UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2015
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
File Number: 333-185083
VAPIR
ENTERPRISES, INC.
(Exact
Name of Registrant as Specified in Its Charter)
Nevada |
|
27-1517938 |
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
incorporation
or organization) |
|
Identification
No.) |
2365
Paragon Dr., Suite B
San
Jose, California 95131
Telephone:
(800) 841-1022
(Address
and telephone number of Registrant’s principal executive offices)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes ☒
No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ |
|
Accelerated Filer |
☐ |
Non-Accelerated Filer ☐ |
(Do not
check if a smaller reporting company) |
Smaller Reporting Company |
☒ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As
of November 16, 2015, there were 48,466,819 shares of common stock, par value $0.001, outstanding.
VAPIR
ENTERPRISES, INC.
QUARTERLY
REPORT ON FORM 10-Q
For
the Period Ended September 30, 2015
TABLE
OF CONTENTS
|
Page |
PART
1 - FINANCIAL INFORMATION |
|
|
|
|
Item 1. |
Consolidated Financial
Statements (Unaudited) |
2 |
Item 2. |
Management’s
Discussion and Analysis of Financial Condition and Results of Operations |
28 |
Item 3. |
Quantitative and
Qualitative Disclosures About Market Risk |
32 |
Item 4. |
Controls and Procedures |
32 |
|
|
PART
II - OTHER INFORMATION |
|
|
|
|
Item 1. |
Legal Proceedings |
33 |
Item 1A. |
Risk Factors |
33 |
Item 2. |
Unregistered Sales
of Equity Securities and Use of Proceeds |
33 |
Item 3. |
Defaults Upon
Senior Securities |
33 |
Item 4. |
Mine Safety Disclosures |
33 |
Item 5. |
Other Information |
33 |
Item 6. |
Exhibits |
33 |
|
|
SIGNATURES |
34 |
CAUTIONARY
STATEMENT ON FORWARD-LOOKING INFORMATION
This
Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities
Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking
statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements
may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,”
“should,” “would,” “may,” “seek,” “plan,” “might,” “will,”
“expect,” “predict,” “project,” “forecast,” “potential,” “continue”
negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various
underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be
materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We
cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that
the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume
any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements
are found at various places throughout this Report and include information concerning possible or assumed future results of our
operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing
plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations,
business plans and future financial results, and any other statements that are not historical facts.
These
forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are
subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results
to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties
and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or
at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters
addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this Report.
Except
to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result
of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or
otherwise.
CERTAIN TERMS USED IN THIS REPORT
When
this report uses the words “we,” “us,” “our,” and the “Company,” they refer to
Vapir Enterprises, Inc. “SEC” refers to the Securities and Exchange Commission.
VAPIR ENTERPRISES, INC.
September 30, 2015 and 2014
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Consolidated Balance Sheets at September 30, 2015 (Unaudited) and December
31, 2014 |
3 |
|
|
Consolidated Statements of Operations
-
For the Three
and Nine Months Ended September 30, 2015 and 2014 (Unaudited) |
4 |
|
|
Consolidated Statements of Cash Flows
-
For the Nine Months
Ended September 30, 2015 and 2014 (Unaudited) |
5 |
|
|
Notes to the Consolidated Financial Statements (Unaudited) |
6 |
VAPIR
ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
| |
September 30, 2015 | | |
December 31, 2014 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
CURRENT ASSETS: | |
| | | |
| | |
Cash | |
$ | 93,832 | | |
$ | 27,304 | |
Accounts receivable | |
| 3,844 | | |
| 2,588 | |
Inventory | |
| 213,680 | | |
| 110,551 | |
Prepaid expense and other current assets | |
| 24,953 | | |
| - | |
Advances to suppliers | |
| 83,067 | | |
| 67,652 | |
| |
| | | |
| | |
Total Current Assets | |
| 419,376 | | |
| 208,095 | |
| |
| | | |
| | |
OTHER ASSETS: | |
| | | |
| | |
Property and equipment, net | |
| 94,165 | | |
| 3,732 | |
Intangible assets, net | |
| 391,970 | | |
| 442,352 | |
| |
| | | |
| | |
Total Other Assets | |
| 486,135 | | |
| 446,084 | |
| |
| | | |
| | |
Total Assets | |
$ | 905,511 | | |
$ | 654,179 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 187,324 | | |
$ | 236,051 | |
Loan payable | |
| 197,000 | | |
| 197,000 | |
Note payable - current maturities | |
| 19,800 | | |
| 19,800 | |
Customer deposits | |
| 199,934 | | |
| 52,938 | |
Advances from related party | |
| 367,033 | | |
| 136,000 | |
| |
| | | |
| | |
Total Current Liabilities | |
| 971,091 | | |
| 641,789 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES: | |
| | | |
| | |
Note payable, net of current maturities | |
| 10,200 | | |
| 25,050 | |
Derivative liabilities | |
| 232,295 | | |
| - | |
Convertible notes payable, net of debt discount | |
| 163,935 | | |
| - | |
| |
| | | |
| | |
Total Long-term Liabilities | |
| 406,430 | | |
| 25,050 | |
| |
| | | |
| | |
Total Liabilities | |
| 1,377,521 | | |
| 666,839 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS' DEFICIT: | |
| | | |
| | |
Preferred stock $0.001 par value: 20,000,000 shares authorized; | |
| | | |
| | |
none issued and outstanding | |
| - | | |
| - | |
Common stock $0.001 par value: 100,000,000 shares authorized; | |
| | | |
| | |
48,466,819 and 48,280,962 shares issued and outstanding, respectively | |
| 48,467 | | |
| 48,281 | |
Additional paid in capital | |
| 31,374 | | |
| (60,941 | ) |
Accumulated deficit | |
| (551,851 | ) | |
| - | |
| |
| | | |
| | |
Total Stockholders' Deficit | |
| (472,010 | ) | |
| (12,660 | ) |
| |
| | | |
| | |
Total Liabilities and Stockholders' Deficit | |
$ | 905,511 | | |
$ | 654,179 | |
See
accompanying notes to the consolidated financial statements
VAPIR
ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
For the Three Months Ended | | |
For the Nine Months Ended | |
| |
September 30, 2015 | | |
September 30, 2014 | | |
September 30, 2015 | | |
September 30, 2014 | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
| |
| | |
| | |
| | |
| |
Net sales | |
$ | 307,466 | | |
$ | 243,278 | | |
$ | 1,226,708 | | |
$ | 1,136,886 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of sales | |
| 188,906 | | |
| 134,093 | | |
| 733,233 | | |
| 564,124 | |
| |
| | | |
| | | |
| | | |
| | |
Gross margin
| |
| 118,560 | | |
| 109,185 | | |
| 493,475 | | |
| 572,762 | |
| |
| | | |
| | | |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Selling expenses | |
| 54,383 | | |
| 13,774 | | |
| 109,213 | | |
| 41,467 | |
Compensation | |
| 160,602 | | |
| 220,081 | | |
| 476,048 | | |
| 516,587 | |
Professional fees | |
| 55,282 | | |
| 3,721 | | |
| 266,744 | | |
| 47,573 | |
General and administrative | |
| 97,765 | | |
| 118,390 | | |
| 251,588 | | |
| 375,222 | |
| |
| | | |
| | | |
| | | |
| | |
Total Operating Expenses | |
| 368,032 | | |
| 355,966 | | |
| 1,103,593 | | |
| 980,849 | |
| |
| | | |
| | | |
| | | |
| | |
LOSS FROM OPERATIONS | |
| (249,472 | ) | |
| (246,781 | ) | |
| (610,118 | ) | |
| (408,087 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | | |
| | | |
| | |
Derivative expense | |
| - | | |
| - | | |
| (188,378 | ) | |
| - | |
Change in fair value of derivative liabilities | |
| 162,153 | | |
| - | | |
| 456,083 | | |
| - | |
Interest expense, net | |
| (103,531 | ) | |
| (4,287 | ) | |
| (209,438 | ) | |
| (11,458 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense), net | |
| 58,622 | | |
| (4,287 | ) | |
| 58,267 | | |
| (11,458 | ) |
| |
| | | |
| | | |
| | | |
| | |
LOSS BEFORE INCOME TAX PROVISION | |
| (190,850 | ) | |
| (251,068 | ) | |
| (551,851 | ) | |
| (419,545 | ) |
| |
| | | |
| | | |
| | | |
| | |
INCOME TAX PROVISION (BENEFIT) | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS | |
$ | (190,850 | ) | |
$ | (251,068 | ) | |
$ | (551,851 | ) | |
$ | (419,545 | ) |
| |
| | | |
| | | |
| | | |
| | |
PRO FORMA FINANCIAL INFORMATION (UNAUDITED): | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
LOSS BEFORE INCOME TAX PROVISION | |
$ | - | | |
$ | (251,068 | ) | |
$ | - | | |
$ | (419,545 | ) |
| |
| | | |
| | | |
| | | |
| | |
INCOME TAX PROVISION (BENEFIT) | |
| - | | |
| (85,363 | ) | |
| - | | |
| (142,645 | ) |
| |
| | | |
| | | |
| | | |
| | |
NET INCOME (LOSS) | |
$ | - | | |
$ | (165,705 | ) | |
$ | - | | |
$ | (276,900 | ) |
| |
| | | |
| | | |
| | | |
| | |
EARNINGS PER SHARE: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.004 | ) | |
$ | (0.007 | ) | |
$ | (0.011 | ) | |
$ | (0.011 | ) |
| |
| | | |
| | | |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 48,448,297 | | |
| 38,624,768 | | |
| 48,396,877 | | |
| 38,624,768 | |
See
accompanying notes to the consolidated financial statements
VAPIR
ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For the Nine Months Ended |
|
|
|
September 30, 2015 |
|
|
September 30, 2014 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net loss |
|
$ |
(551,851 |
) |
|
$ |
(419,545 |
) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
|
|
Depreciation |
|
|
7,277 |
|
|
|
23,053 |
|
Amortization of intangible assets |
|
|
50,382 |
|
|
|
50,382 |
|
Amortization of deferred financing cost |
|
|
7,377 |
|
|
|
- |
|
Amortization of debt discount |
|
|
163,935 |
|
|
|
- |
|
Derivative expense |
|
|
188,378 |
|
|
|
- |
|
Change in fair value of derivative liabilities |
|
|
(456,083 |
) |
|
|
- |
|
Common stock issued for services earned |
|
|
92,501 |
|
|
|
- |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,256 |
) |
|
|
121,785 |
|
Prepaid expense and other current assets |
|
|
(9,830 |
) |
|
|
- |
|
Advances to suppliers |
|
|
(15,415 |
) |
|
|
- |
|
Inventory |
|
|
(103,129 |
) |
|
|
(9,901 |
) |
Accounts payable |
|
|
(48,727 |
) |
|
|
26,959 |
|
Accrued expenses |
|
|
3,533 |
|
|
|
- |
|
Customer deposits |
|
|
146,996 |
|
|
|
174,880 |
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES |
|
|
(525,912 |
) |
|
|
(32,387 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(97,710 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(97,710 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Advances from related party |
|
|
230,500 |
|
|
|
- |
|
Repayments to related party for advances |
|
|
(3,000 |
) |
|
|
- |
|
Bank overdraft |
|
|
- |
|
|
|
1,434 |
|
Net proceeds from convertible notes payable |
|
|
477,500 |
|
|
|
- |
|
Proceeds received from loan |
|
|
- |
|
|
|
21,000 |
|
Repayment of note payable |
|
|
(14,850 |
) |
|
|
(14,850 |
) |
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
690,150 |
|
|
|
7,584 |
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH |
|
|
66,528 |
|
|
|
(24,803 |
) |
|
|
|
|
|
|
|
|
|
CASH - beginning of year |
|
|
27,304 |
|
|
|
24,803 |
|
|
|
|
|
|
|
|
|
|
CASH - end of period |
|
$ |
93,832 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
19,698 |
|
|
$ |
11,458 |
|
Income taxes paid |
|
$ |
- |
|
|
$ |
- |
|
See
accompanying notes to the consolidated financial statements
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Note 1 - Organization and Operations
Vapir Enterprises, Inc.
Vapir Enterprises Inc. (formerly FAL Exploration
Corp.) (“Vapir Enterprises” or the “Company”) was incorporated in the State of Nevada on December 17,
2009. The Company’s principal business is focused on inventing, developing and producing aromatherapy devices and vaporizers.
The Company’s aromatherapy devices utilize heat and convection air and thereby extract natural essences and produce fresh
fragrances.
Acquisition of Vapir, Inc. Treated as
a Reverse Acquisition
On December 30, 2014, Vapir, Inc., a private
California corporation (“Vapir”), which is the historical business, entered into a Share Exchange Agreement with the
Company, all of the stockholders of Vapir (the “Vapir Shareholders”), and the Company’s controlling stockholders
whereby the Company agreed to acquire all of the issued and outstanding capital stock of Vapir in exchange for 38,624,768 shares
of the Company’s common stock. On December 30, 2014, the transaction closed and Vapir is now a wholly-owned subsidiary of
the Company. The number of shares issued represented approximately 80.0% of the issued and outstanding common stock immediately
after the consummation of the Share Exchange Agreement. In addition, Vapir’s board of directors and management obtained
the board and management control of the combined entity stock immediately after the consummation of the Share Exchange Agreement.
As a result of the controlling financial interest
of the former stockholders of Vapir, for financial statement reporting purposes, the business combination between Vapir and Vapir
Enterprises has been treated as a reverse acquisition with Vapir deemed the accounting acquirer and Vapir Enterprises deemed the
accounting acquiree under the acquisition method of accounting in accordance with FASB Accounting Standards Codification (“ASC”)
Section 805-10-55. The reverse acquisition is deemed a capital transaction and the net assets of Vapir (the accounting acquirer)
are carried forward to Vapir Enterprises (the legal acquirer and the reporting entity) at their carrying value before the acquisition.
The acquisition process utilizes the capital structure of Vapir Enterprises and the assets and liabilities of Vapir which are
recorded at historical cost. The equity of the combined entity is the historical equity of Vapir retroactively restated to reflect
the number of shares issued by Vapir Enterprises in the transaction.
Vapir, Inc. was incorporated in the State
of California in October 2006.
Note 2 - Significant and Critical Accounting
Policies and Practices
The Management of the Company is responsible
for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application.
Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial
condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the
need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical
accounting policies and practices are disclosed below as required by generally accepted accounting principles.
Basis of Presentation- Unaudited Interim
Financial Information
The accompanying unaudited interim financial
statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States
Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial
statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative
of the results for the full year. These unaudited interim consolidated financial statements should be read in conjunction with
the consolidated financial statements of the Company for the year ended December 31, 2014 and notes thereto contained in the Company’s
annual report on Form 10-K for the year ended December 31, 2014.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Use of Estimates and Assumptions and
Critical Accounting Estimates and Assumptions
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).
Critical accounting estimates are estimates
for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly
uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or
operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements
were:
|
(i) |
Assumption as a going concern: Management
assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets,
and liquidation of liabilities in the normal course of business. |
|
|
|
|
(ii) |
Allowance for doubtful accounts: Management’s
estimate of the allowance for doubtful accounts is based on historical sales, historical loss levels, and an analysis of the
collectability of individual accounts; and general economic conditions that may affect a client’s ability to pay. The
Company evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation
to the financial statements taken as a whole. |
|
|
|
|
(iii) |
Inventory obsolescence and markdowns: The Company’s
estimate of potentially excess and slow-moving inventories is based on evaluation of inventory levels and aging, review of
inventory turns and historical sales experiences. The Company’s estimate of reserve for inventory shrinkage is based
on the historical results of physical inventory cycle counts. |
|
|
|
|
(iv) |
Fair value of long-lived assets: Fair value is generally
determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived
assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally
estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful
lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review:
(i) significant under-performance or losses of assets relative to expected historical or projected future operating results;
(ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner
or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry
or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for
a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators
at least annually and more frequently upon the occurrence of such events. |
|
|
|
|
(v) |
Valuation allowance for deferred tax assets: Management
assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”)
carry-forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely
than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance.
Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and
(c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other
factors. |
|
|
|
|
(vi) |
Estimates and assumptions used in valuation of derivative
liabilities and equity instruments: Management estimates expected term of share options and similar instruments, expected
volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends,
and risk free rate(s) to value derivative liabilities, share options and similar instruments. |
These significant accounting estimates or
assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and
certain estimates or assumptions are difficult to measure or value.
Management bases its estimates on historical
experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Management regularly evaluates the key factors
and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical
experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.
Actual results could differ from those estimates.
Principles of Consolidation
The Company applies the guidance of Topic
810 “Consolidation” of the FASB Accounting Standards Codification to determine
whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10, all
majority-owned subsidiaries-all entities in which a parent has a controlling financial interest-shall be consolidated except (1)
when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic
940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company
investee. Pursuant to ASC Paragraph 810-10-15-8, the usual condition for a controlling financial
interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly
or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation.
The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other
stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries,
if any, in which the parent’s power to control exists.
The consolidated financial statements include
all accounts of the entities as of the reporting period ending date(s) and for the reporting period(s) as follows:
Name of consolidated subsidiary or entity |
|
State or other jurisdiction of incorporation
or organization |
|
Date of incorporation or formation
(date of acquisition, if applicable) |
|
Attributable interest |
|
|
|
|
|
|
|
|
|
Vapir Enterprises, Inc. |
|
The State of Nevada, U.S.A. |
|
December 17, 2009 |
|
|
100% |
|
|
|
|
|
|
|
|
|
|
Vapir, Inc. |
|
The State of California, U.S.A. |
|
October 2006 (December 30, 2014) |
|
|
100% |
|
The consolidated financial statements include
all accounts of the Company and Vapir as of September 30, 2015 and for the nine months then ended. All inter-company balances
and transactions have been eliminated.
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37
of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial
instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted
in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and
comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which
prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of
fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1 |
|
Quoted market prices available in active markets
for identical assets or liabilities as of the reporting date. |
|
|
|
Level 2 |
|
Pricing inputs other than quoted prices
in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
|
|
|
Level 3 |
|
Pricing inputs that are generally observable inputs and not
corroborated by market data. |
Financial assets are considered Level 3 when
their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one
significant model assumption or input is unobservable.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the
categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s
financial assets and liabilities, such as cash, accounts receivable, prepaid expenses and other current assets, advances to suppliers,
accounts payable and accrued expenses, and customer deposits approximate their fair values because of the short maturity of these
instruments.
The Company’s convertible notes payable
and notes payable approximate the fair value of such instruments based upon management’s best estimate of interest rates
that would be available to the Company for similar financial arrangements at September 30, 2015 and December 31, 2014.
The Company’s Level 3 financial liabilities
consist of the embedded conversion feature on convertible notes and derivative warrants for which there is no current market for
these securities such that the determination of fair value requires significant judgment or estimation and the derivative liability
on the conversion feature of the convertible notes payable. The Company valued the automatic conditional conversion, re-pricing/down-round,
change of control; default and follow-on offering provisions using a lattice model, with the assistance of a third party valuation
specialist, for which management understands the methodologies. These models incorporate transaction details such as Company stock
price, contractual terms, maturity, risk free rates, as well as assumptions about future financings, volatility, and holder behavior
as of the date of issuance and each balance sheet date.
Transactions involving related parties cannot
be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not
exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were
consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
Fair Value of Financial Assets and Liabilities
Measured on a Recurring Basis
Level 3 Financial Liabilities
- Derivative Warrant Liabilities and Derivative Liability on Conversion Feature
The Company uses Level 3 of the fair value
hierarchy to measure the fair value of the derivative liabilities and revalues its derivative warrant liability and derivative
liability on the conversion feature at every reporting period and recognizes gains or losses in the consolidated statements of
operations that are attributable to the change in the fair value of the derivative liabilities.
The following table presents the derivative
financial instruments, measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis,
and their level within the fair value hierarchy as of September 30, 2015:
| |
Amount | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Derivative liability - Embedded conversion | |
$ | 102,918 | | |
$ | - | | |
$ | - | | |
$ | 102,918 | |
Derivative liabilities - Tainted Warrants | |
| 129,377 | | |
| - | | |
| - | | |
| 129,377 | |
| |
$ | 232,295 | | |
$ | - | | |
$ | - | | |
$ | 232,295 | |
Fair Value of Non-Financial Assets or
Liabilities Measured on a Recurring Basis
The Company’s non-financial assets include
inventories. The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels
and other factors. Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical
sales experiences. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories.
The Company establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle
counts.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Carrying Value, Recoverability and Impairment
of Long-Lived Assets
The Company has adopted Section 360-10-35
of the FASB Accounting Standards Codification for its long-lived assets. Pursuant to ASC Paragraph 360-10-35-17 an impairment
loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair
value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash
flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the
carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as
the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC Paragraph
360-10-35-20 if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis.
For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that
asset. Restoration of a previously recognized impairment loss is prohibited.
Pursuant to ASC Paragraph 360-10-35-21 the
Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate
that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes
in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset
group); (b) A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in
its physical condition; (c) A significant adverse change in legal factors or in the business climate that could affect the value
of a long-lived asset (asset group), including an adverse action or assessment by a regulator; (d) An accumulation of costs significantly
in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); (e) A current-period
operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates
continuing losses associated with the use of a long-lived asset (asset group); and (f) A current expectation that, more likely
than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously
estimated useful life. The Company tests its long-lived assets for potential impairment indicators at least annually and more
frequently upon the occurrence of such events.
Pursuant to ASC Paragraphs 360-10-45-4 and
360-10-45-5 an impairment loss recognized for a long-lived asset (asset group) to be held and used shall be included in income
from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from
operations is presented, it shall include the amount of that loss. A gain or loss recognized on the sale of a long-lived asset
(disposal group) that is not a component of an entity shall be included in income from continuing operations before income taxes
in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the
amounts of those gains or losses.
Cash equivalents
The Company considers all highly liquid debt
instruments and other short-term investments with maturities of three months or less to be cash equivalents.
Accounts receivable and allowance for
doubtful accounts
Pursuant to FASB
ASC paragraph 310-10-35-47 trade receivables that management has the intent and ability to hold for the foreseeable future shall
be reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for doubtful accounts.
. The Company follows FASB ASC paragraphs 310-10-35-7 through 310-10-35-10 to estimate the allowance for doubtful accounts.
Pursuant to FASB ASC paragraph 310-10- 35-9 Losses from uncollectible
receivables shall be accrued when both of the following conditions are met: (a) Information available before the financial statements
are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset has been
impaired at the date of the financial statements, and (b) The amount of the loss can be reasonably estimated. Those conditions
may be considered in relation to individual receivables or in relation to groups of similar types of receivables. If the conditions
are met, accrual shall be made even though the particular receivables that are uncollectible may not be identifiable. The
Company reviews individually each trade receivable for collectability and performs on-going credit evaluations of its customers
and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the
review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience,
customer specific facts and general economic conditions that may affect a client’s ability to pay. Bad debt expense is included
in general and administrative expenses.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Pursuant to FASB
ASC paragraph 310-10-35-41 Credit losses for trade receivables (uncollectible trade receivables), which may be for all or part
of a particular trade receivable, shall be deducted from the allowance. The related trade receivable balance shall be charged
off in the period in which the trade receivables are deemed uncollectible. Recoveries of trade receivables previously charged
off shall be recorded when received. The Company charges off its trade account receivables against the allowance after
all means of collection have been exhausted and the potential for recovery is considered remote.
As of September 30, 2015 and December 31,
2014, there was no allowance for doubtful accounts.
Inventory
Inventory Valuation
The Company values inventory, consisting of
finished goods, at the lower of cost or market. Cost is determined on the first-in and first-out (“FIFO”) method.
The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting
marketability, equal to the difference between the cost of the inventory and its estimated market value. Factors utilized in the
determination of estimated market value include (i) estimates of future demand, and (ii) competitive pricing pressures.
Inventory Obsolescence
and Markdowns
The Company evaluates its current level of
inventory considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the income
statement as a component of cost of goods sold pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification
to adjust inventory to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements
if future economic conditions, customer demand or competition differ from expectations.
There was no inventory obsolescence for the
reporting period ended September 30, 2015 or 2014.
There was no lower of cost or market adjustments
for the reporting period ended September 30, 2015 or 2014.
Advances to suppliers
Advances to suppliers represent the cash paid
in advance for the purchase of inventory. The advances to suppliers are interest free and unsecured.
Property and Equipment
Property and equipment is recorded at cost.
Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over
the estimated useful lives of the respective assets as follows:
| |
Estimated Useful Life (Years) | |
| |
| |
Auto | |
3 | |
| |
| | |
Furniture and fixture | |
5 | |
| |
| | |
Leasehold improvement | |
* | |
(*) Amortized on a straight-line basis over
the term of the lease or the estimated useful lives, whichever is shorter.
Upon sale or retirement, the related cost
and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Leases
Lease agreements are evaluated to determine
whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards
Codification (“Paragraph 840-10-25-1”). Pursuant to Paragraph 840-10-25-1 a lessee and a lessor shall consider whether
a lease meets any of the following four criteria as part of classifying the lease at its inception under the guidance in the Lessees
Subsection of this Section (for the lessee) and the Lessors Subsection of this Section (for the lessor): a) Transfer of ownership.
The lease transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations
in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for
the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title. b) Bargain purchase
option. The lease contains a bargain purchase option. c) Lease term. The lease term is equal to 75 percent or more of the estimated
economic life of the leased property. d) Minimum lease payments. The present value at the beginning of the lease term of the minimum
lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes
to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased
property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized
by the lessor. In accordance with paragraphs 840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four
lease classification criteria in Paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease; and if
none of the four criteria in Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an operating lease.
Pursuant to Paragraph 840-10-25-31 a lessee shall compute the present value of the minimum lease payments using the lessee's incremental
borrowing rate unless both of the following conditions are met, in which circumstance the lessee shall use the implicit rate:
a) It is practicable for the lessee to learn the implicit rate computed by the lessor. b) The implicit rate computed by the lessor
is less than the lessee's incremental borrowing rate. Capital lease assets are depreciated on a straight line method, over the
capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed
assets. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.
Operating leases primarily relate to the Company’s
leases of office spaces. When the terms of an operating lease include tenant improvement allowances, periods of free rent, rent
concessions, and/or rent escalation amounts, the Company establishes a deferred rent liability for the difference between the
scheduled rent payment and the straight-line rent expense recognized, which is amortized over the underlying lease term on a straight-line
basis as a reduction of rent expense.
Intangible assets
The Company records the purchase of intangible
assets not purchased in a business combination in accordance with ASC 350-30-65 “Goodwill and Other Intangible Assets”
and records intangible assets acquired in a business combination or pushed-down pursuant to acquisition by its parent in accordance
with SFAS 141 “Business Combinations”.
Customer Relationships are based upon the
estimated percentage of annual or period projected cash flows generated by such relationships, to the total cash flows generated
over the estimated life of the customer relationships.
In accordance with ASC 350-30-65, “Intangibles
- Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an
impairment review include the following:
|
1. |
Significant underperformance relative to expected
historical or projected future operating results; |
|
|
|
|
2. |
Significant changes in the manner of use of the acquired assets
or the strategy for the overall business; and |
|
|
|
|
3. |
Significant negative industry or economic trends. |
When the Company determines that the carrying
value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and
the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment
charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined
by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required
in determining whether an indicator of impairment exists and in projecting cash flows. The Company evaluates the recoverability
of intangible assets annually or whenever events or changes in circumstances indicate that an intangible asset’s carrying
amount may not be recoverable.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Customer Deposits
Customer deposits consisted of prepayments
from customers to the Company. The Company will recognize the prepayments as revenue upon delivery of the products, in compliance
with its revenue recognition policy.
Derivative Instruments and Hedging Activities
The Company accounts for derivative instruments
and hedging activities in accordance with paragraph 815-10-05-4 of the FASB Accounting Standards Codification (“Paragraph
815-10-05-4”). Paragraph 815-10-05-4 requires companies to recognize all derivative instruments as either assets or liabilities
in the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends upon: (i)
whether the derivative has been designated and qualifies as part of a hedging relationship, and (ii) the type of hedging relationship.
For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging
instrument based upon the exposure being hedged as either a fair value hedge, cash flow hedge or hedge of a net investment in
a foreign operation.
Derivative Liability
The Company evaluates its convertible debt,
options, warrants or other contracts, if any, to determine if those contracts or embedded components of those contracts qualify
as derivatives to be separately accounted for in accordance with paragraph 815-10-05-4 and Section 815-40-25 of the FASB Accounting
Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market
each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability,
the change in fair value is recorded in the consolidated statement of operations and comprehensive income (loss) as other income
or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the
date of conversion, exercise or cancellation and then that the related fair value is reclassified to equity.
In circumstances where the embedded conversion
option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the
convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single,
compound derivative instrument.
The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to
liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified
in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected
within 12 months of the balance sheet date.
The Company adopted Section 815-40-15 of the
FASB Accounting Standards Codification (“Section 815-40-15”) to determine whether an instrument (or an embedded feature)
is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s
contingent exercise and settlement provisions. The adoption of Section 815-40-15 has affected the accounting for (i) certain freestanding
warrants that contain exercise price adjustment features and (ii) convertible bonds issued by foreign subsidiaries with a strike
price denominated in a foreign currency.
The Company marks to market the fair value
of the embedded derivative convertible notes and derivative warrants at each balance sheet date and records the change in the
fair value of the embedded derivative convertible notes and derivative warrants as other income or expense in the consolidated
statements of operations.
The Company utilizes the Lattice model that
values the liability of the derivative convertible notes and derivative warrants. The reason the Company picks the Lattice model
is that in many cases there may be multiple embedded features or the features of the bifurcated derivatives may be so complex
that a Black-Scholes valuation does not consider all of the terms of the instrument. Therefore, the fair value may not be appropriately
captured by simple models. In other words, simple models such as Black-Scholes may not be appropriate in many situations given
complex features and terms of conversion option (e.g., combined embedded derivatives). The Lattice model is based on future projections
of the various potential outcomes. The features that were analyzed and incorporated into the model included the exercise and full
reset features. Based on these features, there are two primary events that can occur; the Holder exercises the Warrants or the
Warrants are held to expiration.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
The Lattice model analyzed the underlying
economic factors that influenced which of these events would occur, when they were likely to occur, and the specific terms that
would be in effect at the time (i.e. stock price, exercise price, volatility, etc.). Projections were then made on the underlying
factors which led to potential scenarios. Probabilities were assigned to each scenario based on management projections. This led
to a cash flow projection and a probability associated with that cash flow.
Related Parties
The Company follows subtopic 850-10 of the
FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the Related
parties include a. affiliates of the Company (“Affiliate” means, with respect to any specified Person, any other Person
that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such
Person, as such terms are used in and construed under Rule 405 under the Securities Act); b. entities for which investments in
their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection
of Section 825-10-15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees,
such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the
Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented
from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating
policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly
influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate
interests.
The financial statements shall include disclosures
of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the
ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined
financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s)
involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for
each of the periods for which income statements are presented, and such other information deemed necessary to an understanding
of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods
for which income statements are presented and the effects of any change in the method of establishing the terms from that used
in the preceding period; and d. amount due from or to related parties as of the date of each balance sheet presented and, if not
otherwise apparent, the terms and manner of settlement.
Commitment and Contingencies
The Company follows subtopic 450-20 of the
FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the
consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one
or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings
or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature
of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Revenue recognition
The Company follows paragraph 605-10-S99-1
of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized
or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are
met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to
the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Cost of Sales
The primary components of cost of sales include
the cost of the product and shipping fees.
Shipping and Handling Costs
The Company accounts for shipping and handling
fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification. While amounts charged to customers
for shipping products are included in revenues, the related costs are classified in cost of goods sold as incurred.
Advertising Costs
The Company follows the guidance of the Section
720-35-25 of the FASB Accounting Standards Codification (“Section 720-35-25”) as to when advertising costs should
be expensed. Pursuant to ASC Paragraph 720-35-25-1 the costs of advertising shall be expensed either as incurred or the first
time the advertising takes place. The accounting policy the Company selected from these two alternatives was to expense the advertising
costs when the first time the advertising takes place. Deferring the costs of advertising until the advertising takes place assumes
that the costs have been incurred for advertising that will occur, such as the first public showing of a television commercial
for its intended purpose and the first appearance of a magazine advertisement for its intended purpose. Such costs shall be expensed
immediately if such advertising is not expected to occur.
Pursuant to ASC Paragraph 720-35-25-5 costs
of communicating advertising are not incurred until the item or service has been received and shall not be reported as expenses
before the item or service has been received, such as the costs of television airtime which shall not be reported as advertising
expense before the airtime is used. Once it is used, the costs shall be expensed, unless the airtime was used for direct-response
advertising activities that meet the criteria for capitalization under ASC paragraph 340-20-25-4.
Advertising costs were $24,021 and $41,467
for the nine months ended September 30, 2015 and 2014, respectively.
Equity Instruments Issued to Parties
Other Than Employees for Acquiring Goods or Services
The Company accounts for equity instruments
issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting
Standards Codification (“Sub-topic 505-50”).
Pursuant to ASC paragraph 505-50-25-7, if
fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods
or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination
of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor
shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding
cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements
of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may
conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity
instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific
performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity
by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the
balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other
than employees in exchange for goods or services.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9,
an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified
period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance
conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity
had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity
instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock option that the counterparty has
the right to exercise expires unexercised.
Pursuant to ASC Paragraphs 505-50-30-2 and
505-50-30-11 share-based payment transactions with nonemployees shall 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 issuer shall measure the fair value
of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the
following dates, referred to as the measurement date: (a) The date at which a commitment for performance by the counterparty to
earn the equity instruments is reached (a performance commitment); or (b) The date at which the counterparty's performance is
complete. If the Company’s common shares are traded in one of the national exchanges the grant-date share price of the Company’s
common stock will be used to measure the fair value of the common shares issued, however, if the Company’s common shares
are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”),
or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares
could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
Pursuant to ASC Paragraph 718-10-55-21 if
an observable market price is not available for a share option or similar instrument with the same or similar terms and conditions,
an entity shall estimate the fair value of that instrument using a valuation technique or model that meets the requirements in
paragraph 718-10-55-11 and takes into account, at a minimum, all of the following factors:
a. |
The exercise price of the option. |
b. |
The expected term of the option, taking into account
both the contractual term of the option and the effects of employees’ expected exercise and post-vesting employment
termination behavior: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected
term of share options and similar instruments represents the period of time the options and similar instruments are expected
to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise
behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate
holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company
are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share
options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis
upon which to estimate expected term. |
c. |
The current price of the underlying share. |
d. |
The expected volatility of the price of the underlying
share for the expected term of the option. Pursuant to ASC Paragraph 718-10-55-25 a newly publicly traded entity
might base expectations about future volatility on the average volatilities of similar entities for an appropriate period
following their going public. A nonpublic entity might base its expected volatility on the average volatilities of otherwise
similar public entities. For purposes of identifying otherwise similar entities, an entity would likely consider characteristics
such as industry, stage of life cycle, size, and financial leverage. Because of the effects of diversification that are present
in an industry sector index, the volatility of an index should not be substituted for the average of volatilities of otherwise
similar entities in a fair value measurement. Pursuant to paragraph 718-10-S99-1 if shares of a company are thinly
traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations
as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread
between the bid and asked quotes and lack of consistent trading in the market. The Company uses the average historical
volatility of the comparable companies over the expected term of the share options or similar instruments as its expected
volatility. |
e. |
The expected dividends on the underlying share
for the expected term of the option. The expected dividend yield is based on the Company’s current dividend
yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar
instruments. |
f. |
The risk-free interest rate(s) for the expected
term of the option. Pursuant to ASC 718-10-55-28 a U.S. entity issuing an option on its own shares must use as the risk-free
interest rates the implied yields currently available from the U.S. Treasury zero-coupon yield curve over the contractual
term of the option if the entity is using a lattice model incorporating the option’s contractual term. If the entity
is using a closed-form model, the risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon
issues with a remaining term equal to the expected term used as the assumption in the model. |
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Pursuant to ASC paragraph 505-50-S99-1, if
the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity
instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are
not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should
be recorded.
Deferred Tax Assets and Income Tax Provision
The Company was a Subchapter S corporation,
until December 30, 2014 during which time the Company was treated as a pass through entity for federal income tax purposes. Under
Subchapter S of the Internal Revenue Code stockholder of an S corporation are taxed separately on their distributive share of
the S corporation’s income whether or not that income is actually distributed.
Effective December 31, 2014, the Company accounts
for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities
are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets
are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be
realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
The Company adopted section 740-10-25 of the
FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether
tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25,
the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized
in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty
percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition,
classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The estimated future tax effects of temporary
differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well
as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded
on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation
of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition,
the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s
opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies
from estimates, additional allowances or reversals of reserves may be necessary.
Tax years that
remain subject to examination by major tax jurisdictions
The Company discloses tax years that remain subject to examination
by major tax jurisdictions pursuant to the ASC Paragraph 740-10-50-15. The federal and state income tax returns of the Company
are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Earnings per Share
Earnings per share ("EPS") is the
amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or
loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs
260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by dividing income available to common stockholders (the numerator)
by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders
shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends
accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that
amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation
of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding
if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from
common shares issuable through contingent shares issuance arrangement, stock options or warrants.
Pursuant to ASC Paragraphs 260-10-45-45-21
through 260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint
of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting
entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35
through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include
non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions (see paragraph 260-10-55-23).
Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the
treasury stock method: a. Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance,
if later) and common shares shall be assumed to be issued. b. The proceeds from exercise shall be assumed to be used to purchase
common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) c. The
incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall
be included in the denominator of the diluted EPS computation.
The Company’s contingent shares issuance
arrangement, stock options or warrants are as follows:
| |
Contingent shares
issuance arrangement,
stock options or warrants | |
| |
For the Period Ended September 30, 2015 | | |
For the Period Ended September 30, 2014 | |
| |
| | |
| |
Stock Option Shares | |
| | |
| |
| |
| 100 | | |
| - | |
| |
| | | |
| | |
Sub-total: stock option shares | |
| 100 | | |
| - | |
| |
| | | |
| | |
Warrant Shares | |
| | | |
| | |
| |
| 501,263 | | |
| - | |
| |
| | | |
| | |
Sub-total: warrant shares | |
| 501,263 | | |
| - | |
| |
| | | |
| | |
Total contingent shares issuance arrangement, stock options or warrants | |
| 501,363 | | |
| - | |
There were no incremental common shares under
the Treasury Stock Method for the reporting period ended September 30, 2015 or 2014.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Cash Flows Reporting
The Company adopted paragraph 230-10-45-24
of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether
they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect
or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards
Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating
activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected
future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash
receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current
exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported
as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides
information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph
830-230-45-1 of the FASB Accounting Standards Codification.
Subsequent Events
The Company follows the guidance in Section
855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent
events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification,
the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through
filing them on EDGAR.
Recently Issued Accounting Pronouncements
In August 2014, the FASB issued the FASB Accounting
Standards Update No. 2014-15 “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).
In connection with preparing financial statements
for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events,
considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within
one year after the date that the financial statements are issued (or within one year after the date that the financial
statements are available to be issued when applicable). Management’s evaluation should be based on relevant conditions
and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date
that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability
to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable
that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements
are issued (or available to be issued). The term probable is used consistently with its use in Topic 450, Contingencies.
When management identifies conditions or events
that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether
its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The mitigating
effect of management’s plans should be considered only to the extent that (1) it is probable that the plans will be effectively
implemented and, if so, (2) it is probable that the plans will mitigate the conditions or events that raise substantial doubt
about the entity’s ability to continue as a going concern.
If conditions or events raise substantial
doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration
of management’s plans, the entity should disclose information that enables users of the financial statements to understand
all of the following (or refer to similar information disclosed elsewhere in the footnotes):
a. |
Principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans) |
|
|
b. |
Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations |
|
|
c. |
Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern. |
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
If conditions or events raise substantial
doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration
of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt
about the entity’s ability to continue as a going concern within one year after the date that the financial statements
are issued (or available to be issued). Additionally, the entity should disclose information that enables users of the financial
statements to understand all of the following:
a. |
Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern |
|
|
b. |
Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations |
|
|
c. |
Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. |
The amendments in this Update are effective
for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application
is permitted.
In January 2015, the FASB issued the FASB
Accounting Standards Update No. 2015-01 “Income Statement-Extraordinary and Unusual Items (Subtopic 225-20): Simplifying
Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”).
This Update eliminates from GAAP the concept
of extraordinary items and the requirements in Subtopic 225-20 for reporting entities to separately classify, present, and disclose
extraordinary events and transactions.
The amendments in this Update are effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted
provided that the guidance is applied from the beginning of the fiscal year of adoption.
In February 2015, the FASB issued the FASB
Accounting Standards Update No. 2015-02 “Consolidation (Topic 810) - Amendments to the Consolidation Analysis”
(“ASU 2015-02”) to improve certain areas of consolidation
guidance for reporting organizations (i.e., public, private, and not-for-profit) that are required to evaluate whether to consolidate
certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (e.g., collateralized
debt/loan obligations).
All legal entities are
subject to reevaluation under the revised consolidation model. Specifically, the amendments:
| ● | Eliminating
the presumption that a general partner should consolidate a limited partnership. |
| | |
| ● | Eliminating
the indefinite deferral of FASB Statement No. 167, thereby reducing the number of Variable
Interest Entity (VIE) consolidation models from four to two (including the limited partnership
consolidation model). |
| | |
| ● | Clarifying
when fees paid to a decision maker should be a factor to include in the consolidation
of VIEs. Note: a VIE is a legal entity in which consolidation is not based on a majority
of voting rights. |
| | |
| ● | Amending
the guidance for assessing how related party relationships affect VIE consolidation analysis. |
| | |
| ● | Excluding
certain money market funds from the consolidation guidance. |
The
amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those
fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period.
Management does not believe that any recently
issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying financial
statements.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Note 3 - Going Concern
The Company has elected to adopt early application
of Accounting Standards Update No. 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).
The Company’s consolidated financial
statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations,
realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the consolidated
financial statements, the Company had an accumulated deficit at September 30, 2015, a net loss and net cash used in operating
activities for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue
as a going concern.
The Company is attempting to further implement
its business plan and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support
its daily operations. Management intends to raise additional funds by way of a private or public offering. While the Company believes
in the viability of its strategy to further implement its business plan and generate sufficient revenue and in its ability to
raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is
dependent upon its ability to further implement its business plan and generate sufficient revenue and its ability to raise additional
funds by way of a public or private offering.
The consolidated financial statements do not
include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification
of liabilities that might be necessary should the Company is unable to continue as a going concern.
Note 4 - Property and Equipment
Property and equipment, stated at cost, less
accumulated depreciation consisted of the following:
| |
Estimated life | | |
September 30,
2015 | | |
December 31,
2014 | |
| |
| | |
| | |
| |
Auto | |
| 3 years | | |
| 12,522 | | |
| 12,522 | |
Furniture and fixtures | |
| 5 years | | |
| 23,743 | | |
| 23,743 | |
Tooling equipment | |
| 4 years | | |
| 97,710 | | |
| - | |
Leasehold improvements | |
| 5 years | | |
| 35,206 | | |
| 35,206 | |
Less: Accumulated depreciation | |
| | | |
| (75,016 | ) | |
| (67,739 | ) |
| |
| | | |
$ | 94,165 | | |
$ | 3,732 | |
Depreciation expense amounted to $7,277 and
$23,053 for the nine months ended September 30, 2015 and 2014, respectively.
The Company completed the annual impairment
testing of property and equipment and determined that there was no impairment as the fair value of property and equipment, exceeded
their carrying values at December 31, 2014.
Note 5 - Intangible Assets
Intangible assets consist of the following:
| |
September 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Customer relationships | |
$ | 1,001,212 | | |
$ | 1,001,212 | |
Trademarks | |
| 6,430 | | |
| 6,430 | |
| |
| 1,007,642 | | |
| 1,007,642 | |
Accumulated amortization | |
| (615,672 | ) | |
| (565,290 | ) |
Intangible assets, net | |
$ | 391,970 | | |
$ | 442,352 | |
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Customer Relationships are amortized based upon the
estimated percentage of annual or period projected cash flows generated by such relationships, to the total cash flows generated
over the estimated fifteen year life of the Customer Relationships.
Legal costs associated with serving and protecting
trademark are being capitalized. The Company filed trademarks for its company logos with an estimated useful life of 15 years.
The Company will amortize the costs of intangible assets over their estimated useful lives on a straight-line basis. Amortization
of intangible assets is included in operating expenses as reflected in the accompanying consolidated statements of operations.
The Company assesses fair market value for any impairment to the carrying values.
Amortization expense was $50,382 and $50,382
for the nine months ended September 30, 2015 and 2014, respectively. Future amortization of intangible assets is as follows:
2015 (remainder of the year) | |
$ | 16,823 | |
2016 | |
| 67,205 | |
2017 | |
| 67,205 | |
2018 | |
| 67,205 | |
2019 and thereafter | |
| 173,532 | |
Total | |
$ | 391,970 | |
Note 6 - Loan and Note Payable
Loan payable
| |
September 30, 2015 | | |
December 31, 2014 | |
Business loan obtained in May 2011 from Bank of the West with a credit line up to $200,000 and secured by all assets of the Company. This loan bears interest at 4.75% per annum. | |
$ | 197,000 | | |
$ | 197,000 | |
Note payable
| |
September 30, 2015 | | |
December 31, 2014 | |
| |
| | |
| |
4.75% Promissory note of $100,000 issued to Bank of the West on May 10, 2011 payable over 60 consecutive monthly installments with monthly principal payment of $1,650 and interest starting in June 2012 | |
| 30,000 | | |
| 44,850 | |
Less : Current maturities | |
| (19,800 | ) | |
| (19,800 | ) |
Note payable, net of current maturities | |
$ | 10,200 | | |
$ | 25,050 | |
Future minimum principal and interest
payment under the note are as follows:
Fiscal Year ending December 31: | |
| |
| |
| |
2015 (remainder of the year) | |
$ | 5,287 | |
| |
| | |
2016 | |
| 20,559 | |
| |
| | |
2017 | |
| 5,294 | |
| |
| | |
| |
| 31,140 | |
| |
| | |
Less interest portion | |
| (1,140 | ) |
| |
| | |
Total | |
| 30,000 | |
| |
| | |
Less current maturities | |
| (19,800 | ) |
| |
| | |
Note payable, net of current maturities | |
$ | 10,200 | |
Amounts outstanding under the loan and note above are personally
guaranteed by the CEO of the Company.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Note 7 - Related Party Transactions
Related parties
Related parties with whom the Company
had transactions are:
Related Parties |
|
Relationship |
|
|
|
Management and significant stockholders |
|
|
|
|
|
Mr. Hamid Emarlou |
|
Chairman, CEO and significant stockholder of the Company |
Advances from Executive Officer,
Significant Stockholder
From time to time, Chairman, CEO and significant
stockholder of the Company advance funds to the Company for working capital purpose. These advances are unsecured, due upon demand
and bear 5% interest per annum.
Between February 2015 and August 2015,
the Company’s CEO provided advances to the Company for working capital purposes for a total of $230,500 and the Company repaid
$3,000 of these advances. The advances are due on demand and bear interest at 5% per annum. At September 30, 2015 and December
31, 2014, these advances amounted to $367,033 and $136,000, respectively. Included in the advances are accrued interest due to
the Company’s CEO totaling $3,533 and $0, at September 30, 2015 and December 31, 2014 respectively.
Note 8 - Convertible Notes Payable
On April 3, 2015 (the “Closing Date”),
the Company closed a financing transaction by entering into a Securities Purchase Agreement dated April 3, 2015 (the “Securities
Purchase Agreement”) with certain accredited investors (the “Purchasers”) for an aggregate subscription amount
of $500,000 (the “Purchase Price”). Pursuant to the Securities Purchase Agreement, the Company issued a 6% Convertible
Debenture (the “Debenture”) and warrants to acquire 500,000 shares of the Company's common stock at an exercise price
of $0.60 per share (the “Warrants”).
The terms of the Debenture and the Warrants
are as follows:
6% Convertible Debenture
The total principal amount of the Debentures
is $500,000. The Debenture accrues interest at 6% per annum and the Debenture has a maturity date of October 3, 2016. The Debenture
is convertible any time after its issuance date. The Purchaser has the right to convert the Debenture into shares of the Company’s
common stock at $0.50 per share. The conversion price, however, is subject to full ratchet anti-dilution in the event that the
Company issue any securities at a per share price lower than the conversion price then in effect. The Company paid financing costs
of $22,500 in connection with this Debenture which is initially recorded as prepaid financing cost and is being amortized over
the term of the Debenture.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Warrants
The Company issued warrants to acquire 500,000
shares of the Company's common stock. The Warrants issued in this transaction are immediately exercisable at an exercise price
of $0.60 per share, subject to applicable adjustments including full ratchet anti-dilution in the event that the Company issue
any securities at a per share price lower than the exercise price then in effect. The Warrants have an expiration period of five
years from the date of the original issuance.
Convertible notes payable consisted of the
following:
| |
September 30, 2015 | |
6% Convertible promissory notes | |
$ | 500,000 | |
Discount | |
| (500,000 | ) |
Accumulated amortization of discount | |
| 163,935 | |
Remaining discount | |
| (336,065 | ) |
Convertible notes payable, net | |
$ | 163,935 | |
Note 9 - Derivative Liabilities
Since the terms of the Debentures and Warrants
in the April 2015 closing include a down-round provision under which the conversion price and exercise price could be affected
by future equity offerings undertaken by the Company under the provisions of FASB ASC Topic No. 815-40, “Derivatives and
Hedging - Contracts in an Entity’s Own Stock”, the embedded conversion options and the warrants were accounted for
as derivative liabilities at the date of issuance and adjusted to fair value through earnings at each reporting date. In accordance
with ASC 815, the Company has bifurcated the conversion feature of the convertible Debentures, along with the free-standing warrant
derivative instruments and recorded derivative liabilities on their issuance date. The Company uses the Simple Binomial Lattice
model to value the derivative liabilities. The Debentures were all discounted in full based on the valuations and the Company
recognized an additional derivative expense of $188,378 upon initial recording of the derivative liabilities. The total debt discount
of $500,000 consisted of valuation of the derivatives of $250,407 and the valuation of the warrants of $249,593 to be amortized
over the terms of the note. These derivative liabilities are then revalued on each reporting date. The gain resulting from the
decrease in fair value of these convertible instruments was $456,083 for the nine months ended September 30, 2015. At September
30, 2015, the Company had recorded warrant derivative liability of $129,377 and note derivative liability of $102,918.
For the nine months ended September 30, 2015
and 2014 the Company recognized $163,935 and $0, respectively of amortization of debt discount. For the nine months ended September
30, 2015 and 2014 the Company recognized $7,377 and $0, respectively of amortization of deferred financing cost. The amortization
of debt discount and deferred financing cost were included in interest expense. As of September 30, 2015, accrued interest related
to this Debenture amounted to $14,895.
The following table summarizes the values
of certain assumptions used by the Company’s custom model to estimate the fair value of the derivative liabilities as of
September 30, 2015:
|
|
September 30,
2015 |
|
Stock price |
|
$ |
0.26 |
|
Weighted average strike price |
|
$ |
0.50 |
|
Remaining contractual term (years) |
|
|
1.00 to 4.50 years |
|
Volatility |
|
|
157% to 296 |
% |
Risk-free rate |
|
|
0.28% to 1.63 |
% |
Dividend yield |
|
|
0.0 |
% |
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
The following table sets forth a summary of
the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis:
| |
For the nine months ended September 30, 2015 | |
Beginning balance | |
$ | - | |
Debt discount in connection with conversion option of Debentures and detachable warrants | |
| 500,000 | |
Excess of fair value over debt discount | |
| 188,378 | |
Change in fair value of derivative liabilities | |
| (456,083 | ) |
Ending balance | |
$ | 232,295 | |
Note 10 - Commitments and Contingencies
Joint Marketing Agreement
On February 20, 2015, the Company
entered into a joint marketing agreement (the “Agreement”) with a third party consultant (“Consultant”).
Pursuant to the Agreement, the Consultant will act as the Company’s advisor to assist the Company in connection with a best
efforts basis in identifying potential sources of capital for an initial term of six (6) months.
Consultant shall be compensated
as follows:
● |
$25,000
initial fee, payable upon completion of $250,000 capital raise or $40,000 initial fee, payable upon completion of $500,000
capital raise. |
|
|
● |
$5,000
per month (prorated for the first month of the capital raise completion), payments begin immediately upon capital raise of
$250,000 and thereafter on the 2nd of each month. |
|
|
● |
125,000
shares of the Company’s common stock, payable within five (5) days of the execution of this Agreement. Another 125,000
shares of the Company’s common stock is due when $250,000 is raised. |
The Company valued the 125,000 shares of its
common stock issued upon execution of the Agreement at $0.50 per share and recorded as the consulting fee as these shares are
fully earned, un-forfeitable and non-assessable upon issuance.
Operating lease
In June 2014, a lease agreement was signed
for an office and warehousing space consisting of approximately 5,000 square feet located in San Jose, California with a term
commencing in June 2014 and expiring in October 2015. In August 2015, the Company entered into an amendment agreement to extend
the term of the lease which will expire on December 31, 2018. Pursuant to the amendment agreement, the lease requires the Company
to pay a monthly base rent of $5,050 plus a pro rata share of operating expenses beginning November 1, 2015. The base rent is
subject to an annual increase beginning in November 2016 as defined in the amended lease agreement. This lease agreement is personally
guaranteed by the President of the Company.
Future minimum rental payments required under
this operating lease are as follows:
Fiscal Year ending December 31: | |
| |
| |
| |
2015 (remainder of the year) | |
$ | 13,635 | |
2016 | |
| 60,903 | |
2017 | |
| 62,721 | |
2018 | |
| 64,236 | |
| |
| | |
Total | |
$ | 201,495 | |
Rent expense was $43,455 and $57,894 for the
nine months ended September 30, 2015 and 2014, respectively.
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Litigation
On November 3, 2014, the Company was served
with a lawsuit from Storz & Bickel, a German competitor of the Company. The lawsuit claims patent infringement of Storz &
Bickel’s German patent no DE 198 03 376 C1. The lawsuit was filed in Germany with the regional court of Mannheim. The lawsuit
alleges estimated damages in the amount of € 750,000 euros. The Company has filed a notice of its intent to defend
the lawsuit and has filed an answer to the complaint requesting additional time. The lawsuit is still ongoing and the Company
is working to settle the matter.
Additionally, on October 15, 2014, Storz &
Bickel filed a lawsuit with the United States District Court, Central District of California against the Company alleging patent
infringement of Storz & Bickel’s US patent no. 6,513,524, which is the US counterpart to the German patent. The US District
lawsuit seeks injunction against distribution of the Company’s VapiRise product, damages, interest, costs, treble damages,
and attorney’s fees. Storz & Bickel has not yet served the US District lawsuit; Storz & Bickel’s US counsel
has contacted the Company to initiate settlement discussions, but it is anticipated that Storz & Bickel will serve the US
District complaint if settlement discussions are not productive.
The Company proposed a settlement agreement
which provides for payment of $40,000 by Vapir and the transfer of its trademark for release of all claims under the lawsuits
and such amount of $40,000 was accrued in fiscal year 2014. In April 2015, both parties entered into a settlement agreement to
release and dismiss the Company from all claims against the Company. The Company paid the settlement amount of $40,000 and assigned
certain trademark rights to Storz & Bickel pursuant to the settlement agreement in April 2015.
Note 11 - Stockholders’ Deficit
Shares Authorized
The authorized capital of the Company consists
of 100,000,000 shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per
share.
Common Stock
In February 2015, the Company granted
125,000 shares of its common stock to a consultant in connection with a 6 month investor relations consulting agreement. The Company
valued these shares at $0.50 per share, the most recent PPM price or $62,500. In connection with the issuance of these shares,
the Company recorded stock based consulting of $62,500 for the nine months ended September 30, 2015.
In July 2015, the Company issued an
aggregate of 60,857 shares of its common stock at approximately $0.50 per share to a consultant as payment for accounting services
rendered pursuant to a consulting agreement. The Company valued these shares at $0.50 per share, the most recent PPM price or $30,000.
In connection with the issuance of these shares, the Company recorded stock based accounting expense of $30,000 for the nine months
ended September 30, 2015.
Warrants
Stock warrant activities for the nine months
ended September 30, 2015 are summarized as follows:
| |
Number of Warrants | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (Years) | | |
Aggregate Intrinsic Value | |
Balance at December 31, 2014 | |
| 1,263 | | |
$ | 1,248 | | |
| 2.11 | | |
$ | - | |
Granted | |
| 500,000 | | |
| 0.60 | | |
| 5.00 | | |
| - | |
Exercised/forfeited/expired | |
| - | | |
| - | | |
| - | | |
| - | |
Balance at September 30, 2015 | |
| 501,263 | | |
| 3.74 | | |
| 4.50 | | |
| - | |
Warrants exercisable at September 30, 2015 | |
| 501,263 | | |
$ | 3.74 | | |
| 4.50 | | |
$ | - | |
Vapir Enterprises, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
September 30, 2015 and 2014
(Unaudited)
Options
Stock option activities for the nine months
ended September 30, 2015 are summarized as follows:
| |
Number of Options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (Years) | | |
Aggregate Intrinsic Value | |
Balance at December 31, 2014 | |
| 100 | | |
$ | 700 | | |
| 2.17 | | |
$ | - | |
Granted | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised/forfeited/expired | |
| - | | |
| - | | |
| - | | |
| - | |
Balance at September 30, 2015 | |
| 100 | | |
| 700 | | |
| 1.42 | | |
| - | |
Options exercisable at September 30, 2015 | |
| 100 | | |
$ | 700 | | |
| 1.42 | | |
$ | - | |
The weighted-average grant-date fair
value of options granted to employees/consultants during the nine months ended September 30, 2015 was $0. As of September 30, 2015,
there were total unrecognized compensation costs related to non-vested share-based compensation arrangements of $0. At September
30, 2015 there was $0 intrinsic value for the stock options outstanding in the above table.
Note 12 - Concentration of Credit Risk
Concentration of Revenue and Supplier
During the nine months ended September 30,
2015 sales to one customer represented approximately 43% of the Company’s net sales. During the nine months ended September
30, 2014 sales to two customers represented approximately 61% of the Company’s net sales.
As of September 30, 2015 and December 31,
2014, accounts receivable from five customers represented approximately 87% and one customer represented 79% of the accounts receivable,
respectively.
The Company purchased inventories and products
from one vendor totaling approximately $755,000 and $473,000 during the nine months ended September 30, 2015 and 2014, respectively.
Note 13 - Subsequent Events
The Company has evaluated all events
that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must
be reported. The Management of the Company determined that there were no reportable subsequent event(s) to be disclosed.
Item
2. |
Management’s
Discussion and Analysis of Financial Condition and Results of Operations. |
The
following discussion and analysis should be read in conjunction with our financial statements and the related notes as of, and
for the quarterly periods ended, September 30, 2015 and 2014. References to the “Company,” “we,” “our,”
or “us” in this section refers to Vapir Enterprises, Inc.
Forward-Looking
Statements
Certain
information contained in this Quarterly Report on Form 10-Q, as well as other written and oral statements made or incorporated
by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange
Commission, press releases, conferences or otherwise, may be deemed to be forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934. This information includes, without limitation, statements concerning the Company's
future financial position and results of operations, planned expenditures, business strategy and other plans for future operations,
the future mix of revenues and business, customer retention, project reversals, commitments and contingent liabilities, future
demand and industry conditions. Although the Company believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to have been correct. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Generally, the words “anticipate,” “believe,” “estimate,” “expect,” “may”
and similar expressions, identify forward-looking statements, which generally are not historical in nature. Actual results could
differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth in
this Quarterly Report on Form 10-Q, the specific risk factors identified in the Company's Annual Report on Form 10-K for the year
ended December 31, 2014, and those described from time to time in our future reports filed with the Securities and Exchange Commission.
The
following discussion is qualified in its entirety by, and should be read in conjunction with, the Company's condensed financial
statements, including the notes thereto, included in this Quarterly Report on Form 10-Q and the Company's Annual Report on
Form 10-K for the year ended December 31, 2014.
Overview
Vapir
Enterprises, Inc. was originally incorporated under the laws of the State of Nevada on December 17, 2009 under the name Apps Genius
Corp. Our original business was to develop, market, publish and distribute social games and software applications that consumers
could use on a variety of platforms, including social networks, wireless devices and stand-alone websites. We were unsuccessful
in operating our business and on October 7, 2013 we entered into a Membership Interest Purchase Agreement with FAL Minerals LLC
and we changed our name to FAL Exploration Corp. The agreement with FAL Minerals LLC has since been terminated and we have now
entered into the Exchange Agreement with Vapir, Inc. and its shareholders. In addition, we changed our name to Vapir Enterprises,
Inc. to better represent our new business operations.
On
December 30, 2014, Vapir, Inc., a private California corporation (“Vapir”), which is the historical business, entered
into a Share Exchange Agreement with the Company, all of the stockholders of Vapir (the “Vapir Shareholders”), and
the Company’s controlling stockholders whereby the Company agreed to acquire all of the issued and outstanding capital stock
of Vapir in exchange for 38,624,768 shares of the Company’s common stock. On December 30, 2014, the transaction closed and
Vapir is now a wholly-owned subsidiary of the Company. The number of shares issued represented approximately 80.0% of the issued
and outstanding common stock immediately after the consummation of the Share Exchange Agreement. In addition, Vapir’s board
of directors and management obtained the board and management control of the combined entity stock immediately after the consummation
of the Share Exchange Agreement.
Vapir,
Inc., our subsidiary, was incorporated on October 26, 2006 in the State of California.
Vapir,
Inc. specializes in the revolutionary technology of digital aromatherapy which is the art and science of utilizing naturally extracted
aromatic essences from plants to balance and harmonize while freshening the environment with pleasant and distinctive fragrances.
We invent, develop and produce revolutionary and easy to use digital aromatherapy devices by utilizing heat and convection air.
On
April 3, 2015, we closed a financing transaction by entering into a Securities Purchase Agreement dated April 3, 2015 (the “Securities
Purchase Agreement”) with certain accredited investors (the “Purchasers”) for an aggregate subscription amount
of $500,000 (the “Purchase Price”). Pursuant to the Securities Purchase Agreement, we issued a 6% Convertible Debenture
(the “Debenture”) and warrants exercisable into 500,000 shares of common stock at an exercise price of $0.60 per share
(the “Warrants”).
The
Debenture accrues interest at a rate equal to 6% per annum and the Debenture has a maturity date of October 3, 2016. The Debenture
is convertible any time after its issuance date. The Purchaser has the right to convert the Debenture into shares of the Company’s
common stock at a conversion price equal to $0.50. The conversion price, however, is subject to full ratchet anti-dilution in
the event that Company issue any securities at a price lower than the conversion price then in effect.
Pursuant
to the Securities Purchase Agreement, the Company issued warrants to acquire 500,000 shares of our common stock. The Warrants
issued in this transaction are immediately exercisable at an exercise price of $0.60 per share, subject to applicable adjustments
including full ratchet anti-dilution in the event that the Company issue any securities at a price lower than the exercise price
then in effect. The Warrants have an expiration period of five years from the original issue date.
Results
of Operations
Three
and Nine Months Ended September 30, 2015 Compared to the Nine Months Ended September 30, 2014
Net
Sales
Net
sales for the nine months ended September 30, 2015 and 2014 were $1,226,708 and $1,136,886 respectively, an increase of $89,822
or approximately 8%. The increase in sales during the nine months ended September 30, 2015 was primarily attributable to an increase
in sales of vaporizers product of approximately $232,000 offset by the decrease in sales of our accessories product of $178,000.
Additionally, revenues from product shipping to our customers increased by approximately $23,000 during the nine months ended
September 30, 2015.
Net
sales for the three months ended September 30, 2015 and 2014 were $307,466 and $243,278 respectively, an increase of $64,188 or
approximately 26%. The increase in sales during the three months ended September 30, 2015 was primarily attributable to an increase
in sales of vaporizers product of approximately $90,000 offset by the decrease in sales of our accessories product of $43,000.
Additionally, revenues from product shipping to our customers increased by approximately $9,000 during the three months ended
September 30, 2015
Cost
of Sales
Cost
of goods sold for the nine months ended September 30, 2015 and 2014 were $733,233 and $564,124, respectively, an increase of $169,109
or approximately 30%. Cost of goods sold for the three months ended September 30, 2015 and 2014 were $188,906 and $134,093, respectively,
an increase of $54,813 or approximately 41%. The increase during the three and nine months ended September 30, 2015 is primarily
due to the increase in sales of our vaporizers products which carries higher cost than our product accessories.
Operating
Expenses
Expenses for the nine months ended September
30, 2015 and 2014 consisted of the following:
| |
For the Three Months Ended | | |
For the Nine Months Ended | |
| |
September 30, 2015 | | |
September 30, 2014 | | |
September 30, 2015 | | |
September 30, 2014 | |
| |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | | |
(Unaudited) | |
Selling expenses | |
| 54,383 | | |
| 13,774 | | |
| 109,213 | | |
| 41,467 | |
Compensation | |
| 160,602 | | |
| 220,081 | | |
| 476,048 | | |
| 516,587 | |
Professional fees | |
| 55,282 | | |
| 3,721 | | |
| 266,744 | | |
| 47,573 | |
General and administrative | |
| 97,765 | | |
| 118,390 | | |
| 251,588 | | |
| 375,222 | |
| |
| | | |
| | | |
| | | |
| | |
Total Operating Expenses | |
| 368,032 | | |
| 355,966 | | |
| 1,103,593 | | |
| 980,849 | |
Total
operating expenses for the nine months ended September 30, 2015 and 2014 were $1,103,593 and $980,849, respectively, an increase
of $122,744 or approximately 13%. Total operating expenses for the three months ended September 30, 2015 and 2014 were $368,032
and $355,966, respectively, an increase of $12,066 or approximately 3%. The increase in operating expenses during the three and
nine months ended September 30, 2015 is primarily due to an increase in legal fees for a patent litigation that the Company was
involved in, increase stock based consulting fees related to investor relation service agreement, and increase accounting fees
for our SEC filings.
Other
Expense, net
Total
other income (expense), net for the nine months ended September 30, 2015 and 2014 were $58,267 and $(11,458), respectively, an
increase of other income of $69,725. Total other income (expense), net for the three months ended September 30, 2015 and 2014
were $58,622 and $(4,287), respectively, an increase of other income of $62,909. The increase in both periods is the result of
the recognition of derivative expense and interest expense from related party advances and convertible debentures and also includes
amortization of debt discount and deferred financing cost in connection with the issuance of convertible debentures offset by
the gain resulting from the decrease in fair value of derivative liabilities.
Net
loss
Net
loss for the nine months ended September 30, 2015 and 2014 was $551,851 and $276,900, respectively, and net loss for the three
months ended September 30, 2015 and 2014 was $190,850 and $108,423 as a result of the items discussed above.
Liquidity
and Capital Resources
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise
operate on an ongoing basis.
We
are not aware of any known trends or any known demands, commitments or events that will result in our liquidity increasing or
decreasing in any material way. We are not aware of any matters that would have an impact on future operations.
Our
net revenues are not sufficient to fund our operating expenses. At September 30, 2015, we had a cash balance of approximately
$94,000 and working capital (deficit) of ($552,000). During the nine months ended September 30, 2015, we borrowed a total of $230,500
of loans from a related party and $500,000 of convertible debentures to fund our operating expenses, pay our obligations, and
grow our company. We currently have no material commitments for capital expenditures. We may be required to raise additional funds,
particularly if we are unable to generate positive cash flow as a result of our operations. We estimate that based on current
plans and assumptions, that our cash will not be sufficient to satisfy our cash requirements under our present operating expectations,
without further financing, for up to 12 months. We presently have no other alternative source of working capital. We may not have
sufficient working capital and net revenues to fund the expansion of our operations and to provide working capital necessary for
our ongoing operations and obligations. We will need to raise significant additional capital to fund our operating expenses, pay
our obligations, and grow our company. Therefore our future operations will be dependent on our ability to secure additional financing.
Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing
mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more
difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required,
it is possible that we could incur unexpected costs and expenses, fail to collect amounts owed to us, or experience unexpected
cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities,
stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior
to those of existing holders of our common stock. The inability to obtain additional capital will restrict our ability to grow
and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will
likely be required to curtail our marketing and development plans and possibly cease our operations.
We
anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future.
Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.
Our
liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs
associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002
and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations
to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.
Inflation
and Changing Prices
Neither
inflation nor changing prices for the nine months ended September 30, 2015 had a material impact on our operations.
Off-Balance
Sheet Arrangements
None.
Quantitative
and Qualitative Disclosures About Market Risk
Not
applicable.
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
(“US GAAP”) requires our management to make assumptions, estimates, and judgments that affect the amounts reported,
including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting
policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding
of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal
of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment,
often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent
periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because
of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.
We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation
of our financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts
of revenues and expenses during the period. Actual results could differ from those estimates. Significant matters requiring the
use of estimates and assumptions include, but may not be limited to, accounts receivable allowances and evaluation of impairment
of long lived assets and intangible assets and the fair value of common stock issued. Management believes that its estimates and
assumptions are reasonable, based on information that is available at the time they are made.
Revenue
recognition
The
Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will
recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned
when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped
or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is
reasonably assured.
Intangible
assets
In
accordance with ASC 350-30-65, “Intangibles - Goodwill and Others”, the Company assesses the impairment of identifiable
intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company
considers to be important which could trigger an impairment review include the following:
|
1. |
Significant
underperformance relative to expected historical or projected future operating results; |
|
|
|
|
2. |
Significant
changes in the manner of use of the acquired assets or the strategy for the overall business; and |
|
|
|
|
3. |
Significant
negative industry or economic trends. |
When
the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of
the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows,
the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method
using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant
management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company
considers current events and circumstances by attending trade shows, having a constant direct dialogue with our distributors,
and an internal review and research by management to keep current with the vaporizer industry and to determine if there is any
economic downturn.
The
Company evaluates the recoverability of intangible assets annually or whenever events or changes in circumstances indicate that
an intangible asset’s carrying amount may not be recoverable. If it is determined by reviewing the above factors that a
possible impairment exists, the Company must then determine if the carrying amount of the intangibles is recoverable based upon
the comparison of the total undiscounted future cash flows from the intangibles to the carrying amount of the intangibles.
Derivative
Liabilities
The
Company follows the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own
Stock”, for the embedded conversion options and the warrants that were accounted for as derivative liabilities at the date
of issuance and adjusted to fair value through earnings at each reporting date. In accordance with ASC 815, the Company has bifurcated
the conversion feature of the convertible Debentures, along with the free-standing warrant derivative instruments and recorded
derivative liabilities on their issuance date. The Company uses the Simple Binomial Lattice model to value the derivative liabilities.
Item
3. |
Quantitative
and Qualitative Disclosures About Market Risk. |
Not
applicable for a smaller reporting company.
Item
4. |
Controls
and Procedures. |
We
maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to
be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure
controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The
design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
With
respect to the quarterly period ending September 30, 2015, under the supervision and with the participation of our management,
we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based
upon this evaluation, our management has concluded that our disclosure controls and procedures were not effective as of September
30, 2015 due to our limited internal resources and lack of ability to have multiple levels of transaction review. In connection
with this evaluation, management identified the following control deficiencies that represent material weaknesses as of September
30, 2015:
|
(1) |
Lack
of an independent audit committee or audit committee financial expert. Although our board of directors serves as the audit
committee it has no independent directors These factors are counter to corporate governance practices as defined by the various
stock exchanges and may lead to less supervision over management. |
|
(2) |
We
do not have sufficient experience from our accounting personnel with the requisite U.S. GAAP public company reporting experience
that is necessary for adequate controls and procedures due to our limited resources with appropriate skills, training and
experience to perform the review processes to ensure the complete and proper application of generally accepted accounting
principles. |
|
(3) |
Need
for greater integration, oversight, communication and financial reporting of the books and records of our satellite offices. |
|
(4) |
Lack
of sufficient segregation of duties such that the design over these areas relies primarily on detective controls and could
be strengthened by adding preventative controls to properly safeguard company assets. |
However,
to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and
the recording of transactions will be performed by separate individuals. We also plan to improve the effectiveness of the accounting
group by continuing to augment our existing resources with additional consultants or employees to improve segregation procedures
and to assist in the analysis and recording of complex accounting transactions. We plan to hire additional senior accounting personnel
or additional independent consultants once we generate significantly more revenue or raise significant additional working capital.
We will also improve segregation procedures by strengthening cross approval of various functions including quarterly internal
audit procedures where appropriate. We believe that the foregoing steps will remediate the significant deficiency identified above,
and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate.
Management
is in the process of determining how best to change our current system and implement a more effective system to insure that information
required to be disclosed in this quarterly report on Form 10-Q has been recorded, processed, summarized and reported accurately.
Our management acknowledges the existence of this problem, and intends to develop procedures to address them to the extent possible
given limitations in financial and manpower resources. While management is working on a plan, no assurance can be made at this
point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate
once implemented.
Changes
in Internal Controls.
There
have been no changes in our internal control over financial reporting during the three months ended September 30, 2015 that have
materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART
II-OTHER INFORMATION
Item
1. |
Legal
Proceedings. |
From
time to time, the Company is involved in litigation matters relating to claims arising from the ordinary course of business. While
the results of such claims and legal actions cannot be predicted with certainty, the Company’s management does not believe
that there are claims or actions, pending or threatened against the Company, the ultimate disposition of which would have a material
adverse effect on our business, results of operations, financial condition or cash flows.
Smaller
reporting companies are not required to provide the information required by this item.
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
In July
2015, the Company issued an aggregate of 60,857 shares of its common stock at approximately $0.50 per common share to a consultant
as payment for accounting services rendered pursuant to a consulting agreement. The Company issued the shares in reliance upon
the exemption from registration contained in Section 4(2) of the Securities Act and Rule 506(b) of Regulation D. The
Company’s reliance on Section 4(2) of the Securities Act was based upon the following factors: (a) the issuance of the securities
was an isolated private transaction by us which did not involve a public offering; (b) there were only a limited number of offerees;
(c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not
broken down into smaller denominations; and (e) the negotiations for the sale of the stock took place directly between the offeree
and the Company.
Item
3. |
Defaults
Upon Senior Securities. |
None.
Item
4. |
Mine
Safety Disclosure. |
Not
applicable.
Item
5. |
Other
Information. |
None.
31.1 |
Section
302 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer* |
32.1 |
Section
906 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer |
|
|
101.ins |
XBRL
Instance Document |
101.sch |
XBRL
Taxonomy Schema Document |
101.cal |
XBRL
Taxonomy Calculation Document |
101.def |
XBRL
Taxonomy Linkbase Document |
101.lab |
XBRL
Taxonomy Label Linkbase Document |
101.pre |
XBRL
Taxonomy Presentation Linkbase Document |
* Filed
herein
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
Vapir
Enterprises, Inc. |
|
|
Date:
November 16, 2015 |
By: |
/s/
Hamid Emarlou |
|
|
Hamid Emarlou |
|
|
Chief
Executive Officer
(Principal
Executive Officer and
Principal
Financial Officer) |
34
EXHIBIT
31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
I, Hamid
Emarlou, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Vapir Enterprises, Inc.;
2.
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
November 16, 2015 |
By: |
/s/
Hamid Emarlou |
|
|
Hamid
Emarlou
Chief
Executive Officer
(Principal
Executive Officer and
Principal
Financial Officer) |
EXHIBIT
32.1
Certification
of Principal Executive Officer
Pursuant
to U.S.C. Section 1350
As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant
to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States
Code), the undersigned officer of Vapir Enterprises, Inc. a Nevada corporation (the “Company”), does hereby certify,
to such officer’s knowledge, that:
The
Quarterly Report on Form 10-Q for the period ending September 30, 2015 of the Company (the “Form 10-Q”) fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form
10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:
November 16, 2015 |
By: |
/s/
Hamid Emarlou |
|
|
Hamid
Emarlou
Chief
Executive Officer
(Principal
Executive Officer and
Principal
Financial Officer) |