UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
☒ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2014
or
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
File Number: 333-185083
VAPIR
ENTERPRISES, INC.
(Exact
Name of Registrant as Specified in Its Charter)
Nevada
|
|
27-1517938 |
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
incorporation
or organization) |
|
Identification
No.) |
2365
Paragon Dr., Suite B
San
Jose, California 95131
Telephone: (800) 841-1022
(Address
and telephone number of Registrant’s principal executive offices)
Nevada
Business Center, LLC
311
West Third Street
Carson
City, NV 89703
Telephone: (775) 461-5127
(Name,
address, and telephone number of agent for service)
Copies
of communications to:
Gregg
E. Jaclin, Esq.
Szaferman,
Lakind, Blumstein & Blader, P.C.
101
Grovers Mill Road
Lawrenceville,
New Jersey 08648
Tel.
No.: (609) 275-0400
Fax
No.: (609) 275-4511
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes
☒ No ☐
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No
☐
Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§ 229.405) is not contained herein,
and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of a “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check One)
Large
Accelerated Filer |
☐ |
Accelerated
Filer |
☐ |
Non-accelerated
Filer |
☐ |
Smaller
Reporting Company |
☒ |
(do
not check if smaller reporting company) |
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The
aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold on the OTC Bulletin Board on June 30, 2014, was $73,053,305.
Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d)
of the Exchange Act subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As
of March 27, 2015, the Company had 48,280,976 shares of its common stock, $0.001 par value per share, outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
VAPIR
ENTERPRISES
ANNUAL
REPORT ON FORM 10-K
FOR
THE YEARS ENDED DECEMBER 31, 2014 and 2013
TABLE
OF CONTENTS
PART
I
ITEM
1. 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. Our devices are manufactured
by Prosoyo Technology Limited (“Prosoyo”) in Guang Dong, China.
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.
Under
the name FAL Exploration Corp., our plan was to acquire minority and majority interests in natural resource properties located
throughout the United States. Our initial project was an interest in an open pit mine located in Clay County Alabama also known
as the Brown Mine. Historically, graphite and gold have been mined in the area. The property which is over two hundred and twenty
acres contains graphite and some surface gold. The Company planned to explore the property and either may utilize it as the main
production plant should the Brown Mine prove to be commercially viable or seek to monetize the graphite, should it prove to be
commercially viable. 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:
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● |
a mouthpiece, which is a small plastic cartridge that contains a liquid nicotine solution; |
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the heating element that vaporizes the liquid nicotine so that it can be inhaled; and |
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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
As of December 31,
2014, we offer 3 vaporizers, the VapirRise, VAPIR NO2 Portable Digital Vaporizer and VAPIR Oxygen Mini Corded Vaporizer. We ceased
production of VAPIR ONE in February 2014.
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 (ceased production in February 2014)
The
VAPIR ONE was designed for loose-leaf herbs. It supported both balloon inflation and direct inhalation. It had a medical grade
ceramic heating element and an LCD temperature display.
The
vaporizers included removable disks that held the source material and needed to be inserted into device prior to pre heating the
vaporizers. Temperatures and safety times could be set individually according to the manufacturer’s recommendations. This
process prevented the waste of source material, titrates dosages, and ensured that the vaporizers work at optimum conditions.
The
Vapir One had 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 reached the pre-set temperature, a fan blew air through the heating element. A sensor,
which was located in the chamber of the unit, constantly monitored the air temperature and maintained pre-set heat levels by turning
the heating element on and off as needed. Once the optimal temperature was reached, a green light on the casing indicated that
the device was ready. This relatively simple technology enabled the vaporizers to maintain heat levels.
Once
the user started using the device, the fan blew hot air through the disk filled with the source material. This aerosol contained
hot air that was enriched with the active elements, flavor, aroma, and pure essence of the source material. The aerosol then reached
an internal cooling chamber where the vapors were cooled to a level that was safe for the consumer to inhale. The consumer would
then inhale the warm and rich vapors through a tube, which also served as the final cooling process before the vapors reached
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.
Our
competitive position in the vaporizer industry is difficult to gauge as most of our competition are also smaller companies or
are privately held and do not publicly report their earnings. We do know of several competitors, but, like us, many are in their
initial stages of development and are focusing on different areas of this industry.
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; |
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restrictions or bans on advertising, marketing and sponsorship; |
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the display of larger health warnings, graphic health warnings and other labeling requirements; |
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restrictions on packaging design, including the use of colors and generic packaging; |
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restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines; |
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requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels; |
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requirements regarding testing, disclosure and use of tobacco product ingredients; |
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increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors; |
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elimination of duty free allowances for travelers; and |
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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 utility 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. This patent expires on June
19, 2018.
U.S.
Patent # 6,772,756 - Method and System for Vaporization of a Substance
We
have a utility 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. This patent expires
on February 9, 2022.
U.S.
Patent # 6,990,978 - Method and System for Vaporization of a Substance
We
have a utility 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. This patent expires
on January 31, 2026.
U.S.
Design Patent # 489,448 - Vaporization Apparatus
We
have a design patent for the ornamental design for the vaporization apparatus. This patent expires on May 4, 2018.
U.S.
Design Patent # 508,119 - Mesh Filter with Glass Insert
We
have a design patent for the ornamental design for a component for a vaporizer. This patent expires on August 2, 2019.
U.S.
Patent Application # 11/872,040 - Method and System for Vaporization of a Substance
We
have a utility patent (filed on October 15, 2007) 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 utility patent (filed on April 16, 2014) 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 design patent (filed on November 26, 2013) 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 31, 2014, we have eight (8) 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.
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.
ITEM
1A. RISK FACTORS
Smaller
reporting companies are not required to provide the information required by this item.
ITEM
2. 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. Product design occurs at this location.
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.
Our
devices are manufactured in Guang Dong, China by Prosoyo. Prosoyo’s headquarters is located at Unit 1005, Chevalier Commercial
Centre, 8 Wang Hoi Road, Kowloon Bay, Kowloon, Hong Kong (Tel: +852 – 23319111/Fax: +852 – 23319882). Prosoyo’s
factory is located at Tai Po Industrial Estate, Gang Zi District, Chang Ping, Dong Guan, Guang Dong, China, Post Code: 523571
(Tel: +86 - 769 83330091/Fax: +86 - 769 83330092). We do not have a written manufacturing contract with Prosoyo. We use purchase
orders to memorialize the terms of order placements.
ITEM
3. 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.
We have proposed
settlement agreement which provides for payment of $40,000 by Vapir and the transfer of our trademark for release of all claims
under the lawsuits. We have accrued liability of $40,000 and was reflected in the Consolidated Statement of Operations for the
year ended December 31, 2014 as settlement of potential litigation.
ITEM
4. MINE SAFETY DISCLOSURE
Not
applicable.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUTY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market
Information
Our common
stock is currently approved for quotation on the OTC Bulletin Board (OTCQB) maintained by the Financial Industry Regulatory Authority,
Inc. under the symbol “VAPI”. We are not aware of any trades or quotations during the two calendar years ending
December 31, 2014. There have been sporadic trades reported since that date at prices reported from $0.01 to $3.50.
Holders
As
of March 31, 2015, there were approximately 71 holders of record of our common stock, and an indeterminate number of holders of
unrestricted shares.
Dividends
We
have not declared cash dividends on our common stock since our inception and we do not anticipate paying any cash dividends in
the foreseeable future. Our current policy is to retain earnings, if any, for use in our operations and in the development of
our business. Our future dividend policy will be determined from time to time by our board of directors.
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. At closing, the Company issued 38,624,768 shares of its common stock to the shareholders of Vapir Inc.
who obtained approximately 80% voting control and management control of the Company. The transaction was accounted for as a reverse
acquisition and recapitalization of Vapir Inc. whereby Vapir Inc. is considered the acquirer for accounting purposes. 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 for a total of $30,000. 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.
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable as we are a smaller reporting company.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except
for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties.
We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our
actual results or actions may differ materially from these forward-looking statements for many reasons. Our discussion and analysis
of our financial condition and results of operations should be read in conjunction with the financial statements and related notes
and with the understanding that our actual future results may be materially different from what we currently expect.
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 Enterprises, 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.
Year
Ended December 31, 2014 Compared to the Year Ended December 31, 2013
| |
For the Year Ended | |
| |
December 31, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
| |
| | |
| |
Net Sales | |
$ | 1,646,947 | | |
$ | 3,053,752 | |
| |
| | | |
| | |
Cost of sales | |
| 710,423 | | |
| 1,546,821 | |
| |
| | | |
| | |
Gross profit | |
| 936,524 | | |
| 1,506,931 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
Selling expenses | |
| 72,217 | | |
| 76,075 | |
| |
| | | |
| | |
Compensation | |
| 655,126 | | |
| 533,702 | |
| |
| | | |
| | |
Research and development | |
| 81,521 | | |
| 88,847 | |
| |
| | | |
| | |
General and administrative | |
| 493,972 | | |
| 466,622 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 1,302,836 | | |
| 1,165,246 | |
| |
| | | |
| | |
(LOSS) INCOME FROM OPERATIONS | |
| (366,312 | ) | |
| 341,685 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Settlement of potential litigation | |
| (40,000 | ) | |
| - | |
Interest expense, net | |
| (17,612 | ) | |
| (33,166 | ) |
| |
| | | |
| | |
Other Expense, net | |
| (57,612 | ) | |
| (33,166 | ) |
| |
| | | |
| | |
(LOSS) INCOME | |
| (423,924 | ) | |
| 308,519 | |
Net
Sales
Net
sales for the year ended December 31, 2014 and 2013 were $1,646,947 and $3,053,752 respectively, a decrease of $1,406,805 or approximately
46%. The decrease in sales during the year ended December 31, 2014 was primarily attributable to a decrease in sales of approximately
$1,414,000 to two significant wholesale customers as compared
to the year ended December 31, 2013. The decrease in sales was also due to the delay in the release of our new portable product
as our wholesale customers preferred to purchase the newer version of our portable product. Additionally, the decrease was due
to we have commenced selling our rework stationary product by late 2014 after the completion of the rework and revisions made
to our infringed stationary product in late 2014. We expect our revenues to increase during fiscal 2015 as we expect to release
the new portable product by fiscal 2015 and expected sales from our rework stationary product. However, we are unable at this
time to estimate the amount of the expected increases.
Cost
of Sales
Cost of goods sold for the year ended
December 31, 2014 and 2013 were $710,423 and $1,546,821, respectively, a decrease of $836,398 or approximately 54%. 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 year ended December 31, 2014 and 2013 were $1,302,836 and $1,165,246, respectively, an increase of
$137,590 or approximately 12%. The increase in operating expenses is primarily due to higher expenses for salaries for
qualified people to work on our new product. Compensation to officers and employees increased by approximately $121,424, and
professional fees also increased during the year ended December 31, 2014 due to an increase in legal fees for a patent
litigation that the Company is involved in and increase accounting fees resulting from the audit of our financial statements
for our SEC filings.
Other Expense, net
Total other expense, net for the year
ended December 31, 2014 and 2013 were $57,612 and $33,166, respectively, an increase of $24,446 or approximately 74%. The increase
in other expenses is primarily attributable to the recognition of settlement of potential litigation of $40,000 related to a patent
litigation against us.
Net (loss) Income
Net (loss) income for the year ended
December 31, 2014 and 2013 was ($423,924) and $308,519, respectively, 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 December 31, 2014 we had a cash balance of $27,304 and working
capital deficit of ($433,694). During the year ended December 31, 2014, we borrowed a total of $287,000 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 year ended December 31, 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 and intangible 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.
Intangible
assets
In
accordance with ASC 350-30-65, “Intangibles - Goodwill and Others”, the Company assesses the impairment of identifiable
intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company
considers to be important which could trigger an impairment review include the following:
|
1. |
Significant underperformance relative to expected historical or projected
future operating results; |
|
|
|
|
2. |
Significant changes in the manner of use of the acquired assets or the
strategy for the overall business; and |
|
|
|
|
3. |
Significant negative industry or economic trends. |
When
the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of
the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows,
the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method
using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant
management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company
considers current events and circumstances by attending trade shows, having a constant direct dialogue with our distributors,
and an internal review and research by management to keep current with the vaporizer industry and to determine if there are any
economic downturn.
The
Company evaluates the recoverability of intangible assets annually or whenever events or changes in circumstances indicate that
an intangible asset’s carrying amount may not be recoverable. If it is determined by reviewing the above factors that a
possible impairment exists, the Company must then determine if the carrying amount of the intangibles is recoverable based upon
the comparison of the total undiscounted future cash flows from the intangibles to the carrying amount of the intangibles. Based
on our assessment in fiscal 2014, we determined that the sum of the future undiscounted cash flows exceeded the carrying amount
of the intangibles and therefore the carrying amount of the intangible is recoverable.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As
a smaller reporting company, we are not required to provide this information.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VAPIR ENTERPRISES, INC. AND SUBSIDIARY
DECEMBER 31, 2014 and 2013
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Stockholders
Vapir Enterprises, Inc.
We have audited the consolidated balance sheets
of Vapir Enterprises, Inc. (the “Company”) as of December 31, 2014 and 2013 and the related statements of operations,
changes in stockholders’ equity and cash flows for the reporting periods then ended. These consolidated 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 consolidated 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 consolidated financial
statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,
2014 and 2013 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 consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated
financial statements, the Company had an accumulated deficit at December 31, 2014, a net loss and net cash used in operating activities
for the year 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
March 31, 2015
VAPIR
ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
| |
December 31, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
ASSETS | |
| | |
| |
| |
| | |
| |
CURRENT ASSETS: | |
| | |
| |
Cash | |
$ | 27,304 | | |
$ | 24,803 | |
Accounts receivable | |
| 2,588 | | |
| 122,729 | |
Inventory | |
| 110,551 | | |
| 46,352 | |
Advances to suppliers | |
| 67,652 | | |
| - | |
| |
| | | |
| | |
Total Current Assets | |
| 208,095 | | |
| 193,884 | |
| |
| | | |
| | |
OTHER ASSETS: | |
| | | |
| | |
Property and equipment, net | |
| 3,732 | | |
| 27,175 | |
Intangible assets, net | |
| 442,352 | | |
| 509,528 | |
| |
| | | |
| | |
Total Other Assets | |
| 446,084 | | |
| 536,703 | |
| |
| | | |
| | |
Total Assets | |
$ | 654,179 | | |
$ | 730,587 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 236,051 | | |
$ | 41,317 | |
Loan payable | |
| 197,000 | | |
| 176,000 | |
Note payable - current maturities | |
| 19,800 | | |
| 19,800 | |
Customer deposits | |
| 52,938 | | |
| 13,929 | |
Advances from related party | |
| 136,000 | | |
| - | |
| |
| | | |
| | |
Total Current Liabilities | |
| 641,789 | | |
| 251,046 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES: | |
| | | |
| | |
Note payable, net of current maturities | |
| 25,050 | | |
| 44,850 | |
| |
| | | |
| | |
Total Long-term Liabilities | |
| 25,050 | | |
| 44,850 | |
| |
| | | |
| | |
Total Liabilities | |
| 666,839 | | |
| 295,896 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES (see Note 8) | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS' EQUITY (DEFICIT): | |
| | | |
| | |
Preferred stock $0.001 par value: 20,000,000 shares authorized; | |
| | | |
| | |
none issued and outstanding | |
| - | | |
| - | |
Common stock $0.001 par value: 100,000,000 shares authorized; | |
| | | |
| | |
48,280,962 and 38,624,768 shares issued and outstanding, respectively | |
| 48,281 | | |
| 38,625 | |
Additional paid in capital | |
| (60,941 | ) | |
| 361,375 | |
Accumulated (deficit) earnings | |
| - | | |
| 34,691 | |
| |
| | | |
| | |
Total Stockholders' Equity (Deficit) | |
| (12,660 | ) | |
| 434,691 | |
| |
| | | |
| | |
Total Liabilities and Stockholders' Equity (Deficit) | |
$ | 654,179 | | |
$ | 730,587 | |
See
accompanying notes to the consolidated financial statements
VAPIR
ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
| |
For the Year Ended | |
| |
December 31, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
Net sales | |
$ | 1,646,947 | | |
$ | 3,053,752 | |
| |
| | | |
| | |
Cost of sales | |
| 710,423 | | |
| 1,546,821 | |
| |
| | | |
| | |
Gross profit | |
| 936,524 | | |
| 1,506,931 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
Selling expenses | |
| 72,217 | | |
| 76,075 | |
Compensation | |
| 655,126 | | |
| 533,702 | |
Research and development | |
| 81,521 | | |
| 88,847 | |
General and administrative | |
| 493,972 | | |
| 466,622 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 1,302,836 | | |
| 1,165,246 | |
| |
| | | |
| | |
INCOME (LOSS) FROM OPERATIONS | |
| (366,312 | ) | |
| 341,685 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Settlement of potential litigation | |
| (40,000 | ) | |
| - | |
Interest expense, net | |
| (17,612 | ) | |
| (33,166 | ) |
| |
| | | |
| | |
Other income (expense), net | |
| (57,612 | ) | |
| (33,166 | ) |
| |
| | | |
| | |
NET INCOME (LOSS) | |
$ | (423,924 | ) | |
$ | 308,519 | |
| |
| | | |
| | |
PRO FORMA FINANCIAL INFORMATION (UNAUDITED): | |
| | | |
| | |
| |
| | | |
| | |
INCOME (LOSS) BEFORE INCOME TAX PROVISION | |
| (423,924 | ) | |
| 308,519 | |
| |
| | | |
| | |
INCOME TAX PROVISION (BENEFIT) | |
| (104,896 | ) | |
| 104,896 | |
| |
| | | |
| | |
NET INCOME (LOSS) | |
$ | (319,028 | ) | |
$ | 203,623 | |
| |
| | | |
| | |
EARNINGS (LOSS) PER COMMON SHARE: | |
| | | |
| | |
Basic and diluted | |
$ | (0.01 | ) | |
$ | 0.01 | |
| |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | |
| | | |
| | |
Basic and diluted | |
| 38,651,223 | | |
| 38,624,768 | |
See
accompanying notes to the consolidated financial statements
VAPIR
ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For
the Year Ended December 31, 2013 and 2014
| |
Common Stock $0.001 Par Value | | |
Additional | | |
Accumulated | | |
Total Stockholders' | |
| |
Number of | | |
| | |
Paid-in | | |
Earnings | | |
Equity | |
| |
Shares | | |
Amount | | |
Capital | | |
(Deficit) | | |
(Deficit) | |
| |
| | |
| | |
| | |
| | |
| |
Balance, December 31, 2012 | |
| 38,624,768 | | |
$ | 38,625 | | |
$ | 361,375 | | |
$ | - | | |
$ | 400,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Stockholder's Distribution | |
| - | | |
| - | | |
| - | | |
| (273,828 | ) | |
| (273,828 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| - | | |
| - | | |
| - | | |
| 308,519 | | |
| 308,519 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2013 | |
| 38,624,768 | | |
| 38,625 | | |
| 361,375 | | |
| 34,691 | | |
| 434,691 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Reverse acquisition adjustment | |
| 9,656,194 | | |
| 9,656 | | |
| (33,083 | ) | |
| - | | |
| (23,427 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (423,924 | ) | |
| (423,924 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Reclassification of undistributed retained earnings as of December 30, 2014
to additional paid-in capital | |
| - | | |
| - | | |
| (389,233 | ) | |
| 389,233 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2014 | |
| 48,280,962 | | |
$ | 48,281 | | |
$ | (60,941 | ) | |
$ | - | | |
$ | (12,660 | ) |
See
accompanying notes to the consolidated financial statements
VAPIR
ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| |
For the Year Ended | |
| |
December 31, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net income (loss) | |
$ | (423,924 | ) | |
$ | 308,519 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
| | | |
| | |
Bad debt expense | |
| 170 | | |
| - | |
Depreciation | |
| 23,443 | | |
| 7,247 | |
Amortization | |
| 67,176 | | |
| 66,904 | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 119,971 | | |
| (122,604 | ) |
Advances to suppliers | |
| (67,652 | ) | |
| - | |
Inventory | |
| (64,199 | ) | |
| 50,297 | |
Other receivable | |
| - | | |
| 5,000 | |
Accounts payable and accrued expenses | |
| 171,307 | | |
| (111,110 | ) |
Customer deposits | |
| 39,009 | | |
| (150,128 | ) |
| |
| | | |
| | |
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | |
| (134,699 | ) | |
| 54,125 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Purchase of property and equipment | |
| - | | |
| (4,640 | ) |
Capitalized cost of trademark | |
| - | | |
| (3,900 | ) |
| |
| | | |
| | |
NET CASH USED IN INVESTING ACTIVITIES | |
| - | | |
| (8,540 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Advances from related party | |
| 266,000 | | |
| 53,974 | |
Repayments to related party for advances | |
| (130,000 | ) | |
| - | |
Proceeds received from loan | |
| 21,000 | | |
| 110,000 | |
Payments on notes payable | |
| (19,800 | ) | |
| (19,800 | ) |
Stockholder's distribution | |
| - | | |
| (273,828 | ) |
| |
| | | |
| | |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | |
| 137,200 | | |
| (129,654 | ) |
| |
| | | |
| | |
NET CHANGE IN CASH | |
| 2,501 | | |
| (84,069 | ) |
| |
| | | |
| | |
CASH - beginning of year | |
| 24,803 | | |
| 108,872 | |
| |
| | | |
| | |
CASH - end of year | |
$ | 27,304 | | |
$ | 24,803 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
Interest paid | |
$ | 17,612 | | |
$ | 33,166 | |
Income taxes paid | |
$ | - | | |
$ | - | |
See
accompanying notes to the consolidated financial statements
Vapir Enterprises, Inc. and Subsidiary
December 31, 2014 and 2013
Notes to the Consolidated Financial Statements
Note 1 – Organization and Operations
Vapir Enterprises, Inc.
Vapir Enterprises Inc. (formerly FAL Exploration
Corp.) (“Vapir Enterprises” or the “Company”) was incorporated in the State of Nevada on December 17, 2009.
The Company’s principal business is focused on inventing, developing and producing aromatherapy devices and vaporizers. The
Company’s aromatherapy devices utilize heat and convection air and thereby extract natural essences and produce fresh fragrances.
Acquisition of Vapir, Inc. Treated as
a Reverse Acquisition
On December 30, 2014, Vapir, Inc., a private
California corporation (“Vapir”), which is the historical business, entered into a Share Exchange Agreement with the
Company, all of the stockholders of Vapir (the “Vapir Shareholders”), and the Company’s controlling stockholders
whereby the Company agreed to acquire all of the issued and outstanding capital stock of Vapir in exchange for 38,624,768 shares
of the Company’s common stock. On December 30, 2014, the transaction closed and Vapir is now a wholly-owned subsidiary of
the Company. The number of shares issued represented approximately 80.0% of the issued and outstanding common stock immediately
after the consummation of the Share Exchange Agreement. In addition, Vapir’s board of directors and management obtained the
board and management control of the combined entity stock immediately after the consummation of the Share Exchange Agreement.
As a result of the controlling financial interest
of the former stockholders of Vapir, for financial statement reporting purposes, the business combination between Vapir and Vapir
Enterprises has been treated as a reverse acquisition with Vapir deemed the accounting acquirer and Vapir Enterprises deemed the
accounting acquiree under the acquisition method of accounting in accordance with FASB Accounting Standards Codification (“ASC”)
Section 805-10-55. The reverse acquisition is deemed a capital transaction and the net assets of Vapir (the accounting acquirer)
are carried forward to Vapir Enterprises (the legal acquirer and the reporting entity) at their carrying value before the acquisition.
The acquisition process utilizes the capital structure of Vapir Enterprises and the assets and liabilities of Vapir which are recorded
at historical cost. The equity of the combined entity is the historical equity of Vapir retroactively restated to reflect the number
of shares issued by Vapir Enterprises in the transaction.
Vapir, Inc. was incorporated in the State of
California in October 2006.
Note 2 – Significant and Critical
Accounting Policies and Practices
The Management
of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting
policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal
of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments,
often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s
significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.
Basis of Presentation
The Company’s consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US
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.
Principles of Consolidation
The Company applies the guidance of Topic 810
“Consolidation” of the FASB Accounting Standards Codification to determine whether
and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned
subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when
control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and
control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company
investee. Pursuant to ASC Paragraph 810-10-15-8, the usual condition for a controlling financial
interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly
or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation.
The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other
stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries,
if any, in which the parent’s power to control exists.
The consolidated financial statements include
all accounts of the entities as of the reporting period ending date(s) and for the reporting period(s) as follows:
Name of consolidated
subsidiary or entity | |
State or other jurisdiction of incorporation or organization | |
Date of incorporation or formation (date of acquisition, if applicable) | |
Attributable interest |
| |
| |
| |
|
Vapir Enterprises, Inc. | |
The State of Nevada, U.S.A. | |
December 17, 2009 | |
100% |
| |
| |
| |
|
Vapir, Inc. | |
The State of California, U.S.A. | |
October 2006 (December 30, 2014) | |
100% |
The consolidated financial statements include
all accounts of the Company as of December 31, 2014 and for the period from December 30, 2014 (date of acquisition) through December
31, 2014; Vapir as of December 31, 2014 and 2013 and for the years then ended.
All inter-company balances and transactions
have been eliminated.
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37
of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial
instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted
in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and
comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which
prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of
fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Level 1 |
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
|
|
|
Level 2 |
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
|
|
|
Level 3 |
|
Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when
their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one
significant model assumption or input is unobservable.
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, advances to suppliers, 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 loan payable and
note payable at December 31, 2014 and 2013 approximate their respective fair values 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. The Company did not consider it necessary to record any impairment charges during the year ended December
31, 2014 and 2013.
Cash equivalents
The Company considers all highly liquid debt
instruments and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents. The
Company maintains cash and cash equivalent balances at one financial institution that is insured by the Federal Deposit Insurance
Corporation. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to $250,000.
As of December 31, 2014, the Company has not
reached bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institution,
the Company evaluates at least annually the rating of the financial institution in which it holds deposits.
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.
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, 2014 and 2013, there
was no allowance for doubtful accounts. The Company recorded bad debt expense of $170 and $0 during the year ended December 31,
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 December 31, 2014 or 2013.
There was no lower of cost or market adjustments
for the reporting period ended December 31, 2014 or 2013.
Advances to suppliers
Advances to suppliers represent the cash paid
in advance for the purchased of inventory. The advances to suppliers are interest free and unsecured.
Property and Equipment
Property and equipment is recorded at cost.
Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over
the estimated useful lives of the respective assets as follows:
| |
Estimated Useful Life (Years) |
| |
|
Auto | |
3 |
| |
|
Furniture and fixture | |
5 |
| |
|
Leasehold improvement | |
* |
(*) Amortized on a straight-line basis
over the term of the lease or the estimated useful lives, whichever is shorter.
Upon sale or retirement, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.
Leases
Lease agreements are evaluated to determine
whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards Codification
(“Paragraph 840-10-25-1”). Pursuant to Paragraph 840-10-25-1 a lessee and a lessor shall consider whether a lease meets
any of the following four criteria as part of classifying the lease at its inception under the guidance in the Lessees Subsection
of this Section (for the lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer of ownership. The lease
transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the
lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of
a nominal fee, for example, the minimum required by statutory regulation to transfer title. b. Bargain purchase option. The
lease contains a bargain purchase option. c. Lease term. The lease term is equal to 75 percent or more of the estimated economic
life of the leased property. d. Minimum lease payments. The present value at the beginning of the lease term of the minimum
lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to
be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased
property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized
by the lessor. In accordance with paragraphs 840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four lease
classification criteria in Paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease; and if none of
the four criteria in Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an operating lease. Pursuant
to Paragraph 840-10-25-31 a lessee shall compute the present value of the minimum lease payments using the lessee's incremental
borrowing rate unless both of the following conditions are met, in which circumstance the lessee shall use the implicit rate: a. It
is practicable for the lessee to learn the implicit rate computed by the lessor. b. The implicit rate computed by the lessor
is less than the lessee's incremental borrowing rate. Capital lease assets are depreciated on a straight line method, over the
capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets.
Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.
Operating leases primarily relate to the Company’s
leases of office spaces. When the terms of an operating lease include tenant improvement allowances, periods of free rent, rent
concessions, and/or rent escalation amounts, the Company establishes a deferred rent liability for the difference between the scheduled
rent payment and the straight-line rent expense recognized, which is amortized over the underlying lease term on a straight-line
basis as a reduction of rent expense.
Intangible assets
The Company records the purchase of intangible
assets not purchased in a business combination in accordance with ASC 350-30-65 “Goodwill and Other Intangible Assets”
and records intangible assets acquired in a business combination or pushed-down pursuant to acquisition by its parent in accordance
with SFAS 141 “Business Combinations”.
Customer Relationships are based upon the estimated
percentage of annual or period projected cash flows generated by such relationships, to the total cash flows generated over the
estimated life of the customer relationships.
In accordance with ASC 350-30-65, “Intangibles
- Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment
review include the following:
|
1. |
Significant underperformance relative to expected historical or projected future operating results; |
|
|
|
|
2. |
Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and |
|
|
|
|
3. |
Significant negative industry or economic trends. |
When the Company determines that the carrying
value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the
carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge.
The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management
to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining
whether an indicator of impairment exists and in projecting cash flows. The Company evaluates the recoverability of intangible
assets annually or whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not
be recoverable.
Customer Deposits
Customer deposits consisted of prepayments
from customers to the Company. The Company will recognize the prepayments as revenue upon delivery of the products, in compliance
with its revenue recognition policy.
Related Parties
The Company follows subtopic 850-10 of the
FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the Related parties
include a. affiliates of the Company (“Affiliate” means, with respect to any specified Person, any other Person
that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such
Person, as such terms are used in and construed under Rule 405 under the Securities Act); b. entities for which investments
in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection
of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit
of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal
owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the
management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests.
The financial statements shall include disclosures
of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the
ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined
financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s)
involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for
each of the periods for which income statements are presented, and such other information deemed necessary to an understanding
of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods
for which income statements are presented and the effects of any change in the method of establishing the terms from that used
in the preceding period; and d. amount due from or to related parties as of the date of each balance sheet presented and, if not
otherwise apparent, the terms and manner of settlement.
Commitment and Contingencies
The Company follows subtopic 450-20 of the
FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the
consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one
or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or
unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of
the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Revenue recognition
The Company follows paragraph 605-10-S99-1
of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or
realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met:
(i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer,
(iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Cost of Sales
The primary components of cost of sales include
the cost of the product and shipping fees.
Shipping and Handling Costs
The Company accounts for shipping and handling
fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification. While amounts charged to customers
for shipping products are included in revenues, the related costs are classified in cost of goods sold as incurred.
Advertising Costs
The Company follows the guidance of the Section
720-35-25 of the FASB Accounting Standards Codification (“Section 720-35-25”) as to when advertising costs should be
expensed. Pursuant to ASC Paragraph 720-35-25-1 the costs of advertising shall be expensed either as incurred or the first time
the advertising takes place. The accounting policy the Company selected from these two alternatives was to expense the advertising
costs when the first time the advertising takes place. Deferring the costs of advertising until the advertising takes place assumes
that the costs have been incurred for advertising that will occur, such as the first public showing of a television commercial
for its intended purpose and the first appearance of a magazine advertisement for its intended purpose. Such costs shall be expensed
immediately if such advertising is not expected to occur.
Pursuant to ASC Paragraph 720-35-25-5 costs
of communicating advertising are not incurred until the item or service has been received and shall not be reported as expenses
before the item or service has been received, such as the costs of television airtime which shall not be reported as advertising
expense before the airtime is used. Once it is used, the costs shall be expensed, unless the airtime was used for direct-response
advertising activities that meet the criteria for capitalization under ASC paragraph 340-20-25-4.
Advertising costs were $24,800 and $26,372
for the period ended December 31, 2014 and 2013, respectively.
Deferred Tax Assets and Income Tax Provision
The Company was a Subchapter S corporation,
until December 30, 2014 during which time the Company was treated as a pass through entity for federal income tax purposes. Under
Subchapter S of the Internal Revenue Code stockholder of an S corporation are taxed separately on their distributive share of the
S corporation’s income whether or not that income is actually distributed.
Effective December 31, 2014, the Company accounts
for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities
are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are
reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in the statements of operations in the period that includes the enactment date.
The Company adopted section 740-10-25 of the
FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether
tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25,
the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized
in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty
percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition,
classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
The estimated future tax effects of temporary
differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well
as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded
on its consolidated balance sheets and provides valuation allowances as management deems necessary.
Management makes judgments as to the interpretation
of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the
Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion,
adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates,
additional allowances or reversals of reserves may be necessary.
Tax years that remain
subject to examination by major tax jurisdictions
The Company discloses tax years that remain
subject to examination by major tax jurisdictions pursuant to the ASC Paragraph 740-10-50-15.
Pro Forma Income
Tax Provision (Benefit) (Unaudited)
The Company was a Subchapter S corporation,
until December 30, 2014 during which time the Company was treated as a pass through entity for federal income tax purpose. Under
Subchapter S of the Internal Revenue Code the operating results of the S corporation prior to December 30, 2014 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,
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.
The Company’s contingent shares
issuance arrangement, stock options or warrants are as follows:
| |
Contingent shares issuance arrangement, stock options or warrants | |
| |
For
the Reporting Period Ended December 31, 2014 | | |
For
the Reporting Period Ended December 31, 2013 | |
| |
| | |
| |
Stock Option Shares | |
| 100 | | |
| - | |
| |
| | | |
| | |
Sub-total: stock option shares | |
| 100 | | |
| - | |
| |
| | | |
| | |
Warrant Shares | |
| 1,263 | | |
| - | |
| |
| | | |
| | |
Sub-total: warrant shares | |
| 1,263 | | |
| - | |
| |
| | | |
| | |
Total contingent shares issuance arrangement, stock options or warrants | |
| 1,363 | | |
| - | |
There were no
incremental common shares under the Treasury Stock Method for the reporting period ended December 31, 2014 or 2013.
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 June 2014, the FASB issued the FASB Accounting
Standards Update No. 2014-12 “Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments
When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU
2014-12”).
The amendments clarify the proper method of
accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite
service period. The Update requires that a performance target that affects vesting and that could be achieved after the requisite
service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date
fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance
target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service
has already been rendered.
The amendments in this Update are effective
for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is 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.
In November 2014, the FASB issued the FASB
Accounting Standards Update No. 2014-16 “Derivatives and Hedging (Topic 815): Determining Whether the Host Contract
in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity” (“ASU 2014-16”).
The amendments in ASU No. 2014-16 clarify that
an entity must take into account all relevant terms and features when reviewing the nature of the host contract. Additionally,
the amendments state that no one term or feature would define the host contract’s economic characteristics and risks. Instead,
the economic characteristics and risks of the hybrid financial instrument as a whole would determine the nature of the host contract.
The amendments in this Update are effective
for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.
Early adoption, including adoption in an interim period, is permitted.
In January 2015, the FASB issued the FASB Accounting
Standards Update No. 2015-01 “Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying
Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”).
This Update eliminates from GAAP the concept
of extraordinary items and the requirements in Subtopic 225-20 for reporting entities to separately classify, present, and disclose
extraordinary events and transactions.
The amendments in this Update are effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted
provided that the guidance is applied from the beginning of the fiscal year of adoption.
In February 2015, the FASB issued the FASB
Accounting Standards Update No. 2015-02 “Consolidation (Topic 810) - Amendments to the Consolidation Analysis”
(“ASU 2015-02”) to improve certain areas of
consolidation guidance for reporting organizations (i.e., public, private, and not-for-profit) that are required to evaluate whether
to consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures
(e.g., collateralized debt/loan obligations).
All
legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments:
| ● | Eliminating
the presumption that a general partner should consolidate a limited partnership. |
| | |
| ● | Eliminating
the indefinite deferral of FASB Statement No. 167, thereby reducing the number of Variable
Interest Entity (VIE) consolidation models from four to two (including the limited partnership
consolidation model). |
| | |
| ● | Clarifying
when fees paid to a decision maker should be a factor to include in the consolidation
of VIEs. Note: a VIE is a legal entity in which consolidation is not based on a
majority of voting rights. |
| | |
| ● | Amending
the guidance for assessing how related party relationships affect VIE consolidation analysis. |
| | |
| ● | Excluding
certain money market funds from the consolidation guidance. |
The
amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal
years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period.
Management does not believe that any recently
issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying financial
statements.
Note 3 – Going Concern
The Company has elected to adopt early application
of Accounting Standards Update No. 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40):
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).
The Company’s
consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the
consolidated financial statements, included with this filing, the Company had an accumulated deficit at December 31, 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 consolidated financial
statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the Company is unable to continue as a going concern.
Note 4 – Property and Equipment
Property and equipment, stated at cost, less
accumulated depreciation consisted of the following:
| |
Estimated life | |
December 31, 2014 | | |
December 31, 2013 | |
| |
| |
| | |
| |
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 | |
| |
| (67,739 | ) | |
| (44,296 | ) |
| |
| |
$ | 3,732 | | |
$ | 27,175 | |
(i)
Depreciation Expense
Depreciation expense amounted to $23,443 and
$7,247 for the year ended December 31, 2014 and 2013, respectively. During the year ended December 31, 2014, the Company fully
depreciated the cost of leasehold improvements as the Company moved to a new office space in June 2014.
(ii)
Impairment
The Company completed the annual impairment
testing of property and equipment and determined that there was no impairment as the fair value of property and equipment, exceeded
their carrying values at December 31, 2014.
Note 5 – Intangible Assets
Intangible assets consist of the following:
| |
December 31, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
| | | |
| | |
Customer relationships | |
$ | 1,001,212 | | |
$ | 1,001,212 | |
Trademarks | |
| 6,430 | | |
| 6,430 | |
| |
| 1,007,642 | | |
| 1,007,642 | |
Accumulated amortization | |
| (565,290 | ) | |
| (498,114 | ) |
Intangible assets, net | |
$ | 442,352 | | |
$ | 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 consolidated statements of operations.
The Company assesses fair market value for any impairment to the carrying values.
Amortization expense was $67,176 and $66,904
for the year ended December 31, 2014 and 2013, respectively.
Future amortization of intangible assets is
as follows:
2015 | |
$ | 67,205 | |
2016 | |
| 67,205 | |
2017 | |
| 67,205 | |
2018 | |
| 67,205 | |
2019 and thereafter | |
| 173,532 | |
Total | |
$ | 442,352 | |
Impairment
The Company completed the annual impairment
test of intangibles and determined that there was no impairment as the fair value of intangibles, exceeded their carrying values
at December 31, 2014.
Note 6 – Note and Loan Payable
Loan payable
| |
December 31, 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
| |
December 31, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
4.75% Promissory note of $100,000 issued to Bank of the West on May 10, 2011 payable over 60 consecutive monthly installments with monthly principal payment of $1,650 and interest starting in June 2012 | |
| 44,850 | | |
| 64,650 | |
| |
| | | |
| | |
Less : Current maturities | |
| (19,800 | ) | |
| (19,800 | ) |
Note payable, net of current maturities | |
$ | 25,050 | | |
$ | 44,850 | |
Future minimum principal and interest payment
under the note are as follows:
Fiscal Year ending December 31: | |
| |
| |
| |
2015 | |
$ | 21,499 | |
| |
| | |
2016 | |
| 20,559 | |
| |
| | |
2017 | |
| 5,294 | |
| |
| | |
| |
| 47,352 | |
| |
| | |
Less interest portion | |
| (2,502 | ) |
| |
| | |
Total | |
| 44,850 | |
| |
| | |
Less current maturities | |
| (19,800 | ) |
| |
| | |
Note payable, net of current maturities | |
$ | 25,050 | |
| |
| | |
Amounts outstanding under the loan and note above are personally
guaranteed by the CEO of the Company.
Note 7 – Related Party Transactions
Related parties
Related parties with whom the Company had transactions
are:
Related Parties |
|
Relationship |
|
|
|
Management and significant stockholders |
|
|
|
|
|
Mr. Hamid Emarlou |
|
Chairman, CEO and significant stockholder of the Company |
Advances from Significant Stockholder
From time to time, Chairman, CEO and
significant stockholders of the Company advance funds to the Company for working capital purpose. These advances are
unsecured, due upon demand and bears 5% interest per annum.
During 2014, the Company’s
CEO provided advances to the Company for working capital purposes for a total of $266,000 and the Company repaid $130,000
of these advances leaving a balance of $136,000 at December 31, 2014. The advances are due on demand and bear 5% interest
per annum. The Company incurred and paid interest of $1,470 during the year ended December 31, 2014. Accrued interest related
to these advances as of December 31, 2014 amounted to $0.
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.
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 requires 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: | |
| |
| |
| |
2015 | |
$ | 36,868 | |
| |
| | |
Total | |
$ | 36,868 | |
| |
| | |
Rent expense was $72,188 and $72,966 for the
year ended December 31, 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 filed a lawsuit with the United States District Court, Central District of California against the Company alleging patent
infringement of Storz & Bickel’s US patent no. 6,513,524, which is the US counterpart to the German patent. The US District
lawsuit seeks injunction against distribution of the Company’s VapiRise product, damages, interest, costs, treble damages,
and attorney’s fees.
Storz & Bickel has not yet served the US
District lawsuit; Storz & Bickel’s US counsel has contacted the Company to initiate settlement discussions, but it is
anticipated that Storz & Bickel will serve the US District complaint if settlement discussions are not productive.
The Company has a proposed settlement agreement
which provides for payment of $40,000 by Vapir and the transfer of its trademark for release of all claims under the lawsuits.
The $40,000 has been accrued by the Company and reflected in the Consolidated Statement of Operations for the year ended December
31, 2014.
Note 9 – Stockholders’ Equity
Shares Authorized
The authorized capital of the Company consists
of 100,000,000 shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per
share.
On December 30, 2014, Vapir entered into a
Share Exchange Agreement with the Company, all of the stockholders of Vapir, and the Company’s controlling stockholders whereby
the Company agreed to acquire all of the issued and outstanding capital stock of Vapir in exchange for 38,624,768 shares of the
Company’s common stock. On December 30, 2014, the transaction closed and Vapir is now a wholly-owned subsidiary of the Company.
This transaction was accounted for as a reverse acquisition and recapitalization of Vapir since the shareholders of Vapir obtained
approximately 80% voting control and management control of the Company.
Vapir is considered the acquirer for accounting
purposes. The Company is deemed to have issued 9,656,194 shares of common stock which represents the outstanding common shares
of the Company prior to the closing of the transaction.
Common Stock
Immediately prior to the consummation of the
Share Exchange Agreement on December 30, 2014, the Company had 9,656,194 common shares issued and outstanding.
Upon consummation of the Share Exchange Agreement
on December 30, 2014, the Company issued 38,624,768 shares of its common stock for the acquisition of 100% of the issued and outstanding
capital stock of Vapir, Inc.
Capital Contribution
The Company applied ASC 505-10-S99-3 issued
by the United States Securities and Exchange Commission (the “SEC”), by reclassifying Vapir’s S corporation undistributed
retained earnings of ($389,233) at December 31, 2014 to additional paid-in capital.
Warrants
Stock warrant activities for the year ended December 31, 2014 are
summarized as follows:
| |
Number of Warrants | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (Years) | | |
Aggregate Intrinsic Value | |
Balance at December 31, 2013 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Recapitalization on December 30, 2014 | |
| 1,263 | | |
| 1,248 | | |
| 2.11 | | |
| - | |
Issued | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised/forfeited/expired | |
| - | | |
| - | | |
| - | | |
| - | |
Balance at December 31, 2014 | |
| 1,263 | | |
| 1,248 | | |
| 2.11 | | |
| - | |
Warrants exercisable at December 31, 2014 | |
| 1,263 | | |
$ | 1,248 | | |
| 2.11 | | |
$ | - | |
Options
Stock option activities for the year ended
December 31, 2014 are summarized as follows:
| |
Number of Options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life (Years) | | |
Aggregate Intrinsic Value | |
Balance at December 31, 2013 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Recapitalization on December 30, 2014 | |
| 100 | | |
| 700 | | |
| 2.17 | | |
| - | |
Issued | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised/forfeited/expired | |
| - | | |
| - | | |
| - | | |
| - | |
Balance at December 31, 2014 | |
| 100 | | |
| 700 | | |
| 2.17 | | |
| - | |
Options exercisable at December 31, 2014 | |
| 100 | | |
$ | 700 | | |
| 2.17 | | |
$ | - | |
The weighted-average grant-date fair value
of options granted to employees/consultants during the year ended December 31, 2014 was $0. As of December 31, 2014, there were
total unrecognized compensation costs related to non-vested share-based compensation arrangements of $0.
Note 10 – Income Tax Provision
Income Tax Provision in the Consolidated
Statements of Operations
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:
| |
For
the Period from December 30 through December 31, 2014 | |
| |
| |
Federal statutory income tax rate | |
| 34.0 | % |
| |
| | |
Net operating loss carry-back | |
| (34.0 | ) |
| |
| | |
Effective income tax rate | |
| 0.0 | % |
Pro Forma Income Tax Provision in the
Consolidated Statements of Operations (Unaudited)
The Company was a Subchapter S corporation,
until December 30, 2014 during which time the Company was treated as a pass through entity for federal income tax purpose. Under
Subchapter S of the Internal Revenue Code the operating results of the S corporation prior to December 30, 2014 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,
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.
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 Predecessor:
| |
For the Reporting Period Ended December 31, 2014 | | |
For the Reporting Period Ended December 31, 2013 | |
| |
| | |
| |
Federal statutory income tax rate | |
| 34.0 | % | |
| 34.0 | % |
| |
| | | |
| | |
Net operating loss carry-back | |
| (34.0 | ) | |
| (0.0 | ) |
| |
| | | |
| | |
Effective income tax rate | |
| 0.0 | % | |
| 34.0 | % |
Note 11 – Concentration of Credit
Risk
Concentration of Revenue and Supplier
During the year ended December 31, 2014 sales
to one customer represented approximately 37% of the Company’s net sales. During the year ended December 31, 2013 sales
to two customers represented approximately 67% of the Company’s net sales. As of December 31, 2014 and 2013, the Company
had one customer representing approximately 79% of accounts receivable and one customer representing approximately 93% of accounts
receivable, respectively.
The Company purchased inventories and products
for sale from one vendor totaling approximately $620,000 and $1.3 million during the years ended December 31, 2014 and 2013, 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 was no reportable subsequent event(s) to be disclosed.
In February 2015, the Company’s CEO
provided advances to the Company for working capital purposes for a total of $30,000. The advances are due on demand and bear
5% interest.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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 herein incorporated by reference to the Current Report on Form 8-K, filed on December 30, 2014.
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
9A. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As
of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and with
the participation of senior management, including our Chief Executive Officer (“CEO”) of the effectiveness of the
design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act. Based upon that evaluation, our CEO concluded that our disclosure controls and procedures were not effective
in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports
that we file or submit under the Exchange Act due to the material weaknesses in our internal control over financial reporting.
A discussion of the material weaknesses in our internal control over financial reporting is described below.
Management’s
Annual Report on Internal Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, is a process designed by, or under
the supervision of, our CEO, or persons performing similar functions, and effected by our board of directors, management or 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. Our management, with the participation of our
CEO, has established and maintained policies and procedures designed to maintain the adequacy of our internal control over financial
reporting, and include those policies and procedures that:
|
● |
pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of our assets; |
|
|
|
|
● |
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and |
|
|
|
|
● |
provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets
that could have a material effect on the interim or annual Consolidated Financial Statements. |
Management
has used the framework set forth in the report entitled Internal Control – Integrated Framework published by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) to evaluate the effectiveness of our internal
control over financial reporting. Management was unable to implement its remediation plans during 2014 due to cost considerations.
As a result of the material weaknesses described below, management has concluded that our internal control over financial reporting
was not effective as of December 31, 2014.
Management
has determined that, as of the December 31, 2014 measurement date, there were deficiencies in both the design and the effectiveness
of our internal control over financial reporting. Management has assessed these deficiencies and determined that there were various
material weaknesses in our internal control over financial reporting. The existence of a material weakness or weaknesses is an
indication that there is a more than remote likelihood that a material misstatement of our financial statements will not be prevented
or detected in a future period.
Management
has assigned a high priority to the short-and long-term improvement of our internal control over financial reporting. We have
listed below the nature of the material weaknesses we have identified:
|
● |
inadequate
personnel for documenting and execution of processes related to accounting for transactions; |
|
|
|
|
● |
inadequate
segregation of duties due to the limited size of the accounting department; and |
|
|
|
|
● |
a
lack of experienced personnel with relevant accounting experience, due in part to our limited financial resources. |
We
intend to design and implement policies and procedures to remediate the material weaknesses in our internal control over financial
reporting in fiscal 2015, including the implementation of a new accounting system and related internal procedures, and pending
the financial resources, the hiring of a Chief Financial Officer as a full time employee.
Management
does not believe that any of our annual or interim financial statements issued to date contain a material misstatement as a result
of the aforementioned weaknesses in our internal control over financial reporting.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our internal controls over financial reporting or in other factors during the fourth fiscal quarter ended
December 31, 2014, that materially affected, or is likely to materially affect, our internal control over financial reporting.
Limitations
on Internal Controls
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect all errors or misstatements and
all fraud. Therefore, even those systems determined to be effective can provide only reasonable, not absolute, assurance that
the objectives of the policies and procedures are met. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set
forth below are our present directors and executive officers as of March 31, 2015. Note that there are no other persons who have
been nominated or chosen to become directors nor are there any other persons who have been chosen to become executive officers.
There are no arrangements or understandings between any of the directors, officers and other persons pursuant to which such person
was selected as a director or an officer. Directors are elected to serve until the next annual meeting of stockholders and until
their successors have been elected and have qualified. Officers serve at the discretion of the Board of Directors.
Name |
|
Age |
|
Position |
|
Commencement
of Service As Officer/Director |
Hamid
Emarlou(1) |
|
54 |
|
Chief
Executive Officer & President |
|
2014 |
Adam
Kotkin |
|
35 |
|
Director |
|
2009 |
Masoud
Shahidi (1) |
|
72 |
|
Director |
|
2014 |
Dr. Shadi Shayegan,
DMD(1) |
|
44 |
|
Corporate
Secretary |
|
2014 |
(1) These
individuals were directors of Vapir, Inc. prior to the consummation of the transactions contemplated by the Exchange Agreement
and became officers and director of the Company pursuant to the terms of the Exchange Agreement.
Set
forth below are brief accounts of the business experience during the past five years of each director and executive officer of
the Company.
Hamid Emarlou, age 54, CEO and
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
Dr.
Shayegan has been working with Vapir Inc. during the past five years. 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. Prior to joining Vapir Inc., from
2001 until 2002, Dr. Shayegan practiced dentistry at Great Brook Valley Health Center in Worcester, Massachusetts.
Dr.
Shayegan studied Microbiology as her undergraduate major and furthered her education at Boston University and earned her doctorate
in dentistry.
Adam
Kotkin, age 35, Director
Prior to becoming a member of the Board,
Mr. Kotkin was previously the Chief Executive Officer of Fal Exploration Inc. (f/k/a Apps Genius). He also served as the Chief
Operating Officer and Board Member of PeopleString Corporation from January 2009 to the present and Chief Operating Officer, Board
Member and Co-founder of BigString Corporation, an online messaging company, from October 2003 to November 2010. Mr. Kotkin still
remains as a board member of BigString Corporation. Past experiences include serving as the business manager for InsuranceGenie.com,
an online insurance agency, and serving as business developer and sales manager at LiveInsurance.com from March 1999 until December
2000. Mr. Kotkin graduated with distinction from New York University with a BA in Economics.
Masoud
Shahidi, 72, Director
In addition to serving on the
Board of Directors of the Company, Mr. Shahidi has served since 2005 as the owner of Emad Properties, LLC, a commercial real estate
company located in Menlo Park, California. Additionally, since April 2004, he has been a Principal at EnS Associates Investments,
LLC, a commercial real estate company, located in San Jose, California. Prior to holding these positions, Mr. Shahidi worked from
2004 until 2009 as the CEO and President of Rathbun Associates, a select 3M converter, as well as a re-seller and distributor
serving the South San Francisco Bay area and the Silicon Valley, Northern California, as well as sales world-wide. Mr. Shahidi
received his B.S. in business administration from San Jose State University.
Involvement
in Certain Legal Proceedings
To
the best of our knowledge, neither of our sole director and executive officer or our promoter and control person (as identified
under “Certain Relationships and Related Transactions”) has, during the past ten years:
|
- |
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 SEC 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. |
Except
as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or
executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates
which are required to be disclosed pursuant to the rules and regulations of the SEC.
Committees;
Audit Committee Financial Expert
Our
board does not have an Audit Committee or other committees.
Changes
in Nominating Procedures
None.
Significant
Employees
We
have no employees who are not executive officers, but who are expected to make a significant contribution to our business. We
intend in the future to hire independent contractors on an as needed basis.
Family
Relationships
None
of the directors and officers is related to any other director or officer of the Company.
ITEM
11. EXECUTIVE COMPENSATION
The
following table sets forth information concerning the total compensation paid during the years ended December 31, 2014 and 2013
for our named executive officers of Vapir.
Name and Principal Position | |
Year | |
Salary
($) | | |
Bonus
($) | | |
Stock Awards ($) | | |
Option Awards
($) | | |
Non-Equity Incentive Plan Compensation
($) | | |
All Other Compensation
($) | | |
Total
($) | |
Hamid Emarlou
President and Chief | |
2014 | |
$ | 200,400 | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 10,800 | (4) | |
$ | 211,200 | |
Executive Officer | |
2013 | |
| 150,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 10,800 | (4) | |
| 160,800 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Adam Kotkin (1)
| |
2014 | |
| 43,313 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 43,313 | |
Chief Executive Officer | |
2013 | |
| 87,000 | | |
| - | | |
| 20,000 | (2) | |
| - | | |
| - | | |
| - | | |
| 107,000 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Adam Wasserman (1)
| |
2014 | |
| 25,000 | | |
| - | | |
| 23,420 | (5) | |
| - | | |
| - | | |
| - | | |
| 48,420 | |
Chief Financial Officer | |
2013 | |
| 33,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 33,000 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Dr. Shadi Shayegan | |
2014 | |
| 48,800 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 48,800 | |
Corporate Secretary | |
2013 | |
$ | 36,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 36,000 | |
(1) |
Mr. Kotkin and Mr. Wasserman resigned as our Chief Executive Officer and Chief Financial Officer, respectively,
effective December 30, 2014. Mr. Kotkin remains on our Board of Directors following his termination. Mr. Wasserman is the owner
of CFO Oncall, Inc. |
|
|
(2) |
Represents 20,000,000 shares issued at a value of $0.001 per shares based on the sale of common stock in a private placement at $0.001 per common share. |
|
|
(3) |
Represents 667,207 aggregate shares issued at an average value of approximately $0.04 per share based on quoted trading prices of the common stock on the grant dates. |
|
|
(4) |
Mr. Emarlou was provided a car allowance in 2013 and 2014 of $900 a month covering car payments and insurance expenses. |
|
|
(5) |
In September 2014, Mr. Wasserman received a stock award of 46,840 at $0.50 per share. |
Employment
Agreement with Executives
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. Mr. Emarlou and Dr. Shayegan are employed
at will such that either the Company or Mr. Emarlou and Dr. Shayegan may terminate the employment relationship at any time, with
or without cause. Mr. Emarlou and Dr. Shayegan receive salaries and Mr. Emarlou received a car allowance in 2013.
Mr.
Kotkin and Mr. Wasserman terminated as employees of the Company effective December 30, 2014. Prior to their termination, neither
officer was party to an employment agreement nor any retirement benefits plan or termination or severance agreements or provisions.
Outstanding
Equity Awards at December 31, 2014.
There
were no outstanding equity awards held by any of our officers as of December 31, 2014.
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.
No
instruments have been granted or issued under the Plan. As a result, there are no securities that are to be issued upon the exercises
of outstanding options, warrants and rights under the Plan and the original number of shares set aside for issuance under the
Plan (5,000,000) remains available for future issuances.
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.
ITEM
12. 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 March 27, 2015 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 48,280,976 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) | |
Officers and Directors Hamid Emarlou 18188 Wagner Road, Los Gatos, CA
95032 | |
| 37,984,768 | | |
| 78.67 | % |
Shadi Shayegan 18188 Wagner Road, Los Gatos, CA 95032 | |
| 300,000 | | |
| * | |
Adam Kotkin 431 Fairway Drive, Suite 260, Deerfield Beach, FL 33441 | |
| 999,980 | | |
| 2.07 | % |
Adam Wasserman 1643 Royal Grove Way, Weston, FL 33327 | |
| 137,010 | (2) | |
| * | |
All officers/directors as a group, including a former officer (4 persons) | |
| 39,421,758 | | |
| 81.65 | % |
| |
| | | |
| | |
5 %
Shareholders Whalehaven Capital Fund Ltd. 285 Grand Ave Patriot Center, Bldg 5, 2nd Fl, Englewood, NJ 07361 | |
| 3,881,250 | | |
| 8.04 | % |
* |
Represents
less than 1% ownership. |
|
|
(1) |
Based on 48,280,976
shares of common stock outstanding. |
|
|
(2) |
CFO Oncall, Inc. owns 136,990 shares of our common stock. Mr. Wasserman owns 80% of CFO Oncall, Inc. Mr. Wasserman
also holds 20 shares of our common stock in his own name. Mr. Wasserman resigned as our Chief Financial Officer effective December
30, 2014.
|
Change
in Control
There
are no present arrangements known to the Company, including any pledge by any person of the Company’s securities, the operation
of which may at a subsequent date result in a change in control of the Company.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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. |
Related
Party Transactions
From
time to time, the Company’s CEO of the Company, provides advances to the Company for working capital purposes. During 2014,
the Company’s CEO provided advances to the Company for working capital purposes for a total of $266,000 and repaid $130,000
of these advances leaving a balance of $136,000 at December 31, 2014. The advances were due on demand and each loan bears interest
at 5% per annum.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees
Aggregate
fees for professional services rendered to us by our independent registered public accounting firm engaged to provide accounting
services for the years ended December 31, 2014 and 2013 were:
| |
Year Ended December 31,
2014 | | |
Year Ended December 31, 2013 | |
Audit fees | |
$ | 25,000 | | |
$ | 25,000 | |
Audit related fees | |
| 0 | | |
| 0 | |
Tax fees | |
| 0 | | |
| 0 | |
All other fees | |
| 0 | | |
| 0 | |
Total | |
$ | 25,000 | | |
$ | 25,000 | |
Policy
on Pre-Approval of Audit and Permissible Non-audit Services of Independent Auditors
Consistent
with the SEC policies regarding auditor independence, our Board of Directors has responsibility for appointing, setting compensation
and overseeing the work of the independent auditor. In recognition of this responsibility, our Board of Directors has established
a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor.
Prior
to engagement of the independent auditor for the next year’s audit, management will submit an aggregate of services expected
to be rendered during that year for each of the following four categories of services to the Board of Directors for approval.
1.
Audit services include audit work performed in the preparation of year-end financial statements, as well as work
that generally only the independent auditor can reasonably be expected to provide, including comfort letters, statutory audits,
and attest services, assistance reviewing our quarterly financial statements and SEC filings, and consultation regarding financial
accounting and/or reporting standards.
2.
Audit-Related services are for assurance and related services that are traditionally performed by the independent
auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required
to meet certain regulatory requirements.
3.
Tax services include all services performed by the independent auditor’s tax personnel except those services
specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning,
and tax advice.
4.
Other Fees are those associated with services not captured in the other categories.
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this Annual Report on Form 10-K.
Exh. No. |
|
Exhibit Description |
2.1 |
|
Share Exchange Agreement, dated December 30, 20141 |
3.1 |
|
Articles of Incorporation, dated December 19, 20091 |
3.11 |
|
Certificate of Amendment, dated July 9, 20131 |
3.12 |
|
Certificate of Amendment, dated September 17, 20141 |
3.2 |
|
By-laws1 |
10.1 |
|
Securities Purchase Agreement by and between FAL Minerals LLC and FAL Exploration Corp, dated as of October 7, 20131 |
10.2 |
|
Membership Interest Purchase Agreement by and between FAL Minerals, LLC and David Lubin & Associates, PLLC, dated October 9, 20131 |
10.3 |
|
Real Estate Purchase and Sale Agreement by and between Alpha Capital Anstalt, Adventures Ventures LLC, Whalehaven Capital Fund, LTD, DPIT 5 LLC and OJA LLC and FAL Exploration Corp., dated as of November 13, 20131 |
10.4 |
|
Short Term Loan Contract between Vapir Enterprise Inc. and Hamid Emarlou1 |
10.5 |
|
Termination Agreement by and between Alpha Capital Anstalt, Adventures Ventures LLC, Whalehaven Capital Fund, LTD, DPIT 5 LLC and OJA LLC and Vapir Enterprises Inc. f/k/a FAL Exploration Corp., dated as of December 30, 20141 |
31.1 |
|
Section 302 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer |
32.1 |
|
Section 906 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer |
101.INS* |
|
XBRL Instance Document |
101.SCH* |
|
XBRL Taxonomy Extension Schema |
101.CAL* |
|
XBRL Taxonomy Extension Calculation Linkbase |
101.DEF* |
|
XBRL Taxonomy Extension Definition Linkbase |
101.LAB * |
|
XBRL Taxonomy Extension Presentation Linkbase |
101.PRE* |
|
XBRL Taxonomy Extension Presentation Linkbase |
*In
accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this report shall be deemed “furnished”
and not “filed.”
1Filed
in the Current Report on Form 8-K, dated March 31, 2015.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
Vapir
Enterprises, Inc. |
|
|
Date: March 31,
2015 |
By: |
/s/
Hamid Emarlou |
|
|
Hamid Emarlou |
|
|
Chief Executive
Officer (Principal Executive Officer) |
26
Exhibit
31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
I, Hamid
Emarlou, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Vapir Enterprises, Inc.;
2.
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 31,
2015 |
By: |
/s/
Hamid Emarlou |
|
|
Hamid
Emarlou
Chief
Executive Officer (Principal Executive Officer and
Principal Financial Officer) |
EXHIBIT
32.1
Certification
of Principal Executive Officer
Pursuant
to U.S.C. Section 1350
As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant
to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States
Code), the undersigned officer of Vapir Enterprises, Inc. a Nevada corporation (the “Company”), does hereby certify,
to such officer’s knowledge, that:
The
Annual Report on Form 10-K for the period ending December 31, 2014 of the Company (the “Form 10-K”) fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form
10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 31,
2015 |
By: |
/s/
Hamid Emarlou |
|
|
Hamid
Emarlou
Chief
Executive Officer (Principal Executive Officer and
Principal Financial Officer) |