Quarterly report pursuant to Section 13 or 15(d)

RELATED PARTY TRANSACTIONS

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RELATED PARTY TRANSACTIONS
6 Months Ended
Jun. 30, 2017
Notes to Financial Statements  
NOTE 11. RELATED PARTY TRANSACTIONS

John M. Krohn, President, Chief Operating Officer and Director of the Company, is a 50% owner of K4. The Company has entered into several financing agreements with K4. The Company entered into a sublease with K4, to occupy the current offices of the Company. On December 16, 2016, the Company (i) issued 350,000 common membership units of its subsidiary Caretta Therapeutics, LLC to K4, (ii) issued 200,000 common membership units of its subsidiary Zika Therapeutics, LLC to K4, (iii) issued 200,000 common membership units of its subsidiary SMA Therapeutics, LLC to K4 and (iv) assigned to 30% of the distributions and income receive by the Corporation from its investment in SOLX, Inc. to K4.

 

On October 5, 2016, Caretta entered into a license agreement with Dr. Paul Reid, of Celtic Biotech, Iowa. In August 2016, Mr. Ralph Arthur, who serves on the Board of Directors, purchased a convertible note in the principal amount of $20,000 from the Company, in a private placement, and received a warrant to purchase 6,000 shares of the Company’s common stock. These warrants have an exercise price equal to the closing process of the Company common stock of the six-month issuance thereof.

 

The material terms of the note are:

 

  · At any time prior to the maturity date, the note is convertible into shares of common stock of the Company at a price per share equal to 90% of the closing bid price of the common stock during the 20 consecutive trading days immediately preceding such conversion.
     
  · Interest will accrue at 7.5% computed on a 365-day basis. Interest is payable upon conversion of the convertible note at the applicable conversion price.

 

In December 2016, Mr. Arthur converted the note in its entirety into 54,054 shares of the Company’s common stock.

 

The warrant issued to Mr. Arthur provides for the purchase of that number of shares of common stock of the Company equal to 30% of the amount invested in the convertible notes based on the exercise price of the warrants (the exercise price is defined as 110% of the closing bid price of the common stock of the Company on the six- month anniversary of the issuance date of the convertible note).

 

In August and November 2016, Dr. Agarwal purchased an aggregate principal amount of $350,000 of the note from the Company, in a private placement, and received warrants to purchase an aggregate of 105,000 shares of the Company’s common stock. The warrants issued to Dr. Agarwal provides for the issuance of warrants to purchase that number of shares of common stock of the Company equal to 30% of the amount invested in the convertible notes based on the exercise price of the Warrants (the exercise price is defined as 110% of the closing bid price of the common stock of the Company on the six-month anniversary of the issuance date of the convertible note).

 

In connection with the issuance of the notes, Caretta Therapeutics, LLC (a subsidiary of the Company) entered into a Royalty Agreement with Mr. Arthur and Dr. Agarwal pursuant to which Mr. Arthur and Dr. Agarwal will receive a pro rata share of a royalty during 2017, 2018, 2019 and 2020 of the Company’s subsidiary Caretta Therapeutics, LLC as follows:

 

  · Aggregate of 5% of net revenue.
     
  · Net revenues defined as gross revenues, minus all license/royalty fees and cost of goods sold.
     
  · Royalties will cease once investor has received two times the amount invested in the respective note.

 

As of June 30, 2016, the Company has a demand note with K4 in the amount of $560,751. There are no formal payment terms, this loan is payable upon demand.