NOTES
TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2019
(Unaudited)
NOTE
1. ORGANIZATION
VPR
Brands, LP (the “Company”, “we”, “our”) was incorporated in New York on July 19, 2004, as
Jobsinsite.com, Inc. On August 5, 2004, we changed our name to Jobsinsite, Inc. On June 18, 2009, we merged with a Delaware corporation
and became Jobsinsite, Inc. On July 1, 2009, we filed articles of conversion with the secretary of state of Delaware and became
Soleil Capital L.P., a Delaware limited partnership. On September 2, 2015, we changed our name to VPR Brands, LP. We are managed
by Soleil Capital Management LLC, a Delaware limited liability company.
The
Company is engaged in various monetization strategies of a portfolio of patents the Company owns in both the U.S. and China, covering
electronic cigarette, electronic cigar and personal vaporizer patents. We currently market a brand of electronic cigarette e-liquids
under the brand “Helium” in the United States and are undertaking efforts to establish distribution of our electronic
cigarette e-liquids brand in China. We are currently also identifying electronic cigarette companies that may be infringing our
patents and exploring options to license and or enforce our patents.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
In
the opinion of management, the accompanying unaudited condensed financial statements are prepared in accordance with instructions
for Form 10-Q, include all adjustments (consisting only of normal recurring accruals) which we considered as necessary for a fair
presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the
Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for the three and nine
months ended September 30, 2019 are not necessarily indicative of the results to be expected for future periods or the full year.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash
Cash
includes all cash deposits and highly liquid financial instruments with an original maturity of three months or less.
Accounts
Receivable
The
Company analyzes the collectability of accounts receivable from continuing operations each accounting period and adjusts its allowance
for doubtful accounts accordingly. A considerable amount of judgment is required in assessing the realization of accounts receivables,
including the creditworthiness of each customer, current and historical collection history and the related aging of past due balances.
The Company evaluates specific accounts when it becomes aware of information indicating that a customer may not be able to meet
its financial obligations due to deterioration of its financial condition, lower credit ratings, bankruptcy or other factors affecting
the ability to render payment. As of September 30, 2019 and December 31, 2018, the Company had recorded allowance for bad debt
of $49,056.
Inventory
Inventory
consisting of finished products is stated at the lower of cost or net realizable value. At each balance sheet date, the Company
evaluates its ending inventories for excess quantities and obsolescence. This evaluation primarily includes an analysis of forecasted
demand in relation to the inventory on hand, among consideration of other factors. The physical condition (e.g., age and quality)
of the inventories is also considered in establishing its valuation. Based upon the evaluation, provisions are made to reduce
excess or obsolete inventories to their estimated net realizable values. Once established, write-downs are considered permanent
adjustments to the cost basis of the respective inventories. These adjustments are estimates, which could vary significantly,
either favorably or unfavorably, from the amounts that the Company may ultimately realize upon the disposition of inventories
if future economic conditions, customer inventory levels, product discontinuances, sales return levels or competitive conditions
differ from the Company’s estimates and expectations. As of September 30, 2019 and December 31, 2018, the Company had recorded
a provision for obsolescence of $70,679.
Leases
In
February 2016, the FASB issued ASU No. 2016-02 (Topic 842). Topic 842 amended several aspects of lease accounting, including requiring
lessees to recognize leases with a term greater than one year as a right-of-use asset and corresponding liability, measured at
the present value of the lease payments. In July 2018, the FASB issued supplemental adoption guidance and clarification to Topic
842 within ASU 2018-10 “Codification Improvements to Topic 842, Leases” and ASU 2018-11 “Leases (Topic 842):
Targeted Improvements.” The new guidance aims to increase transparency and comparability among organizations by requiring
lessees to recognize lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about
leasing arrangements. A modified retrospective application is required with an option to not restate comparative periods in the
period of adoption.
The
Company, effective January 1, 2019 has adopted the provisions of the new standard. The Company decided to use the practical expedients
available upon adoption of Topic 842 to aid the transition from current accounting to provisions of Topic 842. The package of
expedients will effectively allow the Company to run off existing leases, as initially classified as operating and classify new
leases after implementation under the new standard as the business evolves.
The
Company has an operating lease principally for warehouse and office space. Management evaluates each lease independently to determine
the purpose, necessity to its future operations in addition to other appropriate facts and circumstances.
The
Company adopted Topic 842 using a modified retrospective approach for its existing lease at January 1, 2019. The adoption of Topic
842 impacted the Company’s balance sheet by the recognition of the operating lease right-of-use assets and the liability
for operating leases. The lease liability is based on the present value of the remaining lease payments, discounted using a market
based incremental borrowing rate as the effective date of January 1, 2019 using current estimates as to lease term including estimated
renewals for each operating lease. As of January 1, 2019, the Company recorded an adjustment of approximately $87,000 to operating
lease right-to-use asset and the right to use lease liability.
Revenue
Recognition
The
Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration
which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed
under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii)
determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize
revenues when (or as) we satisfy the performance obligation.
Revenues
from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in
time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred
if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.
Stock-Based
Compensation
Share-based
payments to employees, including grants of employee stock options are recognized as compensation expense in the financial statements
based on their fair values, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 718. That expense is recognized over the period during which an employee is required to
provide services in exchange for the award, known as the requisite service period (usually the vesting period). The Company had
no common stock options or common stock equivalents granted or outstanding for all periods presented. The Company may issue shares
as compensation in future periods for employee services.
The
Company may issue restricted units to consultants for various services. Cost for these transactions will be measured at the fair
value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
The value of the common stock is to be measured at the earlier of: (i) the date at which a firm commitment for performance by
the counterparty to earn the equity instruments is reached, or (ii) the date at which the counterparty’s performance is
complete. The Company may issue shares as compensation in future periods for services associated with the registration of the
common shares.
Fair
Value
The
carrying values of the Company’s notes payables, convertible notes, and accounts payable and accrued expenses approximates
their fair values because of the short-term nature of these instruments.
Basic
and Diluted Net Loss Per Unit
The
Company computes net loss per share in accordance with FASB ASC 260, “Earnings per Share”. ASC 260 requires presentation
of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed
by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using
the treasury stock method, and convertible notes, using the if-converted method. Diluted EPS excludes all dilutive potential common
shares if their effect is anti-dilutive. 10,728,833 shares underlying convertible notes were excluded from the calculation of
diluted loss per share for the nine months ended September 30, 2019 because their effect was antidilutive.
Income
Taxes
The
Company is considered a partnership for income tax purposes. Accordingly, the partners report the Partnership’s taxable
income or loss on their individual tax returns.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies
that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting
pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on
its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash
flow when implemented.
On
June 20, 2018, the FASB issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for
goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements
for share-based payments granted to employees. Previously, share-based payment arrangements to nonemployees were accounted for
under ASC 718, while nonemployee share-based payments issued for goods and services were accounted for under ASC 505-50. Before
the amendment, the major difference for the Company (but not limited to) was the determination of measurement date which generally
is the date on which the measurement of equity classified share-based payments becomes fixed. Equity classified share-based payments
for employees was fixed at the time of grant. Equity-classified nonemployee share-based payment awards are no longer measured
at the earlier of the date which a commitment for performance by the counterparty is reached or the date at which the counterparty’s
performance is complete. They are now measured at the grant date of the award which is the same as share-based payments for employees.
The Company adopted the requirements of the new rule as of January 1, 2019, the effective date of the new guidance.
NOTE
3: GOING CONCERN
The
accompanying condensed financial statements have been prepared on a going concern basis, which contemplates the Company will continue
to realize its assets and discharge its liabilities in the normal course of business. The Company incurred a net loss of $480,058
for the nine months ended September 30, 2019 and has an accumulated deficit of $9,079,442 and a working capital deficit of $996,805
at September 30, 2019. The continuation of the Company as a going concern is dependent upon, among other things, the continued
financial support from its common unit holders, the ability of the Company to obtain necessary equity or debt financing, and the
attainment of profitable operations. These factors, among others, raise substantial doubt regarding the Company’s ability
to continue as a going concern. There is no assurance that the Company will be able to generate sufficient revenues in the future.
These financial statements do not give any effect to any adjustments that would be necessary should the Company be unable to continue
as a going concern.
The
Company plans to pursue equity funding to expand its brand. Through equity funding and the current operations, including the acquisition
of the Vapor line of business, the Company expects to meet its current capital needs. There can be no assurance that the Company
will be able raise sufficient working capital. If the Company is unable to raise the necessary working capital through the equity
funding it will be forced to continue relying on cash from operations in order to satisfy its current working capital needs.
NOTE
4: NOTES PAYABLE
On
April 5, 2018, the Company issued a Promissory Note in the principal amount of $100,001 (the “Surplus Note”) to Surplus
Depot Inc., an unaffiliated third party (“Surplus”). The principal amount due under the Surplus Note bears interest
at the rate of 24% per annum, and permits Surplus to deduct one ACH payment from the Company’s bank account in the amount
of $500 per business day until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued
interest is due on April 5, 2019. The Surplus Note is unsecured. The note was paid in full during the nine months ended September
30, 2019.
On
May 30, 2018, the Company issued a promissory note in the principal amount of $100,001 (the “May 2018 Sunshine Note”)
to Sunshine Travel, Inc., an unaffiliated third party (“Sunshine Travel”). The principal amount due under the May
2018 Sunshine Note bears interest at the rate of 24% per annum, and permits Sunshine Travel to deduct one ACH payment from the
Company’s bank account in the amount of $500 per business day until the principal amount due and accrued interest is repaid.
Any unpaid principal amount and any accrued interest is due on May 30, 2019. The May 2018 Sunshine Note was paid in full during
the nine months ended September 30, 2019.
On
August 16, 2018, the Company issued a promissory note in the principal amount of $100,001 (the “August 2018 Sunshine Note”)
to Sunshine Travel. The principal amount due under the Sunshine Travel Note bears interest at the rate of 24% per annum, permits
Sunshine Travel to deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until the
principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on August 16,
2019. The August 2018 Sunshine Note is unsecured. The August 2018 Sunshine Note was paid in full during the nine months ended
September 30, 2019.
On
September 6, 2018, the Company issued the Amended and Restated Secured Promissory Note in the principal amount of $582,260 (the
“A&R Note”). The principal amount of the A&R Note represents (i) $500,000 which Healthier Choices Management
Corp. (HCMC) loaned to the Company on September 6, 2018, and (ii) $82,260, which represents the aggregate amount owed by the Company
under the Original Notes as of September 6, 2018. The A&R Note, which has a maturity date of September 6, 2021, had the effect
of amending and restating the Note and bears interest at the rate of 7% per annum. Pursuant to the terms of the A&R Note,
the Company agreed to pay HCMC 155 weekly payments of $4,141, commencing on September 14, 2018 and ending on September 14, 2021,
and a balloon payment for all remaining accrued interest and principal in the 156th week. The Company at its option has the right,
by giving 15 business days’ advance notice to HCMC, to prepay a portion or all amounts outstanding under the A&R Note
without penalty or premium. The balance of the note as of September 30, 2019 was $384,990.
On
July 22, 2019, the Company issued a promissory note in the principal amount of $250,000 (the “Lendistry Note”) to
Lendistry, LLC. The principal amount due under the Lendistry Note bears interest at the rate of 24% per annum, and permits Lendistry,
LLC to deduct weekly ACH payments from the Company’s bank account in the amount of $1240 plus up to 11% of Credit Card Sales
until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on
July 25, 2020. The Lendistry Note is unsecured. The balance of the note as of September 30, 2019 was $228,662.
On
September 13, 2019, the Company issued a promissory note in the principal amount of $95,000 (“BlueVine Note”) to BlueVine
Capital, Inc. The principal amount due under the BlueVine Note bears interest at the rate of 27% per annum, and requires weekly
payments of $4,062 until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued
interest is due on June 13, 2020. The BlueVine Note is unsecured. The balance of the note as of September 30, 2019 was $86,877.
On
September 17, 2019, the Company issued a promissory note in the principal amount of $100,000 (the “Kabbage Note”)
to Kabbage, Inc. The principal amount due under the Kabbage Note bears interest at an annual rate of 37%, and requires monthly
payments of principal and interest of $10,083 through maturity in September 2020. The Kabbage Note is unsecured. The balance of
the note as of September 30, 2019 was $100,000.
On
September 24, 2019, the Company entered not a working capital account agreement with Paypal Working Capital (“Paypal Note”),
pursuant to which the Company borrowed $37,000, requiring repayment in amounts equal to 30% of sales collections processed through
Paypal, but no less than $4,143, every 90 days, until the total amount of payments equals $41,430. The balance of the loan as
of September 30, 2019 is $37,000.
The
following is a summary of notes payable activity for the nine months ended September 30, 2019:
|
Balance at December 31, 2018
|
|
$
|
640,688
|
|
|
New issuances
|
|
|
482,000
|
|
|
Repayments of principal
|
|
|
(285,159
|
)
|
|
Balance at September 30, 2019
|
|
$
|
837,529
|
|
NOTE
5: NOTES PAYABLE – RELATED PARTIES
On
March 30, 2018, the Company issued an unsecured promissory note (the “Greg Pan Note”) in the principal amount of $100,001
to Mr. Greg Pan. Mr. Greg Pan is a director of the General Partner and owns a significant percentage of the Company’s outstanding
common units. Any unpaid principal amount and any accrued interest is due on March 30, 2019. The principal amount due under the
Greg Pan Note bears interest at the rate of 24% per annum. Pursuant to the terms of the Greg Pan Note, Mr. Greg Pan may deduct
one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal amount due and
accrued interest is repaid. This note was fully repaid as of September 30, 2019.
On
May 4, 2018, the Company issued a promissory note in the principal amount of $100,001 (the “May 2018 Frija Note”)
to Kevin Frija, the Company’s Chief Executive Officer, President, principal financial and accounting officer and Chairman
of the Board, and a significant stockholder of the Company. The principal amount due under the May 2018 Frija Note bears interest
at the rate of 24% per annum, and permits Mr. Frija to deduct one ACH payment from the Company’s bank account in the amount
of $500 per business day until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued
interest is due on May 4, 2019. The May 2018 Frija Note is unsecured. This note was fully repaid as of September 30, 2019.
On
June 15, 2018, the Company issued a promissory note in the principal amount of $100,001 (the “June 2018 Frija-Hoff Note”)
to Daniel Hoff and Kevin Frija jointly. The principal amount due under the June 2018 Frija-Hoff Note bears interest at the rate
of 24% per annum, and permits Messrs. Hoff and Frija to deduct one ACH payment from the Company’s bank account in the amount
of $500 per business day until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued
interest is due on June 15, 2019. The June 2018 Frija-Hoff Note is unsecured. This note was fully repaid as of September 30, 2019.
On
July 23, 2018, the Company issued the July 2018 Frija Note in the principal amount of $100,001 to Kevin Frija, the Company’s
Chief Executive Officer, President, principal financial officer, principal accounting officer and Chairman of the Board, and a
significant stockholder of the Company. The principal amount due under the July 2018 Frija Note bears interest at the rate of
24% per annum, and permits Mr. Frija to deduct one ACH payment from the Company’s bank account in the amount of $500 per
business day until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest
is due on July 23, 2019. The July 2018 Frija Note is unsecured. The note was fully repaid as of September 30, 2019.
On
August 24, 2018, the Company issued a promissory note in the principal amount of $100,001 (the “August 2018 Hoff/Frija Note”)
to Daniel Hoff and Kevin Frija jointly. Mr. Hoff is the Company’s Chief Operating Officer. Mr. Frija is the Company’s
Chief Executive Officer, President, principal financial officer, principal accounting officer and Chairman of the Board, and a
significant stockholder of the Company. The principal amount due under the August 2018 Hoff/Frija Note bears interest at the rate
of 24% per annum, permits Messrs. Hoff and Frija to deduct one ACH payment from the Company’s bank account in the amount
of $500 per business day until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued
interest is due on August 24, 2019. The August 2018 Hoff/Frija Note is unsecured. The note was fully repaid as of September 30,
2019.
On
December 12, 2018, the Company issued a promissory note in the principal amount of $100,001 (the “December 2018 Frija-Hoff
Note”) to Daniel Hoff and Kevin Frija jointly. The principal amount due under the December 2018 Frija-Hoff Note bears interest
at the rate of 24% per annum, and permits Messrs. Hoff and Frija to deduct one ACH payment from the Company’s bank account
in the amount of $500 per business day until the principal amount due and accrued interest is repaid. Any unpaid principal amount
and any accrued interest is due on December 12, 2019. The balance of the note as of September 30, 2019 was $25,296.
On
December 3, 2018, the Company issued the December 2018 Frija Note in the principal amount of $100,001 to Kevin Frija, the Company’s
Chief Executive Officer, President, principal financial officer, principal accounting officer and Chairman of the Board, and a
significant stockholder of the Company. The principal amount due under the December 2018 Frija Note bears interest at the rate
of 24% per annum, and permits Mr. Frija to deduct one ACH payment from the Company’s bank account in the amount of $500
per business day until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest
is due on December 3, 2019. The December 2018 Frija Note is unsecured. The balance of the note as of September 30, 2019 was $20,818.
On
February 1, 2019, the Company issued a promissory note in the principal amount of $100,001 (the “February 2019 Frija Note”)
to Kevin Frija. Mr. Frija is the Company’s Chief Executive Officer, President, principal financial officer, principal accounting
officer and Chairman of the Board, and a significant stockholder of the Company. The principal amount due under the February 2019
Frija Note bears interest at the rate of 24% per annum, permits Mr. Frija to deduct one ACH payment from the Company’s bank
account in the amount of $500 per business day until the principal amount due and accrued interest is repaid. Any unpaid principal
amount and any accrued interest is due on February 1, 2020. The February 2019 Frija Note is unsecured. The balance of the note
as of September 30, 2019 was $41,654.
On
June 14, 2019, the Company issued a promissory note in the principal amount of $100,001 (the “June 2019 Frija/Hoff Note”)
to Kevin Frija and Dan Hoff. Mr. Frija is the Company’s Chief Executive Officer, President, principal financial officer,
principal accounting officer and Chairman of the Board, and a significant stockholder of the Company. Mr. Hoff is the Company’s
Chief Operating Officer. The principal amount due under the June 2019 Frija/Hoff Note bears interest at the rate of 24% per annum,
permits Messrs. Frija and Hoff to deduct one ACH payment from the Company’s bank account in the amount of $500 per business
day until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due
on June 14, 2020. The June 2019 Frija/Hoff Note is unsecured. The balance of the note as of September 30, 2019 was $75,548.
On
July 5, 2019, the Company issued a Note in the principal amount of $100,001 (“July 2019 Frija Note”) to Kevin Frija,
the Company’s Chief Executive Officer, President, principal financial officer, principal accounting officer and Chairman
of the Board, and a significant stockholder of the Company. The principal amount due under the July 2019 Frija Note bears interest
at the rate of 24% per annum, and permits Mr. Frija to deduct one ACH payment from the Company’s bank account in the amount
of $500 per business day until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued
interest is due in July 2020. The July 2019 Frija Note is unsecured. The balance of the note as of September 30, 2019 was $79,018.
The
following is a summary of notes payable – related parties activity for the nine months ended September 30, 2019:
|
Balance at December 31, 2018
|
|
$
|
385,044
|
|
|
New borrowings
|
|
|
300,000
|
|
|
Repayments of principal
|
|
|
(442,710
|
)
|
|
Balance at September 30, 2019
|
|
$
|
242,334
|
|
NOTE
6: CONVERTIBLE NOTES PAYABLE
Acquisition
Note
In
connection to the business acquisition there was a $500,000 loan from Vapor to the Company, a secured, 36-month promissory note
from the Company to Vapor in the principal amount of $500,000 (the “Secured Promissory Note”; together with the Acquisition
Note, are referred to herein as the “Notes”) bearing an interest rate of prime plus 2% (which rate resets annually
on July 29th), which payments thereunder are $14,000 per month, with such payments deferred and commencing on January 26, 2017,
with subsequent installments payable on the same day of each month thereafter and in the 37th month (on July 29, 2019), a balloon
payment for all remaining accrued interest and principal. In March 2017 this note holder sold the Acquisition Note to DiamondRock,
LLC.
DiamondRock
has the right to convert the outstanding and unpaid principal amount and accrued and unpaid interest of the respective tranche
of the Note into units of common stock of the Company, subject to the limitation that DiamondRock may not complete a conversion
if doing so would cause DiamondRock to own in excess of 4.99% of the Company’s outstanding shares of common stock, provided
that DiamondRock may waive that limitation and increase the ownership cap to up to 9.99%. The conversion price for any conversion
under the Note is equal to the lesser of (i) $0.50 and (ii) 65% of the volume weighted average trading price of the Company’s
common over the 7 trading days ending on the last complete trading day prior to the date of the conversion. In addition, in the
event that the Company enters into certain transactions with other parties that provide for a conversion price at a larger discount
(than 35%) to the trading price of the Company’s common stock, or provides for a longer look-back period, then the conversion
price and look-back period under the Note will be adjusted to be such lower conversion price and longer look-back period, as applicable.
As of September 30, 2019 and December 31, 2018 the balance outstanding was $25,000.
Brikor
Note
On
February 15, 2019, the Company issued a senior convertible promissory note in the principal amount of $200,000 to Brikor LLC .
The principal amount due under the Brikor Note bears interest at the rate of 18% per annum. The principal amount and accrued but
unpaid interest (to the extent not converted in accordance with the terms of the Brikor Note) is due and payable on the third
anniversary of the issue date. The Brikor Note and the amounts payable thereunder are unsecured obligations of the Company and
shall be senior in right of payment and otherwise to all indebtedness, as provided in the Brikor Note.
At
any time after the first anniversary of the issue date, the holder may require the Company, upon at least 30 business days’
written notice, to redeem all or any portion of the Brikor Note. The portion of the Brikor Note subject to redemption will be
redeemed by the Company in cash.
The
Brikor Note is convertible into common units of the Company. Pursuant to the terms of the Brikor Note, Brikor has the right, at
its option, to convert any portion of the outstanding and unpaid Conversion Amount (as hereinafter defined) into common units
in accordance with the provisions of the Brikor Note at the Conversion Rate (as hereinafter defined). The number of common units
issuable upon conversion of any Conversion Amount will be determined by dividing (x) such Conversion Amount by (y) $0.10 (subject
to adjustment as set forth in the Brikor Note) (such result, the “Conversion Rate”). “Conversion Amount”
means the sum of (A) the portion of the principal balance of the Brikor Note to be converted with respect to which the determination
is being made, (B) accrued and unpaid interest with respect to such principal balance, if any, and (C) the Default Balance (other
than any amount thereof within the purview of foregoing clauses (A) or (B)), if any. The balance of the note as of September 30,
2019 and December 31, 2018 was $200,000. Interest expense for nine months ended September 30, 2019 totaled $23,000, of which $1,300
is included in accrued interest as of September 30, 2019.
Daiagi
and Daiagi Note
On
February 15, 2019, the Company issued a senior convertible promissory note in the principal amount of $200,000 (the “Daiagi
and Daiagi Note”) to Mike Daiagi and Mathew Daiagi jointly (the “Daiagis”). The principal amount due under the
Daiagi and Daiagi Note bears interest at the rate of 18% per annum. The principal amount and accrued but unpaid interest (to the
extent not converted in accordance with the terms of the Daiagi and Daiagi Note) is due and payable on the third anniversary of
the issue date. The Daiagi and Daiagi Note and the amounts payable thereunder are unsecured obligations of the Company and shall
be senior in right of payment and otherwise to all indebtedness, as provided in the Daiagi and Daiagi Note.
At
any time after the first anniversary of the issue date, the holder may require the Company, upon at least 30 business days’
written notice, to redeem all or any portion of the Daiagi and Daiagi Note. The portion of the Daiagi and Daiagi Note subject
to redemption will be redeemed by the Company in cash.
The
Daiagi and Daiagi Note is convertible into common units of the Company. Pursuant to the terms of the Daiagi and Daiagi Note, the
Daiagis have the right, at their option, to convert any portion of the outstanding and unpaid Conversion Amount into common units
in accordance with the provisions of the Daiagi and Daiagi Note at the Conversion Rate. The number of common units issuable upon
conversion of any Conversion Amount will be determined by dividing (x) such Conversion Amount by (y) $0.10 (subject to adjustment
as set forth in the Daiagi and Daiagi Note). The balance of the note as of September 30, 2019 and December 31, 2018 was $200,000.
Interest expense for nine months ended September 30, 2019 totaled approximately $23,000.
Amber
Investments Note
On
February 15, 2019, the Company issued a senior convertible promissory note in the principal amount of $200,000 (the “Amber
Investments Note”) to Amber Investments LLC (“Amber Investments”). The principal amount due under the Amber
Investments Note bears interest at the rate of 18% per annum. The principal amount and accrued but unpaid interest (to the extent
not converted in accordance with the terms of the Amber Investments Note) is due and payable on the third anniversary of the issue
date. The Amber Investments Note and the amounts payable thereunder are unsecured obligations of the Company and shall be senior
in right of payment and otherwise to all indebtedness, as provided in the Amber Investments Note.
At
any time after the first anniversary of the issue date, the holder may require the Company, upon at least 30 business days’
written notice, to redeem all or any portion of the Amber Investments Note. The portion of the Amber Investments Note subject
to redemption will be redeemed by the Company in cash.
The
Amber Investments Note is convertible into common units of the Company. Pursuant to the terms of the Amber Investments Note, Amber
Investments has the right, at its option, to convert any portion of the outstanding and unpaid Conversion Amount into common units
in accordance with the provisions of the Amber Investments Note at the Conversion Rate. The number of common units issuable upon
conversion of any Conversion Amount will be determined by dividing (x) such Conversion Amount by (y) $0.10 (subject to adjustment
as set forth in the Amber Investments Note). The balance of the note as of September 30, 2019 and December 31, 2018 was $200,000.
Interest expense for nine months ended September 30, 2019 totaled approximately $23,000, of which $1,300 is included in accrued
interest as of September 30, 2019.
K
& S Pride Note
On
February 19, 2019, the Company issued a senior convertible promissory note in the principal amount of $200,000 (the “K &
S Pride Note”) to K & S Pride Inc. (“K & S Pride”). The principal amount due under the K & S Pride
Note bears interest at the rate of 18% per annum. The principal amount and accrued but unpaid interest (to the extent not converted
in accordance with the terms of the K & S Pride Note) is due and payable on the third anniversary of the issue date. The K
& S Pride Note and the amounts payable thereunder are unsecured obligations of the Company and shall be senior in right of
payment and otherwise to all indebtedness, as provided in the K & S Pride Note.
At
any time after the first anniversary of the issue date, the holder may require the Company, upon at least 30 business days’
written notice, to redeem all or any portion of the K & S Pride Note. The portion of the K & S Pride Note subject to redemption
will be redeemed by the Company in cash.
The
K & S Pride Note is convertible into common units of the Company. Pursuant to the terms of the K & S Pride Note, K &
S Pride has the right, at its option, to convert any portion of the outstanding and unpaid Conversion Amount into common units
in accordance with the provisions of the K & S Pride Note at the Conversion Rate. The number of common units issuable upon
conversion of any Conversion Amount will be determined by dividing (x) such Conversion Amount by (y) $0.10 (subject to adjustment
as set forth in the K & S Pride Note). The balance of the note as of September 30, 2019 and December 31, 2018 was $200,000.
Interest expense for nine months ended September 30, 2019 totaled approximately $18,000.
Surplus
Depot Note
On
February 20, 2019, the Company issued a senior convertible promissory note in the principal amount of $200,000 (the “Surplus
Depot Note”) to Surplus Depot Inc. (“Surplus Depot”). The principal amount due under the K & S Pride Note
bears interest at the rate of 18% per annum. The principal amount and accrued but unpaid interest (to the extent not converted
in accordance with the terms of the Surplus Depot Note) is due and payable on the third anniversary of the issue date. The Surplus
Depot Note and the amounts payable thereunder are unsecured obligations of the Company and shall be senior in right of payment
and otherwise to all indebtedness, as provided in the Surplus Depot Note.
At
any time after the first anniversary of the issue date, the holder may require the Company, upon at least 30 business days’
written notice, to redeem all or any portion of the Surplus Depot Note. The portion of the Surplus Depot Note subject to redemption
will be redeemed by the Company in cash.
The
Surplus Depot Note is convertible into common units of the Company. Pursuant to the terms of the Surplus Depot Note, Surplus Depot
has the right, at its option, to convert any portion of the outstanding and unpaid Conversion Amount into common units in accordance
with the provisions of the Surplus Depot Note at the Conversion Rate. The number of common units issuable upon conversion of any
Conversion Amount will be determined by dividing (x) such Conversion Amount by (y) $0.10 (subject to adjustment as set forth in
the Surplus Depot Note). The balance of the note as of September 30, 2019 and December 31, 2018 was $200,000. Interest expense
for nine months ended September 30, 2019 totaled approximately $23,000.
The
following is a summary of convertible notes payable activity for the nine months ended September 30, 2019:
|
Balance at December 31, 2018
|
|
$
|
25,000
|
|
|
New borrowings
|
|
|
1,000,000
|
|
|
Balance at September 30, 2019
|
|
$
|
1,025,000
|
|
NOTE
7: PARTNERS’ DEFICIT
During
the nine months ended September 30, 2019, the Company granted 1,680,721 common units to board members, employees and consultants.
The Company recorded the fair value of the units of $84,313, based on the closing price of the units on the grant dates, as compensation
expense for the nine months ended September 30, 2019.
NOTE
8: COMMITMENTS AND CONTINGENCIES
Lease
Agreement
As
a result of the July 2016 acquisition, the Company negotiated a three-year lease for its office and warehouse facility. The lease
requires monthly payments as follows:
|
December 15, 2018 to June 14, 2019
|
|
$
|
10,190
|
|
|
June 15, 2019 to November 15, 2019
|
|
$
|
10,690
|
|
The
Company recorded a right to use obligation equal to the present value of remaining payments of minimum required lease payments
which totaled $7,397 as of September 30, 2019, all of which is payable within one year.
The
Company amortized $71,275 of the right to use asset during the nine months ended September 30, 2019.
Rent
expense for the nine months ended September 30, 2018 was $85,865.
Legal
Matters
From
time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.
There are no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our
operations and there are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial
stockholder, is an adverse party or has a material interest adverse to our interest.
NOTE
9: CONCENTRATION OF CREDIT RISK
Five
customers accounted for approximately 15%, 18%, 24% and 28%, respectively, as of total customer receivables as of September 30,
2019.
NOTE
10: RELATED PARTY TRANSACTIONS
The
Company has issued notes payable to various related parties. See note 5.
During
the nine months ended September 30, 2019, an officer and shareholder of the Company paid expenses on behalf of the Company totaling
$10,208, which is reflected as due to relate party on the accompanying condensed balance sheet a of September 30, 2019.
NOTE
11: SUBSEQUENT EVENTS
On October 7, 2019, the Company issued
a promissory note in the principal amount of $100,001 (the “October 2019 Note”) to Kevin Frija, who is the
Company’s Chief Executive Officer, President, principal financial officer, principal accounting officer and Chairman of
the Board, and a significant stockholder of the Company. The principal amount due under the October 2019 Note bears interest
at the rate of 24% per annum, and the October 2019 Note permits Mr. Frija to deduct one ACH payment from the Company’s
bank account in the amount of $500 per business day until the principal amount due and accrued interest is repaid. Any unpaid
principal amount and any accrued interest is due on October 7, 2020. The October 2019 Note is unsecured.
On
November 8, 2019, the Company issued a promissory note in the principal amount of $100,001 (the “November 2019 Note”)
to Kevin Frija, who is the Company’s Chief Executive Officer, President, principal financial officer, principal accounting
officer and Chairman of the Board, and a significant stockholder of the Company. The principal amount due under the November 2019
Note bears interest at the rate of 24% per annum, and the November 2019 Note permits Mr. Frija to deduct one ACH payment from
the Company’s bank account in the amount of $500 per business day until the principal amount due and accrued interest is
repaid. Any unpaid principal amount and any accrued interest is due on November 8, 2020. The November 2019 Note is unsecured.
