Quarterly report pursuant to Section 13 or 15(d)

NOTES PAYABLE

v3.10.0.1
NOTES PAYABLE
6 Months Ended
Jun. 30, 2018
Notes to Financial Statements  
NOTE 7. NOTES PAYABLE

The Company’s short-term and long-term liabilities consists of the following:

 

   

June 30,

2018

   

December 31,

2017

 
Notes payable            
Notes payable - various   $ 170,669     $ 171,006  
Total notes payable     170,669       171,006  
                 
Short-term debt –related parties                
Demand notes – various related parties     208,583       218,042  
Demand note – K4 Enterprises     1,082,652       730,031  
Total short-term debt –related parties     1,291,235       948,073  
                 
Notes payable – related party                
Notes payable – Mike Kemery     1,500,000       1,500,000  
                 
Beginning debt discount     256,284       -  
Additions to debt discount     -       300,000  
Accretion of interest expense     (50,040 )     (43,716 )
Ending debt discount     206,244       256,284  
                 
Total notes payable – related party, net debt discount     1,293,756       1,243,716  
                 
Convertible debentures                
Convertible debentures – various     1,476,532       1,007,482  
                 
Beginning debt discount     675,273       -  
Additions to debt discount     378,146       1,388,605  
Accretion of interest expense     (176,641 )     (713,332 )
Ending debt discount     876,778       675,273  
                 
Total convertible debentures, net debt discount     599,754       332,209  
                 
Convertible debentures – related parties                
Convertible debentures – various related parties     610,000       335,000  
                 
Beginning debt discount     245,406       -  
Additions to debt discount     248,593       356,522  
Accretion of interest expense     (81,071 )     (111,116 )
Ending debt discount     412,928       245,406  
                 
Total convertible debentures – related party, net debt discount   $ 197,072     $ 89,593  

 

During 2016, the Company conducted a private offering of up to $2,500,000 in principal amount of the Company’s convertible promissory notes (the “Private Placement”), which bear interest at the rate of 7.5% per annum. The notes are 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. The notes mature 24 months after issuance, if not converted prior to the maturity date, the notes automatically convert into shares of common stock of the Company at a per share price equal to 80% of the closing bid price of the common stock of the Company during the 20 consecutive trading days immediately preceding the maturity date. The holders of the notes will receive, in the aggregate, pro rata based on investment, a total of five percent of the revenues of Caretta Therapeutics, LLC during the years ending December 31, 2017, 2018, 2019 and 2020. The investors shall also receive warrants to purchase a number of shares equal to 30% of the amount invested, for a period of two years, at an exercise price per share equal to 110% of the closing bid price of the common stock of the Company on the six-month anniversary of the date of issuance of such warrant. During the year ended December 31, 2016, the Company issued convertible notes in the aggregate principal amount of $1,382,000, under the Private Placement.

 

Prior to April 18, 2017, the Company conducted a private offering for the sale of convertible notes up to an aggregate of $2,500,000. After April 18, 2017, the Company amended and expanded the private offering to allow for the issuance of up to $11,500,000. Under the amended and expanded offering, the Company conducted a private offering (the “Private Placement 2017”), which bear interest at the rate of 7.5% per annum.

 

During the six months ended June 30, 2018, the Company issued convertible notes related and third parties in the aggregate principal amount of $769,800 under the Private Placement 2017. During the six months ended June 30, 2018, the Company recorded $3,334 and $623,405 of debt discount related to the relative fair value of the warrants and royalty liability, respectively, associated with these convertible notes. As of June 30, 2018, a related party noteholder converted their $25,000 note into 74,973 shares of the Company’s common stock, fair valued at $21,742. In connection with the conversion, the Company also recorded $13,508 extinguishment on related party debt and derivative liability as contributed capital.

 

The notes issued under the private placements are convertible into shares of common stock of the Company based upon the table below:

 

            Automatic Conversion Upon Maturity
Principal amount of debt   Number of convertible debentures  

Holder

Optional Conversion

 

Conversion price

for automatic conversion

  Floor Conversion Price
$400,000   1 *   $0.35   $0.35   None
$490,000   9 **  

90% of closing bid price 20 consecutive

days prior to conversion

  80% of 20 consecutive days prior to conversion   None
$475,000   3  

90% of closing bid price 20 consecutive

days prior to conversion

  90% of the closing bid price 20 consecutive days prior to conversion and the floor conversion price   See schedule below ***
$1,611,532   18  

90% of the closing bid price 20 consecutive

days prior to conversion

  90% of the closing bid price 20 consecutive days prior to conversion and the floor conversion price   $0.60

_________

* This debt converted into shares of common stock during the year ended December 31, 2017.

** All notes have been converted into shares of common stock during the three months ended March 31, 2018.

*** The floor conversion price for the $475,000 of convertible debt is as follows:

 

Conversion Date (by calendar quarter)   Floor Conversion Price  
2017 Q2   $ 0.60  
2017 Q3   $ 0.70  
2017 Q4   $ 0.85  
2018 Q1   $ 1.00  
Each Subsequent Quarter  

Increase $0.10

per Quarter

 

 

The holders of the notes were issued a warrant entitling the holder the right to purchase shares of Company common stock, equal to 30% of the value of their original convertible note. The warrant has a three-year term with an exercise price of $1.30 per share. Under the amended and expanded subscription agreement, the Company issued warrants to purchase 626,185 shares of the Company’s common stock with a relative fair value of $32,557.

 

For the six months ended June 30, 2018, the Company issued 230,940 warrants to purchase common stock of the Company with a relative fair value of $3,334 in connection with the private placement conducted during the period.