The accompanying notes are an integral part of these
unaudited condensed interim financial statements.
The accompanying notes are an integral part of these
unaudited condensed interim financial statements.
The accompanying notes are an integral part of these
unaudited condensed interim financial statements.
The accompanying notes are an integral part of these
unaudited condensed interim financial statements.
NOTES TO CONDENSED FINANCIAL
STATEMENTS
MARCH 31, 2021
(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 U.S. patent
that the Company owns covering electronic cigarette, electronic cigar and personal vaporizer patents, as well as a patent for an inverted
pocket lighter. The Company also designs, develops, markets and distributes products (the HoneyStick brand of vaporizers and the Goldline
CBD products) oriented toward the cannabis markets. This allows us to capitalize on the rapidly growing expansion within the cannabis
markets. The Company is also identifying electronic cigarette companies that may be infringing our patents and exploring options to license
and or enforce our patents. The Company is now also selling DISSIM brand pocket lighters for which it holds a U.S. patent and patents
pending.
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 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, 2020. The results of operations
for the three months ended March 31, 2021 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 generally accepted accounting principles generally accepted in the United States of America 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 March 31,
2021 and December 31, 2020, the allowance for bad debt of $112,017.
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 March 31, 2021 and December 31, 2020, the Company had recorded a provision
for obsolescence of $72,797 and $73,350, respectively.
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.
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. 100% of the Company’s revenues for the three months ended March
31, 2021 and 2020, were recognized when the customer obtained control of the Company’s product, which occurred at a point in time,
typically upon delivery to the customer.
Unit-Based Compensation
Unit-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 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 units 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 units as compensation in future periods for services associated
with the registration of the common units.
Convertible Instruments
The Company evaluates and accounts for conversion
options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.
Applicable accounting principles generally
accepted in the United States of America (“GAAP”) require companies to bifurcate conversion options from their host instruments
and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances
in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic
characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the
host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c)
a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible instruments
(when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The
Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments
based upon the differences between the fair value of the underlying common stock at the commitment date of the note
transaction and the effective conversion price
embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of
redemption.
The Company accounts for the conversion of
convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives
are removed at their carrying amounts and the units issued are measured at their then-current fair value, with any difference recorded
as a gain or loss on extinguishment of the two separate accounting liabilities.
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 unit 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. Approximately 10,996,000 shares underlying convertible
notes were excluded from the calculation of diluted loss per share for the three months ended March 31, 2021 and 2020 because their effect
was antidilutive.
Customer Concentration
During the three months ended March 31, 2021, 13%
of the Company’s net revenues were generated from one customer. Accounts receivable due from this customer as of March 31, 2021
totaled $41,735.
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 FASB 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.
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 $101,651 for the three months ended March 31, 2021 and has an accumulated
deficit of $10,443,824 and a working capital deficit of $1,802,459 at March 31, 2021. 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.
In March 2020, the World Health Organization declared
the novel coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The spread of COVID-19
has affected segments of the global economy and may affect our operations, including the potential interruption of our supply chain. We
are monitoring this situation closely, and although operations have not been materially affected by the COVID-19 outbreak to date, the
ultimate duration and severity of the outbreak and its impact on the economic environment and our business is uncertain.
The spread of COVID-19, or another infectious disease,
could also negatively affect the operations at our third-party manufacturers, which could result in delays or disruptions in the supply
of our products. In addition, we may take temporary precautionary measures intended to help minimize the risk of the virus to our employees,
including temporarily requiring all employees to work remotely, suspending all non-essential travel worldwide for our employees, and discouraging
employee attendance at industry events and in-person work-related meetings, which could negatively affect our business.
The extent to which COVID-19 impacts our operations
will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the
outbreak, new information which may emerge concerning the severity of COVID-19 and the actions to contain the coronavirus or treat its
impact, among others. In particular, the continued spread of the coronavirus globally could adversely impact our operations, including
among others, our manufacturing and supply chain, sales and marketing and could have an adverse impact on our business and our financial
results. The COVID-19 outbreak is a widespread health crisis that has adversely affected the economies and financial markets of many countries,
resulting in an economic downturn that could affect demand for our products and likely impact our operating results.
The Company expects its operations and the impact from COVID to return fully
to pre-COVID function by the end of 2021 and expect demand for its product to return as well. This depends on the success of the vaccine
distribution and its efficacy during the rest of the year which is uncertain. The Company has implemented work from home procedures and
increased its online sales capabilities to be able to offset impact from such outbreaks in the future.
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
Notes Payable- Unrelated Parties
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 March 31, 2021 was $290,940.
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 $1,240 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, 2025. The Lendistry Note is unsecured. The balance of the note was
repaid during the three months ended March 31, 2021.
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 March 31, 2021 was $46,505.
On September 24, 2019, the Company entered into 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 $41,435. The balance of the loan as of March 31, 2021 is $21,797.
Paycheck Protection Program Loan
The Company’s long-term debt is comprised
of promissory notes pursuant to the Paycheck Protection Program (“PPP”) and Economic Injury Disaster Loan
(“EIDL”) (see below), under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted on
March 27, 2020 and revised under the provisions of the PayCheck Protection Flexibility Act of 2020 on June 5, 2020 and administered
by the United States Small Business Administration (“SBA”).
In April 2020, the Company received a loan (the
“April 2020 PPP Loan”) in the amount of $203,662 under the PPP. The April 2020 PPP Loan accrues interest at a rate
of 1% and has an original maturity date of two years which can be extended to five years 2 by mutual agreement of the Company and
the SBA. The April 2020 PPP Loan contains customary events of default relating to, among other things, payment defaults and breaches of
representations and warranties.
In March 2021, the Company received a loan (the
“March 2021 PPP Loan” and together with April 2020 PPP Loan, the “PPP Loans”) in the amount of $190,057
under the PPP. The March 2021 PPP Loan accrues interest at a rate of 1% and has an original
maturity date of two years which can be extended to five years 2 by mutual agreement of the Company and SBA. The March 2021 PPP Loan contains
customary events of default relating to, among other things, payment defaults and breaches of representations and warranties.
Under the terms of the PPP Loans, a portion or all of the PPP Loans are
forgivable to the extent the loan proceeds are used to fund qualifying payroll, rent and utilities during a designated twenty-four week
period. Payments are deferred until the SBA determines the amount to be forgiven. The Company intends to utilize the proceeds of the PPP
Loans in a manner which will enable qualification as a forgivable loan. However, no assurance can be provided that all or any portion
of the PPP Loans will be forgiven. The balance on the PPP Loans totaled $393,719 as of March 31, 2021 and have been classified as a long-term
liability in notes payable, less current portion on the accompanying balance sheets.
Economic Injury Disaster Loan
On July 9, 2020 and June 24, 2020, the Company received
an EIDL in the aggregate amount of $159,900, payable in monthly installments of principal and interest totaling $731 over 30 years beginning
in June 2021. The note accrues interest at an annual rate of 3.75%. The EIDL is secured by all tangible and intangible property. The
balance on this EIDL was $159,900 as of March 31, 2021 and has been classified as a long-term liability in notes payable, less current
portion on the accompanying balance sheets.
The following is a summary of notes payable activity for the three months
ended March 31, 2021:
|
Balance at December 31, 2020
|
$ 764,695
|
|
Proceeds from notes payable
|
190,057
|
|
Repayments of notes payable
|
(41,891)
|
|
Balance at March 31, 2021
|
$912,861
|
|
Current portion
|
$359,242
|
|
Notes payable, less current portion
|
$553,619
|
NOTE 5: NOTES PAYABLE – RELATED PARTIES
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 unitholder 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 December 31, 2020 of $7,356 was repaid during the three months ended March 31, 2021.
On October 7, 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 unitholder 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 December 31, 2020 of $2,476 was repaid during the three months ended March 31, 2021.
On November 8, 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 unitholder 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 December 31, 2020 of $2,476 was repaid during the three months ended March 31, 2021.
On November 15, 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 unitholder 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 December 31, 2020 of $956 was repaid during the three months ended March 31, 2021.
On December 9, 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 unitholder 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 December 31, 2020 of $1,510 was repaid during the three months ended March 31, 2021.
On December 16, 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 unitholder 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 December 31, 2020 of $4,084 was repaid during the three months ended March 31, 2021.
On January 10, 2020, the Company issued a promissory
note in the principal amount of $100,001 (“January 2020 Frija 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 unitholder
of the Company. The principal amount due under the Note bears interest at the rate of 24% per annum, and the January 2020 Frija 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 January 10, 2021. The Note is unsecured.
The Note is unsecured. The balance of the January 2020 Frija Note as of December 31, 2020 of $9,671 was repaid during the three months
ended March 31, 2021.
On February 18, 2020, the Company issued a promissory
note in the principal amount of $100,001 (“February 2020 Frija 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 unitholder
of the Company. The principal amount due under the February 2020 Frija Note bears interest at the rate of 24% per annum, and the February
2020 Frija 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 February
18, 2021. The balance as of December 31, 2020 of $21,963 was repaid during the three months ended March 31, 2021.
On April 6, 2020, the Company issued a promissory
note in the principal amount of $100,001 (the “April 2020 Note”) to Mr. 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 April 2020 Note bears interest at the rate of 24% per annum, and the April 2020 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 April 6, 2021. The April 2020
Note is unsecured. The balance of the April 2020 Note as of March 31, 2021 and December 31, 2020 was $13,881 and $38,071, respectively.
On June 22, 2020, the Company a promissory note in
the principal amount of $100,000 (together, the “June 2020 Note”) to Mr. Frija, who is the Company’s Chief Executive
Officer, President, principal financial officer, principal accounting officer and Chairman of the Board, and a significant unitholder
of the Company. The principal amount due under the June 2020 Note bears interest at the rate of 24% per annum, and the June 2020 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 June 22, 2021. During August
2020, there was an additional $70,000 issuance to the June 2020 Note. The June 2020 Notes are unsecured and had an aggregate balance as
of March 31, 2021 and December 31, 2020 of $25,889 and $53,243, respectively.
On August 19, 2020, the Company issued a promissory
note in the principal amount of $100,001 (the “August 2020 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 August 2020 Note bears interest at the rate of 24% per annum, and the August 2020 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 August 19, 2021. The August
2020 Note is unsecured. The balance of the August 2020 Note as of March 31, 2021 and December 31, 2020 was $57,201 and $80,782, respectively.
On September 22, 2020, the Company issued a promissory
note in the principal amount of $100,001 (the “September 22, 2020 Note”) to Mr. 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 September 22, 2020 Note bears interest at the rate of 24% per annum, and the September
22, 2020 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 September
22, 2021. The
September 22, 2020 Note is unsecured. The balance
of the September 22, 2020 Note as of March 31, 2021 and December 31, 2020 was $72,655 and $94,157, respectively.
On November 2, 2020, the Company issued a promissory
note in the principal amount of $100,000 (the “November 2020 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 unitholder
of the Company. The principal amount due under the November 2020 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 November 2, 2021. The November 2020
Frija Note is unsecured. The balance of the November 2020 Frija Note as of March 31, 2021 and December 31, 2020 was $72,017 and $96,173,
respectively.
On December 1, 2020, the Company issued a promissory
note in the principal amount of $100,001 (the “December 1, 2020 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 December 1, 2020 Note bears interest at the rate of 24% per annum, and the December
1, 2020 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 December
1, 2021. The December 1, 2020 Note is unsecured. The balance of the December 1, 2020 Note as of March 31, 2021 and December 31, 2020 was
$90,645 and $100,000, respectively.
On December 17, 2020, the Company received $95,000
pursuant to a promissory note in the principal amount of $100,000 issued on January 14, 2021, to Kevin Frija (“January 14, 2021
Frija Note”), the Company’s Chief Executive Officer, President, principal financial officer, principal accounting officer
and Chairman of the Board, and a significant unitholder of the Company. An additional amount of $5,000 was received in January 2021. The
principal amount due under the January 14, 2021 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 January 14, 2022. The December 17, 2020 Frija Note
is unsecured. The balance of the January 14, 2021 Frija Note as of March 31, 2021 and December 31, 2020 was $96,877 and $95,000, respectively.
On February 25, 2021, the Company issued a promissory
note in the principal amount of $100,001 (the “February 25, 2021 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 January 14, 2021 Note bears interest at the rate of 24% per annum, and the February
25, 2021 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 February
25, 2022. The January 14, 2021 Note is unsecured. The balance of the February 25, 2021 Note as of March 31, 2021 was $100,000.
On February 25, 2021, the Company received $75,000
pursuant to a promissory note in the principal amount of $100,000 issued in April 2021, to Kevin Frija (“April 2021 Frija Note”),
the Company’s Chief Executive Officer, President, principal financial officer, principal accounting officer and Chairman of the
Board, and a significant unitholder of the Company. An additional amount of $5,000 was received in January 2021. The principal amount
due under the April 2021 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 April 2022. The April 2021 Frija Note is unsecured. The balance of the
April 2021 Frija Note as of March 31, 2021 was $75,000.
The following is a summary of notes payable – related parties activity
for the three months ended March 31, 2021:
|
Balance at December 31, 2020
|
$607,917
|
|
New borrowings
|
180,000
|
|
Repayments of principal
|
(183,754)
|
|
Balance at March 31, 2021
|
$604,165
|
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 March 31, 2021, and December 31, 2020 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 is 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 Brikor Note as of March 31, 2021 and December 31, 2020 was $200,000. Interest expense for three months ended March 31, 2021 totaled $9,000,
of which $4,266 is included in accounts payable and accrued expenses as of March 31, 2021.
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
March 31, 2021 and December 31, 2020 was $200,000. Interest expense for three months ended March 31, 2021 totaled approximately $9,000,
of which $4,600 is included in accounts payable and accrued as of March 31, 2021.
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 March 31, 2021 and December 31, 2020 was $200,000. Interest expense for three months ended March 31, 2021 totaled approximately
$9,000, of which $4,266 is included in accounts payable and accrued as of March 31, 2021.
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 March
31, 2021 and December 31, 20120 was $200,000. Interest expense for three months ended March 31, 2021 totaled approximately $9,000, of
which $3,900 is included in accounts payable and accrued as of March 31, 2021.
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 Surplus Depot Note as of March 31, 2021 and December
31, 2020 was $200,000. Interest expense for three months ended March 31, 2021 totaled approximately $9,000, of which $3,900 is included
in accounts payable and accrued as of March 31, 2021.
NOTE 7: PARTNERS’ DEFICIT
Amendment to Partnership Agreement
On January 23, 2020, executed the Second Amendment
(the “Second Amendment”) to Limited Partnership Agreement (the “Agreement”) in order to create a new class of
Company securities titled Class A preferred units.
Pursuant to Section 5.6 of the Agreement, Soleil Capital
Management LLC, the Company’s general partner (the “General Partner”) may, without the approval of the Company’s
limited partners, issue additional Company securities for any Company purpose at any time and from time to time for such consideration
and on such terms and conditions as the General Partner shall determine in its sole discretion, all without the approval of any limited
partners, and that each additional Company interest authorized to be issued by the Company may be issued in one or more classes, or one
of more series of any such classes, with such designations, preferences, rights, powers and duties as shall be fixed by the General Partner
in its sole discretion. Pursuant to Section 13.1 of the Agreement, the General Partner may, without the approval of any partner, any unitholder
or any other person, amend any provision of the Agreement to reflect any amendment expressly permitted in the Agreement to be made by
the General Partner acting along, therefore including the creation of a new class of Company securities.
The designation, powers, preferences and rights of
the Class A preferred units and the qualifications, limitations and restrictions thereof are contained in the Second Amendment, and are
summarized as follows:
Number and Stated Value. The number of
authorized Class A preferred units is 1,000,000. Each Class A preferred unit will have a stated value of $2.00 (the “Stated Value”).
Rights. Except as set forth in the Second
Amendment, each Class A preferred unit has all of the rights, preferences and obligations of the Company’s common units as set forth
in the Agreement and shall be treated as a common unit for all other purposes of the Agreement.
Dividends.
Rate. Each Class
A preferred unit is entitled to receive an annual dividend at a rate of 8% per annum on the Stated Value., which shall accrue on a monthly
basis at the rate of 0.6666% per month, non-compounding, and shall be payable in cash within 30 days of each calendar year for which the
dividend is payable.
Liquidation.
In the event of a liquidation, dissolution or winding up of the Company, a merger or consolidation of the Company wherein the Company
is not the surviving entity, or a sale of all or substantially all of the assets of the Company, each Class A unit will be entitled to
receive, prior an in preference to any distribution of any of the assets or surplus funds of the Company to the holders of common units
or any other Company securities ranking junior to the Class A preferred units, or to the General Partner, an amount per Class A preferred
unit equal to any accrued but unpaid dividends. If, upon such an event and after the payment of preferential amounts required to be paid
to holders of any Company securities having a ranking upon liquidation senior to the Class A preferred units, the assets of the Company
available for distribution to the partners of the Company are insufficient to provide for both the payment of the full Class A liquidation
preference and the preferential amounts (if any) required to be paid to holders of any other Company securities having a ranking upon
liquidation pari passu with the Class A preferred units, such assets as are so available shall be distributed among the
Class A preferred units and the holders of any other series of Company securities having a ranking upon liquidation pari passu with
the Class A preferred units in proportion to the relative aggregate preferential amount each such holder is otherwise entitled to receive.
Conversion Rights.
Conversion. Upon
notice, a holder of Class A preferred units has the right, at its option, to convert all or a portion of the Class A preferred units held
into fully paid and nonassessable Company common units.
Conversion Price.
Each Class A preferred unit is convertible into a number of common units equal to (x) the Stated Value plus any accrued and unpaid dividends,
divided by (y) the Conversion Price (as hereinafter defined). The “Conversion Price” means 85% multiplied by the VWAP (as
defined in the Second Amendment), representing a discount rate of 15%.
Conversion Limitation.
In no event shall a holder of Class A preferred units be entitled to convert any of the Class A preferred units in excess of that number
of Class A preferred units upon conversion of which the sum of (1) the number of common units beneficially owned by such holder and its
affiliates (other than common units which may be deemed beneficially owned through the ownership of the unconverted Class A preferred
units or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise
analogous to the limitations contained herein), and (2) the number of common units issuable upon the conversion of all Class A preferred
units held by such holder would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the outstanding
common units.
Equity Purchase Agreement
On February 19, 2020 (the “Execution
Date”), the Company entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with DiamondRock, LLC
(the “Investor”) pursuant to which, upon the terms and subject to the conditions thereof, the Investor committed to purchase
shares of the Company’s common units (the “Put Shares”) at an aggregate purchase price of up to $5,000,000 (the “Maximum
Commitment Amount”) over the course of the commitment period.
Pursuant to the terms of the
Equity Purchase Agreement, the commitment period will commence upon the initial effective date of a Form S-1 Registration Statement planned
to be filed to register the Put Shares in accordance with the Registration Rights Agreement as further described below and will end on
the earlier of (i) the date on which the Investor has purchased Put Shares from the Company pursuant to the Equity Purchase Agreement
equal to the Maximum Commitment Amount, (ii) the date on which there is no longer an effective registration statement for the Put Shares,
(iii) 24 months after the initial effectiveness of the Registration Statement planned to be filed to register the Put Shares in accordance
with the Registration Rights Agreement as further described below, or (iv) written notice of termination by the Company to the Investor
(which will not occur at any time that the Investor holds any of the Put Shares).
From
time to time over the term of the Equity Purchase Agreement, commencing on the date on which a registration statement registering the
Put Shares (the “Registration Statement”) becomes effective, the Company may, in its sole discretion, provide the Investor
with a put notice (each a “Put Notice”) to purchase a specified number of the Put Shares (each a “Put Amount Requested”)
subject to the limitations discussed below and contained in the Equity Purchase Agreement. Within two (2) trading days of
the date that the Put Notice is deemed delivered (“Put Date”) pursuant to terms of the Equity Purchase Agreement, the Company
shall deliver, or cause to be delivered, to the Investor, the estimated amount of Put Shares equal to the investment amount (“Investment
Amount”) indicated in the Put Notice divided by the “Initial Pricing” per share, as such term is defined in the Equity
Purchase Agreement (the “Estimated Put Shares”) as DWAC Shares. Within two (2) trading days following the Put Date, the Investor
shall pay the Investment Amount to the Company by wire transfer of immediately available funds.
At
the end of the five (5) trading days following the clearing date associated with the applicable Put Notice (“Valuation Period”),
the purchase price (the “Purchase Price”) shall be computed as 85% of the average daily
volume weighted average price of the Company’s
common units during the Valuation Period and the number of Put Shares shall be determined for a particular put as the Investment Amount
divided by the Purchase Price. If the number of Estimated Put Shares (Investment Amount divided by
Initial Pricing) initially delivered to the Investor is greater than the number of Put Shares (Investment Amount divided by Purchase Price)
purchased by the Investor pursuant to such Put, then, within two (2) trading days following the end of the Valuation Period, the Investor
shall deliver to the Company any excess Estimated Put Shares associated with such put. If the number of Estimated Put Shares (Investment
Amount divided by Initial Pricing) delivered to the Investor is less than the Put Shares purchased by the Investor pursuant to a put,
then within two (2) trading days following the end of the Valuation Period the Company shall deliver to the Investor by wire transfer
of immediately available funds equal to the difference between the Estimated Put Shares and the Put Shares issuable pursuant to such put.
The Put Amount Requested pursuant
to any single Put Notice must have an aggregate value of at least $25,000, and cannot exceed the lesser of (i) $250,000, or (ii) 150%
of the average daily trading value of the common units in the five trading days immediately preceding the Put Notice.
In order to deliver a Put Notice,
certain conditions set forth in the Equity Purchase Agreement must be met, as provided therein. In addition, the Company is prohibited
from delivering a Put Notice if: (i) the sale of Put Shares pursuant to such Put Notice would cause the Company to issue and sell to the
Investor, or the Investor to acquire or purchase, a number of shares of the Company’s common units that, when aggregated
with all shares of common units purchased by the Investor pursuant to all prior Put Notices issued under the Equity Purchase Agreement,
would exceed the Maximum Commitment Amount; or (ii) the issuance of the Put Shares would cause the Company to issue and sell to Investor,
or the Investor to acquire or purchase, an aggregate number of shares of common units that would result in the Investor beneficially owning
more than 4.99% of the issued and outstanding shares of the Company’s common units (the “Beneficial Ownership Limitation”).
If the value of the Put Shares
based on the Purchase Price determined for a particular put would cause the Company to exceed the Maximum Commitment Amount, then within
two (2) trading days following the end of the Valuation Period the Investor shall return to the Company the surplus amount of Put Shares
associated with such put. If the number of the Put Shares (Investment Amount divided by Purchase Price) determined for a particular put
exceeds the Beneficial Ownership Limitation, then within two (2) trading days following the end of the Valuation Period the Investor shall
return to the Company the surplus amount of Put Shares associated with such put. Concurrently, the Company shall return within two (2)
trading days following the end of the respective Valuation Period to the Investor, by wire transfer of immediately available funds, the
portion of the Investment Amount related to the portion of Put Shares exceeding the Beneficial Ownership Limitation.
Further pursuant to the Equity
Purchase Agreement, the Company agreed that if the Securities and Exchange Commission (the “SEC”) declares the Registration
Statement for the Put Shares effective, then during the 12 month period immediately following the date the SEC declares the Registration
Statement for the Put Shares effective, upon any issuance by the Company or any of its subsidiaries of common units or common units equivalents
for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), the Investor shall have
the right to participate in up to an amount of the Subsequent Financing (that is not an “Exempt Issuance” as such term is
defined in the Equity Purchase Agreement), equal to 50% of the Subsequent Financing (the “Participation Maximum”) on the same
terms, conditions and price provided for in such Subsequent Financing; provided, however, where (i) the person or persons through or with
whom such Subsequent Financing is proposed to be effected will not agree to such participation by the Investor and (ii) the Investor will
not agree to finance the total amount of such Subsequent Financing in lieu of the person or persons through or with whom such Subsequent
Financing is proposed to be effected, the Investor shall have no right to participate in such Subsequent Financing.
Further pursuant to the Equity
Purchase Agreement, the Company agreed to reserve a sufficient number of shares of its common units for the Investor pursuant to the Equity
Purchase Agreement and all other contracts between the Company and the Investor.
The Equity Purchase Agreement
contains customary representations, warranties, covenants and conditions for a transaction of this type for the benefit of the parties.
Registration Rights Agreement
On
the Execution Date, the Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with
the Investor pursuant to which the Company is obligated to file the Registration Statement to register the resale of the Put Shares. Pursuant
to the Registration Rights Agreement, the Company must (i) file the Registration Statement within 45 calendar days from the Execution
Date, (ii) use reasonable best efforts to cause the Registration Statement to be declared effective under the Securities Act of 1933,
as amended (the “Securities Act”), within 90 calendar days after the filing thereof, and (iii) use its reasonable best efforts
to keep such Registration Statement continuously effective under the Securities Act until all of the Put Shares have been sold thereunder
or pursuant to Rule 144.
Pursuant to the Registration Rights
Agreement, the Company agreed to pay all reasonable expenses, other than sales or brokerage commissions, incurred in connection with registrations,
filings or qualifications pursuant to the Registration Rights Agreement, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company.
NOTE 8: COMMITMENTS AND CONTINGENCIES
Lease Agreement
In October 2019, the Company entered into a 5-year
lease of approximately 9,9819 square feet of warehouse store and office space with an entity of which the Company’s chief executive
officer is an owner. The lease requires base monthly rent of $11,100. The Company has annual options to extend for one-year, during which
period rent will increase 3% annually. Future minimum payment on the lease are as follows:
|
Years Ending December 31,
|
|
|
2021 (Remainder)
|
$ 99,900
|
|
2022
|
133,200
|
|
2023
|
133,200
|
|
2024
|
122,100
|
|
Total
|
$488,400
|
At inception of the lease, the Company recorded a
right to use asset and obligation of $378,426, equal to the present value of remaining payments of minimum required lease payments.
The Company amortized $18,331 of the right to use asset during the three
months ended March 31, 2021.
Rent expense for the three months ended March 31, 2021 and 2020 was $40,469
and $43,766, respectively.
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: SUBSEQUENT EVENTS
On May 12, 2021, the Company issued a promissory note
in the principal amount of $100,001 (the “May 2021 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 May 2021 Note bears interest at the rate of 24% per annum, and the May 2021 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 February 25, 2022. The May 2021 Note is
unsecured.
