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
SEPTEMBER 30, 2020
(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.
The Company also designs, develops, markets and distributes products (the HoneyStick brand of vaporizers and the Goldline CBD products)
oriented toward the cannabis markets. This allows us to capitalize on the rapidly growing expansion within the cannabis markets.
The Company is also identifying electronic cigarette companies that may be infringing our patents and exploring options to license
and or enforce our patents.
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 (“GAAP”) 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, 2019. The results of operations for the three and nine months ended September 30, 2020 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 GAAP 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 September 30, 2020 and December 31, 2019, the Company had recorded allowance for bad debt of $112,017.
Inventory
Inventory consisting of finished products is
stated at the lower of cost or net realizable value. At each balance sheet date, the Company evaluates its ending inventories for
excess quantities and obsolescence. This evaluation primarily includes an analysis of forecasted demand in relation to the inventory
on hand, among consideration of other factors. The physical condition (e.g., age and quality) of the inventories is also considered
in establishing its valuation. Based upon the evaluation, provisions are made to reduce excess or obsolete inventories to their
estimated net realizable values. Once established, write-downs are considered permanent adjustments to the cost basis of the respective
inventories. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from the amounts
that the Company may ultimately realize upon the disposition of inventories if future economic conditions, customer inventory levels,
product discontinuances, sales return levels or competitive conditions differ from the Company’s estimates and expectations.
As of September 30, 2020 and December 31, 2019, the Company had recorded a provision for obsolescence of $72,614 and $71,736, respectively.
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
$387,000 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. 100% of the Company’s revenues for the
nine months ended September 30, 2020 and 2019, were recognized when the customer obtained control of the Company’s product,
which occurred at a point in time, typically upon delivery to the customer.
Unit-Based Compensation
Unit-based payments to employees, including
grants of employee stock options are recognized as compensation expense in the financial statements based on their fair values,
in accordance with FASB Accounting Standards Codification (“ASC”) Topic 718. That expense is recognized over the period
during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually
the vesting period). The Company had no common stock options or common stock equivalents granted or outstanding for all periods
presented. The Company may issue units as compensation in future periods for employee services.
The Company may issue restricted units to consultants
for various services. Cost for these transactions will be measured at the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is to be measured
at the earlier of: (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is
reached, or (ii) the date at which the counterparty's performance is complete. The Company may issue units as compensation in future
periods for services associated with the registration of the common units.
Convertible Instruments
The Company evaluates and accounts for
conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.
Applicable GAAP require companies to
bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments
according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded
derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the
hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value
under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms
as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible
instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments)
as follows: The Company records, when necessary,
discounts to convertible notes for the
intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying
common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts
under these arrangements are amortized over the term of the related debt to their stated date of redemption.
The Company accounts for the conversion
of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity
linked derivatives are removed at their carrying amounts and the units issued are measured at their then-current fair value, with
any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.
Fair Value
The carrying values of the Company’s
notes payables, convertible notes, and accounts payable and accrued expenses approximates their fair values because of the short-term
nature of these instruments.
Basic and Diluted Net Loss Per Unit
The Company computes net loss per unit in accordance
with FASB ASC 260, “Earnings per Share”. ASC 260 requires presentation of both basic and diluted earnings per share
(“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing net loss available to common
shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible
notes, using the if-converted method. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive.
10,676,133 shares underlying convertible notes were excluded from the calculation of diluted loss per share for the nine months
ended September 30, 2020 and 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 Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s
accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance
for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact
will not be material to its financial position, results of operations, and cash flow when implemented.
NOTE 3: GOING CONCERN
The accompanying condensed financial
statements have been prepared on a going concern basis, which contemplates the Company will continue to realize its assets and
discharge its liabilities in the normal course of business. The Company incurred a net loss of $574,596 for the nine months ended
September 30, 2020 and has an accumulated deficit of $10,352,990 and a working capital deficit of $1,904,982 at September 30, 2020.
The continuation of the Company as a going concern is dependent upon, among other things, the continued financial support from
its common unit holders, the ability of the Company to obtain necessary equity or debt financing, and the attainment of profitable
operations. These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern.
There is no assurance that the Company will be able to generate
sufficient revenues in the future. These
financial statements do not give any effect to any adjustments that would be necessary should the Company be unable to continue
as a going concern.
In March 2020, the World Health Organization
declared the novel coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. The
spread of COVID-19 has affected segments of the global economy and may affect our operations, including the potential interruption
of our supply chain. We are monitoring this situation closely, and although operations have not been materially affected by the
COVID-19 outbreak to date, the ultimate duration and severity of the outbreak and its impact on the economic environment and our
business is uncertain.
The spread of COVID-19, or another infectious
disease, could also negatively affect the operations at our third-party manufacturers, which could result in delays or disruptions
in the supply of our products. In addition, we may take temporary precautionary measures intended to help minimize the risk of
the virus to our employees, including temporarily requiring all employees to work remotely, suspending all non-essential travel
worldwide for our employees, and discouraging employee attendance at industry events and in-person work-related meetings, which
could negatively affect our business.
The extent to which COVID-19 impacts
our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including
the duration of the outbreak, new information which may emerge concerning the severity of COVID-19 and the actions to contain the
coronavirus or treat its impact, among others. In particular, the continued spread of the coronavirus globally could adversely
impact our operations, including among others, our manufacturing and supply chain, sales and marketing and could have an adverse
impact on our business and our financial results. The COVID-19 outbreak is a widespread health crisis that has adversely affected
the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products
and likely impact our operating results.
The Company plans to pursue equity funding
to expand its brand. Through equity funding and the current operations, including the acquisition of the Vapor line of business,
the Company expects to meet its current capital needs. There can be no assurance that the Company will be able raise sufficient
working capital. If the Company is unable to raise the necessary working capital through the equity funding it will be forced
to continue relying on cash from operations in order to satisfy its current working capital needs.
NOTE 4: NOTES PAYABLE
Notes Payable- Unrelated Parties
On September 6, 2018, the Company issued the
Amended and Restated Secured Promissory Note in the principal amount of $582,260 (the “A&R Note”). The principal
amount of the A&R Note represents (i) $500,000 which Healthier Choices Management Corp. (HCMC) loaned to the Company on September
6, 2018, and (ii) $82,260, which represents the aggregate amount owed by the Company under the Original Notes as of September 6,
2018. The A&R Note, which has a maturity date of September 6, 2021, had the effect of amending and restating the Note and bears
interest at the rate of 7% per annum. Pursuant to the terms of the A&R Note, the Company agreed to pay HCMC 155 weekly payments
of $4,141, commencing on September 14, 2018 and ending on September 14, 2021, and a balloon payment for all remaining accrued interest
and principal in the 156th week. The Company at its option has the right, by giving 15 business days’ advance notice to HCMC,
to prepay a portion or all amounts outstanding under the A&R Note without penalty or premium. The balance of the note as of
September 30, 2020 was $314,247.
On July 22, 2019, the Company issued a promissory
note in the principal amount of $250,000 (the “Lendistry Note”) to Lendistry, LLC. The principal amount due under the
Lendistry Note bears interest at the rate of 24% per annum, and permits Lendistry, LLC to deduct weekly ACH payments from the Company’s
bank account in the
amount of $1,240 plus up to 11% of Credit Card
Sales until the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due
on July 25, 2025. The Lendistry Note is unsecured. The balance of the note as of September 30, 2020 was $36,363.
On September 13, 2019, the Company issued a
promissory note in the principal amount of $95,000 (“BlueVine Note”) to BlueVine Capital, Inc. The principal amount
due under the BlueVine Note bears interest at the rate of 27% per annum, and required weekly payments of $4,062 until the principal
amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest was due on July 13, 2025. The BlueVine
Note is unsecured and was paid in full during the nine months ended September 30, 2020. The balance of the note as of September
30, 2020 was $0.
On September 17, 2019, the Company issued a
promissory note in the principal amount of $100,000 (the “Kabbage Note”) to Kabbage, Inc. The principal amount due
under the Kabbage Note bears interest at an annual rate of 37%, and requires monthly payments of principal and interest of $10,083
through maturity in September 2020. The Kabbage Note is unsecured. The balance of the note as of September 30, 2020 was $60,971.
On September 24, 2019, the Company entered
into a working capital account agreement with Paypal Working Capital (“Paypal Note”), pursuant to which the Company
borrowed $37,000, requiring repayment in amounts equal to 30% of sales collections processed through Paypal, but no less than $4,143,
every 90 days, until the total amount of payments equals $41,435. The balance of the loan as of September 30, 2020 is $41,435.
On December 23, 2019, the Company issued a
promissory note in the principal amount of $23,300 (the “Kabbage Note #2”) to Kabbage, Inc. The principal amount due
under the Kabbage Note bears interest at an annual rate of 37%, and requires monthly payments of principal and interest of $2,349
through maturity in December 2020. The Kabbage Note #2 is unsecured. The balance of the note as of September 30, 2020 was $16,085.
Payroll Protection Program Loan
The Company’s long-term debt is comprised
of promissory notes pursuant to the Paycheck Protection Program and Economic Injury Disaster Loan (see below), under Coronavirus
Aid, Relief and Economic Security Act (“CARES ACT”) enacted on March 27, 2020 and revised under the provisions of the
PayCheck Protection Flexibility Act of 2020 on June 5, 2020 and administered by the United States Small Business Administration
(“SBA”).
In April 2020, the Company received a loan
in the amount of $203,662 under the Payroll Protection Program (“PPP Loan”). The loan accrues interest at a rate of
1% and has an original maturity date of two years which can be extended to five years 2 by mutual agreement of the Company and
SBA. The PPP loan contains customary events of default relating to, among other things, payment defaults and breaches of representations
and warranties.
Under the terms of the loan, a portion or all
of the loan is forgivable to the extent the loan proceeds are used to fund qualifying payroll, rent and utilities during a designated
twenty-four week period. Payments are deferred until the SBA determines the amount to be forgiven. The Company intends to utilize
the proceeds of the PPP loan in a manner which will enable qualification as a forgivable loan. However, no assurance can be provided
that all or any portion of the PPP loan will be forgiven. The balance on this PPP loan was $203,662 as of September 30, 2020 and
has been classified as a long-term liability in notes payable, less current portion on the accompanying balance sheets.
Economic Injury Disaster Loan
On July 9, 2020 and June 24, 2020, the Company
received an Economic Injury Disaster Loan (“EIDL”) in the aggregate amount of $159,900, payable in monthly installments
of principal and interest totaling $731 over 30 years beginning in June 2021. The note accrues interest at an annual rate of 3.75%.
The loan is secured by all tangible
and intangible property. The balance on this
EIDL was $159,900 as of September 30, 2020 and has been classified as a long-term liability in notes payable, less current portion
on the accompanying balance sheets.
The following is a summary of notes payable activity for the nine
months ended September 30, 2020:
Balance at December 31, 2019
Proceeds from notes payable
|
$ 749,156
363,562
|
Repayments of notes payable
|
(280,055)
|
Balance at September 30, 2020
|
$832,663
|
Current portion
|
$469,101
|
Notes payable, less current portion
|
$363,562
|
NOTE 5: NOTES PAYABLE – RELATED PARTIES
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 was
due on February 1, 2020. The February 2019 Frija Note was paid in full during the nine months ended September 30, 2020. The February
2019 Frija Note is unsecured and had a balance as of September 30, 2020 of $0.
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 was due on June 14, 2020. The June 2019 Frija/Hoff
Note is unsecured. The June 2019 Frija/Hoff Note was paid in full during the nine months ended September 30, 2020. The June 2019
Frija/Hoff Note is unsecured and had a balance as of September 30, 2020 of $0.
On July 5, 2019, the Company issued a Note
in the principal amount of $100,001 (“July 2019 Frija Note”) to Kevin Frija, the Company’s Chief Executive Officer,
President, principal financial officer, principal accounting officer and Chairman of the Board, and a significant stockholder of
the Company. The principal amount due under the July 2019 Frija Note bears interest at the rate of 24% per annum, and permits Mr.
Frija to deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal
amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due in July 2020. The July 2019
Frija Note is unsecured and had a balance as of September 30, 2020 of $7,557.
On October 7, 2019, the Company issued a Note
in the principal amount of $100,001 (“October 2019 Frija Note”) to Kevin Frija, the Company’s Chief Executive
Officer, President, principal financial officer, principal accounting officer and Chairman of the Board, and a significant unitholder
of the Company. The principal amount due under the October 2019 Frija Note bears interest at the rate of 24% per annum, and permits
Mr. Frija to deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal
amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due in October 2020. The October
2019 Frija Note is unsecured and had balance as of September 30, 2020 of $2,476.
On November 8, 2019 and November 15, 2019,
the Company issued two separate notes with an aggregate principal amount of $200,002 (“November 2019 Frija Notes”)
to Kevin Frija, the Company’s Chief Executive Officer, President, principal financial officer, principal accounting officer
and Chairman of the Board, and a significant unitholder of the Company. The principal amount due under the November 2019 Frija
Note bears interest at the rate of 24% per annum, and permits Mr. Frija to deduct one ACH payment from the Company’s bank
account in the amount of $500 per business day until the principal amount due and accrued interest is repaid. Any unpaid principal
amount and any accrued interest is due in November 2020. The November 2019 Frija Notes are unsecured and had an aggregate balance
as of September 30, 2020 of $20,490.
On December 9, 2019 and December 16,
2019, the Company issued two separate notes with an aggregate principal amount of $200,002 (“December 2019 Frija Notes”)
to Kevin Frija, the Company’s Chief Executive Officer, President, principal financial officer, principal accounting officer
and Chairman of the Board, and a significant unitholder of the Company. The principal amount due under the December 2019 Frija
Notes bears interest at the rate of 24% per annum, and permits Mr. Frija to deduct one ACH payment from the Company’s bank
account in the amount of $500 per business day until the principal amount due and accrued interest is repaid. Any unpaid principal
amount and any accrued interest is due in December 2020. The December 2019 Frija Notes is unsecured. The balance of the December
2019 Frija Notes as of September 30, 2020 was $56,059.
On January 10, 2020, the Company issued a promissory
note in the principal amount of $100,001 (“January 2020 Frija Note”) to Kevin Frija, who is the Company’s Chief
Executive Officer, President, principal financial officer, principal accounting officer and Chairman of the Board, and a significant
unitholder of the Company. The principal amount due under the Note bears interest at the rate of 24% per annum, and the Note permits
Mr. Frija to deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal
amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on January 10, 2021. The
Note is unsecured. The Note is unsecured. The balance of the note as of September 30, 2020 was $43,106.
On February 18, 2020, the Company issued a
promissory note in the principal amount of $100,001 (“February 2020 Frija Note”) to Kevin Frija, who is the Company’s
Chief Executive Officer, President, principal financial officer, principal accounting officer and Chairman of the Board, and a
significant unitholder of the Company. The principal amount due under the February 2020 Frija Note bears interest at the rate of
24% per annum, and the February 2020 Frija Note permits Mr. Frija to deduct one ACH payment from the Company’s bank account
in the amount of $500 per business day until the principal amount due and accrued interest is repaid. Any unpaid principal amount
and any accrued interest is due on February 18, 2021. The February 2020 Frija Note is unsecured and had balance as of September
30, 2020 was $49,755.
On March 17, 2020, the Company received $90,000
pursuant to a promissory note in the principal amount of $100,001 (“March 2020 Frija Note”) to Kevin Frija, who is
the Company’s Chief Executive Officer, President, principal financial officer, principal accounting officer and Chairman
of the Board, and a significant unitholder of the Company. The remaining amount of principal of $10,001 was received in April 2020.
The principal amount due under the March 2020 Frija Note bears interest at the rate of 24% per annum, and the March 2020 Frija
Note permits Mr. Frija to deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until
the principal amount due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on April 6,
2021. The March 2020 Frija Note is unsecured and had a balance as of September 30, 2020 was $59,873.
On June 18, 2020 and June 22, 2020, the Company
issued two separate promissory notes with an aggregate principal amount of $130,000 (the “June 2020 Notes”) to Mr.
Frija, who is the Company’s Chief Executive Officer, President, principal financial officer, principal accounting officer
and Chairman of the Board, and a significant unitholder of the Company. The principal amount due under the June 2020 Notes bears
interest at the rate of 24% per annum,
and the June 2020 Notes permits Mr. Frija to
deduct one ACH payment from the Company’s bank account in the amount of $500 per business day until the principal amount
due and accrued interest is repaid. Any unpaid principal amount and any accrued interest is due on June 22, 2021. During August
2020, there was an additional $70,000 issuance to the June 2020 Notes. The June 2020 Notes are unsecured and had a balance as of
September 30, 2020 of $175,769.
On September 17, 2020 and September 25, 2020,
the Company issued two separate promissory notes with an aggregate principal amount of $155,000 (the “September 2020 Notes”)
to Mr. Frija, who is the Company’s Chief Executive Officer, President, principal financial officer, principal accounting
officer and Chairman of the Board, and a significant unitholder of the Company. The principal amount due under the September 2020
Notes bears interest at the rate of 24% per annum, and the September 2020 Notes permits Mr. Frija to deduct one ACH payment from
the Company’s bank account in the amount of $500 per business day until the principal amount due and accrued interest is
repaid. Any unpaid principal amount and any accrued interest is due on September 22, 2021. The September 2020 Frija Note is unsecured
and had balance as of September 30, 2020 was $155,000.
The following is a summary of notes payable – related parties
activity for the nine months ended September 30, 2020:
Balance at December 31, 2019
|
$577,008
|
New borrowings
|
655,002
|
Repayments of principal
|
(661,924)
|
Balance at September 30, 2020
|
$570,086
|
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 September 30, 2020, and
December 31, 2019, the balance outstanding was $25,000.
Brikor Note
On February 15, 2019, the Company issued a
senior convertible promissory note in the principal amount of $200,000 to Brikor LLC. The principal amount due under the Brikor
Note bears interest at the rate of 18% per annum. The principal amount and accrued but unpaid interest (to the extent not converted
in accordance with the terms of the Brikor Note) is due and payable on the third anniversary of the issue date. The Brikor Note
and the amounts payable thereunder are unsecured obligations of the Company and 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 September 30, 2020 and December 31, 2019 was $200,000.
Interest expense for nine months ended September 30, 2020 totaled $27,000, of which $4,266 is included in accounts payable and
accrued expenses as of September 30, 2020.
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 September 30, 2020 and December 31, 2019 was $200,000. Interest expense for nine months ended
September 30, 2020 totaled approximately $27,000, of which $4,600 is included in accounts payable and accrued as of September 30,
2020.
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 September 30, 2020 and December 31, 2019 was $200,000. Interest expense for nine months
ended September 30, 2020 totaled approximately $27,000, of which $4,266 is included in accounts payable and accrued as of September
30, 2020.
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 September 30, 2020 and December 31, 2019 was $200,000. Interest expense for nine months ended September
30, 2020 totaled approximately $27,000, of which $3,900 is included in accounts payable and accrued as of September 30, 2020.
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 September 30, 2020 and December 31, 2019 was $200,000. Interest expense for nine months ended September 30, 2020
totaled approximately $27,000, of which $3,900 is included in accounts payable and accrued as of September 30, 2020.
NOTE 7: PARTNERS’ DEFICIT
Amendment to Partnership Agreement
On January 23, 2020, the Company executed the
Second Amendment (the “Second Amendment”) to Limited Partnership Agreement (the “Agreement”) in order to
create a new class of Company securities titled Class A preferred units.
Pursuant to Section 5.6 of the Agreement, Soleil
Capital Management LLC, the Company’s general partner (the “General Partner”) may, without the approval of the
Company’s limited partners, issue additional Company securities for any Company purpose at any time and from time to time
for such consideration and on such terms and conditions as the General Partner shall determine in its sole discretion, all without
the approval of any limited partners, and that each additional Company interest authorized to be issued by the Company may be issued
in one or more classes, or one of more series of any such classes, with such designations, preferences, rights, powers and duties
as shall be fixed by the General Partner in its sole discretion. Pursuant to Section 13.1 of the Agreement, the General Partner
may, without the approval of any partner, any unitholder or any other person, amend any provision of the Agreement to reflect any
amendment expressly permitted in the Agreement to be made by the General Partner acting along, therefore including the creation
of a new class of Company securities.
The designation, powers, preferences and rights
of the Class A preferred units and the qualifications, limitations and restrictions thereof are contained in the Second Amendment,
and are summarized as follows:
Number and Stated Value. The number
of authorized Class A preferred units is 1,000,000. Each Class A preferred unit will have a stated value of $2.00 (the “Stated
Value”).
Rights. Except as set forth in
the Second Amendment, each Class A preferred unit has all of the rights, preferences and obligations of the Company’s common
units as set forth in the Agreement and shall be treated as a common unit for all other purposes of the Agreement.
Dividends.
Rate.
Each Class A preferred unit is entitled to receive an annual dividend at a rate of 8% per annum on the Stated Value., which shall
accrue on a monthly basis at the rate of 0.6666% per month, non-compounding, and shall be payable in cash within 30 days of each
calendar year for which the dividend is payable.
Liquidation.
In the event of a liquidation, dissolution or winding up of the Company, a merger or consolidation of the Company wherein the Company
is not the surviving entity, or a sale of all or substantially all of the assets of the Company, each Class A unit will be entitled
to receive, prior an in preference to any distribution of any of the assets or surplus funds of the Company to the holders of common
units or any other Company securities ranking junior to the Class A preferred units, or to the General Partner, an amount per Class
A preferred unit equal to any accrued but unpaid dividends. If, upon such an event and after the payment of preferential amounts
required to be paid to holders of any Company securities having a ranking upon liquidation senior to the Class A preferred units,
the assets of the Company available for distribution to the partners of the Company are insufficient to provide for both the payment
of the full Class A liquidation preference and the preferential amounts (if any) required to be paid to holders of any other Company
securities having a ranking upon liquidation pari passu with the Class A preferred units, such assets as are so
available shall be distributed among the Class A preferred units and the holders of any other series of Company securities having
a ranking upon liquidation pari passu with the Class A preferred units in proportion to the relative aggregate
preferential amount each such holder is otherwise entitled to receive.
Conversion Rights.
Conversion.
Upon notice, a holder of Class A preferred units has the right, at its option, to convert all or a portion of the Class A preferred
units held into fully paid and nonassessable Company common units.
Conversion
Price. Each Class A preferred unit is convertible into a number of common units equal to (x) the Stated Value plus any accrued
and unpaid dividends, divided by (y) the Conversion Price (as hereinafter defined). The “Conversion Price” means 85%
multiplied by the VWAP (as defined in the Second Amendment), representing a discount rate of 15%.
Conversion
Limitation. In no event shall a holder of Class A preferred units be entitled to convert any of the Class A preferred units
in excess of that number of Class A preferred units upon conversion of which the sum of (1) the number of common units beneficially
owned by such holder and its affiliates (other than common units which may be deemed beneficially owned through the ownership of
the unconverted Class A preferred units or the unexercised or unconverted portion of any other security of the Company subject
to a limitation on conversion or exercise analogous to the limitations contained herein), and (2) the number of common units issuable
upon the conversion of all Class A preferred units held by such holder would result in beneficial ownership by the holder and its
affiliates of more than 4.99% of the outstanding common units.
Equity Purchase Agreement
On February 19, 2020 (the “Execution
Date”), the Company entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with DiamondRock,
LLC (the “Investor”) pursuant to which, upon the terms and subject to the conditions thereof, the Investor committed
to purchase shares of the Company’s common units (the “Put Shares”) at an aggregate purchase price of up to $5,000,000
(the “Maximum Commitment Amount”) over the course of the commitment period.
Pursuant to the terms of the Equity Purchase
Agreement, the commitment period will commence upon the initial effective date of a Form S-1 Registration Statement planned to
be filed to register the Put Shares in accordance with the Registration Rights Agreement as further described below and will end
on the earlier of (i) the date on which the Investor has purchased Put Shares from the Company pursuant to the Equity Purchase
Agreement equal to the Maximum Commitment Amount, (ii) the date on which there is no longer an effective registration statement
for the
Put Shares, (iii) 24 months after the initial
effectiveness of the Registration Statement planned to be filed to register the Put Shares in accordance with the Registration
Rights Agreement as further described below, or (iv) written notice of termination by the Company to the Investor (which will not
occur at any time that the Investor holds any of the Put Shares).
From
time to time over the term of the Equity Purchase Agreement, commencing on the date on which a registration statement registering
the Put Shares (the “Registration Statement”) becomes effective, the Company may, in its sole discretion, provide the
Investor with a put notice (each a “Put Notice”) to purchase a specified number of the Put Shares (each a “Put
Amount Requested”) subject to the limitations discussed below and contained in the Equity Purchase Agreement. Within
two (2) trading days of the date that the Put Notice is deemed delivered (“Put Date”) pursuant to terms of the Equity
Purchase Agreement, the Company shall deliver, or cause to be delivered, to the Investor, the estimated amount of Put Shares equal
to the investment amount (“Investment Amount”) indicated in the Put Notice divided by the “Initial Pricing”
per share, as such term is defined in the Equity Purchase Agreement (the “Estimated Put Shares”) as DWAC Shares. Within
two (2) trading days following the Put Date, the Investor shall pay the Investment Amount to the Company by wire transfer of immediately
available funds.
At the
end of the five (5) trading days following the clearing date associated with the applicable Put Notice (“Valuation Period”),
the purchase price (the “Purchase Price”) shall be computed as 85% of the average daily volume weighted average price
of the Company’s common units during the Valuation Period and the number of Put Shares shall be determined for a particular
put as the Investment Amount divided by the Purchase Price. If the number of Estimated Put Shares (Investment Amount
divided by Initial Pricing) initially delivered to the Investor is greater than the number of Put Shares (Investment Amount divided
by Purchase Price) purchased by the Investor pursuant to such Put, then, within two (2) trading days following the end of the Valuation
Period, the Investor shall deliver to the Company any excess Estimated Put Shares associated with such put. If the number of Estimated
Put Shares (Investment Amount divided by Initial Pricing) delivered to the Investor is less than the Put Shares purchased by the
Investor pursuant to a put, then within two (2) trading days following the end of the Valuation Period the Company shall deliver
to the Investor by wire transfer of immediately available funds equal to the difference between the Estimated Put Shares and the
Put Shares issuable pursuant to such put.
The Put Amount Requested pursuant to any single
Put Notice must have an aggregate value of at least $25,000, and cannot exceed the lesser of (i) $250,000, or (ii) 150% of the
average daily trading value of the common units in the five trading days immediately preceding the Put Notice.
In order to deliver a Put Notice, certain conditions
set forth in the Equity Purchase Agreement must be met, as provided therein. In addition, the Company is prohibited from delivering
a Put Notice if: (i) the sale of Put Shares pursuant to such Put Notice would cause the Company to issue and sell to the Investor,
or the Investor to acquire or purchase, a number of shares of the Company’s common units that, when aggregated
with all shares of common units purchased by the Investor pursuant to all prior Put Notices issued under the Equity Purchase Agreement,
would exceed the Maximum Commitment Amount; or (ii) the issuance of the Put Shares would cause the Company to issue and sell to
Investor, or the Investor to acquire or purchase, an aggregate number of shares of common units that would result in the Investor
beneficially owning more than 4.99% of the issued and outstanding shares of the Company’s common units (the “Beneficial
Ownership Limitation”).
If the value of the Put Shares based on the
Purchase Price determined for a particular put would cause the Company to exceed the Maximum Commitment Amount, then within two
(2) trading days following the end of the Valuation Period the Investor shall return to the Company the surplus amount of Put Shares
associated with such put. If the number of the Put Shares (Investment Amount divided by Purchase Price) determined for a particular
put exceeds the Beneficial Ownership Limitation, then within two (2) trading days following the end of the Valuation Period the
Investor shall return to the Company the surplus amount of Put Shares associated with such put. Concurrently, the Company shall
return within two (2) trading days following the end of the respective Valuation Period to the
Investor, by wire transfer of immediately available
funds, the portion of the Investment Amount related to the portion of Put Shares exceeding the Beneficial Ownership Limitation.
Further pursuant to the Equity Purchase Agreement,
the Company agreed that if the Securities and Exchange Commission (the “SEC”) declares the Registration Statement for
the Put Shares effective, then during the 12 month period immediately following the date the SEC declares the Registration Statement
for the Put Shares effective, upon any issuance by the Company or any of its subsidiaries of common units or common units equivalents
for cash consideration, indebtedness or a combination of units thereof (a “Subsequent Financing”), the Investor shall
have the right to participate in up to an amount of the Subsequent Financing (that is not an “Exempt Issuance” as such
term is defined in the Equity Purchase Agreement), equal to 50% of the Subsequent Financing (the “Participation Maximum”)
on the same terms, conditions and price provided for in such Subsequent Financing; provided, however, where (i) the person or persons
through or with whom such Subsequent Financing is proposed to be effected will not agree to such participation by the Investor
and (ii) the Investor will not agree to finance the total amount of such Subsequent Financing in lieu of the person or persons
through or with whom such Subsequent Financing is proposed to be effected, the Investor shall have no right to participate in such
Subsequent Financing.
Further pursuant to the Equity Purchase Agreement,
the Company agreed to reserve a sufficient number of shares of its common units for the Investor pursuant to the Equity Purchase
Agreement and all other contracts between the Company and the Investor.
The Equity Purchase Agreement contains customary
representations, warranties, covenants and conditions for a transaction of this type for the benefit of the parties.
Registration Rights Agreement
On the
Execution Date, the Company also entered into a registration rights agreement (the “Registration Rights Agreement”)
with the Investor pursuant to which the Company is obligated to file the Registration Statement to register the resale of the Put
Shares. Pursuant to the Registration Rights Agreement, the Company must (i) file the Registration Statement within 45 calendar
days from the Execution Date, (ii) use reasonable best efforts to cause the Registration Statement to be declared effective under
the Securities Act of 1933, as amended (the “Securities Act”), within 90 calendar days after the filing thereof, and
(iii) use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act until
all of the Put Shares have been sold thereunder or pursuant to Rule 144.
Pursuant to the Registration Rights Agreement,
the Company agreed to pay all reasonable expenses, other than sales or brokerage commissions, incurred in connection with registrations,
filings or qualifications pursuant to the Registration Rights Agreement, including, without limitation, all registration, listing
and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company.
NOTE 8: COMMITMENTS AND CONTINGENCIES
Lease Agreement
In October 2019, the Company entered into a
5-year lease of approximately 9,819 square feet of warehouse store and office space with an entity of which the Company’s
chief executive officer is an owner. The lease requires base monthly rent of $11,100. The Company has annual options to extend
for one-year, during which period rent will increase 3% annually. Future minimum payment on the lease are as follows:
Years Ending December 31,
|
|
2020 (Remainder)
|
$ 33,300
|
2021
|
133,200
|
2022
|
133,200
|
2023
|
133,200
|
2024
|
122,100
|
Total
|
$555,000
|
At inception of the lease, the Company recorded
a right to use asset and obligation of $378,426, equal to the present value of remaining payments of minimum required lease payments.
The Company amortized $53,494 of the right to use asset during the
nine months ended September 30, 2020.
Rent expense for the nine months ended September 30, 2020 and 2019
was $126,831 and $85,565, respectively.
Legal Matters
From time to time, we may be involved in litigation
relating to claims arising out of our operations in the normal course of business. There are no pending or threatened lawsuits
that could reasonably be expected to have a material effect on the results of our operations and there are no proceedings in which
any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material
interest adverse to our interest.
NOTE 9: SUBSEQUENT EVENTS
On November 2, 2020, the Company issued a promissory
note in the principal amount of $100,001 (the “November 2020 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 November 2020 Note bears interest at the rate of 24% per annum, and the November 2020 Note 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 November 2, 2021. The November
2020 Note is unsecured.