extension was made at the request of Lake Whillans Vehicle I, LLC, which agreed to provide the Company with up to $5,000,000 in funding for litigation expenses to support the Company’s $50,000,000 arbitration claims against the Company’s former clinical research organization. As of September 30, 2015, the full amount of the note payable was outstanding. During the years ended September 30, 2015, 2014 and 2013, the Company paid $146,288, $179,409 and $151,808, respectively, in interest expense to Mr. de Clara. During the year ended September 30, 2015, $20,816 was amortized as a reduction of interest expense, reducing the effective rate of the note payable to 6.98%.

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