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Credit Lines
12 Months Ended
Dec. 31, 2017
Line of Credit Facility [Abstract]  
Credit Lines

NOTE 6 – CREDIT LINES

 

UBS

 

On October 27, 2016, the Company entered into a credit line with UBS (The “UBS Credit Line”). The UBS Credit Line had a borrowing capacity determined by the level of the collateral pledged and bore interest at a floating rate, depending on the time requested for the borrowing. As of July 21, 2017, the credit line was closed. As of December 31, 2017 and December 31, 2016, the outstanding balance on the line of credit was $0 and $1,280,275, respectively.

 

Radium2 Capital Inc.

 

On November 27, 2017, the Company completed the Radium Agreement with Radium2 Capital Inc. (“Radium”). Pursuant to the Radium Agreement, the Company received cash of $750,000, less $7,500 of fees and expenses. The Radium borrowing is repaid at a minimum amount per week, based upon 15% of the Company’s gross sales, until the Company has repaid a total of $986,250. The Agreement further provides for a discount on the repayment amount, provided such prepay obligation of $838,313 is paid within 126 business days from the date of funding. The Radium Agreement was accounted for as a borrowing, with the difference between the repayment obligation and the net amount funded being recorded as an original issue discount, amortized using the interest method over the expected term of the arrangement. As of December 31, 2017, the balance of the obligation, net of the discount was $688,038, and was presented as note payable, current, within the consolidated financial statements. Since the repayment terms are based upon the Company’s actual future sales, which are not fixed, the Company classified the obligation as a current liability. During the year ended December 31, 2017, accreted discount amortization was $47,437, and was reflected as interest expense within the consolidated statements of operations and comprehensive loss.

 

Court Cavendish Ltd.

 

On December 20, 2017, the Company entered into the Cavendish Loan Agreement with Court Cavendish Ltd (“Cavendish”). The Cavendish Loan Agreement provides for the availability of an initial $2,000,000 (“Initial Facility Amount”). Cavendish also agreed to allow for two extensions of $1,000,000 each (“Extended Facility Amount”, and together with the Initial Facility Amount, the “Facilities”), as long as the Company continued moving towards specific ventures related to the blockchain technology, to increase the Facilities to $4,000,000 subject to Cavendish’s approval. Interest on the Facilities shall accrue monthly, at a rate of 12.5% per annum, on the unpaid principal balance commencing on the date of the first drawdown and shall be due and payable, without demand or notice, at the Company’s election quarterly in cash or in shares of the Company valued at the lower of $3.00 or the closing price per share on the preceding date the interest payment is due. All principal and accrued interest under the Facilities is due and payable on December 21, 2018. On such date, at Cavendish’s election, the Company shall repay the outstanding amount together with accrued interest either in cash or in shares of the Company at the lower of $3.00 or the closing price per share on such date, but not lower than $2.00 per share. In connection with the Cavendish Loan Agreement, a facility fee of 5% (“Original Issue Discount” or “OID”) of each of the Initial Facility Amount and the Extended Facility Amount is payable on the date of the first drawdown under each such facility and payable in either cash or stock. The facility fee on the Initial Facility Amount of $100,000 was withheld from the proceeds of the initial $750,000 funding under the Cavendish Loan Agreement.

 

In connection with the Initial Facility Amount, the Company issued to Cavendish a warrant to purchase 100,000 shares of the Company’s common stock with a three year life and an exercise price of $3.00 per share. This warrant had a gross fair value of $165,645, using the Black-Scholes option pricing model. Upon the first draw under the Extended Facility Amount, the Company shall issue a warrant to purchase an additional 50,000 shares of the Company’s common stock, with the same terms, for each of the $1,000,000 extensions that are made available under the Extended Facility Amount.

 

The $100,000 fee and the warrant to issue 100,000 shares of the Company’s common stock were considered costs of the Initial Facility Amount.

 

For the Initial Facility Amount, the $100,000 fee was charged in full as a cost of the facility and the warrant was charged on a relative fair value basis, or in the amount of $152,363. These costs were initially charged to deferred financing costs, since these costs were associated with the Initial Facility Amount and not to a single funding. Thereafter, these deferred costs shall be charged on a pro rata basis as a direct offset against the fundings as they occur, and such costs would be amortized using the interest method over the term of each funding loan.

 

On December 21, 2017, the Company requested a funding of $750,000 under the Initial Financing Facility, which was received by the Company on December 22, 2017. OID costs of $37,500 and warrant costs of $57,136, were from deferred financing costs were directly offset against this funding.

 

The Company then evaluated the funding transaction to determine whether or not there was a beneficial conversion feature. Accordingly, the Company determined that after the effect of the OID and the warrant, that the effective conversion price was $2.13 per share. With a market price of the Company’s common stock on December 20, 2017, of $2.44, the Company determined that there was a beneficial conversion with a value of $94,636. The beneficial conversion feature was accounted for as a credit to additional paid in capital and a direct offset to the funded loan amount, with such costs amortized using the interest method over the term of each funding loan.

 

On December 26, 2017, Cavendish converted the principal of $750,000 and accrued interest and thereupon was issued 250,233 shares, based upon an exercise price of $3.00 per share. Accordingly, in recording the conversion, the Company recognized $189,272 in interest expense for the unamortized debt discount and then the principal value of the note of $750,000 was credited to additional paid in capital and common stock.

 

The Company received an additional drawdown of $750,000 of the Initial Facility Amount on January 15, 2018. The Company received the final drawdown of $500,000 of the Initial Facility Amount on January 30, 2018. Since the Company is no longer listed on NASDAQ (See Note 11), the remaining amount under the Extended Facility Amount will not be available to the Company unless Cavendish were to waive this requirement.