|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:
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:
* 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:
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.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://www.xbrl.org/2003/role/presentationRef