This case is about a company named Hearts ‘R Us. This company provides research and development for medical devices. According to the information provided the company is in its early stage and has no products in the market. They have developed a Heart Valve System that would be revolutionary in the market if is approved. Also there’s another company called Bionic Body that is a biological medical device company, they have another product that would work well with this new Heart Valve System. Therefore both companies decided to fuse by agreement. The agreement is as follows: $3.5 million preferred stock shares of Series A from Heart Company are sold to Bionics with a par value of $1 each. This transaction was completed on November 30, 2011, according to the information provided. This transaction gave Bionic specific rights: 1. Board Rights, 2. Mandatory Conversion right, 3. Contingent Redemption Rights, 4. Additional Protective Rights, 5. Right of first refusal and Co-Sale Rights. The $3.5 millions of shares would be convertible in common stock according to the agreement when the IPO reaches net proceeds of at least $50 millions. It is stated that if on year five of the agreement the FDA has not yet approve the product to be in the market; the shares could be redeemed at its par value. Hearts R Us is a company that reports on a year basis and it’s planning to make an IPO soon. There are a couple of issues surrounding this case. First is an early-stage company that doesn’t have the financial stability and this might create trouble for further transactions. The only product that might be coming to the market still depends on a series of trials and the approval of the FDA. Since the company is just starting; all of its accounting transactions have being recorded to comply with the covenants of its outstanding debt. Furthermore they are not required to comply with SEC and are currently not doing so. Also theirs an issue of how to be done to...
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