The accompanying notes are an integral
part of these unaudited condensed interim financial statements.
The accompanying notes are an integral part
of these unaudited condensed interim financial statements.
The accompanying notes are an integral part
of these unaudited condensed interim financial statements.
The accompanying notes are an integral part
of these unaudited condensed interim financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2019
(Unaudited)
NOTE 1. ORGANIZATION
VPR Brands, LP (the “Company”,
“we”, “our”) was incorporated in New York on July 19, 2004, as Jobsinsite.com, Inc. On August 5, 2004,
we changed our name to Jobsinsite, Inc. On June 18, 2009, we merged with a Delaware corporation and became Jobsinsite, Inc. On
July 1, 2009, we filed articles of conversion with the secretary of state of Delaware and became Soleil Capital L.P., a Delaware
limited partnership. On September 2, 2015, we changed our name to VPR Brands, LP. We are managed by Soleil Capital Management LLC,
a Delaware limited liability company.
The Company is engaged in various monetization
strategies of a portfolio of patents the Company owns in both the U.S. and China, covering electronic cigarette, electronic cigar
and personal vaporizer patents. We currently market a brand of electronic cigarette e-liquids under the brand “Helium”
in the United States and are undertaking efforts to establish distribution of our electronic cigarette e-liquids brand in China.
We are currently also identifying electronic cigarette companies that may be infringing our patents and exploring options to license
and or enforce our patents.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying
unaudited condensed financial statements are prepared in accordance with instructions for Form 10-Q, include all adjustments (consisting
only of normal recurring accruals) which we considered as necessary for a fair presentation of the results for the periods presented.
Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed
financial statements be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31,
2018. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results
to be expected for future periods or the full year.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Cash
Cash includes all cash deposits and highly liquid financial instruments
with an original maturity of three months or less.
Accounts Receivable
The Company analyzes the collectability
of accounts receivable from continuing operations each accounting period and adjusts its allowance for doubtful accounts accordingly.
A considerable amount of judgment is required in assessing the realization of accounts receivables, including the creditworthiness
of each customer, current and historical collection history and the related aging of past due balances. The Company evaluates
specific accounts when it becomes aware of information indicating that a customer may not be able to meet its financial obligations
due to deterioration of its financial condition, lower credit ratings, bankruptcy or other factors affecting the ability to render
payment. As of June 30, 2019 and December 31, 2018, the Company had recorded allowance for bad debt of $49,056.
Inventory
Inventory consisting of finished products is
stated at the lower of cost or net realizable value. At each balance sheet date, the Company evaluates its ending inventories for
excess quantities and obsolescence. This evaluation primarily includes an analysis
of forecasted demand in relation to the inventory
on hand, among consideration of other factors. The physical condition (e.g., age and quality) of the inventories is also considered
in establishing its valuation. Based upon the evaluation, provisions are made to reduce excess or obsolete inventories to their
estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis of the respective
inventories. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from the amounts
that the Company may ultimately realize upon the disposition of inventories if future economic conditions, customer inventory levels,
product discontinuances, sales return levels or competitive conditions differ from the Company’s estimates and expectations.
As of June 30, 2019 and December 31, 2018, the Company had recorded a provision for obsolescence of $70,582.
Leases
In February 2016, the Financial Accounting
Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 (Topic 842). Topic
842 amended several aspects of lease accounting, including requiring lessees to recognize leases with a term greater than one year
as a right-of-use asset and corresponding liability, measured at the present value of the lease payments. In July 2018, the FASB
issued supplemental adoption guidance and clarification to Topic 842 within ASU 2018-10 “Codification Improvements to Topic
842, Leases” and ASU 2018-11 “Leases (Topic 842): Targeted Improvements.” The new guidance aims to increase transparency
and comparability among organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet
and requiring disclosure of key information about leasing arrangements. A modified retrospective application is required with an
option to not restate comparative periods in the period of adoption.
The Company, effective January 1, 2019 has
adopted the provisions of the new standard. The Company decided to use the practical expedients available upon adoption of Topic
842 to aid the transition from current accounting to provisions of Topic 842. The package of expedients will effectively allow
the Company to run off existing leases, as initially classified as operating and classify new leases after implementation under
the new standard as the business evolves.
The Company has an operating lease principally
for warehouse and office space. Management evaluates each lease independently to determine the purpose, necessity to its future
operations in addition to other appropriate facts and circumstances.
The Company adopted Topic 842 using a modified
retrospective approach for its existing lease at January 1, 2019. The adoption of Topic 842 impacted the Company’s balance
sheet by the recognition of the operating lease right-of-use assets and the liability for operating leases. The lease liability
is based on the present value of the remaining lease payments, discounted using a market based incremental borrowing rate as the
effective date of January 1, 2019 using current estimates as to lease term including estimated renewals for each operating lease.
As of January 1, 2019, the Company recorded an adjustment of approximately $87,000 to operating lease right-to-use asset and the
right to use lease liability.
Revenue Recognition
The Company recognizes revenues when its customer
obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange
for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s)
with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate
the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance
obligation.
Revenues from product sales are recognized
when the customer obtains control of the Company's product, which occurs at a point in time, typically upon delivery to the customer.
The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the
asset that it would have recognized is one year or less or the amount is immaterial.
Stock-Based Compensation
Share-based payments to employees, including
grants of employee stock options are recognized as compensation expense in the financial statements based on their fair values,
in accordance with FASB Accounting Standards Codification (“ASC”) Topic 718. That expense is recognized over the period
during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually
the vesting period). The Company had no common stock options or
common stock equivalents granted or outstanding
for all periods presented. The Company may issue shares as compensation in future periods for employee services.
The Company may issue restricted units to consultants
for various services. Cost for these transactions will be measured at the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is to be measured
at the earlier of: (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is
reached, or (ii) the date at which the counterparty's performance is complete. The Company may issue shares as compensation in
future periods for services associated with the registration of the common shares.
Fair Value
The carrying values of the Company’s
notes payables, convertible notes, and accounts payable and accrued expenses approximates their fair values because of the short-term
nature of these instruments.
Basic and Diluted Net Loss Per Unit
The Company computes net loss per share in
accordance with FASB ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings
per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net loss available
to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect
to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method,
and convertible notes, using the if-converted method. Diluted EPS excludes all dilutive potential common shares if their effect
is anti-dilutive. 10,728,833 shares underlying convertible notes were excluded from the calculation of diluted loss per share for
the six months ended June 30, 2019 because their effect was antidilutive.
Income Taxes
The Company is considered a partnership for
income tax purposes. Accordingly, the partners report the Partnership's taxable income or loss on their individual tax returns.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the 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.
On June 20, 2018, the FASB issued ASU 2018-07
which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of
the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees.
Previously, share-based payment arrangements to nonemployees were accounted for under ASC 718, while nonemployee share-based payments
issued for goods and services were accounted for under ASC 505-50. Before the amendment, the major difference for the Company (but
not limited to) was the determination of measurement date which generally is the date on which the measurement of equity classified
share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified
nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by
the counterparty is reached or the date at which the counterparty’s performance is complete. They are now measured at the
grant date of the award which is the same as share-based payments for employees. The Company adopted the requirements of the new
rule as of January 1, 2019, the effective date of the new guidance.
NOTE 3: GOING CONCERN
The accompanying condensed financial
statements have been prepared on a going concern basis, which contemplates the Company will continue to realize its assets and
discharge its liabilities in the normal course of business. The Company incurred a net loss of $327,537 for the six months ended
June 30, 2019 and has an accumulated deficit of $8,926,921 and a working
capital deficit of $883,499 at June
30, 2019. The continuation of the Company as a going concern is dependent upon, among other things, the continued financial support
from its common unit holders, the ability of the Company to obtain necessary equity or debt financing, and the attainment of profitable
operations. These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern.
There is no assurance that the Company will be able to generate sufficient revenues in the future. These financial statements do
not give any effect to any adjustments that would be necessary should the Company be unable to continue as a going concern.
The Company plans to pursue equity funding
to expand its brand. Through equity funding and the current operations, including the acquisition of the Vapor line of business,
the Company expects to meet its current capital needs. There can be no assurance that the Company will be able raise sufficient
working capital. If the Company is unable to raise the necessary working capital through the equity funding it will be forced
to continue relying on cash from operations in order to satisfy its current working capital needs.
NOTE 4: NOTES PAYABLE
On April 5, 2018, the Company issued a Promissory
Note in the principal amount of $100,001 (the “Surplus Note”) to Surplus Depot Inc., an unaffiliated third party (“Surplus”).
The principal amount due under the Surplus Note bears interest at the rate of 24% per annum, and permits Surplus to deduct one
ACH payment from the Company’s bank account in the amount of $500 per business day until the principal amount due and accrued
interest is repaid. Any unpaid principal amount and any accrued interest is due on April 5, 2019. The Surplus Note is unsecured.
The note was paid in full during the six months ended June 30, 2019.
On May 30, 2018, the Company issued a promissory
note in the principal amount of $100,001 (the “May 2018 Sunshine Note”) to Sunshine Travel, Inc., an unaffiliated third
party (“Sunshine Travel”). The principal amount due under the May 2018 Sunshine Note bears interest at the rate of
24% per annum, and permits Sunshine Travel to deduct one ACH payment from the Company’s bank account in the amount of $500
per business day until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest
is due on May 30, 2019. The May 2018 Sunshine Note was paid in full during the six months ended June 30, 2019.
On August 16, 2018, the Company issued a promissory
note in the principal amount of $100,001 (the “August 2018 Sunshine Note”) to Sunshine Travel. The principal amount
due under the Sunshine Travel Note bears interest at the rate of 24% per annum, permits Sunshine Travel to deduct one ACH payment
from the Company’s bank account in the amount of $500 per business day until the principal amount due and accrued interest
is repaid. Any unpaid principal amount and any accrued interest is due on August 16, 2019. The August 2018 Sunshine Note is unsecured.
The balance of the note as of June 30, 2019 was $14,999.
On September 6, 2018, the Company issued the
Amended and Restated Secured Promissory Note in the principal amount of $582,260 (the “A&R Note”). The principal
amount of the A&R Note represents (i) $500,000 which Healthier Choices Management Corp. (“HCMC”) loaned to the
Company on September 6, 2018, and (ii) $82,260, which represents the aggregate amount owed by the Company under the Original Notes
as of September 6, 2018. The A&R Note, which has a maturity date of September 6, 2021, had the effect of amending and restating
the Note and bears interest at the rate of 7% per annum. Pursuant to the terms of the A&R Note, the Company agreed to pay HCMC
155 weekly payments of $4,141, commencing on September 14, 2018 and ending on September 14, 2021, and a balloon payment for all
remaining accrued interest and principal in the 156th week. The Company at its option has the right, by giving 15 business days’
advance notice to HCMC, to prepay a portion or all amounts outstanding under the A&R Note without penalty or premium. The balance
of the note as of June 30, 2019 was $435,720.
The following is a summary of notes payable activity for the six
months ended June 30, 2019:
|
Balance at December 31, 2018
|
$640,688
|
|
Repayments of principal
|
(190,469)
|
|
Balance at June 30, 2019
|
$450,219
|
NOTE 5: NOTES PAYABLE – RELATED PARTIES
On March 30, 2018, the Company issued an unsecured
promissory note (the “Greg Pan Note”) in the principal amount of $100,001 to Mr. Greg Pan. Mr. Greg Pan is a director
of the General Partner and owns a significant percentage of the Company’s outstanding common units. Any unpaid principal
amount and any accrued interest is due on March 30, 2019. The principal amount due under the Greg Pan Note bears interest at the
rate of 24% per annum. Pursuant to the terms of the Greg Pan Note, Mr. Greg Pan may deduct one ACH payment from the Company’s
bank account in the amount of $500 per business day until the principal amount due and accrued interest is repaid. This note was
fully repaid as of June 30, 2019.
On May 4, 2018, the Company issued a promissory
note in the principal amount of $100,001 (the “May 2018 Frija Note”) to Kevin Frija, the Company’s Chief Executive
Officer, President, principal financial and accounting officer and Chairman of the Board, and a significant stockholder of the
Company. The principal amount due under the May 2018 Frija Note bears interest at the rate of 24% per annum, and permits Mr. Frija
to deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal amount
due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on May 4, 2019. The May 2018 Frija
Note is unsecured. This note was fully repaid as of June 30, 2019.
On June 15, 2018, the Company issued a promissory
note in the principal amount of $100,001 (the “June 2018 Frija-Hoff Note”) to Daniel Hoff and Kevin Frija jointly.
The principal amount due under the June 2018 Frija-Hoff Note bears interest at the rate of 24% per annum, and permits Messrs. Hoff
and Frija to deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal
amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on June 15, 2019. The June
2018 Frija-Hoff Note is unsecured. This note was fully repaid as of June 30, 2019.
On July 23, 2018, the Company issued the July
2018 Frija Note in the principal amount of $100,001 to Kevin Frija, the Company’s Chief Executive Officer, President, principal
financial officer, principal accounting officer and Chairman of the Board, and a significant stockholder of the Company. The principal
amount due under the July 2018 Frija Note bears interest at the rate of 24% per annum, and permits Mr. Frija to deduct one ACH
payment from the Company’s bank account in the amount of $500 per business day until the principal amount due and accrued
interest is repaid. Any unpaid principal amount and any accrued interest is due on July 23, 2019. The July 2018 Frija Note is unsecured.
The balance of the note as of June 30, 2019 was $7,356.
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 of the note as of June 30, 2019 was $16,835.
On December 12, 2018, the Company issued a
promissory note in the principal amount of $100,001 (the “December 2018 Frija-Hoff Note”) to Daniel Hoff and Kevin
Frija jointly. The principal amount due under the December 2018 Frija-Hoff Note bears interest at the rate of 24% per annum, and
permits Messrs. Hoff and Frija to deduct one ACH payment from the Company’s bank account in the amount of $500 per business
day until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due
on December 12, 2019. The balance of the note as of June 30, 2019 was $51,265.
On December 3, 2018, the Company issued the
December 2018 Frija Note in the principal amount of $100,001 to Kevin Frija, the Company’s Chief Executive Officer, President,
principal financial officer, principal accounting officer and Chairman of the Board, and a significant stockholder of the Company.
The principal amount due under the December 2018 Frija Note bears interest at the rate of 24% per annum, and permits Mr. Frija
to deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal amount
due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on December 3, 2019. The December
2018 Frija Note is unsecured. The balance of the note as of June 30, 2019 was $49,267.
On February 1,
2019, the Company issued a promissory note in the principal amount of $100,001 (the “February 2019 Frija Note”) to
Kevin Frija. Mr. Frija is the Company’s Chief Executive Officer, President, principal financial officer, principal accounting
officer and Chairman of the Board, and a significant stockholder of the Company. The principal amount due under the February 2019
Frija Note bears interest at the rate of 24% per annum, permits Mr. Frija to deduct one ACH payment from the Company’s bank
account in the amount of $500 per business day until the principal amount due and accrued interest is repaid. Any unpaid
principal amount and any accrued interest is due on February 1, 2020. The February 2019 Frija Note is unsecured.
The balance of the note as of June 30, 2019 was $64,722.
On June 14, 2019, the Company issued a promissory
note in the principal amount of $100,001 (the “June 2019 Frija/Hoff Note”) to Kevin Frija and Dan Hoff. Mr. Frija is
the Company’s Chief Executive Officer, President, principal financial officer, principal accounting officer and Chairman
of the Board, and a significant stockholder of the Company. Mr. Hoff is the Company’s Chief Operating Officer. The principal
amount due under the June 2019 Frija/Hoff Note bears interest at the rate of 24% per annum, permits Messrs. Frija and Hoff to deduct
one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal amount due and
accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on June 14, 2020. The June 2019 Frija/Hoff
Note is unsecured. The balance of the note as of June 30, 2019 was $96,943.
The following is a summary of notes payable – related parties
activity for the six months ended June 30, 2019:
|
Balance at December 31, 2018
|
$385,044
|
|
New borrowings
|
100,000
|
|
Repayments of principal
|
(198,656)
|
|
Balance at June 30, 2019
|
$286,388
|
NOTE 6: CONVERTIBLE NOTES PAYABLE
Acquisition Note
In connection with the business acquisition,
there was a $500,000 loan from Vapor to the Company, a secured, 36-month promissory note from the Company to Vapor in the principal
amount of $500,000 (the “Secured Promissory Note”; together with the Acquisition Note, are referred to herein as the
“Notes”) bearing an interest rate of prime plus 2% (which rate resets annually on July 29th), which payments thereunder
are $14,000 per month, with such payments deferred and commencing on January 26, 2017, with subsequent installments payable on
the same day of each month thereafter and in the 37th month (on July 29, 2019), a balloon payment for all remaining accrued interest
and principal. In March 2017 this note holder sold the Acquisition Note to DiamondRock, LLC.
DiamondRock has the right to convert the outstanding
and unpaid principal amount and accrued and unpaid interest of the respective tranche of the Note into units of common stock of
the Company, subject to the limitation that DiamondRock may not complete a conversion if doing so would cause DiamondRock to own
in excess of 4.99% of the Company’s outstanding shares of common stock, provided that DiamondRock may waive that limitation
and increase the ownership cap to up to 9.99%. The conversion price for any conversion under the Note is equal to the lesser of
(i) $0.50 and (ii) 65% of the volume weighted average trading price of the Company’s common over the 7 trading days ending
on the last complete trading day prior to the date of the conversion. In addition, in the event that the Company enters into certain
transactions with other parties that provide for a conversion price at a larger discount (than 35%) to the trading price of the
Company’s common stock, or provides for a longer look-back period, then the conversion price and look-back period under the
Note will be adjusted to be such lower conversion price and longer look-back period, as applicable. As of June 30, 2019 and December
31, 2018, the balance outstanding was $25,000, of which $625 is included in accrued interest as of June 30, 2019.
Brikor Note
On February 15, 2019, the Company issued a
senior convertible promissory note in the principal amount of $200,000 (the “Brikor Note”) to Brikor LLC (“Brikor”).
The principal amount due under the Brikor Note bears interest at the rate of 18% per annum. The principal amount and accrued but
unpaid interest (to the extent not converted in accordance with the terms of the Brikor Note) is due and payable on the third anniversary
of the issue date. The Brikor Note and the amounts payable thereunder are unsecured obligations of the Company and shall be senior
in right of payment and otherwise to all indebtedness, as provided in the Brikor Note.
At any time after the first anniversary of
the issue date, the holder may require the Company, upon at least 30 business days’ written notice, to redeem all or any
portion of the Brikor Note. The portion of the Brikor Note subject to redemption will be redeemed by the Company in cash.
The Brikor Note is convertible into common
units of the Company. Pursuant to the terms of the Brikor Note, Brikor has the right, at its option, to convert any portion of
the outstanding and unpaid Conversion Amount (as hereinafter defined) into common units in accordance with the provisions of the
Brikor Note at the Conversion Rate (as hereinafter defined). The number of common units issuable upon conversion of any Conversion
Amount will be determined by dividing (x) such Conversion Amount by (y) $0.10 (subject to adjustment as set forth in the Brikor
Note) (such result, the “Conversion Rate”). “Conversion Amount” means the sum of (A) the portion of the
principal balance of the Brikor Note to be converted with respect to which the determination is being made, (B) accrued and unpaid
interest with respect to such principal balance, if any, and (C) the Default Balance (other than any amount thereof within the
purview of foregoing clauses (A) or (B)), if any. The balance of the note as of June 30, 2019 and December 31, 2018 was $200,000.
Interest expense for six months ended June 30, 2019 totaled $13,315, of which $1,315 is included in accrued interest as of June
30, 2019.
Daiagi and Daiagi Note
On February 15, 2019, the Company issued a
senior convertible promissory note in the principal amount of $200,000 (the “Daiagi and Daiagi Note”) to Mike Daiagi
and Mathew Daiagi jointly (the “Daiagis”). The principal amount due under the Daiagi and Daiagi Note bears interest
at the rate of 18% per annum. The principal amount and accrued but unpaid interest (to the extent not converted in accordance with
the terms of the Daiagi and Daiagi Note) is due and payable on the third anniversary of the issue date. The Daiagi and Daiagi Note
and the amounts payable thereunder are unsecured obligations of the Company and shall be senior in right of payment and otherwise
to all indebtedness, as provided in the Daiagi and Daiagi Note.
At any time after the first anniversary of
the issue date, the holder may require the Company, upon at least 30 business days’ written notice, to redeem all or any
portion of the Daiagi and Daiagi Note. The portion of the Daiagi and Daiagi Note subject to redemption will be redeemed by the
Company in cash.
The Daiagi and Daiagi Note is convertible into
common units of the Company. Pursuant to the terms of the Daiagi and Daiagi Note, the Daiagis have the right, at their option,
to convert any portion of the outstanding and unpaid Conversion Amount into common units in accordance with the provisions of the
Daiagi and Daiagi Note at the Conversion Rate. The number of common units issuable upon conversion of any Conversion Amount will
be determined by dividing (x) such Conversion Amount by (y) $0.10 (subject to adjustment as set forth in the Daiagi and Daiagi
Note). The balance of the note as of June 30, 2019 and December 31, 2018 was $200,000. Interest expense for six months ended June
30, 2019 totaled approximately $13,315, of which $15 is included in accrued interest as of June 30, 2019.
Amber Investments Note
On February 15, 2019, the Company issued a
senior convertible promissory note in the principal amount of $200,000 (the “Amber Investments Note”) to Amber Investments
LLC (“Amber Investments”). The principal amount due under the Amber Investments Note bears interest at the rate of
18% per annum. The principal amount and accrued but unpaid interest (to the extent not converted in accordance with the terms of
the Amber Investments Note) is due and payable on the third anniversary of the issue date. The Amber Investments Note and the amounts
payable thereunder are unsecured obligations of the Company and shall be senior in right of payment and otherwise to all indebtedness,
as provided in the Amber Investments Note.
At any time after the first anniversary of
the issue date, the holder may require the Company, upon at least 30 business days’ written notice, to redeem all or any
portion of the Amber Investments Note. The portion of the Amber Investments Note subject to redemption will be redeemed by the
Company in cash.
The Amber Investments Note is convertible into
common units of the Company. Pursuant to the terms of the Amber Investments Note, Amber Investments has the right, at its option,
to convert any portion of the outstanding and unpaid Conversion Amount into common units in accordance with the provisions of the
Amber Investments Note at the Conversion Rate. The number of common units issuable upon conversion of any Conversion Amount will
be determined by dividing (x) such Conversion Amount by (y) $0.10 (subject to adjustment as set forth in the Amber Investments
Note). The balance of the note as of June 30, 2019 and December 31, 2018 was $200,000. Interest expense for six months ended
June 30, 2019 totaled approximately $13,315, of which $1,315 is included in accrued interest as of June 30, 2019.
K & S Pride Note
On February 19, 2019, the Company issued a
senior convertible promissory note in the principal amount of $200,000 (the “K & S Pride Note”) to K & S Pride
Inc. (“K & S Pride”). The principal amount due under the K & S Pride Note bears interest at the rate of 18%
per annum. The principal amount and accrued but unpaid interest (to the extent not converted in accordance with the terms of the
K & S Pride Note) is due and payable on the third anniversary of the issue date. The K & S Pride Note and the amounts payable
thereunder are unsecured obligations of the Company and shall be senior in right of payment and otherwise to all indebtedness,
as provided in the K & S Pride Note.
At any time after the first anniversary of
the issue date, the holder may require the Company, upon at least 30 business days’ written notice, to redeem all or any
portion of the K & S Pride Note. The portion of the K & S Pride Note subject to redemption will be redeemed by the Company
in cash.
The K & S Pride Note is convertible into
common units of the Company. Pursuant to the terms of the K & S Pride Note, K & S Pride has the right, at its option, to
convert any portion of the outstanding and unpaid Conversion Amount into common units in accordance with the provisions of the
K & S Pride Note at the Conversion Rate. The number of common units issuable upon conversion of any Conversion Amount will
be determined by dividing (x) such Conversion Amount by (y) $0.10 (subject to adjustment as set forth in the K & S Pride Note).
The balance of the note as of June 30, 2019 and December 31, 2018 was $200,000. Interest expense for six months ended June 30,
2019 totaled approximately $12,000, of which $715 is included in accrued interest as of June 30, 2019.
Surplus Depot Note
On February 20, 2019, the Company issued a
senior convertible promissory note in the principal amount of $200,000 (the “Surplus Depot Note”) to Surplus Depot
Inc. (“Surplus Depot”). The principal amount due under the K & S Pride Note bears interest at the rate of 18% per
annum. The principal amount and accrued but unpaid interest (to the extent not converted in accordance with the terms of the Surplus
Depot Note) is due and payable on the third anniversary of the issue date. The Surplus Depot Note and the amounts payable thereunder
are unsecured obligations of the Company and shall be senior in right of payment and otherwise to all indebtedness, as provided
in the Surplus Depot Note.
At any time after the first anniversary of
the issue date, the holder may require the Company, upon at least 30 business days’ written notice, to redeem all or any
portion of the Surplus Depot Note. The portion of the Surplus Depot Note subject to redemption will be redeemed by the Company
in cash.
The Surplus Depot Note is convertible into
common units of the Company. Pursuant to the terms of the Surplus Depot Note, Surplus Depot has the right, at its option, to convert
any portion of the outstanding and unpaid Conversion Amount into common units in accordance with the provisions of the Surplus
Depot Note at the Conversion Rate. The number of common units issuable upon conversion of any Conversion Amount will be determined
by dividing (x) such Conversion Amount by (y) $0.10 (subject to adjustment as set forth in the Surplus Depot Note). The balance
of the note as of June 30, 2019 and December 31, 2018 was $200,000. Interest expense for six months ended June 30, 2019 totaled
approximately $12,822, of which $222 is included in accrued interest as of June 30, 2019.
The following is a summary of convertible notes payable activity
for the six months ended June 30, 2019:
|
Balance at December 31, 2018
|
$ 25,000
|
|
New borrowings
|
1,000,000
|
|
Balance at June 30, 2019
|
$1,025,000
|
NOTE 7: PARTNERS’ DEFICIT
During the six months ended June 30, 2019,
the Company granted 578,724 common units to board members and consultants. The Company recorded the fair value of the units of
$34,723, based on the closing price of the units on the grant date, as compensation expense for the six months ended June 30, 2019.
NOTE 8: COMMITMENTS AND CONTINGENCIES
Lease Agreement
As a result of the July 2016 acquisition, the Company negotiated
a three-year lease for its office and warehouse facility. The lease requires monthly payments as follows:
|
December 15, 2018 to June 14, 2019
|
$10,190
|
|
June 15, 2019 to November 15, 2019
|
$10,690
|
The Company recorded a right to use obligation
equal to the present value of remaining payments of minimum required lease payments which totaled $31,312 as of June 30, 2019,
all of which is payable within one year.
The Company amortized $47,516 of the right to use asset during the
six months ended June 30, 2019.
Rent expense for the six months ended June 30, 2018 was $52,806.
Legal Matters
From time to time, we may be involved in litigation
relating to claims arising out of our operations in the normal course of business. There are no pending or threatened lawsuits
that could reasonably be expected to have a material effect on the results of our operations and there are no proceedings in which
any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material
interest adverse to our interest.
NOTE 9: CONCENTRATION OF CREDIT RISK
Five customers accounted for approximately 13%, 14%, 15%, 18%, and
23%, respectively, as of total customer receivables as of June 30, 2019.
NOTE 10: SUBSEQUENT EVENTS
On July 5, 2019, the Company issued a promissory
note in the principal amount of $100,001 (the “July 2019 Frija Note”) to Kevin Frija, who is the Company’s Chief
Executive Officer, President, principal financial officer, principal accounting officer and Chairman of the Board, and a significant
stockholder of the Company. The principal amount due under the July 2019 Frija Note bears interest at the rate of 24% per annum,
and the July 2019 Frija Note permits Mr. Frija to deduct one ACH payment from the Company’s bank account in the amount of
$500 per business day until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued
interest is due on July 5, 2020. The July 2019 Frija Note is unsecured.
On July 29, 2019,
the Company entered into a Loan Agreement (the “Loan Agreement”) dated July 15, 2019 with Lendistry, LLC (“Lendistry”).
Pursuant to the terms of the Loan Agreement, Lendistry agreed to loan the Company $250,000. In exchange, the Company agreed to
pay Lendistry $250,000, in addition to interest payable on the unpaid principal, such that the aggregate amount due to Lendistry
is $312,500 (the “Final Loan Amount”). The Final Loan Amount must be repaid by July 25, 2020. Pursuant to the
terms of the Loan Agreement, the Company agreed to remit the Final Loan Amount to Lendistry as follows: (1) through the debit of
a deposit account established by the Company in the amount of $1,240 weekly, and (2) by authorizing and directing a processor acceptable
to Lendistry to pay Lendistry each day an amount of cash equal to 11% of all receivables arising from credit card payments by the
Company’s customers.