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EX-32 - EXHIBIT 32 - Vapetek Inc.ex32.htm
EX-31 - EXHIBIT 31 - Vapetek Inc.ex31.htm

 

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017

 

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

 

Commission file number: 000-54994

 

 

VAPETEK INC.

(Exact name of registrant as specified in its charter)

 

Delaware    46-3021464
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)
     
Vapetek Inc.    

580 W Cheynne Ave. STE 160

North Las Vegas, NV 89030  

  89030
(Address of Principal Executive Offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (714) 916-9321

 

 Former Address:

5445 Oceanus Driver STE 102

Huntington Beach, CA 

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

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]

Non-accelerated filer [ ]

Emerging growth company [X]

Accelerated filer [ ]

Smaller reporting company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of November 20, 2017 the issuer had 79,940,000 shares of its common stock issued and outstanding.

 

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Table of Contents

 

TABLE OF CONTENTS

 

PART I    
     
Item 1. Financial Statements F1-F6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 3
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 6
     
Item 4. Controls and Procedures 6
     
PART II    
     
Item 1. Legal Proceedings 7
     
Item 1A. Risk Factors 7
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 7
     
Item 3. Defaults Upon Senior Securities 7
     
Item 4. Mine Safety Disclosures 7
     
Item 5. Other Information 7
     
Item 6. Exhibits 8
     
  Signatures 9

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Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1.Financial Statements. 

 

VAPETEK, INC.

BALANCE SHEETS

         

September 30, 2017

(unaudited)

 

December 31,

2016

ASSETS          
               
Current assets:        
  Cash $ 4,085 $ 2,848
  Accounts receivable   2,588   -
  Inventory   41,260   48,121
Total current assets   47,933   50,969
               
Computer, net   -   92
               
Total assets $ 47,933 $ 51,061
               
 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)        
               
Current liabilities:        
  Accounts payable and accrued liabilities $ - $ 3,884
  Due to related parties   52,000   29,500
  Accrued rent – related party   17,600   6,600
Total current liabilities   69,600   39,984
               
Total liabilities   69,600   39,984
         
Stockholders' equity (deficit):        
  Preferred stock, $0.0001 par value, 5,000,000 shares authorized; none issued and outstanding   -   -
  Common stock, $0.0001 par value, 100,000,000 shares authorized; 79,940,000 and 77,520,000 shares issued and outstanding, respectively   7,994   7,752
  Additional paid-in capital   646,785   643,758
  Stock subscription receivable   (10)   -
  Accumulated deficit   (676,436)   (640,433)
  Total stockholders' equity (deficit)   (21,667)   11,077
               
Total liabilities and stockholders' equity $ 47,933 $ 51,061

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

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VAPETEK INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

         

For the Three Months Ended

September 30,

 

For the Nine Months Ended

September 30,

          2017     2016   2017   2016
Sales   $ 5,359   $ 45,403 $ 30,440 $ 122,949
Sales – related party   1,550     15,666   36,692   24,837
Total sales   6,909     61,069   67,132   147,786
Cost of sales   2,084     30,079   16,232   68,994
Cost of sales, related party   1,145     10,146   21,406   11,015
Total cost of sales   3,229     40,225   37,638   80,009
Gross Profit   3,680     20,844   29,494   67,777
                         
Operating expenses:                  
Professional fees     6,180     4,863   28,506   30,444
Compensation expense     -     500,000   -   500,000
Rent expense, related party     6,600     6,600   19,800   19,800
General and administrative     8,911     5,949   14,164   25,775
Total operating expenses     21,691     517,412   62,470   576,019
Loss from operations (18,011)     (496,568)   (32,976)   (508,242)
                         
Other expense:                  
Interest expense   (3,027)     -   (3,027)   -
Loss on investment     -     (4,957)   -   (33,713)
Total other expense   (3,027)     (4,957)   (3,027)   (33,713)
Net loss $ (21,038)   $ (501,525) $ (36,003) $ (541,955)
                         
Basic loss per common share $ (0.00)   $ (0.01) $ (0.00) $ (0.01)
                         
Basic weighted average common shares outstanding   79,885,652     75,674,648   78,433,993   61,800,839

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

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VAPETEK INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

         

For the nine Months Ended

September 30,

          2017     2016
Cash flows from operating activities:          
  Net Loss $ (36,003)   $ (541,955)
  Adjustments to reconcile net loss to net cash used in operating activities          
    Depreciation   92     275
    Loss on trading securities   -     33,713
    Stock issued for services   -     6,250
    Stock-based compensation - related party   -     500,000
  Changes in operating assets and liabilities:          
     Accounts Receivable   (2,588)     -
    Inventory   6,860     (3,905)
    Accounts payable and accrued liabilities   (3,883)     1,863
    Accrued rent – related party   11,000     (4,400)
      Net cash used in operating activities   (24,522)     (34,155)
                 
Cash flows from investing activities:          
          Investment   -     (33,713)
Net cash used in investing activities   -     (33,713)
                 
Cash flows from financing activities:          
    Loans from related party   32,000     -
    Repayments of related party loans   (9,500)     (10,000)
    Imputed interest expense   3,027     -
    Stock subscription receivable   (10)     -
    Proceeds from the sale of common stock   242     73,000
      Net cash provided by financing activities   25,759     63,000
                 
Net change in cash   1,237     (4,868)
                 
Cash, beginning of period   2,848     5,967
                 
Cash, end of period $ 4,085   $ 1,099
                 
SUPPLEMENTAL DISCLOSURES:          
  Cash paid for interest $   $
  Cash paid for taxes $   $

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

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VAPETEK Inc.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

 

NOTE 1.   ORGANIZATION AND DESCRIPTION OF BUSINESS

VAPETEK Inc., f/k/a, ALPINE 2 Inc. (the “Company”), was incorporated under the laws of the State of Delaware on June 18, 2013. VAPETEK Inc. designs, markets, and distributes electronic cigarettes, vaporizers, e-liquids, and accessories. The Company’s products are designed to look like traditional cigarettes, are battery-powered products that enable users to inhale nicotine vapor without smoke, tar, ash, or carbon monoxide.

 

On March 6, 2014, the Board of Directors and majority stockholder of the Company approved an amendment to the Company’s Certificate of Incorporation to change the name of the Company from ALPINE 2 Inc. to VAPETEK Inc. On that date, the Company filed a Certificate of Amendment with the State of Delaware.

 

On April 1, 2014, the Company entered into a product distribution agreement with West Coast Vape Supply Inc. to supply electronic cigarettes, vaporizers, e-liquids, and accessories, and other third party products. West Coast Vape Supply Inc. is a related party and owned 100% by the management of Vapetek Inc.

 

On September 23, 2014, the Company filed its Form 8-K (“Super 8-K”) outlining its discussion on its asset acquisition license with PennyGrab Inc., its entry into a product distribution agreement with West Coast Vape Supply Inc. to supply products of electronic cigarettes, vaporizers, e-liquids, and accessories, and other third party products, the development of its corporate website and sales from its line of products that it now offers. As a fully-operating entity, the Super 8-K disclosed that it had exited its shell company status pursuant to Item 5.06, Change in Shell Company Status.

 

On August 11, 2014, the Company entered into a Licensing Agreement (the “Agreement”) with PennyGrab Inc. (“PennyGrab”). PennyGrab, a company owned 100% by our Chairman, Alham Benyameen, is the owner of technology, including software code, relating a website designed for wholesale, retail, and online auction compatible products.  The software code is a PHP website script that is 100% customizable and is SEO friendly that improves site search engines rankings. The software code is the “Licensed Technology.”

 

Pursuant to the Agreement, PennyGrab granted to the Company an exclusive, transferable (including sublicensable) worldwide perpetual license of the Licensed Technology, to make, use, lease, and sell products incorporating the Licensed Technology.  The Company is required to pay to PennyGrab royalty payments equal to $100 (One Hundred Dollars) per year. The term of the Agreement is ongoing and effective as of August 11, 2014.

 

NOTE 2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company’s unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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 of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2016 included on the Company’s Form 10-K filed on April 12, 2017. The results of the nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. These estimates and judgments are based on historical information, information that is currently available to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.

 

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Revenue Recognition

Revenue is only recognized when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the price to the buyer is fixed or determinable, and (4) collectability is reasonably assured.

 

On occasion the Company may receive payment for a sale in advance of shipping the product. When this occurs the funds received are considered to not yet be earned and are reported as a liability on the financial statements as deferred revenue.

 

Returns, Repairs and Exchange Policy

It is the policy of the Company to issue no refunds once an order has been shipped unless due to product defects or Company error. The default warranty for all products is 14 days unless otherwise specified. Eligibility for refunds, repairs or exchanges are limited to products determined to have manufacturing defects or premature failure. Products that are damaged through misuse, negligence, and abuse or modified or repaired by anyone other than Vapetek, Inc. are not eligible for exchange.

Shipping fees are non-refundable.

 

The Company records shipping costs in accordance with EITF 00-10 Accounting for Shipping and Handling Fees and Costs. Accordingly, the shipping costs is shown in the financial statements to be included with general and administrative expense.

Due to personal tastes and preferences the Company does not offer returns, refunds or exchanges for e-liquid products. All e-liquid purchases are final.

 

If fulfillment errors occur, requests to correct mistakes that are made by the Company resulting in a customer’s receipt of incorrect or missing items in the order will be accepted for 14 days after the receipt of the order. Requests for missing or incorrect items will not be accepted after 14 days from the date the order has been received.

 

Recently issued accounting pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

NOTE 3.  GOING CONCERN

The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and has an accumulated a deficit of $676,436 as of September 30, 2017.  The Company requires capital for its contemplated operational and marketing activities.  The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

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NOTE 4. RELATED PARTY TRANSACTIONS

 

On July 2, 2014, the Company executed another Consolidated Loan Agreement for $4,500 to West Coast Vape Supply Inc., The note is unsecured, non-interest bearing, payable on demand and is due no later than July 2, 2019. The note also contains a conversion feature that allows West Coast Vape Supply, Inc. to convert into shares of restricted common stock at any time after the first year’s anniversary of the date of the Loan Agreement, at the price based upon either: a) the price of its most recent private placement offering, closest to the time of conversion, b) if publicly -traded, then the bid price of its common stock on the closing day of conversion. The loan agreement was amended on April 1, 2015 to eliminate the conversion clause. All other terms remained the same. This loan was repaid in full on June 2, 2017.

 

On March 10, 2015, the Company executed another Consolidated Loan Agreement for $20,000 to West Coast Vape Supply Inc., The note is unsecured, non-interest bearing, payable on demand and is due no later than March 10, 2020. The note also contains a conversion feature that allows West Coast Vape Supply, Inc. to convert into shares of restricted common stock at any time after the first year’s anniversary of the date of the Loan Agreement, at the price based upon either: a) the price of its most recent private placement offering, closest to the time of conversion, b) if publicly -traded, then the bid price of its common stock on the closing day of conversion at. This loan agreement has been amended on April 1, 2015 to eliminate the conversion clause. All other terms remain the same. On August 1, 2016, $5,000 was repaid on the loan. As of September 30, 2017, $15,000 is still outstanding. The Company has recorded imputed interest for the nine-month period ended September 30, 2017 of $2,305.

 

On April 17, 2015, West Coast Vape Supply loaned the Company $5,000 for general operating expenses. The loan is unsecured, non-interest bearing, payable on demand, and due no later than April 17, 2020. This loan was repaid in full in May 2017.

 

On June 1, 2015, the Company entered into a Lease Agreement (“Lease”) with West Coast Vape Supply, Inc. (“West Coast”) a company owned 100% by the Company’s management. The term of the lease is one year commencing June 1, 2015 and ending March 31, 2017. The Company shall pay West Coast rent of $26,400 per year in equal monthly installments of $2,200 payable in advance on the 1st of every month. As of September 30, 2017, there is $17,600 of accrued unpaid rent.

 

On July 17, 2015, West Coast Vape Supply loaned the Company $5,000 for general operating expenses. The loan is unsecured, non-interest bearing, payable on demand, and due no later than April 17, 2020. As of September 30, 2017, this loan is still outstanding. The Company has recorded imputed interest for the nine-month period ended September 30, 2017 of $362.

 

On July 7, 2017 and September 21, 2017, MeWe World, a related party, loaned the Company $25,000 and $7,000, respectively. The loans were made to purchase inventory and cover operating expenses. They are unsecured, non-interest bearing, payable on demand and due no later than March 10, 2020. As of September 30, 2017, $32,000 is still outstanding. The Company has recorded imputed interest for the nine-month period ended September 30, 2017 of $360.

 

The Company recognized $36,692 and $24,837 in revenue from West Coast Vape Supply, a related party, for the nine months ended September 30, 2017 and 2016, respectively; and cost of goods sold of $21,406 and $11,015, respectively. This revenue consisted of approximately 54.6% and 16.8%, respectively of the Company’s total sales. The Company recognized $1,550 and $15,666 in revenue from West Coast Vape Supply, a related party, for the three months ended September 30, 2017 and 2016, respectively; and cost of goods sold of $1,145 and $10,146, respectively. This revenue consisted of approximately 22.4% and 25.6%, respectively of the Company’s total sales. Sales made to West Coast Vape Supply are not recognized unless they are then sold on to a third party in an arm’s length transaction.

 

NOTE 5. COMMON STOCK

 

During the nine months ended September 30, 2017 the Company sold 2,420,000 shares of common stock at par value of $0.0001 for total cash proceeds of $242, $10 of which had not yet been collected as of September 30, 2017 and was debited to stock subscription receivable.

 

On June 19, 2017, the Company executed a consulting agreement with CorporateAds.com in connection with the 360,000 shares that they purchased. The agreement is for marketing and other activities to promote the Company. The initial term is for fifteen days but can be automatically extended for an additional 165 days, and then for one additional year.

 

On June 17, 2017, the Company executed a consulting agreement with I-Business Management LLC in connection with the 360,000 shares that they purchased. The agreement is for investor relation services for a period of six months.

 

NOTE 6.  COMMITMENTS AND CONTINGENCIES

On April 1, 2017, the Company entered into a Lease Agreement (“Lease”) with West Coast Vape Supply, Inc. (“West Coast”) a company owned 100% by the Company’s management. The term of the lease begins April 1, 2017 and ends March 31, 2019. The Company shall pay West Coast rent of $12,000 per year in equal monthly installments of $1,000 payable in advance on the 1st of every month. Future minimum rental payments are as follows:

Years ending December 31,    
2017 $ 3,000
2018   12,000
2019   3,000
       $ 18,000

NOTE 7. SUBSEQUENT EVENTS

 

 

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

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

 

 

Company Overview

 

Corporate History

 

The Company was incorporated under the laws of the State of Delaware on June 18, 2013, with an objective to acquire, or merge with, an operating business.

 

On March 6, 2014, we entered into a Share Purchase Agreement, resulting in a change of control, with Alham Benyameen and Andy Michael Ibrahim whereby Richard Chiang our Chairman of the Board of Directors, President, CEO, CFO and Secretary elected Mr. Benyameen as our Chairman of the Board of Directors and Mr. Ibrahim as our President, CEO, CFO, Secretary and Member of our Board of Directors.

 

Under the terms of the agreement, Mr. Chiang our former President and CEO sold 7,200,000 shares of Vapetek, Inc., formerly known as ALPINE 2 Inc. to Mr. Benyameen and Mr. Ibrahim in exchange for $20,000. Mr. Chiang simultaneously resigned from his positions held in the Company. Upon the closing of our Share Purchase Agreement, we entered into an employment agreement with Mr. Benyameen and Mr. Ibrahim as officers and directors of ALPINE 2 Inc. We issued in advance 20,000,000 shares of our common stock to Mr. Benyameen and 20,000,000 shares of our common stock to Mr. Ibrahim. These shares were valued at par $0.0001 at the time of transfer. Immediately after the closing of the Share Purchase Agreement, we had 50,000,000 shares of common stock outstanding, no shares of preferred stock, no options, and no warrants outstanding. On March 12, 2014, we filed a certificate of amendment of certificate of incorporation with the State of Delaware and on March 25, 2014, officially amended our name from ALPINE 2 Inc., to Vapetek Inc.

 

On April 1, 2014, the Company entered into a product distribution agreement with West Coast Vape Supply Inc. to supply electronic cigarettes, vaporizers, e-liquids, and accessories, and other third-party products. West Coast Vape Supply Inc. is a related party and owned 100% by the management of Vapetek Inc.

 

On August 11, 2014, we entered into a Licensing Agreement with PennyGrab Inc. (“PennyGrab”). PennyGrab is the owner of technology, including software code, relating a website designed for wholesale, retail, and online auction compatible products. The software code is a PHP website script that is 100% customizable and is SEO friendly that improves site search engines rankings. The software code is the “Licensed Technology.” Pursuant to the Agreement, PennyGrab granted to the Company an exclusive, transferable (including sublicensable) worldwide perpetual license of the Licensed Technology, to make, use, lease, and sell products incorporating the Licensed Technology (the “Licensed Products”). The Company is required to pay to PennyGrab royalty payments equal to $100 per year. 

On September 23, 2014 we filed an 8-K regarding a change in shell Company Status as we were no longer to be deemed a shell Company as we had more than nominal operations. There are currently no outstanding comments in regards to the 8-K filed and as of today we are no longer deemed to be a shell Company.

 

On April 6, 2015 the Company completed a reverse stock split in which every eight shares of common stock became one share of common stock.

 

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Our Business

 

Vapetek is a technology company engaged in developing, marketing and selling electronic cigarettes (“e-cig”), e-liquids, rechargeable batteries and vapor devices in the emerging growth e-cigarette industry. The Company’s business product mix currently stands at approximately 25% e-liquids and 75% devices, which consist of e-cig, rechargeable batteries and vapor devices. Thus far the majority of our revenues have been from the sale of 3 products: the Vapetek Liquivape e-Liquid, Dripstix E-Liquid, 1100mAh and 1500mAh Vapetek Batteries

All of our products are U.S. pharmacopeia (USP) grade which means our e-liquids meet the product quality and standards set by The United States Pharmacopeial Convention, a non-profit organization that publishes food ingredients and dietary supplements. Food ingredients, flavorings and colorings, are reviewed by the USP and these standards are used by regulatory agencies and manufacturers to help ensure that these products are of appropriate identity, as well as strength, quality, purity and consistency. 

The Company has positioned itself as a technology company focused on the adoption of electronic vaporizing cigarettes (commonly known as “e-cigarettes”) by the world’s 1.2 Billion smokers. The Company provides high quality e-cigarette devices, electronic refillable and rechargeable atomizers and e-liquids offering a much safer alternative delivery system for nicotine. There are an estimated 300,000,000 people in the United States, with approximately 28% or 84,000,000 of the population classified as active cigarette smokers. 

 

A key proposition of an e-cigarette is that it eliminates odor. One of the top reasons people ‘hate smokers’ is the smell of the burning cigarette. The Smoker smells bad, their clothes smell bad, and their breath smells bad, as well as the health issues associated with second hand smoke. The Electronic Cigarettes we are bringing to market deliver the nicotine through atomizing cartridges containing nicotine and water. This allows the Nicotine to be delivered through the lungs with Water Vapor, eliminating most all the health issues related to smoking a traditional cigarette (Examples include tar and over 4000 Carcinogenic Chemicals). The Electronic Cigarette also eliminates the smell, stink and ash associated with the burning of traditional cigarettes.

 

Currently the Company has customers both domestically and overseas in Japan and the United Kingdom   . It should be noted that the Company expects to continue developing domestic and international sales of its products in markets that it considers to be emerging for e-cigarette devices and products, such as in South America. As of this time we are researching potential targets in which to expand our reach, but we do not have concrete overseas expansion plans at this time.  

*All of our current products are third party products created by third party manufacturers branded under our own trademark.   

 

Results of operations for the three months ended September 30, 2017 and September 30, 2016.

 

Revenues

Our sales revenue was $6,909 for the three months ended September 30, 2017, compared to $61,069 for the three months ended September 30, 2016. Currently, approximately 25.6% and %, of the revenue was from one related party for the three months ended September 30, 2017 and 2016, respectively. The decrease in sales is attributed to a change in the market demand for the type of products being sold. Smaller less expensive bottles are becoming more preferable in the industry. 

Cost of Sales

Our cost of sales was $3,229 for the three months ended September 30, 2017, compared to $40,225 for the three months ended September 30, 2016. The decrease is in line with the decreased sales as mentioned above.

 

Operating Expenses

Our operating expenses decreased by $495,721 to $21,691 for the three months ended September 30, 2017 from $517,412 for the three months ended September 30, 2016. In 2016, we incurred $500,000 in stock compensation expense that we did not have in 2017. Without the $500,000 operating expenses increased $2,251, mainly due to increased professional fees.

 

Net Loss

We recorded a net loss of $21,038 for the three months ended September 30, 2017, as compared to $501,525 for the three months ended September 30, 2016. In addition to our operating expenses we recorded $3,027 of imputed interest expense in the current period.

 

Results of operations for the nine months ended September 30, 2017 and September 30, 2016.

 

Revenues

Our sales revenue was $67,132 for the nine months ended September 30, 2017, compared to $147,786 for the nine months ended September 30, 2016. Currently, approximately 54.6% and 16.8%, of the revenue was from one related party for the nine months ended September 30, 2017 and 2016, respectively. The decrease in sales is attributed to a change in the market demand for the type of products being sold. We believe smaller less expensive bottles are becoming more preferable in the industry.

 

 

Cost of Sales

Our cost of sales was $37,638 for the nine months ended September 30, 2017, compared to $80,009 for the nine months ended September 30, 2016. The decrease is in line with the decreased sales as mentioned above. The decrease in the cost of sales was not as dramatic as it could have been given the fact that sales for the nine months ended September 30, 2017 were comprised of mostly low profit margin products sold as opposed to mostly high profit margin products sold for the nine months ended September 30, 2016.

 

Operating Expenses

Our operating expenses decreased by $513,549 to $62,470 for the nine months ended September 30, 2017 from $576,019 for the nine months ended September 30, 2016. In 2016, we incurred $500,000 in stock compensation expense that we did not have in 2017.

 

Net Loss

We recorded a net loss of $36,003 for the nine months ended September 30, 2017, as compared to $541,955 for the nine months ended September 30, 2016. The decrease is attributed to the decrease in operating expense, the absence of stock compensation expense and a $28,756 loss on investment that was recognized in the prior year but not in the current. In addition to our operating expenses we recorded $3,027 of imputed interest expense in the current period.

 

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Liquidity and Capital Resources

 

Cash Flows

 

Cash Used in Operating Activities

 

For the nine months ended September 30, 2017 net cash used in operating activities was $24,522 compared to $34,155 in the prior period. The decrease in net cash used in operating activities is due to a decreased level of operations for the nine months ended September 30, 2017.

 

Cash from Investing Activities

 

For the nine months ended September 30, 2017 there have been no capital expenditures.

 

Cash from Financing Activities

 

For the nine months ended September 30, 2017 we received $25,759 in financing activities compared to net proceeds of $63,000 in the prior period. In the prior period, the company sold stock for total proceeds of $73,000 and repaid $10,000 on a loan. In the current period the company sold stock for total proceeds of $22,742.

 

On March 10, 2015, the Company executed another Consolidated Loan Agreement for $20,000 to West Coast Vape Supply Inc., The note is unsecured, non-interest bearing, payable on demand and is due no later than March 10, 2020. The note also contains a conversion feature that allows West Coast Vape Supply, Inc. to convert into shares of restricted common stock at any time after the first year’s anniversary of the date of the Loan Agreement, at the price based upon either: a) the price of its most recent private placement offering, closest to the time of conversion, b) if publicly -traded, then the bid price of its common stock on the closing day of conversion at. This loan agreement has been amended on April 1, 2015 to eliminate the conversion clause. All other terms remain the same. On August 1, 2016, $5,000 was repaid on the loan. As of September 30, 2017, $15,000 is still outstanding.

 

On July 17, 2015, West Coast Vape Supply loaned the Company $5,000 for general operating expenses. The loan is unsecured, non-interest bearing, payable on demand, and due no later than April 17, 2020. As of September 30, 2017, this loan is still outstanding.

 

On July 7, 2017 and September 21, 2017, MeWe World, a related party, loaned the Company $25,000 and $7,000, respectively. The loans were made to purchase inventory and cover operating expenses. They are unsecured, non-interest bearing, payable on demand and due no later than March 10, 2020.

 

As of September 30, 2017, we have insufficient cash to operate our business at the current level for the next twelve months and insufficient cash to achieve our business goals. The success of our business plan beyond the next 12 months is contingent upon us obtaining additional financing. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.

 

Off-Balance Sheet Arrangements and Contractual Obligations

 

The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose the Company to material continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to the Company.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions, and estimates that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Note 2, “Summary of Significant Accounting Policies” of this Form 10-Q describes the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.

 

Management believes the Company’s critical accounting policies and estimates are those related to revenue recognition, valuation and impairment of marketable securities, inventory valuation and valuation of manufacturing-related assets and estimated purchase commitment cancellation fees, warranty costs, income taxes, and legal and other contingencies. Management considers these policies critical because they are both important to the portrayal of the Company’s financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters.

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since inception and had accumulated a deficit of $679,671 as of September 30, 2017.  The Company requires capital for its contemplated operational and marketing activities.  The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

In order to mitigate the risk related with this uncertainty, the Company plans to issue additional shares of common stock for cash and services during the next 12 months.

 

Recent Developments

 

None.

 

Available Information

 

The Company’s Registration Statement on Form 10, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the SEC. The Company is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy statements, and other information with the SEC. Such reports and other information filed by the Company with the SEC are available free of charge by calling the Company at (714) 916-9321 or when such reports are available on the SEC’s website. The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

None.

 

Item 4. Controls and Procedures.

 

As required by Rule 13a-15 of the Securities Exchange Act of 1934, our principal executive officer and principal financial officer evaluated our company's disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period covered by this report, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission and to ensure that such information is accumulated and communicated to our company's management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of the following material weaknesses in internal control over financial reporting which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both United States generally accepted accounting principles and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.

 

We plan to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending December 31, 2017, subject to obtaining additional financing: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out above are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

 

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2017 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1.Legal Proceedings.

 

There are not presently any material pending legal proceedings to which the Registrant is a party or as to which any of its property is subject, and no such proceedings are known to the Registrant to be threatened or contemplated against it.

  

Item 1A. Risk Factors.

 

There have been no material changes to the risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

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

 

None.

 

Item 3.Defaults Upon Senior Securities.

 

None.

 

Item 4.Mine Safety Disclosures.

 

Not applicable.

 

Item 5.Other Information.

 

On January 26, 2017, the Company engaged BF Borgers CPA PC (“BF”) of Lakewood, CO, as its new Independent Registered Public Accounting Firm. During the year ended December 31, 2014, December 31, 2015 and prior to January 26, 2017 (the date of the new engagement), we did not consult with BF regarding (i) the application of accounting principles to a specified transaction, (ii) the type of audit opinion that might be rendered on the Company’s financial statements by BF, in either case where  written or oral advice provided by BF would be an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issues or (iii) any other matter that was the subject of a disagreement between us and our former auditor or was a reportable event (as described in Items 304(a)(1)(iv) or Item 304(a)(1)(v) of Regulation S-K, respectively).

 

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Item 6.Exhibits.

 

Exhibit No.

 

Description

3.1   Certificate of Incorporation (1)
     
3.2   By-laws (1)
     
31.1   Certification of the Company’s Principal Executive and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s report on Form 10-Q for the period ended September 30, 2017 (2)
   
32.1   Certification of the Company’s Principal Executive and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (2)
     
101.INS   XBRL Instance Document (3)
     
101.SCH   XBRL Taxonomy Extension Schema (3)
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase (3)
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase (3)
     
101.LAB   XBRL Taxonomy Extension Label Linkbase (3)
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase (3)

 

(1) Filed as an exhibit to the Company's Registration Statement on Form 10, as filed with the SEC on July 3, 2013, and incorporated herein by this reference.
(2) Filed herewith.
(3) Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or Annual Report for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Exchange Act of 1934 and otherwise are not subject to liability.

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Vapetek Inc.

 

Dated: November 20, 2017

 

  By: /s/ Andy Michael Ibrahim
    Andy Michael Ibrahim,
Chief Executive Officer
(Principal Executive Officer), Secretary and
Member of the Board of Directors

 

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