Vapir Enterprises,
Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated
Financial Statements
Note 1 - Organization and Operations
Vapir Enterprises, Inc.
Vapir Enterprises Inc. (“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. Vapir, Inc. (“Vapir”)
is a wholly owned subsidiary of the Company and was incorporated in the State of California in October 2006.
Note 2 - Significant and Critical Accounting
Policies and Practices
Basis of Presentation
The accompanying interim unaudited condensed
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information,
which includes condensed consolidated financial statements and present the consolidated financial statements of the Company and
its wholly-owned subsidiary as of September 30, 2017. All intercompany transactions and balances have been eliminated. Accordingly,
the condensed consolidated financial statements do not include all the information and notes necessary for a comprehensive presentation
of financial position and results of operations and should be read in conjunction with the Annual Report, Form 10-K for the year
ended December 31, 2016. It is management’s opinion that all material adjustments (consisting of normal recurring
adjustments) have been made, which are necessary for a fair financial statement presentation. Significant intercompany accounts
and transactions have been eliminated in consolidation. The results for the interim period are not necessarily indicative of the
results to be expected for the year ending December 31, 2017.
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, disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. In preparing the unaudited condensed consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated
balance sheet, and revenues and expenses for the period then ended. Actual results may differ significantly from those estimates.
Significant estimates made by management include, but are not limited to allowance for doubtful accounts, inventory obsolescence
and markdowns, the useful life of property and equipment, the valuation of deferred tax assets and liabilities, valuation of intangible
assets, the assumptions used to calculate fair value of stock options and warrants granted, stock-based compensation and the fair
value of common stock issued.
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 September 30, 2017, 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
The Company has a policy of providing on
allowance for doubtful accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The
Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past
due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed
to be uncollectible are charged to bad debt expense and included in the allowance after all means of collection have been exhausted
and the potential for recovery is considered remote. As of September 30, 2017, the Company has included $1,172 in the allowance
for doubtful accounts.
Vapir Enterprises, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated
Financial Statements
Note 2 - Significant and Critical Accounting Policies and
Practices (continued)
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. As of September 30, 2017 and December 31, 2016, the Company had recorded a reserve
for slow-moving inventory of $0 and $39,734, respectively.
Inventory Obsolescence and Markdowns
The Company evaluates its current level
of inventory considering historical sales and other factors and, based on this evaluation, classifies inventory markdowns in the
income statement as a component of cost of goods sold pursuant to ASC 420 – “Exit or Disposal Cost Obligations”,
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 nine months ended September 30, 2017 or 2016. There was no
lower of cost or market adjustments for the nine months ended September 30, 2017 or 2016.
Advances to suppliers
Advances to a supplier represents the cash
paid in advance which is usually in three installment payments for the purchase of inventory. The advances to a supplier are interest
free and unsecured. As of September 30, 2017 and 2016, advances to the Company’s major supplier amounted to $45,209 and $103,274,
respectively. Upon shipment of the purchase inventory, the Company reclassifies or records such advances to the supplier into inventory.
Property and Equipment
Property and equipment are carried at cost
less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives
of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When
assets are retired, or disposed of, the cost and accumulated depreciation are removed, and any resulting gains or losses are included
in the consolidated statement of operations.
Revenue recognition
The Company follows ASC 605 – “Revenue
Recognition” in accounting for revenue related transactions. 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.
Consideration paid to promote and sell
the Company’s products to customers is typically recorded as marketing costs incurred by the Company. If the amount of consideration
paid to customers exceeds the marketing costs, any excess is recorded as a reduction of revenue. The Company follows the requirements
of ASC 605-50-45-2, Revenue Recognition—Customer Payments and Incentives.
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 ASC 605. While amounts charged
to customers for shipping products are included in revenues, the related costs are classified in cost of goods sold as incurred.
Shipping costs included in cost of goods sold were $61,621 and $89,074 for the nine months ended September 30, 2017 and 2016, respectively.
Vapir Enterprises, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated
Financial Statements
Note 2 - Significant and Critical Accounting
Policies and Practices (continued)
Advertising Costs
The Company applies ASC 720 “Other
Expenses” to account for advertising related costs. Pursuant to ASC 720-35-25-1, the Company expenses the advertising costs
when the first time the advertising takes place. Advertising costs were $5,437 and $9,876 for the nine months ended September 30,
2017 and 2016, respectively.
The amounts paid to customers for marketing
expenses incurred on behalf of the Company are recorded as marketing cost and not as a reduction of revenue in accordance with
ASC 605-50-45-2, Revenue Recognition—Customer Payments and Incentives. For the nine months ended September 30, 2017, the
Company did not pay customers for marketing expenses. During the nine months ended September 30, 2016, the Company recorded expenses
in the amount of $30,000.
Income Taxes
The Company discloses tax years that remain
subject to examination by major tax jurisdictions pursuant to the ASC Paragraph 740. The federal and state income tax returns of
the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
The Company’s 2016, 2015 and 2014 tax years are still subject to federal and state tax examination.
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 ASC 260 – “Earnings per Share”. Pursuant to ASC 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 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 ASC 260-10-45-35
through 45-36 and ASC 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 ASC 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 ASC 260-10-45-29 and AS 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. Pursuant to ASC 260-10-45-40 through 45-42 convertible securities shall be reflected
in diluted EPS by application of if converted method. The convertible preferred stock or convertible debt shall be assumed to have
been converted at the beginning of the period (or at time of issuance, if later). In applying the if-converted method, conversion
shall not be assumed for purposes of computing diluted EPS if the effect would be anti-dilutive. The Company’s contingent
shares issuance arrangement, stock options or warrants are as follows which were excluded from the computation of loss per share
because their impact was antidilutive:
|
|
For the
Nine Months
Ended
September 30,
2017
|
|
|
For the
Nine Months
Ended
September 30,
2016
|
|
Stock Options
|
|
|
1,940,000
|
|
|
|
2,440,100
|
|
Convertible Debt
|
|
|
5,749,768
|
|
|
|
5,449,768
|
|
Stock Warrants
|
|
|
500,000
|
|
|
|
500,000
|
|
Total contingent shares issuance arrangement, convertible debt, stock options or warrants
|
|
|
8,189,768
|
|
|
|
8,389,868
|
|
Vapir Enterprises, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated
Financial Statements
Note 2 - Significant and Critical Accounting
Policies and Practices (continued)
Recently Issued Accounting Pronouncements
In July 2017, the FASB issued the FASB
Accounting Standards Update No. 2017-11 “Derivatives and Hedging (Topic 815)” (“ASU 2017-09”)
The guidance addresses the complexity of
accounting for certain financial instruments with down round features on equity-linked instruments (or embedded features) that
result in a strike price being reduced on the basis of the pricing of future equity offerings. As a result of this amendment, a
freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative
liability at fair value as a result of the existence of a down round feature. For public business entities, the amendment is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted his pronouncement
as of Q3 of fiscal 2017.
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. For
a public entity, this amendment is effective for annual reporting periods beginning after December 15, 2016, including interim
periods within that reporting period. The Company has assessed the impact of this pronouncement and will continue to evaluate new
transactions. The Company has not identified any transactions, and does not expect transactions, that will have a material impact
on the financial statements as a result of this pronouncement.
Note 3 - Going Concern
The Company’s condensed 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 condensed consolidated financial statements, the Company has an accumulated
deficit of approximately $3.37 million at September 30, 2017, a net loss of approximately $288,000 and net cash used in operating
activities of approximately $67,000 for the nine months ended September 30, 2017. 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
|
|
As of
September 30,
2017
(Unaudited)
|
|
|
As of
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
Auto
|
|
3 years
|
|
$
|
12,522
|
|
|
$
|
12,522
|
|
Furniture and fixtures
|
|
5 years
|
|
|
23,743
|
|
|
|
23,743
|
|
Tooling equipment
|
|
4 years
|
|
|
100,510
|
|
|
|
100,510
|
|
Leasehold improvements
|
|
5 years
|
|
|
35,206
|
|
|
|
35,206
|
|
Less: Accumulated depreciation
|
|
|
|
|
(126,961
|
)
|
|
|
(107,419
|
)
|
|
|
|
|
$
|
45,020
|
|
|
$
|
64,562
|
|
Depreciation expense amounted to $19,542
and $19,608 for the nine months ended September 30, 2017 and 2016, respectively.
The Company completes its annual impairment
testing of property and equipment every fourth quarter of the fiscal year to evaluate the recoverability of property and equipment
or whenever events or changes in circumstances indicate that the property and equipment’s carrying amount may not be recoverable.
The Company did not record any impairment of its property and equipment at September 30, 2017 and December 31, 2016, respectively.
Vapir Enterprises, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated
Financial Statements
Note 5 - Intangible Assets
Intangible assets consist of the following:
|
|
As of
September 30,
2017
(Unaudited)
|
|
|
As of
December 31,
2016
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
1,001,212
|
|
|
$
|
1,001,212
|
|
Trademarks
|
|
|
6,910
|
|
|
|
6,430
|
|
|
|
|
1,008,122
|
|
|
|
1,007,642
|
|
Accumulated amortization
|
|
|
(855,589
|
)
|
|
|
(826,646
|
)
|
Intangible assets, net
|
|
$
|
152,533
|
|
|
$
|
181,574
|
|
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 trademarks are being capitalized. The Company filed trademarks for its company logos with an estimated useful life of
15 years. The Company is amortizing the costs of trademarks over their estimated useful lives on a straight-line basis. Amortization
of trademarks is included in operating expenses as reflected in the accompanying condensed consolidated statements of operations.
The Company assesses fair value for any impairment to the carrying values. The Company did not record any impairment of its intangible
assets at September 30, 2017 and 2016, respectively.
Amortization expense was $19,201 and $33,588 for the nine months ended September 30, 2017 and 2016, respectively.
Future amortization of intangible assets is as follows:
2017 (remainder of the year)
|
|
$
|
9,840
|
|
2018
|
|
|
39,361
|
|
2019
|
|
|
39,361
|
|
2020
|
|
|
39,361
|
|
2021 and thereafter
|
|
|
24,611
|
|
Total
|
|
$
|
152,533
|
|
Note 6 - Loan and Notes Payable
|
|
As of
September 30,
2017
(Unaudited)
|
|
|
As of
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company obtained a business loan in May 2011 from a financial institution with a credit line up to $200,000 and secured by all assets of the Company. This loan bears a variable interest based on changes in the Bank of the West Prime Rate and is due on demand. As of September 30, 2017, the variable interest rate was 4.75%.
|
|
$
|
197,000
|
|
|
$
|
197,000
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a 4.75% Promissory note of $100,000 issued with the same financial institution on May 10, 2011 payable over 60 consecutive monthly installments with monthly principal payment of $1,650 and interest starting in June 2012. Amounts outstanding under this loan and note are personally guaranteed by the CEO of the Company and are due in full by on April 23, 2017. This note has been repaid accordingly.
|
|
|
-
|
|
|
|
5,250
|
|
Unsecured Promissory note of $50,000 bearing interest of 5.28%, issued in February 2016 payable over 36 consecutive monthly installments of $1,506 starting in March 2016 and is due on March 9, 2019.
|
|
|
24,588
|
|
|
|
36,882
|
|
|
|
|
|
|
|
|
|
|
Less: Current maturities
|
|
|
(17,158
|
)
|
|
|
(21,722
|
)
|
Note payable, net of current maturities
|
|
$
|
7,430
|
|
|
$
|
20,410
|
|
Vapir Enterprises, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated
Financial Statements
Note 6 - Loan and Notes Payable (continued)
Future minimum Loan and Notes Payable principal
payments are as follows:
2017 (Remainder of Year)
|
|
$
|
4,202
|
|
2018
|
|
|
15,907
|
|
2019
|
|
|
4,487
|
|
Total Remaining Payments
|
|
$
|
24,588
|
|
Convertible Notes payable
On April 3, 2015, the Company closed a
financing transaction by entering into a Securities Purchase Agreement with two accredited investors for an aggregate subscription
amount of $500,000. Pursuant to the Securities Purchase Agreement, the Company issued 6% Convertible Debentures and warrants to
acquire 500,000 shares of the Company’s common stock at an exercise price of $0.10 per share.
The terms of the Debenture and the Warrants
are as follows:
6% Convertible Debenture
The total principal amount of the Debenture
is $500,000. The Debenture accrues interest at 6% per annum and matured on October 3, 2016. The Debenture is convertible any time
after its issuance date. The Purchaser has the right to convert the Debenture into shares of the Company’s common stock at
$0.10 per share. The conversion price, however, is subject to full ratchet anti-dilution in the event that the Company issues any
securities at a per share price lower than the conversion price then in effect. The Company paid financing costs of $22,500 in
connection with this Debenture which was initially recorded as prepaid financing cost and was amortized over the term of the Debenture.
The note was initially issued on April 3, 2015 at a discount of $500,000. The unpaid principal balance due as of December 31, 2016
and September 30, 2017 was $500,000.
Debt discount was fully amortized during
the year ended December 31, 2016.
On March 23, 2017, the Company completed
the extension of its $500,000 6% Senior Convertible Debenture. The Company and the investors held on-going discussions prior to
and post maturity to extend the original agreement. As a result of the extension, the new maturity date is amended to July 26,
2018. Accordingly, the outstanding Convertible Debenture was classified as a Long-term Liability.
Warrants
In April 2015, the Company issued warrants
to acquire 500,000 shares of the Company’s common stock. The Warrants issued in this transaction are immediately exercisable
at an exercise price of $0.10 per share, subject to applicable adjustments including full ratchet anti-dilution in the event that
the Company issue any securities at a per share price lower than the exercise price then in effect. The Warrants have an expiration
period of five years from the date of the original issuance.
Note 7 - Related Party Transactions
Advances from Executive Officer,
Significant Stockholder
From time to time, the Company’s
Chairman, CEO and significant stockholder advances funds to the Company for working capital purposes. These advances are unsecured,
due upon demand and bear interest at 5% per annum.
At September 30, 2017 and December 31,
2016, these advances amounted to $878,756 and $831,084, respectively. Included in the advances are accrued interest due to the
Company’s CEO totaling $66,824 and $37,583, at September 30, 2017 and December 31, 2016, respectively.
Vapir Enterprises, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated
Financial Statements
Note 8 - Derivative Liabilities
The
Company applies the provisions of ASC Topic 815-40, Contracts in Entity’s Own Equity, under which convertible instruments
and warrants, which contain terms that protect holders from declines in the stock price (reset provisions), may not be exempt
from derivative accounting treatment. As a result, warrants and embedded conversion options are recorded as a liability and are
revalued at fair value at each reporting date. The Company has 501,263 warrants with repricing options and $5,525,385 of convertible
debt qualifying for derivative accounting at December 31, 2016. The Company calculates the estimated fair values of the liabilities
for warrant and embedded conversion option derivative instruments at each quarter-end using the Black Scholes Model.
In
July 2017, the FASB issued Accounting Standards Update No. 2017-11 Earnings Per Share (Topic 260) Distinguishing Liabilities from
Equity (Topic 480) Derivatives and Hedging (Topic 815) (“ASU 2017-11”), which changes the classification analysis
of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain
financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity
classification when assessing whether the instrument is indexed to an entity’s own stock. ASU 2017-11 also clarifies existing
disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or
embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence
of a down round feature. For freestanding equity classified financial instruments, ASU 2017-11 requires entities that present
earnings per share (EPS) in accordance with ASC Topic 260 to recognize the effect of the down round feature when it is triggered.
That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. For the
Company, ASU 2017-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts ASU 2017-11 in an interim
period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period in either
of the following ways:1. Retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect
adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which
ASU 2017-11 is effective or 2. Retrospectively to outstanding financial instruments with a down round feature for each prior reporting
period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10. The Company
has elected to adopt ASU 2017-11 during the three months ended September 30, 2017 by applying ASU 2017-11 retrospectively to outstanding
financial instruments with a down round feature by means of a cumulative-effect adjustment to the Company’s beginning accumulated
deficit as of January 1, 2017 as follows:
|
|
As Reported
|
|
|
Cumulative Effect Adjustment
|
|
|
Adjusted
|
|
Derivative Liabilities
|
|
$
|
305,913
|
|
|
$
|
(305,913
|
)
|
|
$
|
—
|
|
Current Liabilities
|
|
$
|
1,661,799
|
|
|
$
|
(305,913
|
)
|
|
$
|
1,355,886
|
|
Total Liabilities
|
|
$
|
2,182,209
|
|
|
$
|
(305,913
|
)
|
|
$
|
1,876,296
|
|
Accumulated Deficit
|
|
$
|
(2,501,666
|
)
|
|
$
|
(870,490
|
)
|
|
$
|
(3,372,156
|
)
|
If
the comparative prior period financial statements were prepared using the newly adopted standard, the derivative liabilities would
be zero and the change in fair value of derivative instruments would be zero. The following is a roll forward for the nine months
ended September 30, 2017 of the fair value liability of price adjustable derivative instruments:
|
|
Fair Value of
|
|
|
|
Liability for
|
|
|
|
Warrant and
Embedded
Conversion
Option
|
|
|
|
Derivative
|
|
|
|
Instruments
|
|
Balance at December 31, 2016
|
|
$
|
305,913
|
|
Cumulative effect adjustment (See Note 2)
|
|
|
(305,913
|
)
|
Balance at September 30, 2017
|
|
$
|
—
|
|
Vapir Enterprises, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated
Financial Statements
Note 9 - Commitments and Contingencies
Operating lease
In June 2014, a lease agreement was signed
for an office and warehousing space consisting of approximately 5,000 square feet located in San Jose, California with a term commencing
in June 2014 and expiring in October 2015. In August 2015, the Company entered into an amendment agreement to extend the term of
the lease which will expire on December 31, 2018. Pursuant to the amended agreement, the lease requires the Company to pay a monthly
base rent of $5,050 plus a pro rata share of operating expenses beginning November 1, 2015. The base rent is subject to an annual
increase beginning in November 2016 as defined in the amended lease agreement. This lease agreement is personally guaranteed by
the President of the Company.
Effective September 15, 2016, the Company
entered into a one year lease of space consisting of approximately 1,819 square feet located in San Jose, California, with the
term expiring in September 14, 2017. The base rent for the new agreement is $1,819 per month. As a result, the Company entered
into a sublease agreement (“Sub Lessee”) to sublease the previous office and warehousing space in San Jose, California
with a term commencing on September 1, 2016 and expiring October 31, 2017. The sublease agreement requires the sub lessee to pay
to the Company a base rent of $5,050 plus pro rata share of operating expenses beginning September 1, 2016. The base rent increased
beginning in November 2016 as defined in the amended lease agreement, to $5,202.
Future minimum rental payments required
under this operating lease are as follows:
Years ending December 31:
|
|
|
|
|
|
|
|
2017
|
|
$
|
15,908
|
|
2018
|
|
|
64,236
|
|
Total
|
|
$
|
80,144
|
|
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.
Note 10 - Stockholders’ Deficit
Shares Authorized
The authorized capital of the Company consists
of 300,000,000 shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per
share.
Vapir Enterprises, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated
Financial Statements
Note 10 - Stockholders’ Deficit (continued)
Warrants
In April 2015, the Company issued a 6%
Convertible Debenture (the “Debenture”) and warrants exercisable into 500,000 shares of common stock at an exercise
price of $0.60 per share which was adjusted down to $0.10 as a result of the Company’s issuance of options with an exercise
price of $0.10 in January 2016 (the “Warrants”). Refer to debt footnote for additional detail. Additionally, during
the Nine months ended September 30, 2017, a total of 1,243 warrants expired. Stock warrant activities for the Nine months ended
September 30, 2017 are summarized as follows:
|
|
Number of Warrants
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual Life
(Years)
|
|
|
Aggregate Intrinsic
Value
|
|
Balance at December 31, 2016
|
|
|
501,243
|
|
|
|
3.73
|
|
|
|
3.25
|
|
|
|
-
|
|
Expired
|
|
|
(1,243
|
)
|
|
|
1,264
|
|
|
|
-
|
|
|
|
-
|
|
Balance at September 30, 2017
|
|
|
500,000
|
|
|
|
.10
|
|
|
|
2.51
|
|
|
|
-
|
|
Warrants exercisable at September 30, 2017
|
|
|
500,000
|
|
|
$
|
.10
|
|
|
|
2.51
|
|
|
$
|
-
|
|
Options
During the Nine months ended September
30, 2017, 100 stock options expired. Stock option activities for the Nine months ended September 30, 2017 are summarized as follows:
|
|
Number of Options
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual Life
(Years)
|
|
|
Aggregate Intrinsic
Value
|
|
Balance at December 31, 2016
|
|
|
1,940,100
|
|
|
|
.14
|
|
|
|
4.04
|
|
|
|
-
|
|
Expired
|
|
|
(100
|
)
|
|
|
700
|
|
|
|
|
|
|
|
-
|
|
Balance at September 30, 2017
|
|
|
1,940,000
|
|
|
|
.10
|
|
|
|
3.29
|
|
|
|
-
|
|
Options exercisable at September 30, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
As of the balance sheet date, total compensation
cost related to unvested stock options not yet recognized equaled $130,456 and is expected to be recognized over a weighted-average
period of 3.25 years.
Note 11 - Concentration of Credit Risk
Concentration of Revenue and Supplier
During the nine months ended September 30, 2017, sales to two customers represented approximately 35%
of the Company’s net sales relative to 38% during the nine months ended September 30, 2016.
As of September 30, 2017, and December
31, 2016, the Company had two customers representing approximately 29% of accounts receivable and one customer representing approximately
29% of accounts receivable, respectively.
Additionally, we use electronic contract
manufacturers (EMS) to make our products (primarily located in China). We specify the requirements and specification and the products
are built based on the Specification and Design. We have been able to extend our credit with our suppliers but there are always
risk that suppliers reduce their credit limit or terms of credit.