Notes to Financial Statements

June 30, 2014

Rapid Fire Marketing, Inc. (the “Company” or “RFMK”) was incorporated under the laws of the state of Delaware in 1989 as G.D.E. Search Corporation. In 2001, the Company changed its name to N-Vision Technology. In July 2007, the Company changed its name to Rapid Fire Marketing, Inc.

The Company is a developer and reseller of herbal vaporizers. The core strategy of the Company is to maximize revenues in the rapidly expanding vaporizer industry. The Company currently sells the CANNAcig and Cumulus personal vapor inhalers. Beginning in February of 2013, the Company began developing a dry herbal vaporizer. The dry herbal vaporizer was still in development and testing as of the end of June 30, 2014 and is expected to be available by September 2014.

The financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements and notes thereto for the Company for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K. The financial statements for the three and six months ended June 30, 2014 are not necessarily indicative of the results expected for the year ending December 31, 2014.

Management's Plans

The Company has limited working capital, has incurred losses in each of the past two years, and has not yet received material revenues from sales of products or services. These factors create substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.

The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock and/or obtaining debt financing and attaining future profitable operations. During the six months ended June 30, 2014, the Company funded operations through the receipt of $100,000 in convertible notes payable, $350,000 in connection with Series A2 Notes related to Series A2 Convertible Preferred stock and $50,495 in connection with the sale of Series C Convertible Preferred Stock. Management’s plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.

The financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the normal course of business.  The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that might result from the outcome of this uncertainty.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Inventory

Inventory consists of two finished products, the CANNAcig Vapor Inhaler and the Cumulus Vapor Inhaler, which are valued at the lower of cost or market valuation under the first-in, first-out method of costing. In addition, deposits on inventory consist of monies advanced to the contract manufacturer in connection with the production of our new dry herbal vaportizer.

Revenue Recognition

The Company generates revenue from the product sales of the CANNAcig Vapor Inhaler and the Cumulus Vapor Inhaler product sales of Bionic cigarettes revenue is recognized when the purchase is complete and shipment has occurred.

Research and Development

All research and development costs, including licensing costs, are charged to expense as incurred. In accordance with this policy, all costs associated with the design, development and testing of the Company's products have been expensed as incurred.

Fair Value of Financial Instruments

The Company follows Accounting Standards Codification ("ASC") 825 Fair Value Measurements and Disclosures, except as it applies to the nonfinancial assets and nonfinancial liabilities subject to ASC 825. ASC 825 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 825 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 - Unobservable inputs which are supported by little or no market activity.

Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2014 and December 31, 2013. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, prepaids, accounts payable, accrued liabilities, and convertible notes payable. Fair values for these items were assumed to approximate carrying values because of their short term nature or because they are payable on demand. As of June 30, 2014, the Company's derivative liabilities were considered Level 2. See Note 3 for discussion regarding the determination of the fair market value.

Earnings (loss) Per Share

Basic earnings (loss) per share are computed by dividing the net income (loss) by the weighted-average number of shares of common stock and common stock equivalents (primarily outstanding shares of convertible debt, preferred stock, options and warrants). Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method. The calculation of fully diluted earnings (loss) per share assumes the dilutive effect of the exercise of outstanding convertible debt, preferred stock, options and warrants at either the beginning of the respective period presented or the date of issuance, whichever is later. As of June 30, 2014 and 2013, the Company's dilutive securities consisted of convertible notes payable and Series A1, Series A2 and Series C preferred stock . If the holders of the convertible notes payable, Series A1 Preferred Stock, Series A2 Preferred Stock and Series C Preferred Stock all converted, the Company would be in excess of their authorized shares. The following is a summary of outstanding securities which have been included in the calculation of diluted net income per share and reconciliation of net income available to common stock holders for the three months ended June 30, 2014:

The following is a summary of outstanding dilutive securities in which have been excluded from the calculation of diluted net loss per share because the effect would have been anti-dilutive for the six months ended June 30, 2014 and the three and six months ended June 30, 2013:

As of January 28, 2014, the Company had incurred amounts of $82,500 owed to Pyrenees Investments, LLC for service rendered.  On January 28, 2014, the indebtedness was sold to Iconic Holdings, LLC, a third party. In connection with this sale, the Company issued a $82,500 convertible note to the third party.  The convertible note incurs interest at 10% per annum and is due January 24, 2015. If a default is called by the lender after failure to repay principal or interest when due, among other default provisions including untimely filings with the SEC, a default interest rate of 20% per annum is triggered and retrospectively applied from the note's inception date on the unpaid amount, and in addition the principal balance is increased by 150% of the face amount of the note deemed in default. At any time the note may be converted into shares of common stock, at the lower of $0.0006 or 50% discount off the lowest trading price for the Company’s common stock within the twenty (20) days preceding the conversion. The Company recorded a discount totaling $82,500 related to the beneficial conversion feature embedded in the note upon issuance. See below for discussion of derivative liabilities related to the conversion feature due to the absence of a conversion floor. In connection with this agreement, the Company reserved 250,000,000 shares of its common stock with the transfer agent.

In February 2014, the Company borrowed $100,000 as evidenced by a convertible note issued to Iconic Holdings as part of a total note agreement of $165,000, including a $15,000 on issuance discount, which was entered into on January 28, 2014. The Company has yet to receive the remaining $50,000 in proceeds in which an additional $5,000 of an issuance discount will be recorded.  The convertible note incurs interest at 10% per annum and is due January 28, 2015. If a default is called by the lender after failure to repay principal or interest when due, among other default provisions including untimely filings with the SEC, a default interest rate of 20% per annum is triggered and retrospectively applied from the note's inception date on the unpaid amount, and in addition the principal balance is increased by 150% of the face amount of the note deemed in default. At any time the note may be converted into common stock, at the lower of $0.0006 or 50% discount off the lowest trading price for the Company’s common stock within the twenty (20) days preceding the conversion. The Company recorded a discount totaling $110,000, which included $10,000 for the on issuance discount, related to the beneficial conversion feature embedded in the note upon issuance. See below for discussion of derivative liabilities related to the conversion feature due to the absence of a conversion floor. In connection with this agreement, the Company reserved 250,000,000 shares of its common stock with the transfer agent.

Derivative Liabilities

The Company calculated the derivative liability using the Black-Scholes pricing model for each note upon inception and recorded the fair market value of the derivative liability as a discount to the note. When a derivative liability associated with a convertible note is in excess of the face value of the convertible note, the excess of fair value of derivative is charged to the statement of operations.

During the six months ended June 30, 2014, the Company issued convertible debt with principal amounts of $192,500. At the inception of these notes, they were fully discounted due to value of the associated derivative liabilities. Aggregate remaining discounts on convertible notes to be accreted over the life of each respective note using the straight line method are $118,378 as of June 30, 2014. For the six months ended June 30, 2014, interest expense from accretion of the discount was $74,122.

Aggregate derivative liabilities associated with remaining convertible notes were $536,432 as of June 30, 2014. Based on this revaluation at quarter end and the revaluation of derivative liabilities measured during the period immediately before extinguishment of associated convertible notes, the Company recognized a loss related to the day one value of the derivative liabilities of $996,962 and a loss (gain) in the change of fair value of derivative liability of ($1,328,026) and ($653,030) during the three and six months ended June 30, 2014, respectively.

The following are the weighted average variable used in determining the fair market value of the Company's derivative liabilities:

As of June 30, 2014, the Company held 17 notes receivable (the “Series A2 Notes”) from Ironridge Global IV, Ltd totaling $834,000 related to the sale of Series A2 Convertible Preferred Stock (see below for rights and preferences). The principal balance outstanding under the Series A2 Notes bears interest at the rate of 1.0% per annum. The entire unpaid principal balance, interest and any other charges due and payable under these Series A2 Notes will become due and payable 29 months from the date of issuance (September 21, 2012) and is recorded as a reduction to Stockholders' Equity on the accompanying balance sheet. The Series A2 Notes shall be deemed not due and payable should the Company not have either 1) a registration statement on file and effective with the SEC covering the underlying common shares issuable as a result of the preferred shares, or 2) that the underlying common shares are eligible for trading under the then current Rule 144 as promulgated by the Securities of Act of 1933, as amended. The Company is also required to maintain adequate coverage of authorized shares, and must have the ability to issue common shares to the holder of the preferred shares in electronic format. Other customary events of default also apply. As of June 30, 2014, approximately $750,000 of the Series A2 Notes balance remained unpaid. During the six months ended June 30, 2014, the Company received $350,000 in proceeds related to the payment of the Series A2 Notes and recorded interest income of $4,573. In addition, subscription receivables includes $16,000 in excess common stock in which was issued to the holders of Series A2 Notes which needs to be remitted by the holder.

On March 27, 2014, the Company entered into an agreement with the same party discussed above for the issuance of 100 notes receivable (the “Series C Notes”) from one issuer totaling $5,000,000 related to the sale of Series C Convertible Preferred Stock (see below for rights and preferences). The principal balance outstanding under the Series C Notes bears interest at the rate of 1.0% per annum. The entire unpaid principal balance, interest and any other charges due and payable under these Series C Notes will become due and payable 82 weeks from the date of issuance and is recorded as a reduction to Stockholders' Equity on the accompanying balance sheet. The Series C Notes deemed not due and payable should the Company not have either 1) a registration statement on file and effective with the SEC covering the underlying common shares issuable as a result of the preferred shares, or 2) that the underlying common shares are eligible for trading under the then current Rule 144 as promulgated by the Securities of Act of 1933, as amended. The Company is also required to maintain adequate coverage of authorized shares, and must have the ability to issue common shares to the holder of the preferred shares in electronic format. Other customary events of default also apply. As of June 30, 2014, $4,949,505 of the Series C Notes balance remained unpaid. During the six months ended June 30, 2014, the Company received $50,495 in proceeds related to the payment on the Series C Notes. Additional, proceeds are dependent upon the Company maintaining sufficient authorized shares.

Preferred Stock

Series A1 Preferred Stock

On September 6, 2011, the Company filed a Certificate of Designation of Series A1 Convertible Preferred Stock ("Series A1") with the Secretary of State of Nevada. Pursuant to the Series A1 Certificate of Designation, the Company designated 25,000,000 shares of its blank check preferred stock as Series A1 Preferred Stock. The Series A1 Preferred Stock ranks senior to the common stock (the "Junior Stock"). The Series A1 Preferred Stock can be converted at anytime into 30 common shares per one preferred share. In the event of a liquidation, the Series A1 Preferred Stock will be entitled to a liquidation at the same as common stock. The Series A1 Preferred Stock has no voting rights.

Series A2 Preferred Stock

On October 5, 2012, the Company filed a Certificate of Designation of Series A2 Convertible Preferred Stock ("Series A2") with the Secretary of State of Nevada. Pursuant to the Series A2 Certificate of Designation, the Company designated 300 shares of its blank check preferred stock as Series A2 . The Series A2 ranks senior to the common stock and any subsequently created series of preferred stock that does not expressly rank pari passu with or senior to the Series A2 (the "Junior Stock"). The Series A2 can be converted at anytime and has a fixed conversion price of $0.00225 per common share. The Series A2 is entitled to minimum six years worth of dividends accruing at a rate of 8.5% per annum potentially increasing to 18% per annum under certain circumstances such as a significant decrease in the price of the Company's common stock. Dividends are payable in cash or in shares of common stock valued at 85.0% of the closing market price of the Company's common stock for any trading day following the issuance date of the Series A2. In the event of a liquidation, the Series A2 will be entitled to a payment of the Stated Value of $10,000 per share plus any accrued but unpaid dividends prior to any payments being made in respect of the Junior Stock. The holders of Series A2 does not have voting rights, except for shares in which have already been converted into shares of common stock.

On January 8, 2014, the holder converted 10 Series A2 shares into 44,444,444 shares of common stock. In addition, under the terms of the Series A2 the holder was entitled to immediate payment of dividends on the $100,000 stated value of the Series A2 at an annual dividend rate of 18% rate, which is an increase over the stated 8.5% due to adjustments related to the decrease in the fair market value of the Company's common stock, for a period of six years resulting in dividends payable of $108,000. The holder elected to convert the dividends to common stock based upon 85% of the closing market price as disclosed above resulting in a conversion price of $0.00017 with 635,294,118 common shares being issued. On the date of conversion, the fair market value of the dividend shares issued was $1,334,118 based upon the closing market price of the Company's common stock. Thus, the Company recorded additional expense of $1,334,118 in connection with the dividend shares issued.

On February 11, 2014, the holder converted 15 Series A2 shares into 66,666,666 shares of common stock. In addition, under the terms of the Series A2 the holder was entitled to immediate payment of dividends on the $150,000 stated value of the Series A2 at an annual dividend rate of 18% rate, which is an increase over the stated 8.5% due to adjustments related to the decrease in the fair market value of the Company's common stock, for a period of six years resulting in dividends payable of $162,000. The holder elected to convert the dividends to common stock based upon 85% of the closing market price as disclosed above resulting in a conversion price of $0.00017 with 952,941,176 common shares to be issued. On the date of conversion, the fair market value of the dividend shares issued was $3,144,706 based upon the closing market price of the Company's common stock. Thus, the Company recorded additional expense of $3,144,706 in connection with the dividend shares issued. As of June 30, 2014, the Company has recorded within stockholders' equity "Shares to Be Issued" of $2,853,206 as the 864,607,842 common shares have not been delivered due to the 9.99% ownership limitation placed on the shareholders.

Series B Preferred Stock

On February 28, 2013, the Company filed a Certificate of Designation of Series B Convertible Preferred Stock ("Series B") with the Secretary of State of Nevada. Pursuant to the Series B Certificate of Designation, the Company designated 16,000,000 shares of its blank check preferred stock as Series B . The Series B ranks senior to the common stock and any subsequently created series of preferred stock that does not expressly rank pari passu with or senior to the Series B (the "Junior Stock"). The Series B cannot be converted into any other securities and does not receive dividends. Each share of Series B shall have voting rights equal to that of 2,000 shares of common stock. In the event of a liquidation, the Series B will be entitled to net assets on a pro rata basis.

On March 1, 2013, the Company issued its Chief Executive Officer 16,000,000 shares of Series B Preferred Stock. The Company valued the Series B at its par value resulting in a current period expense of $16,000. The only rights the holder under the Series B has relates to voting control of the Company, which prior to the issuance the Chief Executive Officer, was the only officer and Board of Director member and already could make significant decisions. Although, the Series B was issued during the year ended December 31, 2013, it was not accounted for until the six months ended June 30, 2014. The effect on the prior years' financial statements is deemed insignificant and thus the amounts have not been restated.

Series C Preferred Stock

On March 27, 2014, the Company filed a Certificate of Designation of Series C Convertible Preferred Stock ("Series C") with the Secretary of State of Nevada. Pursuant to the Series C Certificate of Designation, the Company designated 5,000 shares of its blank check preferred stock as Series C. The Series C ranks senior to the common stock and any subsequently created series of preferred stock that does not expressly rank pari passu with or senior to the Series C (the "Junior Stock") and pari passu in rights to dividends and liquidation to the Series A2 and junior to all existing and future indebtedness of the Company. The Series C can be converted at anytime and has a fixed conversion price of $0.01 per common share. The Series C is entitled to minimum six years worth of dividends accruing at a rate of 8.5% per annum potentially increasing to 18% per annum under certain circumstances such as a significant decrease in the price of the Company's common stock. Dividends are payable in cash or in shares of common stock valued at 85.0% of the closing market price of the Company's common stock for any trading day following the issuance date of the Series C. In the event of a liquidation, the Series C will be entitled to a payment of the Stated Value of $10,000 per share plus any accrued but unpaid dividends prior to any payments being made in respect of the Junior Stock. The holders of Series C do not have voting rights, except for shares in which have already been converted into shares of common stock. During the six months ended June 30, 2014, the Company issued 5,000 shares of Series C for a subscription receivable of $5.0 Million, see Note 4 for additional information.

Common Stock

During the six months ended June 30, 2014, the Company issued 1,754,386 shares of common stock valued at $4,737 based upon the closing market price of the Company's common stock on the date of the agreement to a third party for the rights to future royalties related to Global Specialty Products, Inc.'s MicroRoasters brand.

In addition, the Company amortized $60,000 of deferred compensation related to common stock granted during the year ended December 31, 2013 which is being expensed over the service period. As of June 30, 2014, the Company had $20,000 of amortization remaining which will be expensed during the year ending December 31, 2014.

Additionally, during the six months ended June 30, 2014, the Company issued 50,000,000 shares of common stock valued at $135,000 based upon the closing market price of the Company's common stock on the on the date of the agreement to a third party for sales and marketing services. The fair market value of the common stock issued was recorded as prepaid expenses and is being amortized over the contract period of one year. During the six months ended June 30, 2014, the Company amortized $45,000 to sales and marketing on the accompanying statement of operations. As of June 30, 2014, the remaining prepaid is $90,000. In addition, as of the date of this filing the common stock has not been issued and thus the value of $135,000 is recorded within stock to be issued on the accompanying balance sheet.

On January 27, 2014, the Company entered into a settlement with the prior management whereby prior management agreed to return 60,000,000 shares of the Company’s common stock previously issued to them for services rendered. In return, the Company has agreed to release prior management from any claims related to all costs deemed of a non-business nature. The Company accounted for the shares at their par value of $60,000 reducing common stock by that amount with the reclass to additional paid in capital. Upon return, the common stock was cancelled by the transfer agent and reflected in our calculation of weighted average shares for the six months ended June 30, 2014 as of the date of the agreement

During the six months ended June 30, 2013, the Company issued 90,000,000 shares of common stock in connection with the conversion of 3,000,000 shares of Series A1 Preferred Stock with a carrying value of $3,000 held by the former Chief Executive Officer.

Ironridge Global IV, Ltd.

On September 19, 2012, the Supreme Court of the State of California for the County of Los Angeles Central District (the “Court”), entered an order (the “Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”), in accordance with a stipulation of settlement (the “Settlement Agreement”) between Rapid Fire Marketing, Inc., a Nevada corporation (the “Company”), and Ironridge Global IV, Ltd. (“Ironridge”), in the matter entitled Ironridge Global IV, Ltd. v. Rapid Fire Marketing, Inc., Case No. BC 490059 (the “Action”). Ironridge commenced the Action against the Company to recover an aggregate of $643,133 of past-due accounts payable of the Company, plus fees and costs (the “Claim”). The Order provides for the full and final settlement of the Claim and the Action. The Settlement Agreement became effective and binding upon the Company and Ironridge upon execution of the Order by the Court on September 19, 2012. The amounts due to Ironridge had previously been recorded within accounts payable but were reclassed to common stock to be issued within stockholders' equity upon settlement as the obligation was to be settled in shares of common stock. Upon issuance of common stock, the Company determines the fair market value of the common shares issued based upon the closing market price of the Company's common stock. The fair value of the common stock issued in excess of the reduction of the liability is recorded as a loss on common shares issued. During the six months ended June 30, 2013, the Company issued 320,000,000 common shares valued at $406,999 relieving $190,959 in amounts due to Ironridge and additional loss on common shares of $216,040. As of June 30, 2013, the Company's obligation to Ironridge was $370,559 which was settled through the issuance of common stock through the remainder of 2013.

The issuance of common stock to Ironridge pursuant to the terms of the Settlement Agreement approved by the Order is exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) thereof, as an issuance of securities in exchange for bona fide outstanding claims, where the terms and conditions of such issuance are approved by a court after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear. See Note 4 for discussion of additional transactions with Ironridge.

Equity Line of Credit

On February 28, 2014, the Company, entered into an Equity Line of Credit (the “Equity Line of Credit”) with Iconic Holdings, LLC (“Iconic”). Pursuant to the Equity Line of Credit, Iconic committed to purchase up to $2,000,000 of the Company’s common stock over twenty-four months from the first day following the effectiveness of a registration statement, subject to certain conditions. 

As soon as the Company has an effective registration statement in place, the Company may draw on the facility from time to time, as and when it determines appropriate in accordance with the terms and conditions of the related Equity Line of Credit. The Company has not yet filed a registration statement registering the shares and therefore, it has not yet sold any shares under the Equity Line of Credit. The purchase price will be 85% of the lowest trading price of the Company's common stock during the five (5) consecutive trading day period beginning on the trading day immediately following the date of delivery of the applicable put notice. The maximum amount that the Company is entitled to put in on any one notice shall be any amount up to the greater of 1) the average of the trading dollar volume of the Company's common stock during the ten (10) trading days preceding the request or 2) $100,000. Iconic is not obligated to purchase shares if its total number of shares beneficially held at that time would exceed 4.99% of the number of shares of the Company’s outstanding common stock as determined in accordance with Rule 13d-1 of the Securities Exchange Act of 1934, as amended. In addition, the Company is not permitted to draw on the facility unless there is an effective registration statement to cover the resale of the shares, which it does not currently have in place.

Pursuant to the terms of a Registration Rights Agreement between the Company and Iconic, the Company is obligated to file a registration statement with the SEC to register the resale by Iconic of shares of the common stock underlying the Investment Agreement and it has not yet done so.

In addition, under the terms of the Equity Line of Credit the Company was required to issue Iconic 10% of the total commitment amount in restricted common stock as a commitment fee. The Company issued 29,585,799 shares of common stock valued at $88,757 based upon the closing market price of the Company's common stock on the date of the agreement. The Company recorded the value of such common stock as a deferred offering cost on the accompanying balance sheet which will be offset against future proceeds received in connection with Equity Line of Credit. As of June 30, 2014, no proceeds have been received under the Equity Line of Credit.

On March 28, 2013, the Company executed a 3% convertible note with a shareholder for $9,500 due within one year. The note is convertible into the Company's common stock at a rate of $0.001 per share subject to various adjustments due to stock splits, change in control, etc. As of June 30, 2014, the note was in default, however, a demand for payment has not been received.

On November 29, 2012, the Company executed a 3% convertible note with a shareholder for $14,000 due within one year. The note is convertible into the Company's common stock at the lesser of $0.001 per share (subject to various adjustments due to stock splits, change in control, etc) or a 20% discount to the current bid price on the date of conversion. As of June 30, 2014, the note was in default, however, a demand for payment has not been received.

As of June 30, 2014, amounts due to our Chief Executive Officer for salary payable recorded within Accounts Payable on the accompanying balance sheet were $36,500.