The Company entered into a secured, 36-month promissory note with VPR Brands L.P. for $582,260 on September 6, 2018. The note is composed of a principal amount of $500,000 (the “Promissory Note”) and an outstanding balance from prior secured notes of $82,260 (the “Note”). The Note bears an interest rate of 7%, which payments thereunder are $4,141 weekly, with such payments commencing as of September 14, 2018. The Company records all proceeds related to the interest of the Note as interest income as proceeds are received.
A summary of the Note as of September 30, 2018 is presented below:
Description Due Date Interest Rate Loan Amount Proceeds Remaining Balance
Promissory Note 9/6/2021 7.0 % $ 582,260 $ 12,422 $ 572,176
For the three months ended September 30, 2018, the Company had a benefit of $82,260 related to the reversal of the outstanding valuation allowance reserve from prior notes receivable, recorded to other income in the Consolidated Statement of Operations.
For the nine months ended September 30, 2018, the company had a reversal of the valuation allowance reverse and notes receivable collections of $469,760 recorded
Stock Options
During the three months ended September 30, 2018 and 2017, the Company recognized stock-based compensation of $0.1 million and $2.0 million, respectively, in connection with the amortization of stock options, net of recovery of stock-based charges for forfeited unvested stock options. During the nine months ended September 30, 2018 and 2017, the Company recognized stock-based compensation of $1.3 million and $5.3 million, respectively. Stock-based compensation expense is included as part of selling, general and administrative expense in the accompanying consolidated statements of operations.
At September 30, 2018, the amount of unamortized stock-based compensation expense associated with the unvested stock options granted to employees, directors and consultants was approximately $0.1 million, which will be amortized over a weighted average period of 0.21 years. At December 31, 2017, the amount of unamortized stock-based compensation expense associated with unvested stock options granted to employees, directors and consultants was approximately $1.3 million, which will be amortized over a weighted average period of 0.43 years.
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Legal Proceedings
From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of our business. With respect to legal costs, we record such costs as incurred.
Employment Agreements
Jeffrey Holman
On August 13, 2018, the Company amended and restated its existing employment agreement with Jeffrey Holman, the Company’s Chief Executive Officer. The employment agreement is for an additional three year term and provides for an annual base salary of?$450,000 and a target bonus for 2018 only in an amount ranging from 20% to 200% of his base salaries subject to the Company meeting certain earnings before interest, taxes depreciation and amortization performance milestones. Mr. Holman is entitled to receive severance payments, including two years of his then base salary and other benefits in the event of a change of control, termination by the Company without cause, termination for good reason by the executive or non-renewal by the Company. Mr. Holman was also granted 11 billion shares of restricted common stock on the condition that 11 billion of his options to purchase Company common stock are forfeited. This restricted stock will vest one year following the date of issuance provided that the grantee remains an employee of the Company through each applicable vesting date.
John Ollet
Effective as of August 13, 2018, the Company entered into an amendment to the existing employment agreement with the Company’s Chief Financial Officer, John Ollet. Mr. Ollet will continue to be employed as the Company’s Chief Financial Officer for an additional one year extension period through December 12, 2020. Mr. Ollet will receive a base salary of $250,000 for this additional year. Mr. Ollet was also granted 3 billion shares of restricted common stock. This restricted stock will vest one year following the date of issuance provided that the grantee remains an employee of the Company through each applicable vesting date.
Christopher Santi
Effective as of August 13, 2018, the Company entered into an amendment to the existing employment agreement with the Company’s President and Chief Operating Officer, Christopher Santi. Mr. Santi will continue to be employed as the Company’s President and Chief Operating Officer for an additional one year extension period through January 29, 2021. Mr. Santi will receive a base salary of $330,000 for this additional year. The severance pay period for termination without cause was increased to up to 18 months based on time of service. Mr. Santi was also granted 8 billion shares of restricted common stock on the condition that 8 billion of his options to purchase Company common stock are forfeited. This restricted stock will vest one year following the date of issuance provided that the grantee remains an employee of the Company through each applicable vesting date.
Exclusive Distribution Agreement
On August 17, 2018, the Company entered into an Exclusive Distribution Agreement with MJ Holdings, Inc. (“MJNE”). The Agreement grants MJNE the right to exclusively sell and distribute the Company’s cannabis and CBD patented and patent pending quartz ‘Q-Cup’ technology (the “Q-cups”) in the Nevada territory. Pursuant to the terms of the Agreement, MJNE agreed to purchased $2,000,000 in Q-Cups from the Company and MJNE has delivered the full purchase price in advance. The initial term of the Agreement is for one year with additional successive one-year renewals, subject to certain standard termination provisions. The Company has the option to terminate the Agreement on 30 days’ written notice if MJNE fails to purchase a sufficient minimum quantity of Q-cups from the Company. For each renewal term, MJNE’s minimum purchase obligation for the Q-cups is currently $6 million in required increments of at least $500,000 per month, subject to mutually agreed upon adjustments based upon the first year sales.
