Farmingdale-based Long Blockchain Corp. will borrow as much as $4 million to fund its pivot announced last week from a maker of ready-to-drink iced tea to a provider of the technology used in digital currencies such as bitcoin.
The loan, announced Tuesday, is from Court Cavendish Ltd., a Surrey, United Kingdom, investment firm.
Requests for comment from Long Blockchain chief executive Philip Thomas and Court Cavendish were not returned.
When the company announced last Thursday that it was renaming itself Long Blockchain from Long Island Iced Tea, its shares leapt more than 180 percent to close at $6.91. On Wednesday they fell 15.2 percent to $4.07.
Blockchain is the decentralized digital ledger that records transactions for bitcoin and other digital currencies, also called cryptocurrencies, across many computers. Cryptocurrencies are not tied to a bank or government and allow users to spend money anonymously.
Interest in blockchain has grown as bitcoin has zigzagged to big gains in value. It has risen almost 1,500 percent year to date.
Long Blockchain recently sought to raise money by other means. In November the company filed a prospectus with the Securities and Exchange Commission to issue new stock and warrants worth as much as $10 million, with the proceeds to be used for sales, marketing, acquisitions, product development and general corporate purposes.
But the company backtracked on the stock plan by withdrawing its stock registration and recast itself as a blockchain technology provider after the company’s largest shareholder group, based in Auckland, New Zealand, issued a Dec. 15 SEC filing outlining its objections to the stock and warrant offering.
Cullen Inc. Holdings Ltd., its executive chairman, Eric Watson, and other executives, who controlled about 30 percent of Long Blockchain shares as of Dec. 6, described the stock and warrant offering as “value-dilutive” and “not in the best interests of the issuer’s stockholders.”
Under the new loan agreement, Court Cavendish will provide $2 million to Long Blockchain, with an option to increase the amount to $4 million.
In exchange, Court Cavendish, described on its website as an expert in “operational and financial turnarounds” of health care organizations, gets warrants that can be used to purchase stock, interest of 12.5 percent per year payable in cash or stock, and the right to appoint two people to the company’s board of directors.
In the nine months ended Sept. 30, Long Blockchain posted net sales of $3.9 million and a net loss of $11.6 million, or $1.36 per share. The company, which had 19 full-time employees as of Dec. 31, 2016, said it plans to continue its iced tea business.
Mitchell Goldberg, president of ClientFirst Strategy Inc., a Melville brokerage, said the rebranding of Long Island Iced Tea and other companies is reminiscent of the late 1990s when small capitalization companies added “dot-com” to their names to push their stock prices higher.
“All of this blockchain and cryptocurrency speculation has a lot of parallels to the late 1990s,” he said. “If business at the company was so good, why would they be doing this?”
Two days before the rebranding announcement, Long Blockchain’s executive chairman, Julian Davidson, a beverage industry veteran, notified the company that he was resigning effective Dec. 31. The company had planned to make Davidson an employee after raising $10 million in the security sale.
Long Blockchain last week said it plans to ask the Nasdaq Stock Market for an alternative trading symbol from its current “LTEA.”