Business Context and Reporting Period
This Form 8-K is filed by BioZone Pharmaceuticals, Inc. (not Cocrystal Pharma, Inc.) on October 28, 2011. The report addresses a default on senior secured convertible promissory notes and the subsequent execution of an Extension Agreement with investors to delay the maturity date.
Key Financial Metrics and Obligations
- Outstanding Debt: $2,250,000 aggregate principal amount across eleven senior secured convertible promissory notes.
- Default Status: The company was in default as of October 29, 2011, due to failure to pay the amount due on the original maturity date.
- Interest Rate: Base rate of 10% per annum.
- Extension Consideration: Issuance of 112,500 shares of common stock and a cash payment of $135,000 (1% of principal) to investors.
- Penalty Interest: Additional 2% (annualized) per 30-day period if unpaid after the new maturity date, capped at a total rate of 20%.
Material Changes and Events
The primary material change is the extension of the note maturity date from September 28, 2011, to October 29, 2011. In exchange for this extension, the company issued equity and cash interest. The investors waived prior events of default and their right to participate in a recent $500,000 unsecured debt financing and a proposed sale of 500,000 common shares.
Outlook, Risks, and Contingencies
- Conversion Rights: If the company completes a private placement (PIPE Offering) of at least $8,000,000, investors may elect to convert the notes into PIPE Securities at 80% of the offering price or demand cash repayment.
- Future Financing Rights: Investors retain the right to purchase up to 100% of future debt or equity financings for one year following a PIPE Offering.
- Liquidity Risk: The company faces immediate repayment obligations on October 29, 2011. Failure to repay will trigger escalating penalty interest rates.
- Financial Statements: This filing does not provide revenue, profit, or cash flow data; it focuses solely on the debt restructuring event.
Investor Verification Checklist
- Verify the company's ability to repay the $2,250,000 principal plus accrued interest by the October 29, 2011 deadline.
- Confirm the status of any ongoing efforts to secure the $8,000,000 PIPE Offering required to trigger conversion options.
- Review the full text of the Extension Agreement (Exhibit 10.1) for specific terms regarding the 20% interest rate cap and penalty calculations.
- Assess the dilution impact of the 112,500 shares issued as extension consideration.