UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date of Report (Date of Earliest event
Reported): December 30, 2014
Vapir
Enterprises, Inc.
(Exact name of registrant as specified
in its charter)
Nevada |
|
333-185083 |
|
27-1517938 |
(State or other jurisdiction of
incorporation or organization) |
|
(Commission File Number) |
|
(IRS Employer
Identification No.) |
2365 Paragon Dr., Suite B
San Jose, California 95131
(Address of principal executive offices)
(800) 841-1022
(Registrant’s telephone number,
including area code)
FAL Exploration Corp.
431 Fairway Drive, Suite 260
Deerfield Beach, Florida 33441
(Former name of former address, if changed
since last report)
Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
SPECIAL NOTE REGARDING FORWARD LOOKING
STATEMENTS
This report contains forward-looking
statements. The forward-looking statements are contained principally in the sections entitled “Description of Business,”
“Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking
statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,”
“seeks,” “could,” “estimates,” “expects,” “intends,” “may,”
“plans,” “potential,” “predicts,” “projects,” “should,” “would”
and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with
respect to future events and are based on assumptions and subject to risks and uncertainties. These risks and uncertainties include,
but are not limited to, the factors described in the section captioned “Risk Factors” below. Given these uncertainties,
you should not place undue reliance on these forward-looking statements. Such statements may include, but are not limited
to, information related to: anticipated operating results; licensing arrangements; relationships with our customers; consumer demand;
financial resources and condition; changes in revenues; changes in profitability; changes in accounting treatment; cost of sales;
selling, general and administrative expenses; interest expense; the ability to produce the liquidity or enter into agreements to
acquire the capital necessary to continue our operations and take advantage of opportunities; legal proceedings and claims.
Also, forward-looking statements represent
our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference
and filed as exhibits to this report completely and with the understanding that our actual future results may be materially different
from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to
update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new
information becomes available in the future.
Unless the context otherwise requires,
all references in this Report to “we,’’ ‘‘us,’’ ‘‘our’’ and “the
Company” refer collectively to Vapir Enterprises, Inc., a Nevada corporation, and its subsidiaries, including Vapir, Inc.,
a private California corporation.
Item 1.01 |
Entry into a Material Definitive Agreement |
On December 30, 2014, we entered into
a Share Exchange Agreement (the “Exchange Agreement”) with Vapir, Inc., a California corporation (“Vapir”),
all of the stockholders of Vapir (the “Vapir Shareholders”), and our controlling stockholders.
Pursuant to the Exchange Agreement,
we will acquire all of the outstanding shares of Vapir in exchange for the issuance of 38,624,768 shares of our common stock to
the Vapir Shareholders. The shares to be issued to the Vapir Shareholders shall constitute 80% of our issued and outstanding
shares of common stock as of and immediately after the consummation of the Exchange Agreement.
Upon closing of the Exchange Agreement,
Vapir became our wholly owned subsidiary and we have ceased our prior operations.
A copy of the final, fully executed
copy of the Exchange Agreement is attached hereto as Exhibit 2.1.
For additional information with respect
to the Exchange Agreement and the business of the acquired entity, please see the disclosures set forth in Item 2.01 to this Current
Report, which disclosures are incorporated into this item by reference.
Change of Business and Sale of ownership
interest in FAL Minerals and Land in Alabama
In November 2013, the Company entered
into a Real Estate Purchase and Sale Agreement (the “November 2013 Land Sale”) with certain sellers (the “November
2013 Sellers”) for the sale of real estate properties located in Clay County, Alabama. The purchase price was $400,000 and
was paid as follows:
|
(a) |
issue of 160,000 shares of common stock of the Company (the “November 2013 Land Sale Shares”); and |
|
|
|
|
(b) |
a promissory note (the “November 2013 Land Sale Note”) in the original principal amount of $200,000, payable to Seller bearing interest at the lowest imputed rate, with no payments of principal or interest due or payable until the 36 month after Closing (the “Maturity Date”). |
In connection with the Exchange Agreement
and our new business as a vaporizer company, we decided to sell our ownership in the real estate that we purchased in the November
2013 Land Sale. On December 11, 2014, we closed on the sale of the 2 properties located in Clay County, Alabama that we purchased
in November 2013 Land Sale. The proceeds we received from the sale of the 2 properties were used to: (i) pay any taxes owed on
the land and legal fees associated with the sale; and (ii) pay-off the November 2013 Sellers. In exchange for the payment, the
November 2013 Sellers agreed to forgive any outstanding amounts due on the November 2013 Land Sale Note and return the November
2013 Land Sale Shares that were issued in connection with the November 2013 Land Sale.
Additionally, on December 30, 2014,
we returned our 19.6% membership interest in FAL Minerals, LLC because we are no longer in the business of land exploration and
will not be participating in the operations of this entity.
Item 2.01 |
Completion of Acquisition or Disposition of Assets |
On December 30, 2014, we entered into
the Exchange Agreement with Vapir. Pursuant to the terms and conditions of the Exchange Agreement, we acquired all of
the outstanding shares of Vapir and we issued a total of 38,624,768 shares of our common stock to the shareholders of Vapir, which
constitutes 80% of the total issued and outstanding shares of our common stock immediately following the closing.
After the closing of the Exchange Agreement,
our capitalization of the Company is as follows:
Shareholder | |
# of Shares Owned | | |
Percentage Ownership | |
Vapir Executives | |
| 38,624,768 | | |
| 80.00 | % |
Whalehaven Capital Fund Ltd.(1) | |
| 5,751,230 | | |
| 12.15 | % |
Adam Kotkin | |
| 1,200,000 | | |
| 2.53 | % |
| |
| | | |
| | |
Total Outstanding | |
| 48,280,960 | | |
| | |
| (1) | Beneficial ownership of the securities is held by Elizabeth Leonard and Michael Finkelstein. |
The purposes of the transactions described
in this Current Report were to complete a reverse merger with the result being that Vapir became a wholly-owned subsidiary.
The foregoing description of the Exchange
Agreement, closing and related transactions does not purport to be complete and is qualified in its entirety by reference to the
complete text of the Exchange Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K.
Following the Exchange Agreement, as
of the date of this current report on Form 8-K, there are 48,280,960 shares of our common stock issued and outstanding. As a result,
our pre-merger stockholders hold Twenty Percent (20%) of our issued and outstanding shares of common stock.
The shares of common stock issued to
the former stockholders of Vapir in connection with the Exchange Agreement were not registered under the Securities Act of 1933,
as amended (the “Securities Act”), and were issued in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act and Regulation D promulgated thereunder, which exempts transactions by an issuer not involving any public
offering. These securities may not be offered or sold absent registration or an applicable exemption from the registration requirements.
We have not committed to registering these shares for resale. Certificates representing these shares contain a legend stating the
restrictions applicable to such shares.
On December 30, 2014, we closed on the
Exchange Agreement and filed a Super 8-K that contained current “Form 10 information” regarding the business operations
of Vapir, Inc.
Changes to the Business. We
intend to carry on Vapir’s business as our sole line of business. We have relocated our executive offices to 2365
Paragon Dr. Suite B, San Jose, Ca, and our telephone number is (800) 841-1022.
Accounting Treatment. The
Exchange Agreement is being accounted for as a reverse merger and recapitalization and Vapir is deemed to be the acquirer in the
reverse merger for accounting purposes. Consequently, the assets and liabilities and the historical operations of the Company that
will be reflected in the financial statements prior to the closing will be those of Vapir, and the consolidated financial statements
of the Company after completion of the reverse merger will include the assets and liabilities of Vapir, historical operations of
Vapir and operations of Vapir from the Closing Date of the Exchange Agreement.
Tax Treatment. The
reverse merger is intended to constitute a tax-deferred exchange of property governed by Section 351 of the United States Internal
Revenue Code of 1986, as amended (the “Code”), or such other tax free reorganization or restructuring provisions as
may be available under the Code. Any gain required to be recognized will be subject to regular individual or corporate federal
income taxes, as the case may be.
DESCRIPTION OF BUSINESS
Vapir, Inc. 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.
The unique value proposition of the Company’s proprietary technology (US Patent 6,095,153) is to prevent the creation of
toxic by-products whenever plant materials are inhaled. This is accomplished by using convection heat that induces the safe release
of plant essences without burning the source material.
Corporate History
We were 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 anticipation of closing the Exchange
Agreement, on September 17, 2014, we changed our name to Vapir Enterprises, Inc. to better represent our new business operations.
Our Industry
“Electronic cigarettes”
or “e-cigarettes” and “vaporizers” are battery-powered products that enable users to inhale nicotine vapor
without smoke, tar, ash, or carbon monoxide. Electronic cigarettes look like traditional cigarettes and, regardless of their construction
are comprised of three functional components:
|
● |
a mouthpiece, which is a small plastic cartridge that contains a liquid nicotine solution; |
|
● |
the heating element that vaporizes the liquid nicotine so that it can be inhaled; and |
|
● |
the electronics, which include: a lithium-ion battery, an airflow sensor, a microchip controller and an LED, which illuminates to indicate use. |
When a user draws air through the electronic
cigarette and or vaporizer, the air flow is detected by a sensor, which activates a heating element that vaporizes the solution
stored in the mouthpiece/cartridge, the solution is then vaporized and it is this vapor that is inhaled by the user. The cartridge
contains either a nicotine solution or a nicotine free solution, either of which may be flavored.
Our Products
Vaporizers
We offer 4 vaporizers, the VapirRise,
VAPIR NO2 Portable Digital Vaporzier, VAPIR ONE, and VAPIR Oxygen Mini Corded Vaporizer.
VapirRise
The VapirRise is designed for loose-leaf
herbs and essential oils. It supports both balloon inflation and direct inhalation. It can serve up to 4 users simultaneously.
It has touch pad controls, an LCD temperature display and medical grade stainless steel vapir path and a ceramic heating element.
As the ceramic heating element of the
device reaches the pre-set temperature, a fan blows air through the heating element. A sensor, which is located in the chamber
of the unit, will constantly monitor the air temperature and maintain pre-set heat levels by turning the heating element on and
off as needed. Once the optimal temperature is reached, a green light on the casing will indicate that the device is now ready.
This relatively simple technology enables the vaporizers to maintain heat levels.
This convection vaporizer is a stationary
desktop model – which means it isn’t intended for on-the-go consumption. The VapirRise offers an exceptional approach
to the at-home vaporization experience.
Users can control the temperature (in both degrees Celsius & Fahrenheit); control the Fan Speed (ten options including a fanless
setting!); pick between a balloon or hose inhalation methods; and choose to serve up to four people at once with the exclusive
hookah adapter.
VAPIR NO2 Portable Digital Vaporizer
The VAPIR NO2 is designed for loose-leaf herbs
and direct inhalation. It is compact, portable and rechargeable. It has a medical grade pure brass element, an LCD temperature
display and a silent operation. The VAPIR NO2 will be your number one portable vaporizer.
This compact portable vaporizer features touch-to-heat
digital controls, an LCD thermostat, an internal rechargeable battery, and 100% silent operation. The NO2 vaporizer is designed
for use with raw herbs and heats up in less than a minute. You can even vaporize while it’s charging.
The NO2 requires little to no maintenance for
optimal operation and it even remembers your favorite temperature settings for quick and consistent vapor at the touch of a button.
VAPIR ONE
The VAPIR ONE is designed for loose-leaf herbs.
It supports both balloon inflation and direct inhalation. It has a medical grade ceramic heating element and an LCD temperature
display.
The vaporizers include removable disks that
hold the source material and need to be inserted into device prior to pre heating the vaporizers. Temperatures and safety times
can be set individually according to the manufacturer’s recommendations. This process prevents the waste of source material,
titrates dosages, and ensures that the vaporizers work at optimum conditions.
The Vapir One has digital temperature controls,
swift heat up time, and mind-blowing vapor flavor with every puff. We designed this desktop vaporizer to require little to no maintenance
for consistent vapor clouds and premium sessions.
As the ceramic heating element of the
device reaches the pre-set temperature, a fan blows air through the heating element. A sensor, which is located in the chamber
of the unit, will constantly monitor the air temperature and maintain pre-set heat levels by turning the heating element on and
off as needed. Once the optimal temperature is reached, a green light on the casing will indicate that the device is now ready.
This relatively simple technology enables the vaporizers to maintain heat levels.
Once the user starts using the device, the
fan will blow hot air through the disk filled with the source material. This aerosol now contains hot air that is enriched with
the active elements, flavor, aroma, and pure essence of the source material. The aerosol will then reach an internal cooling chamber
where the vapors are cooled to a level that is safe for the consumer to inhale. The consumer will then inhale the warm and rich
vapors through a tube, which also serves as the final cooling process before the vapors reach the human lungs.
VAPIR OXYGEN MINI CORDED
The VAPIR Oxygen Mini Corded is designed
for loose-leaf herbs and direct inhalation. It is small and lightweight and is a corded vaporizer. It has an LCD temperature display
and silent operation. Every portable vaporizer needs to produce clouds – not a mere mist! The Vapir Oxygen lets you live
and breathe premium vapor. This herbal vaporizer harnesses premium materials and innovative design to deliver everything you’d
expect from a premium vaporizer.
Our Oxygen Vaporizer features digital controls, portable design, and consistent vapor sessions with little maintenance.
Our Vaporizers and Accessories
Our vaporizers are sold with all the essentials
that are needed to begin the vaporizing experience. In addition or vaporizers, we sell approximately 100 accessories that range
from replacement batteries, replacement mouthpieces, recharging pieces, cleaning utensils and all other essentials.
Additionally, we offer an assortment of our
own aromatherapy oils and herbs for our vaporizer users to enjoy.
Seasonality of our Business
We do not consider our business to be
seasonal.
Marketing
We offer our vaporizers and related
products through our online stores, to retail channels through our direct sales force, and through third party wholesalers, retailers
and value-added resellers. Retailers of our products include small-box discount retailers, big-box retailers, gas stations, drug
stores, convenience stores, tobacco shops and kiosk locations in shopping malls throughout the United States.
Competition
Competition in the vaporizer industry is intense.
We compete with other sellers of vaporizers that are similar to our products and our competitors use the same sales practices and
marketing strategies as we use.
The nature of our competitors is varied as
the market is highly fragmented and the barriers to entry into the business are low. Our direct competitors sell products that
are substantially similar to ours and through the same channels through which we sell our vaporizers. We compete with these direct
competitors for sales through distributors, wholesalers and retailers, including but not limited to national chain stores, gas
stations, travel stores, shopping mall kiosks, in addition to direct to public sales through the internet, mail order and telesales.
As a general matter, we have access to and
market and sell the similar products as our competitors and since we sell our products at substantially similar prices as our competitors;
accordingly, the key competitive factors for our success is the quality of service we offer our customers, the scope and effectiveness
of our marketing efforts, including media advertising campaigns and, increasingly, the ability to identify and develop new sources
of customers.
Regulatory Matters/Compliance
The United States Food and Drug Administration (the “FDA”)
regulates electronic cigarettes as “tobacco products” under the Family Smoking Prevention and Tobacco Control Act of
2009 (the “Tobacco Control Act”). The FDA is not permitted to regulate electronic cigarettes as “drugs”
or “devices” or a “combination product” under the Federal Food, Drug and Cosmetic Act unless they are marketed
for therapeutic purposes.
Our vaporizers are classified as “tobacco products”
under the Tobacco Control Act. The Tobacco Control Act grants the FDA broad authority over the manufacture, sale, marketing and
packaging of tobacco products, although the FDA is prohibited from issuing regulations banning all cigarettes or all smokeless
tobacco products, or requiring the reduction of nicotine yields of a tobacco product to zero.
The Tobacco Control Act imposes significant new restrictions
on the advertising and promotion of tobacco products. The law also requires the FDA to issue future regulations regarding the promotion
and marketing of tobacco products sold or distributed over the internet, by mail order or through other non-face-to-face transactions
in order to prevent the sale of tobacco products to minors.
It is likely that the Tobacco Control Act could result in
a decrease in tobacco product sales in the United States, including sales of our electronic cigarettes and vaporizers.
The Tobacco industry expects significant regulatory developments
to take place over the next few years, driven principally by the World Health Organization’s Framework Convention on Tobacco
Control (“FCTC”). The FCTC is the first international public health treaty on tobacco, and its objective is to establish
a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. Regulatory
initiatives that have been proposed, introduced or enacted include:
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● |
the levying of substantial and increasing tax and duty charges; |
|
● |
restrictions or bans on advertising, marketing and sponsorship; |
|
● |
the display of larger health warnings, graphic health warnings and other labeling requirements; |
|
● |
restrictions on packaging design, including the use of colors and generic packaging; |
|
● |
restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines; |
|
● |
requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels; |
|
● |
requirements regarding testing, disclosure and use of tobacco product ingredients; |
|
● |
increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors; |
|
● |
elimination of duty free allowances for travelers; and |
|
● |
encouraging litigation against tobacco companies. |
If electronic cigarettes or vaporizers are subject to one
or more significant regulatory initiatives, our business, results of operations and financial condition could be materially and
adversely affected.
Intellectual Property
Patents
We currently own three domestic utility
patents and two design patents relating to vaporizers, as well as two utility patent applications and one design application pending
in the United States as described below. There is no assurance that we will be awarded patents for of any of these pending patent
applications.
U.S. Patent # 6,095,153 - Vaporization
of volatile materials
We have a patent for the vaporization
of volatile materials while avoiding combustion and denaturation of such material provide an alternative to combustion as means
of volatilizing bioactive and flavor compounds to make such compounds available for inhalation without generating toxic or carcinogenic
substances that are by-products of combustion and pyrolysis.
U.S. Patent # 6,772,756 - Method
and System for Vaporization of a Substance
We have a patent for an apparatus for
the vaporization of materials that releases active constituents for inhalation without the creation of harmful byproducts such
as carcinogens associated with combustion and inhalation of substances.
U.S. Patent # 6,990,978 - Method
and System for Vaporization of a Substance
We have a patent for an apparatus for
the vaporization of materials that releases active constituents for inhalation without the creation of harmful byproducts such
as carcinogens associated with combustion and inhalation of substances.
U.S. Design Patent # 489,448 - Vaporization
Apparatus
We have a patent for the ornamental
design for the vaporization apparatus.
U.S. Design Patent # 508,119 –
Mesh Filter with Glass Insert
We have a patent for the ornamental
design for a component for a vaporizer.
U.S. Patent Application # 11/872,040
- Method and System for Vaporization of a Substance
We have a patent pending for an apparatus
for the vaporization of materials that releases active constituents for inhalation without the creation of harmful byproducts such
as carcinogens associated with combustion and inhalation of substances.
U.S. Patent # 14/254,723 - Multi-User
Inhalation Adaptor
We have a patent pending for a component
of a vaporizer that allows multiple users to inhale the vapors of materials.
U.S. Design Patent # 29/473,910
- Vaporizer
We have a patent for the ornamental
design for the vaporization apparatus.
Trademarks
We own trademarks on certain of our products, including: Vapormed®,
Digital Air®, Nicohale®, and Vapir®.
Employees
As of December 30, 2014, we have seven
(7) full-time employees. None of these employees are represented by collective bargaining agreements and the Company
considers it relations with its employees to be good.
Properties
The Company’s corporate headquarters
is located in California. The Company currently leases space located at 2365 Paragon Dr., Suite B, San Jose, Ca, 95131.
This is our only location. We have a lease for the property
that commenced on May 1, 2013 and has a term of two years and six months and will expire on October 31, 2015. The lease is for
5,050 square feet of office space. We pay $3,787.50 per month for the leased premises.
Corporation Information
Our principal executive offices are
located at 2365 Paragon Dr., Suite B San Jose, Ca, 95131. Our telephone number is (800) 841-1022. Our website is www.vapir.com.
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.
Notwithstanding the foregoing, on November
3, 2014, Vapir was served with a lawsuit from Storz & Bickel, a German competitor of Vapir. 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. Vapir 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 Vapir is working
to settle the matter.
Additionally, on October 15, 2014, Storz &
Bickel have filed a lawsuit with the United States District Court, Central District of California against Vapir 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 Vapir’s VapiRise product, damages, interest, costs, treble damages, and
attorney’s fees.
Storz & Bickel have not yet served the
US District lawsuit; Storz & Bickel’s US counsel have contacted Vapir to initiate settlement discussion, but it is anticipated
that Storz & Bickel will serve the US District complaint if settlement discussions are not productive.
The Company may be subject to legal
proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these
claims cannot be predicted with certainty, we do not believe that any of the outcomes will have a material effect on our operations.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis
of the results of operations and financial condition of Vapir for the fiscal years ended December 31, 2013 and 2012, should be
read in conjunction with the Selected Financial Data, Vapir’s financial statements, and the notes to those financial
statements that are included elsewhere in this Current Report. Our discussion includes forward-looking statements based upon current
expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and
the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number
of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business
sections in this Current Report. We use words such as “anticipate,” “estimate,” “plan,” “project,”
“continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,”
“will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Overview
We were 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, Inc. to better represent our new business operations.
Vapir, Inc. 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.
Nine Months Ended September 30, 2014 Compared to the
Nine Months Ended September 30, 2013
| |
For the Nine Months Ended | |
| |
September 30, 2014 | | |
September 30, 2013 | |
| |
(Unaudited) | | |
(Unaudited) | |
| |
| | |
| |
Net Sales | |
$ | 1,136,886 | | |
$ | 1,962,883 | |
| |
| | | |
| | |
Cost of sales | |
| 564,124 | | |
| 1,001,497 | |
| |
| | | |
| | |
Gross profit | |
| 572,762 | | |
| 961,386 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
Depreciation and amortization | |
| 73,435 | | |
| 55,613 | |
Marketing and selling expenses | |
| 41,467 | | |
| 63,346 | |
Compensation | |
| 516,587 | | |
| 392,430 | |
Professional fees | |
| 47,573 | | |
| 12,486 | |
Research and development | |
| 54,039 | | |
| 80,766 | |
Rent | |
| 57,894 | | |
| 55,016 | |
General and administrative | |
| 189,854 | | |
| 206,810 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 980,849 | | |
| 866,467 | |
| |
| | | |
| | |
(LOSS) INCOME FROM OPERATIONS | |
| (408,087 | ) | |
| 94,919 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Interest expense | |
| (11,458 | ) | |
| (23,359 | ) |
| |
| | | |
| | |
Total Other Expense | |
| (11,458 | ) | |
| (23,359 | ) |
| |
| | | |
| | |
(LOSS) INCOME BEFORE INCOME TAXES | |
| (419,545 | ) | |
| 71,560 | |
| |
| | | |
| | |
PROVISION FOR INCOME TAXES | |
| - | | |
| - | |
| |
| | | |
| | |
NET (LOSS) INCOME | |
$ | (419,545 | ) | |
$ | 71,560 | |
Net Sales
Sales, net for the nine months ended
September 30, 2014 and 2013 were $1,136,886 and $1,962,883, respectively, a decrease of $825,997 or approximately 42%. The decrease
in sales is primarily attributable to a delay in our new product release.
Cost of Sales
Cost of goods sold for the nine months
ended September 30, 2014 and 2013 were $564,124 and $1,001,497, respectively, a decrease of $437,373, or approximately 44%. The
decrease is primarily due to the decrease in our revenue and a higher margin from our website sales.
Operating Expenses
Total operating expenses for the nine
months ended September 30, 2014 and 2013 were $980,849 and $866,467, respectively, an increase of $114,382, or approximately 13%.
The increase is primarily due to higher expenses for salaries for qualified people to work on our new product and increased legal
fees due to patent litigation.
Net (loss) Income
Net (loss) income for the nine months
ended September 30, 2014 and 2013 was ($419,545) and $71,560, respectively, as a result of the items discussed above.
Year Ended December 31, 2013 Compared to the Year Ended
December 31, 2012
| |
For the Year Ended | |
| |
December 31, 2013 | | |
December 31, 2012 | |
| |
| | |
| |
Net Sales | |
$ | 3,053,752 | | |
$ | 4,070,025 | |
| |
| | | |
| | |
Cost of sales | |
| 1,546,821 | | |
| 2,242,393 | |
| |
| | | |
| | |
Gross profit | |
| 1,506,931 | | |
| 1,827,632 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
Depreciation and amortization | |
| 74,151 | | |
| 73,940 | |
Marketing and selling expenses | |
| 76,075 | | |
| 50,975 | |
Compensation | |
| 533,702 | | |
| 588,463 | |
Professional fees | |
| 15,828 | | |
| 57,294 | |
Research and development | |
| 88,847 | | |
| 13,658 | |
Rent | |
| 72,966 | | |
| 77,017 | |
General and administrative | |
| 303,677 | | |
| 275,467 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 1,165,246 | | |
| 1,136,814 | |
| |
| | | |
| | |
INCOME FROM OPERATIONS | |
| 341,685 | | |
| 690,818 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Interest expense | |
| (33,167 | ) | |
| (39,892 | ) |
Interest income | |
| 1 | | |
| 195 | |
| |
| | | |
| | |
Total Other Income (Expense) | |
| (33,166 | ) | |
| (39,697 | ) |
| |
| | | |
| | |
INCOME BEFORE INCOME TAXES | |
| 308,519 | | |
| 651,121 | |
| |
| | | |
| | |
PROVISION FOR INCOME TAXES | |
| - | | |
| - | |
| |
| | | |
| | |
NET INCOME | |
$ | 308,519 | | |
$ | 651,121 | |
Net Sales
Sales, net for the years December 31,
2013 and 2012 were $3,053,752 and $4,070,025, respectively, a decrease of $1,016,273 or approximately 25%. The decrease in sales
is primarily attributable to a delay in the release of our new product.
Cost of Sales
Cost of sales for the years ended December
31, 2013 and 2012 was $1,546,821 and $2,242,393, respectively, a decrease of $695,572, or 31%. The decrease is primarily due to
a decrease in our revenue and a higher margin from our website sales.
Operating Expenses
Total operating expenses for the years
ended December 31, 2013 and 2012 were $1,165,246 and $1,136,814, respectively, an increase of $27,432, or approximately 3%. The
increase is primarily due to higher expenses for salaries for qualified people to work on our new product and increased legal fees
due to patent litigation.
Net Income
Net income for the years ended December
31, 2013 and 2012 were $308,519 and $651,121, respectively, a decrease of $342,602 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, 2014 we had a cash balance of $0 and working capital deficit of $418,122.
During the nine months ended September 30, 2014, we borrowed an additional $21,000 of loans 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, 2014 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. 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.
RISK FACTORS
Risks Related to Our Business
The recent development of vaporizers has not allowed the medical
profession to study the long-term health effects of vaporizer use.
Because vaporizers were recently developed
the medical profession has not had a sufficient period of time to study the long-term health effects of vaporizer use. Currently,
therefore, there is no way of knowing whether or not vaporizers are safe for their intended use. If the medical profession were
to determine conclusively that vaporizer usage poses long-term health risks, vaporizer usage could decline, which could have a
material adverse effect on our business, results of operations and financial condition.
The market for vaporizers is a niche
market, subject to a great deal of uncertainty and is still evolving.
Vaporizers, having recently been introduced
to market, are at an early stage of development, represent a niche market and are evolving rapidly and are characterized by an
increasing number of market entrants. Our future sales and any future profits are substantially dependent upon the widespread acceptance
and use of vaporizers. Rapid growth in the use of, and interest in, vaporizers is recent, and may not continue on a lasting basis.
The demand and market acceptance for these products is subject to a high level of uncertainty.
Therefore, we are subject to all of
the business risks associated with a new enterprise in a niche market, including risks of unforeseen capital requirements, failure
of widespread market acceptance of vaporizers, in general or, specifically our products, failure to establish business relationships
and competitive disadvantages as against larger and more established competitors.
Vaporizers face intense media attention
and public pressure.
Vaporizers are new to the marketplace and since
their introduction certain members of the media, politicians, government regulators and advocate groups, including independent
medical physicians have called for an outright ban of all vaporizers, pending regulatory review and a demonstration of safety.
A partial or outright ban would have a material adverse effect on our business, results of operations and financial condition.
We may experience product liability
claims in our business, which could adversely affect our business.
We may experience product liability
claims from the marketing and sale of vaporizers. Any product liability claim brought against us, with or without merit, could
result in:
|
● |
liabilities that substantially exceed our product liability insurance, which we would then be required to pay from other sources, if available; |
|
● |
an increase of our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, or at all; |
|
● |
damage to our reputation and the reputation of our products, resulting in lower sales; |
|
● |
regulatory investigations that could require costly recalls or product modifications; |
|
● |
the diversion of management’s attention from managing our business. |
Any one or more of the foregoing could
have a material adverse effect on our business, results of operations and financial condition.
If we experience product recalls,
we may incur significant and unexpected costs and our business reputation could be adversely affected.
We may be exposed to product recalls
and adverse public relations if our products are alleged to cause illness or injury, or if we are alleged to have violated governmental
regulations. A product recall could result in substantial and unexpected expenditures that could exceed our product recall insurance
coverage limits and harm to our reputation, which could have a material adverse effect on our business, results of operations and
financial condition. In addition, a product recall may require significant management time and attention and may adversely impact
on the value of our brands. Product recalls may lead to greater scrutiny by federal or state regulatory agencies and increased
litigation, which could have a material adverse effect on our business, results of operations and financial condition.
Product exchanges, returns and
warranty claims may adversely affect our business.
If we are unable to maintain an acceptable
degree of quality control of our products we will incur costs associated with the exchange and return of our products as well as
servicing our customers for warranty claims. Any of the foregoing on a significant scale may have a material adverse effect on
our business, results of operations and financial condition.
We may be unable to promote and maintain
our brands.
We believe that establishing and maintaining
the brand identities of our products is a critical aspect of attracting and expanding a large customer base. Promotion and enhancement
of our brands will depend largely on our success in continuing to provide high quality products. If our customers and end users
do not perceive our products to be of high quality, or if we introduce new products or enter into new business ventures that are
not favorably received by our customers and end users, we will risk diluting our brand identities and decreasing their attractiveness
to existing and potential customers.
Moreover, in order to attract and retain customers
and to promote and maintain our brand equity in response to competitive pressures, we may have to increase substantially our financial
commitment to creating and maintaining a distinct brand loyalty among our customers. If we incur significant expenses in an attempt
to promote and maintain our brands, our business, results of operations and financial condition could be adversely affected.
Key employees are essential to
expanding our business.
Hamid Emarlou, our Chief Executive Officer,
is essential to our ability to continue to grow and expand our business. They have established relationships within the industry
in which we operate. If either were to leave us, our growth strategy might be hindered, which could materially affect our business
and limit our ability to increase revenue.
The Company may lose its top management
without employment agreements.
Our operations depend substantially
on the skills, knowledge and experience of the present management. The Company has no other full or part-time individuals
devoted to the development of our Company. Furthermore, the Company does not maintain key man life insurance. Without an employment
contract, we may lose the present management of the Company to other pursuits without a sufficient warning and, consequently, we
may be forced to terminate our operations.
We do not have a majority of independent
directors serving on our board of directors, which could present the potential for conflicts of interest.
After the Closing of the Exchange Agreement,
Hamid Emarlou, Masoud Shahidi and Adam Kotkin are our directors. As a result, we do not have a majority of independent directors
serving on our Board. In the absence of a majority of independent directors, our executive officers could establish policies and
enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest
between us and our stockholders, generally, and the controlling officers, stockholders or directors.
If we are unable to establish
appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations,
result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction,
cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares
of our Common Stock.
Effective internal controls are necessary
for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial
reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal
financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel,
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.
As a public company, we will have significant
requirements for enhanced financial reporting and internal controls. We will be required to document and test our internal control
procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management
assessments of the effectiveness of our internal controls over financial reporting. The process of designing and implementing effective
internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and
regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy
our reporting obligations as a public company.
We cannot assure you that we will not,
in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that
the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain
adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish
appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations,
result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction,
cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares
of our Common Stock.
Lack of experience as officers
of publicly-traded companies of our management team may hinder our ability to comply with Sarbanes-Oxley Act.
Following the Closing of the Exchange
Agreement, it may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures
required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance staff
or consultants in order to develop and implement appropriate internal controls and reporting procedures.
We may have additional tax liabilities that exceed
our estimates.
We are subject to federal taxes and
a multitude of state and local taxes in the United States and taxes in foreign jurisdictions. In the ordinary course of our business,
there are transactions and calculations where the ultimate tax determination is uncertain. We are regularly subject to audit by
tax authorities. And, we currently have tax liens related to unpaid payroll taxes on our business. The final determination of tax
audits and any related litigation and the current tax liens could be materially different from our historical tax provisions and
accruals. The results of an audit or litigation could materially harm our business.
Risks Related to Government Regulation
Changes in laws, regulations and other requirements could
adversely affect our business, results of operations or financial condition.
In addition to the anticipated regulation of our business by the
FDA, our business, results of operations or financial condition could be adversely affected by new or future legal requirements
imposed by legislative or regulatory initiatives, including, but not limited to, those relating to health care, public health and
welfare and environmental matters. For example, in recent years, states and many local and municipal governments and agencies,
as well as private businesses, have adopted legislation, regulations or policies which prohibit, restrict, or discourage smoking;
smoking in public buildings and facilities, stores, restaurants and bars; and smoking on airline flights and in the workplace.
New legislation or regulations may result in increased costs directly for our compliance or indirectly to the extent such requirements
increase the prices of goods and services because of increased costs or reduced availability. We cannot predict whether such legislative
or regulatory initiatives will result in significant changes to existing laws and regulations and/or whether any changes in such
laws or regulations will have a material adverse effect on our business, results of operations or financial condition.
Restrictions on the public use of vaporizers may reduce the
attractiveness and demand for our products.
Should city, state or federal regulators, municipalities, local
governments and private industry likewise restrict the use of vaporizers in those same places where cigarettes cannot be smoked,
our customers may reduce or otherwise cease using our products, which would have a material adverse effect on our business, results
of operations and financial condition.
Risks Related to Our Securities
There is currently a limited market
for our common stock.
There is currently a limited market
for our common stock. An active trading market for our common stock may never develop or, if developed, it may not be maintained.
Our shareholders may be unable to sell their securities unless an active market can be established or maintained.
The market price of our common
stock may be volatile.
The market price of our common stock
has been and will likely continue to be highly volatile, as is the stock market in general, and the market for OTC Bulletin Board
quoted stocks in particular. Some of the factors that may materially affect the market price of our common stock are beyond our
control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which
we operate or sales of our common stock. These factors may materially adversely affect the market price of our common stock, regardless
of our performance. In addition, the public stock markets have experienced extreme price and trading volume volatility. This volatility
has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating
performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
Because we were engaged in a reverse
merger, it may not be able to attract the attention of major brokerage firms.
Additional risks may exist since we
were engaged in a “reverse merger.” Securities analysts of major brokerage firms may not provide coverage of the Company
since there is little incentive to brokerage firms to recommend the purchase of the common stock. No assurance can be given that
brokerage firms will want to conduct any secondary offerings on behalf of the Company in the future.
Our common stock will be considered
a “penny stock.”
The SEC has adopted regulations which
generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject
to specific exemptions. The market price of our common stock is currently less than $5.00 per share and therefore may be a “penny
stock.” Brokers and dealers effecting transactions in “penny stock” must disclose certain information concerning
the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase
the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect your ability
to sell shares.
The market for penny stocks has
experienced numerous frauds and abuses which could adversely impact investors in our stock.
OTCBB securities are frequent targets
of fraud or market manipulation, both because of their generally low prices and because OTCBB reporting requirements are less stringent
than those of the stock exchanges or NASDAQ.
Patterns of fraud and abuse include:
|
● |
Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; |
|
● |
Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; |
|
● |
“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; |
|
● |
Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and |
|
● |
Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
Our management is aware of the abuses
that have occurred historically in the penny stock market.
We have not paid dividends in
the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.
We have never paid any cash dividends
on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future and any return
on investment may be limited to the value of our common stock. We plan to retain any future earning to finance growth.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names
and ages of officers and director as of December 30, 2014. Our executive officers are elected annually by our Board of Directors.
Our executive officers hold their offices until they resign, are removed by the Board, or his successor is elected and qualified.
Name |
|
Age |
|
Position |
Hamid Emarlou |
|
54 |
|
Chief Executive Officer & President |
Adam Kotkin |
|
34 |
|
Director |
Masoud Shahidi |
|
72 |
|
Director |
Dr Shadi Shayegan, DMD |
|
44 |
|
Corporate Secretary |
Set forth below is a brief description
of the background and business experience of our executive officers for the past five years.
Hamid Emarlou, age 54, CEO &
President
Hamid Emarlou, an accomplished Senior
Level Executive, with over 25 years of driving process improvement, increasing revenues, and building top performing management
infrastructures is currently the CEO and president at Vapir Inc. Prior to forming and managing Vapir Inc, from 2005 until 2007,
Mr. Emarlou forged a successful career as Vice President of Global operations with Wyse Technology, a leading developer of Thin
Client computers. From 1982 until 2003, Mr. Emarlou worked as Vice President of Operations at Solectron Corporation, a leading
electronics service provider and manufacturer.
Mr. Emarlou was a sitting board member
of the Associated Industries of Massachusetts and Center for Quality management at Cambridge Massachusetts.
Dr Shadi Shayegan, age 44, Corporate
Secretary
Prior to joining Vapir Inc., Dr. Shayegan
practiced dentistry in Worcester Massachusetts. Dr. Shayegan is an officer at Vapir Inc. She advises CEO, Hamid Emarlou, on health
aspects of vaporization and aromatherapy product development. She formed the "Health and Safety" committee that oversees
and approves materials used in the development of Vapir Inc. products.
Dr. Shayegan studied Microbiology as
her undergraduate major and furthered her education at Boston University and earned her doctorate in dentistry.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain
information regarding beneficial ownership of our common stock as of the date of closing (assuming the closing of the Exchange
Agreement has been consummated) by (i) each person (or group of affiliated persons) who is known by us to own more than five percent
of the outstanding shares of our common stock, (ii) each director, executive officer and director nominee, and (iii) all of our
directors, executive officers and director nominees as a group. Immediately following the closing of the Exchange Agreement, we
have 48,280,960 shares of common stock issued and outstanding.
Beneficial ownership is determined in
accordance with SEC rules and generally includes voting or investment power with respect to securities. All share ownership figures
include shares of our Common Stock issuable upon securities convertible or exchangeable into shares of our Common Stock within
sixty (60) days of the Merger, which are deemed outstanding and beneficially owned by such person for purposes of computing his
or her percentage ownership, but not for purposes of computing the percentage ownership of any other person.
Name and Address | |
Beneficial Ownership | | |
Percentage of Class (1) | |
Hamid Emarlou 18188 Wagner Road, Los Gatos, CA 95032 | |
| 38,624,768 | | |
| 80 | % |
Shadi Shayegan 18188 Wagner Road, Los Gatos, CA 95032 | |
| 0 | | |
| * | |
Adam Kotkin | |
| 1,200,000 | | |
| 2.49 | % |
All officers/directors as a group (2 persons) | |
| 39,077,408 | | |
| | |
Whalehaven Capital Fund Ltd. | |
| 5,751,230 | | |
| 11.91 | % |
|
* |
Represents less than 1% ownership. |
|
(1) |
Based on 48,280,960 shares of common stock outstanding. |
We are not aware of any arrangement,
including any pledge by any person of securities of the registrant or any of its parents, the operation of which may at a subsequent
date result in a change in control of the registrant.
EXECUTIVE COMPENSATION
The following table sets forth information
regarding each element of compensation that was paid or awarded to the named executive officers of Vapir for its fiscal year ended
December 31, 2013 and 2012:
Name and Principal Position |
|
Year |
|
Salary
($) |
|
|
Bonus
($) |
|
|
Stock
Awards
($) |
|
|
Option
Awards
($) |
|
|
Non-Equity
Incentive
Plan
Compensation
($) |
|
|
All Other
Compensation ($) |
|
|
Total
($) |
|
Hamid Ermalou |
|
2013 |
|
$ |
150,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
150,000 |
|
President and Chief Executive Officer |
|
2012 |
|
$ |
150,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
150,000 |
|
Employment Agreements
We have not entered into employment
agreements with our officers and directors. Additionally, we have not approved any retirement benefit plan, termination or severance
provisions for any of our named executive officers.
Outstanding Equity Awards at Fiscal
Year-End
There were no outstanding
equity awards held by any of our officers as of December 31, 2013.
On September 23, 2010, the Company’s
board of directors adopted, and the Company’s stockholders approved the Apps Genius Corp Equity Incentive Plan (the “Plan”),
which covers 5,000,000 shares of common stock. The purpose of the Plan is to advance the interests of the Company by
enhancing the ability of the Company to (i) attract and retain employees and other persons or entities who are in a position to
make significant contributions to the success of the Company and its subsidiaries; (ii) reward such persons for such contributions;
and (iii) encourage such persons or entities to take into account the long-term interest of the Company through ownership of shares
of the Company’s common stock, par value $0.0001 per share. The Plan became effective on September 23, 2010 and will terminate
on September 23, 2020.
Subject to adjustment as provided
in the Plan, the aggregate number of shares of common stock reserved for issuance pursuant to awards granted under the Plan
shall be five million (5,000,000) shares; provided, however, that within sixty (60) days of the end of each fiscal
year following the adoption of the Plan, the Board, in its discretion, may increase the aggregate number of shares of Common
Stock available for issuance under the Plan by an amount not greater than the difference between (i) the number of shares of
Common Stock available for issuance under the Plan on the last day of the immediately preceding fiscal year, and (ii) the
number of shares of Common Stock equal to 15% of the shares of Common Stock outstanding on the last day of the immediately
preceding fiscal year.
As of the
date of this Current Report, no instruments have been granted or issued under the Plan.
Board of Directors
All directors hold office until the
next annual meeting of shareholders and until their successors have been duly elected and qualified, or until their earlier death,
resignation or removal. Officers are elected by and serve at the discretion of the board.
Our directors are reimbursed for expenses
incurred by them in connection with attending board meetings, but they do not receive any other compensation for serving on the
board.
Related Party Transactions
During fiscal 2012, the Company’s
sole shareholder who is the President of the Company distributed dividends in excess of earnings and therefore the Company accounted
such excess dividend distribution as due from related party of $189,956 as of December 31, 2012. The due from related party was
due on demand and bear no interest. During fiscal 2013, the Company had adequate and sufficient earnings to cover the 2012 excess
dividend distribution which therefore satisfied the balance of the due from related party of $189,956. As of December 31, 2013,
due from related party was $0.
From time to time, the Company’s
President, provided advances to the Company for payment of the Company’s loans. During fiscal 2013, the Company fully repaid
the balance of such advances. At December 31, 2013 and 2012, the Company had a payable to the President of the Company of $0 and
$135,982. The advances were due on demand and bear no interest.
Between August 2014 and September 2014,
the Company’s President provided advances to the Company for working capital purposes for a total of $70,000. The advance
was due on demand and interest free. This advance was paid by the end of September 2014.
Amounts outstanding under the loan and
note payable are personally guaranteed by the President of the Company.
Director Independence
Currently, we have no independent directors.
Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence”
of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent
director” is a person other than an officer or employee of the company or any other individual having a relationship which,
in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent
if:
|
● |
the director is, or at any time during the past three years was, an employee of the Company; |
|
● |
the director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service); |
|
● |
a family member of the director is, or at any time during the past three years was, an executive officer of the Company; |
|
● |
the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); |
|
● |
the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the Company served on the compensation committee of such other entity; or |
|
● |
the director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three years was a partner or employee of the Company’s outside auditor, and who worked on the company’s audit. |
Involvement in Certain Legal Proceedings
To our knowledge, during the past ten
years, none of our directors, executive officers, promoters, control persons, or nominees has:
|
● |
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
|
● |
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
|
● |
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; |
|
● |
been found by a court of competent jurisdiction in a civil action or by the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
|
● |
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
|
● |
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Code of Ethics
We have not adopted a code of ethics
that applies to our principal executive officer, principal financial officer, principal accounting officer, or persons performing
similar functions, because of the small number of persons involved in the management of the Company.
DESCRIPTION OF SECURITIES
Authorized Capital Stock
Our authorized capital stock consists
of 100,000,000 shares of common stock, par value $0.001 per share. Immediately after giving effect to the shares issued in the
Closing of the reverse merger, there were 48,280,960 shares of our common stock issued and outstanding. We have 20,000,000 shares
of blank check preferred stock authorized. However, as of this date, we have not designated any classes of preferred stock nor
have we issued any preferred shares.
Common Stock
The following is a summary of the material rights and restrictions
associated with our common stock.
The holders of our common stock currently
have (i) equal ratable rights to dividends from funds legally available therefore, when, as and if declared by the Board of Directors
of the Company; (ii) are entitled to share ratably in all of the assets of the Company available for distribution to holders of
common stock upon liquidation, dissolution or winding up of the affairs of the Company (iii) do not have preemptive, subscription
or conversion rights and there are no redemption or sinking fund provisions or rights applicable thereto; and (iv) are entitled
to one non-cumulative vote per share on all matters on which stock holders may vote. Please refer to the Company’s Articles
of Incorporation, Bylaws and the applicable statutes of the State of Nevada for a more complete description of the rights and liabilities
of holders of the Company’s securities.
Dividend Policy
We have never declared or paid any cash
dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business.
As a result, we do not anticipate paying any cash dividends in the foreseeable future.
Indemnification of Directors and Officers
Under our Articles of Incorporation,
no director or officer will be held personally liable to us or our stockholders for damages of breach of fiduciary duty as a director
or officer unless such breach involves intentional misconduct, fraud, a knowing violation of law, or a payment of dividends in
violation of the law. Under our bylaws, directors and officers will be indemnified to the fullest extent allowed by the law against
all damages and expenses suffered by a director or officer being party to any action, suit, or proceeding, whether civil, criminal,
administrative or investigative. This same indemnification is provided pursuant to Nevada Revised Statutes, Chapter
78.
The general effect of the foregoing
is to indemnify a control person, officer or director from liability, thereby making us responsible for any expenses or damages
incurred by such control person, officer or director in any action brought against them based on their conduct in such capacity,
provided they did not engage in fraud or criminal activity.
Any repeal or modification of these
provisions approved by our shareholders shall be prospective only, and shall not adversely affect any limitation on the liability
of a director or officer of ours existing as of the time of such repeal or modification.
Anti-Takeover Effect of Nevada Law, Certain By-Law Provisions
The Nevada Business Corporation Law
contains a provision governing “acquisition of controlling interest” (Nevada Revised Statutes 78.378 -78.3793). This
law provides generally that any person or entity that acquires 20% or more of the outstanding voting shares of a publicly-held
Nevada corporation in the secondary public or private market may be denied voting rights with respect to the acquired shares, unless
a majority of the disinterested shareholders of the corporation elects to restore such voting rights in whole or in part. The control
share acquisition act provides that a person or entity acquires “control shares” whenever it acquires shares that,
but for the operation of the control share acquisition act, would bring its voting power within any of the following three ranges:
A “control share acquisition”
is generally defined as the direct or indirect acquisition of either ownership or voting power associated with issued and outstanding
control shares. The shareholders or board of directors of a corporation may elect to exempt the stock of the corporation from the
provisions of the control share acquisition act through adoption of a provision to that effect in the articles of incorporation
or bylaws of the corporation. Our articles of incorporation and bylaws do not exempt our common stock from the control share acquisition
act.
The control share acquisition act is
applicable only to shares of “Issuing Corporations” as defined by the Nevada law. An Issuing Corporation is a Nevada
corporation, which:
|
● |
has 200 or more shareholders, with at least 100 of such shareholders being both shareholders of record and residents of Nevada; and |
|
● |
does business in Nevada directly or through an affiliated corporation. |
At this time, we do not have 100 shareholders
of record resident of Nevada. Therefore, the provisions of the control share acquisition act do not apply to acquisitions of our
shares and will not until such time as these requirements have been met. At such time as they may apply, the provisions of the
control share acquisition act may discourage companies or persons interested in acquiring a significant interest in or control
of us, regardless of whether such acquisition may be in the interest of our shareholders.
The Nevada “Combination with Interested
Shareholders Statute” (Nevada Revised Statutes 78.411 -78.444) may also have an effect of delaying or making it more difficult
to effect a change in control of us. This statute prevents an “interested shareholder” and a resident domestic Nevada
corporation from entering into a “combination,” unless certain conditions are met. The statute defines “combination”
to include any merger or consolidation with an “interested shareholder,” or any sale, lease, exchange, mortgage, pledge,
transfer or other disposition, in one transaction or a series of transactions with an “interested shareholder” having:
|
● |
an aggregate market value equal to 5 percent or more of the aggregate market value of the assets of the corporation; |
|
● |
an aggregate market value equal to 5 percent or more of the aggregate market value of all outstanding shares of the corporation; or |
|
● |
representing 10 percent or more of the earning power or net income of the corporation. |
An “interested shareholder”
means the beneficial owner of 10 percent or more of the voting shares of a resident domestic corporation, or an affiliate or associate
thereof. A corporation affected by the statute may not engage in a “combination” within three years after the interested
shareholder acquires its shares unless the combination or purchase is approved by the board of directors before the interested
shareholder acquired such shares. If approval is not obtained, then after the expiration of the three-year period, the business
combination may be consummated with the approval of the board of directors or a majority of the voting power held by disinterested
shareholders, or if the consideration to be paid by the interested shareholder is at least equal to the highest of:
|
● |
the highest price per share paid by the interested shareholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which he became an interested shareholder, whichever is higher; |
|
● |
the market value per common share on the date of announcement of the combination or the date the interested shareholder acquired the shares, whichever is higher; or |
|
● |
if higher for the holders of preferred stock, the highest liquidation value of the preferred stock. |
Trading Information
Our common stock is currently approved for quotation on the
OTC Bulletin Board maintained by the Financial Industry Regulatory Authority, Inc. under the symbol “VAPI.OB” and there
is a limited trading market for our stock.
Transfer Agent
The transfer agent for our common stock is Action Stock Transfer
at 2469 E. Fort Union Blvd., Suite 214, Salt Lake City, Utah 84121, and its telephone number is (801) 274-1088.
|
Item
3.02 |
Unregistered Sales of Equity Securities |
On December 30, 2014, we issued 38,624,768
shares of our common stock to the former stockholders of Vapir, pursuant to the terms of the Exchange Agreement. The securities
issued in this transaction were not registered under the Securities Act, or the securities laws of any state, and were offered
and sold pursuant to the exemption from registration under the Securities Act provided by Section 4(2) and Regulation D (Rule 506)
under the Securities Act.
On December 30, 2014, in connection
with the Exchange Agreement and as a settlement to an outstanding liability, we issued 3,000,000 shares of our common stock to
two noteholders in satisfaction of the outstanding promissory notes. The securities issued in this transaction were not
registered under the Securities Act, or the securities laws of any state, and were offered and sold pursuant to the exemption from
registration under the Securities Act provided by Section 4(2) and Regulation D (Rule 506) under the Securities Act.
Information set forth in Items 1.01
and 2.01 of this Current Report on Form 8-K with respect to the issuance of unregistered equity securities in connection with the
Exchange Agreement is incorporated by reference into this Item 3.02.
|
Item 4.01 |
Changes in Registrant’s Certifying Accountant |
(1) |
Previous Independent Registered Public Accounting Firm |
|
|
|
|
(i) |
On December 30, 2014, we dismissed our independent registered public accounting firm, Salberg & Company, P.A (“Salberg”). |
|
|
|
|
(ii) |
The report of Salberg dated April 11, 2014 on the financial statements of the Company as of December 31, 2013 and 2012, and the related statements of operations, comprehensive loss, changes in stockholders’ deficiency, and cash flows for each of the two years in the period ended December 31, 2013 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles other than an explanatory paragraph as to a going concern. |
|
(iii) |
The decision to change independent registered public accounting firm was recommended and approved by the Board of Directors of the Company. |
|
|
|
|
(iv) |
During the Company’s two most recent fiscal years ended December 31, 2013 and 2012 and any subsequent interim periods through December 30, 2014, the date of dismissal, (a) there were no disagreements with Salberg on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Salberg, would have caused it to make reference thereto in its reports on the financial statements for such years and (b) there were no “reportable events” as described in Item 304(a)(1)(v) of Regulation S-K. |
|
|
|
|
(v) |
On December 30, 2014 the Company provided Salberg with a copy of this Current Report and has requested that it furnish the Company with a letter addressed to the U.S. Securities and Exchange Commission stating whether it agrees with the above statements. A copy of such letter is attached as Exhibit 16.1 to this Current Report on Form 8-K. |
(2) |
New Independent Registered Public Accounting Firm |
|
|
|
|
On December 30, 2014, the Board of Directors of the Company engaged Li and Company, PC (“LICO”) as its new independent registered public accounting firm to audit and review the Company’s financial statements. During the two most recent fiscal years ended December 31, 2013 and 2012 and any subsequent interim periods through the date hereof prior to the engagement of LICO, neither the Company, nor someone on its behalf, has consulted LICO regarding: |
|
|
|
|
(i) |
either: the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and either a written report was provided to the Company or oral advice was provided that the new independent registered public accounting firm concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or |
|
|
|
|
(ii) |
any matter that was either the subject of a disagreement as defined in paragraph 304(a)(1)(iv) of Regulation S-K or a reportable event as described in paragraph 304(a)(1)(v) of Regulation S-K. |
Item 5.01 |
Changes in Control of Registrant. |
Reference is made to the disclosure
set forth under Items 1.01 and 5.02 of this Report, which disclosure is incorporated herein by reference.
Item 5.02 |
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangement of Certain Officers. |
(b) |
Resignation of Officers |
Effective December 30, 2014, Adam Kotkin
resigned as our Chief Executive Officer and Adam Wasserman resigned as our Chief Financial Officer. Their resignations
were not the result of any disagreements with us on any matters relating to our operations, policies and practices but were the
result of the Exchange Agreement and change of control transaction referred to in Items 1.01 and 5.01 of this Report.
Adam Kotkin is a member of the Board
of Directors and, notwithstanding his resignation as the Chief Executive Officer, Mr. Kotkin shall remain as a member of the Board
of Directors.
(c) |
Appointment of Directors |
Effective December 30, 2014, the following
persons were appointed as members of the Board of Directors:
Name |
|
Age |
|
Principal Positions With Us |
Hamid Emarlou |
|
54 |
|
Chairman and Chief Executive Officer |
Masoud Shahidi |
|
72 |
|
Director |
For certain biographical and other information
regarding Mr. Hamid Emarlou and Mr. Masoud Shahidi, see the disclosure under “Item 2.01—Directors and Executive Officers”
of this Report, which disclosure is incorporated herein by reference.
Family Relationships
There are no relationships between any
of the officers or directors of the Company.
(d) |
Appointment of Officers |
Effective December 30, 2014, the directors
appointed the following persons as our executive officers, with the respective titles as set forth opposite his or her name below:
Name |
|
Age |
|
Principal Positions With Us |
Hamid Emarlou |
|
54 |
|
Chief Executive Officer |
For certain biographical and other information
regarding Mr. Hamid Emarlou, see the disclosure under “Item 2.01—Directors and Executive Officers” of this Report,
which disclosure is incorporated herein by reference.
(e) |
Employment Agreements of the Executive Officers |
The Company has not entered into formal
employment agreements with any of its executive officers, however, intends to enter into written employment agreements with each
of them subsequent to the Closing.
Item 5.03 |
Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. |
On September 17, 2014, a Certificate of Amendment
to our Articles of Incorporation was filed with the State of Nevada to: (i) change our name to Vapir Enterprises, Inc. (the "Name
Change"); and (ii) effectuate a 5-to-1 reverse split (the “Reverse Split”). A copy of the Certificate of Amendment
is being filed hereto as Exhibit 3.1.
Item 5.06 |
Change in Shell Company Status. |
Following the closing of the Exchange
Agreement described in Item 2.01 of this Current Report on Form 8-K, we believe that we are not a shell corporation as that term
is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.
FINRA announced the Name Change and
the Reverse Stock Split on October 2, 2014 and it took effect on October 3, 2014. FINRA also assigned us the new trading symbol
“VAPI”.
Item 9.01 |
Financial Statements and Exhibits. |
(a) Financial
Statements of Businesses Acquired. In accordance with Item 9.01(a), Vapir’s audited financial statements for
the years ended December 31, 2013 and 2012 are filed in this Current Report on Form 8-K as Exhibit 99.1 and Vapir’s unaudited
financial statements for the nine months ended September 30, 2014 are filed with this Current Report on Form 8-K as Exhibit 99.2.
(b) Pro
Forma Financial Information. In accordance with Item 9.01(b), our pro forma financial statements are filed in this
Current Report on Form 8-K as Exhibit 99.3.
(c) Exhibits.
The exhibits listed
in the following Exhibit Index are filed as part of this Current Report on Form 8-K.
Exhibit
No. |
|
Description |
|
|
|
2.1 |
|
Share Exchange Agreement dated December 30, 2014 |
|
|
|
3.1 |
|
Certificate of Amendment for Name Change dated September 17, 2014 |
|
|
|
16.1 |
|
Letter from Salberg and Company addressed to the U.S. Securities and Exchange Commission |
|
|
|
99.1 |
|
Audited Balance Sheets of the Company as of December 31, 2013 and 2012, and the Related Audited Statements of Operations, Shareholders’ Equity, and Cash Flows for the years ended December 31, 2013 and 2012 |
|
|
|
99.2 |
|
Unaudited (reviewed)
Balance Sheets of the Company as of September 30, 2014 and December 31, 2013, and the Related Unaudited Statements of
Operations and Cash Flows for the nine months ended September 30, 2014 and 2013 |
|
|
|
99.3 |
|
Pro forma unaudited
combined financial statements as of the period ended September 30, 2014 |
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: December 30, 2014
|
Vapir Enterprises, Inc. |
|
|
|
|
By: |
/s/ Hamid Emarlou |
|
|
Hamid Emarlou |
|
|
Chief Executive Officer and President |
30
Exhibit 2.1
SHARE EXCHANGE AGREEMENT
BY AND AMONG
VAPIR ENTERPRISES INC.
AND
THE PRINCIPAL SHAREHOLDERS OF VAPIR
ENTERPRISES INC.
AND
VAPIR, INC.
AND
THE SHAREHOLDERS OF VAPIR, INC.
Dated as of: December 30, 2014
TABLE OF CONTENTS
ARTICLE I DEFINITIONS |
1 |
Section 1.1 |
Definitions |
1 |
|
|
|
ARTICLE II SHARE EXCHANGE; CLOSING |
6 |
Section 2.1 |
Share Exchange |
6 |
Section 2.2 |
Closing |
6 |
Section 2.3 |
Closing Deliveries by Acquiror and Acquiror Principal Shareholder |
6 |
Section 2.4 |
Closing Deliveries by Acquiree, and Acquiree Shareholders |
6 |
Section 2.5 |
Section 368 Reorganization |
6 |
|
|
|
ARTICLE III REPRESENTATIONS OF ACQUIREE SHAREHOLDERS |
7 |
Section 3.1 |
Authority |
7 |
Section 3.2 |
Binding Obligations |
7 |
Section 3.3 |
No Conflicts |
7 |
Section 3.4 |
Certain Proceedings |
8 |
Section 3.5 |
No Brokers or Finders |
8 |
Section 3.6 |
Investment Representations |
8 |
Section 3.7 |
Stock Legends |
10 |
Section 3.8 |
Disclosure |
11 |
|
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE ACQUIREE |
12 |
Section 4.1 |
Organization and Qualification |
12 |
Section 4.2 |
Authority |
12 |
Section 4.3 |
Binding Obligations |
12 |
Section 4.4 |
No Conflicts |
13 |
Section 4.5 |
Subsidiaries |
13 |
Section 4.6 |
Organizational Documents |
13 |
Section 4.7 |
Capitalization |
14 |
Section 4.8 |
No Brokers or Finders |
14 |
Section 4.9 |
Disclosure |
14 |
|
|
|
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR AND THE ACQUIROR PRINCIPAL SHAREHOLDER |
14 |
Section 5.1 |
Organization and Qualification |
15 |
Section 5.2 |
Authority |
15 |
Section 5.3 |
Binding Obligations |
15 |
Section 5.4 |
No Conflicts |
16 |
Section 5.5 |
Subsidiaries |
16 |
Section 5.6 |
Organizational Documents |
17 |
Section 5.7 |
Compliance with Laws |
17 |
Section 5.8 |
Certain Proceedings |
18 |
Section 5.9 |
No Brokers or Finders |
18 |
Section 5.10 |
Contracts |
18 |
Section 5.11 |
Tax Matters |
18 |
Section 5.12 |
Labor Matters |
19 |
Section 5.13 |
Employee Benefits |
20 |
Section 5.14 |
Title to Assets |
20 |
Section 5.15 |
Intellectual Property |
20 |
Section 5.16 |
SEC Reports |
20 |
Section 5.17 |
Internal Accounting Controls |
21 |
Section 5.18 |
Application of Takeover Protections |
21 |
Section 5.19 |
Transactions With Affiliates and Employees |
21 |
Section 5.20 |
Liabilities |
21 |
Section 5.21 |
Bank Accounts and Safe Deposit Boxes |
22 |
Section 5.22 |
Investment Company |
22 |
Section 5.23 |
Bank Holding Company Act |
22 |
Section 5.24 |
Public Utility Holding Act |
22 |
Section 5.25 |
Federal Power Act |
22 |
Section 5.26 |
Money Laundering Laws |
22 |
Section 5.27 |
Foreign Corrupt Practices |
22 |
Section 5.28 |
Absence of Certain Changes or Events |
23 |
Section 5.29 |
Disclosure |
23 |
Section 5.30 |
Undisclosed Events |
23 |
Section 5.31 |
Non-Public Information |
23 |
|
|
|
ARTICLE VI CONDUCT PRIOR TO CLOSING |
23 |
Section 6.1 |
Conduct of Business |
23 |
Section 6.2 |
Restrictions on Conduct of Business |
24 |
|
|
|
ARTICLE VII ADDITIONAL AGREEMENTS |
26 |
Section 7.1 |
Access to Information |
26 |
Section 7.2 |
Legal Requirements |
26 |
Section 7.3 |
Notification of Certain Matters |
26 |
|
|
|
Article VIII POST CLOSING COVENANTS |
27 |
Section 8.1 |
General |
27 |
Section 8.2 |
Litigation Support |
27 |
Section 8.3 |
Assistance with Post-Closing SEC Reports and Inquiries |
27 |
Section 8.4 |
Public Announcements |
27 |
|
|
|
ARTICLE IX CONDITIONS TO CLOSING |
28 |
Section 9.1 |
Conditions to Obligation of the Parties Generally |
28 |
Section 9.2 |
Conditions to Obligation of the Acquiree Parties |
28 |
Section 9.3 |
Conditions to Obligation of the Acquiror Parties |
30 |
|
|
|
ARTICLE X TERMINATION |
31 |
Section 10.1 |
Grounds for Termination |
31 |
Section 10.2 |
Procedure and Effect of Termination |
33 |
Section 10.3 |
Effect of Termination |
33 |
ARTICLE XI SURVIVAL |
33 |
Section 11.1 |
Survival |
33 |
|
|
|
ARTICLE XII MISCELLANEOUS PROVISIONS |
33 |
Section 12.1 |
Expenses |
33 |
Section 12.2 |
Confidentiality |
34 |
Section 12.3 |
Notices |
35 |
Section 12.4 |
Further Assurances |
35 |
Section 12.5 |
Waiver |
35 |
Section 12.6 |
Entire Agreement and Modification |
35 |
Section 12.7 |
Assignments, Successors, and No Third-Party Rights |
36 |
Section 12.8 |
Severability |
36 |
Section 12.9 |
Section Headings |
36 |
Section 12.10 |
Construction |
36 |
Section 12.11 |
Counterparts |
36 |
Section 12.12 |
Specific Performance |
36 |
Section 12.13 |
Governing Law; Submission to Jurisdiction |
37 |
Section 12.14 |
Waiver of Jury Trial |
37 |
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT
(“Agreement”), dated as of December 30, 2014, is made by and among VAPIR ENTERPRISES INC., a corporation organized
under the laws of Nevada (the “Acquiror”), ADAM KOTKIN (the “Acquiror Principal Shareholder”),
VAPIR, INC., a corporation organized under the laws of California (the “Acquiree”), and each of the Persons
listed on Schedule I hereto who are shareholders of the Acquiree (collectively, the “Acquiree Shareholders,”
and individually an “Acquiree Shareholder”). Each of the Acquiror, Acquiree and Acquiree Shareholders are referred
to herein individually as a “Party” and collectively as the “Parties.”
RECITALS:
WHEREAS, the Acquiree
Shareholders are the holders of all of the issued and outstanding shares of common stock of the Acquiree (the “Acquiree
Interests”);
WHEREAS, the Acquiree
Shareholders have agreed to transfer to the Acquiror, and the Acquiror has agreed to acquire from the Acquiree Shareholders, all
of the Acquiree Interests, in exchange for the issuance of 38,624,768 Acquiror Shares (as defined below) to the Acquiree Shareholders,
which Acquiror Shares shall constitute approximately 80.00% of the issued and outstanding shares of Acquiror Common Stock (as defined
below) immediately after the closing of the transactions contemplated herein, in each case, on the terms and conditions as set
forth herein;
NOW, THEREFORE, in consideration
of the foregoing premises, and the covenants, representations and warranties set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged and accepted, the Parties, intending to be legally bound,
hereby agree as follows:
Article
I
DEFINITIONS
Section 1.1 Definitions.
For all purposes of and under this Agreement, the following terms shall have the following respective
meanings:
“Accredited
Investor” has the meaning set forth in Rule 501 under the Securities Act.
“Acquiree”
has the meaning set forth in the preamble.
“Acquiree Disclosure
Schedule” has the meaning set forth in Article IV.
“Acquiree Interests”
has the meaning set forth in the recitals.
“Acquiree Indemnified
Parties” means the Acquiree and the Acquiree Shareholders and their respective Affiliates and the officers, directors
and representatives of such Persons; provided that (i) the Acquiror shall be a member of the Acquiree Indemnified Parties after
the Closing and (ii) none of the Acquiror Principal Shareholder nor the Acquiror Principal Shareholder’ Affiliates shall
be members of the Acquiree Indemnified Parties at any time.
“Acquiree Organizational
Documents” has the meaning set forth in Section 4.6.
“Acquiree Shareholder”
and “Acquiree Shareholders” have the respective meanings set forth in the preamble.
“Acquiror”
has the meaning set forth in the recitals.
“Acquiror Common
Stock” means the common stock, par value $0.001 per share, of the Acquiror.
“Acquiror Disclosure
Schedule” has the meaning set forth in Article V.
“Acquiror Most
Recent Fiscal Year End” means December 31, 2013.
“Acquiror Principal
Shareholder” has the meaning set forth in the preamble.
“Acquiror Shares”
has the meaning set forth in the recitals.
“Acquiror Sharesholders”
means entities holding Acquiror Shares.
“Acquisition Transaction”
means any transaction or series of transactions involving: (a) any merger, consolidation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange offer or other similar transaction; or (b) any sale (other
than sales of inventory in the Ordinary Course of Business), lease (other than in the Ordinary Course of Business), exchange, transfer
(other than sales of inventory in the Ordinary Course of Business), license (other than nonexclusive licenses in the Ordinary Course
of Business), acquisition or disposition of assets.
“Action”
means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation
pending or threatened before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal,
state, county, local or foreign), stock market, stock exchange or trading facility.
“Affiliate”
has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Exchange Act.
“Agreement”
has the meaning set forth in the preamble.
“BHCA”
has the meaning set forth in Section 5.23.
“Business Day”
shall mean any day other than a Saturday, Sunday or a day on which commercial banks in New York, New York are required or authorized
to be closed.
“Closing”
has the meaning set forth in Section 2.2.
“Closing Date”
has the meaning set forth in Section 2.2.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Competing Transaction
Proposal” means any inquiry, proposal, indication of interest or offer from any Person contemplating or otherwise relating
to any Acquisition Transaction directly or indirectly involving the Acquiror, its business or any assets of the Acquiror (including,
without limitation, any Acquisition Transaction involving Acquiror Principal Shareholder that would include the Acquiror, its business
or any assets of the Acquiror).
“Contract”
means any written or oral contract, lease, license, indenture, note, bond, agreement, arrangement, understanding, permit, concession,
franchise or other instrument.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.
“Exchange Act”
means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the SEC
thereunder, all as the same will then be in effect.
“Federal Reserve”
has the meaning set forth in Section 5.23.
“GAAP”
means, with respect to any Person, generally accepted accounting principles in the U.S. applied on a consistent basis with such
Person’s past practices.
“Governmental
Authority” means any domestic or foreign, federal or national, state or provincial, municipal or local government, governmental
authority, regulatory or administrative agency, governmental commission, department, board, bureau, agency or instrumentality,
political subdivision, commission, court, tribunal, official, arbitrator or arbitral body.
“Indebtedness”
means without duplication, (a) all indebtedness or other obligation of the Person for borrowed money, whether current, short-term,
or long-term, secured or unsecured, (b) all indebtedness of the Person for the deferred purchase price for purchases of property
outside the Ordinary Course of Business, (c) all lease obligations of the Person under leases which are capital leases in accordance
with GAAP, (d) any off-balance sheet financing of the Person including synthetic leases and project financing, (e) any payment
obligations of the Person in respect of banker’s acceptances or letters of credit (other than stand-by letters of credit
in support of ordinary course trade payables), (f) any liability of the Person with respect to interest rate swaps, collars, caps
and similar hedging obligations, (g) any liability of the Person under deferred compensation plans, phantom stock plans, severance
or bonus plans, or similar arrangements made payable as a result of the transactions contemplated herein, (h) any indebtedness
referred to in clauses (a) through (g) above of any other Person which is either guaranteed by, or secured by a security interest
upon any property owned by, the Person and (i) accrued and unpaid interest of, and prepayment premiums, penalties or similar contractual
charges arising as result of the discharge at Closing of, any such foregoing obligation.
“Intellectual
Property” means all industrial and intellectual property, including, without limitation, all U.S. and non-U.S. patents,
patent applications, patent rights, trademarks, trademark applications, common law trademarks, Internet domain names, trade names,
service marks, service mark applications, common law service marks, and the goodwill associated therewith, copyrights, in both
published and unpublished works, whether registered or unregistered, copyright applications, franchises, licenses, know-how, trade
secrets, technical data, designs, customer lists, confidential and proprietary information, processes and formulae, all computer
software programs or applications, layouts, inventions, development tools and all documentation and media constituting, describing
or relating to the above, including manuals, memoranda, and records, whether such intellectual property has been created, applied
for or obtained anywhere throughout the world.
“Knowledge”
shall mean, except as otherwise explicitly provided herein, actual knowledge after reasonable investigation. The Acquiror shall
be deemed to have “Knowledge” of a matter if any of its officers, directors, stockholders, or employees has Knowledge
of such matter. Phrases such as “to the Knowledge of the Acquiror” or the “Acquiror’s Knowledge”
shall be construed accordingly.
“Laws”
means, with respect to any Person, any U.S. or non-U.S., federal, national, state, provincial, local, municipal, international,
multinational or other Law (including common law), constitution, statute, code, ordinance, rule, regulation or treaty applicable
to such Person.
“Liability”
means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes.
“License”
means any security clearance, permit, license, variance, franchise, Order, approval, consent, certificate, registration or other
authorization of any Governmental Authority or regulatory body, and other similar rights.
“Lien”
means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind, including, without limitation, any conditional
sale or other title retention agreement, any lease in the nature thereof and the filing of or agreement to give any financing statement
under the Uniform Commercial Code of any jurisdiction and including any lien or charge arising by Law.
“Material Adverse
Effect” means, with respect to any Person, a material adverse effect on the business, financial condition, operations,
results of operations, assets, customer, supplier or employee relations or future prospects of such Person.
“Money Laundering
Laws” has the meaning set forth in Section 5.26.
“Order”
means any order, judgment, ruling, injunction, assessment, award, decree or writ of any Governmental Authority or regulatory body.
“Ordinary Course
of Business” means the ordinary course of business consistent with past custom and practice (including with respect to
quantity and frequency).
“Party”
and “Parties” have the respective meanings set forth in the preamble.
“Person”
means all natural persons, corporations, business trusts, associations, companies, partnerships, limited liability companies, joint
ventures and other entities, governments, agencies and political subdivisions.
“Principal Market”
means the OTC Bulletin Board.
“Registration
Statements” has the meaning set forth in Section 5.16(b).
“Regulation S”
means Regulation S under the Securities Act, as the same may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
“SEC”
means the U.S. Securities and Exchange Commission, or any successor agency thereto.
“SEC Reports”
has the meaning set forth in Section 5.16(a).
“Securities Act”
means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder,
all as the same will be in effect at the time.
“Share Exchange”
has the meaning set forth in Section 2.1.
“Tax Return”
means all returns, declarations, reports, estimates, statements, forms and other documents filed with or supplied to or required
to be provided to a Governmental Authority with respect to Taxes, including any schedule or attachment thereto and any amendment
thereof.
“Tax”
or “Taxes” means all taxes, assessments, duties, levies or other charge imposed by any Governmental Authority
of any kind whatsoever together with any interest, penalties, fines or additions thereto and any liability for payment of taxes
whether as a result of (i) being a member of an affiliated, consolidated, combined, unitary or similar group for any period, (ii)
any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any Person, (iii)
being liable for another Person’s taxes as a transferee or successor otherwise for any period, or (iv) operation of Law.
“Transaction Documents”
means, collectively, this Agreement and all agreements, certificates, instruments and other documents to be executed and delivered
in connection with the transactions contemplated by this Agreement.
“Treasury Regulations”
means the income tax regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of succeeding regulations).
“U.S.”
means the United States of America.
“U.S.
Person” has the meaning set forth in Regulation S under the Securities Act.
Article
II
SHARE EXCHANGE; CLOSING
Section 2.1 Share Exchange.
At the Closing, the Acquiree shall sell, transfer, convey, assign and deliver shares of Acquiree Interests, representing 100%
of the issued and outstanding shares of common stock of the Acquiree, to the Acquiror, and in consideration therefor the Acquiror
shall issue a total of 38,624,768 fully paid and nonassessable share of Acquiror Common Stock, par value $0.001, (the “Acquiror
Shares”) to the Acquiree Shareholders, as set forth beside the name of each such Acquiree Shareholder on Schedule
I hereto (the “Share Exchange”).
Section 2.2 Closing. Upon the terms and subject to the conditions of this Agreement, the transactions contemplated by this Agreement
shall take place at a closing (the “Closing”) to be held at the offices of Szaferman Lakind Blumstein &
Blader, PC located at 101 Grovers Mill Road, Lawrenceville, New Jersey 08648, at a time and date to be specified by the Parties,
which shall be no later than the second (2nd) Business Day following the satisfaction or, if permitted pursuant hereto, waiver
of the conditions set forth in Article X, or at such other location, date and time as Acquiree and Acquiror Principal Shareholder
shall mutually agree. The date and time of the Closing is referred to herein as the “Closing Date.”
Section 2.3 Closing Deliveries by Acquiror and Acquiror Principal Shareholder. At the Closing: (a) the Acquiror shall deliver,
or cause to be delivered, a certificate evidencing the number of Acquiror Shares, set forth beside each Acquiree Shareholder’s
name on Schedule I hereto; and (b) the Acquiror and the Acquiror Principal Shareholder, as applicable, shall deliver, or
cause to be delivered, to the Acquiree and the Acquiree Shareholders, as applicable, the various documents required to be delivered
as a condition to the Closing pursuant to Section 9.2 hereof.
Section 2.4 Closing Deliveries by Acquiree, and Acquiree Shareholders. At the Closing: (a) Acquiree shall deliver, or cause to
be delivered, certificate(s) representing its Acquiree Shares, accompanied by an executed instrument of transfer for transfer by
Acquiree of its Acquiree Shares to the Acquiror; and (b) the Acquiree, and the Acquiree Shareholders, as applicable, shall deliver,
or cause to be delivered, to the Acquiror and the Acquiror Principal Shareholder, as applicable, the various documents required
to be delivered as a condition to the Closing pursuant to Section 9.3 hereof.
Section 2.5 Section 368 Reorganization. For U.S. federal income Tax purposes, the Share Exchange is intended to constitute a
“reorganization” within the meaning of Section 368(a)(1)(B) of the Code. The Parties hereby adopt this Agreement as
a “plan of reorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the Treasury Regulations. Notwithstanding
the foregoing or anything else to the contrary contained in this Agreement, the Parties acknowledge and agree that no Party is
making any representation or warranty as to the qualification of the Share Exchange as a reorganization under Section 368 of the
Code or as to the effect, if any, that any transaction consummated prior to or after the Closing Date has or may have on any such
reorganization status. The Parties acknowledge and agree that each (i) has had the opportunity to obtain independent legal and
tax advice with respect to the transaction contemplated by this Agreement, and (ii) is responsible for paying its own Taxes, including
without limitation, any adverse Tax consequences that may result if the transaction contemplated by this Agreement is not determined
to qualify as a reorganization under Section 368 of the Code.
Article
III
REPRESENTATIONS OF ACQUIREE SHAREHOLDERS
The Acquiree Shareholders
severally, and not jointly, hereby represent and warrant to the Acquiror that the statements contained in this Article III
are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made
then and as thought the Closing Date were substituted for the date of this Agreement throughout this Article III) (except
where another date or period of time is specifically stated herein for a representation or warranty).
Section 3.1 Authority.
Such Acquiree Shareholder has all requisite authority and power to enter into and deliver this Agreement and any of the other
Transaction Documents to which such Acquiree Shareholder is a party, and any other certificate, agreement, document or instrument
to be executed and delivered by such Acquiree Shareholder in connection with the transactions contemplated hereby and thereby
and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. This
Agreement has been, and each of the Transaction Documents to which such Acquiree Shareholder is a party will be, duly and validly
authorized and approved, executed and delivered by such Acquiree Shareholder.
Section 3.2 Binding Obligations. Assuming this Agreement and the Transaction Documents have been duly and validly authorized,
executed and delivered by the parties hereto and thereto other than such Acquiree Shareholder, this Agreement and each of the Transaction
Documents to which such Acquiree Shareholder is a party are duly authorized, executed and delivered by such Acquiree Shareholder,
and constitutes the legal, valid and binding obligations of such Acquiree Shareholder, enforceable against such Acquiree Shareholder
in accordance with their respective terms, except as such enforcement is limited by general equitable principles, or by bankruptcy,
insolvency and other similar Laws affecting the enforcement of creditors rights generally.
Section 3.3 No Conflicts.
Neither the execution or delivery by such Acquiree Shareholder of this Agreement or any Transaction Document to which such
Acquiree Shareholder is a party, nor the consummation or performance by such Acquiree Shareholder of the transactions contemplated
hereby or thereby will, directly or indirectly, (a) contravene, conflict with, or result in a violation of any provision of the
organizational documents of such Acquiree Shareholder (if such Acquiree Shareholder is not a natural Person); (b) contravene,
conflict with, constitute a default (or an event or condition which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination or acceleration of, any agreement or instrument to which such Acquiree Shareholder
is a party or by which the properties or assets of such Acquiree Shareholder are bound; or (c) contravene, conflict with, result
in any breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under,
impair the rights of such Acquiree Shareholder under, or alter the obligations of any Person under, or create in any Person the
right to terminate, amend, accelerate or cancel, or require any notice, report or other filing (whether with a Governmental Authority
or any other Person) pursuant to, or result in the creation of a Lien on any of the assets or properties of the Acquiror under,
any note, bond, mortgage, indenture, Contract, License, permit, franchise or other instrument or obligation to which such Acquiree
Shareholder is a party or any of such Acquiree Shareholder’s assets and properties are bound or affected, except, in the
case of clauses (b) or (c) for any such contraventions, conflicts, violations, or other occurrences as would not have a Material
Adverse Effect on such Acquiree Shareholder.
Section 3.4 Certain
Proceedings. There is no Action pending against, or to the Knowledge of such Acquiree Shareholder, threatened against or affecting,
such Acquiree Shareholder by any Governmental Authority or other Person with respect to such Acquiree Shareholder that challenges,
or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated
by this Agreement.
Section 3.5 No Brokers
or Finders. No Person has, or as a result of the transactions contemplated herein will have, any right or valid claim against
such Acquiree Shareholder for any commission, fee or other compensation as a finder or broker, or in any similar capacity, based
upon arrangements made by or on behalf of such Acquiree Shareholder and such Acquiree Shareholder will indemnify and hold the
Acquiror and the Acquiror Principal Shareholder harmless against any liability or expense arising out of, or in connection with,
any such claim.
Section 3.6 Investment Representations. Each Acquiree Shareholder severally, and not jointly, hereby represents and warrants,
solely with respect to itself and not any other Acquiree Shareholder, to the Acquiror as follows:
(a) Purchase Entirely for Own Account. Such Acquiree Shareholder is acquiring such Acquiree Shareholder’s portion
of the Acquiror Shares proposed to be acquired hereunder for investment for its own account and not with a view to the resale or
distribution of any part thereof, and such Acquiror Shareholder has no present intention of selling or otherwise distributing such
Acquiror Shares, except in compliance with applicable securities Laws.
(b) Restricted Securities. Such Acquiree Shareholder understands that the Acquiror Shares are characterized as “restricted
securities” under the Securities Act inasmuch as this Agreement contemplates that, if acquired by the Shareholder pursuant
hereto, the Acquiror Shares would be acquired in a transaction not involving a public offering. The issuance of the Acquiror Shares
hereunder is being effected in reliance upon an exemption from registration afforded under Section 4(2) of the Securities Act.
Such Acquiree Shareholder further acknowledges that if the Acquiror Shares are issued to such Acquiree Shareholder in accordance
with the provisions of this Agreement, such Acquiror Shares may not be resold without registration under the Securities Act or
the existence of an exemption therefrom. Such Acquiree Shareholder represents that he is familiar with Rule 144 promulgated under
the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act
(c) Acknowledgment of Non-Registration. Such Acquiree Shareholder understands and agrees that the Acquiror Shares to be issued
pursuant to this Agreement have not been registered under the Securities Act or the securities Laws of any state of the U.S.
(d) Status. By its execution of this Agreement, each Acquiree Shareholder represents and warrants to the Acquiror as
indicated on its signature page to this Agreement, either that: (i) such Acquiree Shareholder is an Accredited Investor; or (ii)
such Acquiree Shareholder is not a U.S. Person. Each Acquiree Shareholder understands that the Acquiror Shares are being offered
and sold to such Acquiree Shareholder in reliance upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Acquiree Shareholder set forth in this Agreement, in order that the Acquiror may determine
the applicability and availability of the exemptions from registration of the Acquiror Shares on which the Acquiror is relying.
(e) Additional Representations and Warranties. Such Acquiree Shareholder, severally and not jointly, further represents
and warrants to the Acquiror as follows: (i) such Person qualifies as an Accredited Investor; (ii) such Person consents to the
placement of a legend on any certificate or other document evidencing the Acquiror Shares substantially in the form set forth
in Section 3.7(a); (iii) such Person has sufficient knowledge and experience in finance, securities, investments and other
business matters to be able to protect such Person’s or entity’s interests in connection with the transactions contemplated
by this Agreement; (iv) such Person has consulted, to the extent that it has deemed necessary, with its tax, legal, accounting
and financial advisors concerning its investment in the Acquiror Shares and can afford to bear such risks for an indefinite period
of time, including, without limitation, the risk of losing its entire investment in the Acquiror Shares; (v) such Person has had
access to the SEC Reports; (vi) such Person has been furnished during the course of the transactions contemplated by this Agreement
with all other public information regarding the Acquiror that such Person has requested and all such public information is sufficient
for such Person to evaluate the risks of investing in the Acquiror Shares; (vii) such Person has been afforded the opportunity
to ask questions of and receive answers concerning the Acquiror and the terms and conditions of the issuance of the Acquiror Shares;
(viii) such Person is not relying on any representations and warranties concerning the Acquiror made by the Acquiror or any officer,
employee or agent of the Acquiror, other than those contained in this Agreement or the SEC Reports; (ix) such Person will not
sell or otherwise transfer the Acquiror Shares, unless either (A) the transfer of such securities is registered under the Securities
Act or (B) an exemption from registration of such securities is available; (x) such Person understands and acknowledges that the
Acquiror is under no obligation to register the Acquiror Shares for sale under the Securities Act; (xi) such Person represents
that the address furnished in Schedule I is the principal residence if he is an individual or its principal business address
if it is a corporation or other entity; (xii) such Person understands and acknowledges that the Acquiror Shares have not been
recommended by any federal or state securities commission or regulatory authority, that the foregoing authorities have not confirmed
the accuracy or determined the adequacy of any information concerning the Acquiror that has been supplied to such Person and that
any representation to the contrary is a criminal offense; and (xiii) such Person acknowledges that the representations, warranties
and agreements made by such Person herein shall survive the execution and delivery of this Agreement and the purchase of the Acquiror
Shares.
(f) Additional Representations
and Warranties of Non-U.S. Persons. Each Acquiree Shareholder that is not a U.S. Person, severally and not jointly, further
represents and warrants to the Acquiror as follows: (i) at the time of (A) the offer by the Acquiror and (B) the acceptance of
the offer by such Person, of the Acquiror Shares, such Person was outside the U.S; (ii) no offer to acquire the Acquiror Shares
or otherwise to participate in the transactions contemplated by this Agreement was made to such Person or its representatives
inside the U.S.; (iii) such Person is not purchasing the Acquiror Shares for the account or benefit of any U.S. Person, or with
a view towards distribution to any U.S. Person, in violation of the registration requirements of the Securities Act; (iv) such
Person will make all subsequent offers and sales of the Acquiror Shares either (A) outside of the U.S. in compliance with Regulation
S; (B) pursuant to a registration under the Securities Act; or (C) pursuant to an available exemption from registration under
the Securities Act; (v) such Person is acquiring the Acquiror Shares for such Person’s own account, for investment and not
for distribution or resale to others; (vi) such Person has no present plan or intention to sell the Acquiror Shares in the U.S.
or to a U.S. Person at any predetermined time, has made no predetermined arrangements to sell the Acquiror Shares and is not acting
as an underwriter or dealer with respect to such securities or otherwise participating in the distribution of such securities;
(vii) neither such Person, its Affiliates nor any Person acting on behalf of such Person, has entered into, has the intention
of entering into, or will enter into any put option, short position or other similar instrument or position in the U.S. with respect
to the Acquiror Shares at any time after the Closing Date through the one year anniversary of the Closing Date except in compliance
with the Securities Act; (viii) such Person consents to the placement of a legend on any certificate or other document evidencing
the Acquiror Shares substantially in the form set forth in Section 3.7(b) and (ix) such Person is not acquiring the Acquiror
Shares in a transaction (or an element of a series of transactions) that is part of any plan or scheme to evade the registration
provisions of the Securities Act.
Section 3.7 Stock Legends. Such Acquiree Shareholder hereby agrees with the Acquiror as follows:
(a) The certificates evidencing the Acquiror Shares issued to those Acquiree Shareholders who are Accredited Investors, and
each certificate issued in transfer thereof, will bear the following or similar legend:
THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, IN WHICH CASE THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED
IN THE MANNER CONTEMPLATED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS.
(b) The certificates evidencing the Acquiror Shares issued to those Acquiree Shareholders who are not U.S. Persons, and each
certificate issued in transfer thereof, will bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES
LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT
(1) IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES ACT, AND BASED ON AN OPINION OF COUNSEL,
WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THE PROVISIONS OF REGULATION S HAVE BEEN SATISFIED,
(2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (3) PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, IN WHICH
CASE THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED IN THE MANNER
CONTEMPLATED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS. HEDGING TRANSACTIONS INVOLVING THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH
THE SECURITIES ACT.
(c) Other Legends. The certificates representing such Acquiror Shares, and each certificate issued in transfer thereof,
will also bear any other legend required under any applicable Law, including, without limitation, any state corporate and state
securities law, or Contract.
Section 3.8 Disclosure. No representation or warranty of such Acquiree Shareholder contained in this Agreement or any other Transaction
Document and no statement or disclosure made by or on behalf of such Acquiree Shareholder to the Acquiror or the Acquiror Principal
Shareholder pursuant to this Agreement or any other agreement contemplated herein contains an untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained herein or therein not misleading.
Article
iV
REPRESENTATIONS AND WARRANTIES OF THE ACQUIREE
The Acquiree hereby represents
and warrants to the Acquiror, subject to the exceptions and qualifications specifically set forth or disclosed in writing in the
disclosure schedule delivered by the Acquiree to the Acquiror (the “Acquiree Disclosure Schedule”), that the
statements contained in this Article IV are correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as thought the Closing Date were substituted for the date of this Agreement
throughout this Article IV) (except where another date or period of time is specifically stated herein for a representation
or warranty). The Acquiree Disclosure Schedule shall be arranged according to the numbered and lettered paragraphs of this Article
IV and any disclosure in the Acquiree Disclosure Schedule shall qualify the corresponding paragraph in this Article IV.
The Acquiror and, after the Closing, the Acquiree, shall be entitled to rely on the representations and warranties set forth in
this Article IV regardless of any investigation or review conducted by the Acquiror prior to the Closing.
Section 4.1 Organization and Qualification. The Acquiree is a corporation duly organized, validly existing and in good standing
under the Laws of the jurisdiction of its incorporation or organization, has all requisite corporate authority and power, Licenses,
authorizations, consents and approvals to carry on its business as presently conducted and to own, hold and operate its properties
and assets as now owned, held and operated by it, and is duly qualified to do business and in good standing in each jurisdiction
in which the failure to be so qualified would not reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on the Acquiree.
Section 4.2 Authority. The Acquiree has all requisite authority and power (corporate and other), Licenses, authorizations, consents
and approvals to enter into and deliver this Agreement and any of the other Transaction Documents to which the Acquiree is a party
and any other certificate, agreement, document or instrument to be executed and delivered by the Acquiree in connection with the
transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents by the Acquiree
and the performance by the Acquiree of its obligations hereunder and thereunder and the consummation by the Acquiree of the transactions
contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Acquiree. The Acquiree does
not need to give any notice to, make any filing with, or obtain any authorization, consent or approval of any Person or Governmental
Authority in order for the Parties to execute, deliver or perform this Agreement or the transactions contemplated hereby. This
Agreement has been, and each of the Transaction Documents to which the Acquiree is a party will be, duly and validly authorized
and approved, executed and delivered by the Acquiree.
Section 4.3 Binding
Obligations. Assuming this Agreement and the Transaction Documents have been duly and validly authorized, executed and delivered
by the parties hereto and thereto other than the Acquiree, this Agreement and each of the Transaction Documents to which the Acquiree
is a party are duly authorized, executed and delivered by the Acquiree and constitutes the legal, valid and binding obligations
of the Acquiree enforceable against the Acquiree in accordance with their respective terms, except as such enforcement is limited
by general equitable principles, or by bankruptcy, insolvency and other similar Laws affecting the enforcement of creditors rights
generally.
Section 4.4 No Conflicts. Neither the execution nor the delivery by the Acquiree of this Agreement or any Transaction Document
to which the Acquiree is a party, nor the consummation or performance by the Acquiree of the transactions contemplated hereby or
thereby will, directly or indirectly, (a) contravene, conflict with, or result in a violation of any provision of the Acquiree
Organizational Documents, (b) contravene, conflict with or result in a violation of any Law, Order, charge or other restriction
or decree applicable to the Acquiree, or by which the Acquiree or any of its respective assets and properties are bound or affected,
(c) contravene, conflict with, result in any breach of, or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, impair the rights of the Acquiree under, or alter the obligations of any Person under, or
create in any Person the right to terminate, amend, accelerate or cancel, or require any notice, report or other filing (whether
with a Governmental Authority or any other Person) pursuant to, or result in the creation of a Lien on any of the assets or properties
of the Acquiree under, any note, bond, mortgage, indenture, Contract, License, permit, franchise or other instrument or obligation
to which the Acquiree is a party or by which the Acquiree or any of its respective assets and properties are bound or affected;
or (d) contravene, conflict with, or result in a violation of, the terms or requirements of, or give any Governmental Authority
the right to revoke, withdraw, suspend, cancel, terminate or modify, any licenses, permits, authorizations, approvals, franchises
or other rights held by the Acquiree or that otherwise relate to the business of, or any of the properties or assets owned or used
by, the Acquiree, except, in the case of clauses (b), (c), or (d), for any such contraventions, conflicts, violations, or other
occurrences as would not have a Material Adverse Effect on the Acquiree.
Section 4.5 Subsidiaries.
The Acquiree does not own, directly or indirectly, any equity or other ownership interest in any corporation, partnership, joint
venture or other entity or enterprise. There are no Contracts or other obligations (contingent or otherwise) of the Acquiree to
retire, repurchase, redeem or otherwise acquire any outstanding shares of capital stock of, or other ownership interests in, any
other Person or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other
Person.
Section 4.6 Organizational Documents. The Acquiree has delivered or made available to the Acquiror a true and correct copy of
the Certificate of Organization of the Acquiree and any other organizational documents of the Acquiree, each as amended, and each
such instrument is in full force and effect (the “Acquiree Organizational Documents”). The Acquiree is not in
violation of any of the provisions of the Acquiree Organizational Documents.
Section 4.7 Capitalization.
(a) The authorized capital stock of the Acquiree consists of 100,000 shares of common stock. Except as set forth above, no
units or other voting securities of the Acquiree were issued, reserved for issuance or outstanding. All outstanding shares of
the Acquiree are, and all such units that may be issued prior to the Closing Date will be when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to or issued in violation of any right of first refusal, preemptive right,
subscription right or any similar right under any provision of the Laws of the jurisdiction of the Acquiree’s formation,
the Acquiree Organizational Documents or any Contract to which the Acquiree is a party or otherwise bound. There are not any bonds,
debentures, notes or other Indebtedness of the Acquiree having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which holders of Acquiree Interests may vote. Except pursuant provided otherwise,
there are no options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation
rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which the Acquiree
is a party or by which it is bound (x) obligating the Acquiree to issue, deliver or sell, or cause to be issued, delivered or
sold, additional units or other equity interests in, or any security convertible or exercisable for or exchangeable into any unit
of or other equity interest in, the Acquiree, or (y) that give any Person the right to receive any economic benefit or right similar
to or derived from the economic benefits and rights occurring to unit holders of the Acquiree. There are no outstanding Contracts
or obligations of the Acquiree to repurchase, redeem or otherwise acquire any units of the Acquiree. There are no registration
rights, proxies, voting trust agreements or other agreements or understandings with respect to any units of the Acquiree.
Section 4.8 No Brokers or Finders. No Person has, or as a result of the transactions contemplated herein will have, any right
or valid claim against the Acquiree for any commission, fee or other compensation as a finder or broker, or in any similar capacity,
based upon arrangements made by or on behalf of the Acquiree, and the Acquiree will indemnify and hold the Acquiror and the Acquiror
Principal Shareholder and harmless against any liability or expense arising out of, or in connection with, any such claim.
Section 4.9 Disclosure.
No representation or warranty of the Acquiree contained in this Agreement and no statement or disclosure made by or on behalf
of the Acquiree to the Acquiror or the Acquiror Principal Shareholder pursuant to this Agreement or any other agreement contemplated
herein contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained
herein or therein not misleading.
Article
v
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR AND
THE ACQUIROR PRINCIPAL SHAREHOLDER
The Acquiror and the Acquiror
Principal Shareholder, jointly and severally, hereby represent and warrant to the Acquiree, and each of the Acquiree Shareholders,
subject to the exceptions and qualifications specifically set forth or disclosed in writing in the disclosure schedule delivered
by the Acquiror Principal Shareholder to the Acquiree, and the Acquiree Shareholders simultaneously herewith (the “Acquiror
Disclosure Schedule”), that the statements contained in this Article V are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as though made then and as thought the Closing Date
were substituted for the date of this Agreement throughout this Article V) (except where another date or period of time
is specifically stated herein for a representation or warranty). The Acquiror Disclosure Schedule shall be arranged according to
the numbered and lettered paragraphs of this Article V and any disclosure in the Acquiror Disclosure Schedule shall qualify
the corresponding paragraph in this Article V. The Acquiree, the Acquiree Shareholders and, after the Closing, the Acquiror,
shall be entitled to rely on the representations and warranties set forth in this Article V regardless of any investigation
or review conducted by the Acquiree, or the Acquiree Shareholders prior to the Closing.
Section 5.1 Organization
and Qualification. The Acquiror is a corporation duly organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation or organization, has all requisite corporate authority and power, Licenses, authorizations,
consents and approvals to carry on its business as presently conducted and to own, hold and operate its properties and assets
as now owned, held and operated by it, and is duly qualified to do business and in good standing in each jurisdiction in which
the failure to be so qualified would not reasonably be expected, individually or in the aggregate, to have a Material Adverse
Effect on the Acquiror.
Section 5.2 Authority. The Acquiror and the Acquiror Principal Shareholder have all requisite authority and power, Licenses,
authorizations, consents and approvals to enter into and deliver this Agreement and any of the other Transaction Documents to which
the Acquiror, the Acquiror Principal Shareholder or any of them is a party and any other certificate, agreement, document or instrument
to be executed and delivered by the Acquiror, the Acquiror Principal Shareholder or any of them in connection with the transactions
contemplated hereby and thereby and to perform their respective obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents by the Acquiror
and the Acquiror Principal Shareholder and the performance by the Acquiror and the Acquiror Principal Shareholder of their respective
obligations hereunder and thereunder and the consummation by the Acquiror and the Acquiror Principal Shareholder of the transactions
contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Acquiror and the Acquiror
Principal Shareholder. The Acquiror does not need to give any notice to, make any filing with, or obtain any authorization, consent
or approval of any Governmental Authority in order for the Parties to execute, deliver or perform this Agreement or the transactions
contemplated hereby. This Agreement has been, and each of the Transaction Documents to which the Acquiror, the Acquiror Principal
Shareholder or any of them, as applicable, are a party will be, duly and validly authorized and approved, executed and delivered
by the Acquiror and the Acquiror Principal Shareholder.
Section 5.3 Binding
Obligations. Assuming this Agreement and the Transaction Documents have been duly and validly authorized, executed and delivered
by the parties hereto and thereto other than the Acquiror and the Acquiror Principal Shareholder, this Agreement and each of the
Transaction Documents to which the Acquiror, the Acquiror Principal Shareholder or any of them, as applicable, are a party are
duly authorized, executed and delivered by the Acquiror and such Acquiror Principal Shareholder, as applicable, and constitutes
the legal, valid and binding obligations of the Acquiror and such Acquiror Principal Shareholder, as applicable, enforceable against
the Acquiror and such Acquiror Principal Shareholder, as applicable, in accordance with their respective terms, except as such
enforcement is limited by general equitable principles, or by bankruptcy, insolvency and other similar Laws affecting the enforcement
of creditors rights generally.
Section 5.4 No Conflicts. Neither the execution nor the delivery by the Acquiror or the Acquiror Principal Shareholder of this
Agreement or any Transaction Document to which the Acquiror, the Acquiror Principal Shareholder or any of them is a party, nor
the consummation or performance by the Acquiror and the Acquiror Principal Shareholder of the transactions contemplated hereby
or thereby will, directly or indirectly, (a) contravene, conflict with, or result in a violation of any provision of the Acquiror
Organizational Documents, (b) contravene, conflict with or result in a violation of any Law, Order, charge or other restriction
or decree of any Governmental Authority or any rule or regulation of the Principal Market applicable to the Acquiror or the Acquiror
Principal Shareholder, or by which the Acquiror or the Acquiror Principal Shareholder or any of their respective assets and properties
are bound or affected, (c) contravene, conflict with, result in any breach of, or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, impair the rights of the Acquiror under, or alter the obligations of any
Person under, or create in any Person the right to terminate, amend, accelerate or cancel, or require any notice, report or other
filing (whether with a Governmental Authority or any other Person) pursuant to, or result in the creation of a Lien on any of the
assets or properties of the Acquiror under, any note, bond, mortgage, indenture, Contract, License, permit, franchise or other
instrument or obligation to which the Acquiror or the Acquiror Principal Shareholder is a party or by which the Acquiror or the
Acquiror Principal Shareholder or any of their respective assets and properties are bound or affected; or (d) contravene, conflict
with, or result in a violation of, the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw,
suspend, cancel, terminate or modify, any Licenses, permits, authorizations, approvals, franchises or other rights held by the
Acquiror or that otherwise relate to the business of, or any of the properties or assets owned or used by, the Acquiror, except,
in the case of clauses (b), (c), or (d), for any such contraventions, conflicts, violations, or other occurrences as would not
have a Material Adverse Effect on the Acquiror.
Section 5.5 Subsidiaries.
Except as set forth on Schedule 5.5, the Acquiror does not own, directly or indirectly, any equity or other ownership interest
in any corporation, partnership, joint venture or other entity or enterprise. There are no Contracts or other obligations (contingent
or otherwise) of the Acquiror to retire, repurchase, redeem or otherwise acquire any outstanding shares of capital stock of, or
other ownership interests in, any other Person or to provide funds to or make any investment (in the form of a loan, capital contribution
or otherwise) in any other Person.
Section 5.6 Organizational
Documents. The Acquiror has delivered or made available to Acquiree a true and correct copy of the Certificate of Incorporation
and Bylaws of the Acquiror and any other organizational documents of the Acquiror, each as amended, and each such instrument is
in full force and effect (the “Acquiror Organizational Documents”). The Acquiror is not in violation of any
of the provisions of its Acquiror Organizational Documents. The authorized capital stock of the Acquiror consists of (i) 100,000,000
shares of Acquiror Common Stock, $0.001 par value per share, of which 9,656,194 shares of
Acquiror Common Stock are issued and outstanding; (ii) 20,000,000 shares of preferred stock, $0.001 par value per share, of which
none are issued and outstanding. Except as set forth above, no shares of capital stock or other voting securities of the Acquiror
were issued, reserved for issuance or outstanding. All outstanding shares of the capital stock of the Acquiror are, and all such
shares that may be issued prior to the Closing Date will be when issued, duly authorized, validly issued, fully paid and nonassessable
and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription
right or any similar right under any provision of the Laws of the jurisdiction of the Acquiror’s organization, the Acquiror
Organizational Documents or any Contract to which the Acquiror is a party or otherwise bound. Except as set forth on Schedule
5.6(a), there are not any bonds, debentures, notes or other Indebtedness of the Acquiror having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters on which holders of Acquiror Common Stock may vote.
Except as set forth on Schedule 5.6(a), there are no options, warrants, rights, convertible or exchangeable securities, “phantom”
stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of
any kind to which the Acquiror is a party or by which it is bound (x) obligating the Acquiror to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible
or exercisable for or exchangeable into any capital stock of or other equity interest in, the Acquiror, (y) obligating the Acquiror
to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking
or (z) that give any Person the right to receive any economic benefit or right similar to or derived from the economic benefits
and rights occurring to holders of the capital stock of the Acquiror. There are no outstanding Contracts or obligations of the
Acquiror to repurchase, redeem or otherwise acquire any shares of capital stock of the Acquiror. There are no registration rights,
proxies, voting trust agreements or other agreements or understandings with respect to any class or series of any capital stock
or other security of the Acquiror. The stockholder list provided to the Acquiree and the Acquiree Shareholders is a current stockholder
list generated by its stock transfer agent, and such list accurately reflects all of the issued and outstanding shares of the
Acquiror Common Stock.
(b) The issuance of the Acquiror Shares to the Acquiree Shareholders has been duly authorized and, upon delivery to the Acquiree
Shareholders of certificates therefor, respectively, in accordance with the terms of this Agreement, the Acquiror Shares, will
have been validly issued and fully paid, and will be nonassessable, have the rights, preferences and privileges specified, will
be free of preemptive rights and will be free and clear of all Liens and restrictions, other than Liens created by the Acquiree
Shareholders, and restrictions on transfer imposed by this Agreement and the Securities Act.
Section 5.7 Compliance with Laws. The business and operations of the Acquiror have been and are being conducted in accordance
with all applicable Laws and Orders. Except as set forth in Schedule 5.7, the Acquiror is not in conflict with, or in default or
violation of and, to the Knowledge of the Acquiror or the Acquiror Principal Shareholder, is not under investigation with respect
to and has not been threatened to be charged with or given notice of any violation of or default under, any (i) Law, rule, regulation,
judgment or Order, or (ii) note, bond, mortgage, indenture, Contract, License, permit, franchise or other instrument or obligation
to which the Acquiror or the Acquiror Principal Shareholder is a party or by which the Acquiror or the Acquiror Principal Shareholder
or any of their respective assets and properties are bound or affected. There is no agreement, judgment or Order binding upon the
Acquiror or the Acquiror Principal Shareholder which has, or could reasonably be expected to have, the effect of prohibiting or
materially impairing any business practice of the Acquiror or the conduct of business by the Acquiror as currently conducted. The
Acquiror has filed all forms, reports and documents required to be filed with any Governmental Authority and the Acquiror has made
available such forms, reports and documents to Acquiree and the Acquiree Shareholders. As of their respective dates, such forms,
reports and documents complied in all material respects with the applicable requirements pertaining thereto and none of such forms,
reports and documents contain any untrue statement of a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
Section 5.8 Certain Proceedings. There is no Action pending against, or to the Knowledge of the Acquiror or the Acquiror Principal
Shareholder, threatened against or affecting, the Acquiror or the Acquiror Principal Shareholder by any Governmental Authority
or other Person with respect to the Acquiror or its respective businesses or that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement. The Acquiror is
not in violation of and, to the Knowledge of Acquiror or the Acquiror Principal Shareholder, is not under investigation with respect
to and has not been threatened to be charged with or given notice of any violation of, any applicable Law, rule, regulation, judgment
or Order. The Acquiror or any director or officer (in his or her capacity as such) of the Acquiror, is or has not been the subject
of any Action involving a claim or violation of or liability under federal or state securities laws or a claim of breach of fiduciary
duty.
Section 5.9 No Brokers
or Finders. No Person has, or as a result of the transactions contemplated herein will have, any right or valid claim against
the Acquiror, or the Acquiror Principal Shareholder for any commission, fee or other compensation as a finder or broker, or in
any similar capacity, based upon arrangements made by or on behalf of the Acquiror, or the Acquiror Principal Shareholder, and
the Acquiror Principal Shareholder will indemnify and hold the Acquiror, the Acquiree and the Acquiree Shareholders and harmless
against any liability or expense arising out of, or in connection with, any such claim.
Section 5.10 Contracts.
Except as disclosed in the SEC Reports, there are no Contracts that are material to the business, properties, assets, condition
(financial or otherwise), results of operations or prospects of the Acquiror. The Acquiror is not in violation of or in default
under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation
of or default under) any Contract to which it is a party or to which it or any of its properties or assets is subject, except
for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse
Effect of the Acquiror.
Section 5.11 Tax Matters.Tax Returns. The Acquiror has filed all Tax Returns required to be filed (if any) by or on behalf of
the Acquiror, as applicable, and has paid all Taxes of the Acquiror, as applicable, required to have been paid (whether or not
reflected on any Tax Return). No Governmental Authority in any jurisdiction has made a claim, assertion or threat to the Acquiror
that the Acquiror is or may be subject to taxation by such jurisdiction; there are no Liens with respect to Taxes on the Acquiror’s
property or assets; and there are no Tax rulings, requests for rulings, or closing agreements relating to the Acquiror for any
period (or portion of a period) that would affect any period after the date hereof.
(b) No Adjustments, Changes. Neither the Acquiror nor any other Person on behalf of the Acquiror (a) has executed or
entered into a closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision
of state, local or foreign law; or (b) has agreed to or is required to make any adjustments pursuant to Section 481(a) of the
Code or any similar provision of state, local or foreign law.
(c) No Disputes. There is no pending audit, examination, investigation, dispute, proceeding or claim with respect to
any Taxes of the Acquiror, nor is any such claim or dispute pending or contemplated. The Acquiror has delivered to the Acquiree
true, correct and complete copies of all Tax Returns and examination reports and statements of deficiencies assessed or asserted
against or agreed to by the Acquiror, if any, since its inception and any and all correspondence with respect to the foregoing.
(d) Not a U.S. Real Property Holding Corporation. The Acquiror is not and has never been a U.S. real property holding
corporation within the meaning of Section 897(c)(2) of the Code at any time during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(e) No Tax Allocation, Sharing. The Acquiror is not and has never been a party to any Tax allocation or sharing agreement.
(f) No Other Arrangements. The Acquiror is not a party to any Contract or arrangement for services that would result,
individually or in the aggregate, in the payment of any amount that would not be deductible by reason of Section 162(m), 280G
or 404 of the Code. The Acquiror is not a “consenting corporation” within the meaning of Section 341(f) of the Code.
The Acquiror does not have any “tax-exempt bond financed property” or “tax-exempt use property” within
the meaning of Section 168(g) or (h), respectively of the Code. The Acquiror does not have any outstanding closing agreement,
ruling request, request for consent to change a method of accounting, subpoena or request for information to or from a Governmental
Authority in connection with any Tax matter. During the last two years, the Acquiror has not engaged in any exchange with a related
party (within the meaning of Section 1031(f) of the Code) under which gain realized was not recognized by reason of Section 1031
of the Code. The Acquiror is not a party to any reportable transaction within the meaning of Treasury Regulation Section 1.6011-4.
Section 5.12
Labor Matters. There are no collective bargaining or other labor union agreements
to which the Acquiror is a party or by which it is bound. No material labor dispute exists or, to the Knowledge of the Acquiror,
is imminent with respect to any of the employees of the Acquiror.
(b) Except as set forth in Section 5.13 of the Acquiror Disclosure Schedule, the Acquiror does not have any employees, independent
contractors or other Persons providing services to them. The Acquiror is in full compliance with all Laws regarding employment,
wages, hours, benefits, equal opportunity, collective bargaining, the payment of Social Security and other taxes, and occupational
safety and health. The Acquiror is not liable for the payment of any compensation, damages, taxes, fines, penalties or other amounts,
however designated, for failure to comply with any of the foregoing Laws.
(c) No director, officer or employee of the Acquiror is a party to, or is otherwise bound by, any Contract (including any confidentiality,
non-competition or proprietary rights agreement) with any other Person that in any way adversely affects or will materially affect
(a) the performance of his or her duties as a director, officer or employee of the Acquiror or (b) the ability of the Acquiror
to conduct its business. Each employee of the Acquiror is employed on an at-will basis and the Acquiror does not have any Contract
with any of its employees which would interfere with its ability to discharge its employees.
Section 5.13 Employee
Benefits. Except as set forth on Schedule 5.13, the Acquiror has not maintained or contributed
to any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement
or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of
the Acquiror. There are no employment, consulting, indemnification, severance or termination agreements or arrangements between
the Acquiror and any current or former employee, officer or director of the Acquiror, nor does the Acquiror have any general severance
plan or policy.
(b) The Acquiror has not maintained or contributed to any “employee pension benefit plans” (as defined in Section
3(2) of ERISA), “employee welfare benefit plans” (as defined in Section 3(1) of ERISA) or any other benefit plan for
the benefit of any current or former employees, consultants, officers or directors of the Acquiror.
Section 5.14 Title
to Assets. Except as set forth on Schedule 5.14, the Acquiror does not own any real property. The Acquiror
has sufficient title to, or valid leasehold interests in, all of its properties and assets used in the conduct of its businesses.
All such assets and properties, other than assets and properties in which the Acquiror has leasehold interests, are free and clear
of all Liens, except for Liens that, in the aggregate, do not and will not materially interfere with the ability of the Acquiror
to conduct business as currently conducted.
Section 5.15 Intellectual
Property. The Acquiror does not own, use or license any Intellectual Property in its business as presently conducted.
Section 5.16
SEC Reports. The Acquiror has
filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC since November 19,
2010, pursuant to the Exchange Act (the “SEC Reports”).
(b) As of their respective dates, the SEC Reports and any registration statements filed by the Acquiror under the Securities
Act (the “Registration Statements”) complied in all material respects with the requirements of the Exchange
Act and the Securities Act, as applicable, and the rules and regulations of the SEC promulgated thereunder, and none of the SEC
Reports or Registration Statements, when filed, contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Acquiror included in the SEC Reports and the Registration Statements
comply in all respects with applicable accounting requirements and the rules and regulations of the SEC with respect thereto as
in effect at the time of filing, were prepared in accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto, or, in the case of unaudited statements as permitted by Form 10-Q), and fairly
present in all material respects (subject in the case of unaudited statements, to normal, recurring audit adjustments) the financial
position of the Acquiror as at the dates thereof and the results of its operations and cash flows for the periods then ended.
The disclosure set forth in the SEC Reports and Registration Statements regarding the Acquiror’s business is current and
complete and accurately reflects operations of the Acquiror as it exists as of the date hereof.
Section 5.17
Internal Accounting Controls. As set forth in the SEC Reports, the Acquiror maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (a) transactions are executed in accordance with management’s general
or specific authorizations, (b) transactions are recorded as necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset accountability, (c) access to assets is permitted only in accordance
with management’s general or specific authorization, and (d) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with respect to any differences. As set forth in the SEC
Reports, the Acquiror has established disclosure controls and procedures for the Acquiror and designed such disclosure controls
and procedures to ensure that material information relating to the Acquiror is made known to the officers by others within the
Acquiror. As set forth in the SEC Reports, the Acquiror’s officers have evaluated the effectiveness of the Acquiror’s
controls and procedures. Since the Acquiror Most Recent Fiscal Year End, there have been no significant changes in the Acquiror’s
internal controls or, to the Knowledge of the Acquiror or the Acquiror Principal Shareholder, in other factors that could significantly
affect the Acquiror’s internal controls.
Section 5.18
Application of Takeover Protections. The Acquiror has taken all necessary action, if any, in order to render inapplicable
any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Acquiror Organizational Documents or the Laws of its state of incorporation that is or
could become applicable to the transactions contemplated hereby.
Section 5.19
Transactions With Affiliates and Employees. Except as disclosed in the SEC Reports, no officer, director, employee
or stockholder of the Acquiror or any Affiliate of any such Person, has or has had, either directly or indirectly, an interest
in any transaction with the Acquiror (other than for services as employees, officers and directors), including any Contract or
other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any such Person or, to the Knowledge of the Acquiror or the Acquiror Principal Shareholder,
any entity in which any such Person has an interest or is an officer, director, trustee or partner.
Section 5.20
Liabilities. Except as set forth in the SEC Reports and on Schedule 5.20, the Acquiror does not have any Liability
(and there is no Action pending, or to the Knowledge of the Acquiror or the Acquiror Principal Shareholder, threatened against
the Acquiror that would reasonably be expected to give rise to any Liability). The Acquiror is not a guarantor nor is it otherwise
liable for any Liability or obligation (including Indebtedness) of any other Person. There are no financial or contractual obligations
of the Acquiror (including any obligations to issue capital stock or other securities) executory after the Closing Date. Except
for the liabilities listed on Schedule 5.20, all Liabilities of the Acquiror shall have been paid off at or prior to the
Closing and shall in no event remain Liabilities of the Acquiror, the Acquiree or the Acquiree Shareholders following the Closing.
Section 5.21
Bank Accounts and Safe Deposit Boxes. The Acquiror has several bank accounts which will be closed on or prior to
the Closing.
Section 5.22
Investment Company. Neither the Acquiror nor its affiliate, immediately following the Closing, will become, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
Section 5.23
Bank Holding Company Act. The Acquiror is not subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”)
and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the
Acquiror nor any of its Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares
of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any equity that is subject
to the BHCA and to regulation by the Federal Reserve. Neither the Acquiror nor any of its Affiliates exercises a controlling influence
over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
Section 5.24
Public Utility Holding Act. The Acquiror is not a “holding company,” or an “affiliate” of
a “holding company,” as such terms are defined in the Public Utility Holding Act of 2005.
Section 5.25
Federal Power Act. The Acquiror is not subject to regulation as a “public utility” under the Federal
Power Act, as amended.
Section 5.26
Money Laundering Laws. The operations of the Acquiror is and has been conducted at all times in compliance with applicable
financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended,
the money laundering statutes of all U.S. and non-U.S. jurisdictions, the rules and regulations thereunder and any related or similar
rules, regulations or guidelines, issued, administered or enforced by any Governmental Authority (collectively, the “Money
Laundering Laws”) and no Proceeding involving the Acquiror with respect to the Money Laundering Laws is pending or, to
the knowledge of the Acquiror, threatened.
Section 5.27
Foreign Corrupt Practices. The Acquiror, nor, to the Knowledge of the Acquiror or the Acquiror Principal Shareholder,
any director, officer, agent, employee or other Person acting on behalf of the Acquiror has, in the course of its actions for,
or on behalf of, the Acquiror (a) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (b) made any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; (c) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended; or (d) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to any foreign or domestic government official or employee.
Section 5.28
Absence of Certain Changes or Events. Except as set forth in the SEC Reports, from the Acquiror Most Recent Fiscal
Year End (a) the Acquiror has conducted its business only in Ordinary Course of Business; (b) there has not been any change in
the assets, Liabilities, financial condition or operating results of the Acquiror, except changes in the Ordinary Course of Business
that have not caused, in the aggregate, a Material Adverse Effect on the Acquiror; and (c) the Acquiror has not completed or undertaken
any of the actions set forth in Section 5.2. The Acquiror has not taken any steps to seek protection pursuant to any Law
or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does the Acquiror have
any Knowledge or reason to believe that any of its respective creditors intend to initiate involuntary bankruptcy proceedings or
any actual knowledge of any fact which would reasonably lead a creditor to do so.
Section 5.29
Disclosure. All documents and other papers delivered or made available by or on behalf of the Acquiror or the Acquiror
Principal Shareholder in connection with this Agreement are true, complete, correct and authentic in all material respects. No
representation or warranty of the Acquiror or the Acquiror Principal Shareholder contained in this Agreement and no statement or
disclosure made by or on behalf of the Acquiror or the Acquiror Principal Shareholder to the Acquiree or any Acquiree Shareholder
pursuant to this Agreement or any other agreement contemplated herein contains an untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or therein not misleading.
Section 5.30
Undisclosed Events. No event, Liability, development or circumstance has occurred or exists, or is contemplated to
occur with respect to the Acquiror, or its businesses, properties, prospects, operations or financial condition, that would be
required to be disclosed by the Acquiror under applicable securities laws on a registration statement on Form S-1 filed with the
SEC relating to an issuance and sale by the Acquiror of its common stock and which has not been publicly announced or will not
be publicly announced in a current report on Form 8-K filed by the Acquiror filed within four (4) Business Days after the Closing.
Section 5.31
Non-Public Information. Neither the Acquiror nor any Person acting on its behalf has provided the Acquiree or Acquiree
Shareholders or their respective agents or counsel with any information that the Acquiror or the believes constitutes material,
non-public information except insofar as the existence and terms of the proposed transactions hereunder may constitute such information
and except for information that will be disclosed by the Acquiror in a current report on Form 8-K filed by the Acquiror within
four (4) Business Days after the Closing.
Article
vI
CONDUCT PRIOR TO CLOSING
Section 6.1
Conduct of Business. At all times during the period commencing with the execution and delivery of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant to the terms hereof or the Closing, the Acquiror
Principal Shareholder shall, and shall cause the Acquiror to, (a) carry on its business diligently and in the usual, regular and
Ordinary Course of Business, in substantially the same manner as heretofore conducted and in compliance with all applicable Laws,
(b) pay or perform its material obligations when due, (c) use its commercially reasonable efforts, consistent with past practices
and policies, to preserve intact its present business organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors, licensors, licensees and others with which it has business
dealings, and (d) keep its business and properties substantially intact, including its present operations, physical facilities
and working conditions. In furtherance of the foregoing and subject to applicable Law, the Acquiror shall confer with Acquiree,
as promptly as practicable, prior to taking any material actions or making any material management decisions with respect to the
conduct of the business of the Acquiror.
Section 6.2 Restrictions
on Conduct of Business. Without limiting the generality of the terms of Section 6.1 hereof, except (i) as required
by the terms hereof, or (ii) to the extent that Acquiree shall otherwise consent in writing, at all times during the period commencing
with the execution and delivery of this Agreement and continuing until the earlier of the termination of this Agreement pursuant
to the terms hereof or the Closing, neither the Acquiror, nor the Acquiror Principal Shareholder shall do any of the following,
or permit the Acquiror to do any of the following:
(a) except as required by
applicable Law, waive any stock repurchase rights, accelerate, amend or change the period of exercisability of options or restricted
stock, or reprice options granted under any employee, consultant or director stock plans or authorize cash payments in exchange
for any options granted under any of such plans;
(b) enter into any partnership arrangements, joint development agreements or strategic alliances, other than in the Ordinary
Course of Business;
(c) (i) increase the compensation or fringe benefits of, or pay any bonuses or special awards to, any present or former director,
officer, stockholder or employee of the Acquiror (except for increases in salary or wages in the Ordinary Course of Business)
or increase any fees to any independent contractors, (ii) grant any severance or termination pay to any present or former director,
officer or employee of the Acquiror, (iii) enter into, amend or terminate any employment Contract, independent contractor agreement
or collective bargaining agreement, written or oral, or (iv) establish, adopt, enter into, amend or terminate any bonus, profit
sharing, incentive, severance, or other plan, agreement, program, policy, trust, fund or other arrangement that would be an employee
benefit plan if it were in existence as of the date of this Agreement, except as required by applicable Law;
(d) issue, deliver, sell, authorize, pledge or otherwise encumber, or propose any of the foregoing with respect to, any shares
of capital stock or any securities convertible into, or exercisable or exchangeable for, shares of capital stock of the Acquiror,
or subscriptions, rights, warrants or options to acquire any shares of capital stock or any securities convertible into, or exercisable
or exchangeable for, shares of capital stock of the Acquiror or enter into other Contracts or commitments of any character obligating
it to issue any such shares of capital stock of the Acquiror, or securities convertible into, or exercisable or exchangeable for,
shares of capital stock of the Acquiror;
(e) cause, permit or propose
any amendments to any Acquiror Organizational Documents;
(f) acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a portion of the
assets of, or by any other manner, any business or any corporation, limited liability company, general or limited partnership,
joint venture, association, business trust or other business enterprise or entity, or otherwise acquire or agree to acquire any
assets other than in the Ordinary Course of Business;
(g) adopt a plan of merger, complete or partial liquidation, dissolution, consolidation, restructuring, recapitalization or
other reorganization;
(h) except as required by
applicable Law, adopt or amend any employee benefit plan or employee stock purchase or employee stock option plan, or enter into
any employment Contract or collective bargaining agreement (other than offer letters and letter agreements entered into in the
Ordinary Course of Business with employees who are terminable “at will”), pay any special bonus or special remuneration
to any director or employee other than in the Ordinary Course of Business, or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of its officers;
(i) except in the Ordinary
Course of Business, modify, amend or terminate any Contract to which the Acquiror is a party, or waive, delay the exercise of,
release or assign any rights or claims thereunder;
(j) sell, lease, license, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its properties
or assets, except in the Ordinary Course of Business;
(k) (i)
incur any Indebtedness or guarantee any such Indebtedness of another Person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Acquiror, guarantee any debt securities of another Person, enter into any “keep
well” or other agreement to maintain any financial statement condition of another Person or enter into any arrangement having
the economic effect of any of the foregoing, except for endorsements and guarantees for collection, short-term borrowings and
lease obligations, in each case incurred in the Ordinary Course of Business, or (ii) make any loans, advances or capital contributions
to, or investment in, any other Person, other than to the Acquiror;
(l) pay, discharge or satisfy any claims (including claims of stockholders), Liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), except for the payment, discharge or satisfaction of liabilities or obligations
in the Ordinary Course of Business or in accordance with their terms as in effect on the date hereof, or waive, release, grant,
or transfer any rights of material value or modify or change in any material respect any existing License, Contract or other document,
other than in the Ordinary Course of Business;
(m) change any financial reporting or accounting principle, methods or practices used by it unless otherwise required by applicable
Law or GAAP;
(n) settle or compromise any litigation (whether or not commenced prior to the date of this Agreement);
(o) (i) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock,
(ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or (iii) purchase, redeem or otherwise acquire any shares of
capital stock of the Acquiror or any other securities thereof or any rights, warrants or options to acquire any such shares or
other securities;
(p) enter into any transaction with any of its directors, officers, stockholders, or other Affiliates;
(q) make any capital expenditure in excess of $50,000;
(r) (i) grant any license or sublicense of any rights under or with respect to any Intellectual Property; (ii) dispose of or
let lapse and Intellectual Property, or any application for the foregoing, or any license, permit or authorization to use any
Intellectual Property or (iii) amend, terminate any other Contract, license or permit to which the Acquiror is a party;
(s) make, or permit to be made, without the prior written consent of Acquiree any material Tax election which would affect
the Acquiror; or
(t)
commit to or otherwise to take any of the actions described in this Section 6.2.
Article
vii
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information. The Acquiror shall afford Acquiree its accountants, counsel and other representatives (including
the Acquiree Shareholders), reasonable access, during normal business hours, to the properties, books, records and personnel of
the Acquiror at any time prior to the Closing in order to enable Acquiree obtain all information concerning the business, assets
and properties, results of operations and personnel of the Acquiror as Acquiree may reasonably request. No information obtained
in the foregoing investigation by Acquiree pursuant to this Section 7.1 shall affect or be deemed to modify any representation
or warranty contained herein or the conditions to the obligations of the Acquiror or the Acquiror Principal Shareholder to consummate
the transactions contemplated hereby.
Section 7.2 Legal Requirements.
The Parties shall take all reasonable actions necessary or desirable to comply promptly with all legal requirements which
may be imposed on them with respect to the consummation of the transactions contemplated by this Agreement (including, without
limitation, furnishing all information required in connection with approvals of or filings with any Governmental Authority, and
prompt resolution of any litigation prompted hereby), and shall promptly cooperate with, and furnish information to, the other
Parties to the extent necessary in connection with any such requirements imposed upon any of them in connection with the consummation
of the transactions contemplated by this Agreement.
Section 7.3 Notification of Certain Matters. Acquiree shall give prompt notice to the Acquiror Principal Shareholder, and the
Acquiror Principal Shareholder shall give prompt notice to the Acquiree, of the occurrence, or failure to occur, of any event,
which occurrence or failure to occur would be reasonably likely to cause (i) any representation or warranty contained in this Agreement
to be untrue or inaccurate at the Closing, such that the conditions set forth in Article X hereof, as the case may be, would
not be satisfied or fulfilled as a result thereof, or (ii) any material failure of any Acquiree, Acquiree Shareholder, the Acquiror
or the Acquiror Principal Shareholder, as the case may be, or of any officer, director, employee or agent thereof, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. Notwithstanding the
foregoing, the delivery of any notice pursuant to this Section 7.3 shall not limit or otherwise affect the rights and remedies
available hereunder to the Party receiving such notice.
Article
Viii
POST CLOSING COVENANTS
Section 8.1 General. In case at any time after the Closing any further action is necessary to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments
and documents) as any other Party reasonably may request.
Section 8.2 Litigation Support. In the event and for so long as any Party actively is contesting or defending against any action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated
under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that existed on or prior to the Closing Date involving the Acquiror or Acquiree,
each of the other Parties will cooperate with such Party and such Party’s counsel in the contest or defense, make available
any personnel under their control, and provide such testimony and access to their books and records as shall be reasonably necessary
in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party.
Section 8.3 Assistance
with Post-Closing SEC Reports and Inquiries. After the Closing Date, the Acquiror Principal Shareholder shall use its reasonable
best efforts to provide such information available to them, including information, filings, reports, financial statements or other
circumstances of the Acquiror occurring, reported or filed prior to the Closing, as may be necessary or required for the preparation
of the post-Closing Date reports that the Acquiror is required to file with the SEC, or filings required to address and resolve
matters as may relate to the period prior to the Closing and any SEC comments relating thereto or any SEC inquiry thereof.
Section 8.4 Public Announcements.
The Acquiror shall file with the SEC a Form 8-K describing the material terms of the transactions contemplated hereby as soon
as practicable following the Closing Date but in no event more than four (4) business days following the Closing Date. Prior to
the Closing Date, the Parties shall consult with each other in issuing the Form 8-K, press releases or otherwise making public
statements or filings and other communications with the SEC or any regulatory agency or stock market or trading facility with
respect to the transactions contemplated hereby and no Party shall issue any such press release or otherwise make any such public
statement, filings or other communications without the prior written consent of the other Parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by Law, in which
case the disclosing Party shall provide the other Parties with prior notice of no less than three (3) calendar days, of such public
statement, filing or other communication and shall incorporate into such public statement, filing or other communication the reasonable
comments of the other Parties.
Article
iX
CONDITIONS TO CLOSING
Section 9.1 Conditions to Obligation of the Parties Generally. The Parties shall not be obligated to consummate the transactions
to be performed by each of them in connection with the Closing if, on the Closing Date, (i) any Action shall be pending or threatened
before any Governmental Authority wherein an Order or charge would (A) prevent consummation of any of the transactions contemplated
by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (ii)
any Law or Order which would have any of the foregoing effects shall have been enacted or promulgated by any Governmental Authority;
or (iii) the Acquiree shall not have received an audit report with respect to its two most recently completed fiscal years from
an independent accounting firm that is registered with the Public Company Accounting Oversight Board.
Section 9.2 Conditions to Obligation of the Acquiree Parties. The obligations of the Acquiree, and the Acquiree Shareholders
to enter into and perform their respective obligations under this Agreement are subject, at the option of the Acquiree and the
Acquiree Shareholders, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which
may be waived by the Acquiree and the Acquiree Shareholders in writing:
(a) The representations and warranties of the Acquiror and the Acquiror Principal Shareholder set forth in this Agreement shall
be true and correct in all material respects as of the Closing Date (except to the extent such representations and warranties
are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as
of such date);
(b) The Acquiror shall have
performed and complied with all of their covenants hereunder in all material respects through the Closing, except to the extent
that such covenants are qualified by terms such as “material” and “Material Adverse Effect,” in which
case the Acquiror shall have performed and complied with all of such covenants in all respects through the Closing;
(c) No action, suit, or proceeding
shall be pending or, to the Knowledge of the Acquiror, threatened before any Governmental Authority wherein an Order or charge
would (A) affect adversely the right of the Acquiree Shareholders to own the Acquiror Shares or to control the Acquiror, or (B)
affect adversely the right of the Acquiror to own its assets or to operate its business (and no such Order or charge shall be
in effect), nor shall any Law or Order which would have any of the foregoing effects have been enacted or promulgated by any Governmental
Authority;
(d) No event, change or development shall exist or shall have occurred since the Acquiror Most Recent Fiscal Year End that
has had or is reasonably likely to have a Material Adverse Effect on the Acquiror;
(e) All consents, waivers, approvals, authorizations or Orders required to be obtained, and all filings required to be made,
by the Acquiror for the authorization, execution and delivery of this Agreement and the consummation by it of the transactions
contemplated by this Agreement, shall have been obtained and made by the Acquiror and Acquiror shall have delivered proof of same
to the Acquiree, the Parent and Acquiree Shareholders;
(f) Acquiror shall have filed all reports and other documents required to be filed by it under the U.S. federal securities
laws through the Closing Date;
(g) There shall not be any
outstanding obligation or Liability (whether accrued, absolute, contingent, liquidated or otherwise, whether due or to become
due), except as set forth on Schedule 5.20 of Acquiror’s Disclosure Schedule, of the Acquiror, whether or not known to the
Acquiror, as of the Closing;
(h) Acquiror shall have delivered to the Acquiree, and Acquiree Shareholders a certificate, dated the Closing Date, executed
by an officer of the Acquiror, certifying the satisfaction of the conditions specified in Sections 9.2(a) through 9.2(l),
inclusive, relating to the Acquiror;
(i) The Acquiror Principal
Shareholder shall have delivered to the Acquiree, and Acquiree Shareholders a certificate, dated the Closing Date, executed by
such Acquiror Principal Shareholder, certifying the satisfaction of the conditions specified in Section 9.2(a) inclusive,
relating to such Acquiror Principal Shareholder;
(j) Acquiror shall have delivered to the Acquiree and the Acquiree Shareholders (i) a certificate evidencing the formation
and good standing of the Acquiror in its jurisdiction of formation issued by the Secretary of State (or comparable office) of
such jurisdiction of formation as of a date within fifteen (15) days of the Closing Date; and (ii) a certificate evidencing the
Acquiror’s qualification as a foreign corporation and good standing issued by the Secretary of State (or comparable office)
of each jurisdiction in which the Acquiror conducts business and is required to so qualify, as of a date within five (5) days
of the Closing Date;
(k) Acquiror shall have delivered to the Acquiree and the Acquiree Shareholders a certificate duly executed by the Secretary
of the Acquiror and dated as of the Closing Date, as to (i) the resolutions as adopted by the Acquiror’s board of directors,
in a form reasonably acceptable to the Acquiree, approving this Agreement and the Transaction Documents to which it is a party
and the transactions contemplated hereby and thereby; (ii) the Acquiror Organizational Documents, each as in effect at the Closing;
and (iv) the incumbency of each authorized officer of the Acquiror signing this Agreement and any other agreement or instrument
contemplated hereby to which the Acquiror is a party;
(l) Acquiror shall have delivered to the Acquiree and the Acquiree Shareholders a statement from the Acquiror’s transfer
agent regarding the number of issued and outstanding shares of Acquiror Common Stock immediately before the Closing;
(m) Acquiror shall have delivered to the Acquiree and the Acquiree Shareholders such pay-off letters and releases relating
to any Liabilities of the Acquiror, provided, however, that no pay-off letters and releases shall be delivered for
the Liabilities set forth on Schedule 5.20 of Acquiror’s Disclosure Schedule;
(n) Acquiror shall have delivered
to the Acquiree and the Acquiree Shareholders duly executed letters of resignation from all of the directors and officers of the
Acquiror, effective as of the Closing;
(o) Acquiror shall have delivered
to the Acquiree and the Acquiree Shareholders a duly executed release by the current directors, officers and 10% or greater stockholders
of the Acquiror and from such former directors, officers and 10% or greater stockholders of the Acquiror as the Acquiree and the
Acquiree Shareholders shall reasonably request, in favor of the Acquiror, the Acquiree and the Acquiree Shareholders;
(p) Acquiror shall have delivered
to the Acquiree and the Acquiree Shareholders resolutions of the Acquiror’s board of directors (i) appointing Hamid Emarlou
to serve as Chief Executive Officer; (ii) appointing Hamid Emarlou to serve as Chief Financial Officer; (iii) nominating Hamid
Emarlou to serve as Chairman of the Acquiror’s board of directors; and (iv) nominating Masoud Shahidi and an individual
nominated by Eric Weissblum to serve as members of the Acquiror’s board of directors, effective as of the Closing;
(q) Acquiree and the Acquiree
Shareholders shall have completed their legal, accounting and business due diligence of the Acquiror and the results thereof shall
be satisfactory to the Acquiree and the Acquiree Shareholders in their sole and absolute discretion; and
(r) All actions to be taken
by the Acquiror and the Acquiror Principal Shareholder in connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby shall
be reasonably satisfactory in form and substance to the Acquiree and the Acquiree Shareholders.
(s) certificates representing the new shares of Acquiror Stock issued to the Shareholders set forth on Exhibit A.
(t) Acquiror shall have delivered
to the Acquiree and the Acquiree Shareholders Lock-Up and Resale Restriction Agreements executed by Acquiror Shareholders.
Section 9.3 Conditions to Obligation of the Acquiror Parties.The obligations of the Acquiror and the Acquiror Principal Shareholder
to enter into and perform their respective obligations under this Agreement are subject, at the option of the Acquiror and the
Acquiror Principal Shareholder, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more
of which may be waived by the Acquiror and the Acquiror Principal Shareholder in writing:
(a) The representations and
warranties of the Acquiree and the Acquire Shareholders set forth in this Agreement shall be true and correct in all material
respects as of the Closing Date (except to the extent such representations and warranties are specifically made as of a particular
date, in which case such representations and warranties shall be true and correct as of such date);
(b) The Acquiree and the
Acquirer Members shall have performed and complied with all of their covenants hereunder in all material respects through the
Closing, except to the extent that such covenants are qualified by terms such as “material” and “Material Adverse
Effect,” in which case the Acquiree and the Acquire Shareholders shall have performed and complied with all of such covenants
in all respects through the Closing;
(c) All consents, waivers, approvals, authorizations or Orders required to be obtained, and all filings required to be made,
by the Acquiror for the authorization, execution and delivery of this Agreement and the consummation by it of the transactions
contemplated by this Agreement, shall have been obtained and made by the Acquiree and Acquiree shall have delivered proof of same
to the Acquiror and Acquiror Principal Shareholder;
(d) Acquiree shall have delivered
to the Acquiror and Acquiror Principal Shareholder a certificate, dated the Closing Date, executed by an officer of the Acquiree,
certifying the satisfaction of the conditions specified in Sections 9.3(a) through 9.3(c), inclusive, relating to
the Acquiree;
(e) Acquiree shall have delivered
to the Acquiror and the Acquiror Principal Shareholder a certificate duly executed by the Secretary of the Acquiror and dated
as of the Closing Date, as to (i) the resolutions as adopted by the Acquiror’s board of directors, in a form reasonably
acceptable to the Acquiree, approving this Agreement and the Transaction Documents to which it is a party and the transactions
contemplated hereby and thereby; (ii) the Acquiree Organizational Documents, each as in effect at the Closing; and (iii) the incumbency
of each authorized officer of the Acquiree signing this Agreement and any other agreement or instrument contemplated hereby to
which the Acquiree is a party;
(f) Acquiror and the Acquiror Principal Shareholder shall have completed their legal, accounting and business due diligence
of the Acquiree and the results thereof shall be satisfactory to the Acquiror and the Acquiror Principal Shareholder in their
sole and absolute discretion; and
(g) All actions to be taken by the Acquiree and the Acquiree Shareholders in connection with consummation of the transactions
contemplated hereby and all payments, certificates, opinions, instruments, and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to the Acquiror and the Acquiror Principal Shareholder.
Article
X
TERMINATION
Section 10.1 Grounds
for Termination. Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by the mutual written agreement of the Parties;
(b) by the Acquiror or the
Acquiree (by written notice of termination from such Party to the other Parties) if a Governmental Authority of competent jurisdiction
shall have issued a final non-appealable Order, or shall have taken any other action having the effect of, permanently restraining,
enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; provided, however, that the right
to terminate this Agreement under this Section 10.1(b) shall not be available to a Party if such Order was primarily due
to the failure of such Party to perform any of its obligations under this Agreement;
(c) by the Acquiror, Acquiree or the Acquiree Shareholders (by written notice of termination from such Party to the other Parties)
if any event shall occur after the date hereof that shall have made it impossible to satisfy a condition precedent to the terminating
Party’s obligations to perform its obligations hereunder, unless the occurrence of such event shall be due to the failure
of the terminating Party to perform or comply with any of the agreements, covenants or conditions hereof to be performed or complied
with by such Party at or prior to the Closing;
(d) by Acquiree or the Acquiree Shareholders (by written notice of termination from Acquiree to the Acquiror Principal Shareholder,
in which reference is made to this subsection) if, since the date of this Agreement, there shall have occurred any Material Adverse
Effect on the Acquiror, or there shall have occurred any event or circumstance that, in combination with any other events or circumstances,
could reasonably be expected to have, a Material Adverse Effect with respect to the Acquiror;
(e) by the Acquiree (by written notice of termination from the Acquiree to the Acquiror and the Acquiror Principal Shareholder,
in which reference is made to the specific provision(s) of this subsection giving rise to the right of termination) if (i) any
of Acquiror’s or the Acquiror Shareholder’s representations and warranties shall have been inaccurate as of the date
of this Agreement or as of a date subsequent to the date of this Agreement (as if made on such subsequent date), such that the
condition set forth in Section 9.3(a) would not be satisfied and such inaccuracy has not been cured by Acquiror or the
Acquiror Principal Shareholder within five (5) Business Days after its receipt of written notice thereof and remains uncured at
the time notice of termination is given, (ii) any of the Acquiror’s or Acquiror Principal Shareholder’s covenants
contained in this Agreement shall have been breached, such that the condition set forth in Section 9.3(b) would not be
satisfied, or (iii) any Action shall be initiated, threatened or pending which could reasonably be expected to materially and
adversely affect the Acquiror or Acquiree (including, without limitation, any such Action relating to any alleged violation of,
or non-compliance with, any applicable Law or any allegation of fraud or intentional misrepresentation); or
(f) by the Acquiror and the Acquiror Principal Shareholder (by written notice of termination from the Acquiror to the Acquiree,
the Parent and the Acquiree Shareholders, in which reference is made to the specific provision(s) of this subsection giving rise
to the right of termination) if (i) any of Acquiree’s or the Acquiree Shareholder’s representations and warranties
shall have been inaccurate as of the date of this Agreement or as of a date subsequent to the date of this Agreement (as if made
on such subsequent date) and such inaccuracy has not been cured by Acquiree or the Acquiree Shareholders within five (5) Business
Days after its receipt of written notice thereof and remains uncured at the time notice of termination is given, or (ii) any of
the Acquiree’s or Acquiree Shareholder’s covenants contained in this Agreement shall have been breached.
Section 10.2 Procedure and Effect of Termination. In the event of the termination of this Agreement by the Acquiror Principal
Shareholder or Acquiree pursuant to Section 10.1 hereof, written notice thereof shall forthwith be given to the other Party.
If this Agreement is terminated as provided herein (a) each Party will redeliver all documents, work papers and other material
of any other Party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof,
to the Party furnishing the same; provided, that each Party may retain one copy of all such documents for archival purposes in
the custody of its outside counsel and (b) all filings, applications and other submission made by any Party to any Person, including
any Governmental Authority, in connection with the transactions contemplated hereby shall, to the extent practicable, be withdrawn
by such Party from such Person.
Section 10.3 Effect of Termination. If this Agreement is terminated pursuant to Section 10.1 hereof, this Agreement shall
become void and of no further force and effect.
Article XI
SURVIVAL
Section 11.1
Survival. All representations, warranties, covenants, and obligations in this Agreement shall survive one year after
the Closing. The right to indemnification, payment of damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being
acquired) at any time, whether before or after the execution and delivery of this Agreement, with respect to the accuracy or inaccuracy
of or compliance with, any such representation, warranty, covenant, or obligation. The waiver of any condition based on the accuracy
of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the
right to indemnification, payment of damages, or other remedy based on such representations, warranties, covenants, and obligations.
Article
XiI
MISCELLANEOUS PROVISIONS
Section 12.1
Expenses. Except as otherwise expressly provided in this Agreement, each Party will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this Agreement and the transactions contemplated by
this Agreement, including all fees and expenses of agents, representatives, counsel, and accountants. In the event of termination
of this Agreement, the obligation of each Party to pay its own expenses will be subject to any rights of such Party arising from
a breach of this Agreement by another Party.
Section 12.2
Confidentiality. The
Parties will maintain in confidence, and will cause their respective directors, officers, employees, agents, and advisors to maintain
in confidence, any written, oral, or other information obtained in confidence from another Person in connection with this Agreement
or the transactions contemplated by this Agreement, unless (a) such information is already known to such Party or to others not
bound by a duty of confidentiality or such information becomes publicly available through no fault of such Party, (b) the use
of such information is necessary or appropriate in making any required filing with the SEC, or obtaining any consent or approval
required for the consummation of the transactions contemplated by this Agreement, or (c) the furnishing or use of such information
is required by or necessary or appropriate in connection with legal proceedings.
(b) In
the event that any Party is required to disclose any information of another Person pursuant to clause (b) or (c) of Section
12.2(a) above, the Party requested or required to make the disclosure (the “Disclosing Party”) shall provide
the Person that provided such information (the “Providing Party”) with prompt notice of any such requirement
so that the providing party may seek a protective Order or other appropriate remedy and/or waive compliance with the provisions
of this Section 12.2. If, in the absence of a protective Order or other remedy or the receipt of a waiver by the providing
party, the disclosing party is nonetheless, in the opinion of counsel, legally compelled to disclose the information of the providing
party, the disclosing party may, without liability hereunder, disclose only that portion of the providing party’s information
which such counsel advises is legally required to be disclosed, provided that the disclosing party exercises its reasonable efforts
to preserve the confidentiality of the providing party’s information, including, without limitation, by cooperating with
the providing party to obtain an appropriate protective Order or other relief assurance that confidential treatment will be accorded
the providing party’s information.
(c) If the transactions contemplated by this Agreement are not consummated, each Party will return or destroy all of such written
information each party has regarding the other Parties.
Section 12.3
Notices. All notices, demands, consents, requests, instructions and other communications to be given or delivered
or permitted under or by reason of the provisions of this Agreement or in connection with the transactions contemplated hereby
shall be in writing and shall be deemed to be delivered and received by the intended recipient as follows: (i) if personally delivered,
on the Business Day of such delivery (as evidenced by the receipt of the personal delivery service), (ii) if mailed certified or
registered mail return receipt requested, two (2) Business Days after being mailed, (iii) if delivered by overnight courier (with
all charges having been prepaid), on the Business Day of such delivery (as evidenced by the receipt of the overnight courier service
of recognized standing), or (iv) if delivered by facsimile transmission or other electronic means, including email, on the Business
Day of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding
Business Day. If any notice, demand, consent, request, instruction or other communication cannot be delivered because of a changed
address of which no notice was given (in accordance with this Section 12.3), or the refusal to accept same, the notice,
demand, consent, request, instruction or other communication shall be deemed received on the second business day the notice is
sent (as evidenced by a sworn affidavit of the sender). All such notices, demands, consents, requests, instructions and other communications
will be sent to the following addresses or facsimile numbers as applicable:
If to Acquiror or the Acquiror Principal Shareholder,
to: |
|
Vapir Enterprises
Inc.
431 Fairway
Drive, Suite 260
Deerfield
Beach, Florida 33441
Attn: Chief
Executive Officer
Telephone No.: (732) 530-1267 |
|
|
|
If to the Acquiree, to: |
|
Vapir, Inc.
2365 Paragon
Dr., Suite B
San Jose,
CA 95131
Attn: Chief
Executive Officer
Telephone
No.: 408-649-2786 |
|
|
|
If to the Acquiree Shareholders, to: |
|
The applicable address set forth on Schedule I hereto. |
or such other addresses as shall be furnished in writing by any Party in the manner for giving notices hereunder.
Section 12.4
Further Assurances. The Parties agree (a) to furnish upon request to each other such further information, (b) to
execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other Parties may
reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.
Section 12.5
Waiver. The rights and remedies of the Parties are cumulative and not alternative. Neither the failure nor any delay
by any Party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege
will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege.
To the maximum extent permitted by applicable Law, (a) no claim or right arising out of this Agreement or the documents referred
to in this Agreement can be discharged by one Party, in whole or in part, by a waiver or renunciation of the claim or right unless
in writing signed by the other Parties; (b) no waiver that may be given by a Party will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one Party will be deemed to be a waiver of any obligation of such Party
or of the right of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement
or the documents referred to in this Agreement.
Section 12.6
Entire Agreement and Modification. This Agreement supersedes all prior agreements between the Parties with respect
to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement
of the terms of the agreement between the Parties with respect to its subject matter. This Agreement may not be amended except
by a written agreement executed by the Party against whom the enforcement of such amendment is sought.
Section 12.7 Assignments, Successors, and No Third-Party Rights. No Party may assign any of its rights under this Agreement without
the prior consent of the other Parties. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects
upon, and inure to the benefit of and be enforceable by the respective successors and permitted assigns of the Parties. Except
as set forth in Article XIII hereof, nothing expressed or referred to in this Agreement will be construed to give any Person
other than the Parties any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement.
Section 12.8 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction,
the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable
only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.
Section 12.9 Section
Headings. The headings of Articles and Sections in this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to “Article” or “Articles” or “Section” or
“Sections” refer to the corresponding Article or Articles or Section or Sections of this Agreement, unless the context
indicates otherwise.
Section 12.10 Construction.
The Parties have participated jointly in the negotiation and construction of this Agreement. Each Party has retained independent
legal counsel to advise on this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring
any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Unless otherwise expressly provided, the word “including” shall mean including without limitation.
The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any
Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which
the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of such representation, warranty,
or covenant. All words used in this Agreement will be construed to be of such gender or number as the circumstances require.
Section 12.11 Counterparts.
This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement
and all of which, when taken together, will be deemed to constitute one and the same agreement. In the event that any signature
is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create
a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) with the same force and
effect as if such facsimile or “.pdf” signature page were an original thereof.
Section 12.12 Specific
Performance. Each of the Parties acknowledges and agrees that the other Parties would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly,
each of the Parties agrees that the other Parties shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted
in any court of the U.S. or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 14.13 below), in addition to any other remedy to which they may be entitled, at Law or in equity.
Section 12.13 Governing
Law; Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the Laws of the State
of California without regard to conflicts of Laws principles. Each of the Parties submits to the jurisdiction of any state or
federal court sitting in the State of California, in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard and determined in any such court. Each of the Parties
waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with respect thereto. Any Party may make service on any other Party
by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving
of notices in Section 12.3 above. Nothing in this Section 12.13, however, shall affect the right of any Party to
serve legal process in any other manner permitted by Law or at equity. Each Party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by Law or
at equity.
Section 12.14 Waiver
of Jury Trial. EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING
OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
[Signatures follow
on next page]
IN WITNESS WHEREOF, the
undersigned have caused this Agreement to be executed as of the date first above written.
|
ACQUIROR: |
|
|
|
VAPIR ENTERPRISES INC. |
|
|
|
By: |
|
|
Name: |
Adam Kotkin |
|
Title: |
Chief Executive Officer |
|
|
|
ACQUIROR PRINCIPAL SHAREHOLDER: |
|
|
|
|
|
Name: Adam Kotkin |
[Signatures continue on next page]
IN WITNESS WHEREOF, the
undersigned have caused this Agreement to be executed as of the date first above written.
|
ACQUIREE: |
|
|
|
VAPIR, INC. |
|
|
|
By: |
|
|
Name: |
Hamid Emarlou |
|
Title: |
Chief Executive Officer |
IN WITNESS WHEREOF, the
undersigned have caused this Agreement to be executed as of the date first above written.
|
ACQUIREE SHAREHOLDERS: |
|
|
|
By: |
|
|
Name: |
Hamid Emarlou |
SCHEDULE I
Acquiree Shareholders | |
Acquiree Shares Held Prior to the Closing | | |
Acquiror Common Shares to be Issued at the Closing | |
Hamid Emarlou | |
| 100,000 | | |
| 38,624,768 | |
Total | |
| 100,000 | | |
| 38,624,768 | |
Exhibit A
Form of Certificate
ACQUIROR Disclosure Schedule
ACQUIREE Disclosure
Schedule
Exhibit 3.1
Exhibit 16.1
December 30, 2014
Office of the Chief Accountant
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: |
Vapir Enterprises, Inc. |
|
File Reference No. 333-170715 |
We were previously the independent registered
public accounting firm for Vapir Enterprises, Inc. and under the date of April 11, 2014, we reported on the financial statements
of FAL Exploration Corp. (now known as Vapir Enterprises, Inc.), as of December 31, 2013 and 2012, and for each of the two years
in the period ended December 31, 2013.
Effective December 30, 2014 we were dismissed
as the independent registered public accounting firm. We have read Vapir Enterprises, Inc's disclosures included in Item 4.01 "Changes
in Registrant's Certifying Accountant" on Vapir Enterprises, Inc 's Form 8-K dated December 30, 2014 be filed with the Securities
and Exchange Commission and we agree with such statements as they pertain to Salberg & Company, P.A.
Very truly yours,
SALBERG & COMPANY, P.A.
2295 NW Corporate Blvd., Suite 240 ●
Boca Raton, FL 33431-7328
Phone: (561) 995-8270 ● Toll Free: (866) CPA-8500 ● Fax: (561) 995-1920
www.salbergco.com
● info@salbergco.com
Member National Association of Certified Valuation Analysts ● Registered with the PCAOB
Member CPAConnect with Affiliated Offices Worldwide ● Member AICPA Center for Audit Quality
Exhibit 99.1
VAPIR INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2013
VAPIR, INC.
DECEMBER 31, 2013 and 2012
INDEX TO THE FINANCIAL STATEMENTS
CONTENTS
Financial Statements: |
|
|
|
|
|
Report of Independent Registered Public Accounting Firm |
|
F-2 |
|
|
|
Balance Sheets at December 31, 2013 and 2012 |
|
F-3 |
|
|
|
Statements of Operations - |
|
|
For the Year Ended December 31, 2013, and 2012 |
|
F-4 |
|
|
|
Statements of Stockholder’s Equity - |
|
|
For the Year Ended December 31, 2013 and 2012 |
|
F-5 |
|
|
|
Statements of Cash Flows – |
|
|
For the Year Ended December 31, 2013 and 2012 |
|
F-6 |
|
|
|
Notes to the Financial Statements |
|
F-7 to F-19 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Stockholder
Vapir, Inc.
We have audited the balance sheets of Vapir,
Inc. (the “Company”) as of December 31, 2013 and 2012 and the related statements of operations, stockholder’s
equity and cash flows for the reporting periods then ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012 and the
results of its operations and its cash flows for the reporting periods then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements,
the Company has incurred negative results in the interim reporting period ended September 30, 2014 and at that time has an accumulated
deficit, and incurred a net loss and net cash used in operating activities for the interim reporting period then ended. These
factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards
to these matters are also described in Note 3. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/Li and Company, PC |
|
Li and Company, PC |
|
Skillman, New Jersey
December 30, 2014
VAPIR, INC. |
BALANCE SHEETS |
|
| |
December 31, 2013 | | |
December 31, 2012 | |
| |
| | |
| |
ASSETS | |
| | |
| |
| |
| | |
| |
CURRENT ASSETS: | |
| | | |
| | |
Cash | |
$ | 24,803 | | |
$ | 108,872 | |
Accounts receivable | |
| 122,729 | | |
| 125 | |
Inventory | |
| 46,352 | | |
| 96,649 | |
Other receivable | |
| - | | |
| 5,000 | |
Due from related party | |
| - | | |
| 189,956 | |
| |
| | | |
| | |
Total Current Assets | |
| 193,884 | | |
| 400,602 | |
| |
| | | |
| | |
OTHER ASSETS: | |
| | | |
| | |
Property and equipment, net | |
| 27,175 | | |
| 29,782 | |
Intangible assets, net | |
| 509,528 | | |
| 572,532 | |
| |
| | | |
| | |
Total Other Assets | |
| 536,703 | | |
| 602,314 | |
| |
| | | |
| | |
Total Assets | |
$ | 730,587 | | |
$ | 1,002,916 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDER'S EQUITY | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 41,317 | | |
$ | 152,427 | |
Loan payable | |
| 176,000 | | |
| 66,000 | |
Note payable - current maturities | |
| 19,800 | | |
| 19,800 | |
Customer deposits | |
| 13,929 | | |
| 164,057 | |
Due to related party | |
| - | | |
| 135,982 | |
| |
| | | |
| | |
Total Current Liabilities | |
| 251,046 | | |
| 538,266 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES: | |
| | | |
| | |
Note payable, net of current maturities | |
| 44,850 | | |
| 64,650 | |
| |
| | | |
| | |
Total Long-term Liabilities | |
| 44,850 | | |
| 64,650 | |
| |
| | | |
| | |
Total Liabilities | |
| 295,896 | | |
| 602,916 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDER'S EQUITY: | |
| | | |
| | |
Common stock no par value: 100,000 shares authorized; 100,000 shares issued and outstanding | |
| - | | |
| - | |
Additional paid in capital | |
| 400,000 | | |
| 400,000 | |
Retained earnings | |
| 34,691 | | |
| - | |
| |
| | | |
| | |
Total Stockholder's Equity | |
| 434,691 | | |
| 400,000 | |
| |
| | | |
| | |
Total Liabilities and Stockholder's Equity | |
$ | 730,587 | | |
$ | 1,002,916 | |
See accompanying notes to the financial statements
VAPIR, INC. |
STATEMENTS OF OPERATIONS |
|
| |
For the Year Ended | |
| |
December 31, 2013 | | |
December 31, 2012 | |
| |
| | |
| |
| |
| | |
| |
Net Sales | |
$ | 3,053,752 | | |
$ | 4,070,025 | |
| |
| | | |
| | |
Cost of sales | |
| 1,546,821 | | |
| 2,242,393 | |
| |
| | | |
| | |
Gross profit | |
| 1,506,931 | | |
| 1,827,632 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
Depreciation and amortization | |
| 74,151 | | |
| 73,940 | |
Marketing and selling expenses | |
| 76,075 | | |
| 50,975 | |
Compensation | |
| 533,702 | | |
| 588,463 | |
Professional fees | |
| 15,828 | | |
| 57,294 | |
Research and development | |
| 88,847 | | |
| 13,658 | |
Rent | |
| 72,966 | | |
| 77,017 | |
General and administrative | |
| 303,677 | | |
| 275,467 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 1,165,246 | | |
| 1,136,814 | |
| |
| | | |
| | |
INCOME FROM OPERATIONS | |
| 341,685 | | |
| 690,818 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Interest expense | |
| (33,167 | ) | |
| (39,892 | ) |
Interest income | |
| 1 | | |
| 195 | |
| |
| | | |
| | |
Other
Income (Expense), net | |
| (33,166 | ) | |
| (39,697 | ) |
| |
| | | |
| | |
NET INCOME | |
$ | 308,519 | | |
$ | 651,121 | |
| |
| | | |
| | |
PRO FORMA FINANCIAL INFORMATION (UNAUDITED): | |
| | | |
| | |
| |
| | | |
| | |
INCOME BEFORE INCOME TAX PROVISION | |
| 308,519 | | |
| 651,121 | |
| |
| | | |
| | |
INCOME TAX PROVISION | |
| 104,896 | | |
| 221,381 | |
| |
| | | |
| | |
NET INCOME | |
$ | 203,623 | | |
$ | 429,740 | |
| |
| | | |
| | |
NET INCOME PER COMMON SHARE: | |
| | | |
| | |
Basic and diluted | |
$ | 3.09 | | |
$ | 6.51 | |
| |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | |
| | | |
| | |
Basic and diluted | |
| 100,000 | | |
| 100,000 | |
See accompanying notes to the financial statements
VAPIR, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S
EQUITY
For the Year Ended December 31, 2012
and 2013
| |
Common Stock No Par Value | | |
Additional | | |
| | |
Total | |
| |
Number of | | |
| | |
Paid-in | | |
Retained | | |
Stockholder's | |
| |
Shares | | |
Amount | | |
Capital | | |
Earnings | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| |
Balance, December 31, 2011 | |
| 100,000 | | |
$ | - | | |
$ | 400,000 | | |
$ | 77,945 | | |
$ | 477,945 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Stockholder's Distribution | |
| | | |
| | | |
| | | |
| (729,066 | ) | |
| (729,066 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| | | |
| | | |
| | | |
| 651,121 | | |
| 651,121 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2012 | |
| 100,000 | | |
| - | | |
| 400,000 | | |
| - | | |
| 400,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Stockholder's Distribution | |
| | | |
| | | |
| | | |
| (273,828 | ) | |
| (273,828 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| | | |
| | | |
| | | |
| 308,519 | | |
| 308,519 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2013 | |
| 100,000 | | |
$ | - | | |
$ | 400,000 | | |
$ | 34,691 | | |
$ | 434,691 | |
See accompanying notes to the financial
statements
VAPIR, INC. |
STATEMENTS OF CASH FLOWS |
| |
For the Year Ended | |
| |
December 31,
2013 | | |
December 31, 2012 | |
| |
| | |
| |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net income | |
$ | 308,519 | | |
$ | 651,121 | |
Adjustments to reconcile net income to net cash provided by operating activities | |
| | | |
| | |
Depreciation and amortization | |
| 74,151 | | |
| 73,940 | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (122,604 | ) | |
| - | |
Inventory | |
| 50,297 | | |
| (12,124 | ) |
Other receivable | |
| 5,000 | | |
| (4,216 | ) |
Accounts payable and accrued expenses | |
| (111,110 | ) | |
| 70,954 | |
Customer deposits | |
| (150,128 | ) | |
| (61,108 | ) |
| |
| | | |
| | |
NET CASH PROVIDED BY OPERATING ACTIVITIES | |
| 54,125 | | |
| 718,567 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Capitalized cost of trademark | |
| (3,900 | ) | |
| - | |
Purchase of property and equipment | |
| (4,640 | ) | |
| - | |
| |
| | | |
| | |
NET CASH USED IN INVESTING ACTIVITIES | |
| (8,540 | ) | |
| - | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Advances from (repayments to) to related party | |
| 53,974 | | |
| (299,656 | ) |
Proceeds received from loan | |
| 110,000 | | |
| 100,000 | |
Payments on loan | |
| - | | |
| (34,000 | ) |
Proceeds received from note payable | |
| - | | |
| 100,000 | |
Payments on notes payable | |
| (19,800 | ) | |
| (120,586 | ) |
Stockholder's distribution | |
| (273,828 | ) | |
| (729,066 | ) |
| |
| | | |
| | |
NET
CASH USED IN FINANCING ACTIVITIES | |
| (129,654 | ) | |
| (983,308 | ) |
| |
| | | |
| | |
NET CHANGE IN CASH | |
| (84,069 | ) | |
| (264,741 | ) |
| |
| | | |
| | |
CASH - beginning of year | |
| 108,872 | | |
| 373,613 | |
| |
| | | |
| | |
CASH - end of year | |
$ | 24,803 | | |
$ | 108,872 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
Interest paid | |
$ | 33,166 | | |
$ | 39,892 | |
Income taxes paid | |
$ | - | | |
$ | - | |
See accompanying notes to the financial statements
Vapir, Inc.
December 31, 2013 and 2012
Notes to the Financial Statements
NOTE 1 – ORGANIZATION AND OPERATIONS
Organization
Vapir, Inc. (the “Company”) was
incorporated in the State of California in October 2006. The Company’s principal business is focused on inventing, developing
and producing aromatherapy devices and vaporizers. The Company’s aromatherapy device utilizes heat and convection air and
thereby extract natural essences and produce fresh fragrances.
In October 2006, the Company acquired 100%
of the outstanding stock including all assets of Advanced Inhalation Revolution Inc. which was dissolved after it was acquired
by the Company. The Company accounted for the acquisition utilizing the purchase method of accounting in accordance with ASC 805
“Business Combinations”.
NOTE 2 – SIGNFICIANT 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
The Company’s consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”).
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. |
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.
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.
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.
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, accounts payable and accrued liabilities, and customer deposits
approximate their fair values because of the short maturity of these instruments. The carrying amount of the note and loan payable
at December 31, 2013 approximate their respective fair value based on the Company’s incremental borrowing rate.
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 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.
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 maturity of three months or less, when purchased, 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, if any.
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 December 31, 2013 and 2012, there
is no allowance for doubtful accounts. The Company did not consider it necessary to record any bad debt expense during the year
ended December 31, 2013 and 2012.
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 December 31, 2013 or 2012.
There was no lower of cost or market adjustments
for the reporting period ended December 31, 2013 or 2012.
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.
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.
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.
Customer Deposit
Customer deposits at December 31, 2013
and 2012 were $13,929 and $164,057, respectively, which consist 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.
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 (“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) of the Company; 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.
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.
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.
Marketing, selling and advertising
Marketing, selling and advertising are expensed
as incurred. For the year ended December 31, 2013 and 2012, such expenses were $76,075 and 50,975, respectively.
Income Tax Provision
The Company was a Subchapter S corporation,
whereby 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.
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.
Pro Forma Income
Tax Provision (Benefit) (Unaudited)
The unaudited pro forma income tax provision,
deferred tax assets, and the valuation allowance of deferred tax assets, if any, included in the consolidated financial statements
and income tax provision note reflect the income tax provision which would have been recorded as if the S corporation had always
been a C corporation upon its incorporation.
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.
At December 31, 2013 and 2012, the Company
did not have any potentially dilutive securities outstanding.
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 May 2014, the FASB issued the FASB Accounting
Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”).
This guidance amends the existing FASB Accounting
Standards Codification, creating a new Topic 606, Revenue from Contracts with Customer.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services.
To achieve that core principle, an entity should
apply the following steps:
|
1 |
Identify the contract(s) with the customer |
|
2 |
Identify the performance obligations in the contract |
|
3 |
Determine the transaction price |
|
4 |
Allocate the transaction price to the performance obligations in the contract |
|
5 |
Recognize revenue when (or as) the entity satisfies a performance obligations |
The ASU also provides guidance on disclosures
that should be provided to enable financial statement users to understand the nature, amount, timing, and uncertainty of revenue
recognition and cash flows arising from contracts with customers. Qualitative and quantitative information is required about
the following:
|
1. |
Contracts
with customers – including revenue and impairments
recognized, disaggregation of revenue, and information about contract balances and performance obligations (including the
transaction price allocated to the remaining performance obligations) |
|
2. |
Significant judgments
and changes in judgments – determining the timing
of satisfaction of performance obligations (over time or at a point in time), and determining the transaction price and amounts
allocated to performance obligations |
|
3. |
Assets recognized from the costs to obtain or fulfill a contract. |
ASU 2014-09 is effective for periods beginning
after December 15, 2016, including interim reporting periods within that reporting period for all public entities. Early
application is not permitted.
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. |
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.
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.
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
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
interim financial statements, included with this filing, the Company had an accumulated deficit at September 30, 2014, a net loss
and net cash used in operating activities for the interim 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 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 | |
December 31, 2013 | | |
December 31, 2012 | |
| |
| |
| | |
| |
Auto | |
3 years | |
| 12,522 | | |
| 12,522 | |
Furniture and fixtures | |
5 years | |
| 23,743 | | |
| 19,103 | |
Leasehold improvements | |
5 years | |
| 35,206 | | |
| 35,206 | |
Less: Accumulated depreciation | |
| |
| (44,296 | ) | |
| (37,049 | ) |
| |
| |
$ | 27,175 | | |
$ | 29,782 | |
For the year ended December 31, 2013 and 2012,
depreciation expense amounted to $7,247 and $7,024, respectively.
The Company completed the annual impairment
test 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, 2013.
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consist of the following:
| |
December 31, | | |
December 31, | |
| |
2013 | | |
2012 | |
| |
| | |
| |
Customer relationships associated with a 2006 acquisition (see Note 1) | |
$ | 1,001,212 | | |
$ | 1,001,212 | |
Trademarks | |
| 6,430 | | |
| 2,530 | |
| |
| 1,007,642 | | |
| 1,003,742 | |
Accumulated amortization | |
| (498,114 | ) | |
| (431,210 | ) |
Intangible assets, net | |
$ | 509,528 | | |
$ | 572,532 | |
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 statements of operations. The Company assesses
fair market value for any impairment to the carrying values.
As of December 31, 2013 and 2012 management
concluded that there was no impairment to the acquired assets. Amortization expense for the year ended December 31, 2013 and 2012
was $66,904 and $66,916, respectively.
Future amortization of intangible assets is
as follows:
2014 | |
$ | 67,205 | |
2015 | |
| 67,205 | |
2016 | |
| 67,205 | |
2017 | |
| 67,205 | |
2018 | |
| 67,205 | |
2019 and thereafter | |
| 173,503 | |
Total | |
$ | 509,528 | |
Impairment
The Company completed the annual impairment
test of intangibles and determined that there was no impairment as the fair value of property and equipment, exceeded their carrying
values at December 31, 2013.
NOTE 6 – NOTE AND LOAN PAYABLE
Loan payable
| |
December 31, 2013 | | |
December 31, 2012 | |
| |
| | | |
| | |
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. | |
$ | 176,000 | | |
$ | 66,000 | |
Note payable
| |
December 31, 2013 | | |
December 31, 2012 | |
| |
| | | |
| | |
4.75% Promissory note of $100,000 issued to Bank of the West on May 10, 2011 payable at 60 consecutive monthly installments starting in June 2012 | |
| 64,650 | | |
| 84,450 | |
| |
| | | |
| | |
Less : Current maturities | |
| (19,800 | ) | |
| (19,800 | ) |
Note payable, net of current maturities | |
$ | 44,850 | | |
$ | 64,650 | |
Future minimum principal and interest payment
under the note are as follows:
Fiscal Year ending December 31: | |
| | |
| |
| | |
2014 | |
$ | 22,440 | |
| |
| | |
2015 | |
| 21,499 | |
| |
| | |
2016 | |
| 20,559 | |
| |
| | |
2017 | |
| 5,294 | |
| |
| | |
| |
| 69,792 | |
| |
| | |
Less interest portion | |
| (5,142 | ) |
| |
| | |
Total | |
| 64,650 | |
| |
| | |
Less current maturities | |
| (19,800 | ) |
| |
| | |
Note payable, net of current maturities | |
$ | 44,850 | |
Amounts outstanding under the loan and note above are personally
guaranteed by the President of the Company.
NOTE 7 – RELATED PARTY TRANSACTIONS
Parties are considered to be related to the
Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common
control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal with 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. The Company discloses all related party transactions.
All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is
recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected
as compensation or distribution to related parties depending on the transaction.
During fiscal 2012, the Company’s sole
shareholder who is the President of the Company distributed dividends in excess of earnings and therefore the Company accounted
such excess dividend distribution as due from related party of $189,956 as of December 31, 2012. The due from related party was
due on demand and bear no interest. During fiscal 2013, the Company had adequate and sufficient earnings to cover the 2012 excess
dividend distribution which therefore satisfied the balance of the due from related party of $189,956. As of December 31, 2013,
due from related party was $0.
From time to time, the Company’s President,
provided advances to the Company for payment of the Company’s loans. During fiscal 2013, the Company fully repaid the balance
of such advances. At December 31, 2013 and 2012, the Company had a payable to the President of the Company of $0 and $135,982.
The advances were due on demand and bear no interest.
Amounts outstanding under the loan and note to a bank (see Note
6) are personally guaranteed by the President of the Company.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Operating lease
A lease agreement was signed for an office
and warehousing space consisting of approximately 3,200 square feet located in San Jose, California with an initial term commencing
in October 2009 and expiring in September 30, 2030. The lease required the Company to pay a monthly base rent of $3,135 plus real
property taxes on the lease premises. In June 2014, the Company entered into a termination agreement with the landlord thereby
terminating this lease agreement. The Company has fulfilled its obligation under this lease agreement upon termination.
In August 2011, the Company entered into a
1 year lease agreement for a temporary housing space located in San Jose, California for a marketing contractor of the Company.
This lease became a month to month lease after the initial 1 year lease term. The lease required the Company to pay
a monthly base rent of $2,590. This month to month lease was terminated in June 2014.
In February 2013, the Company entered into
a motor vehicle lease agreement. The lease is for 24 months with monthly payments of $759.
Future minimum rental payments required under
this operating lease are as follows:
Fiscal Year ending December 31: | |
| | |
| |
| | |
2014 | |
$ | 27,918 | |
| |
| | |
2015 | |
| 459 | |
| |
| | |
Total | |
$ | 28,377 | |
Rent expense was $72,966
and $77,017 for the year ended December 31, 2013 and 2012, respectively.
Litigation
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 the Company’s
business, results of operations, financial condition or cash flows.
Notwithstanding the foregoing, 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 have 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 have not yet served
the US District lawsuit; Storz & Bickel’s US counsel have contacted the Company to initiate settlement discussion, but
it is anticipated that Storz & Bickel will serve the US District complaint if settlement discussions are not productive.
The Company may be subject to legal
proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these
claims cannot be predicted with certainty, the Company does not believe that any of the outcomes will have a material effect on
the Company’s operations.
NOTE 9 – STOCKHOLDER’S EQUITY
The Company was authorized to issue up to 100,000
shares of common stock, no par value per share.
In October 2006, the Company issued 100,000
shares of its common stock to the founder and President of the Company.
In October 2006, the President of the Company
contributed capital amounting to $400,000 to the Company and were used in connection with a 2006 acquisition (see Note 1) of a
company.
NOTE 10 – INCOME TAX PROVISION
Pro Forma Income Tax Provision in the
Statements of Operations (Unaudited)
The Company was a Subchapter S corporation,
whereby the Company was treated as a pass through entity for federal income tax purpose. Under Subchapter S of the Internal Revenue
Code the operating results of the S corporation were included in the income tax returns of the stockholders of the S corporation,
i.e. the stockholders 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.
The unaudited pro forma income tax provision
included in the financial statements and income tax provision note reflect the income tax provision which would have been recorded
as if the S corporation had always been a C corporation upon its incorporation.
A reconciliation of the federal statutory income
tax rate and the effective income tax rate as a percentage of income before income tax provision is as follows would the Company
had always been the C Corporation upon the incorporation of the Company:
| |
For the Year Ended December 31, 2013 | | |
For the Year Ended December 31, 2012 | |
| |
| | |
| |
Federal statutory income tax rate | |
| 34.0 | % | |
| 34.0 | % |
| |
| | | |
| | |
Effective income tax rate | |
| 34.0 | % | |
| 34.0 | % |
NOTE 11 – CONCENTRATION OF CREDIT
RISK
Concentration of Revenue and Supplier
During the year ended December 31, 2013 sales
to two customers represented approximately 67% of the Company’s net sales. During the year ended December 31, 2012 sales
to two customers represented approximately 69% of the Company’s net sales. As of December 31, 2013 and 2012, the Company
had one customer representing approximately 93% of accounts receivable and one customer representing approximately 100% of accounts
receivable, respectively.
The Company purchased inventories and products
for sale from one vendor totaling approximately $1.3 million and $2.4 million during the years ended December 31, 2013 and 2012,
respectively.
NOTE 12 – 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 certain reportable subsequent event(s) to be disclosed as followed:
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. The lease required the Company to pay a monthly base rent of $3,535 plus a pro rata
share of operating expenses. The base rent is subject to an annual increase beginning in November 2014 as defined in the lease
agreement. This lease agreement is personally guaranteed by the President of the Company.
F-19
Exhibit 99.2
Vapir, Inc.
September 30, 2014 and 2013
Index to the Financial Statements
CONTENTS
Financial Statements: |
|
|
|
Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013 |
F-2 |
|
|
Statements of Operations - |
|
For the Nine Months Ended September 30, 2014, and 2013 (Unaudited) |
F-3 |
|
|
Statements of Cash Flows - |
|
For the Nine Months Ended September 30, 2014, and 2013 (Unaudited) |
F-4 |
|
|
Notes to the Unaudited Financial Statements (Unaudited) |
F-5 |
VAPIR, INC. |
BALANCE SHEETS |
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | |
| |
| |
| | |
| |
CURRENT ASSETS: | |
| | |
| |
Cash | |
$ | - | | |
$ | 24,803 | |
Accounts receivable | |
| 944 | | |
| 122,729 | |
Inventory | |
| 56,253 | | |
| 46,352 | |
| |
| | | |
| | |
Total Current Assets | |
| 57,197 | | |
| 193,884 | |
| |
| | | |
| | |
OTHER ASSETS: | |
| | | |
| | |
Property and equipment, net | |
| 4,122 | | |
| 27,175 | |
Intangible assets, net | |
| 459,146 | | |
| 509,528 | |
| |
| | | |
| | |
Total Other Assets | |
| 463,268 | | |
| 536,703 | |
| |
| | | |
| | |
Total Assets | |
$ | 520,465 | | |
$ | 730,587 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDER'S EQUITY | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Bank overdraft | |
$ | 1,434 | | |
$ | - | |
Accounts payable and accrued expenses | |
| 68,276 | | |
| 41,317 | |
Loan payable | |
| 197,000 | | |
| 176,000 | |
Note payable - current maturities | |
| 19,800 | | |
| 19,800 | |
Customer deposits | |
| 188,809 | | |
| 13,929 | |
| |
| | | |
| | |
Total Current Liabilities | |
| 475,319 | | |
| 251,046 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES: | |
| | | |
| | |
Note payable, net of current maturities | |
| 30,000 | | |
| 44,850 | |
| |
| | | |
| | |
Total Long-term Liabilities | |
| 30,000 | | |
| 44,850 | |
| |
| | | |
| | |
Total Liabilities | |
| 505,319 | | |
| 295,896 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDER'S EQUITY: | |
| | | |
| | |
Common stock no par value:
100,000 shares authorized; 100,000 shares issued and outstanding | |
| - | | |
| - | |
Additional paid in capital | |
| 400,000 | | |
| 400,000 | |
Retained earnings (accumulated deficit) | |
| (384,854 | ) | |
| 34,691 | |
| |
| | | |
| | |
Total Stockholder's Equity | |
| 15,146 | | |
| 434,691 | |
| |
| | | |
| | |
Total Liabilities and Stockholder's Equity | |
$ | 520,465 | | |
$ | 730,587 | |
See accompanying notes to the unaudited financial statements
VAPIR, INC. |
STATEMENTS OF OPERATIONS |
| |
For the Nine Months Ended | |
| |
September 30, 2014 | | |
September 30, 2013 | |
| |
(Unaudited) | | |
(Unaudited) | |
| |
| | |
| |
Net Sales | |
$ | 1,136,886 | | |
$ | 1,962,883 | |
| |
| | | |
| | |
Cost of Sales | |
| 564,124 | | |
| 1,001,497 | |
| |
| | | |
| | |
Gross margin | |
| 572,762 | | |
| 961,386 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
Depreciation and amortization | |
| 73,435 | | |
| 55,613 | |
Marketing and selling expenses | |
| 41,467 | | |
| 63,346 | |
Compensation | |
| 516,587 | | |
| 392,430 | |
Professional fees | |
| 47,573 | | |
| 12,486 | |
Research and development | |
| 54,039 | | |
| 80,766 | |
Rent | |
| 57,894 | | |
| 55,016 | |
General and administrative | |
| 189,854 | | |
| 206,810 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 980,849 | | |
| 866,467 | |
| |
| | | |
| | |
INCOME (LOSS) FROM OPERATIONS | |
| (408,087 | ) | |
| 94,919 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Interest expense | |
| (11,458 | ) | |
| (23,359 | ) |
| |
| | | |
| | |
Other Income (Expense), net | |
| (11,458 | ) | |
| (23,359 | ) |
| |
| | | |
| | |
NET INCOME (LOSS) | |
$ | (419,545 | ) | |
$ | 71,560 | |
| |
| | | |
| | |
PRO FORMA FINANCIAL INFORMATION (UNAUDITED): | |
| | | |
| | |
| |
| | | |
| | |
INCOME (LOSS) BEFORE INCOME TAX PROVISION | |
| (419,545 | ) | |
| 71,560 | |
| |
| | | |
| | |
INCOME
TAX PROVISION (BENEFIT) | |
| (142,645 | ) | |
| 24,330 | |
| |
| | | |
| | |
NET
INCOME (LOSS) | |
$ | (276,900 | ) | |
$ | 47,230 | |
| |
| | | |
| | |
EARNINGS PER SHARE: | |
| | | |
| | |
Basic and diluted | |
$ | (4.20 | ) | |
$ | 0.72 | |
| |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | |
| | | |
| | |
Basic and diluted | |
| 100,000 | | |
| 100,000 | |
See accompanying notes to the unaudited financial statements
VAPIR, INC. |
STATEMENTS OF CASH FLOWS |
| |
For the Nine Months Ended | |
| |
September 30, 2014 | | |
September 30, 2013 | |
| |
(Unaudited) | | |
(Unaudited) | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net income (loss) | |
$ | (419,545 | ) | |
$ | 71,560 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | |
| | | |
| | |
Depreciation and amortization | |
| 73,435 | | |
| 55,613 | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 121,785 | | |
| (16,975 | ) |
Inventory | |
| (9,901 | ) | |
| (119,850 | ) |
Accounts payable and accrued expenses | |
| 26,959 | | |
| (40,862 | ) |
Customer deposits | |
| 174,880 | | |
| 95,764 | |
| |
| | | |
| | |
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | |
| (32,387 | ) | |
| 45,250 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Capitalized cost of trademark | |
| - | | |
| (3,900 | ) |
Purchase of property and equipment | |
| - | | |
| (4,640 | ) |
| |
| | | |
| | |
NET CASH USED IN INVESTING ACTIVITIES | |
| - | | |
| (8,540 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Advances from (repayments to) to related party | |
| - | | |
| (11,316 | ) |
Bank overdraft | |
| 1,434 | | |
| 23,345 | |
Proceeds received from loan | |
| 21,000 | | |
| 160,000 | |
Payments on loan | |
| - | | |
| (50,000 | ) |
Payments on notes payable | |
| (14,850 | ) | |
| (14,850 | ) |
Stockholder's distribution | |
| - | | |
| (180,855 | ) |
| |
| | | |
| | |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | |
| 7,584 | | |
| (73,676 | ) |
| |
| | | |
| | |
NET CHANGE IN CASH | |
| (24,803 | ) | |
| (36,966 | ) |
| |
| | | |
| | |
CASH - beginning of reporting period | |
| 24,803 | | |
| 108,872 | |
| |
| | | |
| | |
CASH - end of reporting period | |
$ | - | | |
$ | 71,906 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
Interest paid | |
$ | 11,458 | | |
$ | 23,359 | |
Income taxes paid | |
$ | - | | |
$ | - | |
See accompanying notes to the unaudited financial statements
Vapir, Inc.
September 30, 2014 and 2013
Notes to the Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION AND OPERATIONS
Organization
Vapir, Inc. (the “Company”) was
incorporated in the State of California in October 2006. The Company’s principal business is focused on inventing, developing
and producing aromatherapy devices and vaporizers. The Company’s aromatherapy device utilizes heat and convection air and
thereby extracts natural essences and produce fresh fragrances.
In October 2006, the Company acquired 100%
of the outstanding stock including all assets of Advanced Inhalation Revolution Inc. which was dissolved after it was acquired
by the Company. The Company accounted for the acquisition utilizing the purchase method of accounting in accordance with ASC 805
“Business Combinations”.
NOTE 2 – SIGNFICIANT 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 financial statements of the Company as of and for the year ended December 31, 2013 and notes thereto included elsewhere
in the Company’s Registration Statement on Form S-1 filed with the SEC herewith.
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) | 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. |
| (iv) | 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. |
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.
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.
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.
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, accounts payable and accrued liabilities, and customer deposits
approximate their fair values because of the short maturity of these instruments. The carrying amount of the note and loan payable
at September 30, 2014 approximate their respective fair value based on the Company’s incremental borrowing rate.
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 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.
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 maturity of three months or less, when purchased, 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, if any.
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, 2014 and December 31,
2013, there is no allowance for doubtful accounts. The Company recorded bad debt expense of $170 and $0 during the nine months
ended September 30, 2014 and 2013, respectively.
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, 2014 and 2013.
There was no lower of cost or market adjustments
for the reporting period ended September 30, 2014 and 2013.
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.
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.
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.
Customer Deposit
Customer deposits at September 30, 2014
and December 31, 2013 were $188,809 and $13,929, respectively, which consist 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.
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 (“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) of the Company; 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.
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.
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.
Marketing, selling and advertising
Marketing, selling and advertising are expensed
as incurred. For the nine months ended September 30, 2014 and 2013, such expenses were $41,467 and $63,346, respectively.
Income Tax Provision
The Company was a Subchapter S corporation,
whereby 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.
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.
Pro Forma Income
Tax Provision (Benefit) (Unaudited)
The unaudited pro forma income tax provision,
deferred tax assets, and the valuation allowance of deferred tax assets, if any, included in the financial statements and income
tax provision note reflect the income tax provision which would have been recorded as if the S corporation had always been a C
corporation upon its incorporation.
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.
At September 30, 2014 and 2013, the Company
did not have any potentially dilutive securities outstanding.
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 May 2014, the FASB issued the FASB Accounting
Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”).
This guidance amends the existing FASB Accounting
Standards Codification, creating a new Topic 606, Revenue from Contracts with Customer.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services.
To achieve that core principle, an entity should
apply the following steps:
- Identify the contract(s) with the customer
- Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the performance obligations in the contract
- Recognize revenue when (or as) the entity satisfies a performance obligations
The ASU also provides guidance on disclosures
that should be provided to enable financial statement users to understand the nature, amount, timing, and uncertainty of revenue
recognition and cash flows arising from contracts with customers. Qualitative and quantitative information is required about
the following:
- Contracts with customers – including revenue and impairments recognized,
disaggregation of revenue, and information about contract balances and performance obligations (including the transaction price
allocated to the remaining performance obligations)
- Significant judgments and changes in judgments – determining the timing
of satisfaction of performance obligations (over time or at a point in time), and determining the transaction price and amounts
allocated to performance obligations
- Assets recognized from the costs to obtain or fulfill a contract.
ASU 2014-09 is effective for periods
beginning after December 15, 2016, including interim reporting periods within that reporting period for all public entities. Early
application is not permitted.
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. |
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.
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.
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
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
financial statements, the Company had an accumulated deficit at September 30, 2014, 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 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, 2014 | | |
December 31, 2013 | |
| |
| |
| | |
| |
Auto | |
3 years | |
| 12,522 | | |
| 12,522 | |
Furniture and fixtures | |
5 years | |
| 23,743 | | |
| 23,743 | |
Leasehold improvements | |
5 years | |
| 35,206 | | |
| 35,206 | |
Less: Accumulated depreciation | |
| |
| (67,349 | ) | |
| (44,296 | ) |
| |
| |
$ | 4,122 | | |
$ | 27,175 | |
For the nine months ended September 30, 2014
and 2013, depreciation expense amounted to $23,053 and $5,435, respectively. During the nine months ended September 30, 2014, the
Company fully depreciated the cost of leasehold improvements as the Company moved to a new office space in June 2014.
The Company completed the annual impairment
test 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, 2013.
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consist of the following:
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Customer relationships associated with a 2006 acquisition (see Note 1) | |
$ | 1,001,212 | | |
$ | 1,001,212 | |
Trademarks | |
| 6,430 | | |
| 6,430 | |
| |
| 1,007,642 | | |
| 1,007,642 | |
Accumulated amortization | |
| (548,496 | ) | |
| (498,114 | ) |
Intangible assets, net | |
$ | 459,146 | | |
$ | 509,528 | |
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 statements of operations. The Company assesses
fair market value for any impairment to the carrying values.
As of September 30, 2014 and December 31, 2013
management concluded that there was no impairment to the acquired assets. Amortization expense for the nine months ended September
30, 2014 and 2013 was $50,382 and $50,178, respectively.
Future amortization of intangible assets is
as follows:
2014 | | |
$ | 16,823 | |
2015 | | |
| 67,205 | |
2016 | | |
| 67,205 | |
2017 | | |
| 67,205 | |
2018 | | |
| 67,205 | |
2019 and thereafter | | |
| 173,503 | |
Total | | |
$ | 459,146 | |
Impairment
The Company completed the annual impairment
test of intangibles and determined that there was no impairment as the fair value of property and equipment, exceeded their carrying
values at December 31, 2013.
NOTE 6 – NOTE AND LOAN PAYABLE
Loan payable
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
| | | |
| | |
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 | | |
$ | 176,000 | |
Note payable
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
4.75% Promissory note of $100,000 issued to Bank of the West on May 10, 2011 payable in 60 consecutive monthly installments starting in June 2012 | |
$ | 49,800 | | |
$ | 64,650 | |
| |
| | | |
| | |
Less : Current maturities | |
| (19,800 | ) | |
| (19,800 | ) |
Note payable, net of current maturities | |
$ | 30,000 | | |
$ | 44,850 | |
Future minimum principal and interest payment
under the note are as follows:
Fiscal Year ending December 31: | |
| |
| |
| |
2014 (remainder of the year) | |
$ | 5,522 | |
| |
| | |
2015 | |
| 21,499 | |
| |
| | |
2016 | |
| 20,559 | |
| |
| | |
2017 | |
| 5,294 | |
| |
| | |
| |
| 52,874 | |
| |
| | |
Less interest portion | |
| (3,074 | ) |
| |
| | |
Total | |
| 49,800 | |
| |
| | |
Less current maturities | |
| (19,800 | ) |
| |
| | |
Note payable, net of current maturities | |
$ | 30,000 | |
Amounts outstanding under the loan and note above are personally
guaranteed by the President of the Company.
NOTE 7 – RELATED PARTY TRANSACTIONS
Parties are considered to be related to the
Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common
control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal with 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. The Company discloses all related party transactions.
All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is
recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected
as compensation or distribution to related parties depending on the transaction.
Amounts outstanding under the loan and note to a bank (see Note
6) are personally guaranteed by the President of the Company.
Between August 2014 and September 2014, the Company’s President
provided advances to the Company for working capital purposes for a total of $70,000. The advance was due on demand and interest
free. This advance was paid by the end of September 2014.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Operating lease
A lease agreement was signed for an office
and warehousing space consisting of approximately 3,200 square feet located in San Jose, California with an initial term commencing
in October 2009 and expiring on September 30, 2030. The lease required the Company to pay a monthly base rent of $3,135 plus real
property taxes on the lease premises. In June 2014, the Company entered into a termination agreement with the landlord thereby
terminating this lease agreement. The Company has fulfilled its obligation under this lease agreement upon termination.
In February 2013, the Company entered into
a motor vehicle lease agreement. The lease is for 24 months with monthly payments of $759.
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. The lease required the Company to pay a monthly base rent of $3,535 plus a pro rata
share of operating expenses. The base rent is subject to an annual increase beginning in November 2014 as defined in the 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: | | |
| |
| | |
| |
| 2014 (remainder of the year) | | |
$ | 12,882 | |
| | | |
| | |
| 2015 | | |
| 36,868 | |
| | | |
| | |
| Total | | |
$ | 49,750 | |
Rent expense was $57,894 and $55,015 for the
nine months ended September 30, 2014 and 2013, respectively.
Litigation
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 the Company’s
business, results of operations, financial condition or cash flows.
Notwithstanding the foregoing, 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 have 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 have not yet served
the US District lawsuit; Storz & Bickel’s US counsel have contacted the Company to initiate settlement discussion, but
it is anticipated that Storz & Bickel will serve the US District complaint if settlement discussions are not productive.
The Company may be subject to legal
proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these
claims cannot be predicted with certainty, the Company does not believe that any of the outcomes will have a material effect on
the Company’s operations.
NOTE 9 – CONCENTRATION OF CREDIT RISK
Concentration of Revenue and Supplier
During the nine months ended September 30,
2014 sales to two customers represented approximately 61% of the Company’s net sales. During the nine months ended September
30, 2013 sales to two customers represented approximately 63% of the Company’s net sales. As of September 30, 2014 and
December 31, 2013, the Company had two customers representing approximately 100% of accounts receivable and one customer representing
approximately 100% of accounts receivable, respectively.
The Company purchased inventories and products
for sale from one vendor totaling approximately $473,000 and $1.0 million during the nine months ended September 30, 2014 and 2013,
respectively.
NOTE 10 – 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 certain reportable subsequent event(s) to be disclosed as followed:
On December 30, 2014, the Company entered into
a Share Exchange Agreement (the “Exchange Agreement”) with all of the stockholders of the Company (the “Vapir
Shareholders”), Vapir Enterprises, Inc. (“Vapir Enterprises”), and its controlling stockholders.
Pursuant to the Exchange Agreement,
Vapir Enterprises will acquire all of the outstanding shares of the Company in exchange for the issuance of 38,624,768 shares of
Vapir Enterprises’ common stock to Vapir Shareholders. The shares to be issued to the Vapir Shareholders shall
constitute 80% of Vapir Enterprises issued and outstanding shares of common stock as of and immediately after the consummation
of the Exchange Agreement.
Upon closing of the Exchange Agreement, the
Company became Vapir Enterprises wholly owned subsidiary and Vapir Enterprises ceases its prior operations.
The Exchange Agreement is being accounted for
as a reverse merger and recapitalization of the Company whereby the Company is deemed to be the acquirer in the reverse merger
for accounting purposes. The consolidated financial statements after the acquisition include the balance sheets of both companies
at historical cost, the historical results of the Company and the results of Vapir Enterprises from the acquisition date.
Upon the closing of the transaction, a new
board of directors and new officers were appointed which consists of Mr. Hamid Emarlou and Dr. Shadi Shayegan. Following the closing,
Mr. Emarlou was also appointed as Chief Executive Officer and President of Vapir Enterprises.
F-17
Exhibit 99.3
VAPIR ENTERPRISES, INC.
PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
VAPIR ENTERPRISES, INC.
Index to Unaudited Pro Forma Combined Financial
Information
|
|
Pages |
|
|
|
Introduction to Unaudited Pro Forma Combined Financial Information |
|
2 |
|
|
|
Unaudited Pro Forma Combined Balance Sheet |
|
3 |
|
|
|
Notes to Unaudited Pro Forma Combined Balance Sheet |
|
4 |
VAPIR ENTERPRISES, INC.
Introduction to Unaudited Pro Forma Combined
Financial Information
The following unaudited pro forma combined financial information
is presented to illustrate the estimated effects of our merger with Vapir, Inc.
On December 30, 2014, we entered into a Share
Exchange Agreement (the “Exchange Agreement”) with Vapir, Inc., a California corporation (“Vapir”), all
of the stockholders of Vapir (the “Vapir Shareholders”), and our controlling stockholders.
Pursuant to the Exchange Agreement, we will
acquire all of the outstanding shares of Vapir in exchange for the issuance of 38,624,768 shares of our common stock to the Vapir
Shareholders. The shares to be issued to the Vapir Shareholders shall constitute 80% of our issued and outstanding
shares of common stock as of and immediately after the consummation of the Exchange Agreement.
Upon closing of the Exchange Agreement, Vapir
became our wholly owned subsidiary and the Company ceases its prior operations.
The Exchange Agreement is being accounted for
as a reverse merger and recapitalization of Vapir whereby Vapir is deemed to be the acquirer in the reverse merger for accounting
purposes. The consolidated financial statements after the acquisition include the balance sheets of both companies at historical
cost, the historical results of Vapir and the results of the Company from the acquisition date.
Upon the closing of the transaction, a new
board of directors and new officers were appointed which consists of Mr. Hamid Emarlou and Dr. Shadi Shayegan. Following the closing,
Mr. Emarlou was also appointed as Chief Executive Officer and President of the Company.
The unaudited pro forma combined financial
information assumes the Exchange Agreement was consummated as of September 30, 2014. The financial statements of the Company included
in the following unaudited pro forma combined financial information are derived from the unaudited financial statements of the
Company for the interim period September 30, 2014 contained on Form 10-Q as filed with the Securities and Exchange Commission.
The financial statements of Vapir, included in the following unaudited pro forma combined financial information are derived
from the unaudited financial statements for the interim period ended September 30, 2014 contained elsewhere in the Form 8-K.
The unaudited pro forma combined balance sheet is prepared as though the transactions occurred at the close of business on September
30, 2014.
The information presented in the unaudited
pro forma combined financial information does not purport to represent what our financial position would have been had the Exchange
Agreement occurred as of the dates indicated, nor is it indicative of our future financial position for any period. You should
not rely on this information as being indicative of the historical results that would have been achieved had the companies always
been consolidated or the future results that the consolidated company will experience after the Share Exchange Agreement Transaction.
The pro forma adjustments are based upon available information and
certain assumptions that the Company believes is reasonable under the circumstances. The unaudited pro forma combined financial
information should be read in conjunction with the historical financial statements and related notes of the Company.
VAPIR ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE
SHEET
| |
Vapir Enterprises, Inc. | | |
Vapir, Inc. | | |
| | |
| | |
| |
| |
September 30, | | |
September 30, | | |
| | |
| | |
| |
| |
2014 | | |
2014 | | |
Pro Forma Adjustments | | |
Pro Forma | |
| |
Historical | | |
Historical | | |
Dr | | |
Cr. | | |
Balances | |
ASSETS | |
( see Note) | | |
( see Note) | | |
| | |
| | |
(Unaudited) | |
| |
| | |
| | |
| | |
| | |
| |
CURRENT ASSETS: | |
| | |
| | |
| | |
| | |
| |
Cash | |
$ | 140,065 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 140,065 | |
Accounts receivable | |
| - | | |
| 944 | | |
| - | | |
| - | | |
| 944 | |
Inventory | |
| - | | |
| 56,253 | | |
| - | | |
| - | | |
| 56,253 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Current Assets | |
| 140,065 | | |
| 57,197 | | |
| - | | |
| - | | |
| 197,262 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Other assets: | |
| | | |
| | | |
| | | |
| | | |
| | |
Property and equipment, net | |
| 400,000 | | |
| 4,122 | | |
| - | | |
| - | | |
| 404,122 | |
Intangible assets, net | |
| - | | |
| 459,146 | | |
| - | | |
| - | | |
| 459,146 | |
Total other assets | |
| 400,000 | | |
| 463,268 | | |
| - | | |
| - | | |
| 863,268 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Assets | |
$ | 540,065 | | |
$ | 520,465 | | |
$ | - | | |
$ | - | | |
$ | 1,060,530 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | | |
| | | |
| | | |
| | |
Bank overdraft | |
$ | - | | |
$ | 1,434 | | |
$ | - | | |
$ | - | | |
$ | 1,434 | |
Accounts payable and accrued expenses | |
| 54,181 | | |
| 68,276 | | |
| - | | |
| - | | |
| 122,457 | |
Interest payable | |
| 947 | | |
| - | | |
| - | | |
| - | | |
| 947 | |
Accounts payable and accrued expenses - related party | |
| 54,500 | | |
| - | | |
| - | | |
| - | | |
| 54,500 | |
Loan payable | |
| - | | |
| 197,000 | | |
| - | | |
| - | | |
| 197,000 | |
Notes payable - current maturities | |
| 45,000 | | |
| 19,800 | | |
| - | | |
| - | | |
| 64,800 | |
Customer deposits | |
| - | | |
| 188,809 | | |
| - | | |
| - | | |
| 188,809 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Current Liabilities | |
| 154,628 | | |
| 475,319 | | |
| - | | |
| - | | |
| 629,947 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
LONG-TERM LIABILITIES: | |
| | | |
| | | |
| | | |
| | | |
| | |
Notes payable, net of current maturities | |
| 137,500 | | |
| 30,000 | | |
| - | | |
| - | | |
| 167,500 | |
Notes payable - related party | |
| 62,500 | | |
| - | | |
| - | | |
| - | | |
| 62,500 | |
Interest payable - net of current portion | |
| 240 | | |
| - | | |
| - | | |
| - | | |
| 240 | |
Interest payable - related party | |
| 109 | | |
| - | | |
| - | | |
| - | | |
| 109 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Long-term Liabilities | |
| 200,349 | | |
| 30,000 | | |
| - | | |
| - | | |
| 230,349 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Liabilities | |
| 354,977 | | |
| 505,319 | | |
| - | | |
| - | | |
| 860,296 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
STOCKHOLDERS' EQUITY : | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
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; 6,816,194 shares issued and outstanding prior to merger; $0.001 par value; 100,000,000 shares authorized;
45,440,962 issued and outstanding after the merger) | |
| 6,816 | | |
| - | | |
| | (a) | |
| 38,625 | | |
| 45,441 | |
Additional paid-in capital | |
| 3,107,752 | | |
| 400,000 | (a) | |
| 2,968,105 | | |
| | | |
| 539,647 | |
Accumulated deficit | |
| (2,929,480 | ) | |
| (384,854 | ) | |
| | (a) | |
| 2,929,480 | | |
| (384,854 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Stockholders' Equity | |
| 185,088 | | |
| 15,146 | | |
| 2,968,105 | | |
| 2,968,105
| | |
| 200,234 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Liabilities and Stockholders' Equity | |
$ | 540,065 | | |
$ | 520,465 | | |
$ | 2,968,105 | | |
$ | 2,968,105
| | |
$ | 1,060,530 | |
See accompanying notes to unaudited
pro forma combined financial statements.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE
SHEET
Unaudited pro forma adjustments reflect the following transaction:
a) | |
| | |
|
Additional paid in capital | |
2,968,105
| | |
|
Common stock, at par | |
| | | |
38,625 |
Accumulated deficit | |
| | | |
2,929,480 |
| |
| | |
To recapitalize for the Share Exchange Agreement. On December 30, 2014, the Company entered into a Share Exchange Agreement with Vapir and the shareholders of Vapir 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. | |
| | | |
|
4