果冻APP传媒

Note 5. Convertible Notes and Revolving Credit Facility

On February 29, 2012, a loan payable of $50,000 was converted into a two-year convertible promissory note, interest of 0.19% per annum. Beginning March 31, 2012, the note was convertible into common shares of the Company at the rate of $12.00 per share. The Company evaluated the convertible note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be the fair market value of the common shares on the note issue date. This loan (now a convertible promissory note) was originally due in February 2014. The amount due under this note has been reserved for payment upon the note being tendered to the Company by the note holder. However, this $50,000 note is derived from $200,000 of loans made to 果冻APP传媒 University prior to 2011, which was prior to the merger of 果冻APP传媒 University and EGC, the acquisition vehicle led by Michael Mathews, the Company聮s current Chairman and Chief Executive Officer. The bankruptcy judge in the HEMG bankruptcy proceedings has recently ruled that the Company may pursue remedies for these undisclosed loans. (See Note 6)

On December 1, 2017, the Company completed the acquisition of USU and, as part of the consideration, a $2,000,000 convertible note (the 聯Note聰) was issued, bearing 8% annual interest that matured over a two-year period after the closing. (See Note 8 and 11) At the option of the Note holder, on each of the first and second anniversaries of the closing date, $1,000,000 of principal and accrued interest under the Note would have been convertible into shares of the Company聮s common stock based on the volume weighted average price per share for the ten preceding trading days (subject to a floor of $2.00 per share) or become payable in cash. There was no beneficial conversion feature on the note date and the conversion terms of the note exempt it from derivative accounting.

On December 1, 2018 the Company paid scheduled principal and interest on the Note of $1,160,000. 听As of January 31, 2019 the Company had an outstanding balance of $1,000,000 on the note. 听On February 25, 2019, the Company prepaid the remaining balance of the Note (See Note 11).

Revolving Credit Facility

On November 5, 2018, the Company entered into a loan agreement (the 聯Credit Facility Agreement聰) with the Leon and Toby Cooperman Family Foundation (the 聯Lender聰). The Credit Facility Agreement provides for a $5,000,000 revolving credit facility (the 聯Facility聰) evidenced by a revolving promissory note (the 聯Revolving Note聰). Borrowings under the Credit Facility Agreement will bear interest at 12% per annum. The Facility matures on November 4, 2021.

Pursuant to the terms of the Credit Facility Agreement, the Company agreed to pay to the Foundation a $100,000 one-time upfront Facility fee. The Company also agreed to pay to the Foundation a commitment fee, payable quarterly at the rate of 2% per annum on the undrawn portion of the Facility. The Company has not borrowed any sum under the Facility.

The Credit Facility Agreement contains customary representations and warranties, events of default and covenants. Pursuant to the Loan Agreement and the Revolving Note, all future or contemporaneous indebtedness incurred by the Company, other than indebtedness expressly permitted by the Credit Facility Agreement and the Revolving Note, will be subordinated to the Facility.

Pursuant to the Credit Facility Agreement, on November 5, 2018 the Company issued to the Foundation warrants to purchase 92,049 shares of the Company聮s common stock exercisable for five years from the date of issuance at the exercise price of $5.85 per share which were deemed to have a relative fair value of $255,071. The relative fair value of the warrants along with the Facility fee were treated as debt issue assets to be amortized over the term of the loan.

As more fully explained in Note 11, the Credit Facility Agreement was amended and restated in March 2019, to provide among other things that the Company聮s obligations thereunder shall be secured by a first priority lien in certain deposit accounts of the Company, all current and future accounts receivable and certain of the deposit accounts of two of the Company聮s direct subsidiaries, and all of the outstanding capital stock of the subsidiaries.