NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
JUNE 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.
The Company is engaged in various monetization
strategies of a portfolio of patents the Company owns in both the U.S. and China, covering electronic cigarette, electronic cigar
and personal vaporizer patents. We currently market a brand of electronic cigarette e-liquids marketed under the brand “Helium”
in the United States and are undertaking efforts to establish distribution of our electronic cigarette e-liquids brand in China.
We are currently also identifying electronic cigarette companies that may be infringing our patents and exploring options to license
and or enforce our patents.
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.
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 June 30, 2018, and the results of operations and cash flows for the periods
presented. The results of operations for the three and six months ended June 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 six 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 $(124,445) for the six months ended June 30, 2018 and has an accumulated
deficit of $7,750,090 at June 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
|
|
June 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
|
|
$
|
104,582
|
|
Issued During the Year Ended December 31, 2017
|
|
|
287,829
|
|
Extinguished during the year
|
|
|
(102,317
|
)
|
Change in fair value recognized in operations
|
|
|
102,529
|
|
Balance, December 31, 2017
|
|
|
392,623
|
|
Issued During the Six Months Ended June 30, 2018
|
|
|
-0-
|
|
Extinguished during the year
|
|
|
(76,571
|
)
|
Change in fair value recognized in operations
|
|
|
(195,163
|
)
|
Balance, June 30, 2018
|
|
$
|
120,889
|
|
|
|
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
|
|
|
|
June 30, 2018
|
|
|
|
Using Fair Value Hierarchy
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Embedded derivative liabilities – (Conversion Feature)
|
|
|
|
|
|
|
|
|
|
|
120,889
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
120,889
|
|
For the six months ended June 30, 2018, the
Company recognized a gain of $107,820 on the change in fair value of its derivative liabilities. At June 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)
|
|
June 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
|
|
|
|
|
|
|
(15,962
|
)
|
|
|
(12,667
|
)
|
|
|
|
|
|
|
$
|
14,464
|
|
|
$
|
17,759
|
|
|
|
Depreciation expense amounted to $3,295 and $6,030 for the six months ended June 30, 2018 and June 30, 2017, respectively.
|
NOTE
6: INTANGIBLE ASSETS-NET
|
|
|
Estimated Useful Lives
|
|
|
|
|
|
|
|
|
|
|
|
|
(Years)
|
|
|
|
June 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
|
|
|
|
|
|
|
(36,138
|
)
|
|
|
(28,468
|
)
|
|
|
|
|
|
|
$
|
22,084
|
|
|
$
|
29,754
|
|
Amortization expense amounted to $7,670 and $16,250 for the six
months ended June 30, 2018 and June 30, 2017, respectively.
NOTE 7: PARTNER DEFICIT/COMMON UNITS
On June 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 June 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 six months ended June 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. The shares were valued at 36,000.
As of the filing date the shares have not been issued however the expense and capital was recorded effective May 24, 2018.
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 June 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. The Company issued to Vapor the 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. Balance
on this note is $28,135.
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. As of June 30, 2018, the outstanding balance,
including accrued interest, on the Acquisition Note is $45,818.
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 June 30, 2018 was $69,318.
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 June 30, 2018 was $47,311.
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 June 30, 2018 was $70,001.
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 June 30, 2018 was $70,001.
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 June 30, 2018 was $82,501.
On May 30, 2018, the Company issued a promissory note in the principal amount of $100,001 (the “Sunshine Note”) to Sunshine Travel, Inc., an unaffiliated third party (“Sunshine Travel”). The principal amount due under the 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 Sunshine Note is unsecured. The balance as of June 30, 2018 was $90,001.
On June 15, 2018, the Company issued a promissory note in the principal amount of $100,001 (the “Frija-Hoff Note”) to Daniel Hoff and Kevin Frija jointly. The principal amount due under the 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 Frija-Hoff Note is unsecured. The balance as of June 30, 2018 was $97,501.
During the six months ended June 30,
2018, $160,000 of notes was converted into 5,725,407 shares.
|
|
June 30,
2018
|
|
December 31,
2017
|
Gross balances outstanding for convertible notes
|
|
$
|
73,718
|
|
|
$
|
574,318
|
|
Gross balances outstanding from notes payables-short term
|
|
|
526,570
|
|
|
|
238,393
|
|
Less: Debt discount
|
|
|
(32,410
|
)
|
|
|
(145,856
|
)
|
|
|
|
|
|
|
|
|
|
Carrying value of notes
|
|
$
|
567,878
|
|
|
$
|
666,855
|
|
NOTE 9: 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 Ended December 31,
|
|
2018
|
57,540
|
2019
|
104,400
|
Total minimum lease payments
|
$161,940
|
Rent expense for the six months ended June 30, 2018 and 2017 was
$58,232 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 June 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 10: SUBSEQUENT EVENTS
The Company has reviewed its business operations subsequent
to June 30, 2018 and has found the following transactions requiring disclosure.
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.