8. INTANGIBLE ASSETS AND WEBSITE DEVELOPMENT
Website development consists of the following:
|
|
|
|
|
|
|
|
VaporLiq website
|
$
10,000
|
$
1,917
|
$
8,083
|
$
9,083
|
Amortization expense on website development for the three and six month periods ended June 30, 2016 amounted to $500 and $1,000, respectively. Amortization expense on website development for the three and six month periods ended June 30, 2015 amounted to $5,000 and $9,999, respectively. During the year ended December 31, 2015, the Company impaired the Charlie’s Club
website as it was determined to be obsolete due to the shift in direction the Company has pursued from the sale of E-cigarettes to the manufacturing and sale of E-liquid.
The estimated amortization expense for the next 4 years ending December 31, 2016, 2017, 2018 and 2019 approximates $2,000 per year. For the year ending December 31, 2020 it approximates $1,083.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
Brands
|
$
110,000
|
$
15,000
|
$
95,000
|
$
88,000
|
Customer relationships
|
270,000
|
43,717
|
226,283
|
127,283
|
|
$
380,000
|
$
58,717
|
$
321,283
|
$
215,283
|
Amortization expense on intangible assets for the three and six month periods ended June 30, 2016 amounted to $43,000 and $54,000 respectively. Amortization expense on intangible assets for the three and six month periods ended June 30, 2015 amounted to nil. The estimated amortization expense for the next 4 years ending December 31, 2016, 2017, 2018 and 2019 approximates
$76,000 per year. For the year ending December 31, 2020 it approximates $55,283.
9. LOANS FROM SHAREHOLDERS
The Company has outstanding current loans from shareholders as follows:
|
|
|
Non-interest bearing, unsecured, no specific terms of repayment
|
$
5,000
|
$
5,000
|
Bears interest of 1.5% per month on a cumulative basis, unsecured, no specific terms of repayment
|
24,140
|
22,528
|
Bears interest of 6% per annum on a cumulative basis, secured by the assets of the Company, matures on March 2, 2018 (iv)
|
337,164
|
-
|
|
$
366,304
|
$
27,528
|
During the three and six month period ended June 30, 2016, the Company accrued interest of $1,452 and $2,797 on the above current shareholder loan (June 30, 2015: $2,045 and $3,345). Total accrued interest owing on the current shareholder loans at June 30, 2016 is $10,090 (December 31, 2015: $6,686) which is included in accrued liabilities.
The Company has outstanding long term loans from shareholders as follows:
|
|
|
Bears interest of 10% per annum on a cumulative basis, secured by the assets of the Company, matures on July 1, 2017 (i)
|
$
387,100
|
$
361,250
|
Bears interest of 10% per annum on a cumulative basis, secured by the assets of the Company, matures on July 1, 2017 (ii)
|
100,000
|
100,000
|
Bears interest of 6% per annum on a cumulative basis, secured by the assets of the Company, matures on March 2, 2018 (iv)
|
181,550
|
-
|
|
$
668,650
|
$
461,250
|
(i)
On February 13, 2014, the Company entered into a secured promissory note (the “Secured Note”) with a shareholder, whereby the Company agreed to pay the party the aggregate unpaid principal amount of CAD $500,000 (USD $387,100) (December 31, 2015: CAD $500,000;
USD $361,250) on or before August 13, 2014, bearing interest at a rate of 10% per annum, such interest will accrue monthly and be added to the principal. The Secured Note is secured by a general security agreement over the assets of the Company. During the year ended December 31, 2014, the Company and the shareholder extended the maturity date of the Secured Note to January 1, 2016. During the year ended December 31, 2015, the Company and the shareholder extended the maturity date of the Secured Note to July
1, 2017.
The Company accrued interest of $10,999 and $21,385 during the three and six month periods ended June 30, 2016 (June 30, 2015: $10,599 and $19,186), respectively, on the Secured Note. Accrued interest owing on the Secured Note at June 30, 2016 is $73,392 (December 31, 2015: $47,617) which is included in accrued liabilities.
(ii)
On July 15, 2014, the Company entered into a secured promissory note (the “Secured Note No.2”) with a shareholder, whereby the Company agreed to pay the party the aggregate unpaid principal amount of $100,000 on or before July 18, 2014, bearing interest
at a rate of 10% per annum, such interest will accrue monthly and be added to the principal. The Secured Note No.2 is secured by the general security agreement issued with the Secured Note. During the year ended December 31, 2014, the Company and the shareholder extended the maturity date of the Secured Note No.2 to January 1, 2016. During the year ended December 31, 2015, the Company and the shareholder extended the maturity date of the Secured Note No.2 to July 1, 2017.
The Company accrued interest of $2,928 and $5,784 during the three and six month periods ended June 30, 2016 (June 30, 2015: $2,650 and $5,236) on the Secured Note No.2. Accrued interest owing on the Secured Note No.2 at June 30, 2016 is $7,786 (December 31, 2015: $13,289) which is included in accrued liabilities.
(iii) On June 29, 2015, the Company entered into a secured promissory note (the “Secured Note No.3”) with a shareholder, whereby the Company agreed to pay the party the aggregate unpaid principal amount of CAD $300,000 (USD $240,180) on or before January 1, 2016, bearing interest at a rate
of 10% per annum, such interest will accrue monthly and be added to the principal. The Secured Note No.3 is secured by the general security agreement issued with the Secured Note. In connection to the Secured Note No.3, the Company issued 500,000 warrants to purchase Common Shares of the Company exercisable over one year with an exercise price of $0.15 per Common Share, see note 14(c). No interest was accrued on this note during the six month periods ended June 30, 2015 and 2014. On December 31, 2015, the Secured
Note No.3 and all accrued interest owing with the issuance of $227,000 of Convertible Debenture Units.
(iv)
On March 2, 2016, the Company entered into a loan agreement with a shareholder (the “Loan Agreement”), whereby the shareholder would make available to the Company the aggregate principal amount of CAD $670,000 (the
“Shareholder Loan”) for capital expenditures, marketing expenditures and working capital. Under the terms of the Loan Agreement, the Shareholder Loan was made available to the Company in two equal tranches of CAD $335,000 (USD $259,357), for a total loan amount of CAD $670,000 (USD $518,714), with the first tranche (“Loan Tranche A”) received on the closing date and the second tranche (“Loan Tranche B”) received on April 14, 2016. At June 30, 2016, CAD $52,000 (USD $40,258)
of the Loan Tranche B is being held in trust by the shareholder to be released on the incurrence of specific expenses. The Shareholder Loan bears interest at a rate of 6% per annum, on the outstanding principal, and shall mature on March 2, 2018, whereby any outstanding principal together with all accrued and unpaid interest thereon shall be due and payable. The Company shall also repay 5% of the initial principal amount of Loan Tranche A and 5% of Loan Tranche B, monthly in arrears, with the first principal
repayment beginning on June 30, 2016. At June 30, 2016, $337,164 of the amounts owing on the Loan Agreement have been recorded as current liabilities to reflect the monthly principal payments due over the next year. The Company may elect to repay the outstanding principal of the Shareholder Loan together with all accrued and unpaid interest thereon prior to maturity without premium or penalty. The Company also agreed to service the Shareholder Loan during the term prior to making any payments to the Company’s
Chief Executive Officer, Chief Financial Officer and Board of Directors. The Shareholder Loan is secured by a general security agreement over the assets of the Company.
The Company accrued interest of $6,970 and $8,135 during the three and six month periods ended June 30, 2016 (June 30, 2015: nil), respectively, on the Shareholder Loan. Accrued interest owing on the Shareholder Loan at June 30, 2016 is $8,347 (December 31, 2015: nil) which is included in accrued liabilities. At June 30, 2016, the Company owes the lender $25,936 in principal
payments.
10. CREDIT FACILITY
On August 1, 2014, the Company entered into a revolving credit facility (the “Credit Facility”) with an unrelated party acting as an agent to a consortium of participants (the “Lender”), whereby the Lender would make a revolving credit facility in the aggregate principal amount of CAD $500,000 for the exclusive purpose of purchasing inventory for
sale in the Company’s ordinary course of business to approved customers. The Credit Facility shall bear interest at a rate of 15% per annum on all drawn advances and a standby fee of 3.5% per annum on the undrawn portion of the Credit Facility. The Credit Facility shall mature on August 1, 2015 whereby the outstanding advances together with all accrued and unpaid interest thereon shall be due and payable. On August 1, 2014, and in connection to the Credit Facility, the Company issued 250,000 warrants to
purchase Common Shares of the Company exercisable over two years with an exercise price of $0.30 per Common Share. The Company’s Chief Executive Officer and Chief Financial Officer are both participants of the consortium of participants of the Credit Facility, each having committed to provide ten percent of the principal amount of the Credit Facility. The Credit Facility is secured by all of the Company’s inventory and accounts due relating to any inventory as granted in an intercreditor and subordination
agreement by and among the Company, the Secured Note holder and the Lender to establish the relative rights and priorities of the secured parties against the Company and a security agreement by and between the Company and the Lender.
During the year ended December 31, 2014, the Company was advanced $387,110 (CAD $449,083) from the Credit Facility for the purchase of inventory including $77,453 (CAD $89,852) of advances from the Company’s Chief Executive Officer and Chief Financial Officer as their participation in the Credit Facility.
On February 11, 2015, the Company fully repaid the amounts advanced from the Credit Facility.
On April 24, 2015, the Company was advanced $89,590 (CAD $124,000) from the Credit Facility including $17,918 (CAD $24,800) of advances from the Company’s Chief Executive Officer and Chief Financial Officer as their participation in the Credit Facility.
On September 1, 2015, the Company was advanced $122,825 (CAD $170,000) from the Credit Facility including $24,565 (CAD $34,000) of advances from the Company’s Chief Executive Officer and Chief Financial Officer as their participation in the Credit Facility.
During the three and six month periods ended June 30, 2016, the Company expensed $2,189 (June 30, 2015: $13,772) of interest and standby fees as a result of the Credit Facility.
On January 18, 2016, and in connection to the Term Loan (note 11), the Company and the Lender entered into a loan termination agreement whereby the Company and the Lender terminated and retired the Credit Facility. As a result, the CAD $294,000 in amounts advanced from the Credit Facility and the CAD $3,093 in accrued interest owing on the Credit facility were rolled into
the Term Loan.
11. TERM LOAN
On January 18, 2016, the Company entered into a term loan (the “Term Loan”) with the Lenders, a consortium of participants that includes two of the Company’s senior executive officers, whereby the Lenders would loan the Company the aggregate principal amount of CAD $1,000,000 for capital expenditures, marketing expenditures and working capital. The agent
who arranged the Term Loan was not a related party of the Company. The Term Loan bears interest at a rate of 16% per annum, on the outstanding principal, and shall mature on July 3, 2017, whereby any outstanding principal together with all accrued and unpaid interest thereon shall be due and payable. The Term Loan is subject to a monthly cash sweep, calculated as the total of (i) CAD $0.50 for every E-liquid bottle, smaller than 15ml, sold by the Company within a monthly period; and (ii) CAD $1.00 for every E-liquid
bottle, greater than 15ml, sold by the Company within a monthly period (the “Cash Sweep”). The Cash Sweep will be disbursed to the Lenders in the following priority: first, to pay the monthly interest due on the Term Loan; and second, to repay any remaining principal outstanding on the Term Loan. The Company may elect to repay the outstanding principal of the Term Loan together with all accrued and unpaid interest thereon prior to the maturity, subject to an early repayment penalty of the maximum
of (i) 3 months interest on the outstanding principal; or (ii) 50% of the interest payable on the outstanding principal until maturity. The Term Loan shall be immediately due and payable at the option of the Lenders if there is a change in key personnel meaning the Company’s current Chief Executive Officer and Chief Financial Officer. On January 18, 2016 and in connection to the Term Loan, the Company issued warrants for the purchase of 250,000 Common Shares of the Company exercisable until December 31,
2017 with an exercise price of $0.20 per Common Share. In addition, the Company also extended the expiration date of the 250,000 warrants issued on August 1, 2014 in connection with the Credit Facility until December 31, 2017, with all other terms of the warrants remaining the same.
The Company’s Chief Executive Officer and Chief Financial Officer are both participants of the consortium of participants of the Term Loan, each having committed to provide ten percent of the principal amount of the Term Loan. Neither the Chief Executive Officer nor the Chief Financial Officer will participate in the warrants issued or warrants extended in connection
with the Term Loan and both parties have been appropriately abstained from voting on the Board of Directors to approve the Term Loan, where applicable.
During the six month period ended June 30, 2016, the Company was advanced $770,000 (CAD $1,000,000) from the Term Loan including the CAD $294,000 and CAD $3,093 rolled in from the Credit Facility (note 10) as well as CAD $140,581 of advances from the Company’s Chief Executive Officer and Chief Financial Officer. During the three and six month periods ended June 30,
2016, the Company expensed $29,826 and $52,839 (June 30, 2015: nil), respectively, in interest as a result of the Term Loan. Pursuant to the Cash Sweep, during the six month period ended June 30, 2016, the Company paid $51,208 to the Lender consisting of $44,333 in interest and $6,875 in principal payments and at June 30, 2016, the Company owes the lender $27,803 consisting of $10,063 in interest and $17,740 in principal payments, these amounts were paid on July 15, 2016 as per the terms of the Cash Sweep.
12. CONVERTIBLE DEBENTURES
On September 3, 2013, December 23, 2013 and February 11, 2014, the Company issued $425,000, $797,000 and $178,000 of unsecured subordinated convertible debentures (the “Convertible Debentures”), respectively. The Convertible Debentures mature on January 31, 2016 and bear interest at a rate of 12% per annum, which is payable quarterly in arrears. The Convertible
Debentures are convertible into Common Shares of the Company at a fixed conversion rate of $0.07 per share at any time prior to the maturity date. Of the $178,000 Convertible Debentures issued on February 11, 2014, $3,000 were issued in settlement of loans from shareholders and $50,000 were issued in settlement of loans from related parties.
On December 31, 2015, the Company issued 650 unsecured subordinated convertible debenture units (the “Convertible Debenture Units”) for proceeds of $650,000. Each Convertible Debenture Unit consisted of an unsecured subordinated convertible debenture having a principal amount of $1,000 (the “Convertible Debentures No.2”) and warrants exercisable
for the purchase of 5,000 Common Shares of the Company (note 14). The Convertible Debentures No.2 mature on January 31, 2018 and bear interest at a rate of 8% per annum, which is payable quarterly in arrears. The Convertible Debentures No.2 are convertible into Common Shares of the Company at a fixed conversion rate of $0.10 per share at any time prior to the maturity date. The Company will have the option to force conversion of the Convertible Debentures No.2 at any time after six months from issuance and prior
to the maturity date of January 31, 2018. Of the $650,000 Convertible Debentures No.2 issued, $276,000 were issued in settlement of loans from related parties (note 16), $10,000 were issued in settlement of related party consulting fees (note 16), $20,000 were issued in settlement of consulting fees owing to an unrelated party and $227,000 were issued in settlement of loans from shareholders.
On May 20, 2016, the Company issued 375 unsecured subordinated convertible debenture units (the “Convertible Debenture Units No.2”) for proceeds of $375,000. Each Convertible Debenture Unit No.2 consisted of an unsecured subordinated convertible debenture having a principal amount of $1,000 (the “Convertible Debentures No.3”) and warrants exercisable
for the purchase of 10,000 Common Shares of the Company (note 14). The Convertible Debentures No.3 mature on January 31, 2018 and bear interest at a rate of 8% per annum, which is payable quarterly in arrears. The Convertible Debentures No.3 are convertible into Common Shares of the Company at a fixed conversion rate of $0.10 per share at any time prior to the maturity date. The Company will have the option to force conversion of the Convertible Debentures No.3 at any time after six months from issuance and prior
to the maturity date of January 31, 2018. For Canadian purchasers, the Company may only force conversion of the Convertible Debentures No.3 at such time that the Company is a reporting issuer within the jurisdiction of Canada. Of the $375,000 Convertible Debentures No.3 issued, $55,000 were issued in settlement of amounts owing to related parties (note 16), and $10,000 were issued in settlement of amounts owing to an employee. The Company incurred costs of $22,725 as a result of the Convertible Debentures No.3.
The Company evaluated the terms and conditions of the Convertible Debentures, Convertible Debentures No.2 and Convertible Debentures No. 3 under the guidance of ASC 815,
Derivatives and Hedging
. The conversion feature met the definition of conventional convertible for purposes of applying the conventional convertible exemption. The
definition of conventional contemplates a limitation on the number of shares issuable under the arrangement. The instrument was convertible into a fixed number of shares and there were no down round protection features contained in the contracts.
Since a portion of the Convertible Debentures, Convertible Debentures No.2 and Convertible Debentures No. 3 were issued as an exchange of nonconvertible instruments at the nonconvertible instruments maturity date, the guidance of ASC 470-20-30-19 & 20 was applied. The fair value of the newly issued Convertible Debentures was equal to the redemption amounts owed at
the maturity date of the original instruments. Therefore there was no gain or loss on extinguishment of debt recorded. After the exchange occurred, the Company was required to consider whether the new hybrid contracts embodied a beneficial conversion feature (“BCF”).
For the face value $425,000 Convertible Debentures that were issued on September 3, 2013, the calculation of the effective conversion amount did not result in a BCF because the effective conversion price was greater than the Company’s stock price on the date of issuance, therefore no BCF was recorded. However, for the face value $797,000 Convertible Debentures that
were issued on December 23, 2013 and the face value $178,000 Convertible Debentures that were issued on February 11, 2014, the calculation of the effective conversion amount did result in a BCF because the effective conversion price was less than the Company’s stock price on the date of issuance and a BCF in the amounts of $797,000 and $178,000, respectively, were recorded in additional paid-in capital. The BCF results in a debt discount which is accreted over the life of the loan using the effective interest
rate. For the three and six month period ended June 30, 2016, the Company recorded interest expense in the amount of $17,342 (June 30, 2015: $25,832 and $87,609) related to debt discount.
For the face value $650,000 Convertible Debenture Units, the relative fair value of the warrants included in the Convertible Debenture Units of $287,757 was calculated using the Black-Scholes option pricing model. The resulting fair value of the Convertible Debentures No.2 was calculated to be $362,243. The calculation of the effective conversion resulted in a BCF because
the effective conversion price was less than the Company’s stock price on the date of issuance and a BCF in the amount of $133,657 was recorded in additional paid-in capital. The BCF and the fair value of the warrants, which represents debt discount, is accreted over the life of the loan using the effective interest rate. For the three and six months ended June 30, 2016, the Company recorded interest expense in the amount of $8,334 and $13,130 (June 30, 2015: nil) related to debt discount.
For the face value $375,000 Debenture Units No.2, the relative fair value of the warrants included in the Convertible Debenture Units No.2 of $234,737 was calculated using the Black-Scholes option pricing model. The resulting fair value of the Convertible Debentures No.3 was calculated to be $140,263. The calculation of the effective conversion resulted in a BCF because
the effective conversion price was less than the Company’s stock price on the date of issuance and a BCF in the amount of $117,538, which is net of transaction costs, was recorded in additional paid-in capital. The BCF and the fair value of the warrants, which represents debt discount, is accreted over the life of the loan using the effective interest rate. For the three and six months ended June 30, 2016, the Company recorded interest expense in the amount of $5,814 (June 30, 2015: nil) related to debt
discount.
Since issuance of the Convertible Debenture Units and Convertible Debenture Units No.2, the Company has accreted $19,630 and $5,814, respectively, related to discount for a total amount of $25,444 which has been recorded as a long term liability on the balance sheet.
The Company received forms of election whereby holders of the Convertible Debentures elected to convert into Common Shares of the Company at $0.07 per share pursuant to the terms of the Convertible Debentures. As at June 30, 2016, the Company received the following forms of elections from holders of the Convertible Debentures:
Date Form of Election Received
|
Convertible Debentures Converted
|
Number of
Common Shares Issued
|
April 15, 2014
|
$
50,000
|
714,286
|
September 30, 2014
|
800,000
|
11,428,572
|
November 10, 2014
|
275,000
|
3,928,571
|
March 9, 2015
|
52,000
|
742,857
|
July 15, 2015
|
105,000
|
1,500,000
|
September 1, 2015
|
20,000
|
285,714
|
|
$
1,302,000
|
18,600,000
|
On January 25, 2016, the Company received a form of election to convert $23,000 of Convertible Debentures, such Common Shares remain unissued. On March 10, 2016, the Company settled $25,000 in principal of the outstanding Convertible Debentures with a cash payment. On June 30, 2016, the Company was in default on the remaining $50,000 of the Convertible Debentures that
matured as of January 31, 2016. On July 6, 2016, the Company settled the remaining $50,000 in principal of the Convertible Debentures and agreed to pay to the holders such principal in monthly payments ending on November 1, 2016.
During the six month period ended June 30, 2016, the Company received $50,000 from unrelated parties for the purchase of Convertible Debenture Units No.2. The debentures are recorded as debentures to be issued under long term liabilities on the balance sheet.
During the three and six month periods ended June 30, 2016, the Company recorded interest expense in the amount of $18,816 and $31,780 (June 30, 2015: $6,672 and $14,433) on the Convertible Debentures.
On March 9, 2015, the Company settled interest payable on the Convertible Debentures in the amount of $1,096 with the issuance of Common Shares at $0.15 per share, of which, $358 of interest payable on the Convertible Debentures was settled with a Director of the Company (note 17).
13. COMMON STOCK
During the six month period ended June 30, 2016, the Company:
|
●
|
Issued 480,000 Common Shares at $0.10 per share for settlement of $48,000 in deferred fees owing to a related party (note 16). The amount allocated to Shareholders’ Deficiency, based on the fair value, amounted to $76,800. The balance of $28,000 has been recorded as a loss on settlement of debt;
|
|
●
|
Issued 562,715 Common Shares at an average price of $0.141 per share for settlement of $79,154 in consulting fees. The amount allocated to Shareholders’ Deficiency, based on the fair value, amounted to $78,780. The balance of $374 has been recorded as a gain on settlement of debt; and
|
|
●
|
Issued 150,000 Common Shares at $0.14 per share for $21,000 in related party employment income (note 16).
|
During the six month period ended June 30, 2015, the Company:
|
●
|
Issued 4,918 Common Shares at $0.15 per share for settlement of $738 in interest payable on Convertible Debentures to unrelated parties;
|
|
●
|
Issued 2,385 Common Shares at $0.15 per share for settlement of $358 in interest payable to a Director of the Company;
|
|
●
|
Issued 514,285 Common Shares at $0.07 per share as a result of the conversion of $36,000 of Convertible Debentures;
|
|
●
|
Issued 228,572 Common Shares at $0.07 per share to a Director of the Company as a result of the conversion of $16,000 of Convertible Debentures;
|
|
●
|
Issued 300,000 Common Shares at $0.11 per share as compensation for $33,000 in consulting fees to an unrelated party; and
|
|
●
|
Issued 408,597 Common Shares valued at a fair value of $0.11 per share for settlement of $61,290 in marketing costs owing to an unrelated party. The amount allocated to Shareholders’ Deficiency, based on the fair value, amounted to $44,946. The balance of $16,344 has been recorded as a gain on settlement of debt.
|
14. WARRANTS
The following schedule summarizes the outstanding warrants:
|
|
|
|
|
Weighted Average Exercise Price
|
Weighted Average Life Remaining (yrs)
|
|
Weighted Average Exercise Price
|
Weighted Average Life Remaining (yrs)
|
Beginning of year
|
8,177,373
|
$
0.25
|
1.39
|
1,510,640
|
$
0.25
|
1.87
|
Issued
|
8,635,000
|
0.22
|
2.00
|
6,677,373
|
0.25
|
1.73
|
Expired
|
(750,000
)
|
0.17
|
-
|
(10,640
)
|
0.15
|
-
|
End of year
|
16,062,373
|
$
0.24
|
1.44
|
8,177,373
|
$
0.25
|
1.39
|
(a) On January 30, 2015, and in connection to a supply and distribution agreement, the Company issued 250,000 warrants to purchase Common Shares of the Company exercisable over 2 years with an exercise price of $0.30 per Common Share.
The fair value of these issued warrants of $38,719 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.16
|
|
Risk-free interest rate
|
|
0.71
|
%
|
Expected life
|
|
2 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
320
|
%
|
Dividend yield
|
|
Nil
|
|
The Company fully expensed the value of the warrants in stock based compensation which has been recorded as an administrative expense.
(b) On May 29, 2015, and in connection to a commission agreement, the Company issued 1,000,000 warrants to purchase Common Shares of the Company exercisable over 2 years. The warrants vest in 4 tranches of 250,000 warrants each. Tranche 1 has an exercise price of $0.40 and vested upon execution of the agreement. Tranche 2 has an exercise price of $0.50 and will vest upon
the sales agent delivering $500,001 in sales revenue to Gilla Worldwide. Tranche 3 has an exercise price of $0.60 and will vest upon the sales agent delivering $1,000,001 in sales revenue to Gilla Worldwide. Tranche 4 has an exercise price of $0.70 and will vest upon the sales agent delivering $1,500,001 in sales revenue Gilla Worldwide.
The fair value of these issued warrants of $140,185 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.15
|
|
Risk-free interest rate
|
|
0.85
|
%
|
Expected life
|
|
2 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
298
|
%
|
Dividend yield
|
|
Nil
|
|
The Company booked the value of the vested warrants in the amount of $35,362 as prepaid to be expensed over the 2 year life of the commission agreement. During the six month period ended June 30, 2016, the Company expensed $8,840 in stock based compensation which has been recorded as an administrative expense. No portion of the value of the unvested warrants has been expensed
as the sales agent had not yet delivered any sales revenue to Gilla Worldwide.
(c) On June 29, 2015, and in connection to the Secured Note No.3, the Company issued 500,000 warrants to purchase Common Shares of the Company exercisable over one year with an exercise price of $0.15 per Common Share. The fair value of these issued warrants of $40,643 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.14
|
|
Risk-free interest rate
|
|
0.51
|
%
|
Expected life
|
|
1 year
|
|
Estimated volatility in the market price of the Common Shares
|
|
166
|
%
|
Dividend yield
|
|
Nil
|
|
The Company booked the value of the warrants as prepaid to be expensed over six months which is the life of the Secured Note No.3. No amounts were expensed related to this prepaid during the six month periods ended June 30, 2016 and 2015.
(d) On July 14, 2015, as part of the consideration for the acquisition of VaporLiq, the Company issued 500,000 warrants to purchase Common shares of the Company exercisable over 18 months with an exercise price of $0.20 per Common Share.
The fair value of these issued warrants of $41,975 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.17
|
|
Risk-free interest rate
|
|
0.51
|
%
|
Expected life
|
|
1.5 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
219
|
%
|
Dividend yield
|
|
Nil
|
|
(e) On December 30, 2015, and in connection to the Secured Note and Secured Note No.2 (together, the “Secured Notes”), the Company issued 250,000 warrants to purchase Common Shares of the Company exercisable over 18 months with an exercise price of $0.20 per Common Share.
The fair value of these issued warrants of $26,822 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.15
|
|
Risk-free interest rate
|
|
0.88
|
%
|
Expected life
|
|
1.5 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
190
|
%
|
Dividend yield
|
|
Nil
|
|
The Company booked the value of the warrants as prepaid to be expensed over the life of the Secured Notes. During the six month period ended June 30, 2016, the Company expensed $8,892 in financing fees which has been recorded as interest expense.
(f) On December 31, 2015, and in connection to the Debenture Units, the Company issued 3,250,000 warrants to purchase Common Shares of the Company exercisable over 24 months with an exercise price of $0.20 per Common Share.
The fair value of these issued warrants of $516,343 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.17
|
|
Risk-free interest rate
|
|
1.19
|
%
|
Expected life
|
|
2 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
265
|
%
|
Dividend yield
|
|
Nil
|
|
The value of the warrants along with the BCF represents debt discount on the Convertible Debentures No.2 and is accreted over the life of the loan using the effective interest rate. For the six month period ended June 30, 2016, the Company recorded interest expense in the amount of $13,130 related to debt discount which includes accretion of the BCF (note 12).
(g) On January 18, 2016, and in connection to the Term Loan (note 11), the Company extended the expiration date of the warrants issued on August 1, 2014, for the purchase of 250,000 Common Shares of the Company to be exercisable until December 31, 2017 with an exercise price of $0.30 per Common Share.
The fair value of the extension of these warrants of $30,710 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.18
|
|
Risk-free interest rate
|
|
0.91
|
%
|
Expected life
|
|
1.95 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
263
|
%
|
Dividend yield
|
|
Nil
|
|
The Company booked the value of the warrants in the amount of $30,710 as prepaid financing fee to be expensed over the life of the Term Loan. During the six month period ended June 30, 2016, the Company expensed $9,467 of the financing fee which has been recorded as interest expense.
(h) On January 18, 2016 and in connection to the Term Loan (note 11), the Company issued warrants for the purchase of 250,000 Common Shares of the Company exercisable until December 31, 2017 with an exercise price of $0.20 per Common Share.
The fair value of these issued warrants of $41,916 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.18
|
|
Risk-free interest rate
|
|
0.91
|
%
|
Expected life
|
|
1.95 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
263
|
%
|
Dividend yield
|
|
Nil
|
|
The Company booked the value of the warrants in the amount of $41,916 as prepaid financing fee to be expensed over the life of the Term Loan. During the six month period ended June 30, 2016, the Company expensed $12,921 of the financing fee which has been recorded as interest expense.
(i) On February 18, 2016 in relation to a consulting agreement, the Company issued warrants for the purchase of 300,000 Common Shares of the Company exercisable until February 17, 2018 with an exercise price of $0.25 per Common Share. The warrants shall vest quarterly in eight equal tranches, with the first tranche vesting immediately and the final tranche vesting on November
18, 2017. If the consulting agreement is terminated prior to the expiration of the warrants, any unexercised fully vested warrants shall expire thirty calendar days following the effective termination date and any unvested warrants shall be automatically canceled.
The fair value of these issued warrants of $30,501 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.11
|
|
Risk-free interest rate
|
|
0.80
|
%
|
Expected life
|
|
2 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
275
|
%
|
Dividend yield
|
|
Nil
|
|
During the six month period ended June 30, 2016, the Company expensed $16,511 as stock based compensation in relation to the above warrants which has been recorded as an administrative expense.
(j) On February 18, 2016, in relation to a consulting agreement, the Company issued warrants for the purchase of 1,500,000 Common Shares of the Company exercisable until February 17, 2018 with an exercise price of $0.25 per Common Share. The warrants shall vest quarterly in eight equal tranches, with the first tranche vesting immediately and the final tranche vesting on
November 18, 2017. If the consulting agreement is terminated prior to the expiration of the warrants, any unexercised fully vested warrants shall expire thirty calendar days following the effective termination date and any unvested warrants shall be automatically canceled.
The fair value of these issued warrants of $152,503 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.11
|
|
Risk-free interest rate
|
|
0.80
|
%
|
Expected life
|
|
2 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
275
|
%
|
Dividend yield
|
|
Nil
|
|
During the six month period ended June 30, 2016, the Company expensed $82,556, as stock based compensation in relation to the above warrants which has been recorded as an administrative expense.
(k) On March 2, 2016 and in connection to the Shareholder Loan (note 9), the Company issued warrants for the purchase of 1,000,000 Common Shares of the Company exercisable over 24 months with an exercise price of $0.20 per Common Share, with 500,000 of such purchase warrants vesting upon the close of Loan Tranche A and the remaining 500,000 purchase warrants vesting upon
the close of Loan Tranche B. On March 3, 2016 and April 14, 2016, the Company closed Loan Tranche A and Loan Tranche B, respectively, at which dates the purchase warrants became fully vested and exercisable.
The fair value of these issued warrants of $158,995 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.17
|
|
Risk-free interest rate
|
|
0.91
|
%
|
Expected life
|
|
2 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
271
|
%
|
Dividend yield
|
|
Nil
|
|
The Company booked the value of the vested warrants in the amount of $158,995 as a prepaid to be expensed over the life of the Shareholder Loan. During the six month period ended June 30, 2016, the Company expensed $22,083 which has been recorded as interest expense.
(l) On April 13, 2016, the Company entered into a consulting agreement and issued warrants for the purchase of 1,750,000 Common Shares of the Company exercisable until April 12, 2018 with an exercise price of $0.25 per Common Share. Forty percent of the warrants vested immediately with the remaining sixty percent vesting in equal tranches of fifteen percent on September
30, 2016, December 31 2016, June 30, 2017 and December 31, 2017. If the consulting agreement is terminated prior to the expiration of the warrants, any unexercised fully vested warrants shall expire ninety calendar days following the effective termination date and any unvested warrants shall be automatically cancelled.
The fair value of these issued warrants of $241,754 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.15
|
|
Risk-free interest rate
|
|
0.88
|
%
|
Expected life
|
|
2 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
264
|
%
|
Dividend yield
|
|
Nil
|
|
During the six month period ended June 30, 2016, the Company expensed $135,032 as stock based compensation in relation to the above warrants which has been recorded as an administrative expense.
(m) On May 20, 2016, and in connection to the Convertible Debenture Units No.2, the Company issued 3,750,000 warrants to purchase Common Shares of the Company exercisable over 24 months with an exercise price of $0.20 per Common Share.
The relative fair value of these issued warrants of $234,737 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.18
|
|
Risk-free interest rate
|
|
1.03
|
%
|
Expected life
|
|
2 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
259
|
%
|
Dividend yield
|
|
Nil
|
|
The value of the warrants along with the BCF represents debt discount on the Convertible Debentures No.3 and is accreted over the life of the loan using the effective interest rate. For the six month period ended June 30, 2016, the Company recorded interest expense in the amount of $5,814 related to debt discount which includes accretion of the BCF (note 12).
(n) On May 20, 2016, and as commission payment related to the issuance of the Convertible Debenture Units No.2, the Company issued 85,000 warrants to purchase Common Shares of the Company exercisable over 24 months with an exercise price of $0.20 per Common Share.
The fair value of these issued warrants of $14,225 was determined using the Black Scholes option-pricing model with the following weighted average assumptions:
Stock price
|
|
$0.18
|
|
Risk-free interest rate
|
|
1.03
|
%
|
Expected life
|
|
2 years
|
|
Estimated volatility in the market price of the Common Shares
|
|
259
|
%
|
Dividend yield
|
|
Nil
|
|
The value of the warrants were recorded as a reduction to the proceeds received for the Convertible Debentures No.3 (note 12).
15. SHARES TO BE ISSUED
As at June 30, 2016, the Company had $55,710 in shares to be issued consisting of the following:
●
328,571 Common Shares, valued at $0.07 per share, to be issued on conversion of $23,000 of Convertible Debentures;
●
192,308 Common Shares, valued at $0.156 per share, to be issued on the settlement of $30,000 in consulting fees owing to a shareholder; and
●
17,370 Common Shares, valued at $0.156 per share, to be issued on the settlement of $2,710 in consulting fees owing to unrelated parties.
The above Common Shares have not yet been issued.
As at December 31, 2015, the Company had $20,000 in shares to be issued consisting of the following:
●
151,745 Common Shares, valued at $0.132 per share, to be issued on settlement of consulting fees owing to unrelated parties.
16. RELATED PARTY TRANSACTIONS
Transactions with related parties are incurred in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to between the related parties.
(a)
|
The Company’s current and former officers and shareholders have advanced funds on an unsecured, non-interest bearing basis to the Company, unless stated otherwise below, for travel related and working capital purposes. The Company has not entered into any agreement on the repayment terms for these advances.
|
Advances from related parties were as follows:
|
|
|
Advances by and amounts payable to Officers of the Company, two of which are also Directors
|
$
485,014
|
$
242,758
|
Advances by and consulting fees payable to a corporation owned by two Officers of the Company, one of which is also a Director
|
206,830
|
196,581
|
Consulting fees owing to persons related to Officers who are also Directors of the Company
|
29,175
|
37,028
|
Advances by Officers of the Company, one of which is also a Director, bears interest at 1.5% per month
|
379,780
|
355,802
|
Amounts payable to a corporation formerly related by virtue of a common Officer of the Company
|
16,096
|
30,294
|
Amounts payable to a corporation related by virtue of common Officers and a common Director of the Company
|
88,273
|
50,976
|
Consulting fees and director fees payable to Directors of the Company
|
109,725
|
83,500
|
|
$
1,314,893
|
$
996,939
|
At June 30, 2016, the Company had deferred amounts of $637,372 (December 31, 2015: $662,140) owing to related parties. The deferred amounts consist of $250,271 (December 31, 2015: $300,890) owing to Officers of the Company, two of which are also Directors and amounts of $387,100 (CAD $500,000) (December 31, 2015: $361,250; CAD $500,000) owing to a corporation owned by
two Officers of the Company, one of which is also a Director. The amounts are non-interest bearing and payable on April 1, 2017. During the six month period ended June 30, 2016, the Company settled $48,000 of the deferred amounts owing to an Officer and Director of the Company with 480,000 Common Shares of the Company (note 13).
(b)
|
Interest accrued to related parties were as follows:
|
|
|
|
|
|
|
Interest accrued on advances by Officers of the Company, one of which is also a Director
|
$
176,326
|
$
129,729
|
Advances by and consulting fees payable to a corporation owned by two Officers of the Company, one of which is also a Director
|
13,177
|
2,026
|
|
$
189,503
|
$
131,755
|
(c)
|
Transactions with related parties were as follows:
|
During the six month period ended June 30, 2016, the Company expensed $48,080 (June 30, 2015: $19,433) in rent expense payable to a corporation related by virtue of a common Officer and a common Director of the Company.
During the six month period ended June 30, 2016, the Company expensed $11,024 (June 30, 2015: $6,357) in costs related to a vehicle for the benefit of two Officers who are also Directors of the Company and for the benefit of a person related to an Officer and Director of the Company. The Company also expensed $136,773 (June 30, 2015: $44,591) in travel and entertainment
expenses incurred by Officers and Directors of the Company.
On February 2, 2016, the Company settled $48,000 in consulting fees payable to a related party and agreed to issue 480,000 Common Shares at a price of $0.10 per Common Share. These Common Shares were issued on May 19, 2016 (note 13).
On May 20, 2016, the Company issued $55,000 of Convertible Debentures No.3 to related parties consisting of $10,000 to a person related to an Officer and Director for settled of fees payable, $10,000 to a Director of the Company for settlement of Director fees payable and $35,000 to a corporation owned by two Officers of the Company, one of which is also a Director, for
settlement of loans payable.
On May 20, 2016, the Company issued $15,000 of Convertible Debentures No.2 to two Directors of the Company for cash.
On June 17, 2016, the Company issued 150,000 Common Shares at a price of $0.14 per Common Share to a person related to an Officer and Director of the Company on the signing of a new employment agreement.
During the six month period ended June 30, 2015, the Company settled $358 of interest payable on Convertible Debentures with a Director of the Company at $0.15 per share, and the Common Shares were issued on April 13, 2015.
During the six month period ended June 30, 2015, the Company issued 228,572 Common Shares at $0.07 per share to a Director of the Company as a result of the conversion of $16,000 of Convertible Debentures, and the shares were issued on April 13, 2015.
The Company expensed consulting fees payable to related parties as follows:
|
|
|
Directors
|
$
-
|
$
49,500
|
Officers
|
165,122
|
108,582
|
Corporation formerly related by virtue of common Officers and a common Director
|
-
|
36,436
|
Corporation owned by two Officers, one of which is also a Director
|
-
|
95,949
|
Persons related to a Director
|
54,522
|
31,981
|
|
$
219,644
|
$
322,448
|
The Company’s Chief Executive Officer and Chief Financial Officer are both participants of the consortium of participants of the Credit Facility, each having committed to provide ten percent of the principal amount of the Credit Facility and Term Loan (notes 10 and 11).
17. COMMITMENTS AND CONTINGENCIES
a) Premises Lease
Effective January 1, 2015, a subsidiary of the Company entered into an operating lease agreement for a rental premises in Daytona Beach, Florida, USA. The terms of this agreement are to be for a period of 36 months and ending on December 31, 2017 with payments made monthly. Minimum annual lease payments are as follows:
2016
|
$
28,055
|
2017
|
56,110
|
|
$
84,165
|
b) Litigation
The Company is subject to certain legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.
On January 6, 2016, Yaron Elkayam, Pinchas Mamane and Levent Dimen filed a three count complaint against the Company in the Circuit Court of Hillsborough County, Florida alleging (i) breach of contract, (ii) breach of implied covenant of good faith and fair dealing, and (iii) fraud in the inducement seeking damages in the amount of approximately $900,000 of Promissory
Notes issued on July 1, 2015 as a result of the acquisition of E Vapor Labs. On February 23, 2015, the Company filed a motion to dismiss the complaint on the basis of failure to allege sufficient jurisdictional facts and failure to satisfy constitutional due process requirements to exercise jurisdiction.
c) Employment Agreements
Pursuant to certain employment agreements with the Company’s management, the Company has agreed to pay termination amounts in the first year of up to twelve months of annual entitlements under such agreements, less any amounts paid during the first year, ending on December 1, 2016.
d) Charitable Sales Promotion
On January 21, 2016, the Company entered into an agreement with Wounded Warriors Family Support Inc. in which the Company agreed to make a donation of $1.00 for each sale of its “Vape Warriors” E-liquid product during the period from January 1, 2016 to December 31, 2016, with a minimum donation of $50,000. During the six month period ended June 30, 2016 the
Company has accrued $25,000 in charitable contributions regarding this agreement.
e) Royalty Agreement
On June 14, 2016, the Company entered into a royalty agreement related to an E-liquid recipe purchased from an unrelated party in which the Company agreed to pay to the recipe developer, a royalty of $0.25 per 60ml of E-liquid sold that contains the recipe, up to a maximum of $100,000. Although the Company has the ability to sell the E-liquid globally, the royalty is paid
only on the E-liquid sold within the United States. During the six month period ended June 30, 2016, the Company made no payments related to the royalty agreement.
18. FINANCIAL INSTRUMENTS
(i) Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company’s credit risk is primarily attributable to fluctuations in the realizable values of its cash and trade receivable. Cash accounts are maintained with major international financial institutions of reputable
credit and therefore bear minimal credit risk. In the normal course of business, the Company is exposed to credit risk from its customers and the related accounts receivable are subject to normal commercial credit risks. A substantial portion of the Company’s accounts receivable are concentrated with a limited number of large customers all of which the Company believes are subject to normal industry credit risks. At June 30, 2016, the Company booked an allowance of bad debt of $20,615 (December 31,
2015:$20,370) in regards customers with past due amounts.
For the six month period ended June 30, 2016, 60% (December 31, 2015: 38%) of the Company’s trade receivables are due from one customer and 80% of the trade receivables are due from four customers. During the six month period ended June 30, 2016, 36% of the Company’s sales were to one customer and 54% of the Company’s sales were from two customers.
(ii) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity risk is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage
to the Company’s reputation. The Company manages liquidity risk by closely monitoring changing conditions in its investees, participating in the day to day management and by forecasting cash flows from operations and anticipated investing and financing activities. At June 30, 2016, the Company had liabilities due to unrelated parties through its financial obligations over the next five years in the aggregate principal amount of $5,410,644 (December 31, 2015: $1,987,967). Of such amount, the Company has
obligations to repay $3,666,994 over the next twelve months with the remaining $1,743,650 becoming due within the following four year period.
(iii) Foreign Currency Risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.
The risks and fluctuations are related to cash and accounts payable and accrued liabilities that are denominated in CAD and HUF.
Analysis by currency in Canadian and Hungarian equivalents is as follows:
June 30, 2016
|
|
|
|
CAD
|
$
265,730
|
$
-
|
$
11,196
|
HUF
|
$
260,763
|
$
90,472
|
$
12,487
|
The effect of a 10% strengthening of the United States dollar against the Canadian dollar and Hungarian Forint at the reporting date on the CAD and HUF-denominated trade receivables and payables carried at that date would, had all other variables held constant, have resulted in an increase in profit for the year and increase of net assets of $25,453 and $15,780, respectively.
A 10% weakening in the exchange rate would, on the same basis, have decreased profit and decreased net assets by $25,453 and $15,780, respectively. During the six month period ended June 30, 2016, amounts denominated in Euros were minimal and did not subject the Company to significant currency risk.
The Company purchases inventory in a foreign currency, at June 30, 2016, the Company included $147,656 (December 31, 2015: $146) in inventory purchased in a foreign currency on its condensed consolidated interim balance sheet. The Company does not use derivative financial instruments to reduce its exposure to this risk.
(iv) Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its fixed interest rate financial instruments. These fixed-rate instruments subject the Company to a fair value risk. The interest rates on all of the Company’s
existing interest bearing debt are fixed. Sensitivity to a plus or minus 25 basis points change in rates would not significantly affect the fair value of this debt.
19
.
SEGMENTED INFORMATION
The Company currently operates in only one business segment, namely, manufacturing, marketing and distributing of E-liquid, vaporizers, E-cigarettes, and vaping accessories in North America and Europe. Total long-lived assets by geographic location are as follows:
|
|
|
Canada
|
$
1,045
|
$
-
|
United States
|
1,376,242
|
1,624,669
|
Europe
|
14,742
|
2,130
|
|
$
1,392,029
|
$
1,626,799
|
Total sales by geographic location are as follows:
|
|
|
Canada
|
$
-
|
$
-
|
United States
|
1,838,191
|
7,641
|
Europe
|
430,337
|
-
|
|
$
2,268,528
|
$
7,641
|
20. SUBSEQUENT EVENTS
On July 15, 2016, the Company and the Lenders of the Term Loan (note 11) entered into a Term Loan Amendment (the “Term Loan Amendment”) in which the Lenders agreed to extend to the Company an additional CAD $600,000 in principal to increase the Term Loan facility up to the aggregate principal amount of CAD $1,600,000. The parties also extended the maturity
date of the Term Loan to July 2, 2018 with all other terms of the Term Loan remaining the same. The Company’s Chief Executive Officer and its Chief Financial Officer are both beneficial investors in the consortium and have each committed to provide CAD $150,000 of the principal amount of the initial principal of the Term Loan and the additional principal of the Term Loan pursuant to the Term Loan Amendment. Neither the Chief Executive Officer nor the Chief Financial Officer shall participate in the warrants
issued or warrants extended in connection with the Term Loan Amendment.
On July 15, 2016 and in connection to the Term Loan Amendment, the Company issued 300,000 warrants for the purchase of Common Stock at an exercise price of $0.20 per share, such warrants expiring on December 31, 2018. The Company also extended the expiration dates of i) the 250,000 warrants issued on January 18, 2016 in connection to the Term Loan
and ii) the 250,000 warrants issued on August 1, 2014 and extended on January 18, 2016 in connection to the Term Loan both until December 31, 2018, with all other terms of the warrants remaining the same.