VPR BRANDS, LP
BALANCE SHEETS
(UNAUDITED)
|
|
September 30,
2018
|
|
December 31,
2017
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
193,814
|
|
|
$
|
56,640
|
|
Accounts Receivable-Net of reserve of $-0- and $69,358
|
|
|
238,636
|
|
|
$
|
199,803
|
|
Vendor Deposits
|
|
|
221,792
|
|
|
|
-
|
|
Inventory
|
|
|
315,427
|
|
|
|
150,365
|
|
Deposits
|
|
|
16,780
|
|
|
|
16,780
|
|
TOTAL CURRENT ASSETS
|
|
$
|
986,449
|
|
|
$
|
423,588
|
|
Property and Equipment-Net of Accumulated Depreciation
|
|
|
8,683
|
|
|
|
17,759
|
|
Intangible Assets-Net of Accumulated Amortization
|
|
|
22,480
|
|
|
|
29,754
|
|
TOTAL ASSETS
|
|
$
|
1,017,612
|
|
|
$
|
471,101
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND PARTNER’S DEFICIT:
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts Payable and Accrued Expenses
|
|
$
|
220,026
|
|
|
$
|
243,265
|
|
Customer Deposits
|
|
|
3,500
|
|
|
|
-
|
|
Derivative Liability
|
|
|
-
|
|
|
|
392,623
|
|
Notes Payable
|
|
|
732,093
|
|
|
|
-
|
|
Notes Payable - Related Parties
|
|
|
344,188
|
|
|
|
-
|
|
Convertible Notes Payable, Net of Debt discount of $-0- and $145,856
|
|
|
-
|
|
|
|
666,855
|
|
TOTAL CURRENT LIABILITIES AND TOTAL LIABILITIES
|
|
|
1,299,807
|
|
|
|
1,302,743
|
|
|
|
|
|
|
|
|
|
|
PARTNERS’ DEFICIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners’ Capital 100,000,000 authorized; Common units, 81,054,719 and 68,604,686 issued and outstanding as of September 30, 2018 and December 31, 2017, respectively
|
|
|
7,609,115
|
|
|
|
6,794,002
|
|
Equity instruments to be issued
|
|
|
36,000
|
|
|
|
-
|
|
Accumulated deficit
|
|
|
(7,927,310
|
)
|
|
|
(7,625,644
|
)
|
TOTAL PARTNERS’ DEFICIT
|
|
|
(282,195
|
)
|
|
|
(831,642
|
)
|
TOTAL LIABILITIES AND PARTNERS’ DEFICIT
|
|
$
|
1,017,612
|
|
|
$
|
471,101
|
|
See accompanying notes to financial statements.
VPR BRANDS, LP
STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
2018
|
|
September 30,
2017
|
|
September 30,
2018
|
|
September 30,
2017
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
1,271,317
|
|
|
$
|
969,455
|
|
|
$
|
3,487,265
|
|
|
$
|
2,792,796
|
|
COST OF SALES
|
|
|
(877,129
|
)
|
|
|
(573,136
|
)
|
|
|
(2,018,964
|
)
|
|
|
(1,710,066
|
)
|
GROSS PROFIT
|
|
|
394,188
|
|
|
|
396,319
|
|
|
|
1,468,301
|
|
|
|
1,082,730
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative
|
|
|
374,751
|
|
|
|
435,376
|
|
|
|
1,315,250
|
|
|
|
1,523,572
|
|
TOTAL OPERATING EXPENSES
|
|
|
374,751
|
|
|
|
435,376
|
|
|
|
1,315,250
|
|
|
|
1,523,572
|
|
NET OPERATING INCOME (LOSS)
|
|
|
19,437
|
|
|
|
(39,057
|
)
|
|
|
153,051
|
|
|
|
(440,842
|
)
|
Other (Expense) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
(128,933
|
)
|
|
|
(48,836
|
)
|
|
|
(309,544
|
)
|
|
|
(231,313
|
)
|
Interest Expense-Related Parties
|
|
|
(17,209
|
)
|
|
|
-0-
|
|
|
|
(17,209
|
)
|
|
|
-0-
|
|
Gain (Loss) on extinguishment of debt
|
|
|
-
|
|
|
|
225,767
|
|
|
|
(329,113
|
)
|
|
|
(142,211
|
)
|
Change in fair value of derivative liability
|
|
|
5,987
|
|
|
|
(69,665
|
)
|
|
|
201,150
|
|
|
|
53,323
|
|
NET INCOME
(LOSS)
|
|
$
|
(120,718
|
)
|
|
$
|
68,209
|
|
|
$
|
(301,665
|
)
|
|
$
|
(761,043
|
)
|
LOSS PER COMMON UNIT
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
Weighted-Average Common Units Outstanding — Basic and Diluted
|
|
|
81,054,151
|
|
|
|
53,949,305
|
|
|
|
77,075,151
|
|
|
|
50,718,269
|
|
See accompanying notes to financial statements.
VPR BRANDS, LP
STATEMENT OF CASH FLOWS
(UNAUDITED)
|
|
Nine Months Ended
|
|
|
September 30,
2018
|
|
September 30,
2017
|
|
|
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(301,665
|
)
|
|
$
|
(761,043
|
)
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
Amortization and Depreciation
|
|
|
16,350
|
|
|
|
57,064
|
|
Non-Cash Interest
|
|
|
269,358
|
|
|
|
231,313
|
|
Stock based compensation
|
|
|
36,000
|
|
|
|
-
|
|
Gain change in value of Derivative Liability
|
|
|
(201,150
|
)
|
|
|
(53,323
|
)
|
Loss on Extinguishment of Debt
|
|
|
329,113
|
|
|
|
142,211
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
(165,062
|
)
|
|
|
148,891
|
|
Other Assets
|
|
|
-
|
|
|
|
(232,370
|
)
|
Vendor Deposits
|
|
|
(221,792
|
)
|
|
|
-
|
|
Accounts Receivable
|
|
|
(38,833
|
)
|
|
|
(108,873
|
)
|
Customer Deposits
|
|
|
3,500
|
|
|
|
(120,760
|
)
|
Accounts payable and Accrued expenses
|
|
|
(23,239
|
)
|
|
|
257,377
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(297,420
|
)
|
|
|
(439,513
|
)
|
FINANCING
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Notes Payable
|
|
|
1, 065,022
|
|
|
|
300,000
|
|
Repayments on Notes Payable
|
|
|
(630,428
|
)
|
|
|
-
|
|
Proceeds from private placement offering of common units
|
|
|
-
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
434,594
|
|
|
|
375,000
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH
|
|
|
137,174
|
|
|
|
(64,513
|
)
|
|
|
|
|
|
|
|
|
|
CASH - BEGINNING OF PERIOD
|
|
|
56,640
|
|
|
|
83,785
|
|
|
|
|
|
|
|
|
|
|
CASH - END OF PERIOD
|
|
$
|
193,814
|
|
|
$
|
19,272
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Items:
|
|
|
|
|
|
|
|
|
Conversion of convertible Debt into Common Units
|
|
$
|
450,000
|
|
|
$
|
25,000
|
|
See accompanying notes to financial statements.
VPR BRANDS, LP
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(UNAUDITED)
NOTE 1. ORGANIZATION
VPR Brands, LP (the “Company”,
“we” or “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 the electronic
cigarette and personal vaporizer industry. The Company is a holding company whose assets include issued U.S. and Chinese patents
for atomization related products, including technology for medical marijuana vaporizers and electronic cigarette products and components.
The Company is also engaged in product development for the vapor or vaping market, including e-liquids. Electronic cigarettes are
electronic devices which deliver nicotine through atomization, or vaping of e-liquids and without smoke and other chemicals constituents
typically found in traditional tobacco burning cigarette products. The Company owns a portfolio of electronic cigarette and personal
vaporizer patents that are the basis for its efforts to:
|
·
|
Design, market and distribute a line of e-liquids under the “HELIUM” brand;
|
|
·
|
Design, market and distribute a line of vaporizers for essential oils, concentrates, and dry herbs
under the “HONEYSTICK” brand;
|
|
·
|
Design, market and distribute a line of cannabidiol products under the “GOLD LINE”
brand;
|
|
·
|
Design, market and distribute electronic cigarettes and popular vaporizers;
|
|
·
|
Prosecute and enforce the Company’s patent rights;
|
|
·
|
License the Company’s intellectual property; and
|
|
·
|
Develop private label manufacturing programs.
|
The Company designs, develops and markets
electronic cigarette e-liquids sold under the Helium brand. Its electronic cigarette e-liquids are marketed as an alternative to
tobacco burning cigarettes. The Company launched the Helium brand in limited U.S. markets in 2016 and has grown distribution through
third-party distributors. Shortly after the U.S. launch, the Company plans to introduce its electronic cigarette brand to the Chinese
market. China is the largest producer and consumer of tobacco products in the world, but the Company believes that Chinese consumption
of electronic cigarettes trails U.S. adoption and use. The Company believes that an opportunity exists to develop and expand its
business and its Helium brand electronic cigarette e-liquids in China.
The Company designs, develops, markets
and distributes HoneyStick vaporizers and Goldline CBD products, which are products oriented toward the cannabis markets. The CBD
line was in development during 2017. The HoneyStick brand was acquired in July 2016 and further developed and expanded continuously
throughout 2016 and 2017 by adding new products and expanding marketing and advertising.
On July 29,
2016, the Company entered into and closed an Asset Purchase Agreement with Vapor Corp. (“Vapor”) and the Company’s
Chief Executive Officer, Kevin Frija (the former Chief Executive Officer of Vapor), pursuant to which Vapor sold Vapor’s
wholesale operations and inventory related thereto to the Company. The Vapor acquisition comprises almost all of the Company’s
revenue going forward.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements have been prepared
in accordance with accounting principles generally accepted in the United States of America for interim financial statements and
with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (the
“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally
accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the
accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring accruals)
to present the financial position of the Company as of September 30, 2018, and the results of operations and cash flows for the
periods presented. The results of operations for the three and nine months ended September 30, 2018, are not necessarily indicative
of the operating results for the full fiscal year or any future period. These unaudited consolidated financial
statements should be read in conjunction with the financial
statements and related notes thereto included in the Form 10-K for the year ended December 31, 2017.
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 and nine months or less.
Stock-Based Compensation
Share-based payments to employees, including grants of employee
stock options are recognized as compensation expense in the financial statements based on their fair values, in accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. That
expense is recognized over the period during which an employee is required to provide services in exchange for the award, known
as the requisite service period (usually the vesting period). The Company had no common stock options or common stock equivalents
granted or outstanding for all periods presented. The Company may issue shares as compensation in future periods for employee services.
The Company may issue restricted units to consultants for various
services. Cost for these transactions will be measured at the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable. The value of the common stock is to be measured at the earlier
of: (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached, or (ii)
the date at which the counterparty’s performance is complete. The Company may issue shares as compensation in future periods
for services associated with the registration of the common shares.
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update (“ASU”)
No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements,
including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or
services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services.
The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date:
ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue
from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts
with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and
Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively,
the new revenue standards).
The new revenue standards became effective for the Company on
January 1, 2018, and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January
1, 2018 did not change the Company’s revenue recognition as the majority of its revenues continue to be recognized when the
customer takes control of its product. As the Company did not identify any accounting changes that impacted the amount of reported
revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.
Under the new revenue standards, 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.
Basic and Diluted Net Loss Per Unit
Net loss per share was computed by dividing the net loss by
the weighted average number of common shares outstanding during the period. The weighted average number of shares was calculated
by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. Diluted net loss
per share for the Company is the same as basic net loss per share, as the inclusion of common stock equivalents would be anti-dilutive.
Income Taxes
The Company is considered a partnership for income tax purposes.
Accordingly, the partners report the Company’s taxable income or loss on their individual tax returns.
Rent
The Company recognizes rent expense on a straight-line basis
over the lease term. Deferred rent is included in accounts payable and accrued expenses on the accompanying balance sheets.
Accounting for Derivative Instruments
The Company issues debentures where the number of shares into
which a debenture can be converted is not fixed. For example, when a debenture converts at a discount to market based on the stock
price on the date of conversion. In such instances, the embedded conversion option of the convertible debentures is bifurcated
from the host contract and recorded at their fair value. In accounting for derivatives, the Company records a liability representing
the estimated present value of the conversion feature considering the historic volatility of the Company’s stock, and a discount
representing the imputed interest associated with the beneficial conversion feature. The discount is then amortized over the life
of the debenture and the derivative liability is adjusted periodically according to stock price fluctuations. At the time of conversion,
any remaining derivative liability is charged to additional paid-in capital. For purposes of determining derivative liability,
the Company uses Black-Scholes modeling for computing historic volatility.
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 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 has a net loss of $(301,665) for the nine months ended September
30, 2018 and has an accumulated deficit of $7,927,310 and a working capital deficiency of $313,358 at September 30, 2018. 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 revenues in the future. These
financial statements do not give any effect to any adjustments that would be necessary should the Company be unable to
continue as a going concern.
The Company plans to pursue equity funding to expand its brand.
Through equity funding and the current operations, including the acquisition of the Vapor line of business, the Company expects
to meet its current capital needs. There can be no assurance that the Company will be able raise sufficient working capital. If
the Company is unable to raise the necessary working capital through equity funding, it will be forced to continue relying on cash
from operations in order to satisfy its current working capital needs.
NOTE 4: FAIR VALUE MEASUREMENTS
The Company adopted the provisions of ASC
Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements,
establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial
instruments, payables to related parties, and accounts payable and accrued expenses are carried at historical cost basis, which
approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes
a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active
markets for identical assets or liabilities
Level 2 — quoted prices for similar
assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable
(for example cash flow modeling inputs based on assumptions)
The Company used Level 3 inputs for its
valuation methodology for the derivative liability in determining the fair value using a Black-Scholes option-pricing model with
the following assumption inputs:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Annual dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected life (years)
|
|
|
.50
|
|
|
|
.75 to .50
|
|
Risk-free interest rate
|
|
|
1.0
|
%
|
|
|
1.0
|
%
|
Expected volatility
|
|
|
35-237
|
%
|
|
|
187-236
|
%
|
The change in Level 3 financial instruments is as follows:
Balance, December 31, 2016
|
|
$
|
104,572
|
|
Issued During the Year Ended December 31, 2017
|
|
|
287,829
|
|
Extinguished during the year
|
|
|
(102,317
|
)
|
Change in fair value recognized in operations
|
|
|
102,539
|
|
Balance, December 31, 2017
|
|
|
392,623
|
|
Issued During the Nine Months Ended September 30, 2018
|
|
|
-
|
|
Extinguished during the nine months ended September 30, 2018
|
|
|
(191,473
|
)
|
Change in fair value recognized in operations
|
|
|
(201,150
|
)
|
Balance, September 30, 2018
|
|
$
|
-
|
|
|
|
Fair Value Measurements at
|
|
|
|
December 31, 2017
|
|
|
|
Using Fair Value Hierarchy
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded derivative liabilities – (Conversion Feature)
|
|
|
|
|
|
|
|
|
|
|
392,623
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
392,623
|
|
|
|
Fair Value Measurements at
|
|
|
|
September 30, 2018
|
|
|
|
Using Fair Value Hierarchy
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded derivative liabilities – (Conversion Feature)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
For the nine months ended September 30,
2018, the Company recognized a gain of $201,150 on the change in fair value of its derivative liabilities. At September 30, 2018,
the Company did not identify any other assets or liabilities that are required to be presented on the balance sheet at fair value
in accordance with ASC 825-10.
NOTE 5: PROPERTY AND EQUIPMENT-NET
|
|
Estimated Useful Lives
(Years)
|
|
September 30, 2018
|
|
December 31, 2017
|
Furniture and Fixtures
|
|
5
|
|
|
$
|
30,296
|
|
|
$
|
30,296
|
|
Warehouse Equipment
|
|
5
|
|
|
|
130
|
|
|
|
130
|
|
|
|
|
|
|
|
$
|
30,426
|
|
|
$
|
30,426
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(21,743
|
)
|
|
|
(12,667
|
)
|
|
|
|
|
|
|
$
|
8,683
|
|
|
$
|
17,759
|
|
|
|
Depreciation expense amounted to $9,077 and $9,044 for the nine months ended September 30, 2018 and September 30, 2017, respectively.
|
NOTE 6: INTANGIBLE ASSETS-NET
|
|
Estimated Useful Lives
|
|
|
|
|
|
|
|
|
|
|
(Years)
|
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
Customer Lists
|
|
6
|
|
|
$
|
26,222
|
|
|
$
|
26,222
|
|
Trademarks
|
|
3
|
|
|
|
32,000
|
|
|
|
32,000
|
|
|
|
|
|
|
|
$
|
58,222
|
|
|
$
|
58,222
|
|
Less: accumulated amortization
|
|
|
|
|
|
|
(35,742
|
)
|
|
|
(28,468
|
)
|
|
|
|
|
|
|
$
|
22,480
|
|
|
$
|
29,754
|
|
Amortization expense amounted to $7,274 and $18,008 for the
nine months ended September 30, 2018 and September 30, 2017, respectively.
NOTE 7: PARTNER DEFICIT/COMMON UNITS
On September 30, 2017, pursuant
to the terms of certain share purchase agreements, the Company received an aggregate of $75,000 from three investors in exchange
for the sale by the Company of an aggregate of 208,332 common units (representing a sale price of $0.36 per common unit). As of
September 30, 2018, the Company has not issued these common units.
In connection with the Vapor acquisition, Vapor loaned the Company
$500,000. The Company issued to Vapor a secured, 36-month promissory note in the principal amount of $500,000 (the “Secured
Promissory Note”). The Secured Promissory Note bears interest at a rate of prime plus 2% (which rate resets annually on July
29th), and 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, the Secured Promissory Note was sold by Vapor to DiamondRock, LLC, an
unaffiliated third party (“DiamondRock”).
The consideration for the Vapor acquisition consisted of a secured,
one-year promissory note from the Company to Vapor in the principal amount of $370,000 (the “Vapor Acquisition Note”).
The Vapor Acquisition Note bears interest at the rate of 4.5% and is payable in the amount of $10,000 per month, commencing on
October 28, 2016, with a balloon payment of the remainder of principal and interest due on July 29, 2017. The Vapor Acquisition
Note was sold by Vapor to DiamondRock.
DiamondRock has the right to convert the outstanding and
unpaid principal amount and accrued and unpaid interest of the respective tranche of the Secured Promissory Note into common
units 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 common units, 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 Secured
Promissory 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 units 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 units, or provides for a
longer look-back period, then the conversion price and look-back period under the Secured Promissory Note will be adjusted to
be such lower conversion price and longer look-back period, as applicable.
During the nine months ended September 30, 2018, the following
conversions were effected:
Date
|
|
Amount Converted
|
|
Common Units Issued
|
1/2/18
|
|
$75,000
|
|
1,176,471
|
1/5/18
|
|
50,000
|
|
1,002,697
|
2/1/18
|
|
40,000
|
|
902,835
|
2/19/18
|
|
50,000
|
|
1,417,004
|
3/12/18
|
|
75,000
|
|
2,225,519
|
5/4/18
|
|
25,000
|
|
850,340
|
5/17/18
|
|
10,000
|
|
357,143
|
5/22/18
|
|
15,000
|
|
740,741
|
6/1/18
|
|
10,000
|
|
384,615
|
6/21/18
|
|
50,000
|
|
1,718,213
|
6/21/18
|
|
25,000
|
|
859,106
|
6/22/18
|
|
25,000
|
|
815,249
|
|
|
$450,000
|
|
12,449,933
|
Effective May 24, 2018, the Company’s Board
of Directors approved the issuance of 900,000 common units to Dan Hoff, the Company’s Chief Operating Officer for
services performed. The shares were valued at $36,000. As of September 30, 2018, these units had not been issued; and are reflected
as equity instruments to be issued on the accompany balance sheet.
NOTE 8: NOTES PAYABLE
On November 29, 2016, the Company entered
into a Securities Purchase Agreement (the “DiamondRock SPA”) with DiamondRock, pursuant to which the Company may borrow
up to $500,000 under a convertible promissory note (the “DiamondRock Note”) for an aggregate purchase price of $475,000,
reflecting an original issue discount of $25,000. The transactions under the DiamondRock SPA closed on November 29, 2016, and the
DiamondRock Note was issued on that date.
The Company borrowed $405,000 in 2016 and
$75,000 in 2017 pursuant to the DiamondRock SPA and DiamondRock Note. As of September 30, 2018, the balance outstanding, including
accrued interest on the balance due, was $-0-.
In connection with the Vapor acquisition, Vapor loaned the Company
$500,000 in exchange for the issuance by the Company of a Secured Promissory Note in the principal amount of $500,000. The Secured
Promissory Note bears interest at a rate of prime plus 2% (which rate resets annually on July 29th), and 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.
On August 3, 2016, the Company issued (i) a secured, one-year
promissory note (“Note #1”) to Healthier Choices Management Corp. (f/k/a Vapor Corp.) (“HCMC”) in the principal
amount of $370,000, and (ii) a secured, 36-month promissory note from the Company to HCMC in the principal amount of $500,000 (together
with Note #1, the “Original Notes”). In connection therewith, the Company and HCMC entered into that certain Security
Agreement dated July 29, 2016 (the “Security Agreement”).
On September 6, 2018, the Company, Kevin Frija, the Company’s
Chief Executive Officer, Chief Financial Officer and Chairman of the Board, and a significant stockholder of the Company (solely
for purposes of Section 4.2 of the Loan Agreement) and HCMC entered into that certain Loan Agreement as of September 6, 2018 (the
“Loan Agreement”). Pursuant to the terms of the Loan Agreement, HCMC agreed to loan the Company $500,000, in exchange
for issuance by the Company to HCMC of an amended and restated secured promissory note in the aggregate principal amount of $582,260.
The Loan Agreement is subject to customary covenants and contains customary representations and warranties.
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 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. Balance on the loan as of September 30, 2018 is $510,803.
On September 6, 2018, the Company entered into that
certain First Amendment to Security Agreement, dated September 6, 2018 (the “First Amendment”). The First
Amendment had the effect to amending the Security Agreement to include the A&R Note as a part of the Secured Obligations,
as defined in the First Amendment, thereby providing that the A&R Note is secured by all of the assets of the Company and
its subsidiaries.
DiamondRock has the right to convert the
outstanding and unpaid principal amount and accrued and unpaid interest of the respective tranche of the Secured Promissory Note
into common units 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 common units, 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 Secured Promissory
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
units 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 units, or provides for a longer look-back period, then the conversion
price and look-back period under the Secured Promissory Note will be adjusted to be such lower conversion price and longer look-back
period, as applicable.
Amounts advanced under the DiamondRock
Note bear interest at the rate of 8% per year, and the maturity date for each tranche is 12 months from the funding of the applicable
tranche. The Company may prepay any amount outstanding under the DiamondRock Note prior to the maturity date for a 35% premium
(thus paying 135% of the amount owed for that particular maturity).
If at any time while the DiamondRock Note
is outstanding, the Company enters into a transaction structured in accordance with, based upon, or related or pursuant to, in
whole or in part, Section 3(a)(10) of the Securities Act of 1933, as amended (covering certain exchange transactions), then a liquidated
damages charge of 25% of the outstanding principal balance of the DiamondRock Note at that time will be assessed and will become
immediately due and payable to DiamondRock, either in the form of cash payment or as an addition to the balance of the DiamondRock
Note, as determined by mutual agreement of the Company and DiamondRock.
The DiamondRock Note also contains a right
of first refusal such that, if at any time while the DiamondRock Note is outstanding, the Company has a bona fide offer of capital
or financing from any third party that the Company intends to act upon, then the Company must first offer such opportunity to DiamondRock
to provide such capital or financing on the same terms. The DiamondRock SPA and the DiamondRock Note contain customary representations,
warranties and covenants for transactions of this type.
The consideration for the Vapor acquisition consisted of a secured,
one-year promissory note from the Company to Vapor in the principal amount of $370,000 (the “Vapor Acquisition Note”).
The Vapor Acquisition Note bears interest at the rate of 4.5% and is payable in the amount of $10,000 per month, commencing on
October 28, 2016, with a balloon payment of the remainder of principal and interest due on July 29, 2017.
In March 2017, the Secured Promissory Note was sold by Vapor
to DiamondRock, an unaffiliated third party.
On November 30, 2017, the Company entered into a Purchase Agreement
(the “Orange Door Purchase Agreement”), dated November 16, 2017, with Orange Door Capital, LLC (“Orange Door”).
Pursuant to the terms of the Orange Door Purchase Agreement, the Company agreed to sell to Orange Door all of the Company’s
right, title and interest in and to $312,000 of the Company’s future receivables arising from electronic payments by the
Company’s customers, in exchange for the payment by Orange Door to the Company of $240,000. Kevin Frija, the Company’s
Chief Executive Officer and Chief Financial Officer and the majority stockholder of the Company, personally guaranteed the performance
of all covenants and the truth and accuracy of all representations and warranties made by the Company in the Purchase Agreement.
The balance as of September 30, 2018 was $0.
On January 18, 2018, the Company issued an unsecured promissory
note (the “Brikor Note”) in the principal amount of $100,001 to Brikor, LLC, an unaffiliated third party (“Brikor”).
Any unpaid principal amount and any accrued interest is due on January 18, 2019. The principal amount due under the Brikor Note
bears interest at the rate of 24% per annum. Pursuant to the terms of the Brikor Note, Brikor may deduct one ACH payment from the
Company’s bank account in the amount of $500 per business day until the principal amount due and accrued interest is repaid.
The balance as of September 30, 2018 was $21,141.
On April 5, 2018, the Company issued a Promissory Note in the
principal amount of $100,001 (the “Surplus Note”) to Surplus Depot Inc., an unaffiliated third party (“Surplus”).
The principal amount due under the Surplus Note bears interest at the rate of 24% per annum, and permits Surplus to deduct one
ACH payment from the Company’s bank account in the amount of $500 per business day until the principal amount due and accrued
interest is repaid. Any unpaid principal amount and any accrued interest is due on April 5, 2019. The Surplus Note is unsecured.
The balance as of September 30, 2018 was $46,090.
On May 30, 2018, the Company issued a promissory note in the
principal amount of $100,001 (the “May 2018 Sunshine Note”) to Sunshine Travel, Inc., an unaffiliated third party (“Sunshine
Travel”). The principal amount due under the May 2018 Sunshine Note bears interest at the rate of 24% per annum, and permits
Sunshine Travel to deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until the
principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on May 30, 2019.
The May 2018 Sunshine Note is unsecured. The balance as of September 30, 2018 was $64,015.
On August 16, 2018, the Company issued a promissory note
in the principal amount of $100,001 (the “August 2018 Sunshine Note”) to Sunshine Travel. The principal amount
due under the Sunshine Travel Note bears interest at the rate of 24% per annum, permits Sunshine Travel to deduct one ACH
payment from the Company’s bank account in the amount of $500 per business day until the principal amount due and
accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on August 16, 2019. The August 2018
Sunshine Note is unsecured. The balance as of September 30, 2018 was $90,044.
During the nine months ended September 30, 2018, $450,000 of
notes was converted into 12,449,933 shares.
|
|
September 30,
2018
|
|
December 31,
2017
|
Gross balances outstanding for convertible notes
|
|
$
|
-
|
|
|
$
|
812,711
|
|
Gross balances outstanding from notes payables-short term
|
|
|
732,093
|
|
|
|
-
|
|
Less: Debt discount
|
|
|
-
|
|
|
|
(145,856
|
)
|
|
|
|
|
|
|
|
|
|
Carrying value of notes
|
|
$
|
732,093
|
|
|
$
|
666,855
|
|
NOTE 9: NOTES PAYABLE RELATED PARTY
On March 30, 2018, the Company issued an unsecured promissory
note (the “Greg Pan Note”) in the principal amount of $100,001 to Mr. Greg Pan. Mr. Greg Pan is a director of the General
Partner and owns a significant percentage of the Company’s outstanding common units. Any unpaid principal amount and any
accrued interest is due on March 30, 2019. The principal amount due under the Greg Pan Note bears interest at the rate of 24% per
annum. Pursuant to the terms of the Greg Pan Note, Mr. Greg Pan may deduct one ACH payment from the Company’s bank account
in the amount of $500 per business day until the principal amount due and accrued interest is repaid. The balance as of September
30, 2018 was $43,815.
On May 4, 2018, the Company issued a promissory note in the
principal amount of $100,001 (the “May 2018 Frija Note”) to Kevin Frija, the Company’s Chief Executive Officer,
President, principal financial and accounting officer and Chairman of the Board, and a significant stockholder of the Company.
The principal amount due under the May 2018 Frija Note bears interest at the rate of 24% per annum, and permits Mr. Frija to deduct
one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal amount due and
accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on May 4, 2019. The May 2018 Frija Note
is unsecured. The balance as of September 30, 2018 was $57,444.
On June 15, 2018, the Company issued a promissory note in the
principal amount of $100,001 (the “June 2018 Frija-Hoff Note”) to Daniel Hoff and Kevin Frija jointly. The principal
amount due under the June 2018 Frija-Hoff Note bears interest at the rate of 24% per annum, and permits Messrs. Hoff and Frija
to deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal amount
due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on June 15, 2019. The June 2018
Frija-Hoff Note is unsecured. The balance as of September 30, 2018 was $70,924.
On July 23, 2018, the Company issued the July 2018 Frija
Note in the principal amount of $100,001 to Kevin Frija, the Company’s Chief Executive Officer, President, principal
financial officer, principal accounting officer and Chairman of the Board, and a significant stockholder of the Company. The
principal amount due under the July 2018 Frija Note bears interest at the rate of 24% per annum, and permits Mr. Frija to
deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal
amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on July 23, 2019. The
July 2018 Frija Note is unsecured. The balance as of September 30, 2018 was $81,438.
On August 24, 2018, the Company issued a promissory note in
the principal amount of $100,001 (the “August 2018 Hoff/Frija Note”) to Daniel Hoff and Kevin Frija jointly. Mr. Hoff
is the Company’s Chief Operating Officer. Mr. Frija is the Company’s Chief Executive Officer, President, principal
financial officer, principal accounting officer and Chairman of the Board, and a significant stockholder of the Company. The principal
amount due under the August 2018 Hoff/Frija Note bears interest at the rate of 24% per annum, permits Messrs. Hoff and Frija to
deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal amount
due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on August 24, 2019. The August
2018 Hoff/Frija Note is unsecured. The balance as of September 30, 2018 was $90,567.
NOTE 10: COMMITMENTS AND CONTINGENCIES
Lease Agreement
The Company has a three-year lease for its office and warehouse
facility. The lease requires monthly payments as follows:
June 15, 2018-December 14, 2018
|
|
$9,590
|
|
|
|
December 15, 2018 to June 14, 2019
|
|
$10,190
|
|
|
|
June 15, 2019 to November 15, 2019
|
|
$10,690
|
Remaining lease payments in the following years are:
Year Ending December 31,
|
|
2018
|
28,770
|
2019
|
104,400
|
Total minimum lease payments
|
$133,170
|
Rent expense for the nine months ended September 30, 2018 and
2017 was $88,671 and $56,278, 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. As of September 30, 2018, there were 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 11: SUBSEQUENT EVENTS
The Company has evaluated
subsequent events through the date these financials statements were available to be issued and determined that
there were no events requiring disclosure in or adjustments to the financial statements.