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EX-31.1 - CERTIFICATION - VAPIR ENTERPRISES INC.f10k2015ex31i_vapirenter.htm
EX-32.1 - CERTIFICATION - VAPIR ENTERPRISES INC.f10k2015ex32i_vapirenter.htm

 

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, 2015

or 

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-185083 

VAPIR ENTERPRISES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada   27-1517938
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

2365 Paragon Dr., Suite B

San Jose, California 95131
Telephone: (800) 841-1022

(Address and telephone number of Registrant’s principal executive offices)  

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, 2015, was $3,281,938.  

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 18, 2016, the Company had 49,766,833 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, 2015 and 2014

 

TABLE OF CONTENTS

 

PART I 3
   
ITEM 1. BUSINESS 3
ITEM 1A. RISK FACTORS 8
ITEM 2. PROPERTIES 8
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. MINE SAFETY DISCLOSURE 9
   
PART II 10
   
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUTY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 10
ITEM 6. SELECTED FINANCIAL DATA 10
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 16
ITEM 9A. CONTROLS AND PROCEDURES 16
ITEM 9B. OTHER INFORMATION 17
   
PART III 18
   
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 18
ITEM 11. EXECUTIVE COMPENSATION 20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 22
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 23
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 24
SIGNATURES 25

 

2

 

 

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 designed in San Jose, California and manufactured 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

 

“Vaporizers” are battery-powered products that enable users to inhale vapor without smoke,  Vaporizers are not like traditional cigarettes, and their construction is comprised of three functional components:

●      Digital temperature control, means you have the ability to choose the warmth of your vaporizer’s heating element. The heating element that vaporizes liquid and/or botanicals so that it can be inhaled;

●      vaporizers either heat the liquid or botanicals with direct contact with a heating element (conduction) or by exposing the herb to hot air (convection); and

●      Vaporizers require energy when hot. Depending on the intention behind the vaporizer’s design - the energy source will match the portable or stationary model paradigm.

 

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Our Products

 

Vaporizers

 

As of December 31, 2015, we offer 4 vaporizers, the Prima, VapirRise 2.0 ultimate, VAPIR NO2 Portable Digital Vaporizer and VAPIR Oxygen Mini Corded Vaporizer.

 

Prima

 

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Prima is a digital vaporizer that supports extracts and botanicals.  The unit is equipped with a removable/rechargeable lithium battery, a removable stainless steel vapor path and removable mouth piece which allows for easy cleaning, and four (4) pre-set temperatures which maintains 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.

 

●  Prima measures in at just 4.7 inches, and weighs 5.7 oz, and comes in four (4) different colors (Blue, Black, Silver, and Orange).

 

VapirRise 2.0 Ultimate

 

 

The VapirRise 2.0 Ultimate 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.

 

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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.

 

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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 to the vaporizers, we sell approximately 100 different accessories and spare parts that ranges from replacement batteries, replacement mouthpieces, recharging pieces, and all other essential accessories and spare parts.

 

Additionally, we offer an assortment of our own aromatherapy essential 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 website and third party 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 smoke shops, vape stores, and online retailersthroughout 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.

 

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 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 and design 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 by attending trade shows and word of mouth.

 

6

 

 

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:

 

  the levying of substantial and increasing tax and duty charges;
     
  restrictions or bans on advertising, marketing and sponsorship;
     
  the display of larger health warnings, graphic health warnings and other labeling requirements;
     
  restrictions on packaging design, including the use of colors and generic packaging;
     
  restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans   on cigarette vending machines;
     
  requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels;
     
  requirements regarding testing, disclosure and use of tobacco product ingredients;
     
  increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors;
     
  elimination of duty free allowances for travelers; and
     
  encouraging litigation against tobacco companies.

 

If electronic cigarettes or vaporizers are subject to one or more significant regulatory initiatives, our business, results of operations and financial condition could be materially and adversely affected.

 

Intellectual Property

 

Patents

 

We currently own four 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.

 

US Patent # 9,155,848 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 October 13, 2035.

 

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.

 

7

 

 

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: Digital Air®, Nicohale®, and Vapir®.

 

Employees

 

As of December 31, 2015, we have eight (8) full-time and one (1) part-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.

 

8

 

 

This is our only location. We have a lease for the property that commenced on November 1, 2015 and has a term of thirty eight (38) months. We currently pay $6,300 a month for the leased premises. The lease is for 5,050 square feet of office space.

 

Our devices are manufactured in Guang Dong, China. We do not have a written manufacturing contract with our manufacturer. 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.

 

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not applicable.

 

9

 

 

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”. There were no trades our stock prior to April 6, 2015. The table below sets forth the high and low closing price per share of our common stock for each quarter since April 6, 2015. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

 

Fiscal Quarter Ended  High   Low 
June 30, 2015  $4.05   $0.18 
September 30, 2015  $0.26   $0.16 
December 31, 2015  $0.35   $0.05 

 

Holders

 

As of March 31, 2016, there were approximately 74 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

 

There have been no unregistered sales of equity securities for the period covered under this report that have not been previously disclosed in a prior filing.

 

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

 

Vapir Enterprises, Inc. was originally incorporated under the laws of the State of Nevada on December 17, 2009 under the name Apps Genius Corp. Our original business was to develop, market, publish and distribute social games and software applications that consumers could use on a variety of platforms, including social networks, wireless devices and stand-alone websites. We were unsuccessful in operating our business and on October 7, 2013 we entered into a Membership Interest Purchase Agreement with FAL Minerals LLC and we changed our name to FAL Exploration Corp. The agreement with FAL Minerals LLC has since been terminated and we have now entered into the Exchange Agreement with Vapir, Inc. and its shareholders. In addition, we changed our name to Vapir Enterprises, Inc. to better represent our new business operations. 

 

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On December 30, 2014, Vapir, Inc., a private California corporation (“Vapir”), which is the historical business, entered into a Share Exchange Agreement with the Company, all of the stockholders of Vapir (the “Vapir Shareholders”), and the Company’s controlling stockholders whereby the Company agreed to acquire all of the issued and outstanding capital stock of Vapir in exchange for 38,624,768 shares of the Company’s common stock. On December 30, 2014, the transaction closed and Vapir is now a wholly-owned subsidiary of the Company. The number of shares issued represented approximately 80.0% of the issued and outstanding common stock immediately after the consummation of the Share Exchange Agreement. In addition, Vapir’s board of directors and management obtained the board and management control of the combined entity stock immediately after the consummation of the Share Exchange Agreement.  

 

Vapir, Inc., our subsidiary, was incorporated on October 26, 2006 in the State of California. 

 

Vapir, Inc. specializes in creating revolutionary digital aromatherapy device or Vaporizer which extracts the essential elements of plant material through our proprietary process by utilizing heat and convection air.  

 

On April 3, 2015, we closed a financing transaction by entering into a Securities Purchase Agreement dated April 3, 2015 (the “Securities Purchase Agreement”) with certain accredited investors (the “Purchasers”) for an aggregate subscription amount of $500,000 (the “Purchase Price”). Pursuant to the Securities Purchase Agreement, we issued a 6% Convertible Debenture (the “Debenture”) and warrants exercisable into 500,000 shares of common stock at an exercise price of $0.60 per share (the “Warrants”). 

 

The Debenture accrues interest at a rate equal to 6% per annum and the Debenture has a maturity date of October 3, 2016. The Debenture is convertible any time after its issuance date. The Purchaser has the right to convert the Debenture into shares of the Company’s common stock at a conversion price equal to $0.50. The conversion price, however, is subject to full ratchet anti-dilution in the event that Company issue any securities at a price lower than the conversion price then in effect. 

 

Pursuant to the Securities Purchase Agreement, the Company issued warrants to acquire 500,000 shares of our common stock. The Warrants issued in this transaction are immediately exercisable at an exercise price of $0.60 per share, subject to applicable adjustments including full ratchet anti-dilution in the event that the Company issue any securities at a price lower than the exercise price then in effect. The Warrants have an expiration period of five years from the original issue date.

 

 

Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014

 

   For the Year Ended 
   December 31, 2015   December 31, 2014 
         
         
Net Sales  $2,157,929   $1,646,947 
           
Cost of sales   1,199,461    710,423 
           
Gross profit   958,468    936,524 
           
OPERATING EXPENSES:          
Selling expenses   144,306    72,217 
           
Compensation   643,782    655,126 
           
Research and development   330,913    81,521 
           
General and administrative   337,538    493,972 
           
Total Operating Expenses   1,456,539    1,302,836 
           
LOSS FROM OPERATIONS   (498,071)   (366,312)
           
OTHER INCOME (EXPENSE):          
    Derivative expense   (188,378)   - 
    Change in fair value of derivative liabilities   485,725    - 
Settlement of potential litigation   -    (40,000)
Interest expense, net   (314,082)   (17,612)
           
Other Expense, net   (16,735)   (57,612)
           
NET LOSS  $(514,806)  $(423,924)

 

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Net Sales

 

Net sales for the years ended December 31, 2015 and 2014 were $2,157,929 and $1,646,947 respectively, an increase of $510,982 or approximately 31%. The increase in sales during the year ended December 31, 2015 was primarily attributable to an increase in sales of vaporizers product of approximately $644,000 offset by the decrease in sales of our accessories product of $189,000. Additionally, revenues from product shipping to our customers increased by approximately $36,000 during the year ended December 31, 2015. We expect our revenues to increase during fiscal 2016 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, 2015 and 2014 were $1,199,461 and $710,423, respectively, an increase of $489,038 or approximately 69%. Cost of goods sold increase during the year ended December 31, 2015 is primarily due to the increase in sales of our vaporizers products which carries higher cost than our product accessories. 

 

Operating Expenses

 

Total operating expenses for the year ended December 31, 2015 and 2014 were $1,456,539 and $1,302,836, respectively, an increase of $153,703 or approximately 12%. The increase in operating expenses during the year ended December 31, 2015 is primarily due to an increase in marketing and advertising fees of our vaporizer products of approximately $72,000, increase in legal fees primarily for a patent litigation that the Company was involved in and for our SEC filings of approximately $19,000, increase stock based consulting fees related to investor relation service agreement of $62,500, increase accounting fees for our SEC filings of approximately $70,000 offset by a decrease in research and development expense of approximately $73,000. 

 

Other Expense, net

 

Total other expense, net for the year ended December 31, 2015 and 2014 were $16,735 and $57,612, respectively, a decrease of $40,877 or approximately 71%. The decrease in other expenses is the result of the recognition of the gain resulting from the decrease in fair value of derivative liabilities offset by the increase in derivative expense and interest expense from related party advances and convertible debentures and also includes amortization of debt discount and deferred financing cost in connection with the issuance of convertible debentures offset by the gain resulting from the decrease in fair value of derivative liabilities.

 

Net loss

 

Net loss for the year ended December 31, 2015 and 2014 was $514,806 and $423,924, 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.

 

12

 

 

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, 2015, we had a cash balance of approximately $7,900 and working capital (deficit) of ($895,000). During the year ended December 31, 2015, we borrowed $500,000 of convertible debentures which will mature in October 2016 and a total of $300,500 of loans from a related party to fund our operating expenses, pay our obligations, and grow our company. We repaid $74,000 of these related party loans during fiscal 2015. 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, 2015 had a material impact on our operations.

 

Off-Balance Sheet Arrangements

 

None.

 

Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

13

 

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant matters requiring the use of estimates and assumptions include, but may not be limited to, accounts receivable allowances and evaluation of impairment of long lived assets and intangible assets and the fair value of common stock issued. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made. 

 

Revenue recognition

 

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. 

 

Intangible assets 

 

In accordance with ASC 350-30-65, “Intangibles - Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following: 

 

  1. Significant underperformance relative to expected historical or projected future operating results;
  2. Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
  3. Significant negative industry or economic trends.

 

When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company considers current events and circumstances by attending trade shows, having a constant direct dialogue with our distributors, and an internal review and research by management to keep current with the vaporizer industry and to determine if there is any economic downturn.

 

The Company evaluates the recoverability of intangible assets annually or whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. If it is determined by reviewing the above factors that a possible impairment exists, the Company must then determine if the carrying amount of the intangibles is recoverable based upon the comparison of the total undiscounted future cash flows from the intangibles to the carrying amount of the intangibles. Based on our assessment in fiscal 2015, 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.

 

14

 

 

Derivative Liabilities

 

The Company follows the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Stock”, for the embedded conversion options and the warrants that were accounted for as derivative liabilities at the date of issuance and adjusted to fair value through earnings at each reporting date. In accordance with ASC 815, the Company has bifurcated the conversion feature of the convertible Debentures, along with the free-standing warrant derivative instruments and recorded derivative liabilities on their issuance date. The Company uses the Simple Binomial Lattice model to value the derivative liabilities.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to provide this information.

 

15

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

VAPIR ENTERPRISES, INC. AND SUBSIDIARY

DECEMBER 31, 2015 and 2014

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

 
CONTENTS

 

Consolidated Financial Statements:  
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets at December 31, 2015 and 2014 F-3
   
Consolidated Statements of Operations -  
For the Year Ended December 31, 2015 and 2014 F-4
   
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) -  
For the Year Ended December 31, 2015 and 2014 F-5
   
Consolidated Statements of Cash Flows –  
For the Year Ended December 31, 2015 and 2014 F-6
   
Notes to the Consolidated Financial Statements F-7

 

F-1

 

 

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, 2015 and 2014 and the related statements of operations, changes in stockholders’ equity (deficit) 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, 2015 and 2014 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, 2015, 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 21, 2016

 

F-2

 

 

VAPIR ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 
   December 31, 
   2015   2014 
         
ASSETS        
         
CURRENT ASSETS:        
Cash  $7,858   $27,304 
Accounts receivable, net   24,518    2,588 
Inventory   212,411    110,551 
Prepaid expense and other current assets   18,424    - 
Advances to suppliers   136,427    67,652 
           
Total Current Assets   399,638    208,095 
           
OTHER ASSETS:          
Property and equipment, net   87,668    3,732 
Intangible assets, net   375,176    442,352 
Deposit   2,813    - 
           
Total Other Assets   465,657    446,084 
           
Total Assets  $865,295   $654,179 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
           
CURRENT LIABILITIES:          
Accounts payable and accrued expenses  $225,882   $236,051 
Convertible notes payable, net of debt discount   247,724    - 
Loan payable   197,000    197,000 
Note payable - current maturities   19,800    19,800 
Customer deposits   20,609    52,938 
Advances from related party   370,614    136,000 
Deferred rent   10,728    - 
Derivative liabilities   202,653    - 
           
Total Current Liabilities   1,295,010    641,789 
           
LONG-TERM LIABILITIES:          
Note payable, net of current maturities   5,250    25,050 
           
Total Long-term Liabilities   5,250    25,050 
           
Total Liabilities   1,300,260    666,839 
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS' DEFICIT:          
Preferred stock $0.001 par value: 20,000,000 shares authorized; none issued and outstanding   -    - 
Common stock $0.001 par value: 100,000,000 shares authorized; 48,466,819 and 48,280,962 shares issued and outstanding, respectively   48,467    48,281 
Additional paid in capital   31,374    (60,941)
Accumulated deficit   (514,806)   - 
           
Total Stockholders' Deficit   (434,965)   (12,660)
           
Total Liabilities and Stockholders' Deficit  $865,295   $654,179 

 

See accompanying notes to the consolidated financial statements

 

F-3

 

 

VAPIR ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   For the Years Ended 
   December 31, 2015   December 31, 2014 
         
         
Net sales  $2,157,929   $1,646,947 
           
Cost of sales   1,199,461    710,423 
           
Gross profit   958,468    936,524 
           
OPERATING EXPENSES:          
           
Selling expenses   144,306    72,217 
Compensation   643,782    655,126 
Professional and consulting fees   330,913    81,521 
General and administrative   337,538    493,972 
           
Total Operating Expenses   1,456,539    1,302,836 
           
LOSS FROM OPERATIONS   (498,071)   (366,312)
           
OTHER INCOME (EXPENSE):          
Derivative expense   (188,378)   - 
Change in fair value of derivative liabilities   485,725    - 
Litigation settlement   -    (40,000)
Interest expense, net   (314,082)   (17,612)
           
Other expense, net   (16,735)   (57,612)
           
LOSS BEFORE INCOME TAX PROVISION   (514,806)   (423,924)
           
INCOME TAX PROVISION (BENEFIT)   -    - 
           
NET LOSS  $(514,806)  $(423,924)
           
PRO FORMA FINANCIAL INFORMATION (UNAUDITED):          
           
LOSS BEFORE INCOME TAX PROVISION  $-   $(423,924)
           
INCOME TAX PROVISION (BENEFIT)   -    (104,896)
           
NET LOSS  $(514,806)  $(319,028)
           
EARNINGS PER SHARE:          
Basic and diluted  $(0.01)  $(0.01)
           
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:          
Basic and diluted   48,414,506    38,651,223 

 

See accompanying notes to the consolidated financial statements

 

F-4

 

 

VAPIR ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Year Ended December 31, 2014 and 2015
 
   Common Stock           Total 
   $0.001 Par Value   Additional   Accumulated   Stockholders' 
   Number of       Paid-in   Earnings   Equity 
   Shares   Amount   Capital   (Deficit)   (Deficit) 
                     
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)
                          
Common stock issued for services   185,857    186    92,315    -    92,501 
                          
Net loss   -    -    -    (514,806)   (514,806)
                          
Balance, December 31, 2015   48,466,819   $48,467   $31,374   $(514,806)  $(434,965)

 

See accompanying notes to the consolidated financial statements

 

F-5

 

 

VAPIR ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
         
   For the Years Ended 
   December 31, 2015   December 31, 2014 
         
         
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(514,806)  $(423,924)
Adjustments to reconcile net loss to net cash used in operating activities          
Bad debt expense   1,774    170 
Depreciation   13,774    23,443 
Amortization of intangible assets   67,176    67,176 
Amortization of deferred financing cost   11,148    - 
Amortization of debt discount   247,724    - 
Derivative expense   188,378    - 
Common stock issued for services earned   92,501    - 
Change in fair value of derivative liabilities   (485,725)   - 
Changes in assets and liabilities:          
Accounts receivable   (23,704)   119,971 
Prepaid expense and other current assets   (7,072)   - 
Advances to suppliers   (68,775)   (67,652)
Inventory   (101,860)   (64,199)
Deposit   (2,813)   - 
Accounts payable and accrued expenses   (2,055)   171,307 
Customer deposits   (32,329)   39,009 
Deferred rent   10,728    - 
           
NET CASH USED IN OPERATING ACTIVITIES   (605,936)   (134,699)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (97,710)   - 
           
NET CASH USED IN INVESTING ACTIVITIES   (97,710)   - 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Advances from related party   300,500    266,000 
Repayments to related party for advances   (74,000)   (130,000)
Net proceeds from convertible notes payable   477,500    - 
Proceeds received from loan   -    21,000 
Repayment of note payable   (19,800)   (19,800)
           
NET CASH PROVIDED BY FINANCING ACTIVITIES   684,200    137,200 
           
NET CHANGE IN CASH   (19,446)   2,501 
           
CASH - beginning of year   27,304    24,803 
           
CASH - end of year  $7,858   $27,304 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Interest paid  $25,640   $17,612 
Income taxes paid  $-   $- 

 

See accompanying notes to the consolidated financial statements

 

F-6

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

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:

 

F-7

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

(i)Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
(ii)Allowance for doubtful accounts: Management’s estimate of the allowance for doubtful accounts is based on historical sales, historical loss levels, and an analysis of the collectability of individual accounts; and general economic conditions that may affect a client’s ability to pay. The Company evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole.
(iii)Inventory obsolescence and markdowns: The Company’s estimate of potentially excess and slow-moving inventories is based on evaluation of inventory levels and aging, review of inventory turns and historical sales experiences. The Company’s estimate of reserve for inventory shrinkage is based on the historical results of physical inventory cycle counts.
(iv)Fair value of long-lived assets: Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
(v)Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are recorded as a deferred tax benefit. Management made this assumption based on its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.
(vi)Estimates and assumptions used in valuation of derivative liabilities and equity instruments: Management estimates expected term of share options and similar instruments, expected volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk free rate(s) to value derivative liabilities, share options and similar instruments.

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

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.

 

F-8

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

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, 2015 and for the period from December 30, 2014 (date of acquisition) through December 31, 2015; Vapir as of December 31, 2015 and 2014 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, prepaid expenses and other current assets, advances to suppliers, accounts payable and accrued expenses, and customer deposits approximate their fair values because of the short maturity of these instruments.

 

The Company’s convertible notes payable, notes payable and loan payable approximate the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at December 31, 2015 and 2014.

 

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.

 

F-9

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis

 

Level 3 Financial Liabilities - Derivative Warrant Liabilities and Derivative Liability on Conversion Feature

 

The Company uses Level 3 of the fair value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative warrant liability and derivative liability on the conversion feature at every reporting period and recognizes gains or losses in the consolidated statements of operations that are attributable to the change in the fair value of the derivative liabilities.

 

The following table presents the derivative financial instruments, measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of December 31, 2015:

 

   Amount   Level 1   Level 2   Level 3 
Derivative liability - Embedded conversion  $78,471   $-   $-   $78,471 
Derivative liabilities - Tainted Warrants   124,182    -    -    124,182 
   $202,653   $-   $-   $202,653 

 

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.

 

F-10

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

Pursuant to ASC Paragraphs 360-10-35-29 through 35-36 Estimates of future cash flows used to test the recoverability of a long-lived asset (asset group) shall include only the future cash flows (cash inflows less associated cash outflows) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset (asset group). Estimates of future cash flows used to test the recoverability of a long-lived asset (asset group) shall incorporate the entity’s own assumptions about its use of the asset (asset group) and shall consider all available evidence. The assumptions used in developing those estimates shall be reasonable in relation to the assumptions used in developing other information used by the entity for comparable periods, such as internal budgets and projections, accruals related to incentive compensation plans, or information communicated to others. However, if alternative courses of action to recover the carrying amount of a long-lived asset (asset group) are under consideration or if a range is estimated for the amount of possible future cash flows associated with the likely course of action, the likelihood of those possible outcomes shall be considered. A probability-weighted approach may be useful in considering the likelihood of those possible outcomes. Estimates of future cash flows used to test the recoverability of a long-lived asset (asset group) shall be made for the remaining useful life of the asset (asset group) to the entity. For long-lived assets (asset groups) that have uncertainties both in timing and amount, an expected present value technique will often be the appropriate technique with which to estimate fair value.

 

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, 2015 and 2014.

 

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, 2015, 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.

 

F-11

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

As of December 31, 2015 and 2014, there was $1,373 and $0 allowance for doubtful accounts, respectively. The Company recorded bad debt expense of $1,774 and $170 during the year ended December 31, 2015 and 2014, 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, 2015 or 2014. There was no lower of cost or market adjustments for the reporting period ended December 31, 2015 or 2014.

 

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.

 

F-12

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

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. 

 

Derivative Liability

 

The Company evaluates its convertible debt, options, warrants or other contracts, if any, to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 815-10-05-4 and Section 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statement of operations and comprehensive income (loss) as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then that the related fair value is reclassified to equity.

 

F-13

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

 

The Company adopted Section 815-40-15 of the FASB Accounting Standards Codification (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock.  Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.   The adoption of Section 815-40-15 has affected the accounting for (i) certain freestanding warrants that contain exercise price adjustment features and (ii) convertible bonds issued by foreign subsidiaries with a strike price denominated in a foreign currency.

 

The Company marks to market the fair value of the embedded derivative convertible notes and derivative warrants at each balance sheet date and records the change in the fair value of the embedded derivative convertible notes and derivative warrants as other income or expense in the consolidated statements of operations.

 

The Company utilizes the Lattice model that values the liability of the derivative convertible notes and derivative warrants. The reason the Company picks the Lattice model is that in many cases there may be multiple embedded features or the features of the bifurcated derivatives may be so complex that a Black-Scholes valuation does not consider all of the terms of the instrument. Therefore, the fair value may not be appropriately captured by simple models. In other words, simple models such as Black-Scholes may not be appropriate in many situations given complex features and terms of conversion option (e.g., combined embedded derivatives). The Lattice model is based on future projections of the various potential outcomes. The features that were analyzed and incorporated into the model included the exercise and full reset features. Based on these features, there are two primary events that can occur; the Holder exercises the Warrants or the Warrants are held to expiration.

 

The Lattice model analyzed the underlying economic factors that influenced which of these events would occur, when they were likely to occur, and the specific terms that would be in effect at the time (i.e. stock price, exercise price, volatility, etc.). Projections were then made on the underlying factors which led to potential scenarios. Probabilities were assigned to each scenario based on management projections. This led to a cash flow projection and a probability associated with that cash flow.

 

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 and members of their immediate families; e. management of the Company and members of their immediate families; 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.

 

F-14

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

Pursuant to ASC Paragraphs 850-10-50-1 and 50-5 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.

 

F-15

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

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 $29,224 and $24,800 for the period ended December 31, 2015 and 2014, respectively and has been included in selling expenses as reflected in the accompanying consolidated statements of operations.

 

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

 

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).

 

Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services.

 

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock option that the counterparty has the right to exercise expires unexercised.

 

Pursuant to ASC Paragraphs 505-50-30-2 and 505-50-30-11 share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date: (a) The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); or (b) The date at which the counterparty's performance is complete. If the Company’s common shares are traded in one of the national exchanges the grant-date share price of the Company’s common stock will be used to measure the fair value of the common shares issued, however, if the Company’s common shares are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market. 

 

F-16

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

Pursuant to ASC Paragraph 718-10-55-21 if an observable market price is not available for a share option or similar instrument with the same or similar terms and conditions, an entity shall estimate the fair value of that instrument using a valuation technique or model that meets the requirements in paragraph 718-10-55-11 and takes into account, at a minimum, all of the following factors:

 

a. The exercise price of the option.

 

b. The expected term of the option, taking into account both the contractual term of the option and the effects of employees’ expected exercise and post-vesting employment termination behavior: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments.  The Company uses historical data to estimate holder’s expected exercise behavior.  If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
   
c. The current price of the underlying share.

 

d. The expected volatility of the price of the underlying share for the expected term of the option.  Pursuant to ASC Paragraph 718-10-55-25 a newly publicly traded entity might base expectations about future volatility on the average volatilities of similar entities for an appropriate period following their going public. A nonpublic entity might base its expected volatility on the average volatilities of otherwise similar public entities. For purposes of identifying otherwise similar entities, an entity would likely consider characteristics such as industry, stage of life cycle, size, and financial leverage. Because of the effects of diversification that are present in an industry sector index, the volatility of an index should not be substituted for the average of volatilities of otherwise similar entities in a fair value measurement.  Pursuant to paragraph 718-10-S99-1 if shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.  The Company uses the average historical volatility of the comparable companies over the expected term of the share options or similar instruments as its expected volatility.

 

e. The expected dividends on the underlying share for the expected term of the option.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

 

f. The risk-free interest rate(s) for the expected term of the option. Pursuant to ASC 718-10-55-28 a U.S. entity issuing an option on its own shares must use as the risk-free interest rates the implied yields currently available from the U.S. Treasury zero-coupon yield curve over the contractual term of the option if the entity is using a lattice model incorporating the option’s contractual term. If the entity is using a closed-form model, the risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model.

 

Pursuant to ASC paragraph 505-50-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

 

Deferred Tax Assets and Income Tax Provision

 

The Company was a Subchapter S corporation, until December 30, 2014 during which time the Company was treated as a pass through entity for federal income tax purposes. Under Subchapter S of the Internal Revenue Code stockholder of an S corporation are taxed separately on their distributive share of the S corporation’s income whether or not that income is actually distributed.

 

F-17

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

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.

 

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.

 

F-18

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

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. Pursuant to ASC Paragraphs 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 arrangements, stock options or warrants are as follows:

 

   Contingent shares issuance arrangements, stock options or warrants 
   December 31,
2015
   December 31,
2014
 
         
Stock Option Shares        
    100    100 
           
Sub-total: stock option shares   100    100 
           
Warrant Shares          
    501,263    1,263 
           
Sub-total: warrant shares   501,263    1,263 
           
Total contingent shares issuance arrangements, stock options or warrants   501,363    1,363 

 

There were no incremental common shares under the Treasury Stock Method for the reporting period ended December 31, 2015 or 2014.

 

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.

 

F-19

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

Subsequent Events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued.  Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

Recently Issued Accounting Pronouncements

 

In May 2014, the FASB issued the FASB Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”)

 

This guidance amends the existing FASB Accounting Standards Codification, creating a new Topic 606, Revenue from Contracts with Customer. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

To achieve that core principle, an entity should apply the following steps:

 

1.Identify the contract(s) with the customer
2.Identify the performance obligations in the contract
3.Determine the transaction price
4.Allocate the transaction price to the performance obligations in the contract
5.Recognize revenue when (or as) the entity satisfies a performance obligations

 

The ASU also provides guidance on disclosures that should be provided to enable financial statement users to understand the nature, amount, timing, and uncertainty of revenue recognition and cash flows arising from contracts with customers.  Qualitative and quantitative information is required about the following:

 

1.Contracts with customers – including revenue and impairments recognized, disaggregation of revenue, and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations)
2.Significant judgments and changes in judgments – determining the timing of satisfaction of performance obligations (over time or at a point in time), and determining the transaction price and amounts allocated to performance obligations
3.Assets recognized from the costs to obtain or fulfill a contract.

 

ASU 2014-09 is effective for periods beginning after December 15, 2016, including interim reporting periods within that reporting period for all public entities.  Early application is not permitted.

 

In August 2015, the FASB issued the FASB Accounting Standards Update No. 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”).

 

The amendments in this Update defer the effective date of Update 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

 

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”).

 

F-20

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

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 2015, the FASB issued the FASB Accounting Standards Update No. 2015-17 “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015-17”). This update simplifies the presentation of deferred income taxes; the amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position.

 

For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.

 

In January 2016, the FASB issued the FASB Accounting Standards Update No. 2016-01 “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”).

 

F-21

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 2 – Significant and Critical Accounting Policies and Practices (continued)

 

This Update makes limited amendments to the guidance in U.S. GAAP on the classification and measurement of financial instruments. The new standard significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. Some of the major changes as a result of the ASU 2016-01 are summarized below.

 

Requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.
Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value.
Eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet.
Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.
Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

 

For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.

 

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, the Company had an accumulated deficit of approximately $515,000 at December 31, 2015, a net loss of approximately $515,000 and net cash used in operating activities of approximately $606,000 for the year ended December 31, 2015. 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.

 

F-22

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 4 – Property and Equipment

 

Property and equipment, stated at cost, less accumulated depreciation consisted of the following:

 

   Estimated life  December 31,
2015
   December 31,
2014
 
            
Auto  3 years   12,522    12,522 
Furniture and fixtures  5 years   23,743    23,743 
Tooling equipment  4 years   97,710    - 
Leasehold improvements  5 years   35,206    35,206 
Less: Accumulated depreciation      (81,513)   (67,739)
      $87,668   $3,732 

 

(i)Depreciation Expense

 

Depreciation expense amounted to $13,774 and $23,443 for the year ended December 31, 2015 and 2014, 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, 2015.

 

Note 5 – Intangible Assets

 

Intangible assets consist of the following:

 

   December 31,   December 31, 
   2015   2014 
         
Customer relationships  $1,001,212   $1,001,212 
Trademarks   6,430    6,430 
    1,007,642    1,007,642 
Accumulated amortization   (632,466)   (565,290)
Intangible assets, net  $375,176   $442,352 

 

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 fifteen 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 $67,176 for the year ended December 31, 2015 and 2014, respectively.

 

F-23

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 5 – Intangible Assets (continued)

 

Future amortization of intangible assets is as follows:

 

2016  $67,176 
2017   67,176 
2018   67,176 
2019   67,176 
2020 and thereafter   106,472 
Total  $375,176 

 

Impairment

 

The Company completed its 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, 2015.

 

Note 6 – Note and Loan Payable

 

Loan payable

 

   December 31, 2015   December 31,
2014
 
           
Business loan obtained in May 2011 from Bank of the West with a credit line up to $200,000 and secured by all assets of the Company. This loan bears interest at 4.75% per annum.  $197,000   $197,000 

 

Note payable

 

   December 31,
2015
   December 31,
2014
 
         
4.75% Promissory note of $100,000 issued to Bank of the West on May 10, 2011 payable over 60 consecutive monthly installments with monthly principal payment of $1,650 and interest starting in June 2012   25,050    44,850 
           
Less : Current maturities   (19,800)   (19,800)
Note payable, net of current maturities  $5,250   $25,050 

 

Future minimum principal and interest payment under the note are as follows:

 

Fiscal Year ending December 31:    
     
2016  $20,559 
      
2017   5,294 
      
Total remaining payments   25,853 
      
Less interest portion   (803)
      
Total remaining principal payments   25,050 
      
Less current maturities   (19,800)
      
Note payable, net of current maturities  $5,250 

 

Amounts outstanding under the loan and note above are personally guaranteed by the CEO of the Company.

 

F-24

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

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, non-interest bearing and due upon demand.

 

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 paid interest of $1,470 to the Company’s CEO during the year ended December 31, 2014. Additionally, between February 2015 and November 2015, the Company’s CEO provided advances to the Company for working capital purposes for a total of $300,500 and the Company repaid $73,000 of these advances.

 

At December 31, 2015 and 2014, these advances amounted to $370,614 and $136,000, respectively. Included in the advances are accrued interest due to the Company’s CEO totaling $7,114 and $0, at December 31, 2015 and 2014 respectively.

 

Note 8 - Convertible Notes Payable

 

On April 3, 2015 (the “Closing Date”), the Company closed a financing transaction by entering into a Securities Purchase Agreement dated April 3, 2015 (the “Securities Purchase Agreement”) with certain accredited investors (the “Purchasers”) for an aggregate subscription amount of $500,000 (the “Purchase Price”). Pursuant to the Securities Purchase Agreement, the Company issued a 6% Convertible Debenture (the “Debenture”) and warrants to acquire 500,000 shares of the Company's common stock at an exercise price of $0.60 per share (the “Warrants”).

 

The terms of the Debenture and the Warrants are as follows:

 

6% Convertible Debenture

 

The total principal amount of the Debentures is $500,000. The Debenture accrues interest at 6% per annum and the Debenture has a maturity date of October 3, 2016. The Debenture is convertible any time after its issuance date. The Purchaser has the right to convert the Debenture into shares of the Company’s common stock at $0.50 per share. The conversion price, however, is subject to full ratchet anti-dilution in the event that the Company issue any securities at a per share price lower than the conversion price then in effect. The Company paid financing costs of $22,500 in connection with this Debenture which is initially recorded as prepaid financing cost and is being amortized over the term of the Debenture.

 

Warrants

 

The Company issued warrants to acquire 500,000 shares of the Company's common stock. The Warrants issued in this transaction are immediately exercisable at an exercise price of $0.60 per share, subject to applicable adjustments including full ratchet anti-dilution in the event that the Company issue any securities at a per share price lower than the exercise price then in effect. The Warrants have an expiration period of five years from the date of the original issuance.

 

F-25

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 8 - Convertible Notes Payable (continued)

 

Convertible notes payable consisted of the following: 

 

  

December 31,

2015

 
6% Convertible promissory notes  $500,000 
Discount   (500,000)
Accumulated amortization of discount   247,724 
Remaining discount   (252,276)
Convertible notes payable, net  $247,724 

 

Note 9 - Derivative Liabilities

 

Since the terms of the Debentures and Warrants in the April 2015 closing include a down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Stock”, the embedded conversion options and the warrants were accounted for as derivative liabilities at the date of issuance and adjusted to fair value through earnings at each reporting date. In accordance with ASC 815, the Company has bifurcated the conversion feature of the convertible Debentures, along with the free-standing warrant derivative instruments and recorded derivative liabilities on their issuance date. The Company uses the Simple Binomial Lattice model to value the derivative liabilities. The Debentures were all discounted in full based on the valuations and the Company recognized an additional derivative expense of $188,378 upon initial recording of the derivative liabilities. The total debt discount of $500,000 consisted of valuation of the derivatives of $250,407 and the valuation of the warrants of $249,593 to be amortized over the terms of the note. These derivative liabilities are then revalued on each reporting date. The gain resulting from the decrease in fair value of these convertible instruments was $485,725 for the year ended December 31, 2015. At December 31, 2015, the Company had recorded warrant derivative liability of $124,182 and note derivative liability of $78,471.

 

For the year ended December 31, 2015 and 2014 the Company recognized $247,724 and $0, respectively of amortization of debt discount.  For the year ended December 31, 2015 and 2014 the Company recognized $11,148 and $0, respectively of amortization of deferred financing cost. The amortization of debt discount and deferred financing cost were included in interest expense. As of December 31, 2015, accrued interest related to this Debenture amounted to $22,456.

 

The following table summarizes the values of certain assumptions used by the Company’s custom model to estimate the fair value of the derivative liabilities as of December 31, 2015: 

 

   

December 31,

2015

 
Stock price   $ 0.25  
Weighted average strike price   $ 0.50  
Remaining contractual term (years)     0.75 to 4.25 years  
Volatility     157% to 293 %
Risk-free rate     0.65% to 1.76 %
Dividend yield     0.0 %

 

The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis: 

 

  

For the year ended

December 31,

2015

 
Beginning balance  $- 
Debt discount in connection with conversion option of Debentures and detachable warrants   500,000 
Excess of fair value over debt discount   188,378 
Change in fair value of derivative liabilities   (485,725)
Ending balance  $202,653 

 

F-26

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 10 – Commitments and Contingencies

 

Joint Marketing Agreement

 

On February 20, 2015, the Company entered into a joint marketing agreement (the “Agreement”) with a third party consultant (“Consultant”).  Pursuant to the Agreement, the Consultant will act as the Company’s advisor to assist the Company in connection with a best efforts basis in identifying potential sources of capital for an initial term of six (6) months.

 

Consultant shall be compensated as follows: 

 

  $25,000 initial fee, payable upon completion of $250,000 capital raise or $40,000 initial fee, payable upon completion of $500,000 capital raise.
  $5,000 per month (prorated for the first month of the capital raise completion), payments begin immediately upon capital raise of $250,000 and thereafter on the 2nd of each month.
 

125,000 shares of the Company’s common stock, payable within five (5) days of the execution of this Agreement. Another 125,000 shares of the Company’s common stock is due when $250,000 is raised.

 

The Company valued the 125,000 shares of its common stock issued upon execution of the Agreement at $0.50 per share and recorded as the consulting fee as these shares are fully earned, un-forfeitable and non-assessable upon issuance. Such consultant has not completed any capital raise for the Company.

 

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 was 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. In August 2015, the Company entered into an amendment agreement to extend the term of the lease which will expire on December 31, 2018. Pursuant to the amendment agreement, the lease requires the Company to pay a monthly base rent of $5,050 plus a pro rata share of operating expenses beginning November 1, 2015. The base rent is subject to an annual increase beginning in November 2016 as defined in the amended lease agreement. This lease agreement is personally guaranteed by the President of the Company.

 

Future minimum rental payments required under this operating lease are as follows:

 

Fiscal Year ending December 31:    
     
2016  $60,903 
2017   62,721 
2018   64,236 
      
Total  $187,860 

 

Rent expense was $61,662 and $72,188 for the year ended December 31, 2014 and 2014, respectively.

 

F-27

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 10 – Commitments and Contingencies (continued)

 

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 11 - Stockholders’ Deficit

 

Shares Authorized

 

The authorized capital of the Company consists of 100,000,000 shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per share.

 

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.

 

In February 2015, the Company granted 125,000 shares of its common stock to a consultant in connection with a 6 month investor relations consulting agreement. The Company valued these common shares at $0.50 per share, the most recent PPM price or $62,500. In connection with the issuance of these common shares, the Company recorded stock based consulting of $62,500 for the year ended December 31, 2015.

 

In July 2015, the Company issued an aggregate of 60,857 shares of its common stock at approximately $0.50 per common share to a consultant as payment for accounting services rendered pursuant to a consulting agreement. The Company valued these common shares at $0.50 per share, the most recent PPM price or $30,000. In connection with the issuance of these common shares, the Company recorded stock based accounting expense of $30,000 for the year ended December 31, 2015.

 

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.

 

F-28

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 11 - Stockholders’ Deficit (continued)

 

Warrants

 

Stock warrant activities for the years ended December 31, 2015 and 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    - 
Issued   500,000    0.60    5.00    - 
Exercised/forfeited/expired   -    -    -    - 
Balance at December 31, 2015   501,263    3.74    4.25    - 
Warrants exercisable at December 31, 2015   501,263   $3.74    4.25   $- 

 

On April 3, 2015, the Company issued warrants to acquire 500,000 shares of the Company's common stock in connection with the Debentures (see Note 8). The Warrants issued in this transaction are immediately exercisable at an exercise price of $0.60 per share, subject to applicable adjustments including full ratchet anti-dilution in the event that the Company issue any securities at a per share price lower than the exercise price then in effect. The Warrants have an expiration period of five years from the date of the original issuance. The Company accounted for the full ratchet provision under FASB ASC Topic No. 815-40 “Derivatives and Hedging - Contracts in an Entity’s Own Stock” (see Note 9).

 

Options

 

Stock option activities for the year ended December 31, 2015 and 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    - 
Issued   -    -    -    - 
Exercised/forfeited/expired   -    -    -    - 
Balance at December 31, 2015   100    700    1.17    - 
Options exercisable at December 31, 2015   100   $700    1.17   $- 

 

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, 2015, there were total unrecognized compensation costs related to non-vested share-based compensation arrangements of $0.

 

F-29

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 12 – Income Taxes

 

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

 
     
Federal statutory income tax rate   34.0%
      
Net operating loss carry-back   (34.0)
      
Effective income tax rate   34.0%

 

The Company has incurred aggregate net operating losses of approximately $96,000 for income tax purposes as of December 31, 2015. The net operating loss can be carried forward to reduce future years’ taxable income and will expire, if not utilized, through 2035. Utilization of these tax net operating loss carry forwards may be limited in accordance with IRC Section 382 in the event of certain ownership changes. Management believes that the realization of the benefits from these losses is not more likely than not to occur due to the Company’s limited operating history and continuing losses. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management will review this valuation allowance periodically and make adjustments as warranted.

 

The table below summarizes the differences between the Company’s effective tax rate and the statutory federal rate as follows for the year ended:

 

   December 31,
2015
 
U.S “expected” income tax  $(175,000)
Non-cash compensation   31,400 
Amortization of intangible assets, debt discount and deferred financing cost   110,900 
Change in valuation allowance   32,700 
Total provision for income taxes  $ 

 

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows:

 

   December 31,
2015
 
Deferred tax assets:     
Net operating loss carryover  $32,700 
Less: valuation allowance   (32,700)
Net deferred tax asset  $ 

 

F-30

 

Vapir Enterprises, Inc. and Subsidiary

December 31, 2015 and 2014

Notes to the Consolidated Financial Statements

 

Note 12 – Income Taxes (continued)

 

After consideration of all the evidence, both positive and negative, management has recorded a full valuation allowance at December 31, 2015, due to the uncertainty of realizing the deferred income tax assets. The valuation allowance was increased by $32,700 during the year ended December 31, 2015. Management does not believe that any uncertain tax positions have been taken in its 2014 tax return or will be taken in its 2015 tax returns.

 

Note 13 – Concentration of Credit Risk

 

Concentration of Revenue and Supplier

 

During the year ended December 31, 2015 sales to two customers represented approximately 49% of the Company’s net sales. During the year ended December 31, 2014 sales to one customer represented approximately 37% of the Company’s net sales.

 

As of December 31, 2015 and 2014, the Company had two customers representing approximately 92% of accounts receivable and one customer representing approximately 79% of accounts receivable, respectively.

 

The Company purchased inventories and products for sale from one vendor totaling approximately $1,203,000 and $620,000 during the years ended December 31, 2015 and 2014, respectively.

 

Note 14 – Subsequent Events

 

On January 7, 2016, the Company entered into an eight month consulting agreement with a consultant to provide business advisory and investor relations services. Pursuant to the consulting agreement, the Company issued 500,000 shares of the Company’s common stock. The Company valued these common shares at the fair value of $175,000 or $0.35 per common share based on the quoted trading price on the date of grant.

 

On January 12, 2016, the Company issued an aggregate of 200,000 shares of the Company’s common stock to two board of directors of the Company for services to be rendered in fiscal 2016. The Company valued these common shares at the fair value of $70,000 or $0.35 per common share based on the quoted trading price on the date of grant.

 

On January 12, 2016, the Company issued 100,000 shares of the Company’s common stock to a consultant for marketing services to be rendered in fiscal 2016. The Company valued these common shares at the fair value of $35,000 or $0.35 per common share based on the quoted trading price on the date of grant.

  

On January 12, 2016, the Company issued 500,000 shares of the Company’s common stock to a consultant for business advisory services to be rendered in fiscal 2016. The Company valued these common shares at the fair value of $175,000 or $0.35 per common share based on the quoted trading price on the date of grant.

 

On January 12, 2016, the Company granted an aggregate of 2,080,000 five year options to purchase shares of common stock to CEO of the Company and six employees of the Company. The options granted vest one third at the end of each of the first three years from the date of issuance and are exercisable at $0.10 per share. The 2,080,000 options were valued on the grant date at approximately $0.35 per option or a total of $728,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.35 per share (based on the quoted trading prices on the date of grant), volatility of 286% (based from volatilities of similar companies), expected term of 5 years, and a risk free interest rate of 1.55%.

 

On January 12, 2016, the Company granted 400,000 five year options to purchase shares of common stock to a consultant of the Company. The options granted vest one third at the end of each of the first three years from the date of issuance and are exercisable at $0.10 per share. The 400,000 options were valued on the grant date at approximately $0.35 per option or a total of $140,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.35 per share (based on the quoted trading prices on the date of grant), volatility of 286% (based from volatilities of similar companies), expected term of 5 years, and a risk free interest rate of 1.55%.

 

An unsecured business loan was obtained in February 2016 from Bank of the West for $50,000 payable over 36 consecutive monthly installments with monthly principal and interest payment of $1,506 starting in March 2016. This loan bears interest at 5.28% per annum.

 

F-31

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

  

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.

 

16

 

 

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 2015 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, 2015.

 

Management has determined that, as of the December 31, 2015 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 2016, 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, 2015, 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.

 

17

 

 

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)   55   Chief Executive Officer & President   2014
Robert Duncan   62   Director   2015
Masoud Shahidi (1)   73   Director   2014
Dr. Shadi Shayegan, DMD(1)   45   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 55, 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 45, 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.

 

Robert Duncan, age 62, Director

 

Mr. Duncan has over 25 years executive engineering and operations experience providing expertise in engineering product development, engineering process, NPI, and offshore development.  His previous positions include VP of Operations for a desktop virtualization company, CTO and VP of Engineering for an alternative energy/hydrogen fuel cell company, VP of Engineering at a server based computing company, and Executive VP of the commercial Business unit at a global contract manufacturer; 

 

Mr. Duncan has been responsible for establishing engineering organizations at startups and running organizations inside established Fortune 500 companies. He is an experienced system architect having run global software and hardware design teams for the development of consumer, medical, and military products. Products developed include computer systems, hydrogen fuel cells, medical scanners, and embedded architecture applications. He holds several patents and received a B.S. in Physics from San Jose State University.

 

Masoud Shahidi, 73, 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.

 

18

 

 

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.

 

19

 

 

Family Relationships

 

Shadi Shayegan and Hamid Emarlou are husband and wife. Masoud Shahidi is Hamid Emarlou’s cousin.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following table sets forth information concerning the total compensation paid during the years ended December 31, 2015 and 2014 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
  2015  $150,000    -    -    -    -   $15,600(2)  $165,600 
Chief Executive Officer  2014  $200,400    -    -    -    -   $10,800(2)  $211,200 
                                       
Adam Kotkin (1)  2015   -    -    -    -    -    -    - 
Chief Executive Officer  2014   43,313    -    -    -    -    -    43,313 
                                       
Adam Wasserman (1)  2015   -    -    -    -    -    -    - 
Chief Financial Officer  2014   25,000    -    23,420(3)   -    -    -    48,420 
                                       
Dr. Shadi Shayegan  2015   55,200    -    -    -    -    -    55,200 
Corporate Secretary  2014   48,800    -    -    -    -    -    48,800 

 

(1) Mr. Kotkin and Mr. Wasserman resigned as our Chief Executive Officer and Chief Financial Officer, respectively, effective December 30, 2014. On June 30, 2015, Mr. Kotkin resigned from his position as a member of our Board of Directors.
(2) Mr. Emarlou was provided a car allowance in 2014 and 2015 of $900 and $1,300 a month, respectively, covering car payments and insurance expenses.
(3) In September 2014, Mr. Wasserman received a stock award of 46,840 at $0.50 per share.

 

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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 2014 and 2015.

 

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, 2015

 

There were no outstanding equity awards held by any of our officers as of December 31, 2015. 

 

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.

 

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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 14, 2016 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. Unless otherwise specified, the address of each of the persons set forth below is care of the company at the address of: 2365 Paragon Dr., Suite B, San Jose, California 95131.

 

Name and Address  Beneficial
Ownership
   Percentage
of Class (1)
 
Officers and Directors
Hamid Emarlou (2)
   36,609,768    73.56%
Shadi Shayegan (3)   36,609,768    73.56%
Robert Duncan,   125,000    * 
Masoud Shahidi   175,000    * 
All officers/directors as a group, including a former officer (4 persons)   36,909,768    74.17%
           

5 % Shareholders

Whalehaven Capital Fund Ltd. 285 Grand Ave Patriot Center, Bldg 5, 2nd Fl, Englewood, NJ 07361

   3,681,250    7.4%

 

* Represents less than 1% ownership.
   
(1) Based on 48,280,976 shares of common stock outstanding.
(2)  Mr. Emarlou is the beneficial owner of 36,609,768 shares of common stock. Mr. Emarlou directly holds 36,309,768 shares of common stock and his wife, Shadi Shayegan holds 300,000 shares.
(3) Ms. Shayegan is the beneficial owner of 36,609,768 shares of common stock. Ms. Shayegan directly holds 300,000 shares and her husband, Hamid Emarlou holds 36,309,768 shares.

 

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 one independent director, Robert Duncan. 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.

 

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Related Party Transactions

 

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, interest bearing and due upon demand.

 

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 paid interest of $1,470 to the Company’s CEO during the year ended December 31, 2014. Additionally, between February 2015 and November 2015, the Company’s CEO provided advances to the Company for working capital purposes for a total of $300,500 and the Company repaid $73,000 of these advances.

 

At December 31, 2015 and 2014, these advances amounted to $370,614 and $136,000, respectively. Included in the advances are accrued interest due to the Company’s CEO totaling $7,114 and $0, at December 31, 2015 and 2014 respectively.

 

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, 2015 and 2014 were: 

 

   Year Ended
December 31,
2015
   Year Ended
December 31,
2014
 
Audit fees  $39,500   $25,000 
Audit related fees   0    0 
Tax fees   0    0 
All other fees   0    0 
Total  $39,500   $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.

 

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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.

 

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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 21, 2016 By: /s/ Hamid Emarlou
    Hamid Emarlou
    Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)

 

 

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