UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly period ended June 30, 2016

 

or

 

[  ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________________ to __________________

 

Commission file number: 000-55470

 

VapAria Corporation

(Exact name of registrant as specified in its charter)

 

Delaware		27-1521364
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

5550 Nicollet Avenue, Minneapolis, MN		55419
(Address of principal executive offices)		(Zip Code)

 

(612) 812-2037

(Registrant’s telephone number, including area code)

 

not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

[X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.4.05 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

[X] Yes [  ]No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:

 

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ]	Smaller reporting company	[X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

 

[  ] Yes [X] No

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 75,210,000 shares of common stock are issued and outstanding as of August 11, 2016.

 

 

 

TABLE OF CONTENTS

 

		Page No.
Part I
Item 1.	Financial Statements (Unaudited)	5
Item 2.	Management Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	15
Item 4.	Controls and Procedures.	15
Part II
Item 1.	Legal Proceedings.	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults upon Senior Securities	16
Item 4.	Mine Safety Disclosures	16
Item 5.	Other Information.	16
Item 6.	Exhibits	16

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:

 

●	our lack of products or revenues and the substantial risks inherent in the establishment of a new business venture
●	our very limited operating history and our unproven business plan;
●	our history of losses;
●	our ability to continue as a going concern;
●	our ability to raise capital to fund our business plan, pay our operating expense and satisfy our obligations;
●	conflicts of interest facing certain of our officers and directors;
●	future reliance on third party manufacturers;
●	our future ability to comply with government regulations;
●	our lack of experience in selling, marketing or distributing products;
●	our future ability to establish and maintain strategic partnerships;
●	our possible future dependence on licensing or collaboration agreements;
●	the inability of Chong Corporation to protect the intellectual property which is licensed to us, and risks of possible third-party infringement of intellectual property rights;
●	anti-takeover provisions of Delaware law;
●	the dilution impact of the issuance of shares of our common stock upon a conversion of shares of our Series A 10% convertible preferred stock and as payment for dividends; and
●	the impact of penny stock rules on the future trading in our common stock.

 

 

You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements, Part 1. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2015 and our other filings with the Securities and Exchange Commission. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

 

OTHER PERTINENT INFORMATION

 

Unless specifically set forth to the contrary, when used in this report the terms “VapAria,” “we,” “our,” “us,” and similar terms refers to VapAria Corporation, a Delaware corporation formerly known as OICco Acquisition IV, Inc., and our wholly-owned subsidiary VapAria Solutions Inc., a Minnesota corporation (“VapAria Solutions”). In addition, “second quarter 2016” refers to the three months ended June 30, 2016, “second quarter 2015” refers to the three months ended June 30, 2015, “first half of 2016” refers to the six months ended June 30, 2016 and “first half of 2015” refers to the six months ended June 30, 2015. “2016” refers to the year ending December 31, 2016 and “2015” refers to the year ended December 31, 2015.

 

Unless specifically set forth to the contrary, the information which appears on our web site at www.vaparia.com is not part of this report.

 

 

PART 1 – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

VapAria Corporation

Consolidated Balance Sheets

 

		June 30, 2016				December 31, 2015
		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	8,868			$	5,915
Prepaid expenses			5,903				3,524
Total Current Assets			14,771				9,439
Intellectual property, net			265,781				173,289
TOTAL ASSETS		$	280,552			$	182,728
LIABILITIES & STOCKHOLDERS’ DEFICIT
LIABILITIES
Current Liabilities
Accounts payable		$	46,254			$	47,249
Accrued Expenses			2,250				-
Interest payable			20,199				16,210
Note payable			50,000				50,000
Convertible Note			40,000				40,000
Loan from related party			289,544				173,544
Total Current Liabilities			448,247				327,003
TOTAL LIABILITIES			448,247				327,003
STOCKHOLDERS’ DEFICIT
Preferred Stock: $0.0001 par value; 10,000,000 shares authorized; 500,000 shares issued and outstanding			50				50
Common Stock: $0.0001 par value; 100,000,000 shares authorized; 75,210,000 shares issued and outstanding at June 30, 2016 and 50,160,000 shares issued and outstanding at December 31, 2015			7,521				5,016
Additional paid-in capital			867,210				761,443
Accumulated deficit			(1,042,476	)			(910,784	)
TOTAL STOCKHOLDERS’ DEFICIT			(167,695	)			(144,275	)
TOTAL LIABILITIES & STOCKHOLDERS’ DEFICIT		$	280,552			$	182,728

 

See accompanying notes to consolidated unaudited financial statements

 

 

VapAria Corporation

Consolidated Statement of Expenses

(Unaudited)

 

		Three months ended June 30,								Six months ended June 30,
		2016				2015				2016				2015
Operating Expenses
General and Administrative		$	7,889			$	34,490			$	14,048			$	39,677
Research and Development			38,253				2,115				60,968				27,115
Professional Fees			22,539				59,481				44,748				66,584
Total Operating Expenses			68,681				96,086				119,764				133,376
Other Income/(Expense)			(1,994	)			(1,994	)			(4,428	)			(4,416	)
Net (Loss)		$	(70,675	)		$	(98,080	)		$	(124,192	)		$	(137,792	)
Stock dividend			7,500				50,000				7,500				50,000
Net (Loss) available to common stockholders			(78,175	)			(148,080	)			(131,692	)			(187,792	)
Basic and diluted loss per common share			(0.00	)			(0.00	)			(0.00	)			(0.00	)
Basic and diluted weighted average shares outstanding			75,181,429				50,155,604				71,324,560				50,125,249

 

See accompanying notes to consolidated unaudited financial statements

 

 

VapAria Corporation

Consolidated Statement of Changes in Stockholders’ Deficit

For the six months ended June 30, 2016

(Unaudited)

 

		Series A Preferred Stock								Common Stock
						$0.0001								$0.0001				Additional
		Number of				Par				Number  of				Par				Paid in				Accumulated
		shares				Value				Shares				Value				Capital				Deficit				Total
Balance, December 31, 2015			500,000			$	50				50,160,000			$	5,016			$	761,443			$	(910,784	)		$	(144,275	)
Common Stock issued											25,000,000				2,500				98,272							$	100,772
Common stock issued for dividend											50,000				5				7,495				(7,500	)		$	-
Net Loss																							(124,192	)		$	(124,192	)
Balance, June 30, 2016			500,000			$	50				75,210,000			$	7,521			$	867,210			$	(1,042,476	)		$	(167,695	)

 

See accompanying notes to consolidated unaudited financial statements

 

 

VapAria Corporation

Consolidated Statement of Cash Flows

(Unaudited)

 

		Six Months Ended June 30,
		2016				2015
Cash flows from operating activities
Net (loss)		$	(124,192	)		$	(137,792	)
Adjustments to reconcile net loss to net cash used in operations:
Amortized Expense			8,280				5,778
(increase) decrease in operating assets and liabilities:
Prepaid Expenses			(2,379	)			(3,524	)
Accrued Expenses			2,250				-
Accounts Payable			(995	)			20,968
Interest Payable			3,989				3,967
Net cash used by operating activities			(113,047	)			(110,603	)
Cash flows from financing activities
Proceeds from Issuance of common stock for cash			-				110,000
Borrowing on debt with related party			116,000				23,000
Repayment to related party			-				(10,000	)
Net Cash provided by financing activities			116,000				123,000
Net change in cash			2,953				12,397
Cash, beginning of period			5,915				497
Cash, end of period		$	8,868			$	12,894
Supplementary Information
Interest		$	-			$	-
Income Taxes		$	-			$	-
Non cash investing and financing activities
Common stock issued for intellectual property licenses			100,772				-
Dividends on Preferred Series A stock			(7,500	)			(50,000	)
Forgiven related party accounts payable			-				29,350

 

See accompanying notes to consolidated unaudited financial statements

 

 

VAPARIA CORPORATION

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2016

 

 

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF BASIS OF PRESENTATION

 

Nature of Business

 

VapAria Corporation (the “Company”) was incorporated under the laws of the State of Delaware on December 21, 2009 under the name OICco Acquisition IV, Inc.

 

On April 11, 2014 the Company entered into that certain Share Exchange Agreement and Plan of Reorganization (the “Agreement”) with VapAria Solutions, Inc., a Minnesota corporation formerly known as VapAria Corporation (“VapAria Solutions”) and the shareholders of VapAria Solutions (the “VapAria Solutions Shareholders”) pursuant to which we agreed to acquire 100% of the outstanding capital stock of VapAria Solutions from the VapAria Solutions Shareholders in exchange for certain shares of our capital stock. On July 31, 2014 all conditions precedent to the closing were satisfied, including the reconfirmation by the investors of the prior purchase of 1,000,000 shares of our common stock pursuant to the requirements of Rule 419 of the Securities Act of 1933, as amended (the “Securities Act”), and the transaction closed.

 

At closing, we issued the VapAria Solutions Shareholders 36,000,000 shares of our common stock and 500,000 shares of our 10% Series A Convertible Preferred Stock in exchange for the common stock and preferred stock owned by the VapAria Solutions Shareholders.

 

As a result of the closing of this transaction, VapAria Solutions is now a wholly owned subsidiary of our company and its business and operations represent those of our company.

 

On August 19, 2014 the board of directors of the Company and the holders of a majority of its issued and outstanding common stock approved a Certificate of Amendment to our Amended and Restated Certificate of Incorporation changing the name of our company to VapAria Corporation. The name change was effective on August 19, 2014. Our Board determined it was in our best interests to change our corporate name to better reflect our business and operations following our recent acquisition of VapAria Solutions.

 

The Company is a specialty pharmaceutical company engaged in the research, design and development of methods and medicants to address chronic conditions with novel, vapor-centric approaches to pain management, appetite suppression, smoking cessation and various sleep disorders.

 

The Company has limited operations and, as of June 30, 2016, had no employees. However, its executive officers and directors have provided significant services to the Company without cash compensation.

 

The Company has a fiscal year end of December 31.

 

Basis of presentation

 

Basis of Presentation - The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows as of June 30, 2016 have been made.

 

Certain information and footnote disclosures included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and footnotes thereto in the Company’s December 31, 2015 audited financial statements appearing in its Annual Report on Form 10-K for the year ended December 31, 2015. The results of operations for the period ended June 30, 2016 are not necessarily indicative of the operating results for the full year.

 

 

VAPARIA CORPORATION

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2016

 

NOTE 1 – NATURE OF BUSINESS AND SUMMARY OF BASIS OF PRESENTATION (continued)

 

Reclassifications – Certain reclassifications may have been made to our prior year’s consolidated financial statements to conform to current year presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.

 

NOTE 2 – GOING CONCERN

 

The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company has limited cash and no source of revenue sufficient to cover its operations costs and allow it to continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company will be dependent upon the raising of additional capital.

 

NOTE 3 – STOCKHOLDER’S EQUITY

 

In January 2016 the Company issued 25,000,000 shares of common stock to Chong Corporation, a related entity, in exchange for five exclusive, worldwide license agreements. We issued 5,000,000 shares for each of the license agreements, for an aggregate issuance of 25,000,000 shares. In accordance with generally acceptable accounting principles (“GAAP”), the intellectual property is carried on the VapAria balance sheet at a fair value of $100,772. The five license agreements are as follows:

 

U.S. Patent No.: 8,903228 issued on December 20, 2014 for a vapor delivery device;

U.S. Patent No.: 8,962,040 issued on February 24, 2015 for vaporized appetite suppression (hoodia);

U.S. Patent No.: 9,254,002 issued on February 9, 2016- for vaporization of a tobacco formulation;

U.S. Patent No.: 9,283,180 issued on March 15, 2016- for a vaporized sleep aid- LTV-(melatonin); and

U.S. Patent App. No.: 13/453,939 filed on April 12, 2012 for an enhanced vapor delivery system.

 

On May 23, 2016 the Company paid an annual dividend of 50,000 shares of common stock to the sole shareholder of our Series A Preferred Stock, Chong Corporation, a related party.

 

On June 30, 2016, the Company had 75,210,000 shares of common stock issued and outstanding.

 

NOTE 4 – RELATED PARTY TRANSACTIONS

 

During the second quarter the Company borrowed from Chong Corporation, a related entity, $58,000. The balance outstanding at June 30, 2016 is $289,544. The loan is unsecured, noninterest bearing and due on demand.

 

We maintain our corporate offices at 5550 Nicollet Avenue, Minneapolis, MN 55419. We lease these premises from 5550 Nicollet LLC, an affiliate of Mr. Chong, under the terms of a three-year lease expiring in December 2016 at an annual rent of $9,000. We have the right to renew the lease for an additional 12-month term at an annual rental of $9,180 upon 60-day notice prior to the expiration of the initial term. Rent was $2,250 for this three-month period in both 2016 and 2015. As of June 30, 2016, $9,750 is due to 5550 Nicollet LLC.

 

NOTE 5 – NOTE PAYABLE

 

As of June 30, 2016, the Company has a note payable in the amount of $50,000 due to an individual. The note was issued on May 30, 2013 and bears eight per cent (8%) annual interest. The note was extended June 30, 2016 and all principal and accrued interest is now due and payable December 31, 2016.

 

 

VAPARIA CORPORATION

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2016

 

NOTE 6 – CONVERTIBLE NOTE

 

The Company assumed an unsecured convertible note for $40,000 that was issued on July 14, 2014 as part of the share exchange. The note was recently extended to mature on December 31, 2016 and continues to bear interest at 10% per annum. The note is convertible into shares of our common stock at $0.08 per share. The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting. The Company therefore performed an analysis to determine if the conversion option was subject to a beneficial conversion feature and determined that the instrument does not have a beneficial conversion feature.

 

The note was originally due on September 1, 2014. The Company entered into a note amendment on September 1, 2014 and the due date was extended to December 1, 2014. On December 1, 2014, the Company extended the note again to December 31, 2015. On December 31, 2015 the note was again extended to July 31, 2016 and on July 31, 2016 it was extended to December 31, 2016. The Company analyzed the modification of the term under ASC 470-60 “Trouble Debt Restructurings” and ASC 470-50 “Extinguishment of Debt”. The Company determined the modification is not substantial and the transaction should not be accounted for as an extinguishment with the old debt written off and the new debt initially recorded at fair value with a new effective interest rate.

 

NOTE 7 – COMMITMENT AND CONTINGENCIES

 

Relating to the December 2013 Agreement with Chong Corporation, beginning in the calendar year in which the first licensed products or licensed services takes place, but not prior to January 1, 2015, the Company is required to pay to Chong Corporation, a related entity, a 3% royalty for revenues with a $50,000 annual minimum royalty commitment.

 

The December 31, 2013 Agreement with Chong Corporation also requires us to pay for the costs associated with maintaining the patent applications and patents licensed to us. For the three months ended June 30, 2016, there were no reimbursable costs.

 

Note 8 – SUBSEQUENT EVENTS

 

On July 26, 2016, the United States Patent and Trademark Office issued US Patent No.: 9,399,110 related to US Patent Application No.: 13/453,939 filed on April 12, 2012 for an enhanced vapor delivery system. The issuance of this patent means that the entire IP portfolio licensed by the Company in the January 2016 license agreement, which then included a total of four patents and one patent application, is now five patents.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion of our financial condition and results of operations for the three and six month periods ended June 30, 2016 and 2015 should be read in conjunction with the unaudited consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forwardlooking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forwardlooking statements as a result of a number of factors, including those set forth under “Cautionary Statements Regarding Forward-Looking Information” appearing earlier in this report, Part I. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2015, and our other filings with the Securities and Exchange Commission. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forwardlooking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forwardlooking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report.

 

Overview and plan of operations

 

We are a pre-clinical specialty pharmaceutical company. Prior to forming VapAria Solutions in 2010, our management had 28 years’ collective experience in vaporization and vapor delivery of medicants, having been partners in a joint venture with pioneers in the industry and having had undertaken significant work internationally researching and developing products, shepherding them through the patent process and introducing them into the U.S. wholesale and retail supply chain.

 

Our initial goal was to leverage rights we acquired in December 2013 from an affiliate to develop and successfully launch a product in partnership with well-capitalized and experienced industry participants based on our exclusive license and exclusive options to license patented and patent-pending technologies under the December 2013 Agreement and formulations designed to significantly improve on current electronic nicotine delivery systems and other consumer products in the marketplace. During the first half of 2016, in addition to discussions with third party financing sources, we continued to engage in substantive discussions with several international companies which have expressed interest in our licensed technology in pursuit of this strategy.

 

In mid-2015 we adjusted our business focus owing to continuing research, development and design throughout and, as a result, we completed a full design of a product embodiment based on our proprietary technology, authorized the production of fully functional prototypes and are scheduling pre-clinical assessments for the prototypes. In the first half of 2016 and 2015 we spent $60,968 and $27,115 respectively, in research and development costs related to these efforts. The first prototype was completed in the first quarter of 2016 and in the third quarter of 2016 we expect to enter into IND-enabling studies that should take from pre-clinical stage to clinical stage and make the FDA 505(b)(2) pathway to regulatory approval and commercialization available to us. The cost of these activities are expected to be funded with the $1,000,0000 to $2,000,000 that we need to raise in the next 12 months to remain a going concern. If we are unable to raise sufficient capital to fund these costs, our ability to continue our commercialization efforts will be adversely impacted.

 

Our management, through the Chong Corporation, an affiliated entity that is the licensor of the intellectual property rights we acquired in December 2013 and January 2016, has built an extensive and robust portfolio of intellectual property that includes patented and patent-pending methods of vaporization and patented and patent-pending medicants and herbal remedies identified for their effectiveness and suitability to address the markets identified above. Historically we have relied upon on related party loans that, as of June 30, 2016, total $289,544, and the $110,000 from the sale of our securities in private transactions that occurred in the first quarter of 2015 to provide working capital. Our management has worked without cash compensation. In the first half of 2016, the loan increased by $116,000 and these proceeds were used to pay expenses associated with research, development and design, patent protection prosecution activities and ordinary business expenses associated with identifying, meeting with and negotiating with potential business partners and our general operating expenses, including the payment of our obligations. We estimate that we will need to raise between $1 million and $2 million over the next 12 months to continue to implement our business plan.

 

 

We may seek to raise the necessary capital through future public or private debt or equity offerings of our securities, although we do not have any commitments from any third parties to provide any capital to us. While we believe that the exclusive rights to the proprietary technology on which our business is predicated could provide us with a significant competitive advantage if we are able to bring one or more products to market, our ability to accomplish that in the near term is dependent on a successful prototype and positive pre-clinical assessments of the prototype. Given the current lack of a public market for our common stock, our status as a pre-clinical stage company and the difficulties small companies experience in accessing the capital markets, we expect to encounter difficulties in pursuing public or private capital raises. We may also seek to minimize our capital needs by securing partnerships or joint ventures with well capitalized companies in the pharmaceutical or OTC consumer products industries. Until such time as we are able to raise all or a portion of the necessary capital, our ability to continue to implement our business plan will be in jeopardy.

 

Going concern

 

For the second quarter of 2016 we reported a net loss of $70,675 compared to a net loss of $98,080 for the same period in 2015. For the six months ended June 30, 2016 we reported a net loss of $124,192 and net cash used in operating activities of $113,047. For the first six months of 2015 we reported a net loss of $137,792 and net cash used in operations of $110,603. At June 30, 2016 we had cash on hand of $8,868, a working capital deficit of $433,476 and an accumulated deficit of $1,042,476. The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2015 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our minimal cash and no source of revenues which are sufficient to cover our operating costs. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to raise capital, develop a source of revenues, report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company.

 

Results of operations

 

We did not generate any revenues from our operations in any of the 2016 or 2015 periods. Our total operating expenses for the second quarter of 2016 decreased 28% over those reported in the comparable period in 2015 and 10% for the first six months of 2016 as compared to the first six months of 2015. General and administrative expenses, which include amortization, rent, non-cash compensation and IP related expenses, decreased 77% in in the second quarter of 2016 when compared to the same period in 2015 and 65% for the first six months of 2016 from the first six months of 2015. The amounts recorded in the second quarter of 2015 reflected one-time costs associated with IP maintenance.

 

Research and development expenses increased significantly in the second quarter and first six months of 2016 from the comparable 2015 periods as described above. Professional fees decreased 62% for the second quarter of 2016 and 33% for the first six months of 2016 from the comparable 2015 periods. The decreases in the 2016 periods over the comparable 2015 periods is directly attributable to higher legal fees related to due diligence costs associated with ongoing discussions and negotiations with potential licensees or product development partners in the prior year. During 2015 we also incurred one-time legal fees associated with securing a freedom to operate opinion for which there was not a comparable expense in 2016.

 

We expect that our operating expenses will now increase as we continue to develop our business and we devote additional resources towards promoting that growth, most notably reflected in anticipated increases in general overhead, salaries for personnel and technical resources, as well as increased costs associated with our SEC reporting obligations. However, as set forth elsewhere in this report, our ability to continue to develop our business and achieve our operational goals is dependent upon our ability to raise significant additional working capital. As the availability of this capital is unknown, we are unable to quantify at this time the expected increases in operating expenses in future periods.

 

 

Liquidity and capital resources

 

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. As of June 30, 2016 we had $8,868 in cash and cash equivalents and a working capital deficit of $433,476 as compared to $5,915 in cash and cash equivalents and a working capital deficit of $317,564 at December 31, 2015. Our current liabilities increased 37% at June 30, 2016 from December 31, 2015, reflecting interest payable and loan to a related party. Our principal source of operating capital during the first half of 2016 came from additional borrowing from a related party which lent us an additional $116,000.

 

We do not have any commitments for capital expenditures. Our working capital is not sufficient to fund our operations for at least the next 12 months and to satisfy our obligations as they become due. During the second quarter of 2016, the holder of a $50,000 principal amount note agreed to the extension of the due date of the note from June 30, 2016 to December 31, 2016. The remaining note in the principal amount of $40,000 is convertible into 500,000 shares of our common stock at the option of the holder and is now due December 31, 2016. While there are no assurances the holder will elect to convert the note, in that event we granted the holder demand and piggyback registration rights over those shares. We also owe a related party $289,544 which is due on demand. We do not have the funds necessary to repay these obligations or to fund the costs associated with filing a registration statement if the noteholder converts the note and exercises its registration rights. As described earlier in this report, we will need to raise between $1,000,000 and $2,000,000 in additional capital during the next 12 months. As we do not have any firm commitments for all or any portion of this necessary capital, there are no assurances we will have sufficient funds to fund our operating expenses and continued development of our products and to satisfy our obligations as they become due. In that event, our ability to continue as a going concern is in jeopardy.

 

Net Cash Used in Operating Activities

 

We used $113,047 of cash in our operating activities in the first six months of 2016 a slight increase when compared to $110,603 used by our operating activities in the same period in 2015. The change, net of non-cash items, is primarily attributable to an increase in accrued expenses.

 

Net Cash Provided by (Used in) Investing Activities

 

There was no net cash provided by (used in) investing activities in the first six months of 2016 or 2015.

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing for the first half of 2016 consisted of $116,000 in borrowings of from Chong Corporation compared to a capital raise of $110,000 and the net borrowing of $13,000 from Chong Corporation in the first six months of 2015.

 

Non cash investing and financing activities

 

Dividends of common stock issued on the shares of outstanding Series A 10% convertible preferred stock resulted in $7,500 in non-cash financing.

 

Critical accounting policies

 

The preparation of financial statements in conformity with U.S. 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 revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, accounts receivable allowances and impairment of long-lived assets. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited consolidated financial statements for the first quarter of 2016 appearing elsewhere in this report.

 

Recent accounting pronouncements

 

There are no recent accounting standards that have been issued or proposed by the FASB or other standards setting bodies that require adoption.

 

 

Off balance sheet arrangements

 

As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable for a smaller reporting company.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures.

 

We maintain “disclosure controls and procedures” as such term is defined in Rules 13a15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the costbenefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure due to the presence of continuing material weakness in our internal control over financial reporting as reported in our Annual Report on Form 10-K for the year ended December 31, 2015. These material weaknesses in our internal control over financial reporting result from limited segregation of duties and limited multiple level of review in the financial close process.

 

The existence of the continuing material weaknesses in our internal control over financial reporting increases the risk that a future restatement of our financials is possible. In order to remediate these material weaknesses, we will need to expand our accounting resources. We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal control over financial reporting on an ongoing basis, however, we do not expect that the deficiencies in our disclosure controls will be remediated until such time as we have remediated the material weaknesses in our internal control over financial reporting. Subject to the availability of sufficient capital, we expect to expand our accounting resources during 2016 in an effort to remediate the material weaknesses in our internal control over financial reporting.

 

Changes in Internal Control over Financial Reporting.

 

There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None.

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2015 and our subsequent filings with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the Securities and Exchange Commission.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None except as previously reported.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable to our company’s operations.

 

Item 5. Other Information.

 

On June 30, 2016, the holder of a $50,000 principal amount note agreed to the extension of the due date of the note from June 30, 2016 to December 31, 2016. A copy of the note extension is filed as Exhibit 10.15 to this report.

 

On July 31, 2016 the holder of a $40,000 convertible agreed to the extension of the due date of the note from July 31, 2016 to December 31, 2016. A copy of the note extension is files as Exhibit 10.16 to this report.

 

Item 6. Exhibits.

 

No.		Description
10.15		Agreement to Extend dated June 30, 2016 for promissory note due Donald J. Bores Sr. *
10.16		Addendum dated July 31, 2016 to Convertible Note due Artemisa Holdings, Inc. *
31.1		Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer *
31.2		Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer*
32.1		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer*
101.INS		XBRL Instance Document*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase *
101.LAE		XBRL Taxonomy Extension Label Linkbase *
101.DEF		XBRL Taxonomy Extension Definition Linkbase *
101.SCH		XBRL Taxonomy Extension Schema *

 

* filed herewith

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		VapAria Corporation
	August 11, 2016	By:	/s/ Alexander Chong
			Alexander Chong, Chief Executive Officer
	August 11, 2016	By:	/s/ Daniel Markes
			Daniel Markes, Chief Financial Officer