Quarterly report pursuant to Section 13 or 15(d)

RELATED PARTY TRANSACTIONS

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RELATED PARTY TRANSACTIONS
6 Months Ended
Jun. 30, 2018
Notes to Financial Statements  
NOTE 13. RELATED PARTY TRANSACTIONS

On January 10, 2017, the Company entered into an employment agreement with Cristopher Grunewald pursuant to which he would continue to serve as the Company’s Chief Executive Officer at a salary of $180,000 per annum. The agreement was to continue until the second anniversary thereof, unless terminated earlier pursuant to the agreement. Pursuant to such agreement Mr. Grunewald’s employment may be terminated by either the Company or by Mr. Grunewald at any time and for any reason; provided that, unless otherwise provided in the agreement, either party shall be required to give the other party at least 30 days advance written notice of any termination of Mr. Grunewald’s employment. In the event that Mr. Grunewald’s employment is terminated without cause by the Company or by Mr. Grunewald for good reason (as these terms are defined in the agreement) or subject to the terms of the agreement as a result of a change in control (as defined in the agreement), Mr. Grunewald shall be entitled to monthly payments equal to 12 months’ salary for the year in which the termination occurred as well as to receive payment for any accrued amounts (as defined in the agreement).

 

On May 22, 2017, Mr. Grunewald resigned as Chief Executive Officer of the Company. Pursuant to Mr. Grunewald’s resignation, the Company issued Mr. Grunewald a warrant to purchase 500,000 shares of common stock of the Corporation with an exercise price of $1.25 per share for a term of three years. Mr. Grunewald also agreed to cancel 1,618,627 shares of common stock of the Company previously owned by Mr. Grunewald. Mr. Grunewald remains with the Company in an advisory capacity pursuant to a consulting agreement.

 

Short-term and long-term liabilities to related parties consists of the following:

 

   

June 30,

2018

   

December 31,

2017

 
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 – 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  

 

On April 21, 2017, Dr. Beetler (Director) purchased a convertible note in the principal amount of $25,000 from the Company, in a private placement, and received a warrant to purchase 7,500 shares of the Company’s common stock. These warrants have an exercise price equal to the closing price 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.

 

On June 7, 2017, Dr. Beetler purchased a convertible note in the principal amount of $250,000 from the Company, in a private placement, and received a warrant to purchase 82,500 shares of the Company’s common stock. The warrants have an exercise price of $1.30 per share. 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 and the floor conversion price as described in the table below.

 

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

 

 

  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.

 

On September 25, 2017, Mr. Arthur (Director) purchased a convertible note in the principal amount of $35,000 from the Company, in a private placement, and received a warrant to purchase 10,500 shares of the Company’s common stock. The warrants have an exercise price of $1.30 per share. 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 and the floor conversion price is $0.60 per share.
     
  Interest accrues at 7.5% computed on a 365-day basis. Interest is payable upon conversion of the convertible note at the applicable conversion price.

 

In connection with the issuance of the note, Caretta Therapeutics, LLC (a subsidiary of the Company) entered into a royalty agreement with Mr. Arthur pursuant to which Mr. Arthur will receive a pro rata share of a royalty during the years ended 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.

 

On July 25, 2017, the Company settled its line-of-credit with the Denver Savings Bank through a promissory note from Mike Kemery, a Principal at K4 Enterprises (an entity partially owned and controlled by John Krohn, the President, COO, and CEO of the Company), in the principal amount of $1,500,000. The note carries an interest rate of 4.5% and mature in three years. Pursuant to the terms of the agreement, the Company incurred a $300,000 loan origination fee, payable on demand. The Company recorded the fee as a debt discount.

 

On March 21, 2018, Ms. Greta Lang (a related party) purchased a convertible note in the principal amount of $275,000 from the Company, in a private placement, and received a warrant to purchase 82,500 shares of the Company’s common stock. 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 (i) 90% of the of the closing price of the common stock for 20 consecutive trading days immediately preceding such conversion (ii) Floor Conversion Price at $0.60 per share.
     
  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 connection with the issuance of the note, Caretta Therapeutics, LLC (a subsidiary of the Company) entered into a royalty agreement with Ms. Lang pursuant to which Ms. Lang will receive a pro rata share of a royalty during the years ended 2018 through September 30, 2024 of the Company’s subsidiary Caretta Therapeutics, LLC with a maximum royalty amount of 9 times the principal amount of the convertible note.

 

On April 2, 2018, Ms. Greta Lang (a related party) purchased a convertible note in the principal amount of $25,000 from the Company, in a private placement, and received a warrant to purchase 82,500 shares of the Company’s common stock. 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 (i) 90% of the of the closing price of the common stock for 20 consecutive trading days immediately preceding such conversion (ii) Floor Conversion Price at $0.60 per share.
     
  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 connection with the issuance of the note, Caretta Therapeutics, LLC (a subsidiary of the Company) entered into a royalty agreement with Ms. Lang pursuant to which Ms. Lang will receive a pro rata share of a royalty during the years ended 2018 through September 30, 2024 of the Company’s subsidiary Caretta Therapeutics, LLC with a maximum royalty amount of 9 times the principal amount of the convertible note.

 

As of June 30, 2018, the Company has a demand note with K4 Enterprises, an entity partially owned and controlled by the President and Chief Executive Officer of the Company, in the amount of $1,082,652. There are no formal payment terms, this loan is payable upon demand.