CONVERTIBLE DEBT |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2011 | |||
| CONVERTIBLE DEBT |
On
January 25, 2010, Cellectar issued nine convertible promissory
notes (“Convertible Notes”) in an aggregate principal
amount of $2,720,985. The Convertible Notes provided for
interest of 12% compounded annually with a maturity date of the
earlier of (i) the date on which Cellectar’s cash reserves
fall below $250,000 or (ii) January 20, 2011. Upon an event
of default, as defined, the interest rate increased by 10% to
22%. The outstanding principal balance, together with any
unpaid interest, was convertible immediately, by the lender, into
common stock of the Company at $0.82987 per share (giving effect to
the Exchange Ratio). Furthermore, the Convertible Notes were
subject to an automatic conversion feature equal to 70% of the per
share price of a qualified financing, should the Company complete a
qualified financing transaction which raises at least $20,000,000
in proceeds to the Company. Since the Convertible Notes were
convertible into common stock at date of issuance at a per share
price which was less than the estimated fair value of the
Company’s common stock at that date, the Convertible Notes
contained a beneficial conversion feature
(“BCF”). The estimated intrinsic value of the BCF
of $213,792 was determined as the difference between the conversion
price and the estimated fair value of Cellectar common stock on the
date of issuance, multiplied by the 3,278,786 shares of common
stock into which the Convertible Notes were convertible at
issuance. This amount was recorded as a component of interest
expense on the date of issuance. The estimated per-share fair
value of Cellectar common stock was determined by management based
on a number of factors including an independent valuation, which
was determined to be the best indication of the fair value as of
the issuance date of the Convertible Notes. Since the
conversion price was subject to adjustment in the event of a
qualified transaction, as defined, the Convertible Notes also
contain a contingent beneficial conversion feature
(“CBCF”). This contingency did not materialize;
therefore no intrinsic value was allocated to the CBCF. As of
December 31, 2010 and 2009, principal of $2,720,985 and $0 was
outstanding, respectively, on the Convertible Notes.
As
of December 31, 2010, the Convertible Notes are classified as a
long-term obligation on the accompanying balance sheets as a result
of the conversion of the short-term obligation through the issuance
of equity securities in connection with the
Acquisition.
On
January 20, 2011, the Convertible Notes matured but remained
unpaid. Following the maturity and default of the Convertible
Notes, the holders of the Convertible Notes agreed that all of the
outstanding notes would be automatically converted simultaneous
with the completion of an acquisition and financing (the
“Conversion Time”), if completed. The amount of
shares issued upon such conversion would be dependent on the amount
of investment made by the note holders at the Conversion Time and
were negotiated based on outstanding principal and projected
accrued interest based on an assumed closing date for the
acquisition and financing. Since the number of shares to be
issued upon conversion could not be determined until the Conversion
Time the Convertible Notes contained a CBCF. On April 1,
2011, Cellectar’s Board of Directors voted to accept the note
holders consent to convert the Convertible Notes into 4,181,535
shares of common stock immediately prior to the Acquisition.
On April 8, 2011, immediately prior to the Acquisition, the
principal and unpaid interest on the Convertible Notes was
converted into the agreed total of 4,181,535 shares of common
stock. Upon conversion of the Convertible Notes, the Company
reclassified the aggregate outstanding principal and interest
totaling $3,184,706 to a component of additional paid-in
capital. The revised conversion terms resulted in the
issuance of an additional 343,963 shares of common stock over the
3,837,572 shares of common stock that would have been issued if the
unpaid principal and accrued interest on the Convertible Notes had
been converted on that date in accordance with their original terms
at the stated conversion price. On the date of conversion,
the Company determined that the value of these additional shares
was $257,973, based on the $0.75 per share offering price of the
common stock sold in the private placement completed concurrently
with the Acquisition, which is the best indication of fair value on
the date of conversion. Since the conversion was not
completed until April 8, 2011, the value of the additional shares
of $257,973 was recorded as a component of interest expense during
the second quarter of 2011.
|