UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date of Report (Date of Earliest event
Reported): December 30, 2014
Vapir
Enterprises, Inc.
(Exact name of registrant as specified
in its charter)
Nevada |
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333-185083 |
|
27-1517938 |
(State or other jurisdiction of
incorporation or organization) |
|
(Commission File Number) |
|
(IRS Employer
Identification No.) |
2365 Paragon Dr., Suite B
San Jose, California 95131
(Address of principal executive offices)
(800) 841-1022
(Registrant’s telephone number,
including area code)
FAL Exploration Corp.
431 Fairway Drive, Suite 260
Deerfield Beach, Florida 33441
(Former name of former address, if changed
since last report)
Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
Explanatory Note
Vapir Enterprises, Inc. (the “Company”) is filing this
Amendment to its Current Report on Form 8-K (the “Amendment”), to amend the Current Report on Form 8-K which was originally
filed with the Securities and Exchange Commission (the “SEC”) on December 30, 2014, (the “Original Current Report”).
The Company is filing the Amendment in response to comments received from the SEC.
Except as described above, no other changes have been made to the
Original Current Report. The Amendment continues to speak as of the date of the Original Current Report, and the Company has not
updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Original
Current Report.
SPECIAL NOTE REGARDING FORWARD LOOKING
STATEMENTS
This report contains forward-looking
statements. The forward-looking statements are contained principally in the sections entitled “Description of Business,”
“Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking
statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,”
“seeks,” “could,” “estimates,” “expects,” “intends,” “may,”
“plans,” “potential,” “predicts,” “projects,” “should,” “would”
and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with
respect to future events and are based on assumptions and subject to risks and uncertainties. These risks and uncertainties include,
but are not limited to, the factors described in the section captioned “Risk Factors” below. Given these uncertainties,
you should not place undue reliance on these forward-looking statements. Such statements may include, but are not limited
to, information related to: anticipated operating results; licensing arrangements; relationships with our customers; consumer demand;
financial resources and condition; changes in revenues; changes in profitability; changes in accounting treatment; cost of sales;
selling, general and administrative expenses; interest expense; the ability to produce the liquidity or enter into agreements to
acquire the capital necessary to continue our operations and take advantage of opportunities; legal proceedings and claims.
Also, forward-looking statements represent
our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference
and filed as exhibits to this report completely and with the understanding that our actual future results may be materially different
from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to
update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new
information becomes available in the future.
Unless the context otherwise requires,
all references in this Report to “we,’’ ‘‘us,’’ ‘‘our’’ and “the
Company” refer collectively to Vapir Enterprises, Inc., a Nevada corporation, and its subsidiaries, including Vapir, Inc.,
a private California corporation.
Item 1.01 |
Entry into a Material Definitive Agreement |
On December 30, 2014, we entered into
a Share Exchange Agreement (the “Exchange Agreement”) with Vapir, Inc., a California corporation (“Vapir”),
all of the stockholders of Vapir (the “Vapir Shareholders”), and our controlling stockholders.
Pursuant to the Exchange Agreement,
we will acquire all of the outstanding shares of Vapir in exchange for the issuance of 38,624,768 shares of our common stock to
the Vapir Shareholders. The shares to be issued to the Vapir Shareholders shall constitute 80% of our issued and outstanding
shares of common stock as of and immediately after the consummation of the Exchange Agreement.
Upon closing of the Exchange Agreement,
Vapir became our wholly owned subsidiary and we have ceased our prior operations.
A copy of the final, fully executed
copy of the Exchange Agreement is attached hereto as Exhibit 2.1.
For additional information with respect
to the Exchange Agreement and the business of the acquired entity, please see the disclosures set forth in Item 2.01 to this Current
Report, which disclosures are incorporated into this item by reference.
Change of Business and Sale of ownership
interest in FAL Minerals and Land in Alabama
In November 2013, the Company entered
into a Real Estate Purchase and Sale Agreement (the “November 2013 Land Sale”) with certain sellers (the “November
2013 Sellers”) for the sale of real estate properties located in Clay County, Alabama. The purchase price was $400,000 and
was paid as follows:
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(a) |
issue of 160,000 shares of common stock of the Company (the “November 2013 Land Sale Shares”); and |
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(b) |
a promissory note (the “November 2013 Land Sale Note”) in the original principal amount of $200,000, payable to Seller bearing interest at the lowest imputed rate, with no payments of principal or interest due or payable until the 36 month after Closing (the “Maturity Date”). |
In connection with the Exchange Agreement
and our new business as a vaporizer company, we decided to sell our ownership in the real estate that we purchased in the November
2013 Land Sale. On December 11, 2014, we closed on the sale of the 2 properties located in Clay County, Alabama that we purchased
in November 2013 Land Sale. The proceeds we received from the sale of the 2 properties were used to: (i) pay any taxes owed on
the land and legal fees associated with the sale; and (ii) pay-off the November 2013 Sellers. In exchange for the payment, the
November 2013 Sellers agreed to forgive any outstanding amounts due on the November 2013 Land Sale Note and return the November
2013 Land Sale Shares that were issued in connection with the November 2013 Land Sale.
Additionally, on December 30, 2014,
we returned our 19.6% membership interest in FAL Minerals, LLC because we are no longer in the business of land exploration and
will not be participating in the operations of this entity.
Item 2.01 |
Completion of Acquisition or Disposition of Assets |
On December 30, 2014, we entered into
the Exchange Agreement with Vapir. Pursuant to the terms and conditions of the Exchange Agreement, we acquired all of
the outstanding shares of Vapir and we issued a total of 38,624,768 shares of our common stock to the shareholders of Vapir, which
constitutes 80% of the total issued and outstanding shares of our common stock immediately following the closing.
After the closing of the Exchange Agreement,
our capitalization of the Company is as follows:
Shareholder | |
# of Shares Owned | | |
Percentage Ownership | |
Vapir Executives | |
| 38,624,768 | | |
| 80.00 | % |
Whalehaven Capital Fund Ltd.(1) | |
| 5,751,230 | | |
| 12.15 | % |
Adam Kotkin | |
| 1,200,000 | | |
| 2.53 | % |
| |
| | | |
| | |
Total Outstanding | |
| 48,280,960 | | |
| | |
| (1) | Beneficial ownership of the securities is held by Elizabeth Leonard and Michael Finkelstein. |
The purposes of the transactions described
in this Current Report were to complete a reverse merger with the result being that Vapir became a wholly-owned subsidiary.
The foregoing description of the Exchange
Agreement, closing and related transactions does not purport to be complete and is qualified in its entirety by reference to the
complete text of the Exchange Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K.
Following the Exchange Agreement, as of
the date of this current report on Form 8-K filed on December 31, 2014, there are 48,280,960 shares of our common stock issued
and outstanding. As a result, our pre-merger stockholders hold Twenty Percent (20%) of our issued and outstanding shares of common
stock.
The shares of common stock issued to
the former stockholders of Vapir in connection with the Exchange Agreement were not registered under the Securities Act of 1933,
as amended (the “Securities Act”), and were issued in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act and Regulation D promulgated thereunder, which exempts transactions by an issuer not involving any public
offering. These securities may not be offered or sold absent registration or an applicable exemption from the registration requirements.
We have not committed to registering these shares for resale. Certificates representing these shares contain a legend stating the
restrictions applicable to such shares.
On December 30, 2014, we closed on the
Exchange Agreement and filed a Super 8-K that contained current “Form 10 information” regarding the business operations
of Vapir, Inc.
Changes to the Business. We
intend to carry on Vapir’s business as our sole line of business. We have relocated our executive offices to 2365
Paragon Dr. Suite B, San Jose, Ca, and our telephone number is (800) 841-1022.
Accounting Treatment. The
Exchange Agreement is being accounted for as a reverse merger and recapitalization and Vapir is deemed to be the acquirer in the
reverse merger for accounting purposes. Consequently, the assets and liabilities and the historical operations of the Company that
will be reflected in the financial statements prior to the closing will be those of Vapir, and the consolidated financial statements
of the Company after completion of the reverse merger will include the assets and liabilities of Vapir, historical operations of
Vapir and operations of Vapir from the Closing Date of the Exchange Agreement.
Tax Treatment. The
reverse merger is intended to constitute a tax-deferred exchange of property governed by Section 351 of the United States Internal
Revenue Code of 1986, as amended (the “Code”), or such other tax free reorganization or restructuring provisions as
may be available under the Code. Any gain required to be recognized will be subject to regular individual or corporate federal
income taxes, as the case may be.
DESCRIPTION OF BUSINESS
Vapir, Inc. was incorporated on October 26,
2006 in the State of California. Vapir, Inc. specializes in the revolutionary technology of digital aromatherapy which is the art
and science of utilizing naturally extracted aromatic essences from plants to balance and harmonize while freshening the environment
with pleasant and distinctive fragrances. We invent, develop and produce revolutionary and easy to use digital aromatherapy devices.
The unique value proposition of the Company’s proprietary technology (US Patent 6,095,153) is to prevent the creation of
toxic by-products whenever plant materials are inhaled. This is accomplished by using convection heat that induces the safe release
of plant essences without burning the source material. Our devices are manufactured by Prosoyo Technology
Limited (“Prosoyo”) in Guang Dong, China.
Corporate History
We were originally incorporated under
the laws of the State of Nevada on December 17, 2009 under the name Apps Genius Corp. Our original business was to develop,
market, publish and distribute social games and software applications that consumers could use on a variety of platforms, including
social networks, wireless devices and stand-alone websites. We were unsuccessful in operating our business and on October 7, 2013
we entered into a Membership Interest Purchase Agreement with FAL Minerals LLC and we changed our name to FAL Exploration Corp.
Under the name FAL Exploration
Corp., our plan was to acquire minority and majority interests in natural resource properties located throughout the United
States. Our initial project was an interest in an open pit mine located in Clay County
Alabama also known as the Brown Mine. Historically, graphite and gold have been mined in the area. The property which is over
two hundred and twenty acres contains graphite and some surface gold. The Company planned to explore the property and either
may utilize it as the main production plant should the Brown Mine prove to be commercially viable or seek to monetize the
graphite, should it prove to be commercially viable. The agreement with FAL Minerals LLC
has since been terminated and we have now entered into the Exchange Agreement with Vapir, Inc. and its shareholders.
In anticipation of closing the Exchange
Agreement, on September 17, 2014, we changed our name to Vapir Enterprises, Inc. to better represent our new business operations.
Our Industry
“Electronic cigarettes”
or “e-cigarettes” and “vaporizers” are battery-powered products that enable users to inhale nicotine vapor
without smoke, tar, ash, or carbon monoxide. Electronic cigarettes look like traditional cigarettes and, regardless of their construction
are comprised of three functional components:
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a mouthpiece, which is a small plastic cartridge that contains a liquid nicotine solution; |
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the heating element that vaporizes the liquid nicotine so that it can be inhaled; and |
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the electronics, which include: a lithium-ion battery, an airflow sensor, a microchip controller and an LED, which illuminates to indicate use. |
When a user draws air through the electronic
cigarette and or vaporizer, the air flow is detected by a sensor, which activates a heating element that vaporizes the solution
stored in the mouthpiece/cartridge, the solution is then vaporized and it is this vapor that is inhaled by the user. The cartridge
contains either a nicotine solution or a nicotine free solution, either of which may be flavored.
Our Products
Vaporizers
We offer 4 vaporizers, the VapirRise,
VAPIR NO2 Portable Digital Vaporzier, VAPIR ONE, and VAPIR Oxygen Mini Corded Vaporizer.
VapirRise
The VapirRise is designed for loose-leaf
herbs and essential oils. It supports both balloon inflation and direct inhalation. It can serve up to 4 users simultaneously.
It has touch pad controls, an LCD temperature display and medical grade stainless steel vapir path and a ceramic heating element.
As the ceramic heating element of the
device reaches the pre-set temperature, a fan blows air through the heating element. A sensor, which is located in the chamber
of the unit, will constantly monitor the air temperature and maintain pre-set heat levels by turning the heating element on and
off as needed. Once the optimal temperature is reached, a green light on the casing will indicate that the device is now ready.
This relatively simple technology enables the vaporizers to maintain heat levels.
This convection vaporizer is a stationary
desktop model – which means it isn’t intended for on-the-go consumption. The VapirRise offers an exceptional approach
to the at-home vaporization experience.
Users can control the temperature (in both degrees Celsius & Fahrenheit); control the Fan Speed (ten options including a fanless
setting!); pick between a balloon or hose inhalation methods; and choose to serve up to four people at once with the exclusive
hookah adapter.
VAPIR NO2 Portable Digital Vaporizer
The VAPIR NO2 is designed for loose-leaf herbs
and direct inhalation. It is compact, portable and rechargeable. It has a medical grade pure brass element, an LCD temperature
display and a silent operation. The VAPIR NO2 will be your number one portable vaporizer.
This compact portable vaporizer features touch-to-heat
digital controls, an LCD thermostat, an internal rechargeable battery, and 100% silent operation. The NO2 vaporizer is designed
for use with raw herbs and heats up in less than a minute. You can even vaporize while it’s charging.
The NO2 requires little to no maintenance for
optimal operation and it even remembers your favorite temperature settings for quick and consistent vapor at the touch of a button.
VAPIR ONE
The VAPIR ONE is designed for loose-leaf herbs.
It supports both balloon inflation and direct inhalation. It has a medical grade ceramic heating element and an LCD temperature
display.
The vaporizers include removable disks that
hold the source material and need to be inserted into device prior to pre heating the vaporizers. Temperatures and safety times
can be set individually according to the manufacturer’s recommendations. This process prevents the waste of source material,
titrates dosages, and ensures that the vaporizers work at optimum conditions.
The Vapir One has digital temperature controls,
swift heat up time, and mind-blowing vapor flavor with every puff. We designed this desktop vaporizer to require little to no maintenance
for consistent vapor clouds and premium sessions.
As the ceramic heating element of the
device 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.
Once the user starts using the device, the
fan will blow hot air through the disk filled with the source material. This aerosol now contains hot air that is enriched with
the active elements, flavor, aroma, and pure essence of the source material. The aerosol will then reach an internal cooling chamber
where the vapors are cooled to a level that is safe for the consumer to inhale. The consumer will then inhale the warm and rich
vapors through a tube, which also serves as the final cooling process before the vapors reach the human lungs.
VAPIR OXYGEN MINI CORDED
The VAPIR Oxygen Mini Corded is designed
for loose-leaf herbs and direct inhalation. It is small and lightweight and is a corded vaporizer. It has an LCD temperature display
and silent operation. Every portable vaporizer needs to produce clouds – not a mere mist! The Vapir Oxygen lets you live
and breathe premium vapor. This herbal vaporizer harnesses premium materials and innovative design to deliver everything you’d
expect from a premium vaporizer.
Our Oxygen Vaporizer features digital controls, portable design, and consistent vapor sessions with little maintenance.
Our Vaporizers and Accessories
Our vaporizers are sold with all the essentials
that are needed to begin the vaporizing experience. In addition or vaporizers, we sell approximately 100 accessories that range
from replacement batteries, replacement mouthpieces, recharging pieces, cleaning utensils and all other essentials.
Additionally, we offer an assortment of our
own aromatherapy oils and herbs for our vaporizer users to enjoy.
Seasonality of our Business
We do not consider our business to be
seasonal.
Marketing
We offer our vaporizers and related
products through our online stores, to retail channels through our direct sales force, and through third party wholesalers, retailers
and value-added resellers. Retailers of our products include small-box discount retailers, big-box retailers, gas stations, drug
stores, convenience stores, tobacco shops and kiosk locations in shopping malls throughout the United States.
Competition
Competition in the vaporizer industry is intense.
We compete with other sellers of vaporizers that are similar to our products and our competitors use the same sales practices and
marketing strategies as we use.
The nature of our competitors is varied as
the market is highly fragmented and the barriers to entry into the business are low. Our direct competitors sell products that
are substantially similar to ours and through the same channels through which we sell our vaporizers. We compete with these direct
competitors for sales through distributors, wholesalers and retailers, including but not limited to national chain stores, gas
stations, travel stores, shopping mall kiosks, in addition to direct to public sales through the internet, mail order and telesales.
Our competitive position in the vaporizer industry
is difficult to gauge as most of our competition are also smaller companies or are privately held and do not publicly report their
earnings. We do know of several competitors, but, like us, many are in their initial stages of development and are focusing on
different areas of this industry.
As a general matter, we have access to and
market and sell similar products as our competitors and we sell our products at substantially similar prices as our competitors;
accordingly, the key competitive factors for our success is the quality of service we offer our customers, the scope and effectiveness
of our marketing efforts, including media advertising campaigns and, increasingly, the ability to identify and develop new sources
of customers.
Regulatory Matters/Compliance
The United States Food and Drug Administration (the “FDA”)
regulates electronic cigarettes as “tobacco products” under the Family Smoking Prevention and Tobacco Control Act of
2009 (the “Tobacco Control Act”). The FDA is not permitted to regulate electronic cigarettes as “drugs”
or “devices” or a “combination product” under the Federal Food, Drug and Cosmetic Act unless they are marketed
for therapeutic purposes.
Our vaporizers are classified as “tobacco products”
under the Tobacco Control Act. The Tobacco Control Act grants the FDA broad authority over the manufacture, sale, marketing and
packaging of tobacco products, although the FDA is prohibited from issuing regulations banning all cigarettes or all smokeless
tobacco products, or requiring the reduction of nicotine yields of a tobacco product to zero.
The Tobacco Control Act imposes significant new restrictions
on the advertising and promotion of tobacco products. The law also requires the FDA to issue future regulations regarding the promotion
and marketing of tobacco products sold or distributed over the internet, by mail order or through other non-face-to-face transactions
in order to prevent the sale of tobacco products to minors.
It is likely that the Tobacco Control Act could result in
a decrease in tobacco product sales in the United States, including sales of our electronic cigarettes and vaporizers.
The Tobacco industry expects significant regulatory developments
to take place over the next few years, driven principally by the World Health Organization’s Framework Convention on Tobacco
Control (“FCTC”). The FCTC is the first international public health treaty on tobacco, and its objective is to establish
a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. Regulatory
initiatives that have been proposed, introduced or enacted include:
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the levying of substantial and increasing tax and duty charges; |
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restrictions or bans on advertising, marketing and sponsorship; |
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the display of larger health warnings, graphic health warnings and other labeling requirements; |
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restrictions on packaging design, including the use of colors and generic packaging; |
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restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines; |
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requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels; |
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requirements regarding testing, disclosure and use of tobacco product ingredients; |
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increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors; |
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elimination of duty free allowances for travelers; and |
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encouraging litigation against tobacco companies. |
If electronic cigarettes or vaporizers are subject to one
or more significant regulatory initiatives, our business, results of operations and financial condition could be materially and
adversely affected.
Intellectual Property
Patents
We currently own three domestic utility
patents and two design patents relating to vaporizers, as well as two utility patent applications and one design application pending
in the United States as described below. There is no assurance that we will be awarded patents for of any of these pending patent
applications.
U.S. Patent # 6,095,153 - Vaporization
of volatile materials
We have a utility patent for the vaporization
of volatile materials while avoiding combustion and denaturation of such material provide an alternative to combustion as means
of volatilizing bioactive and flavor compounds to make such compounds available for inhalation without generating toxic or carcinogenic
substances that are by-products of combustion and pyrolysis. This patent expires on June 19, 2018.
U.S. Patent # 6,772,756 - Method and
System for Vaporization of a Substance
We have a utility patent for an apparatus for
the vaporization of materials that releases active constituents for inhalation without the creation of harmful byproducts such
as carcinogens associated with combustion and inhalation of substances. This patent expires on February 9, 2022.
U.S. Patent # 6,990,978 - Method and
System for Vaporization of a Substance
We have a utility patent for an apparatus for
the vaporization of materials that releases active constituents for inhalation without the creation of harmful byproducts such
as carcinogens associated with combustion and inhalation of substances. This patent expires on January 31, 2026.
U.S. Design Patent # 489,448 - Vaporization
Apparatus
We have a design patent for the ornamental
design for the vaporization apparatus. This patent expires on May 4, 2018.
U.S. Design Patent # 508,119 - Mesh Filter
with Glass Insert
We have a design patent for the ornamental
design for a component for a vaporizer. This patent expires on August 2, 2019.
U.S. Patent Application # 11/872,040 -
Method and System for Vaporization of a Substance
We have a utility patent (filed on October
15, 2007) pending for an apparatus for the vaporization of materials that releases active constituents for inhalation without the
creation of harmful byproducts such as carcinogens associated with combustion and inhalation of substances.
U.S. Patent # 14/254,723 - Multi-User
Inhalation Adaptor
We have a utility patent (filed on April 16,
2014) pending for a component of a vaporizer that allows multiple users to inhale the vapors of materials.
U.S. Design Patent # 29/473,910 - Vaporizer
We have a design patent (filed on November
26, 2013) for the ornamental design for the vaporization apparatus.
Trademarks
We own trademarks on certain of our products, including: Vapormed®,
Digital Air®, Nicohale®, and Vapir®.
Employees
As of December 30, 2014, we have eight (8)
full-time employees. None of these employees are represented by collective bargaining agreements and the Company considers
it relations with its employees to be good.
Properties
The Company’s corporate headquarters
is located in California. The Company currently leases space located at 2365 Paragon Dr., Suite B, San Jose, Ca, 95131. Product design occurs at this location.
This is our only location. We have a lease for the property
that commenced on May 1, 2013 and has a term of two years and six months and will expire on October 31, 2015. The lease is for
5,050 square feet of office space. We pay $3,787.50 per month for the leased premises.
Our devices are manufactured in Guang Dong, China by
Prosoyo. Prosoyo’s headquarters is located at Unit 1005, Chevalier Commercial Centre, 8 Wang Hoi Road, Kowloon Bay, Kowloon,
Hong Kong (Tel: +852 – 23319111/Fax: +852 – 23319882). Prosoyo’s factory is located at Tai Po Industrial Estate,
Gang Zi District, Chang Ping, Dong Guan, Guang Dong, China, Post Code: 523571 (Tel: +86 - 769 83330091/Fax: +86 - 769 83330092).
We do not have a written manufacturing contract with Prosoyo. We use purchase orders to memorialize the terms of order placements.
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.
LEGAL PROCEEDINGS
From time to time, the Company is involved
in litigation matters relating to claims arising from the ordinary course of business. While the results of such claims and legal
actions cannot be predicted with certainty, the Company’s management does not believe that there are claims or actions, pending
or threatened against the Company, the ultimate disposition of which would have a material adverse effect on our business, results
of operations, financial condition or cash flows.
Notwithstanding the foregoing, on November
3, 2014, Vapir was served with a lawsuit from Storz & Bickel, a German competitor of Vapir. The lawsuit claims patent infringement
of Storz & Bickel’s German patent no DE 198 03 376 C1. The lawsuit was filed in Germany with the regional court of Mannheim.
The lawsuit alleges estimated damages in the amount of €750,000 euros. Vapir has filed a notice of its intent to defend
the lawsuit and has filed an answer to the complaint requesting additional time. The lawsuit is still ongoing and Vapir is working
to settle the matter.
Additionally, on October 15, 2014, Storz &
Bickel have filed a lawsuit with the United States District Court, Central District of California against Vapir alleging patent
infringement of Storz & Bickel’s US patent no. 6,513,524, which is the US counterpart to the German patent. The US District
lawsuit seeks injunction against distribution of Vapir’s VapiRise product, damages, interest, costs, treble damages, and
attorney’s fees.
Storz & Bickel have not yet served the
US District lawsuit; Storz & Bickel’s US counsel have contacted Vapir to initiate settlement discussion, but it is anticipated
that Storz & Bickel will serve the US District complaint if settlement discussions are not productive.
The Company may be subject to legal
proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these
claims cannot be predicted with certainty, we do not believe that any of the outcomes will have a material effect on our operations.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis
of the results of operations and financial condition of Vapir for the fiscal years ended December 31, 2013 and 2012, should be
read in conjunction with the Selected Financial Data, Vapir’s financial statements, and the notes to those financial
statements that are included elsewhere in this Current Report. Our discussion includes forward-looking 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 forward-looking statements as a result of a number
of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business
sections in this Current Report. We use words such as “anticipate,” “estimate,” “plan,” “project,”
“continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,”
“will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Overview
We were originally incorporated under
the laws of the State of Nevada on December 17, 2009 under the name Apps Genius Corp. Our original business was to develop,
market, publish and distribute social games and software applications that consumers could use on a variety of platforms, including
social networks, wireless devices and stand-alone websites. We were unsuccessful in operating our business and on October 7, 2013
we entered into a Membership Interest Purchase Agreement with FAL Minerals LLC and we changed our name to FAL Exploration Corp.
The agreement with FAL Minerals LLC has since been terminated and we have now entered into the Exchange Agreement with Vapir, Inc.
and its shareholders. In addition, we changed our name to Vapir, Inc. to better represent our new business operations.
Vapir, Inc. was incorporated on October 26,
2006 in the State of California.
Vapir, Inc. specializes in the revolutionary
technology of digital aromatherapy which is the art and science of utilizing naturally extracted aromatic essences from plants
to balance and harmonize while freshening the environment with pleasant and distinctive fragrances. We invent, develop and produce
revolutionary and easy to use digital aromatherapy devices by utilizing heat and convection air.
Nine Months Ended September 30, 2014 Compared to the
Nine Months Ended September 30, 2013
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For the Nine Months Ended | |
| |
September 30, 2014 | | |
September 30, 2013 | |
| |
(Unaudited) | | |
(Unaudited) | |
| |
| | |
| |
Net Sales | |
$ | 1,136,886 | | |
$ | 1,962,883 | |
| |
| | | |
| | |
Cost of sales | |
| 564,124 | | |
| 1,001,497 | |
| |
| | | |
| | |
Gross profit | |
| 572,762 | | |
| 961,386 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
Depreciation and amortization | |
| 73,435 | | |
| 55,613 | |
Marketing and selling expenses | |
| 41,467 | | |
| 63,346 | |
Compensation | |
| 516,587 | | |
| 392,430 | |
Professional fees | |
| 47,573 | | |
| 12,486 | |
Research and development | |
| 54,039 | | |
| 80,766 | |
Rent | |
| 57,894 | | |
| 55,016 | |
General and administrative | |
| 189,854 | | |
| 206,810 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 980,849 | | |
| 866,467 | |
| |
| | | |
| | |
(LOSS) INCOME FROM OPERATIONS | |
| (408,087 | ) | |
| 94,919 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Interest expense | |
| (11,458 | ) | |
| (23,359 | ) |
| |
| | | |
| | |
Total Other Expense | |
| (11,458 | ) | |
| (23,359 | ) |
| |
| | | |
| | |
(LOSS) INCOME BEFORE INCOME TAXES | |
| (419,545 | ) | |
| 71,560 | |
| |
| | | |
| | |
PROVISION FOR INCOME TAXES | |
| - | | |
| - | |
| |
| | | |
| | |
NET (LOSS) INCOME | |
$ | (419,545 | ) | |
$ | 71,560 | |
Net Sales
Sales, net for the nine months ended
September 30, 2014 and 2013 were $1,136,886 and $1,962,883, respectively, a decrease of $825,997 or approximately 42%. The
decrease in sales during the nine months ended September 30, 2014 was primarily attributable to a decrease in sales of approximately
$820,000 to two significant wholesale customers as compared to the nine months ended September 30, 2013. The decrease in sales
was due to the delay in the release of our new portable product as our wholesale customers preferred to purchase the newer version
of our portable product. Additionally, the decrease was due to we have commenced selling our rework stationary product by late
2014 after the completion of the rework and revisions made to our infringed stationary product in late 2014. We expect our revenues
to increase during fiscal 2015 as we expect to release the new portable product by fiscal 2015 and expected sales from our rework
stationary product. However, we are unable at this time to estimate the amount of the expected increases.
Cost of Sales
Cost of goods sold for the nine months
ended September 30, 2014 and 2013 were $564,124 and $1,001,497, respectively, a decrease of $437,373, or approximately 44%. The
decrease is primarily due to the decrease in our revenue and a higher margin from our website sales.
Operating Expenses
Total operating expenses for the nine months ended September 30, 2014 and 2013 were $980,849 and $866,467,
respectively, an increase of $114,382, or approximately 13%. The increase in operating expenses is primarily due to higher expenses
for salaries for qualified people to work on our new product. Compensation to officers increased by approximately $79,000 and compensation
for customer service employees increased by approximately $45,000 due to an increase in head count which resulted to a total increase
in operating expenses of approximately $124,000 during the nine months ended September 30, 2014. Additionally, professional fees
also increased during the nine months ended September 30, 2014 due to an increase in legal fees for a patent litigation that the
Company is involved in and increase accounting fees resulting from the audit of our financial statements for our SEC filings.
Net (loss) Income
Net (loss) income for the nine months
ended September 30, 2014 and 2013 was ($419,545) and $71,560, respectively, as a result of the items discussed above.
Year Ended December 31, 2013 Compared to the Year Ended
December 31, 2012
| |
For the Year Ended | |
| |
December 31, 2013 | | |
December 31, 2012 | |
| |
| | |
| |
Net Sales | |
$ | 3,053,752 | | |
$ | 4,070,025 | |
| |
| | | |
| | |
Cost of sales | |
| 1,546,821 | | |
| 2,242,393 | |
| |
| | | |
| | |
Gross profit | |
| 1,506,931 | | |
| 1,827,632 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
Depreciation and amortization | |
| 74,151 | | |
| 73,940 | |
Marketing and selling expenses | |
| 76,075 | | |
| 50,975 | |
Compensation | |
| 533,702 | | |
| 588,463 | |
Professional fees | |
| 15,828 | | |
| 57,294 | |
Research and development | |
| 88,847 | | |
| 13,658 | |
Rent | |
| 72,966 | | |
| 77,017 | |
General and administrative | |
| 303,677 | | |
| 275,467 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 1,165,246 | | |
| 1,136,814 | |
| |
| | | |
| | |
INCOME FROM OPERATIONS | |
| 341,685 | | |
| 690,818 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Interest expense | |
| (33,167 | ) | |
| (39,892 | ) |
Interest income | |
| 1 | | |
| 195 | |
| |
| | | |
| | |
Total Other Income (Expense) | |
| (33,166 | ) | |
| (39,697 | ) |
| |
| | | |
| | |
INCOME BEFORE INCOME TAXES | |
| 308,519 | | |
| 651,121 | |
| |
| | | |
| | |
PROVISION FOR INCOME TAXES | |
| - | | |
| - | |
| |
| | | |
| | |
NET INCOME | |
$ | 308,519 | | |
$ | 651,121 | |
Net Sales
Sales, net for the years December 31,
2013 and 2012 were $3,053,752 and $4,070,025, respectively, a decrease of $1,016,273 or approximately 25%. The decrease in sales
during fiscal year 2013 was primarily attributable to a decrease in sales
of approximately $730,000 to one significant wholesale customer as compared to fiscal 2012. The decrease in sales was due to the
delay in the release of our new portable product as our wholesale customers preferred to purchase the newer version of our portable
product. Additionally, sales to retail customers during fiscal year 2013 decreased by approximately $250,000 as compared to fiscal
year 2012.
Cost of Sales
Cost of sales for the years ended December
31, 2013 and 2012 was $1,546,821 and $2,242,393, respectively, a decrease of $695,572, or 31%. The decrease is primarily due to
a decrease in our revenue and a higher margin from our website sales.
Operating Expenses
Total operating expenses for the years ended
December 31, 2013 and 2012 were $1,165,246 and $1,136,814, respectively, an increase of $27,432, or approximately 3%. The increase
is primarily due increases in research and development expenses of approximately $75,000, marketing expense of $25,000 and general
and administrative expenses of $29,000. These increases were due to the continued development, advertising and promotion of our
products during fiscal 2013. These increases were offset by decreases in compensation expense of approximately $55,000 due to the
resignation of our former VP of sales in fiscal 2013 and professional fees decreased by $42,000 due to a decreased in legal services
in fiscal 2013.
Net Income
Net income for the years ended December
31, 2013 and 2012 were $308,519 and $651,121, respectively, a decrease of $342,602 as a result of the items discussed above.
Liquidity and Capital Resources
Liquidity is the ability of a company
to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis.
We are not aware of any known trends
or any known demands, commitments or events that will result in our liquidity increasing or decreasing in any material way. We
are not aware of any matters that would have an impact on future operations.
Our net revenues are not sufficient
to fund our operating expenses. At September 30, 2014 we had a cash balance of $0 and working capital deficit of $418,122.
During the nine months ended September 30, 2014, we borrowed an additional $21,000 of loans to fund our operating expenses, pay
our obligations, and grow our company. We currently have no material commitments for capital expenditures. We may be required to
raise additional funds, particularly if we are unable to generate positive cash flow as a result of our operations. We
estimate that based on current plans and assumptions, that our cash will not be sufficient to satisfy our cash requirements under
our present operating expectations, without further financing, for up to 12 months. We presently have no other alternative source
of working capital. We may not have sufficient working capital and net revenues to fund the expansion of our operations and to
provide working capital necessary for our ongoing operations and obligations. We will need to raise significant additional capital
to fund our operating expenses, pay our obligations, and grow our company. Therefore our future operations will be dependent
on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt securities,
obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the
U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities.
Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect
amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore,
if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities
may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional
capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable
to obtain additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our
operations.
We anticipate that depending on market
conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised
substantial doubt about our ability to continue as a going concern.
Our liquidity may be negatively impacted
by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate
governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities
and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial
compliance costs and to make some activities more time consuming and costly.
Inflation and Changing Prices
Neither inflation nor changing prices for the nine months
ended September 30, 2014 had a material impact on our operations.
Off-Balance Sheet Arrangements
None.
Quantitative and Qualitative Disclosures About Market
Risk
Not applicable.
Critical Accounting Policies
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires our
management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related
disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the
preparation of our financial statements. These accounting policies are important for an understanding of our financial condition
and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition
and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting
estimates are particularly sensitive because of their significance to financial statements and because of the possibility that
future events affecting the estimate may differ significantly from management’s current judgments. We believe the following
critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial
statements.
Use of Estimates
The preparation
of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates. Significant matters requiring the use of estimates
and assumptions include, but may not be limited to, accounts receivable allowances and evaluation of impairment of long lived
assets and intangible assets. Management believes that its estimates and assumptions are reasonable, based on information that
is available at the time they are made.
Revenue recognition
The Company follows paragraph 605-10-S99-1
of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or
realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met:
(i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer,
(iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Intangible assets
In accordance with ASC 350-30-65, “Intangibles
- Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment
review include the following:
|
1. |
Significant underperformance relative to expected historical or projected future operating results; |
|
2. |
Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and |
|
3. |
Significant negative industry or economic trends. |
When the Company determines that the carrying
value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the
carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge.
The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management
to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining
whether an indicator of impairment exists and in projecting cash flows. The Company also considers current events and circumstances
by attending trade shows, having a constant direct dialogue with our distributors, and an internal review and research by management
to keep current with the vaporizer industry and to determine if there are any economic downturn.
The Company evaluates the recoverability of
intangible assets annually or whenever events or changes in circumstances indicate that an intangible asset’s carrying amount
may not be recoverable. If it is determined by reviewing the above factors that a possible impairment exists, the Company must
then determine if the carrying amount of the intangibles is recoverable based upon the comparison of the total undiscounted future
cash flows from the intangibles to the carrying amount of the intangibles. Based on our assessment in fiscal 2013, 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.
RISK FACTORS
Risks Related to Our Business
The recent development of vaporizers has not allowed the medical
profession to study the long-term health effects of vaporizer use.
Because vaporizers were recently developed
the medical profession has not had a sufficient period of time to study the long-term health effects of vaporizer use. Currently,
therefore, there is no way of knowing whether or not vaporizers are safe for their intended use. If the medical profession were
to determine conclusively that vaporizer usage poses long-term health risks, vaporizer usage could decline, which could have a
material adverse effect on our business, results of operations and financial condition.
The market for vaporizers is a niche
market, subject to a great deal of uncertainty and is still evolving.
Vaporizers, having recently been introduced
to market, are at an early stage of development, represent a niche market and are evolving rapidly and are characterized by an
increasing number of market entrants. Our future sales and any future profits are substantially dependent upon the widespread acceptance
and use of vaporizers. Rapid growth in the use of, and interest in, vaporizers is recent, and may not continue on a lasting basis.
The demand and market acceptance for these products is subject to a high level of uncertainty.
Therefore, we are subject to all of
the business risks associated with a new enterprise in a niche market, including risks of unforeseen capital requirements, failure
of widespread market acceptance of vaporizers, in general or, specifically our products, failure to establish business relationships
and competitive disadvantages as against larger and more established competitors.
Vaporizers face intense media attention
and public pressure.
Vaporizers are new to the marketplace and since
their introduction certain members of the media, politicians, government regulators and advocate groups, including independent
medical physicians have called for an outright ban of all vaporizers, pending regulatory review and a demonstration of safety.
A partial or outright ban would have a material adverse effect on our business, results of operations and financial condition.
We may experience product liability
claims in our business, which could adversely affect our business.
We may experience product liability
claims from the marketing and sale of vaporizers. Any product liability claim brought against us, with or without merit, could
result in:
|
● |
liabilities that substantially exceed our product liability insurance, which we would then be required to pay from other sources, if available; |
|
● |
an increase of our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, or at all; |
|
● |
damage to our reputation and the reputation of our products, resulting in lower sales; |
|
● |
regulatory investigations that could require costly recalls or product modifications; |
|
● |
the diversion of management’s attention from managing our business. |
Any one or more of the foregoing could
have a material adverse effect on our business, results of operations and financial condition.
If we experience product recalls,
we may incur significant and unexpected costs and our business reputation could be adversely affected.
We may be exposed to product recalls
and adverse public relations if our products are alleged to cause illness or injury, or if we are alleged to have violated governmental
regulations. A product recall could result in substantial and unexpected expenditures that could exceed our product recall insurance
coverage limits and harm to our reputation, which could have a material adverse effect on our business, results of operations and
financial condition. In addition, a product recall may require significant management time and attention and may adversely impact
on the value of our brands. Product recalls may lead to greater scrutiny by federal or state regulatory agencies and increased
litigation, which could have a material adverse effect on our business, results of operations and financial condition.
Product exchanges, returns and
warranty claims may adversely affect our business.
If we are unable to maintain an acceptable
degree of quality control of our products we will incur costs associated with the exchange and return of our products as well as
servicing our customers for warranty claims. Any of the foregoing on a significant scale may have a material adverse effect on
our business, results of operations and financial condition.
We may be unable to promote and maintain
our brands.
We believe that establishing and maintaining
the brand identities of our products is a critical aspect of attracting and expanding a large customer base. Promotion and enhancement
of our brands will depend largely on our success in continuing to provide high quality products. If our customers and end users
do not perceive our products to be of high quality, or if we introduce new products or enter into new business ventures that are
not favorably received by our customers and end users, we will risk diluting our brand identities and decreasing their attractiveness
to existing and potential customers.
Moreover, in order to attract and retain customers
and to promote and maintain our brand equity in response to competitive pressures, we may have to increase substantially our financial
commitment to creating and maintaining a distinct brand loyalty among our customers. If we incur significant expenses in an attempt
to promote and maintain our brands, our business, results of operations and financial condition could be adversely affected.
Key employees are essential to
expanding our business.
Hamid Emarlou, our Chief Executive Officer,
and our seven other employees are essential to our ability to continue to grow and expand our business. They have established relationships
within the industry in which we operate. The Company does not have employment agreements with these employees. If any were to leave
us, our growth strategy might be hindered, which could materially affect our business and limit our ability to increase revenue.
The Company may lose its top management
without employment agreements.
Our operations depend substantially on the
skills, knowledge and experience of the present management. The Company has no other full or part-time individuals devoted
to the development of our Company. Furthermore, the Company does not maintain key man life insurance. Without an employment agreement,
we may lose the present management of the Company to other pursuits without a sufficient warning and, consequently, we may be forced
to terminate our operations.
We do not have a majority of independent
directors serving on our board of directors, which could present the potential for conflicts of interest.
After the Closing of the Exchange Agreement,
Hamid Emarlou, Masoud Shahidi and Adam Kotkin are our directors. As a result, we do not have a majority of independent directors
serving on our Board. In the absence of a majority of independent directors, our executive officers could establish policies and
enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest
between us and our stockholders, generally, and the controlling officers, stockholders or directors.
If we are unable to establish
appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations,
result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction,
cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares
of our Common Stock.
Effective internal controls are necessary
for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial
reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal
financial officer, or persons performing similar functions, and effected by our board of directors, management and 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.
As a public company, we will have significant
requirements for enhanced financial reporting and internal controls. We will be required to document and test our internal control
procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management
assessments of the effectiveness of our internal controls over financial reporting. The process of designing and implementing effective
internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and
regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy
our reporting obligations as a public company.
We cannot assure you that we will not,
in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that
the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain
adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish
appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations,
result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction,
cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares
of our Common Stock.
Lack of experience as officers
of publicly-traded companies of our management team may hinder our ability to comply with Sarbanes-Oxley Act.
Following the Closing of the Exchange
Agreement, it may be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures
required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance staff
or consultants in order to develop and implement appropriate internal controls and reporting procedures.
We may have additional tax liabilities that exceed
our estimates.
We are subject to federal taxes and
a multitude of state and local taxes in the United States and taxes in foreign jurisdictions. In the ordinary course of our business,
there are transactions and calculations where the ultimate tax determination is uncertain. We are regularly subject to audit by
tax authorities. And, we currently have tax liens related to unpaid payroll taxes on our business. The final determination of tax
audits and any related litigation and the current tax liens could be materially different from our historical tax provisions and
accruals. The results of an audit or litigation could materially harm our business.
We have significant customer
concentration, and the loss of one of our large customers could adversely affect our business.
The Company is exposed to credit risk in the
event of nonpayment by counterparties, a significant portion of which are concentrated in two customers. During the year ended
December 31, 2013 sales to two customers represented approximately 67% of the Company’s net sales. During the year ended
December 31, 2012 sales to two customers represented approximately 69% of the Company’s net sales. As of December 31,
2013 and 2012, the Company had one customer representing approximately 93% of accounts receivable and one customer representing
approximately 100% of accounts receivable, respectively. A decision by either of our major customers to decrease the amount of
merchandise purchased from us, increase the use of their own private label brands, sell a national brand on an exclusive basis
or change the manner of doing business with us could reduce our revenues and materially adversely affect our results of operations.
The loss of any of our large customers, or the bankruptcy or serious financial difficulty of any of our large customers, could
have a material adverse effect on us.
Risks Related to Government Regulation
Changes in laws, regulations and other requirements could
adversely affect our business, results of operations or financial condition.
In addition to the anticipated regulation of our business by the
FDA, our business, results of operations or financial condition could be adversely affected by new or future legal requirements
imposed by legislative or regulatory initiatives, including, but not limited to, those relating to health care, public health and
welfare and environmental matters. For example, in recent years, states and many local and municipal governments and agencies,
as well as private businesses, have adopted legislation, regulations or policies which prohibit, restrict, or discourage smoking;
smoking in public buildings and facilities, stores, restaurants and bars; and smoking on airline flights and in the workplace.
New legislation or regulations may result in increased costs directly for our compliance or indirectly to the extent such requirements
increase the prices of goods and services because of increased costs or reduced availability. We cannot predict whether such legislative
or regulatory initiatives will result in significant changes to existing laws and regulations and/or whether any changes in such
laws or regulations will have a material adverse effect on our business, results of operations or financial condition.
Restrictions on the public use of vaporizers may reduce the
attractiveness and demand for our products.
Should city, state or federal regulators, municipalities, local
governments and private industry likewise restrict the use of vaporizers in those same places where cigarettes cannot be smoked,
our customers may reduce or otherwise cease using our products, which would have a material adverse effect on our business, results
of operations and financial condition.
Risks Related to Our Securities
There is currently a limited market
for our common stock.
There is currently a limited market
for our common stock. An active trading market for our common stock may never develop or, if developed, it may not be maintained.
Our shareholders may be unable to sell their securities unless an active market can be established or maintained.
The market price of our common
stock may be volatile.
The market price of our common stock
has been and will likely continue to be highly volatile, as is the stock market in general, and the market for OTC Bulletin Board
quoted stocks in particular. Some of the factors that may materially affect the market price of our common stock are beyond our
control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which
we operate or sales of our common stock. These factors may materially adversely affect the market price of our common stock, regardless
of our performance. In addition, the public stock markets have experienced extreme price and trading volume volatility. This volatility
has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating
performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
Because we were engaged in a reverse
merger, the Company may not be able to attract the attention of major brokerage firms.
Additional risks may exist since we
were engaged in a “reverse merger.” Securities analysts of major brokerage firms may not provide coverage of the Company
since there is little incentive to brokerage firms to recommend the purchase of the common stock. No assurance can be given that
brokerage firms will want to conduct any secondary offerings on behalf of the Company in the future.
Our common stock will be considered
a “penny stock.”
The SEC has adopted regulations which
generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject
to specific exemptions. The market price of our common stock is currently less than $5.00 per share and therefore may be a “penny
stock.” Brokers and dealers effecting transactions in “penny stock” must disclose certain information concerning
the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase
the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect your ability
to sell shares.
The market for penny stocks has
experienced numerous frauds and abuses which could adversely impact investors in our stock.
OTCBB securities are frequent targets
of fraud or market manipulation, both because of their generally low prices and because OTCBB reporting requirements are less stringent
than those of the stock exchanges or NASDAQ.
Patterns of fraud and abuse include:
|
● |
Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; |
|
● |
Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; |
|
● |
“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; |
|
● |
Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and |
|
● |
Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
Our management is aware of the abuses
that have occurred historically in the penny stock market.
We have not paid dividends in
the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.
We have never paid any cash dividends
on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future and any return
on investment may be limited to the value of our common stock. We plan to retain any future earning to finance growth.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and
ages of officers and director as of December 30, 2014. Our directors are elected annually at the annual shareholder meeting. Our
executive officers hold their offices until they resign, are removed by the Board, or his successor is elected and qualified.
Name |
|
Age |
|
Position |
|
|
Commencement of
Service As
Officer/Director |
Hamid Emarlou(1) |
|
54 |
|
Chief Executive Officer & President |
|
|
2014 |
Adam Kotkin |
|
35 |
|
Director |
|
|
2009 |
Masoud Shahidi(1) |
|
72 |
|
Director |
|
|
2014 |
Dr. Shadi Shayegan, DMD(1) |
|
44 |
|
Corporate Secretary |
|
|
2014 |
| (1) | These individuals were directors of Vapir, Inc. prior
to the consummation of the transactions contemplated by the Exchange Agreement and became officers and director of the Company
pursuant to the terms of the Exchange Agreement. |
Set forth below is a brief description
of the background and business experience of our executive officers for the past five years.
Hamid Emarlou, age 54, CEO &
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.
Adam Kotkin, age 35, Director
Prior to becoming a member of the Board,
Mr. Kotkin was previously the Chief Executive Officer of FAL Exploration Inc. (f/k/a Apps Genius). He also served as the Chief
Operating Officer and Board Member of PeopleString Corporation from January 2009 to the present and Chief Operating Officer, Board
Member and Co-founder of BigString Corporation, an online messaging company, from October 2003 to November 2010. Mr. Kotkin still
remains as a board member of BigString Corporation. Past experiences include serving as the business manager for InsuranceGenie.com,
an online insurance agency, and serving as business developer and sales manager at LiveInsurance.com from March 1999 until December
2000. Mr. Kotkin graduated with distinction from New York University with a BA in Economics.
Masoud Shahidi, age 72, Director
In addition to serving on the Board of Directors
of the Company, Mr. Shahidi has served since 2005 as the owner of Emad Properties, LLC, a commercial real estate company located
in Menlo Park, California. Additionally, since April 2004, he has been a Principal at EnS Associates Investments, LLC, a commercial
real estate company, located in San Jose, California. Prior to holding these positions, Mr. Shahidi worked from 2004 until
2009 as the CEO and President of Rathbun Associates, a select 3M converter, as well as a re-seller and distributor serving the
South San Francisco Bay area and the Silicon Valley, Northern California, as well as sales world-wide. Mr. Shahidi received his
B.S. in business administration from San Jose State University.
Dr. Shadi Shayegan, age 44, Corporate
Secretary
Dr. Shayegan has been working with Vapir Inc. during the past five years. Dr. Shayegan is an officer at Vapir
Inc. She advises CEO, Hamid Emarlou, on health aspects of vaporization and aromatherapy product development. She formed the "Health
and Safety" committee that oversees and approves materials used in the development of Vapir Inc. products. Prior to joining
Vapir Inc., from 2001 until 2002, Dr. Shayegan practiced dentistry at Great Brook Valley Health Center in Worcester, Massachusetts.
Dr. Shayegan studied Microbiology as
her undergraduate major and furthered her education at Boston University and earned her doctorate in dentistry.
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 the date of closing (assuming the closing of the Exchange
Agreement has been consummated) 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. As of last practicable date, we have 48,280,976 shares of common
stock issued and outstanding.
Beneficial ownership is determined in
accordance with SEC rules and generally includes voting or investment power with respect to securities. All share ownership figures
include shares of our Common Stock issuable upon securities convertible or exchangeable into shares of our Common Stock within
sixty (60) days of the Merger, which are deemed outstanding and beneficially owned by such person for purposes of computing his
or her percentage ownership, but not for purposes of computing the percentage ownership of any other person.
Name and Address | |
Beneficial Ownership | | |
Percentage of Class (1) | |
Officers and Directors | |
| | | |
| | |
Hamid Emarlou 18188 Wagner Road, Los Gatos, CA 95032 | |
| 37,984,768 | | |
| 78.67 | % |
Shadi Shayegan 18188 Wagner Road, Los Gatos, CA 95032 | |
| 300,000 | | |
| * | |
Adam Kotkin 431 Fairway Drive, Suite 260, Deerfield Beach, FL 33441 | |
| 999,980 | | |
| 2.07 | % |
Adam Wasserman 1643 Royal Grove Way, Weston, FL 33327 | |
| 137,010 | (2) | |
| * | |
All officers/directors as a group, including a former officer (4 persons) | |
| 39,421,758 | | |
| 81.65 | % |
| |
| | | |
| | |
5% Shareholders | |
| | | |
| | |
Whalehaven Capital Fund Ltd. 285 Grand Ave Patriot Center, Bldg 5, 2nd Fl, Englewood, NJ 07361 | |
| 3,881,250 | | |
| 8.04 | % |
|
* |
Represents less than 1% ownership. |
|
(1) |
Based on 48,280,976 shares of common stock outstanding. |
| (2) | CFO Oncall, Inc. owns 136,990 shares of our common stock. Mr. Wasserman owns 80% of CFO Oncall, Inc. Mr.
Wasserman also holds 20 shares of our common stock in his own name. Mr. Wasserman resigned as our Chief Financial Officer effective
December 30, 2014. |
We are not aware of any arrangement,
including any pledge by any person of securities of the registrant or any of its parents, the operation of which may at a subsequent
date result in a change in control of the registrant.
EXECUTIVE COMPENSATION
The following table sets forth information
regarding each element of compensation that was paid or awarded to the named executive officers of Vapir for its fiscal year ended
December 31, 2013 and 2012:
Name and Principal Position | |
Year | |
Salary ($) | | |
Bonus ($) | | |
Stock Awards ($) | | |
Option Awards ($) | | |
Non-Equity Incentive Plan Compensation ($) | | |
All Other Compensation ($) | | |
Total ($) | |
Hamid Emarlou | |
2013 | |
$ | 150,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 10,800 | (4) | |
$ | 160,800 | |
President and Chief | |
2012 | |
| 150,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
$ | 10,800 | (4) | |
| 160,800 | |
Executive Officer | |
| |
| | | |
| | | |
| | | |
| - | | |
| - | | |
| | | |
| | |
Adam Kotkin (1) | |
2013 | |
| 87,000 | | |
| - | | |
| 20,000 | (2) | |
| - | | |
| - | | |
| - | | |
| 107,000 | |
Chief Executive Officer | |
2012 | |
| 94,000 | | |
| - | | |
| - | | |
| | | |
| | | |
| - | | |
| 94,000 | |
| |
| |
| | | |
| | | |
| | | |
| - | | |
| - | | |
| | | |
| | |
Adam Wasserman (1) | |
2013 | |
| 33,000 | | |
| - | | |
| - | | |
| | | |
| | | |
| - | | |
| 33,000 | |
Chief Financial Officer | |
2012 | |
| 36,000 | | |
| | | |
| 30,000 | (3) | |
| | | |
| | | |
| | | |
| 66,000 | |
| |
| |
| | | |
| | | |
| | | |
| - | | |
| - | | |
| | | |
| | |
Dr. Shadi Shayegan | |
2013 | |
$ | 36,000 | | |
| - | | |
| | | |
| - | | |
| - | | |
| - | | |
$ | 36,000 | |
Corporate Secretary | |
2012 | |
$ | 37,000 | | |
| - | | |
| | | |
| - | | |
| - | | |
| - | | |
$ | 37,000 | |
(1) |
Mr. Kotkin and Mr. Wasserman resigned as our Chief Executive Officer and Chief Financial Officer, respectively,
effective December 30, 2014. Mr. Kotkin remains on our Board of Directors following his resignation. Mr. Wasserman is
the owner of CFO Oncall, Inc. |
(2) |
Represents 20,000,000 shares issued at a value of $0.001 per shares based on the sale of common stock in a private placement
at $0.001 per common share. |
(3) |
Represents 667,207 aggregate shares issued at an average value of approximately $0.04 per share based on quoted trading
prices of the common stock on the grant dates. |
(4) |
Mr. Emarlou was provided a car allowance in 2013 of $900 a month covering car payments and insurance expenses. |
Employment Agreements
We have not entered into employment agreements with our officers and directors. Additionally, we have not
approved any retirement benefit plan, termination or severance provisions for any of our named executive officers. Mr. Emarlou
and Dr. Shayegan are employed at will such that either the Company or Mr. Emarlou and Dr. Shayegan may terminate the employment
relationship at any time, with or without cause. Mr. Emarlou and Dr. Shayegan receive salaries and Mr. Emarlou received a car allowance
in 2013.
Mr. Kotkin and Mr. Wasserman resigned as
employees of the Company effective December 30, 2014. Prior to their resignations, neither officer was party to an employment agreement
nor any retirement benefits plan or termination or severance agreements or provisions.
Outstanding Equity Awards at Fiscal
Year-End
There were no outstanding
equity awards held by any of our officers as of December 31, 2013.
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.
Related Party Transactions
During fiscal 2012, the Company’s
sole shareholder who is the President of the Company distributed dividends in excess of earnings and therefore the Company accounted
such excess dividend distribution as due from related party of $189,956 as of December 31, 2012. The due from related party was
due on demand and bear no interest. During fiscal 2013, the Company had adequate and sufficient earnings to cover the 2012 excess
dividend distribution which therefore satisfied the balance of the due from related party of $189,956. As of December 31, 2013,
due from related party was $0.
From time to time, the Company’s President,
provided advances to the Company for payment of the Company’s loans. During fiscal 2013, the Company fully repaid the balance
of such advances. At December 31, 2013 and 2012, the Company had a payable to the President of the Company of $0 and $135,982,
respectively. The advances were due on demand and bear no interest.
On January 1, 2014, we entered into a Short-Term
Loan Contract with the Company’s President pursuant to which the Company would borrow money on demand from the Company’s
President. Each such loan bears interest at 5% per annum and is payable on demand to the Company’s President. The proceeds
from these loans are used for working capital purposes. In accordance with this Short-Term Loan Contract, between August 2014 and
September 2014, the Company’s President provided advances to the Company for working capital purposes for a total of $70,000.
These advances were paid by the Company in full by the end of September 2014.
Amounts outstanding under the loan and note
payable are personally guaranteed by the President of the Company. As of December 31, 2013, loan and note payable to a bank amounted
to $176,000 and $64,650, respectively. As of December 31, 2012, loan and note payable to a bank amounted to $66,000 and $84,450,
respectively.
Director Independence
Currently, we have no independent directors.
Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence”
of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent
director” is a person other than an officer or employee of the company or any other individual having a relationship which,
in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent
if:
|
● |
the director is, or at any time during the past three years was, an employee of the Company; |
|
● |
the director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service); |
|
● |
a family member of the director is, or at any time during the past three years was, an executive officer of the Company; |
|
● |
the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); |
|
● |
the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the Company served on the compensation committee of such other entity; or |
|
● |
the director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three years was a partner or employee of the Company’s outside auditor, and who worked on the company’s audit. |
Involvement in Certain Legal Proceedings
To our knowledge, during the past ten
years, none of our directors, executive officers, promoters, control persons, or nominees has:
|
● |
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 Commission 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. |
Code of Ethics
We have not adopted a code of ethics
that applies to our principal executive officer, principal financial officer, principal accounting officer, or persons performing
similar functions, because of the small number of persons involved in the management of the Company.
DESCRIPTION OF SECURITIES
Authorized Capital Stock
Our authorized capital stock consists
of 100,000,000 shares of common stock, par value $0.001 per share. Immediately after giving effect to the shares issued in the
Closing of the reverse merger, there were 48,280,960 shares of our common stock issued and outstanding. We have 20,000,000 shares
of blank check preferred stock authorized. However, as of this date, we have not designated any classes of preferred stock nor
have we issued any preferred shares.
Common Stock
As of March 25, 2015, there were 71 holders of our common stock.
The following is a summary of the material rights and restrictions associated with our common stock.
The holders of our common stock currently
have (i) equal ratable rights to dividends from funds legally available therefore, when, as and if declared by the Board of Directors
of the Company; (ii) are entitled to share ratably in all of the assets of the Company available for distribution to holders of
common stock upon liquidation, dissolution or winding up of the affairs of the Company (iii) do not have preemptive, subscription
or conversion rights and there are no redemption or sinking fund provisions or rights applicable thereto; and (iv) are entitled
to one non-cumulative vote per share on all matters on which stock holders may vote. Please refer to the Company’s Articles
of Incorporation, Bylaws and the applicable statutes of the State of Nevada for a more complete description of the rights and liabilities
of holders of the Company’s securities.
Dividend Policy
We have never declared or paid any cash
dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business.
As a result, we do not anticipate paying any cash dividends in the foreseeable future.
Indemnification of Directors and Officers
Under our Articles of Incorporation,
no director or officer will be held personally liable to us or our stockholders for damages of breach of fiduciary duty as a director
or officer unless such breach involves intentional misconduct, fraud, a knowing violation of law, or a payment of dividends in
violation of the law. Under our bylaws, directors and officers will be indemnified to the fullest extent allowed by the law against
all damages and expenses suffered by a director or officer being party to any action, suit, or proceeding, whether civil, criminal,
administrative or investigative. This same indemnification is provided pursuant to Nevada Revised Statutes, Chapter
78.
The general effect of the foregoing
is to indemnify a control person, officer or director from liability, thereby making us responsible for any expenses or damages
incurred by such control person, officer or director in any action brought against them based on their conduct in such capacity,
provided they did not engage in fraud or criminal activity.
Any repeal or modification of these
provisions approved by our shareholders shall be prospective only, and shall not adversely affect any limitation on the liability
of a director or officer of ours existing as of the time of such repeal or modification.
Anti-Takeover Effect of Nevada Law, Certain By-Law Provisions
The Nevada Business Corporation Law
contains a provision governing “acquisition of controlling interest” (Nevada Revised Statutes 78.378 -78.3793). This
law provides generally that any person or entity that acquires 20% or more of the outstanding voting shares of a publicly-held
Nevada corporation in the secondary public or private market may be denied voting rights with respect to the acquired shares, unless
a majority of the disinterested shareholders of the corporation elects to restore such voting rights in whole or in part. The control
share acquisition act provides that a person or entity acquires “control shares” whenever it acquires shares that,
but for the operation of the control share acquisition act, would bring its voting power within any of the following three ranges:
A “control share acquisition”
is generally defined as the direct or indirect acquisition of either ownership or voting power associated with issued and outstanding
control shares. The shareholders or board of directors of a corporation may elect to exempt the stock of the corporation from the
provisions of the control share acquisition act through adoption of a provision to that effect in the articles of incorporation
or bylaws of the corporation. Our articles of incorporation and bylaws do not exempt our common stock from the control share acquisition
act.
The control share acquisition act is
applicable only to shares of “Issuing Corporations” as defined by the Nevada law. An Issuing Corporation is a Nevada
corporation, which:
|
● |
has 200 or more shareholders, with at least 100 of such shareholders being both shareholders of record and residents of Nevada; and |
|
● |
does business in Nevada directly or through an affiliated corporation. |
At this time, we do not have 100 shareholders
of record resident of Nevada. Therefore, the provisions of the control share acquisition act do not apply to acquisitions of our
shares and will not until such time as these requirements have been met. At such time as they may apply, the provisions of the
control share acquisition act may discourage companies or persons interested in acquiring a significant interest in or control
of us, regardless of whether such acquisition may be in the interest of our shareholders.
The Nevada “Combination with Interested
Shareholders Statute” (Nevada Revised Statutes 78.411 -78.444) may also have an effect of delaying or making it more difficult
to effect a change in control of us. This statute prevents an “interested shareholder” and a resident domestic Nevada
corporation from entering into a “combination,” unless certain conditions are met. The statute defines “combination”
to include any merger or consolidation with an “interested shareholder,” or any sale, lease, exchange, mortgage, pledge,
transfer or other disposition, in one transaction or a series of transactions with an “interested shareholder” having:
|
● |
an aggregate market value equal to 5 percent or more of the aggregate market value of the assets of the corporation; |
|
● |
an aggregate market value equal to 5 percent or more of the aggregate market value of all outstanding shares of the corporation; or |
|
● |
representing 10 percent or more of the earning power or net income of the corporation. |
An “interested shareholder”
means the beneficial owner of 10 percent or more of the voting shares of a resident domestic corporation, or an affiliate or associate
thereof. A corporation affected by the statute may not engage in a “combination” within three years after the interested
shareholder acquires its shares unless the combination or purchase is approved by the board of directors before the interested
shareholder acquired such shares. If approval is not obtained, then after the expiration of the three-year period, the business
combination may be consummated with the approval of the board of directors or a majority of the voting power held by disinterested
shareholders, or if the consideration to be paid by the interested shareholder is at least equal to the highest of:
|
● |
the highest price per share paid by the interested shareholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which he became an interested shareholder, whichever is higher; |
|
● |
the market value per common share on the date of announcement of the combination or the date the interested shareholder acquired the shares, whichever is higher; or |
|
● |
if higher for the holders of preferred stock, the highest liquidation value of the preferred stock. |
Trading Information
Our common stock is currently approved for quotation on the OTC Bulletin Board (OTCQB) maintained by the Financial
Industry Regulatory Authority, Inc. under the symbol “VAPI”. We are not aware of any trades or quotations during
the two calendar years ending December 31, 2013. There have been sporadic trades reported since that date at prices reported
from $0.01 to $3.50.
Transfer Agent
The transfer agent for our common stock is Action Stock Transfer
at 2469 E. Fort Union Blvd., Suite 214, Salt Lake City, Utah 84121, and its telephone number is (801) 274-1088.
|
Item
3.02 |
Unregistered Sales of Equity Securities |
On December 30, 2014, we issued 38,624,768
shares of our common stock to the former stockholders of Vapir, pursuant to the terms of the Exchange Agreement. At closing,
the Company issued 38,624,768 shares of its common stock to the shareholders of Vapir Inc. who obtained approximately 80% voting
control and management control of the Company. The transaction was accounted for as a reverse acquisition and recapitalization
of Vapir Inc. whereby Vapir Inc. is considered the acquirer for accounting purposes. The securities issued in this transaction
were not registered under the Securities Act, or the securities laws of any state, and were offered and sold pursuant to the exemption
from registration under the Securities Act provided by Section 4(2) and Regulation D (Rule 506) under the Securities Act.
On December 30, 2014, in connection with the Exchange Agreement and as a settlement to an outstanding liability,
we issued 3,000,000 shares of our common stock to two noteholders in satisfaction of the outstanding promissory notes for a total
of $30,000. The securities issued in this transaction were not registered under the Securities Act, or the securities
laws of any state, and were offered and sold pursuant to the exemption from registration under the Securities Act provided by Section
4(2) and Regulation D (Rule 506) under the Securities Act.
Information set forth in Items 1.01
and 2.01 of this Current Report on Form 8-K with respect to the issuance of unregistered equity securities in connection with the
Exchange Agreement is incorporated by reference into this Item 3.02.
|
Item 4.01 |
Changes in Registrant’s Certifying Accountant |
(1) |
Previous Independent Registered Public Accounting Firm |
|
|
|
|
(i) |
On December 30, 2014, we dismissed our independent registered public accounting firm, Salberg & Company, P.A (“Salberg”). |
|
|
|
|
(ii) |
The report of Salberg dated April 11, 2014 on the financial statements of the Company as of December 31, 2013 and 2012, and the related statements of operations, comprehensive loss, changes in stockholders’ deficiency, and cash flows for each of the two years in the period ended December 31, 2013 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles other than an explanatory paragraph as to a going concern. |
|
(iii) |
The decision to change independent registered public accounting firm was recommended and approved by the Board of Directors of the Company. |
|
|
|
|
(iv) |
During the Company’s two most recent fiscal years ended December 31, 2013 and 2012 and any subsequent interim periods through December 30, 2014, the date of dismissal, (a) there were no disagreements with Salberg on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Salberg, would have caused it to make reference thereto in its reports on the financial statements for such years and (b) there were no “reportable events” as described in Item 304(a)(1)(v) of Regulation S-K. |
|
|
|
|
(v) |
On December 30, 2014 the Company provided Salberg with a copy of this Current Report and has requested that it furnish the Company with a letter addressed to the U.S. Securities and Exchange Commission stating whether it agrees with the above statements. A copy of such letter is attached as Exhibit 16.1 to this Current Report on Form 8-K. |
(2) |
New Independent Registered Public Accounting Firm |
|
|
|
|
On December 30, 2014, the Board of Directors of the Company engaged Li and Company, PC (“LICO”) as its new independent registered public accounting firm to audit and review the Company’s financial statements. During the two most recent fiscal years ended December 31, 2013 and 2012 and any subsequent interim periods through the date hereof prior to the engagement of LICO, neither the Company, nor someone on its behalf, has consulted LICO regarding: |
|
|
|
|
(i) |
either: the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and either a written report was provided to the Company or oral advice was provided that the new independent registered public accounting firm concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or |
|
|
|
|
(ii) |
any matter that was either the subject of a disagreement as defined in paragraph 304(a)(1)(iv) of Regulation S-K or a reportable event as described in paragraph 304(a)(1)(v) of Regulation S-K. |
Item 5.01 |
Changes in Control of Registrant. |
Reference is made to the disclosure
set forth under Items 1.01 and 5.02 of this Report, which disclosure is incorporated herein by reference.
Item 5.02 |
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangement of Certain Officers. |
(b) |
Resignation of Officers |
Effective December 30, 2014, Adam Kotkin
resigned as our Chief Executive Officer and Adam Wasserman resigned as our Chief Financial Officer. Their resignations
were not the result of any disagreements with us on any matters relating to our operations, policies and practices but were the
result of the Exchange Agreement and change of control transaction referred to in Items 1.01 and 5.01 of this Report.
Adam Kotkin is a member of the Board
of Directors and, notwithstanding his resignation as the Chief Executive Officer, Mr. Kotkin shall remain as a member of the Board
of Directors.
(c) |
Appointment of Directors |
Effective December 30, 2014, the following
persons were appointed as members of the Board of Directors:
Name |
|
Age |
|
Principal Positions With Us |
Hamid Emarlou |
|
54 |
|
Chairman and Chief Executive Officer |
Masoud Shahidi |
|
72 |
|
Director |
For certain biographical and other information
regarding Mr. Hamid Emarlou and Mr. Masoud Shahidi, see the disclosure under “Item 2.01—Directors and Executive Officers”
of this Report, which disclosure is incorporated herein by reference.
Family Relationships
There are no relationships between any
of the officers or directors of the Company.
(d) |
Appointment of Officers |
Effective December 30, 2014, the directors
appointed the following persons as our executive officers, with the respective titles as set forth opposite his or her name below:
Name |
|
Age |
|
Principal Positions With Us |
Hamid Emarlou |
|
54 |
|
Chief Executive Officer |
For certain biographical and other information
regarding Mr. Hamid Emarlou, see the disclosure under “Item 2.01—Directors and Executive Officers” of this Report,
which disclosure is incorporated herein by reference.
(e) |
Employment Agreements of the Executive Officers |
The Company has not entered into formal
employment agreements with any of its executive officers, however, intends to enter into written employment agreements with each
of them subsequent to the Closing.
Item 5.03 |
Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. |
On September 17, 2014, a Certificate of Amendment
to our Articles of Incorporation was filed with the State of Nevada to: (i) change our name to Vapir Enterprises, Inc. (the "Name
Change"); and (ii) effectuate a 5-to-1 reverse split (the “Reverse Split”). A copy of the Certificate of Amendment
is being filed hereto as Exhibit 3.1.
Item 5.06 |
Change in Shell Company Status. |
Following the closing of the Exchange
Agreement described in Item 2.01 of this Current Report on Form 8-K, we believe that we are not a shell corporation as that term
is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.
FINRA announced the Name Change and
the Reverse Stock Split on October 2, 2014 and it took effect on October 3, 2014. FINRA also assigned us the new trading symbol
“VAPI”.
Item 9.01 |
Financial Statements and Exhibits. |
(a) Financial
Statements of Businesses Acquired. In accordance with Item 9.01(a), Vapir’s audited financial statements for
the years ended December 31, 2013 and 2012 are filed in this Current Report on Form 8-K as Exhibit 99.1 and Vapir’s unaudited
financial statements for the nine months ended September 30, 2014 are filed with this Current Report on Form 8-K as Exhibit 99.2.
(b) Pro
Forma Financial Information. In accordance with Item 9.01(b), our pro forma financial statements are filed in this
Current Report on Form 8-K as Exhibit 99.3.
(c) Exhibits.
The exhibits listed
in the following Exhibit Index are filed as part of this Current Report on Form 8-K.
Exhibit
No. |
|
Description |
|
|
|
2.1 |
|
Share Exchange Agreement dated December 30, 2014 |
|
|
|
3.1 |
|
Articles of Incorporation, Apps Genius Corp., dated December 17, 2009 |
|
|
|
3.1(1) |
|
Certificate of Amendment dated July 9,2013 |
|
|
|
3.1(2) |
|
Certificate of Amendment dated September 17, 2014 |
|
|
|
3.2 |
|
By Laws of Apps Genius Inc., dated December 17, 2009 |
|
|
|
10.1 |
|
Securities Purchase Agreement by and between FAL Minerals LLC and FAL Exploration Corp, dated as of October 7, 2013 |
|
|
|
10.2 |
|
Membership Interest Purchase Agreement by and between FAL Minerals, LLC and David Lubin & Associates, PLLC, dated October 9, 2013 |
|
|
|
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, 2013 |
|
|
|
10.4 |
|
Short Term Loan Contract between Vapir Enterprise Inc. and Hamid Emarlou |
|
|
|
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, 2014 |
|
|
|
16.1 |
|
Letter from Salberg and Company addressed to the U.S. Securities and Exchange Commission |
|
|
|
99.1 |
|
Audited Balance Sheets of the Company as of December 31, 2013 and 2012, and the Related Audited Statements of Operations, Shareholders’ Equity, and Cash Flows for the years ended December 31, 2013 and 2012 |
|
|
|
99.2 |
|
Unaudited (reviewed) Balance Sheets of the Company as of September 30, 2014 and December 31, 2013, and the Related Unaudited Statements of Operations and Cash Flows for the nine months ended September 30, 2014 and 2013 |
|
|
|
99.3 |
|
Pro forma unaudited combined financial statements as of the period ended September 30, 2014 |
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.
Date: March 31, 2015
|
Vapir Enterprises, Inc. |
|
|
|
|
By: |
/s/ Hamid Emarlou |
|
|
Hamid Emarlou |
|
|
Chief Executive Officer and President |
30
Exhibit 2.1
SHARE EXCHANGE AGREEMENT
BY AND AMONG
VAPIR ENTERPRISES INC.
AND
THE PRINCIPAL SHAREHOLDERS OF VAPIR
ENTERPRISES INC.
AND
VAPIR, INC.
AND
THE SHAREHOLDERS OF VAPIR, INC.
Dated as of: December 30, 2014
TABLE OF CONTENTS
ARTICLE I DEFINITIONS |
1 |
Section 1.1 |
Definitions |
1 |
|
|
|
ARTICLE II SHARE EXCHANGE; CLOSING |
6 |
Section 2.1 |
Share Exchange |
6 |
Section 2.2 |
Closing |
6 |
Section 2.3 |
Closing Deliveries by Acquiror and Acquiror Principal Shareholder |
6 |
Section 2.4 |
Closing Deliveries by Acquiree, and Acquiree Shareholders |
6 |
Section 2.5 |
Section 368 Reorganization |
6 |
|
|
|
ARTICLE III REPRESENTATIONS OF ACQUIREE SHAREHOLDERS |
7 |
Section 3.1 |
Authority |
7 |
Section 3.2 |
Binding Obligations |
7 |
Section 3.3 |
No Conflicts |
7 |
Section 3.4 |
Certain Proceedings |
8 |
Section 3.5 |
No Brokers or Finders |
8 |
Section 3.6 |
Investment Representations |
8 |
Section 3.7 |
Stock Legends |
10 |
Section 3.8 |
Disclosure |
11 |
|
|
|
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE ACQUIREE |
12 |
Section 4.1 |
Organization and Qualification |
12 |
Section 4.2 |
Authority |
12 |
Section 4.3 |
Binding Obligations |
12 |
Section 4.4 |
No Conflicts |
13 |
Section 4.5 |
Subsidiaries |
13 |
Section 4.6 |
Organizational Documents |
13 |
Section 4.7 |
Capitalization |
14 |
Section 4.8 |
No Brokers or Finders |
14 |
Section 4.9 |
Disclosure |
14 |
|
|
|
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR AND THE ACQUIROR PRINCIPAL SHAREHOLDER |
14 |
Section 5.1 |
Organization and Qualification |
15 |
Section 5.2 |
Authority |
15 |
Section 5.3 |
Binding Obligations |
15 |
Section 5.4 |
No Conflicts |
16 |
Section 5.5 |
Subsidiaries |
16 |
Section 5.6 |
Organizational Documents |
17 |
Section 5.7 |
Compliance with Laws |
17 |
Section 5.8 |
Certain Proceedings |
18 |
Section 5.9 |
No Brokers or Finders |
18 |
Section 5.10 |
Contracts |
18 |
Section 5.11 |
Tax Matters |
18 |
Section 5.12 |
Labor Matters |
19 |
Section 5.13 |
Employee Benefits |
20 |
Section 5.14 |
Title to Assets |
20 |
Section 5.15 |
Intellectual Property |
20 |
Section 5.16 |
SEC Reports |
20 |
Section 5.17 |
Internal Accounting Controls |
21 |
Section 5.18 |
Application of Takeover Protections |
21 |
Section 5.19 |
Transactions With Affiliates and Employees |
21 |
Section 5.20 |
Liabilities |
21 |
Section 5.21 |
Bank Accounts and Safe Deposit Boxes |
22 |
Section 5.22 |
Investment Company |
22 |
Section 5.23 |
Bank Holding Company Act |
22 |
Section 5.24 |
Public Utility Holding Act |
22 |
Section 5.25 |
Federal Power Act |
22 |
Section 5.26 |
Money Laundering Laws |
22 |
Section 5.27 |
Foreign Corrupt Practices |
22 |
Section 5.28 |
Absence of Certain Changes or Events |
23 |
Section 5.29 |
Disclosure |
23 |
Section 5.30 |
Undisclosed Events |
23 |
Section 5.31 |
Non-Public Information |
23 |
|
|
|
ARTICLE VI CONDUCT PRIOR TO CLOSING |
23 |
Section 6.1 |
Conduct of Business |
23 |
Section 6.2 |
Restrictions on Conduct of Business |
24 |
|
|
|
ARTICLE VII ADDITIONAL AGREEMENTS |
26 |
Section 7.1 |
Access to Information |
26 |
Section 7.2 |
Legal Requirements |
26 |
Section 7.3 |
Notification of Certain Matters |
26 |
|
|
|
Article VIII POST CLOSING COVENANTS |
27 |
Section 8.1 |
General |
27 |
Section 8.2 |
Litigation Support |
27 |
Section 8.3 |
Assistance with Post-Closing SEC Reports and Inquiries |
27 |
Section 8.4 |
Public Announcements |
27 |
|
|
|
ARTICLE IX CONDITIONS TO CLOSING |
28 |
Section 9.1 |
Conditions to Obligation of the Parties Generally |
28 |
Section 9.2 |
Conditions to Obligation of the Acquiree Parties |
28 |
Section 9.3 |
Conditions to Obligation of the Acquiror Parties |
30 |
|
|
|
ARTICLE X TERMINATION |
31 |
Section 10.1 |
Grounds for Termination |
31 |
Section 10.2 |
Procedure and Effect of Termination |
33 |
Section 10.3 |
Effect of Termination |
33 |
ARTICLE XI SURVIVAL |
33 |
Section 11.1 |
Survival |
33 |
|
|
|
ARTICLE XII MISCELLANEOUS PROVISIONS |
33 |
Section 12.1 |
Expenses |
33 |
Section 12.2 |
Confidentiality |
34 |
Section 12.3 |
Notices |
35 |
Section 12.4 |
Further Assurances |
35 |
Section 12.5 |
Waiver |
35 |
Section 12.6 |
Entire Agreement and Modification |
35 |
Section 12.7 |
Assignments, Successors, and No Third-Party Rights |
36 |
Section 12.8 |
Severability |
36 |
Section 12.9 |
Section Headings |
36 |
Section 12.10 |
Construction |
36 |
Section 12.11 |
Counterparts |
36 |
Section 12.12 |
Specific Performance |
36 |
Section 12.13 |
Governing Law; Submission to Jurisdiction |
37 |
Section 12.14 |
Waiver of Jury Trial |
37 |
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT
(“Agreement”), dated as of December 30, 2014, is made by and among VAPIR ENTERPRISES INC., a corporation organized
under the laws of Nevada (the “Acquiror”), ADAM KOTKIN (the “Acquiror Principal Shareholder”),
VAPIR, INC., a corporation organized under the laws of California (the “Acquiree”), and each of the Persons
listed on Schedule I hereto who are shareholders of the Acquiree (collectively, the “Acquiree Shareholders,”
and individually an “Acquiree Shareholder”). Each of the Acquiror, Acquiree and Acquiree Shareholders are referred
to herein individually as a “Party” and collectively as the “Parties.”
RECITALS:
WHEREAS, the Acquiree
Shareholders are the holders of all of the issued and outstanding shares of common stock of the Acquiree (the “Acquiree
Interests”);
WHEREAS, the Acquiree
Shareholders have agreed to transfer to the Acquiror, and the Acquiror has agreed to acquire from the Acquiree Shareholders, all
of the Acquiree Interests, in exchange for the issuance of 38,624,768 Acquiror Shares (as defined below) to the Acquiree Shareholders,
which Acquiror Shares shall constitute approximately 80.00% of the issued and outstanding shares of Acquiror Common Stock (as defined
below) immediately after the closing of the transactions contemplated herein, in each case, on the terms and conditions as set
forth herein;
NOW, THEREFORE, in consideration
of the foregoing premises, and the covenants, representations and warranties set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged and accepted, the Parties, intending to be legally bound,
hereby agree as follows:
Article
I
DEFINITIONS
Section 1.1 Definitions.
For all purposes of and under this Agreement, the following terms shall have the following respective
meanings:
“Accredited
Investor” has the meaning set forth in Rule 501 under the Securities Act.
“Acquiree”
has the meaning set forth in the preamble.
“Acquiree Disclosure
Schedule” has the meaning set forth in Article IV.
“Acquiree Interests”
has the meaning set forth in the recitals.
“Acquiree Indemnified
Parties” means the Acquiree and the Acquiree Shareholders and their respective Affiliates and the officers, directors
and representatives of such Persons; provided that (i) the Acquiror shall be a member of the Acquiree Indemnified Parties after
the Closing and (ii) none of the Acquiror Principal Shareholder nor the Acquiror Principal Shareholder’ Affiliates shall
be members of the Acquiree Indemnified Parties at any time.
“Acquiree Organizational
Documents” has the meaning set forth in Section 4.6.
“Acquiree Shareholder”
and “Acquiree Shareholders” have the respective meanings set forth in the preamble.
“Acquiror”
has the meaning set forth in the recitals.
“Acquiror Common
Stock” means the common stock, par value $0.001 per share, of the Acquiror.
“Acquiror Disclosure
Schedule” has the meaning set forth in Article V.
“Acquiror Most
Recent Fiscal Year End” means December 31, 2013.
“Acquiror Principal
Shareholder” has the meaning set forth in the preamble.
“Acquiror Shares”
has the meaning set forth in the recitals.
“Acquiror Sharesholders”
means entities holding Acquiror Shares.
“Acquisition Transaction”
means any transaction or series of transactions involving: (a) any merger, consolidation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange offer or other similar transaction; or (b) any sale (other
than sales of inventory in the Ordinary Course of Business), lease (other than in the Ordinary Course of Business), exchange, transfer
(other than sales of inventory in the Ordinary Course of Business), license (other than nonexclusive licenses in the Ordinary Course
of Business), acquisition or disposition of assets.
“Action”
means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation
pending or threatened before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal,
state, county, local or foreign), stock market, stock exchange or trading facility.
“Affiliate”
has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Exchange Act.
“Agreement”
has the meaning set forth in the preamble.
“BHCA”
has the meaning set forth in Section 5.23.
“Business Day”
shall mean any day other than a Saturday, Sunday or a day on which commercial banks in New York, New York are required or authorized
to be closed.
“Closing”
has the meaning set forth in Section 2.2.
“Closing Date”
has the meaning set forth in Section 2.2.
“Code”
means the Internal Revenue Code of 1986, as amended.
“Competing Transaction
Proposal” means any inquiry, proposal, indication of interest or offer from any Person contemplating or otherwise relating
to any Acquisition Transaction directly or indirectly involving the Acquiror, its business or any assets of the Acquiror (including,
without limitation, any Acquisition Transaction involving Acquiror Principal Shareholder that would include the Acquiror, its business
or any assets of the Acquiror).
“Contract”
means any written or oral contract, lease, license, indenture, note, bond, agreement, arrangement, understanding, permit, concession,
franchise or other instrument.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.
“Exchange Act”
means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the SEC
thereunder, all as the same will then be in effect.
“Federal Reserve”
has the meaning set forth in Section 5.23.
“GAAP”
means, with respect to any Person, generally accepted accounting principles in the U.S. applied on a consistent basis with such
Person’s past practices.
“Governmental
Authority” means any domestic or foreign, federal or national, state or provincial, municipal or local government, governmental
authority, regulatory or administrative agency, governmental commission, department, board, bureau, agency or instrumentality,
political subdivision, commission, court, tribunal, official, arbitrator or arbitral body.
“Indebtedness”
means without duplication, (a) all indebtedness or other obligation of the Person for borrowed money, whether current, short-term,
or long-term, secured or unsecured, (b) all indebtedness of the Person for the deferred purchase price for purchases of property
outside the Ordinary Course of Business, (c) all lease obligations of the Person under leases which are capital leases in accordance
with GAAP, (d) any off-balance sheet financing of the Person including synthetic leases and project financing, (e) any payment
obligations of the Person in respect of banker’s acceptances or letters of credit (other than stand-by letters of credit
in support of ordinary course trade payables), (f) any liability of the Person with respect to interest rate swaps, collars, caps
and similar hedging obligations, (g) any liability of the Person under deferred compensation plans, phantom stock plans, severance
or bonus plans, or similar arrangements made payable as a result of the transactions contemplated herein, (h) any indebtedness
referred to in clauses (a) through (g) above of any other Person which is either guaranteed by, or secured by a security interest
upon any property owned by, the Person and (i) accrued and unpaid interest of, and prepayment premiums, penalties or similar contractual
charges arising as result of the discharge at Closing of, any such foregoing obligation.
“Intellectual
Property” means all industrial and intellectual property, including, without limitation, all U.S. and non-U.S. patents,
patent applications, patent rights, trademarks, trademark applications, common law trademarks, Internet domain names, trade names,
service marks, service mark applications, common law service marks, and the goodwill associated therewith, copyrights, in both
published and unpublished works, whether registered or unregistered, copyright applications, franchises, licenses, know-how, trade
secrets, technical data, designs, customer lists, confidential and proprietary information, processes and formulae, all computer
software programs or applications, layouts, inventions, development tools and all documentation and media constituting, describing
or relating to the above, including manuals, memoranda, and records, whether such intellectual property has been created, applied
for or obtained anywhere throughout the world.
“Knowledge”
shall mean, except as otherwise explicitly provided herein, actual knowledge after reasonable investigation. The Acquiror shall
be deemed to have “Knowledge” of a matter if any of its officers, directors, stockholders, or employees has Knowledge
of such matter. Phrases such as “to the Knowledge of the Acquiror” or the “Acquiror’s Knowledge”
shall be construed accordingly.
“Laws”
means, with respect to any Person, any U.S. or non-U.S., federal, national, state, provincial, local, municipal, international,
multinational or other Law (including common law), constitution, statute, code, ordinance, rule, regulation or treaty applicable
to such Person.
“Liability”
means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes.
“License”
means any security clearance, permit, license, variance, franchise, Order, approval, consent, certificate, registration or other
authorization of any Governmental Authority or regulatory body, and other similar rights.
“Lien”
means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind, including, without limitation, any conditional
sale or other title retention agreement, any lease in the nature thereof and the filing of or agreement to give any financing statement
under the Uniform Commercial Code of any jurisdiction and including any lien or charge arising by Law.
“Material Adverse
Effect” means, with respect to any Person, a material adverse effect on the business, financial condition, operations,
results of operations, assets, customer, supplier or employee relations or future prospects of such Person.
“Money Laundering
Laws” has the meaning set forth in Section 5.26.
“Order”
means any order, judgment, ruling, injunction, assessment, award, decree or writ of any Governmental Authority or regulatory body.
“Ordinary Course
of Business” means the ordinary course of business consistent with past custom and practice (including with respect to
quantity and frequency).
“Party”
and “Parties” have the respective meanings set forth in the preamble.
“Person”
means all natural persons, corporations, business trusts, associations, companies, partnerships, limited liability companies, joint
ventures and other entities, governments, agencies and political subdivisions.
“Principal Market”
means the OTC Bulletin Board.
“Registration
Statements” has the meaning set forth in Section 5.16(b).
“Regulation S”
means Regulation S under the Securities Act, as the same may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
“SEC”
means the U.S. Securities and Exchange Commission, or any successor agency thereto.
“SEC Reports”
has the meaning set forth in Section 5.16(a).
“Securities Act”
means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder,
all as the same will be in effect at the time.
“Share Exchange”
has the meaning set forth in Section 2.1.
“Tax Return”
means all returns, declarations, reports, estimates, statements, forms and other documents filed with or supplied to or required
to be provided to a Governmental Authority with respect to Taxes, including any schedule or attachment thereto and any amendment
thereof.
“Tax”
or “Taxes” means all taxes, assessments, duties, levies or other charge imposed by any Governmental Authority
of any kind whatsoever together with any interest, penalties, fines or additions thereto and any liability for payment of taxes
whether as a result of (i) being a member of an affiliated, consolidated, combined, unitary or similar group for any period, (ii)
any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any Person, (iii)
being liable for another Person’s taxes as a transferee or successor otherwise for any period, or (iv) operation of Law.
“Transaction Documents”
means, collectively, this Agreement and all agreements, certificates, instruments and other documents to be executed and delivered
in connection with the transactions contemplated by this Agreement.
“Treasury Regulations”
means the income tax regulations, including temporary regulations, promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of succeeding regulations).
“U.S.”
means the United States of America.
“U.S.
Person” has the meaning set forth in Regulation S under the Securities Act.
Article
II
SHARE EXCHANGE; CLOSING
Section 2.1 Share Exchange.
At the Closing, the Acquiree shall sell, transfer, convey, assign and deliver shares of Acquiree Interests, representing 100%
of the issued and outstanding shares of common stock of the Acquiree, to the Acquiror, and in consideration therefor the Acquiror
shall issue a total of 38,624,768 fully paid and nonassessable share of Acquiror Common Stock, par value $0.001, (the “Acquiror
Shares”) to the Acquiree Shareholders, as set forth beside the name of each such Acquiree Shareholder on Schedule
I hereto (the “Share Exchange”).
Section 2.2 Closing. Upon the terms and subject to the conditions of this Agreement, the transactions contemplated by this Agreement
shall take place at a closing (the “Closing”) to be held at the offices of Szaferman Lakind Blumstein &
Blader, PC located at 101 Grovers Mill Road, Lawrenceville, New Jersey 08648, at a time and date to be specified by the Parties,
which shall be no later than the second (2nd) Business Day following the satisfaction or, if permitted pursuant hereto, waiver
of the conditions set forth in Article X, or at such other location, date and time as Acquiree and Acquiror Principal Shareholder
shall mutually agree. The date and time of the Closing is referred to herein as the “Closing Date.”
Section 2.3 Closing Deliveries by Acquiror and Acquiror Principal Shareholder. At the Closing: (a) the Acquiror shall deliver,
or cause to be delivered, a certificate evidencing the number of Acquiror Shares, set forth beside each Acquiree Shareholder’s
name on Schedule I hereto; and (b) the Acquiror and the Acquiror Principal Shareholder, as applicable, shall deliver, or
cause to be delivered, to the Acquiree and the Acquiree Shareholders, as applicable, the various documents required to be delivered
as a condition to the Closing pursuant to Section 9.2 hereof.
Section 2.4 Closing Deliveries by Acquiree, and Acquiree Shareholders. At the Closing: (a) Acquiree shall deliver, or cause to
be delivered, certificate(s) representing its Acquiree Shares, accompanied by an executed instrument of transfer for transfer by
Acquiree of its Acquiree Shares to the Acquiror; and (b) the Acquiree, and the Acquiree Shareholders, as applicable, shall deliver,
or cause to be delivered, to the Acquiror and the Acquiror Principal Shareholder, as applicable, the various documents required
to be delivered as a condition to the Closing pursuant to Section 9.3 hereof.
Section 2.5 Section 368 Reorganization. For U.S. federal income Tax purposes, the Share Exchange is intended to constitute a
“reorganization” within the meaning of Section 368(a)(1)(B) of the Code. The Parties hereby adopt this Agreement as
a “plan of reorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the Treasury Regulations. Notwithstanding
the foregoing or anything else to the contrary contained in this Agreement, the Parties acknowledge and agree that no Party is
making any representation or warranty as to the qualification of the Share Exchange as a reorganization under Section 368 of the
Code or as to the effect, if any, that any transaction consummated prior to or after the Closing Date has or may have on any such
reorganization status. The Parties acknowledge and agree that each (i) has had the opportunity to obtain independent legal and
tax advice with respect to the transaction contemplated by this Agreement, and (ii) is responsible for paying its own Taxes, including
without limitation, any adverse Tax consequences that may result if the transaction contemplated by this Agreement is not determined
to qualify as a reorganization under Section 368 of the Code.
Article
III
REPRESENTATIONS OF ACQUIREE SHAREHOLDERS
The Acquiree Shareholders
severally, and not jointly, hereby represent and warrant to the Acquiror that the statements contained in this Article III
are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made
then and as thought the Closing Date were substituted for the date of this Agreement throughout this Article III) (except
where another date or period of time is specifically stated herein for a representation or warranty).
Section 3.1 Authority.
Such Acquiree Shareholder has all requisite authority and power to enter into and deliver this Agreement and any of the other
Transaction Documents to which such Acquiree Shareholder is a party, and any other certificate, agreement, document or instrument
to be executed and delivered by such Acquiree Shareholder in connection with the transactions contemplated hereby and thereby
and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. This
Agreement has been, and each of the Transaction Documents to which such Acquiree Shareholder is a party will be, duly and validly
authorized and approved, executed and delivered by such Acquiree Shareholder.
Section 3.2 Binding Obligations. Assuming this Agreement and the Transaction Documents have been duly and validly authorized,
executed and delivered by the parties hereto and thereto other than such Acquiree Shareholder, this Agreement and each of the Transaction
Documents to which such Acquiree Shareholder is a party are duly authorized, executed and delivered by such Acquiree Shareholder,
and constitutes the legal, valid and binding obligations of such Acquiree Shareholder, enforceable against such Acquiree Shareholder
in accordance with their respective terms, except as such enforcement is limited by general equitable principles, or by bankruptcy,
insolvency and other similar Laws affecting the enforcement of creditors rights generally.
Section 3.3 No Conflicts.
Neither the execution or delivery by such Acquiree Shareholder of this Agreement or any Transaction Document to which such
Acquiree Shareholder is a party, nor the consummation or performance by such Acquiree Shareholder of the transactions contemplated
hereby or thereby will, directly or indirectly, (a) contravene, conflict with, or result in a violation of any provision of the
organizational documents of such Acquiree Shareholder (if such Acquiree Shareholder is not a natural Person); (b) contravene,
conflict with, constitute a default (or an event or condition which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination or acceleration of, any agreement or instrument to which such Acquiree Shareholder
is a party or by which the properties or assets of such Acquiree Shareholder are bound; or (c) contravene, conflict with, result
in any breach of, or constitute a default (or an event that with notice or lapse of time or both would become a default) under,
impair the rights of such Acquiree Shareholder under, or alter the obligations of any Person under, or create in any Person the
right to terminate, amend, accelerate or cancel, or require any notice, report or other filing (whether with a Governmental Authority
or any other Person) pursuant to, or result in the creation of a Lien on any of the assets or properties of the Acquiror under,
any note, bond, mortgage, indenture, Contract, License, permit, franchise or other instrument or obligation to which such Acquiree
Shareholder is a party or any of such Acquiree Shareholder’s assets and properties are bound or affected, except, in the
case of clauses (b) or (c) for any such contraventions, conflicts, violations, or other occurrences as would not have a Material
Adverse Effect on such Acquiree Shareholder.
Section 3.4 Certain
Proceedings. There is no Action pending against, or to the Knowledge of such Acquiree Shareholder, threatened against or affecting,
such Acquiree Shareholder by any Governmental Authority or other Person with respect to such Acquiree Shareholder that challenges,
or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated
by this Agreement.
Section 3.5 No Brokers
or Finders. No Person has, or as a result of the transactions contemplated herein will have, any right or valid claim against
such Acquiree Shareholder for any commission, fee or other compensation as a finder or broker, or in any similar capacity, based
upon arrangements made by or on behalf of such Acquiree Shareholder and such Acquiree Shareholder will indemnify and hold the
Acquiror and the Acquiror Principal Shareholder harmless against any liability or expense arising out of, or in connection with,
any such claim.
Section 3.6 Investment Representations. Each Acquiree Shareholder severally, and not jointly, hereby represents and warrants,
solely with respect to itself and not any other Acquiree Shareholder, to the Acquiror as follows:
(a) Purchase Entirely for Own Account. Such Acquiree Shareholder is acquiring such Acquiree Shareholder’s portion
of the Acquiror Shares proposed to be acquired hereunder for investment for its own account and not with a view to the resale or
distribution of any part thereof, and such Acquiror Shareholder has no present intention of selling or otherwise distributing such
Acquiror Shares, except in compliance with applicable securities Laws.
(b) Restricted Securities. Such Acquiree Shareholder understands that the Acquiror Shares are characterized as “restricted
securities” under the Securities Act inasmuch as this Agreement contemplates that, if acquired by the Shareholder pursuant
hereto, the Acquiror Shares would be acquired in a transaction not involving a public offering. The issuance of the Acquiror Shares
hereunder is being effected in reliance upon an exemption from registration afforded under Section 4(2) of the Securities Act.
Such Acquiree Shareholder further acknowledges that if the Acquiror Shares are issued to such Acquiree Shareholder in accordance
with the provisions of this Agreement, such Acquiror Shares may not be resold without registration under the Securities Act or
the existence of an exemption therefrom. Such Acquiree Shareholder represents that he is familiar with Rule 144 promulgated under
the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act
(c) Acknowledgment of Non-Registration. Such Acquiree Shareholder understands and agrees that the Acquiror Shares to be issued
pursuant to this Agreement have not been registered under the Securities Act or the securities Laws of any state of the U.S.
(d) Status. By its execution of this Agreement, each Acquiree Shareholder represents and warrants to the Acquiror as
indicated on its signature page to this Agreement, either that: (i) such Acquiree Shareholder is an Accredited Investor; or (ii)
such Acquiree Shareholder is not a U.S. Person. Each Acquiree Shareholder understands that the Acquiror Shares are being offered
and sold to such Acquiree Shareholder in reliance upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Acquiree Shareholder set forth in this Agreement, in order that the Acquiror may determine
the applicability and availability of the exemptions from registration of the Acquiror Shares on which the Acquiror is relying.
(e) Additional Representations and Warranties. Such Acquiree Shareholder, severally and not jointly, further represents
and warrants to the Acquiror as follows: (i) such Person qualifies as an Accredited Investor; (ii) such Person consents to the
placement of a legend on any certificate or other document evidencing the Acquiror Shares substantially in the form set forth
in Section 3.7(a); (iii) such Person has sufficient knowledge and experience in finance, securities, investments and other
business matters to be able to protect such Person’s or entity’s interests in connection with the transactions contemplated
by this Agreement; (iv) such Person has consulted, to the extent that it has deemed necessary, with its tax, legal, accounting
and financial advisors concerning its investment in the Acquiror Shares and can afford to bear such risks for an indefinite period
of time, including, without limitation, the risk of losing its entire investment in the Acquiror Shares; (v) such Person has had
access to the SEC Reports; (vi) such Person has been furnished during the course of the transactions contemplated by this Agreement
with all other public information regarding the Acquiror that such Person has requested and all such public information is sufficient
for such Person to evaluate the risks of investing in the Acquiror Shares; (vii) such Person has been afforded the opportunity
to ask questions of and receive answers concerning the Acquiror and the terms and conditions of the issuance of the Acquiror Shares;
(viii) such Person is not relying on any representations and warranties concerning the Acquiror made by the Acquiror or any officer,
employee or agent of the Acquiror, other than those contained in this Agreement or the SEC Reports; (ix) such Person will not
sell or otherwise transfer the Acquiror Shares, unless either (A) the transfer of such securities is registered under the Securities
Act or (B) an exemption from registration of such securities is available; (x) such Person understands and acknowledges that the
Acquiror is under no obligation to register the Acquiror Shares for sale under the Securities Act; (xi) such Person represents
that the address furnished in Schedule I is the principal residence if he is an individual or its principal business address
if it is a corporation or other entity; (xii) such Person understands and acknowledges that the Acquiror Shares have not been
recommended by any federal or state securities commission or regulatory authority, that the foregoing authorities have not confirmed
the accuracy or determined the adequacy of any information concerning the Acquiror that has been supplied to such Person and that
any representation to the contrary is a criminal offense; and (xiii) such Person acknowledges that the representations, warranties
and agreements made by such Person herein shall survive the execution and delivery of this Agreement and the purchase of the Acquiror
Shares.
(f) Additional Representations
and Warranties of Non-U.S. Persons. Each Acquiree Shareholder that is not a U.S. Person, severally and not jointly, further
represents and warrants to the Acquiror as follows: (i) at the time of (A) the offer by the Acquiror and (B) the acceptance of
the offer by such Person, of the Acquiror Shares, such Person was outside the U.S; (ii) no offer to acquire the Acquiror Shares
or otherwise to participate in the transactions contemplated by this Agreement was made to such Person or its representatives
inside the U.S.; (iii) such Person is not purchasing the Acquiror Shares for the account or benefit of any U.S. Person, or with
a view towards distribution to any U.S. Person, in violation of the registration requirements of the Securities Act; (iv) such
Person will make all subsequent offers and sales of the Acquiror Shares either (A) outside of the U.S. in compliance with Regulation
S; (B) pursuant to a registration under the Securities Act; or (C) pursuant to an available exemption from registration under
the Securities Act; (v) such Person is acquiring the Acquiror Shares for such Person’s own account, for investment and not
for distribution or resale to others; (vi) such Person has no present plan or intention to sell the Acquiror Shares in the U.S.
or to a U.S. Person at any predetermined time, has made no predetermined arrangements to sell the Acquiror Shares and is not acting
as an underwriter or dealer with respect to such securities or otherwise participating in the distribution of such securities;
(vii) neither such Person, its Affiliates nor any Person acting on behalf of such Person, has entered into, has the intention
of entering into, or will enter into any put option, short position or other similar instrument or position in the U.S. with respect
to the Acquiror Shares at any time after the Closing Date through the one year anniversary of the Closing Date except in compliance
with the Securities Act; (viii) such Person consents to the placement of a legend on any certificate or other document evidencing
the Acquiror Shares substantially in the form set forth in Section 3.7(b) and (ix) such Person is not acquiring the Acquiror
Shares in a transaction (or an element of a series of transactions) that is part of any plan or scheme to evade the registration
provisions of the Securities Act.
Section 3.7 Stock Legends. Such Acquiree Shareholder hereby agrees with the Acquiror as follows:
(a) The certificates evidencing the Acquiror Shares issued to those Acquiree Shareholders who are Accredited Investors, and
each certificate issued in transfer thereof, will bear the following or similar legend:
THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, IN WHICH CASE THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED
IN THE MANNER CONTEMPLATED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS.
(b) The certificates evidencing the Acquiror Shares issued to those Acquiree Shareholders who are not U.S. Persons, and each
certificate issued in transfer thereof, will bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES
LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT
(1) IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED UNDER THE SECURITIES ACT, AND BASED ON AN OPINION OF COUNSEL,
WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THE PROVISIONS OF REGULATION S HAVE BEEN SATISFIED,
(2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR (3) PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, IN WHICH
CASE THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED IN THE MANNER
CONTEMPLATED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS. HEDGING TRANSACTIONS INVOLVING THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH
THE SECURITIES ACT.
(c) Other Legends. The certificates representing such Acquiror Shares, and each certificate issued in transfer thereof,
will also bear any other legend required under any applicable Law, including, without limitation, any state corporate and state
securities law, or Contract.
Section 3.8 Disclosure. No representation or warranty of such Acquiree Shareholder contained in this Agreement or any other Transaction
Document and no statement or disclosure made by or on behalf of such Acquiree Shareholder to the Acquiror or the Acquiror Principal
Shareholder pursuant to this Agreement or any other agreement contemplated herein contains an untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained herein or therein not misleading.
Article
iV
REPRESENTATIONS AND WARRANTIES OF THE ACQUIREE
The Acquiree hereby represents
and warrants to the Acquiror, subject to the exceptions and qualifications specifically set forth or disclosed in writing in the
disclosure schedule delivered by the Acquiree to the Acquiror (the “Acquiree Disclosure Schedule”), that the
statements contained in this Article IV are correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as thought the Closing Date were substituted for the date of this Agreement
throughout this Article IV) (except where another date or period of time is specifically stated herein for a representation
or warranty). The Acquiree Disclosure Schedule shall be arranged according to the numbered and lettered paragraphs of this Article
IV and any disclosure in the Acquiree Disclosure Schedule shall qualify the corresponding paragraph in this Article IV.
The Acquiror and, after the Closing, the Acquiree, shall be entitled to rely on the representations and warranties set forth in
this Article IV regardless of any investigation or review conducted by the Acquiror prior to the Closing.
Section 4.1 Organization and Qualification. The Acquiree is a corporation duly organized, validly existing and in good standing
under the Laws of the jurisdiction of its incorporation or organization, has all requisite corporate authority and power, Licenses,
authorizations, consents and approvals to carry on its business as presently conducted and to own, hold and operate its properties
and assets as now owned, held and operated by it, and is duly qualified to do business and in good standing in each jurisdiction
in which the failure to be so qualified would not reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on the Acquiree.
Section 4.2 Authority. The Acquiree has all requisite authority and power (corporate and other), Licenses, authorizations, consents
and approvals to enter into and deliver this Agreement and any of the other Transaction Documents to which the Acquiree is a party
and any other certificate, agreement, document or instrument to be executed and delivered by the Acquiree in connection with the
transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents by the Acquiree
and the performance by the Acquiree of its obligations hereunder and thereunder and the consummation by the Acquiree of the transactions
contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Acquiree. The Acquiree does
not need to give any notice to, make any filing with, or obtain any authorization, consent or approval of any Person or Governmental
Authority in order for the Parties to execute, deliver or perform this Agreement or the transactions contemplated hereby. This
Agreement has been, and each of the Transaction Documents to which the Acquiree is a party will be, duly and validly authorized
and approved, executed and delivered by the Acquiree.
Section 4.3 Binding
Obligations. Assuming this Agreement and the Transaction Documents have been duly and validly authorized, executed and delivered
by the parties hereto and thereto other than the Acquiree, this Agreement and each of the Transaction Documents to which the Acquiree
is a party are duly authorized, executed and delivered by the Acquiree and constitutes the legal, valid and binding obligations
of the Acquiree enforceable against the Acquiree in accordance with their respective terms, except as such enforcement is limited
by general equitable principles, or by bankruptcy, insolvency and other similar Laws affecting the enforcement of creditors rights
generally.
Section 4.4 No Conflicts. Neither the execution nor the delivery by the Acquiree of this Agreement or any Transaction Document
to which the Acquiree is a party, nor the consummation or performance by the Acquiree of the transactions contemplated hereby or
thereby will, directly or indirectly, (a) contravene, conflict with, or result in a violation of any provision of the Acquiree
Organizational Documents, (b) contravene, conflict with or result in a violation of any Law, Order, charge or other restriction
or decree applicable to the Acquiree, or by which the Acquiree or any of its respective assets and properties are bound or affected,
(c) contravene, conflict with, result in any breach of, or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, impair the rights of the Acquiree under, or alter the obligations of any Person under, or
create in any Person the right to terminate, amend, accelerate or cancel, or require any notice, report or other filing (whether
with a Governmental Authority or any other Person) pursuant to, or result in the creation of a Lien on any of the assets or properties
of the Acquiree under, any note, bond, mortgage, indenture, Contract, License, permit, franchise or other instrument or obligation
to which the Acquiree is a party or by which the Acquiree or any of its respective assets and properties are bound or affected;
or (d) contravene, conflict with, or result in a violation of, the terms or requirements of, or give any Governmental Authority
the right to revoke, withdraw, suspend, cancel, terminate or modify, any licenses, permits, authorizations, approvals, franchises
or other rights held by the Acquiree or that otherwise relate to the business of, or any of the properties or assets owned or used
by, the Acquiree, except, in the case of clauses (b), (c), or (d), for any such contraventions, conflicts, violations, or other
occurrences as would not have a Material Adverse Effect on the Acquiree.
Section 4.5 Subsidiaries.
The Acquiree does not own, directly or indirectly, any equity or other ownership interest in any corporation, partnership, joint
venture or other entity or enterprise. There are no Contracts or other obligations (contingent or otherwise) of the Acquiree to
retire, repurchase, redeem or otherwise acquire any outstanding shares of capital stock of, or other ownership interests in, any
other Person or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other
Person.
Section 4.6 Organizational Documents. The Acquiree has delivered or made available to the Acquiror a true and correct copy of
the Certificate of Organization of the Acquiree and any other organizational documents of the Acquiree, each as amended, and each
such instrument is in full force and effect (the “Acquiree Organizational Documents”). The Acquiree is not in
violation of any of the provisions of the Acquiree Organizational Documents.
Section 4.7 Capitalization.
(a) The authorized capital stock of the Acquiree consists of 100,000 shares of common stock. Except as set forth above, no
units or other voting securities of the Acquiree were issued, reserved for issuance or outstanding. All outstanding shares of
the Acquiree are, and all such units that may be issued prior to the Closing Date will be when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to or issued in violation of any right of first refusal, preemptive right,
subscription right or any similar right under any provision of the Laws of the jurisdiction of the Acquiree’s formation,
the Acquiree Organizational Documents or any Contract to which the Acquiree is a party or otherwise bound. There are not any bonds,
debentures, notes or other Indebtedness of the Acquiree having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which holders of Acquiree Interests may vote. Except pursuant provided otherwise,
there are no options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation
rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which the Acquiree
is a party or by which it is bound (x) obligating the Acquiree to issue, deliver or sell, or cause to be issued, delivered or
sold, additional units or other equity interests in, or any security convertible or exercisable for or exchangeable into any unit
of or other equity interest in, the Acquiree, or (y) that give any Person the right to receive any economic benefit or right similar
to or derived from the economic benefits and rights occurring to unit holders of the Acquiree. There are no outstanding Contracts
or obligations of the Acquiree to repurchase, redeem or otherwise acquire any units of the Acquiree. There are no registration
rights, proxies, voting trust agreements or other agreements or understandings with respect to any units of the Acquiree.
Section 4.8 No Brokers or Finders. No Person has, or as a result of the transactions contemplated herein will have, any right
or valid claim against the Acquiree for any commission, fee or other compensation as a finder or broker, or in any similar capacity,
based upon arrangements made by or on behalf of the Acquiree, and the Acquiree will indemnify and hold the Acquiror and the Acquiror
Principal Shareholder and harmless against any liability or expense arising out of, or in connection with, any such claim.
Section 4.9 Disclosure.
No representation or warranty of the Acquiree contained in this Agreement and no statement or disclosure made by or on behalf
of the Acquiree to the Acquiror or the Acquiror Principal Shareholder pursuant to this Agreement or any other agreement contemplated
herein contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained
herein or therein not misleading.
Article
v
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR AND
THE ACQUIROR PRINCIPAL SHAREHOLDER
The Acquiror and the Acquiror
Principal Shareholder, jointly and severally, hereby represent and warrant to the Acquiree, and each of the Acquiree Shareholders,
subject to the exceptions and qualifications specifically set forth or disclosed in writing in the disclosure schedule delivered
by the Acquiror Principal Shareholder to the Acquiree, and the Acquiree Shareholders simultaneously herewith (the “Acquiror
Disclosure Schedule”), that the statements contained in this Article V are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as though made then and as thought the Closing Date
were substituted for the date of this Agreement throughout this Article V) (except where another date or period of time
is specifically stated herein for a representation or warranty). The Acquiror Disclosure Schedule shall be arranged according to
the numbered and lettered paragraphs of this Article V and any disclosure in the Acquiror Disclosure Schedule shall qualify
the corresponding paragraph in this Article V. The Acquiree, the Acquiree Shareholders and, after the Closing, the Acquiror,
shall be entitled to rely on the representations and warranties set forth in this Article V regardless of any investigation
or review conducted by the Acquiree, or the Acquiree Shareholders prior to the Closing.
Section 5.1 Organization
and Qualification. The Acquiror is a corporation duly organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation or organization, has all requisite corporate authority and power, Licenses, authorizations,
consents and approvals to carry on its business as presently conducted and to own, hold and operate its properties and assets
as now owned, held and operated by it, and is duly qualified to do business and in good standing in each jurisdiction in which
the failure to be so qualified would not reasonably be expected, individually or in the aggregate, to have a Material Adverse
Effect on the Acquiror.
Section 5.2 Authority. The Acquiror and the Acquiror Principal Shareholder have all requisite authority and power, Licenses,
authorizations, consents and approvals to enter into and deliver this Agreement and any of the other Transaction Documents to which
the Acquiror, the Acquiror Principal Shareholder or any of them is a party and any other certificate, agreement, document or instrument
to be executed and delivered by the Acquiror, the Acquiror Principal Shareholder or any of them in connection with the transactions
contemplated hereby and thereby and to perform their respective obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents by the Acquiror
and the Acquiror Principal Shareholder and the performance by the Acquiror and the Acquiror Principal Shareholder of their respective
obligations hereunder and thereunder and the consummation by the Acquiror and the Acquiror Principal Shareholder of the transactions
contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Acquiror and the Acquiror
Principal Shareholder. The Acquiror does not need to give any notice to, make any filing with, or obtain any authorization, consent
or approval of any Governmental Authority in order for the Parties to execute, deliver or perform this Agreement or the transactions
contemplated hereby. This Agreement has been, and each of the Transaction Documents to which the Acquiror, the Acquiror Principal
Shareholder or any of them, as applicable, are a party will be, duly and validly authorized and approved, executed and delivered
by the Acquiror and the Acquiror Principal Shareholder.
Section 5.3 Binding
Obligations. Assuming this Agreement and the Transaction Documents have been duly and validly authorized, executed and delivered
by the parties hereto and thereto other than the Acquiror and the Acquiror Principal Shareholder, this Agreement and each of the
Transaction Documents to which the Acquiror, the Acquiror Principal Shareholder or any of them, as applicable, are a party are
duly authorized, executed and delivered by the Acquiror and such Acquiror Principal Shareholder, as applicable, and constitutes
the legal, valid and binding obligations of the Acquiror and such Acquiror Principal Shareholder, as applicable, enforceable against
the Acquiror and such Acquiror Principal Shareholder, as applicable, in accordance with their respective terms, except as such
enforcement is limited by general equitable principles, or by bankruptcy, insolvency and other similar Laws affecting the enforcement
of creditors rights generally.
Section 5.4 No Conflicts. Neither the execution nor the delivery by the Acquiror or the Acquiror Principal Shareholder of this
Agreement or any Transaction Document to which the Acquiror, the Acquiror Principal Shareholder or any of them is a party, nor
the consummation or performance by the Acquiror and the Acquiror Principal Shareholder of the transactions contemplated hereby
or thereby will, directly or indirectly, (a) contravene, conflict with, or result in a violation of any provision of the Acquiror
Organizational Documents, (b) contravene, conflict with or result in a violation of any Law, Order, charge or other restriction
or decree of any Governmental Authority or any rule or regulation of the Principal Market applicable to the Acquiror or the Acquiror
Principal Shareholder, or by which the Acquiror or the Acquiror Principal Shareholder or any of their respective assets and properties
are bound or affected, (c) contravene, conflict with, result in any breach of, or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, impair the rights of the Acquiror under, or alter the obligations of any
Person under, or create in any Person the right to terminate, amend, accelerate or cancel, or require any notice, report or other
filing (whether with a Governmental Authority or any other Person) pursuant to, or result in the creation of a Lien on any of the
assets or properties of the Acquiror under, any note, bond, mortgage, indenture, Contract, License, permit, franchise or other
instrument or obligation to which the Acquiror or the Acquiror Principal Shareholder is a party or by which the Acquiror or the
Acquiror Principal Shareholder or any of their respective assets and properties are bound or affected; or (d) contravene, conflict
with, or result in a violation of, the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw,
suspend, cancel, terminate or modify, any Licenses, permits, authorizations, approvals, franchises or other rights held by the
Acquiror or that otherwise relate to the business of, or any of the properties or assets owned or used by, the Acquiror, except,
in the case of clauses (b), (c), or (d), for any such contraventions, conflicts, violations, or other occurrences as would not
have a Material Adverse Effect on the Acquiror.
Section 5.5 Subsidiaries.
Except as set forth on Schedule 5.5, the Acquiror does not own, directly or indirectly, any equity or other ownership interest
in any corporation, partnership, joint venture or other entity or enterprise. There are no Contracts or other obligations (contingent
or otherwise) of the Acquiror to retire, repurchase, redeem or otherwise acquire any outstanding shares of capital stock of, or
other ownership interests in, any other Person or to provide funds to or make any investment (in the form of a loan, capital contribution
or otherwise) in any other Person.
Section 5.6 Organizational
Documents. The Acquiror has delivered or made available to Acquiree a true and correct copy of the Certificate of Incorporation
and Bylaws of the Acquiror and any other organizational documents of the Acquiror, each as amended, and each such instrument is
in full force and effect (the “Acquiror Organizational Documents”). The Acquiror is not in violation of any
of the provisions of its Acquiror Organizational Documents. The authorized capital stock of the Acquiror consists of (i) 100,000,000
shares of Acquiror Common Stock, $0.001 par value per share, of which 9,656,194 shares of
Acquiror Common Stock are issued and outstanding; (ii) 20,000,000 shares of preferred stock, $0.001 par value per share, of which
none are issued and outstanding. Except as set forth above, no shares of capital stock or other voting securities of the Acquiror
were issued, reserved for issuance or outstanding. All outstanding shares of the capital stock of the Acquiror are, and all such
shares that may be issued prior to the Closing Date will be when issued, duly authorized, validly issued, fully paid and nonassessable
and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription
right or any similar right under any provision of the Laws of the jurisdiction of the Acquiror’s organization, the Acquiror
Organizational Documents or any Contract to which the Acquiror is a party or otherwise bound. Except as set forth on Schedule
5.6(a), there are not any bonds, debentures, notes or other Indebtedness of the Acquiror having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters on which holders of Acquiror Common Stock may vote.
Except as set forth on Schedule 5.6(a), there are no options, warrants, rights, convertible or exchangeable securities, “phantom”
stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of
any kind to which the Acquiror is a party or by which it is bound (x) obligating the Acquiror to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible
or exercisable for or exchangeable into any capital stock of or other equity interest in, the Acquiror, (y) obligating the Acquiror
to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking
or (z) that give any Person the right to receive any economic benefit or right similar to or derived from the economic benefits
and rights occurring to holders of the capital stock of the Acquiror. There are no outstanding Contracts or obligations of the
Acquiror to repurchase, redeem or otherwise acquire any shares of capital stock of the Acquiror. There are no registration rights,
proxies, voting trust agreements or other agreements or understandings with respect to any class or series of any capital stock
or other security of the Acquiror. The stockholder list provided to the Acquiree and the Acquiree Shareholders is a current stockholder
list generated by its stock transfer agent, and such list accurately reflects all of the issued and outstanding shares of the
Acquiror Common Stock.
(b) The issuance of the Acquiror Shares to the Acquiree Shareholders has been duly authorized and, upon delivery to the Acquiree
Shareholders of certificates therefor, respectively, in accordance with the terms of this Agreement, the Acquiror Shares, will
have been validly issued and fully paid, and will be nonassessable, have the rights, preferences and privileges specified, will
be free of preemptive rights and will be free and clear of all Liens and restrictions, other than Liens created by the Acquiree
Shareholders, and restrictions on transfer imposed by this Agreement and the Securities Act.
Section 5.7 Compliance with Laws. The business and operations of the Acquiror have been and are being conducted in accordance
with all applicable Laws and Orders. Except as set forth in Schedule 5.7, the Acquiror is not in conflict with, or in default or
violation of and, to the Knowledge of the Acquiror or the Acquiror Principal Shareholder, is not under investigation with respect
to and has not been threatened to be charged with or given notice of any violation of or default under, any (i) Law, rule, regulation,
judgment or Order, or (ii) note, bond, mortgage, indenture, Contract, License, permit, franchise or other instrument or obligation
to which the Acquiror or the Acquiror Principal Shareholder is a party or by which the Acquiror or the Acquiror Principal Shareholder
or any of their respective assets and properties are bound or affected. There is no agreement, judgment or Order binding upon the
Acquiror or the Acquiror Principal Shareholder which has, or could reasonably be expected to have, the effect of prohibiting or
materially impairing any business practice of the Acquiror or the conduct of business by the Acquiror as currently conducted. The
Acquiror has filed all forms, reports and documents required to be filed with any Governmental Authority and the Acquiror has made
available such forms, reports and documents to Acquiree and the Acquiree Shareholders. As of their respective dates, such forms,
reports and documents complied in all material respects with the applicable requirements pertaining thereto and none of such forms,
reports and documents contain any untrue statement of a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
Section 5.8 Certain Proceedings. There is no Action pending against, or to the Knowledge of the Acquiror or the Acquiror Principal
Shareholder, threatened against or affecting, the Acquiror or the Acquiror Principal Shareholder by any Governmental Authority
or other Person with respect to the Acquiror or its respective businesses or that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement. The Acquiror is
not in violation of and, to the Knowledge of Acquiror or the Acquiror Principal Shareholder, is not under investigation with respect
to and has not been threatened to be charged with or given notice of any violation of, any applicable Law, rule, regulation, judgment
or Order. The Acquiror or any director or officer (in his or her capacity as such) of the Acquiror, is or has not been the subject
of any Action involving a claim or violation of or liability under federal or state securities laws or a claim of breach of fiduciary
duty.
Section 5.9 No Brokers
or Finders. No Person has, or as a result of the transactions contemplated herein will have, any right or valid claim against
the Acquiror, or the Acquiror Principal Shareholder for any commission, fee or other compensation as a finder or broker, or in
any similar capacity, based upon arrangements made by or on behalf of the Acquiror, or the Acquiror Principal Shareholder, and
the Acquiror Principal Shareholder will indemnify and hold the Acquiror, the Acquiree and the Acquiree Shareholders and harmless
against any liability or expense arising out of, or in connection with, any such claim.
Section 5.10 Contracts.
Except as disclosed in the SEC Reports, there are no Contracts that are material to the business, properties, assets, condition
(financial or otherwise), results of operations or prospects of the Acquiror. The Acquiror is not in violation of or in default
under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation
of or default under) any Contract to which it is a party or to which it or any of its properties or assets is subject, except
for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse
Effect of the Acquiror.
Section 5.11 Tax Matters.Tax Returns. The Acquiror has filed all Tax Returns required to be filed (if any) by or on behalf of
the Acquiror, as applicable, and has paid all Taxes of the Acquiror, as applicable, required to have been paid (whether or not
reflected on any Tax Return). No Governmental Authority in any jurisdiction has made a claim, assertion or threat to the Acquiror
that the Acquiror is or may be subject to taxation by such jurisdiction; there are no Liens with respect to Taxes on the Acquiror’s
property or assets; and there are no Tax rulings, requests for rulings, or closing agreements relating to the Acquiror for any
period (or portion of a period) that would affect any period after the date hereof.
(b) No Adjustments, Changes. Neither the Acquiror nor any other Person on behalf of the Acquiror (a) has executed or
entered into a closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision
of state, local or foreign law; or (b) has agreed to or is required to make any adjustments pursuant to Section 481(a) of the
Code or any similar provision of state, local or foreign law.
(c) No Disputes. There is no pending audit, examination, investigation, dispute, proceeding or claim with respect to
any Taxes of the Acquiror, nor is any such claim or dispute pending or contemplated. The Acquiror has delivered to the Acquiree
true, correct and complete copies of all Tax Returns and examination reports and statements of deficiencies assessed or asserted
against or agreed to by the Acquiror, if any, since its inception and any and all correspondence with respect to the foregoing.
(d) Not a U.S. Real Property Holding Corporation. The Acquiror is not and has never been a U.S. real property holding
corporation within the meaning of Section 897(c)(2) of the Code at any time during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(e) No Tax Allocation, Sharing. The Acquiror is not and has never been a party to any Tax allocation or sharing agreement.
(f) No Other Arrangements. The Acquiror is not a party to any Contract or arrangement for services that would result,
individually or in the aggregate, in the payment of any amount that would not be deductible by reason of Section 162(m), 280G
or 404 of the Code. The Acquiror is not a “consenting corporation” within the meaning of Section 341(f) of the Code.
The Acquiror does not have any “tax-exempt bond financed property” or “tax-exempt use property” within
the meaning of Section 168(g) or (h), respectively of the Code. The Acquiror does not have any outstanding closing agreement,
ruling request, request for consent to change a method of accounting, subpoena or request for information to or from a Governmental
Authority in connection with any Tax matter. During the last two years, the Acquiror has not engaged in any exchange with a related
party (within the meaning of Section 1031(f) of the Code) under which gain realized was not recognized by reason of Section 1031
of the Code. The Acquiror is not a party to any reportable transaction within the meaning of Treasury Regulation Section 1.6011-4.
Section 5.12
Labor Matters. There are no collective bargaining or other labor union agreements
to which the Acquiror is a party or by which it is bound. No material labor dispute exists or, to the Knowledge of the Acquiror,
is imminent with respect to any of the employees of the Acquiror.
(b) Except as set forth in Section 5.13 of the Acquiror Disclosure Schedule, the Acquiror does not have any employees, independent
contractors or other Persons providing services to them. The Acquiror is in full compliance with all Laws regarding employment,
wages, hours, benefits, equal opportunity, collective bargaining, the payment of Social Security and other taxes, and occupational
safety and health. The Acquiror is not liable for the payment of any compensation, damages, taxes, fines, penalties or other amounts,
however designated, for failure to comply with any of the foregoing Laws.
(c) No director, officer or employee of the Acquiror is a party to, or is otherwise bound by, any Contract (including any confidentiality,
non-competition or proprietary rights agreement) with any other Person that in any way adversely affects or will materially affect
(a) the performance of his or her duties as a director, officer or employee of the Acquiror or (b) the ability of the Acquiror
to conduct its business. Each employee of the Acquiror is employed on an at-will basis and the Acquiror does not have any Contract
with any of its employees which would interfere with its ability to discharge its employees.
Section 5.13 Employee
Benefits. Except as set forth on Schedule 5.13, the Acquiror has not maintained or contributed
to any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement
or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of
the Acquiror. There are no employment, consulting, indemnification, severance or termination agreements or arrangements between
the Acquiror and any current or former employee, officer or director of the Acquiror, nor does the Acquiror have any general severance
plan or policy.
(b) The Acquiror has not maintained or contributed to any “employee pension benefit plans” (as defined in Section
3(2) of ERISA), “employee welfare benefit plans” (as defined in Section 3(1) of ERISA) or any other benefit plan for
the benefit of any current or former employees, consultants, officers or directors of the Acquiror.
Section 5.14 Title
to Assets. Except as set forth on Schedule 5.14, the Acquiror does not own any real property. The Acquiror
has sufficient title to, or valid leasehold interests in, all of its properties and assets used in the conduct of its businesses.
All such assets and properties, other than assets and properties in which the Acquiror has leasehold interests, are free and clear
of all Liens, except for Liens that, in the aggregate, do not and will not materially interfere with the ability of the Acquiror
to conduct business as currently conducted.
Section 5.15 Intellectual
Property. The Acquiror does not own, use or license any Intellectual Property in its business as presently conducted.
Section 5.16
SEC Reports. The Acquiror has
filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC since November 19,
2010, pursuant to the Exchange Act (the “SEC Reports”).
(b) As of their respective dates, the SEC Reports and any registration statements filed by the Acquiror under the Securities
Act (the “Registration Statements”) complied in all material respects with the requirements of the Exchange
Act and the Securities Act, as applicable, and the rules and regulations of the SEC promulgated thereunder, and none of the SEC
Reports or Registration Statements, when filed, contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Acquiror included in the SEC Reports and the Registration Statements
comply in all respects with applicable accounting requirements and the rules and regulations of the SEC with respect thereto as
in effect at the time of filing, were prepared in accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto, or, in the case of unaudited statements as permitted by Form 10-Q), and fairly
present in all material respects (subject in the case of unaudited statements, to normal, recurring audit adjustments) the financial
position of the Acquiror as at the dates thereof and the results of its operations and cash flows for the periods then ended.
The disclosure set forth in the SEC Reports and Registration Statements regarding the Acquiror’s business is current and
complete and accurately reflects operations of the Acquiror as it exists as of the date hereof.
Section 5.17
Internal Accounting Controls. As set forth in the SEC Reports, the Acquiror maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (a) transactions are executed in accordance with management’s general
or specific authorizations, (b) transactions are recorded as necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset accountability, (c) access to assets is permitted only in accordance
with management’s general or specific authorization, and (d) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with respect to any differences. As set forth in the SEC
Reports, the Acquiror has established disclosure controls and procedures for the Acquiror and designed such disclosure controls
and procedures to ensure that material information relating to the Acquiror is made known to the officers by others within the
Acquiror. As set forth in the SEC Reports, the Acquiror’s officers have evaluated the effectiveness of the Acquiror’s
controls and procedures. Since the Acquiror Most Recent Fiscal Year End, there have been no significant changes in the Acquiror’s
internal controls or, to the Knowledge of the Acquiror or the Acquiror Principal Shareholder, in other factors that could significantly
affect the Acquiror’s internal controls.
Section 5.18
Application of Takeover Protections. The Acquiror has taken all necessary action, if any, in order to render inapplicable
any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Acquiror Organizational Documents or the Laws of its state of incorporation that is or
could become applicable to the transactions contemplated hereby.
Section 5.19
Transactions With Affiliates and Employees. Except as disclosed in the SEC Reports, no officer, director, employee
or stockholder of the Acquiror or any Affiliate of any such Person, has or has had, either directly or indirectly, an interest
in any transaction with the Acquiror (other than for services as employees, officers and directors), including any Contract or
other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any such Person or, to the Knowledge of the Acquiror or the Acquiror Principal Shareholder,
any entity in which any such Person has an interest or is an officer, director, trustee or partner.
Section 5.20
Liabilities. Except as set forth in the SEC Reports and on Schedule 5.20, the Acquiror does not have any Liability
(and there is no Action pending, or to the Knowledge of the Acquiror or the Acquiror Principal Shareholder, threatened against
the Acquiror that would reasonably be expected to give rise to any Liability). The Acquiror is not a guarantor nor is it otherwise
liable for any Liability or obligation (including Indebtedness) of any other Person. There are no financial or contractual obligations
of the Acquiror (including any obligations to issue capital stock or other securities) executory after the Closing Date. Except
for the liabilities listed on Schedule 5.20, all Liabilities of the Acquiror shall have been paid off at or prior to the
Closing and shall in no event remain Liabilities of the Acquiror, the Acquiree or the Acquiree Shareholders following the Closing.
Section 5.21
Bank Accounts and Safe Deposit Boxes. The Acquiror has several bank accounts which will be closed on or prior to
the Closing.
Section 5.22
Investment Company. Neither the Acquiror nor its affiliate, immediately following the Closing, will become, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
Section 5.23
Bank Holding Company Act. The Acquiror is not subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”)
and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the
Acquiror nor any of its Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares
of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any equity that is subject
to the BHCA and to regulation by the Federal Reserve. Neither the Acquiror nor any of its Affiliates exercises a controlling influence
over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
Section 5.24
Public Utility Holding Act. The Acquiror is not a “holding company,” or an “affiliate” of
a “holding company,” as such terms are defined in the Public Utility Holding Act of 2005.
Section 5.25
Federal Power Act. The Acquiror is not subject to regulation as a “public utility” under the Federal
Power Act, as amended.
Section 5.26
Money Laundering Laws. The operations of the Acquiror is and has been conducted at all times in compliance with applicable
financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended,
the money laundering statutes of all U.S. and non-U.S. jurisdictions, the rules and regulations thereunder and any related or similar
rules, regulations or guidelines, issued, administered or enforced by any Governmental Authority (collectively, the “Money
Laundering Laws”) and no Proceeding involving the Acquiror with respect to the Money Laundering Laws is pending or, to
the knowledge of the Acquiror, threatened.
Section 5.27
Foreign Corrupt Practices. The Acquiror, nor, to the Knowledge of the Acquiror or the Acquiror Principal Shareholder,
any director, officer, agent, employee or other Person acting on behalf of the Acquiror has, in the course of its actions for,
or on behalf of, the Acquiror (a) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; (b) made any direct or indirect unlawful payment to any foreign or domestic government
official or employee from corporate funds; (c) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended; or (d) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment
to any foreign or domestic government official or employee.
Section 5.28
Absence of Certain Changes or Events. Except as set forth in the SEC Reports, from the Acquiror Most Recent Fiscal
Year End (a) the Acquiror has conducted its business only in Ordinary Course of Business; (b) there has not been any change in
the assets, Liabilities, financial condition or operating results of the Acquiror, except changes in the Ordinary Course of Business
that have not caused, in the aggregate, a Material Adverse Effect on the Acquiror; and (c) the Acquiror has not completed or undertaken
any of the actions set forth in Section 5.2. The Acquiror has not taken any steps to seek protection pursuant to any Law
or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does the Acquiror have
any Knowledge or reason to believe that any of its respective creditors intend to initiate involuntary bankruptcy proceedings or
any actual knowledge of any fact which would reasonably lead a creditor to do so.
Section 5.29
Disclosure. All documents and other papers delivered or made available by or on behalf of the Acquiror or the Acquiror
Principal Shareholder in connection with this Agreement are true, complete, correct and authentic in all material respects. No
representation or warranty of the Acquiror or the Acquiror Principal Shareholder contained in this Agreement and no statement or
disclosure made by or on behalf of the Acquiror or the Acquiror Principal Shareholder to the Acquiree or any Acquiree Shareholder
pursuant to this Agreement or any other agreement contemplated herein contains an untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained herein or therein not misleading.
Section 5.30
Undisclosed Events. No event, Liability, development or circumstance has occurred or exists, or is contemplated to
occur with respect to the Acquiror, or its businesses, properties, prospects, operations or financial condition, that would be
required to be disclosed by the Acquiror under applicable securities laws on a registration statement on Form S-1 filed with the
SEC relating to an issuance and sale by the Acquiror of its common stock and which has not been publicly announced or will not
be publicly announced in a current report on Form 8-K filed by the Acquiror filed within four (4) Business Days after the Closing.
Section 5.31
Non-Public Information. Neither the Acquiror nor any Person acting on its behalf has provided the Acquiree or Acquiree
Shareholders or their respective agents or counsel with any information that the Acquiror or the believes constitutes material,
non-public information except insofar as the existence and terms of the proposed transactions hereunder may constitute such information
and except for information that will be disclosed by the Acquiror in a current report on Form 8-K filed by the Acquiror within
four (4) Business Days after the Closing.
Article
vI
CONDUCT PRIOR TO CLOSING
Section 6.1
Conduct of Business. At all times during the period commencing with the execution and delivery of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant to the terms hereof or the Closing, the Acquiror
Principal Shareholder shall, and shall cause the Acquiror to, (a) carry on its business diligently and in the usual, regular and
Ordinary Course of Business, in substantially the same manner as heretofore conducted and in compliance with all applicable Laws,
(b) pay or perform its material obligations when due, (c) use its commercially reasonable efforts, consistent with past practices
and policies, to preserve intact its present business organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors, licensors, licensees and others with which it has business
dealings, and (d) keep its business and properties substantially intact, including its present operations, physical facilities
and working conditions. In furtherance of the foregoing and subject to applicable Law, the Acquiror shall confer with Acquiree,
as promptly as practicable, prior to taking any material actions or making any material management decisions with respect to the
conduct of the business of the Acquiror.
Section 6.2 Restrictions
on Conduct of Business. Without limiting the generality of the terms of Section 6.1 hereof, except (i) as required
by the terms hereof, or (ii) to the extent that Acquiree shall otherwise consent in writing, at all times during the period commencing
with the execution and delivery of this Agreement and continuing until the earlier of the termination of this Agreement pursuant
to the terms hereof or the Closing, neither the Acquiror, nor the Acquiror Principal Shareholder shall do any of the following,
or permit the Acquiror to do any of the following:
(a) except as required by
applicable Law, waive any stock repurchase rights, accelerate, amend or change the period of exercisability of options or restricted
stock, or reprice options granted under any employee, consultant or director stock plans or authorize cash payments in exchange
for any options granted under any of such plans;
(b) enter into any partnership arrangements, joint development agreements or strategic alliances, other than in the Ordinary
Course of Business;
(c) (i) increase the compensation or fringe benefits of, or pay any bonuses or special awards to, any present or former director,
officer, stockholder or employee of the Acquiror (except for increases in salary or wages in the Ordinary Course of Business)
or increase any fees to any independent contractors, (ii) grant any severance or termination pay to any present or former director,
officer or employee of the Acquiror, (iii) enter into, amend or terminate any employment Contract, independent contractor agreement
or collective bargaining agreement, written or oral, or (iv) establish, adopt, enter into, amend or terminate any bonus, profit
sharing, incentive, severance, or other plan, agreement, program, policy, trust, fund or other arrangement that would be an employee
benefit plan if it were in existence as of the date of this Agreement, except as required by applicable Law;
(d) issue, deliver, sell, authorize, pledge or otherwise encumber, or propose any of the foregoing with respect to, any shares
of capital stock or any securities convertible into, or exercisable or exchangeable for, shares of capital stock of the Acquiror,
or subscriptions, rights, warrants or options to acquire any shares of capital stock or any securities convertible into, or exercisable
or exchangeable for, shares of capital stock of the Acquiror or enter into other Contracts or commitments of any character obligating
it to issue any such shares of capital stock of the Acquiror, or securities convertible into, or exercisable or exchangeable for,
shares of capital stock of the Acquiror;
(e) cause, permit or propose
any amendments to any Acquiror Organizational Documents;
(f) acquire or agree to acquire by merging or consolidating with, or by purchasing any equity interest in or a portion of the
assets of, or by any other manner, any business or any corporation, limited liability company, general or limited partnership,
joint venture, association, business trust or other business enterprise or entity, or otherwise acquire or agree to acquire any
assets other than in the Ordinary Course of Business;
(g) adopt a plan of merger, complete or partial liquidation, dissolution, consolidation, restructuring, recapitalization or
other reorganization;
(h) except as required by
applicable Law, adopt or amend any employee benefit plan or employee stock purchase or employee stock option plan, or enter into
any employment Contract or collective bargaining agreement (other than offer letters and letter agreements entered into in the
Ordinary Course of Business with employees who are terminable “at will”), pay any special bonus or special remuneration
to any director or employee other than in the Ordinary Course of Business, or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of its officers;
(i) except in the Ordinary
Course of Business, modify, amend or terminate any Contract to which the Acquiror is a party, or waive, delay the exercise of,
release or assign any rights or claims thereunder;
(j) sell, lease, license, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its properties
or assets, except in the Ordinary Course of Business;
(k) (i)
incur any Indebtedness or guarantee any such Indebtedness of another Person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Acquiror, guarantee any debt securities of another Person, enter into any “keep
well” or other agreement to maintain any financial statement condition of another Person or enter into any arrangement having
the economic effect of any of the foregoing, except for endorsements and guarantees for collection, short-term borrowings and
lease obligations, in each case incurred in the Ordinary Course of Business, or (ii) make any loans, advances or capital contributions
to, or investment in, any other Person, other than to the Acquiror;
(l) pay, discharge or satisfy any claims (including claims of stockholders), Liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), except for the payment, discharge or satisfaction of liabilities or obligations
in the Ordinary Course of Business or in accordance with their terms as in effect on the date hereof, or waive, release, grant,
or transfer any rights of material value or modify or change in any material respect any existing License, Contract or other document,
other than in the Ordinary Course of Business;
(m) change any financial reporting or accounting principle, methods or practices used by it unless otherwise required by applicable
Law or GAAP;
(n) settle or compromise any litigation (whether or not commenced prior to the date of this Agreement);
(o) (i) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock,
(ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or (iii) purchase, redeem or otherwise acquire any shares of
capital stock of the Acquiror or any other securities thereof or any rights, warrants or options to acquire any such shares or
other securities;
(p) enter into any transaction with any of its directors, officers, stockholders, or other Affiliates;
(q) make any capital expenditure in excess of $50,000;
(r) (i) grant any license or sublicense of any rights under or with respect to any Intellectual Property; (ii) dispose of or
let lapse and Intellectual Property, or any application for the foregoing, or any license, permit or authorization to use any
Intellectual Property or (iii) amend, terminate any other Contract, license or permit to which the Acquiror is a party;
(s) make, or permit to be made, without the prior written consent of Acquiree any material Tax election which would affect
the Acquiror; or
(t)
commit to or otherwise to take any of the actions described in this Section 6.2.
Article
vii
ADDITIONAL AGREEMENTS
Section 7.1 Access to Information. The Acquiror shall afford Acquiree its accountants, counsel and other representatives (including
the Acquiree Shareholders), reasonable access, during normal business hours, to the properties, books, records and personnel of
the Acquiror at any time prior to the Closing in order to enable Acquiree obtain all information concerning the business, assets
and properties, results of operations and personnel of the Acquiror as Acquiree may reasonably request. No information obtained
in the foregoing investigation by Acquiree pursuant to this Section 7.1 shall affect or be deemed to modify any representation
or warranty contained herein or the conditions to the obligations of the Acquiror or the Acquiror Principal Shareholder to consummate
the transactions contemplated hereby.
Section 7.2 Legal Requirements.
The Parties shall take all reasonable actions necessary or desirable to comply promptly with all legal requirements which
may be imposed on them with respect to the consummation of the transactions contemplated by this Agreement (including, without
limitation, furnishing all information required in connection with approvals of or filings with any Governmental Authority, and
prompt resolution of any litigation prompted hereby), and shall promptly cooperate with, and furnish information to, the other
Parties to the extent necessary in connection with any such requirements imposed upon any of them in connection with the consummation
of the transactions contemplated by this Agreement.
Section 7.3 Notification of Certain Matters. Acquiree shall give prompt notice to the Acquiror Principal Shareholder, and the
Acquiror Principal Shareholder shall give prompt notice to the Acquiree, of the occurrence, or failure to occur, of any event,
which occurrence or failure to occur would be reasonably likely to cause (i) any representation or warranty contained in this Agreement
to be untrue or inaccurate at the Closing, such that the conditions set forth in Article X hereof, as the case may be, would
not be satisfied or fulfilled as a result thereof, or (ii) any material failure of any Acquiree, Acquiree Shareholder, the Acquiror
or the Acquiror Principal Shareholder, as the case may be, or of any officer, director, employee or agent thereof, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. Notwithstanding the
foregoing, the delivery of any notice pursuant to this Section 7.3 shall not limit or otherwise affect the rights and remedies
available hereunder to the Party receiving such notice.
Article
Viii
POST CLOSING COVENANTS
Section 8.1 General. In case at any time after the Closing any further action is necessary to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments
and documents) as any other Party reasonably may request.
Section 8.2 Litigation Support. In the event and for so long as any Party actively is contesting or defending against any action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated
under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that existed on or prior to the Closing Date involving the Acquiror or Acquiree,
each of the other Parties will cooperate with such Party and such Party’s counsel in the contest or defense, make available
any personnel under their control, and provide such testimony and access to their books and records as shall be reasonably necessary
in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party.
Section 8.3 Assistance
with Post-Closing SEC Reports and Inquiries. After the Closing Date, the Acquiror Principal Shareholder shall use its reasonable
best efforts to provide such information available to them, including information, filings, reports, financial statements or other
circumstances of the Acquiror occurring, reported or filed prior to the Closing, as may be necessary or required for the preparation
of the post-Closing Date reports that the Acquiror is required to file with the SEC, or filings required to address and resolve
matters as may relate to the period prior to the Closing and any SEC comments relating thereto or any SEC inquiry thereof.
Section 8.4 Public Announcements.
The Acquiror shall file with the SEC a Form 8-K describing the material terms of the transactions contemplated hereby as soon
as practicable following the Closing Date but in no event more than four (4) business days following the Closing Date. Prior to
the Closing Date, the Parties shall consult with each other in issuing the Form 8-K, press releases or otherwise making public
statements or filings and other communications with the SEC or any regulatory agency or stock market or trading facility with
respect to the transactions contemplated hereby and no Party shall issue any such press release or otherwise make any such public
statement, filings or other communications without the prior written consent of the other Parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by Law, in which
case the disclosing Party shall provide the other Parties with prior notice of no less than three (3) calendar days, of such public
statement, filing or other communication and shall incorporate into such public statement, filing or other communication the reasonable
comments of the other Parties.
Article
iX
CONDITIONS TO CLOSING
Section 9.1 Conditions to Obligation of the Parties Generally. The Parties shall not be obligated to consummate the transactions
to be performed by each of them in connection with the Closing if, on the Closing Date, (i) any Action shall be pending or threatened
before any Governmental Authority wherein an Order or charge would (A) prevent consummation of any of the transactions contemplated
by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (ii)
any Law or Order which would have any of the foregoing effects shall have been enacted or promulgated by any Governmental Authority;
or (iii) the Acquiree shall not have received an audit report with respect to its two most recently completed fiscal years from
an independent accounting firm that is registered with the Public Company Accounting Oversight Board.
Section 9.2 Conditions to Obligation of the Acquiree Parties. The obligations of the Acquiree, and the Acquiree Shareholders
to enter into and perform their respective obligations under this Agreement are subject, at the option of the Acquiree and the
Acquiree Shareholders, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which
may be waived by the Acquiree and the Acquiree Shareholders in writing:
(a) The representations and warranties of the Acquiror and the Acquiror Principal Shareholder set forth in this Agreement shall
be true and correct in all material respects as of the Closing Date (except to the extent such representations and warranties
are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as
of such date);
(b) The Acquiror shall have
performed and complied with all of their covenants hereunder in all material respects through the Closing, except to the extent
that such covenants are qualified by terms such as “material” and “Material Adverse Effect,” in which
case the Acquiror shall have performed and complied with all of such covenants in all respects through the Closing;
(c) No action, suit, or proceeding
shall be pending or, to the Knowledge of the Acquiror, threatened before any Governmental Authority wherein an Order or charge
would (A) affect adversely the right of the Acquiree Shareholders to own the Acquiror Shares or to control the Acquiror, or (B)
affect adversely the right of the Acquiror to own its assets or to operate its business (and no such Order or charge shall be
in effect), nor shall any Law or Order which would have any of the foregoing effects have been enacted or promulgated by any Governmental
Authority;
(d) No event, change or development shall exist or shall have occurred since the Acquiror Most Recent Fiscal Year End that
has had or is reasonably likely to have a Material Adverse Effect on the Acquiror;
(e) All consents, waivers, approvals, authorizations or Orders required to be obtained, and all filings required to be made,
by the Acquiror for the authorization, execution and delivery of this Agreement and the consummation by it of the transactions
contemplated by this Agreement, shall have been obtained and made by the Acquiror and Acquiror shall have delivered proof of same
to the Acquiree, the Parent and Acquiree Shareholders;
(f) Acquiror shall have filed all reports and other documents required to be filed by it under the U.S. federal securities
laws through the Closing Date;
(g) There shall not be any
outstanding obligation or Liability (whether accrued, absolute, contingent, liquidated or otherwise, whether due or to become
due), except as set forth on Schedule 5.20 of Acquiror’s Disclosure Schedule, of the Acquiror, whether or not known to the
Acquiror, as of the Closing;
(h) Acquiror shall have delivered to the Acquiree, and Acquiree Shareholders a certificate, dated the Closing Date, executed
by an officer of the Acquiror, certifying the satisfaction of the conditions specified in Sections 9.2(a) through 9.2(l),
inclusive, relating to the Acquiror;
(i) The Acquiror Principal
Shareholder shall have delivered to the Acquiree, and Acquiree Shareholders a certificate, dated the Closing Date, executed by
such Acquiror Principal Shareholder, certifying the satisfaction of the conditions specified in Section 9.2(a) inclusive,
relating to such Acquiror Principal Shareholder;
(j) Acquiror shall have delivered to the Acquiree and the Acquiree Shareholders (i) a certificate evidencing the formation
and good standing of the Acquiror in its jurisdiction of formation issued by the Secretary of State (or comparable office) of
such jurisdiction of formation as of a date within fifteen (15) days of the Closing Date; and (ii) a certificate evidencing the
Acquiror’s qualification as a foreign corporation and good standing issued by the Secretary of State (or comparable office)
of each jurisdiction in which the Acquiror conducts business and is required to so qualify, as of a date within five (5) days
of the Closing Date;
(k) Acquiror shall have delivered to the Acquiree and the Acquiree Shareholders a certificate duly executed by the Secretary
of the Acquiror and dated as of the Closing Date, as to (i) the resolutions as adopted by the Acquiror’s board of directors,
in a form reasonably acceptable to the Acquiree, approving this Agreement and the Transaction Documents to which it is a party
and the transactions contemplated hereby and thereby; (ii) the Acquiror Organizational Documents, each as in effect at the Closing;
and (iv) the incumbency of each authorized officer of the Acquiror signing this Agreement and any other agreement or instrument
contemplated hereby to which the Acquiror is a party;
(l) Acquiror shall have delivered to the Acquiree and the Acquiree Shareholders a statement from the Acquiror’s transfer
agent regarding the number of issued and outstanding shares of Acquiror Common Stock immediately before the Closing;
(m) Acquiror shall have delivered to the Acquiree and the Acquiree Shareholders such pay-off letters and releases relating
to any Liabilities of the Acquiror, provided, however, that no pay-off letters and releases shall be delivered for
the Liabilities set forth on Schedule 5.20 of Acquiror’s Disclosure Schedule;
(n) Acquiror shall have delivered
to the Acquiree and the Acquiree Shareholders duly executed letters of resignation from all of the directors and officers of the
Acquiror, effective as of the Closing;
(o) Acquiror shall have delivered
to the Acquiree and the Acquiree Shareholders a duly executed release by the current directors, officers and 10% or greater stockholders
of the Acquiror and from such former directors, officers and 10% or greater stockholders of the Acquiror as the Acquiree and the
Acquiree Shareholders shall reasonably request, in favor of the Acquiror, the Acquiree and the Acquiree Shareholders;
(p) Acquiror shall have delivered
to the Acquiree and the Acquiree Shareholders resolutions of the Acquiror’s board of directors (i) appointing Hamid Emarlou
to serve as Chief Executive Officer; (ii) appointing Hamid Emarlou to serve as Chief Financial Officer; (iii) nominating Hamid
Emarlou to serve as Chairman of the Acquiror’s board of directors; and (iv) nominating Masoud Shahidi and an individual
nominated by Eric Weissblum to serve as members of the Acquiror’s board of directors, effective as of the Closing;
(q) Acquiree and the Acquiree
Shareholders shall have completed their legal, accounting and business due diligence of the Acquiror and the results thereof shall
be satisfactory to the Acquiree and the Acquiree Shareholders in their sole and absolute discretion; and
(r) All actions to be taken
by the Acquiror and the Acquiror Principal Shareholder in connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby shall
be reasonably satisfactory in form and substance to the Acquiree and the Acquiree Shareholders.
(s) certificates representing the new shares of Acquiror Stock issued to the Shareholders set forth on Exhibit A.
(t) Acquiror shall have delivered
to the Acquiree and the Acquiree Shareholders Lock-Up and Resale Restriction Agreements executed by Acquiror Shareholders.
Section 9.3 Conditions to Obligation of the Acquiror Parties.The obligations of the Acquiror and the Acquiror Principal Shareholder
to enter into and perform their respective obligations under this Agreement are subject, at the option of the Acquiror and the
Acquiror Principal Shareholder, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more
of which may be waived by the Acquiror and the Acquiror Principal Shareholder in writing:
(a) The representations and
warranties of the Acquiree and the Acquire Shareholders set forth in this Agreement shall be true and correct in all material
respects as of the Closing Date (except to the extent such representations and warranties are specifically made as of a particular
date, in which case such representations and warranties shall be true and correct as of such date);
(b) The Acquiree and the
Acquirer Members shall have performed and complied with all of their covenants hereunder in all material respects through the
Closing, except to the extent that such covenants are qualified by terms such as “material” and “Material Adverse
Effect,” in which case the Acquiree and the Acquire Shareholders shall have performed and complied with all of such covenants
in all respects through the Closing;
(c) All consents, waivers, approvals, authorizations or Orders required to be obtained, and all filings required to be made,
by the Acquiror for the authorization, execution and delivery of this Agreement and the consummation by it of the transactions
contemplated by this Agreement, shall have been obtained and made by the Acquiree and Acquiree shall have delivered proof of same
to the Acquiror and Acquiror Principal Shareholder;
(d) Acquiree shall have delivered
to the Acquiror and Acquiror Principal Shareholder a certificate, dated the Closing Date, executed by an officer of the Acquiree,
certifying the satisfaction of the conditions specified in Sections 9.3(a) through 9.3(c), inclusive, relating to
the Acquiree;
(e) Acquiree shall have delivered
to the Acquiror and the Acquiror Principal Shareholder a certificate duly executed by the Secretary of the Acquiror and dated
as of the Closing Date, as to (i) the resolutions as adopted by the Acquiror’s board of directors, in a form reasonably
acceptable to the Acquiree, approving this Agreement and the Transaction Documents to which it is a party and the transactions
contemplated hereby and thereby; (ii) the Acquiree Organizational Documents, each as in effect at the Closing; and (iii) the incumbency
of each authorized officer of the Acquiree signing this Agreement and any other agreement or instrument contemplated hereby to
which the Acquiree is a party;
(f) Acquiror and the Acquiror Principal Shareholder shall have completed their legal, accounting and business due diligence
of the Acquiree and the results thereof shall be satisfactory to the Acquiror and the Acquiror Principal Shareholder in their
sole and absolute discretion; and
(g) All actions to be taken by the Acquiree and the Acquiree Shareholders in connection with consummation of the transactions
contemplated hereby and all payments, certificates, opinions, instruments, and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to the Acquiror and the Acquiror Principal Shareholder.
Article
X
TERMINATION
Section 10.1 Grounds
for Termination. Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by the mutual written agreement of the Parties;
(b) by the Acquiror or the
Acquiree (by written notice of termination from such Party to the other Parties) if a Governmental Authority of competent jurisdiction
shall have issued a final non-appealable Order, or shall have taken any other action having the effect of, permanently restraining,
enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; provided, however, that the right
to terminate this Agreement under this Section 10.1(b) shall not be available to a Party if such Order was primarily due
to the failure of such Party to perform any of its obligations under this Agreement;
(c) by the Acquiror, Acquiree or the Acquiree Shareholders (by written notice of termination from such Party to the other Parties)
if any event shall occur after the date hereof that shall have made it impossible to satisfy a condition precedent to the terminating
Party’s obligations to perform its obligations hereunder, unless the occurrence of such event shall be due to the failure
of the terminating Party to perform or comply with any of the agreements, covenants or conditions hereof to be performed or complied
with by such Party at or prior to the Closing;
(d) by Acquiree or the Acquiree Shareholders (by written notice of termination from Acquiree to the Acquiror Principal Shareholder,
in which reference is made to this subsection) if, since the date of this Agreement, there shall have occurred any Material Adverse
Effect on the Acquiror, or there shall have occurred any event or circumstance that, in combination with any other events or circumstances,
could reasonably be expected to have, a Material Adverse Effect with respect to the Acquiror;
(e) by the Acquiree (by written notice of termination from the Acquiree to the Acquiror and the Acquiror Principal Shareholder,
in which reference is made to the specific provision(s) of this subsection giving rise to the right of termination) if (i) any
of Acquiror’s or the Acquiror Shareholder’s representations and warranties shall have been inaccurate as of the date
of this Agreement or as of a date subsequent to the date of this Agreement (as if made on such subsequent date), such that the
condition set forth in Section 9.3(a) would not be satisfied and such inaccuracy has not been cured by Acquiror or the
Acquiror Principal Shareholder within five (5) Business Days after its receipt of written notice thereof and remains uncured at
the time notice of termination is given, (ii) any of the Acquiror’s or Acquiror Principal Shareholder’s covenants
contained in this Agreement shall have been breached, such that the condition set forth in Section 9.3(b) would not be
satisfied, or (iii) any Action shall be initiated, threatened or pending which could reasonably be expected to materially and
adversely affect the Acquiror or Acquiree (including, without limitation, any such Action relating to any alleged violation of,
or non-compliance with, any applicable Law or any allegation of fraud or intentional misrepresentation); or
(f) by the Acquiror and the Acquiror Principal Shareholder (by written notice of termination from the Acquiror to the Acquiree,
the Parent and the Acquiree Shareholders, in which reference is made to the specific provision(s) of this subsection giving rise
to the right of termination) if (i) any of Acquiree’s or the Acquiree Shareholder’s representations and warranties
shall have been inaccurate as of the date of this Agreement or as of a date subsequent to the date of this Agreement (as if made
on such subsequent date) and such inaccuracy has not been cured by Acquiree or the Acquiree Shareholders within five (5) Business
Days after its receipt of written notice thereof and remains uncured at the time notice of termination is given, or (ii) any of
the Acquiree’s or Acquiree Shareholder’s covenants contained in this Agreement shall have been breached.
Section 10.2 Procedure and Effect of Termination. In the event of the termination of this Agreement by the Acquiror Principal
Shareholder or Acquiree pursuant to Section 10.1 hereof, written notice thereof shall forthwith be given to the other Party.
If this Agreement is terminated as provided herein (a) each Party will redeliver all documents, work papers and other material
of any other Party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof,
to the Party furnishing the same; provided, that each Party may retain one copy of all such documents for archival purposes in
the custody of its outside counsel and (b) all filings, applications and other submission made by any Party to any Person, including
any Governmental Authority, in connection with the transactions contemplated hereby shall, to the extent practicable, be withdrawn
by such Party from such Person.
Section 10.3 Effect of Termination. If this Agreement is terminated pursuant to Section 10.1 hereof, this Agreement shall
become void and of no further force and effect.
Article XI
SURVIVAL
Section 11.1
Survival. All representations, warranties, covenants, and obligations in this Agreement shall survive one year after
the Closing. The right to indemnification, payment of damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being
acquired) at any time, whether before or after the execution and delivery of this Agreement, with respect to the accuracy or inaccuracy
of or compliance with, any such representation, warranty, covenant, or obligation. The waiver of any condition based on the accuracy
of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the
right to indemnification, payment of damages, or other remedy based on such representations, warranties, covenants, and obligations.
Article
XiI
MISCELLANEOUS PROVISIONS
Section 12.1
Expenses. Except as otherwise expressly provided in this Agreement, each Party will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this Agreement and the transactions contemplated by
this Agreement, including all fees and expenses of agents, representatives, counsel, and accountants. In the event of termination
of this Agreement, the obligation of each Party to pay its own expenses will be subject to any rights of such Party arising from
a breach of this Agreement by another Party.
Section 12.2
Confidentiality. The
Parties will maintain in confidence, and will cause their respective directors, officers, employees, agents, and advisors to maintain
in confidence, any written, oral, or other information obtained in confidence from another Person in connection with this Agreement
or the transactions contemplated by this Agreement, unless (a) such information is already known to such Party or to others not
bound by a duty of confidentiality or such information becomes publicly available through no fault of such Party, (b) the use
of such information is necessary or appropriate in making any required filing with the SEC, or obtaining any consent or approval
required for the consummation of the transactions contemplated by this Agreement, or (c) the furnishing or use of such information
is required by or necessary or appropriate in connection with legal proceedings.
(b) In
the event that any Party is required to disclose any information of another Person pursuant to clause (b) or (c) of Section
12.2(a) above, the Party requested or required to make the disclosure (the “Disclosing Party”) shall provide
the Person that provided such information (the “Providing Party”) with prompt notice of any such requirement
so that the providing party may seek a protective Order or other appropriate remedy and/or waive compliance with the provisions
of this Section 12.2. If, in the absence of a protective Order or other remedy or the receipt of a waiver by the providing
party, the disclosing party is nonetheless, in the opinion of counsel, legally compelled to disclose the information of the providing
party, the disclosing party may, without liability hereunder, disclose only that portion of the providing party’s information
which such counsel advises is legally required to be disclosed, provided that the disclosing party exercises its reasonable efforts
to preserve the confidentiality of the providing party’s information, including, without limitation, by cooperating with
the providing party to obtain an appropriate protective Order or other relief assurance that confidential treatment will be accorded
the providing party’s information.
(c) If the transactions contemplated by this Agreement are not consummated, each Party will return or destroy all of such written
information each party has regarding the other Parties.
Section 12.3
Notices. All notices, demands, consents, requests, instructions and other communications to be given or delivered
or permitted under or by reason of the provisions of this Agreement or in connection with the transactions contemplated hereby
shall be in writing and shall be deemed to be delivered and received by the intended recipient as follows: (i) if personally delivered,
on the Business Day of such delivery (as evidenced by the receipt of the personal delivery service), (ii) if mailed certified or
registered mail return receipt requested, two (2) Business Days after being mailed, (iii) if delivered by overnight courier (with
all charges having been prepaid), on the Business Day of such delivery (as evidenced by the receipt of the overnight courier service
of recognized standing), or (iv) if delivered by facsimile transmission or other electronic means, including email, on the Business
Day of such delivery if sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time, on the next succeeding
Business Day. If any notice, demand, consent, request, instruction or other communication cannot be delivered because of a changed
address of which no notice was given (in accordance with this Section 12.3), or the refusal to accept same, the notice,
demand, consent, request, instruction or other communication shall be deemed received on the second business day the notice is
sent (as evidenced by a sworn affidavit of the sender). All such notices, demands, consents, requests, instructions and other communications
will be sent to the following addresses or facsimile numbers as applicable:
If to Acquiror or the Acquiror Principal Shareholder,
to: |
|
Vapir Enterprises
Inc.
431 Fairway
Drive, Suite 260
Deerfield
Beach, Florida 33441
Attn: Chief
Executive Officer
Telephone No.: (732) 530-1267 |
|
|
|
If to the Acquiree, to: |
|
Vapir, Inc.
2365 Paragon
Dr., Suite B
San Jose,
CA 95131
Attn: Chief
Executive Officer
Telephone
No.: 408-649-2786 |
|
|
|
If to the Acquiree Shareholders, to: |
|
The applicable address set forth on Schedule I hereto. |
or such other addresses as shall be furnished in writing by any Party in the manner for giving notices hereunder.
Section 12.4
Further Assurances. The Parties agree (a) to furnish upon request to each other such further information, (b) to
execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other Parties may
reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.
Section 12.5
Waiver. The rights and remedies of the Parties are cumulative and not alternative. Neither the failure nor any delay
by any Party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege
will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege.
To the maximum extent permitted by applicable Law, (a) no claim or right arising out of this Agreement or the documents referred
to in this Agreement can be discharged by one Party, in whole or in part, by a waiver or renunciation of the claim or right unless
in writing signed by the other Parties; (b) no waiver that may be given by a Party will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one Party will be deemed to be a waiver of any obligation of such Party
or of the right of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement
or the documents referred to in this Agreement.
Section 12.6
Entire Agreement and Modification. This Agreement supersedes all prior agreements between the Parties with respect
to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement
of the terms of the agreement between the Parties with respect to its subject matter. This Agreement may not be amended except
by a written agreement executed by the Party against whom the enforcement of such amendment is sought.
Section 12.7 Assignments, Successors, and No Third-Party Rights. No Party may assign any of its rights under this Agreement without
the prior consent of the other Parties. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects
upon, and inure to the benefit of and be enforceable by the respective successors and permitted assigns of the Parties. Except
as set forth in Article XIII hereof, nothing expressed or referred to in this Agreement will be construed to give any Person
other than the Parties any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement.
Section 12.8 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction,
the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable
only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.
Section 12.9 Section
Headings. The headings of Articles and Sections in this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to “Article” or “Articles” or “Section” or
“Sections” refer to the corresponding Article or Articles or Section or Sections of this Agreement, unless the context
indicates otherwise.
Section 12.10 Construction.
The Parties have participated jointly in the negotiation and construction of this Agreement. Each Party has retained independent
legal counsel to advise on this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring
any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Unless otherwise expressly provided, the word “including” shall mean including without limitation.
The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any
Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which
the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of such representation, warranty,
or covenant. All words used in this Agreement will be construed to be of such gender or number as the circumstances require.
Section 12.11 Counterparts.
This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement
and all of which, when taken together, will be deemed to constitute one and the same agreement. In the event that any signature
is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create
a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) with the same force and
effect as if such facsimile or “.pdf” signature page were an original thereof.
Section 12.12 Specific
Performance. Each of the Parties acknowledges and agrees that the other Parties would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly,
each of the Parties agrees that the other Parties shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted
in any court of the U.S. or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 14.13 below), in addition to any other remedy to which they may be entitled, at Law or in equity.
Section 12.13 Governing
Law; Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the Laws of the State
of California without regard to conflicts of Laws principles. Each of the Parties submits to the jurisdiction of any state or
federal court sitting in the State of California, in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard and determined in any such court. Each of the Parties
waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with respect thereto. Any Party may make service on any other Party
by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving
of notices in Section 12.3 above. Nothing in this Section 12.13, however, shall affect the right of any Party to
serve legal process in any other manner permitted by Law or at equity. Each Party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by Law or
at equity.
Section 12.14 Waiver
of Jury Trial. EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING
OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
[Signatures follow
on next page]
IN WITNESS WHEREOF, the
undersigned have caused this Agreement to be executed as of the date first above written.
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ACQUIROR: |
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VAPIR ENTERPRISES INC. |
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By: |
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Name: |
Adam Kotkin |
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Title: |
Chief Executive Officer |
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ACQUIROR PRINCIPAL SHAREHOLDER: |
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Name: Adam Kotkin |
[Signatures continue on next page]
IN WITNESS WHEREOF, the
undersigned have caused this Agreement to be executed as of the date first above written.
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ACQUIREE: |
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VAPIR, INC. |
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By: |
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Name: |
Hamid Emarlou |
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Title: |
Chief Executive Officer |
IN WITNESS WHEREOF, the
undersigned have caused this Agreement to be executed as of the date first above written.
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ACQUIREE SHAREHOLDERS: |
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By: |
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Name: |
Hamid Emarlou |
SCHEDULE I
Acquiree Shareholders | |
Acquiree Shares Held Prior to the Closing | | |
Acquiror Common Shares to be Issued at the Closing | |
Hamid Emarlou | |
| 100,000 | | |
| 38,624,768 | |
Total | |
| 100,000 | | |
| 38,624,768 | |
Exhibit A
Form of Certificate
ACQUIROR Disclosure Schedule
ACQUIREE Disclosure
Schedule
Exhibit 3.1(1)
Exhibit 3.1(2)
Exhibit 3.2
BYLAWS
OF
APPS GENIUS, INC.
A Nevada Corporation
As of December 17, 2009
ARTICLE I
Meetings of Stockholders
Section 1.1 Time
and Place. Any meeting of the stockholders may be held at such time and such place, either within or without the State of Nevada,
as shall be designated from time to time by resolution of the board of directors or as shall be stated in a duly authorized notice
of the meeting.
Section 1.2 Annual
Meeting. The annual meeting of the stockholders shall be held on the date and at the time fixed, from time to time, by the
board of directors. The annual meeting shall be for the purpose of electing a board of directors and transacting such other business
as may properly be brought before the meeting.
Section 1.3 Special
Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the
articles of incorporation, may be called by the president and shall be called by the president or secretary if requested in writing
by the holders of not less than one-tenth (1/10) of all the shares entitled to vote at the meeting. Such request shall state the
purpose or purposes of the proposed meeting.
Section 1.4 Notices.
Written notice stating the place, date and hour of the meeting and, in case of a special meeting, the purpose or purposes for which
the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, except as otherwise
required by statute or the articles of incorporation, either personally, by mail or by a form of electronic transmission consented
to by the stockholder, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to
be given when deposited in the official government mail of the United States or any other country, postage prepaid, addressed to
the stockholder at his address as it appears on the stock records of the Corporation. If given personally or otherwise than by
mail, such notice shall be deemed to be given when either handed to the stockholder or delivered to the stockholder’s address
as it appears on the records of the Corporation.
Section 1.5 Record
Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting, or at any
adjournment of a meeting, of stockholders; or entitled to receive payment of any dividend or other distribution or allotment of
any rights; or entitled to exercise any rights in respect of any change, conversion, or exchange of stock; or for the purpose of
any other lawful action; the board of directors may fix, in advance, a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of directors. The record date for determining the stockholders
entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof shall not be more than sixty nor
less than ten days before the date of such meeting. The record date for determining the stockholders entitled to consent to corporate
action in writing without a meeting shall not be more than ten days after the date upon which the resolution fixing the record
date is adopted by the board of directors. The record date for any other action shall not be more than sixty days prior to such
action. If no record date is fixed, (i) the record date for determining stockholders entitled to notice of or to vote at any meeting
shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived by all stockholders,
at the close of business on the day next preceding the day on which the meeting is held; (ii) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is
required, shall be the first date on which a signed written consent setting forth the action taken or to be taken is delivered
to the Corporation and, when prior action by the board of directors is required, shall be at the close of business on the day on
which the board of directors adopts the resolution taking such prior action; and (iii) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating
to such other purpose. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders
shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
Section 1.6 Voting
List. If the Corporation shall have more than five (5) shareholders, the secretary shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical
order and showing the address and the number of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at
least ten days prior to the meeting, at the Corporation’s principal offices. The list shall be produced and kept at the
place of the meeting during the whole time thereof and may be inspected by any stockholder who is present.
Section 1.7 Quorum.
The holders of a majority of the stock issued and outstanding and entitled to vote at the meeting, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided
by statute or by the articles of incorporation. If, however, such a quorum shall not be present at any meeting of stockholders,
the stockholders entitled to vote, present in person or represented by proxy, shall have the power to adjourn the meeting from
time to time, without notice if the time and place are announced at the meeting, until a quorum shall be present. At such adjourned
meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting.
If the adjournment is for more than thirty days or if after the adjournment a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 1.8 Voting
and Proxies. At every meeting of the stockholders, each stockholder shall be entitled to one vote, in person or by proxy, for
each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after six months from
its date unless the proxy provides for a longer period, which may not exceed seven years. When a specified item of business is
required to be voted on by a class or series of stock, the holders of a majority of the shares of such class or series shall constitute
a quorum for the transaction of such item of business by that class or series. If a quorum is present at a properly held meeting
of the shareholders, the affirmative vote of the holders of a majority of the shares represented in person or by proxy and entitled
to vote on the subject matter under consideration, shall be the act of the shareholders, unless the vote of a greater number or
voting by classes (i) is required by the articles of incorporation, or (ii) has been provided for in an agreement among all shareholders
entered into pursuant to and enforceable under Nevada Revised Statutes §78.365.
Section 1.9 Waiver.
Attendance of a stockholder of the Corporation, either in person or by proxy, at any meeting, whether annual or special, shall
constitute a waiver of notice of such meeting, except where a stockholder attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A written
waiver of notice of any such meeting signed by a stockholder or stockholders entitled to such notice, whether before, at or after
the time for notice or the time of the meeting, shall be equivalent to notice. Neither the business to be transacted at, nor the
purpose of, any meeting need be specified in any written waiver of notice.
Section 1.10 Stockholder
Action Without a Meeting. Except as may otherwise be provided by any applicable provision of the Nevada Revised Statutes, any
action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if, before or after the
action, a written consent thereto is signed by stockholders holding at least a majority of the voting power; provided that if a
different proportion of voting power is required for such an action at a meeting, then that proportion of written consents is required.
In no instance where action is authorized by written consent need a meeting of stockholders be called or noticed.
ARTICLE II
Directors
Section 2.1 Number.
The number of directors shall be one or more, as fixed from time to time by resolution of the board of directors; provided, however,
that the number of directors shall not be reduced so as to shorten the tenure of any director at the time in office.
Section 2.2 Elections.
Except as provided in Section 2.3 of this Article II, the board of directors shall be elected at the annual meeting of the stockholders
or at a special meeting called for that purpose. Each director shall hold such office until his successor is elected and qualified
or until his earlier resignation or removal.
Section 2.3 Vacancies.
Any vacancy occurring on the board of directors and any directorship to be filled by reason of an increase in the board of directors
may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum, or by a sole remaining
director. Such newly elected director shall hold such office until his successor is elected and qualified or until his earlier
resignation or removal.
Section 2.4 Meetings.
The board of directors may, by resolution, establish a place and time for regular meetings which may be held without call or notice.
Section 2.5 Notice
of Special Meetings. Special meetings may be called by the chairman, the president or any two members of the board of directors.
Notice of special meetings shall be given to each member of the board of directors: (i) by mail by the secretary, the chairman
or the members of the board calling the meeting by depositing the same in the official government mail of the United States or
any other country, postage prepaid, at least seven days before the meeting, addressed to the director at the last address he has
furnished to the Corporation for this purpose, and any notice so mailed shall be deemed to have been given at the time when mailed;
or (ii) in person, by telephone or by electronic transmission addressed as stated above at least forty-eight hours before the meeting,
and such notice shall be deemed to have been given when such personal or telephone conversation occurs or at the time when such
electronic transmission is delivered to such address.
Section 2.6 Quorum.
At all meetings of the board, a majority of the total number of directors shall constitute a quorum for the transaction of business,
and the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of
directors, except as otherwise specifically required by statute, the articles of incorporation or these bylaws. If less than a
quorum is present, the director or directors present may adjourn the meeting from time to time without further notice. Voting by
proxy is not permitted at meetings of the board of directors.
Section 2.7 Waiver.
Attendance of a director at a meeting of the board of directors shall constitute a waiver of notice of such meeting, except where
a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A written waiver of notice signed by a director or directors entitled to
such notice, whether before, at or after the time for notice or the time of the meeting, shall be equivalent to the giving of such
notice.
Section 2.8 Action
Without Meeting. Any action required or permitted to be taken at a meeting of the board of directors may be taken without a
meeting if a consent in writing setting forth the action so taken shall be signed by all of the directors and filed with the minutes
of proceedings of the board of directors. Any such consent may be in counterparts and shall be effective on the date of the last
signature thereon unless otherwise provided therein.
Section 2.9 Attendance
by Telephone. Members of the board of directors may participate in a meeting of such board by means of conference telephone
or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at such meeting.
ARTICLE III
Officers
Section 3.1 Election.
The Corporation shall have such officers, with such titles and duties, as the board of directors may determine by resolution, which
must include a chairman of the board, a president, a secretary and a treasurer and may include one or more vice presidents and
one or more assistants to such officers. The officers shall in any event have such titles and duties as shall enable the Corporation
to sign instruments and stock certificates complying with Section 6.1 of these bylaws, and one of the officers shall have the duty
to record the proceedings of the stockholders and the directors in a book to be kept for that purpose. The officers shall be elected
by the board of directors; provided, however, that the chairman may appoint one or more assistant secretaries and assistant treasurers
and such other subordinate officers as he deems necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as are prescribed in the bylaws or as may be determined from time to time by the board of directors
or the chairman. Any two or more offices may be held by the same person.
Section 3.2 Removal
and Resignation. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote
of a majority of the board of directors. Any officer appointed by the chairman may be removed at any time by the board of directors
or the chairman. Any officer may resign at any time by giving written notice of his resignation to the chairman or to the secretary,
and acceptance of such resignation shall not be necessary to make it effective unless the notice so provides. Any vacancy occurring
in any office of chairman of the board, president, vice president, secretary or treasurer shall be filled by the board of directors.
Any vacancy occurring in any other office may be filled by the chairman.
Section 3.3 Chairman
of the Board. The chairman of the board shall preside at all meetings of shareholders and of the board of directors, and shall
have the powers and perform the duties usually pertaining to such office, and shall have such other powers and perform such other
duties as may be from time to time prescribed by the board of directors..
Section 3.4 President.
The president shall be the chief executive officer of the Corporation, and shall have general and active management of the business
and affairs of the Corporation, under the direction of the board of directors. Unless the board of directors has appointed another
presiding officer, the president shall preside at all meetings of the shareholders.
Section 3.5 Vice
President. The vice president or, if there is more than one, the vice presidents in the order determined by the board of directors
or, in lieu of such determination, in the order determined by the president, shall be the officer or officers next in seniority
after the president. Each vice president shall also perform such duties and exercise such powers as are appropriate and such as
are prescribed by the board of directors or, in lieu of or in addition to such prescription, such as are prescribed by the president
from time to time. Upon the death, absence or disability of the president, the vice president or, if there is more than one, the
vice presidents in the order determined by the board of directors or, in lieu of such determination, in the order determined by
the president, or, in lieu of such determination, in the order determined by the chairman, shall be the officer or officers next
in seniority after the president. in the order determined by the and shall perform the duties and exercise the powers of the president.
Section 3.6 Assistant
Vice President. The assistant vice president, if any, or, if there is more than one, the assistant vice presidents shall, under
the supervision of the president or a vice president, perform such duties and have such powers as are prescribed by the board of
directors, the president or a vice president from time to time.
Section 3.7 Secretary.
The secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of
directors, keep the minutes of such meetings, have charge of the corporate seal and stock records, be responsible for the maintenance
of all corporate files and records and the preparation and filing of reports to governmental agencies (other than tax returns),
have authority to affix the corporate seal to any instrument requiring it (and, when so affixed, attest it by his signature), and
perform such other duties and have such other powers as are appropriate and such as are prescribed by the board of directors or
the president from time to time.
Section 3.8 Assistant
Secretary. The assistant secretary, if any, or, if there is more than one, the assistant secretaries in the order determined
by the board of directors or, in lieu of such determination, by the president or the secretary shall, in the absence or disability
of the secretary or in case such duties are specifically delegated to him by the board of directors, the chairman, or the secretary,
perform the duties and exercise the powers of the secretary and shall, under the supervision of the secretary, perform such other
duties and have such other powers as are prescribed by the board of directors, the chairman, or the secretary from time to time.
Section 3.9 Treasurer.
The treasurer shall have control of the funds and the care and custody of all the stocks, bonds and other securities of the Corporation
and shall be responsible for the preparation and filing of tax returns. He shall receive all moneys paid to the Corporation and
shall have authority to give receipts and vouchers, to sign and endorse checks and warrants in its name and on its behalf, and
give full discharge for the same. He shall also have charge of the disbursement of the funds of the Corporation and shall keep
full and accurate records of the receipts and disbursements. He shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as shall be designated by the board of directors and shall perform such
other duties and have such other powers as are appropriate and such as are prescribed by the board of directors or the president
from time to time.
Section 3.10 Assistant
Treasurer. The assistant treasurer, if any, or, if there is more than one, the assistant treasurers in the order determined
by the board of directors or, in lieu of such determination, by the chairman or the treasurer shall, in the absence or disability
of the treasurer or in case such duties are specifically delegated to him by the board of directors, the chairman or the treasurer,
perform the duties and exercise the powers of the treasurer and shall, under the supervision of the treasurer, perform such other
duties and have such other powers as are prescribed by the board of directors, the president or the treasurer from time to time.
Section 3.11 Compensation.
Officers shall receive such compensation, if any, for their services as may be authorized or ratified by the board of directors.
Election or appointment as an officer shall not of itself create a right to compensation for services performed as such officer.
ARTICLE IV
Committees
Section 4.1 Designation
of Committees. The board of directors may establish committees for the performance of delegated or designated functions to
the extent permitted by law, each committee to consist of one or more directors of the Corporation, and if the board of directors
so determines, one or more persons who are not directors of the Corporation. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of such absent or
disqualified member.
Section
4.2 Committee Powers and Authority. The board of
directors may provide, by resolution or by amendment to these bylaws, for an Executive Committee to consist of one or more
directors of the Corporation (but no persons who are not directors of the Corporation) that may exercise all the power and
authority of the board of directors in the management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; provided, however, that an Executive Committee may
not exercise the power or authority of the board of directors in reference to amending the articles of incorporation
(except that an Executive Committee may, to the extent authorized in the resolution or resolutions providing for the issuance
of shares of stock adopted by the board of directors, pursuant to Article 3(3) of the articles of incorporation, fix the
designations and any of the preferences or rights of shares of preferred stock relating to dividends, redemption,
dissolution, any distribution of property or assets of the Corporation, or the conversion into, or the exchange of shares
for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the
Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any
series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease, or exchange of
all or substantially all of the Corporation’s property and assets, recommending to the stockholders a dissolution of
the Corporation or a revocation of a dissolution, or amending these bylaws; and, unless the resolution expressly so provides,
no an Executive Committee shall have the power or authority to declare a dividend or to authorize the issuance of stock.
Section 4.3 Committee
Procedures. To the extent the board of directors or the committee does not establish other procedures for the committee, each
committee shall be governed by the procedures established in Section 2.4 (except as they relate to an annual meeting of the board
of directors) and Sections 2.5, 2.6, 2.7, 2.8 and 2.9 of these bylaws, as if the committee were the board of directors.
ARTICLE V
Indemnification
Section
5.1 Expenses for Actions Other Than By or In the Right
of the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director
or officer of the Corporation, or, while a director or officer of the Corporation, is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, association
or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with which action, suit or proceeding, if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, that he
had reasonable cause to believe that his conduct was unlawful.
Section
5.2 Expenses for Actions By or In the Right of
the Corporation. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director or officer of the Corporation, or, while a director or officer of
the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, association or other enterprise, against expenses (including
attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or
suit, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall
deem proper.
Section 5.3 Successful
Defense. To the extent that any person referred to in the preceding two sections of this Article V has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in such sections, or in defense of any claim issue,
or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.
Section 5.4 Determination
to Indemnify. Any indemnification under the first two sections of this Article V (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer
is proper in the circumstances because he has met the applicable standard of conduct set forth therein. Such determination shall
be made (i) by the stockholders, (ii) by the board of directors by majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (iii) if such quorum is not obtainable or, if a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion.
Section 5.5 Expense
Advances. Expenses incurred by an officer or director in defending any civil or criminal action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article V.
Section 5.6 Provisions
Nonexclusive. The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this
Article V shall not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses
may be entitled under the articles of incorporation or under any other bylaw, agreement, insurance policy, vote of stockholders
or disinterested directors, statute or otherwise, both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 5.7 Insurance.
By action of the board of directors, notwithstanding any interest of the directors in the action, the Corporation shall have power
to purchase and maintain insurance, in such amounts as the board of directors deems appropriate, on behalf of any person who is
or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, association or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not he is indemnified
against such liability or expense under the provisions of this Article V and whether or not the Corporation would have the power
or would be required to indemnify him against such liability under the provisions of this Article V or of the Nevada Revised Statutes
§78.7502; §78.751 or §78.752 or by any other applicable law.
Section
5.8 Surviving Corporation. The board of directors may
provide by resolution that references to “the Corporation” in this Article V shall include, in addition to this
Corporation, all constituent corporations absorbed in a merger with this Corporation so that any person who was a director or
officer of such a constituent corporation or is or was serving at the request of such constituent corporation as a director,
employee or agent of another corporation, partnership, joint venture, trust, association or other entity shall stand in the
same position under the provisions of this Article V with respect to this Corporation as he would if he had served this
Corporation in the same capacity or is or was so serving such other entity at the request of this Corporation, as the case
may be.
Section 5.9 Inurement.
The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, and administrators of such person.
Section 5.10 Employees
and Agents. To the same extent as it may do for a director or officer, the Corporation may indemnify and advance expenses to
a person who is not and was not a director or officer of the Corporation but who is or was an employee or agent of the Corporation
or who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, association or other enterprise.
ARTICLE VI
Stock
Section 6.1 Certificates.
Every holder of stock in the Corporation represented by certificates and, upon request, every holder of uncertificated shares shall
be entitled to have a certificate, signed by or in the name of the Corporation by the President or chairman of the board of directors,
or a vice president, and by the secretary or an assistant secretary, or the treasurer or an assistant treasurer of the Corporation,
certifying the number of shares owned by him in the Corporation.
Section 6.2 Facsimile
Signatures. Where a certificate of stock is countersigned (i) by a transfer agent other than the Corporation or its employee
or (ii) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile. In
case any officer, transfer agent or registrar who has signed, or whose facsimile signature or signatures have been placed upon,
any such certificate shall cease to be such officer, transfer agent or registrar, whether because of death, resignation or otherwise,
before such certificate is issued, the certificate may nevertheless be issued by the Corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
Section 6.3 Transfer
of Stock. Transfers of shares of stock of the Corporation shall be made on the books of the Corporation only upon presentation
of the certificate or certificates representing such shares properly endorsed or accompanied by a proper instrument of assignment,
except as may otherwise be expressly provided by the laws of the State of Nevada or by order by a court of competent jurisdiction.
The officers or transfer agents of the Corporation may, in their discretion, require a signature guaranty before making any transfer.
Section 6.4 Lost
Certificates. The board of directors may direct that a new certificate of stock be issued in place of any certificate issued
by the Corporation that is alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate to be lost, stolen, or destroyed. When authorizing such issue of a new certificate, the board of
directors may, in its discretion and as a condition precedent to the issuance of a new certificate, require the owner of such lost,
stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction
of any such certificate or the issuance of such new certificate.
ARTICLE VII
Seal
The board of directors may, but are not required to, adopt and provide
a common seal or stamp which, when adopted, shall constitute the corporate seal of the Corporation. The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or manually reproduced.
ARTICLE VIII
Fiscal Year
The board of directors, by resolution, may adopt a fiscal year for
the Corporation.
ARTICLE IX
Amendment
These bylaws may at any time and from time to time be amended, altered
or repealed exclusively by the board of directors, as provided in the articles of incorporation.
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this “Agreement”)
is dated as of October 7, 2013, FAL MINERALS LLC, an Alabama limited liability company (the “Company”), and FAL Exploration
Corp., a Nevada corporation (the “Purchaser”); and
WHEREAS, subject to the terms and conditions
set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”)
and Rule 506 promulgated thereunder, the Company desires to issue to the Purchaser, and the Purchaser desires to purchase from
the Company newly issued membership interests in the Company, representing twenty percent (20%) of the issued and outstanding membership
interests of the Company (post-issuance) (the “Interests”), as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual
covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby
acknowledged, the Company and the Purchaser agree as follows:
ARTICLE I
DEFINITIONS
1.1
Definitions. In addition to the terms
defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings indicated in this
Section 1.1:
“Affiliate” means any Person
that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a
Person as such terms are used in and construed under Rule 144.
“Business Day” means any
day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State
of New York are authorized or required by law or other governmental action to close.
“Closing” means the closing
of the purchase and sale of the Interests pursuant to Section 2.1.
“Closing Date” means the
Business Day when this Agreement has been executed and delivered by the applicable parties thereto, and all conditions precedent
to the Purchaser’s obligations to pay the Purchase Price have been satisfied or waived.
“Commission” means the Securities
and Exchange Commission.
“Common Stock Equivalents”
means any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock, including without
limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable
for, or otherwise entitles the holder thereof to receive, Common Stock.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended.
“Liens” means a lien, charge,
security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Losses” means a lien, charge,
security interest, encumbrance, rights of first refusal, preemptive right or other restriction.
“Person” means an individual
or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Proceeding” means an action,
claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.
“Purchase Price” means $100,000
payable in common stock at a per share price of $0.25 or Four Hundred Thousand (400,000) shares of common stock.
“Rule 144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule
or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
“Securities Act” means the
Securities Act of 1933, as amended.
ARTICLE II
PURCHASE AND SALE
2.1
Closing. A Closing will occur on the
date that the Purchase Price is paid in full. Upon satisfaction of the conditions set forth in Section 2.2, the Closing shall occur
at the offices of the Company, or such other location as the parties shall mutually agree.
2.2
Closing Conditions.
(a)
At the Closing the Company shall deliver to
the Purchaser:
(i)
a certificate evidencing the Interests registered
in the name of the Purchaser (or interests),
(b)
At the Closing the Purchaser shall deliver
or cause to be delivered to the Company the following:
(i)
the Purchase Price.
(c)
At the Closing the Company shall deliver to
the Purchaser: (i) executed copies of the agreements referenced in Section 4.3 below.
(d)
All representations and warranties of the other
party contained herein shall remain true and correct as of the Closing Date and all covenants of the other party shall have been
performed if due prior to such date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1
Representations and Warranties of the Company.
The Company hereby makes the following representations and warranties set forth below to the Purchaser:
(a)
Subsidiaries. The Company has no direct
or indirect subsidiaries.
(b)
Organization and Qualification. The
Company is duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction
of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and
assets and to carry on its business as currently conducted. The Company is not in violation of any of the provisions of its certificate
or articles of incorporation, bylaws or other organizational or charter documents. The Company is duly qualified to do business
and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as
the case may be, (i) could not, individually or in the aggregate adversely affect the legality, validity or enforceability of
this Agreement, (ii) has had or could not reasonably be expected to result in a material adverse effect on the results of operations,
assets, prospects, business or condition (financial or otherwise) of the Company, or (iii) could not, individually or in the aggregate,
adversely impair the Company’s ability to perform fully on a timely basis its obligations under this Agreement (any of (i),
(ii) or (iii), a “Material Adverse
Effect”).
(c)
Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations hereunder or thereunder. The execution and delivery of
this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of the Company and no further consent or action is required by the Company other than Required Approvals.
This Agreement has been (or upon delivery will be) duly executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors’ rights and remedies generally and general principles of equity. The Company is not in violation of any of the
provisions of its certificate or articles of incorporation, by-laws or other organizational or charter documents.
(d)
No
Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of the Company’s
certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) subject to obtaining the
Required Approvals, conflict with, or constitute a default (or an event that with notice or lapse of time or both would become
a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or
other understanding to which the Company is a party or by which any property or asset of the Company is bound or affected, or (iii)
result, in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property
or asset of the Company is bound or affected; except in the case of each of clauses (ii) and (iii), such as has not had or could
not reasonably be expected to result in a Material Adverse Effect.
(e)
Filings,
Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or
other Person in connection with the execution, delivery and performance by the Company of this Agreement.
(f)
Interests.
The Interests are duly authorized and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company other than restrictions on transfer provided for in this Agreement.
(g)
Capitalization.
The capitalization of the Company as of September 30, 2013 is as described on Schedule 3.1(g) and will remain as of the Closing
Date. The Company has not issued any capital stock since such date. Except as set forth on Schedule 3.1(g), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any membership
interests, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional
membership interests, or securities or rights convertible or exchangeable into membership interests. The issuance and sale of the Interests will not obligate
the Company to issue membership interests or other securities to any Person (other than the Purchaser) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities.
(h)
Litigation. There is no action, suit,
inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting
the Company or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which: (i) adversely
affects or challenges the legality, validity or enforceability of any of this Agreement or the Interests or (ii) could reasonably
be expected to result in a Material Adverse Effect. Neither the Company, nor any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach
of fiduciary duty that has had or could reasonably be expected to result in a Material Adverse Effect. The Company does not have
pending before the Commission any request for confidential treatment of information. There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or
former director or officer of the Company that has had or could reasonably be expected to result in a Material Adverse Effect.
(i)
Labor Relations. No material labor dispute
exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which has had or could
reasonably be expected to result in a Material Adverse Effect. None of The Company’s employees is a member of a union that
relates to such employee’s relationship with the Company, and the Company is not a party to a collective bargaining agreement,
and the Company believes that its relationships with their employees are good. No officer, to the Knowledge of the Company, is,
or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary
information agreement or non-competition agreement, or any other Contract or agreement or any restrictive covenant in favor of
any third party, and the continued employment of each such executive officer does not subject the Company to any liability with
respect to any of the foregoing matters. The Company is in compliance with all U.S. federal, state, local and foreign laws and
regulations relating to employment and employment practices, terms and conditions of employment and wages and hours.
(j)
Compliance. The Company is not: (i)
is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or
both, would result in a default by the Company), nor has the Company received notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party
or by which it or any of its properties is bound (whether or not such default or violation has been waived) that has had or could
reasonably be expected to result in a Material Adverse Effect, (ii) is in violation of any order of any court, arbitrator or governmental
body that has had or could reasonably be expected to result in a Material Adverse Effect, or (iii) is or has been in violation
of any statute, rule or regulation of any governmental authority that has had or could reasonably be expected to result in a Material
Adverse Effect.
(k)
Regulatory Permits. The Company possesses
all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their business, except where the failure to possess such permits could not reasonably be expected to result
in a Material Adverse Effect (“Material Permits”), and the Company has not received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(I)
Title to Assets. The Company has good
and marketable title in fee simple to all real property owned by it that is material to the business of the Company and good and
marketable title in all personal property owned by it that is material to the business of the Company, in each case free and clear
of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the
use made and proposed to be made of such property by the Company and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company
is held by it under valid, subsisting and enforceable leases of which the Company is in compliance, except where the failure to
be in compliance would not reasonably be expected to result in a Material Adverse Effect.
(m)
Patents and Trademarks. The Company
has, or has rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights necessary or material for use in connection with its businesses and which the failure to so have
has had or could reasonably be expected to result in a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). The Company has not received a written notice that the Intellectual Property Rights used by the Company violates
or infringes upon the rights of any Person that has had or could reasonably be expected to result in a Material Adverse Effect.
To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by
another Person of any of the Intellectual Property Rights that has had or could reasonably be expected to result in a Material
Adverse Effect.
(n)
Certain Fees. No brokerage or finder’s
fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions contemplated by this Agreement, and the Company has not
taken any action that would cause the Purchaser to be liable for any such fees or commissions.
(o)
Financial Statements. The financial
statements of the Company as supplied to the Purchaser (“Financial Statements”) comply in all material respects
with applicable accounting requirements with respect thereto as in effect at the time of filing. The Financial Statements have
been prepared in accordance with GAAP, except as may be otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects
the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
(p)
Material Changes. Since the date of
the latest Financial Statement: (i) there has been no event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise), (iii)
the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of
cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any interests of
its capital stock, and (v) the Company has not issued any equity securities. Except for the issuance of the Interests contemplated
by this Agreement, no event, liability or development has occurred or exists with respect to the Company or its business, properties,
operations or financial condition, that would be required to be disclosed by the Company.
(q)
Tax Status. The Company has made or
filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good
faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due
by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has
not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal,
statute or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.
(r)
Foreign Corrupt Practices. Neither the
Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has: (i) directly or indirectly,
used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political
activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic
political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made
by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material
respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.
(s)
No Disagreements with Accountants and Lawyers.
There are no disagreements of any kind, including but not limited to any disagreements regarding fees owed for services rendered,
presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company, and the Company is current with respect to any fees owed to its accountants and lawyers.
(t)
Minute Books. The minute books of the
Company made available to the Purchaser contain a complete summary of all meetings and written consents in lieu of meetings of
directors and stockholders since the time of incorporation.
(u)
Employee Benefits. The Company has never
had any plans which are subject to ERISA.
(v)
Business Records and Due Diligence.
Prior to the Closing, the Company has delivered (or will deliver) to the Purchaser all records and documents relating to the Company,
which the Company and possesses, including, without limitation, books, records, government filings, Tax Returns, Charter Documents,
corporate records, stock records, consent decrees, orders, and correspondence, director and stockholder minutes, resolutions and
written consents, stock ownership records, financial information and records, and other documents used in or associated with the
Company.
(w)
Contracts. Except as disclosed on the
Securities and Exchange Commission’s EDGAR system, The Company is not a party to any Contracts.
(x)
No Undisclosed Liabilities. Except as
otherwise disclosed in the Company’ Financial Statements, the Company has no other undisclosed liabilities whatsoever, either
direct or indirect, matured or unmatured, accrued, absolute, contingent or otherwise. The Company represents that at the date of
Closing, except as set forth on Schedule 3.1 (y) the Company shall have no liabilities or obligations whatsoever, either direct
or indirect, matured or unmatured, accrued, absolute, contingent or otherwise.
3.2
Representations and Warranties of the Purchaser.
The Purchaser represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:
(a)
Organization: Authority. The Purchaser
is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with
full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by this
Agreement and otherwise to carry out its obligations thereunder. The execution, delivery and performance by the Purchaser of the
transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Purchaser.
This Agreement, to which it is party has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance
with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
(b)
Investment Intent. The Purchaser understands
that the Interests are “restricted securities” and have not been registered under the Securities Act or any applicable
state securities law and is acquiring the Interests as principal for its own account for investment purposes only and not with
a view to or for distributing or reselling such Interests or any part thereof, has no present intention of distributing any of
such Interests and has no arrangement or understanding with any other persons regarding the distribution of such Interests. The
Purchaser is acquiring the Interests hereunder in the ordinary course of its business. The Purchaser does not have any agreement
or understanding, directly or indirectly, with any Person to distribute any of the Interests.
(c)
Purchaser Status. At the time the Purchaser
was offered the Interests, it was, and at the date hereof it is an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.
(d)
Experience of the Purchaser. The Purchaser,
either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the prospective investment in the Interests, and has so evaluated
the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the Interests and,
at the present time, is able to afford a complete loss of such investment.
(e)
General Solicitation. The Purchaser
is not purchasing the Interests as a result of any advertisement, article, notice, general solicitation or other communication
regarding the Interests published in any newspaper, magazine or similar media or broadcast over television or radio or presented
at any seminar or any other general solicitation or general advertisement.
(f)
Residence. The office or offices of
the Purchaser in which its investment decision was made is located at the address or addresses of the Purchaser set forth on the
signature page hereto.
(g)
Rule 144. Subject to Section 4.1(a),
the Purchaser acknowledges and agrees that the Interests are “restricted securities” as defined in Rule 144 promulgated
under the Securities Act as in effect from time to time and must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available. The Purchaser has been advised or is aware of the provisions
of Rule 144, which permits limited resale of Interests purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things: the availability of certain current public information about the Company, the resale
occurring following the required holding period under Rule 144 and the number of Interests being sold during any three-month period
not exceeding specified limitations.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
4.1
Transfer Restrictions.
(a)
The Interests may only be disposed of in compliance
with state and federal securities laws. In connection with any transfer of Interests other than pursuant to an effective registration
statement or Rule 144, to the Company or to an Affiliate of the Purchaser, the Company may require the transferor thereof to provide
to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration
of such transferred Interests under the Securities Act. As a condition of transfer, any such transferee shall agree in writing
to be bound by the terms of this Agreement and shall have the rights of the Purchaser under this Agreement.
(b)
The Purchaser agrees to the imprinting, so
long as is required by this Section 4.1(b), of the following legend on any certificate evidencing Interests:
THESE SECURITIES HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT’), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
(c)
The Purchaser agrees that the removal of the
restrictive legend from certificates representing Interests as set forth in this Section 4.1 is predicated upon the Company’s
reliance that the Purchaser will sell any Interests pursuant to either the registration requirements of the Securities Act, including
any applicable prospectus delivery requirements, or an exemption therefrom.
4.2
Non-Public Information. The Company
covenants and agrees that neither it nor any other Person acting on its behalf will provide the Purchaser or its agents or counsel
with any information that the Company believes constitutes material non-public information, unless prior thereto the Purchaser
shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company.
4.3
Royalty Stream. This Agreement conveys
to Purchaser the right to receive from the Company, payable quarterly and the end of each calendar quarter, twenty (20%) of the
gross proceeds from all royalty payments made to the Company, beginning the date of this Agreement.
ARTICLE V
MISCELLANEOUS
5.1
Fees and Expenses. Except as otherwise
set forth in this Agreement, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance
of this Agreement. The Company shall pay all stamp and other taxes and duties levied in connection with the sale of the Interests.
5.2
Entire Agreement. This Agreement, together
with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.
5.3
Notices. Any and all notices or other
communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 6:00 p.m. (New York time) on a Business Day, (b) the next Business Day
after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto on a day that is not a Business Day or later than 6:00 p.m. (New York time) on any Business
Day, (c) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service,
or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.
5.4
Amendments; Waivers. No provision of
this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and
the Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall
any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.
5.5
Construction. The headings herein are
for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.
5.6
Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign
this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser. The Purchaser may assign
its rights under this Agreement to any Person to whom the Purchaser assigns or transfers any Interests.
5.7
No Third-Party Beneficiaries. This Agreement
is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.5.
5.8
Governing Law; Venue; Waiver of Jury Trial.
All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts
of law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in
the County of New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of this Agreement), and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
that such suit, action or proceeding is improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The parties
hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of
this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorney’s
fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
5.9
Survival. The representations, warranties
and covenants contained herein shall survive the Closing and delivery and/or exercise of the Interests, as applicable.
5.10
Execution. This Agreement may be executed
in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create
a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect
as if such facsimile signature page were an original thereof.
5.11
Severability. If any provision of this
Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable
provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.
(Signature Page Follows)
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
PURCHASER: |
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FAL Exploration, Corp. |
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By: |
/s/ Adam Kotkin |
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Name: |
Adam Kotkin |
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Title: |
Director, Chief Executive Officer |
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Address for Notice: |
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431 Fairway Drive, Suite 260
Deerfield Beach, Florida 33441 |
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COMPANY: |
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FAL Minerals LLC |
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By: |
/s/ Eric Weisblum |
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Name: |
Eric Weisblum |
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Title: |
President |
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Address for Notice: |
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285 Grand Avenue, Building 5
Englewood, NJ 07631 |
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Exhibit 10.2
MEMBERSHIP INTEREST PURCHASE AGREEMENT
This Agreement dated October 9, 2013 by and between FAL
Minerals, LLC, an Alabama limited liability company (the “Company”), and David Lubin & Associates, PLLC (the
“Purchaser’’); and
WHEREAS, FAL Minerals, LLC. owes David Lubin & Associates, PLLC
legal fees for services performed in the amount of $10,000.00; and
WHEREAS, David Lubin & Associates, PLLC has agreed to accept
a membership interest in lieu of the past legal fees;
NOW THEREFORE, it is agreed as follows:
The terms of this Agreement shall only apply to legal services provided
prior to the execution of this Agreement.
The Members agree to issue a TWO (2%) interest in FAL Minerals,
LLC. to David Lubin & Associates, PLLC, and each member shall contribute a portion of their interest in proportion to their
ownership.
The new Membership Interests shall be as follows:
David Lubin & Associates, PLLC | |
| 2 | % |
Eric Weisblum | |
| 58.8 | % |
Brazil Gold Corp | |
| 19.6 | % |
FAL Exploration Corp | |
| 19.6 | % |
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Total | |
| 100.00 | % |
Each Member shall signify their agreement by signing below.
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David Lubin & Associates, LLC |
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Eric Weisblum |
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Brazil Gold Corp |
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FAL Exploration Corp. |
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Exhibit 10.3
REAL ESTATE PURCHASE AND SALE AGREEMENT
Dated as of November 13, 2013
ALPHA CAPITAL ANSTALT,
a Lichtenstein corporation, ADVENTURE VENTURES LLC, a New York limited liability company, WHALEHAVEN CAPITAL FUND LTD.,
a Bermuda corporation, DPIT 5 LLC, a Nevada limited liability company, and OJA LLC, a Florida limited liability company
(collectively, “Seller”), and FAL EXPLORATION CORP., a Nevada corporation (“Buyer”),
agree as follows:
1. Preliminary
Statements. Seller owns certain real property located in Clay County, Alabama, being more particularly described on Exhibit
A attached hereto (the “Property”). Seller desires to sell and Buyer desires to purchase the Property subject
to the terms and conditions of this Real Estate Purchase and Sale Agreement (this “Agreement”).
2. Definitions.
As used herein, the following capitalized terms shall have the meaning assigned to such terms below:
“Business Day”
means any Monday, Tuesday, Wednesday, Thursday or Friday which national Banks in Birmingham, Alabama are open for business.
“Closing”
means the closing of the transaction contemplated by this Agreement.
“Governmental
Authorities” means the municipal, county, state and Federal governments, agencies, authorities, courts and officers having
jurisdiction of the Property.
“Inspection Period”
means the period beginning on the date Buyer receives the Property Information Materials from Seller and expiring at 5:00 p.m.
local time in Birmingham, Alabama on the 10th day thereafter.
“Legal Requirements”
means all laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, directions and requirements of all Governmental Authorities applicable to the Property at or before the Closing.
“Monetary Liens”
means all liens encumbering the Property, which secure or represent liquidated amounts and which may be satisfied by the payment
of money, including liens for judgments or taxes, mortgage liens, mechanics liens or materialmen’s liens.
“Property Information
Materials” means, collectively, any of the following documents with respect to the Property that are in Seller’s
possession or control: (i) Seller’s Title Policy; (ii) the most recent property tax bills; and (iii) operating reports, if
any.
“Purchase Price”
means the amount of $400,000.
“Title Company”
means Land Title Company of Alabama, having an address of 600 North 20th Street, Suite 100, Birmingham, Alabama 35203.
“Title Report”
means the title report or title commitment for the Property issued by the Title Company.
3. Purchase
and Sale of the Property. Seller agrees to sell and Buyer agrees to buy the Property subject to the terms and conditions of
this Agreement.
4. Purchase
Price. The Purchase Price shall be paid as follows:
(a) At
Closing, Buyer agrees to issue, on a pro rata basis to each Seller in proportion to their percentage ownership in the Property,
a total of 800,000 shares of stock of the Buyer, based on a price of $.25 per share.
(b) In
addition, at Closing, Buyer will execute a promissory note (the “Note”) in the original principal amount
of $200,000, payable to each Seller in proportion to each Sellers’ ownership interest in the Property, bearing interest at
the lowest imputed rate, with no payments of principal or interest due or payable until the thirty-sixth month after Closing (the
“Maturity Date”). On the Maturity Date, Buyer shall elect to either (i) pay all outstanding principal
and interest in cash, or (ii) issue stock in Buyer to each Seller in proportion to its ownership interest in the Property, in an
aggregate amount equal to the principal and interest outstanding on the Maturity Date. The value of the stock and the determination
of the number of shares to be issued to satisfy (ii) above shall be the then market price on the Maturity Date, discounted by ten
percent (10%). Buyer may prepay the Note in whole or in part at any time prior to the Maturity Date.
5. Earnest
Money Deposit. Within two Business Days of the completed execution of this Agreement, Buyer will deposit with the Title Company,
an amount equal to $100.00, as earnest money, which funds, together with all earnings thereon, if any (collectively, the “Earnest
Money Deposit”) shall be applied as part payment of the Purchase Price of the Property at the time the sale is
consummated or otherwise paid pursuant to the terms of this Agreement. The parties to this Agreement understand and agree that
the disbursement of Earnest Money Deposit held by the Title Company can occur only (i) at the Closing; (ii) upon written agreement
signed by Seller and Buyer; (iii) upon an order from a court of competent jurisdiction; (iv) upon the failure of either party to
fulfill its obligations as set forth in this Agreement; or (v) as otherwise set out herein. In the event that Buyer does not timely
terminate this Agreement pursuant to the terms of Section 6.4 below before the expiration of the Inspection Period, then the Earnest
Money Deposit shall become non-refundable to Buyer (except pursuant to either Section 16 or 17 below) and, in the event of a breach
of the terms hereof by Buyer, the Earnest Money Deposit shall be paid to Seller as liquidated damages as Seller’s sole and
exclusive remedy. The Earnest Money Deposit shall not bear interest.
6. Due
Diligence Matters.
6.1 Inspections.
Buyer shall have the Inspection Period within which to review and investigate any aspect of the Property which Buyer, in its sole
discretion, deems significant, including a survey, environmental audit, an inspection of the Property by a consulting engineer,
architect, or other such professional and an appraisal or feasibility study of the Property. Buyer and Buyer’s agents shall
be permitted access to and upon the Property for conducting inspections and/or tests to determine suitability of the Property for
Buyer’s intended use. Buyer will neither allow nor conduct any physically invasive testing of, on, or under the Property
without first obtaining Seller’s written consent, which consent may be withheld for any reason or for no reason. Buyer agrees
to return the Property to substantially the same condition and cleanliness existing before entry and/or occupation by Buyer’s
representatives, including sealing wells or other similar subsurface investigations expressly permitted by Seller. Buyer shall
indemnify and hold Seller harmless from any loss, injury, liability, damage or expense, including reasonable attorneys’ fees
and costs, directly caused by Buyer, which Seller may incur as a result of (i) any act or omission of Buyer or its agents or representatives
arising in connection with any tests or inspections conducted by Buyer or its agents or representatives, or (ii) if the Closing
does not occur, the failure of Buyer to restore the Property in accordance with this Section.
6.2 Title
Report and Title Objection Notice. Within one Business Day following full execution hereof, Seller shall cause title to the
Property to be examined by the Title Company, and the Title Company shall deliver copies of its Title Report to Buyer’s attorney.
Within ten Business Days following receipt of the Title Report, Buyer shall furnish to Seller’s attorney a writing (the “Title
Objection Notice”) specifying any exceptions to title to the Property which are unacceptable to Buyer, including any
so-called pre-printed or standard exceptions (collectively, the “Title Exceptions”). Seller shall have five
Business Days to remove or have discharged of record each Title Exception except for any Monetary Liens to be paid or discharged
by Seller at the Closing out of the Purchase Price. In the event that Seller is unable or unwilling to cure any such Title Exception,
then Buyer may either terminate this Agreement before the expiration of the Inspection Period pursuant to Section 6.4 below or
waive such Title Exception and proceed to Closing, in which case such Title Exception shall be deemed to be a Permitted Exception.
6.3 Existing
Due Diligence. Within three Business Days after the date hereof, Seller will provide to Buyer copies of all Property Information
Materials that are in Seller’s possession or control. Seller hereby agrees that, promptly upon receipt, it shall provide
to Buyer with a copy of any updated or supplemental Property Information Materials that it receives.
6.4 Termination.
Buyer may terminate this Agreement within the Inspection Period for any reason or for no reason by providing written notice delivered
to Seller before the end of the Inspection Period, of Buyer’s desire to terminate, whereupon the Earnest Money Deposit shall
be returned to Buyer, and the parties shall be released of all further obligations hereunder, except for the indemnities contained
herein which shall expressly survive termination of the Agreement.
7. Representations
and Warranties.
7.1 Seller.
Seller makes no representations or warranties and further disclaims any representations and/or warranties as further set forth
in Section 9 below.
7.2 Buyer.
To induce Seller to enter into this Agreement, Buyer makes the following representations and warranties, all of which are true
and correct in all material respects as of the date hereof: (i) Buyer is a limited liability company duly formed under the laws
of the State of California, has the full right and authority to enter into this Agreement and to consummate the sale transaction
contemplated herein; and (ii) the person who has executed this Agreement on behalf of Buyer is duly authorized so to do.
8. Conditions
Precedent.
8.1 Buyer.
The obligation of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment of the
following conditions on or before the Closing: (i) Seller shall have performed in all material respects all covenants and obligations
and complied in all material respects with all conditions set forth in this Agreement to be performed or complied with by it on
or before the Closing; and (ii) no action or proceeding before a court of any other governmental agency or body shall have been
instituted or threatened which would restrain or prohibit the transactions contemplated by this Agreement.
8.2 Seller.
The obligations of Seller to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment of
the following conditions on or before the Closing: (i) Buyer’s representations and warranties made in Section 7.2 shall be
true and correct in all material respects as of the Closing as if such representations and warranties had been made on the date
of the Closing; (ii) Buyer shall have performed in all material respects all covenants and obligations and complied in all material
respects with all conditions set forth in this Agreement to be performed or complied with by it on or before the Closing; and (iii)
no action or proceeding before a court of any other governmental agency or body shall have been instituted or threatened which
would restrain or prohibit the transactions contemplated by this Agreement.
9. Acknowledgment
by Buyer. Buyer acknowledges and agrees that Seller has not made, does not make and specifically negates and disclaims any
representations, warranties, promises, covenants, agreements or guaranties of any kind or character whatsoever, whether express
or implied, oral or written, past, present or future, of, as to, concerning, or with respect to (i) the value, nature, quality
or condition of the Property, including the water, soil and geology, (ii) the income to be derived from the Property, (iii) the
suitability of the Property for any and all activities and uses which Buyer may conduct thereon, (iv) the compliance of or by the
Property or its operation with any Legal Requirements of any applicable Governmental Authority, (v) the habitability, merchantability,
marketability, profitability, or fitness for a particular purpose of the Property, (vi) any other matter with respect to the Property,
and specifically, that Seller has not made, does not make and specifically disclaims any representations regarding compliance with
any environmental protection, pollution or land uses Legal Requirements, including those defined by the U.S. Environmental Protection
Agency regulations at 40 C.F.R. Part 261, or the disposal or existence, in or on the Property, of any hazardous substance, including
those defined by the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, and regulations promulgated
thereunder. Buyer further acknowledges and agrees that, having been given the opportunity to inspect the Property, Buyer is relying
solely on its own investigation of the Property and not on any information provided or to be provided by Seller, including the
Property Information Materials. Buyer further acknowledges and agrees that any information provided or to be provided with respect
to the Property was obtained from a variety of sources and that Seller has not made any independent investigation or verification
of such information and makes no representations as to the accuracy or completeness of such information, including the Property
Information Materials. Seller is not liable or bound in any manner by any verbal or written statements, representations or information
pertaining to the Property, or the operation thereof, furnished by any real estate broker, agent, employee, servant or other person.
Buyer further acknowledges and agrees that to the maximum extent permitted by law, the sale of the Property as provided for herein
is made on an “AS IS” basis and that Buyer is purchasing the Property based on its own investigations and inspections.
IN ADDITION, BUYER HEREBY ACKNOWLEDGES THAT THE PROPERTY AND THE BUYER’S PURCHASE THEREOF IS SUBJECT TO ANY AND ALL RECLAMATION
ACTIVITIES REQUIRED BY ANY AUTHORITIES (SELLER EXPRESSLY DISCLAIMING ANY RESPONSIBILITY THEREFOR) AND THE ONE YEAR RIGHT OF REDEMPTION
UNDER ALABAMA LAW FOR FORECLOSED PROPERTIES.
10. Closing.
The Closing shall be held at the offices of Sirote & Permutt, P.C., Seller’s counsel, within 10 days after the expiration
of the Inspection Period (the “Closing Date”). All actions taken at the Closing shall be deemed to be performed
simultaneously and the Closing shall not be deemed to have occurred until all the condition precedents have been satisfied or expressly
waived in writing.
11. Delivery
of Documents at Closing.
11.1 Seller.
Subject to the payment of the Purchase Price and any other sums due hereunder, Seller shall execute and deliver, to the Title Company
for the benefit of Buyer, (i) a statutory warranty; (ii) an owner’s waiver affidavit in a form reasonably acceptable to the
Title Company; and (iii) any other documents reasonably requested by Buyer or required by the Title Company.
11.2 Buyer.
Buyer shall execute and deliver, to the Title Company for the benefit of Seller, (i) the Note; (ii) a mortgage and security agreement
securing Buyer’s obligations pursuant to the Note; and (iii) any other documents reasonably requested by Seller or required
by the Title Company.
12. Costs
and Fees; Prorations.
12.1 Seller.
Seller shall pay the following costs and expenses: (i) Seller’s attorney’s fees (including the deed preparation costs);
(ii) the costs to have all Monetary Liens paid, discharged or removed of record at the Closing, including the costs of the preparation
or filing of appropriate satisfaction instruments in connection therewith; and (iii) one-half the escrow fees due to the Title
Company.
12.2 Buyer.
Buyer shall pay the following costs and expenses: (i) Buyer’s attorneys’ fees; (ii) the premium for the owner’s
policy of title insurance and any lender’s title policy, together with any additional charges for any title endorsements
requested by Buyer or its lender; (iii) the costs of all inspections conducted by Buyer under Section 6.1 above; (iv) the costs
of any survey ordered by Buyer; (v) one-half the escrow fees due to the Title Company; and (vi) recording fees, transfer taxes
and other similar charges for recording the deed.
12.3 Prorations.
The real estate ad valorem taxes shall be prorated as of the Closing Date based on the current year’s tax assessments.
13. Real
Estate Brokers. Neither Seller nor Buyer have dealt with any real estate broker, agent, finder or other intermediary in connection
with the transactions contemplated by this Agreement. Each party shall indemnify and hold the other harmless for, from and against
any costs, claims or expenses, including reasonable attorneys’ fees, arising out of the breach of its representations and
warranties contained within this Section.
14. Default;
Remedies.
14.1 Buyer’s
Default. In the event all conditions to Buyer’s obligation to close shall have been satisfied and Buyer fails to close
the transaction contemplated by the Agreement within the time specified herein, Seller shall make written demand upon Buyer for
performance and if Buyer fails to comply with such written demand within ten days after receipt thereof, Seller may terminate this
Agreement, whereupon the Earnest Money Deposit shall be forfeited by Buyer and paid to Seller as liquidated damages and the Seller
shall have no other remedy or rights against Buyer. Buyer and Seller acknowledge the difficulty of proving damages and have bargained
for this liquidated damage provision. The foregoing remedy shall be Seller’s sole and exclusive remedy in the event of Buyer’s
default.
14.2 Seller’s
Default. In the event that Seller shall fail to perform Seller’s obligations hereunder, except as excused by Buyer’s
default or in the event any of the Seller’s representations or warranties herein contained shall prove to be false in any
material respect, Buyer shall make written demand upon Seller for performance and if Seller fails to comply with such written demand
within ten days after receipt thereof, Buyer shall have the option to either (i) terminate this Agreement, in which case, the Earnest
Money Deposit shall be returned to Buyer as Buyer’s sole remedy; (ii) seek specific performance, (iii) waive such default;
provided that in no event shall Buyer be entitled to sue Seller for damages.
15. Assignment.
Buyer shall have the right to transfer and assign its rights under this Agreement to a corporation, partnership, limited liability
company or other entity in which Buyer is a shareholder, partner, member or owner of such assignee; provided that Buyer shall remain
fully liable for its obligations hereunder. Any other assignment to a third party shall require the written approval of Seller,
which consent may not be unreasonably withheld.
16. Risk
of Loss. Risk of loss by fire or other casualty shall be on Seller until the Closing.
17. Condemnation.
In the event any eminent domain proceedings shall be commenced with respect to the Property before the Closing Date or in the
event the Buyer shall be advised by any agency having eminent domain powers that a condemnation of all or any portion of the Property
is contemplated, the Buyer, at its option, may (i) terminate this Agreement, in which event the Earnest Money Deposit shall be
refunded to Buyer and the parties shall be relieved of all obligations hereunder, or (ii) continue this Agreement in force, in
which event any condemnation proceeds received by the Seller before the Closing Date shall be credited to Buyer at the Closing
in an amount not to exceed the Purchase Price.
18. Notices.
Any notices to the parties pursuant to the provisions hereof shall be in writing and delivered by Federal Express or other air
courier or by telefacsimile, as follows:
If to Seller: |
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With a copy to Seller’s counsel: |
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c/o Eliezer Drew, Esq. |
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Mr. Steven Brickman |
Grushko & Mittman, P.C. |
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Sirote & Permutt, P.C. |
515 Rockaway Avenue |
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2311 Highland Avenue South |
Valley Stream, New York 11581 |
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Birmingham, Alabama 35205 |
Telephone: (212) 697-9500 |
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Telephone: (205) |
Fax: (212)697-3575 |
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Fax: (205) |
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If to Buyer: |
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With a copy to Buyer’s counsel: |
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FAL Exploration Corp. |
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Szaferman Lakind Blumstein & |
431 Fairway Drive, Suite 260 |
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Blader, PC |
Deerfield Beach, Florida 33441 |
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101 Grovers Mill Road |
Attn: Adam Kotkin |
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Second Floor |
Telephone: 732-530-1267 |
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Lawrenceville, NJ 08648 |
Fax: ______________ |
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Telephone: 609-557-0953 |
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Fax: ______________ |
All notices shall be effective
upon receipt by the means set forth above. Addresses for notice may be changed from time to time by written notice to all other
parties delivered in accordance with this Section.
19. Litigation
and Attorneys’ Fees. Should a dispute arise between the parties as to the construction or enforcement of this Agreement,
then the party which prevails in such suit shall be entitled to collect from the other party all costs of such suit, including
reasonable attorneys’ and paralegals’ fees, court costs and such fees as determined by a court of competent jurisdiction,
whether incurred in court-ordered mediation, in settlement, at trial, on appeal or in bankruptcy or administrative proceedings.
A party shall be deemed to have prevailed if: (i) it initiated the action and substantially obtained the relief it sought, either
through court-ordered mediation, by means of entry of a judgment or the losing party’s voluntary action in settlement prior
to trial or judgment; (ii) the other party withdraws its action without substantially obtaining the relief it sought; or (iii)
it did not initiate the action and the judgment is entered for either party, but without substantially granting the relief sought
by the other party.
20. Waiver
of Right to Trial By Jury. TO THE EXTENT PERMITTED BY APPLICABLE LAW, SELLER AND BUYER HEREBY EXPRESSLY WAIVE ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER OR RELATED TO THIS AGREEMENT, THE PROPERTY OR
THE TRANSACTION(S) CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING. SELLER AND BUYER FURTHER
AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT EITHER
PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT TO THE
WAIVER(S) OF TRIAL BY JURY MADE HEREIN.
21. General.
The validity, interpretation, enforcement and effect of this Agreement shall be governed by, and construed in accordance with,
the laws of the State where the Property is located, without regard to principles of conflicts of laws. This Agreement shall be
binding and shall enure to the benefit of the parties hereto, and their respective permitted successors and assigns. This Agreement
shall not be modified or amended except by mutual written agreement. This Agreement constitutes the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes all prior agreements, oral or written, and all other communications
among the parties relating to such subject matter. The waiver by any party of a breach or violation of any provisions of this Agreement
shall not operate as, or be construed to be, a waiver of any subsequent breach of the same or other provision. In the event any
provision, of this Agreement is held to be unenforceable or invalid for any reason, this Agreement shall remain in full force and
effect and enforceable in accordance with its terms disregarding such enforceable or invalid provision. The captions and headings
used in this Agreement are made for convenience and general reference only and should not be construed to describe, define, limit
or expand the scope and intent of any term or provision of this Agreement. The parties acknowledge that this Agreement was initially
prepared by Seller solely as a convenience and that all parties hereto, and their counsel, have read and fully negotiated all of
the language used in this Agreement. The parties acknowledge that, because all parties and their counsel participated in negotiating
and drafting this Agreement, no rule of construction shall apply to this Agreement which construes ambiguous and unclear language
in favor of or against any party because such party drafted this Agreement. Time is of the essence of this Agreement and in the
performance of all conditions and covenants to be performed or satisfied by either party hereto. Whenever a date specified herein
shall not fall on a Business Day, such date shall be extended to the next succeeding Business Day. The words “include,”
“includes” and “including” shall be deemed to be followed by the phrase “without limitation.”
Whenever the context so permits, the use of the plural shall include the singular, the singular shall include the plural, and any
gender shall be deemed to include all genders.
22. Execution
by Counterparts and Telefacsimile. This Agreement may be executed in one or more counterparts, each of which shall be an original
and taken together shall constitute one and the same document. Signature and acknowledgment pages, if any, may be detached from
the counterparts and attached to a single copy of this document to physically form one document. For purposes of executing this
Agreement, any signed document transmitted by facsimile machine with automatic confirmation of receipt shall be treated in all
manner and respects as an original document. The signature of any party transmitted by facsimile machine shall be considered to
be an original signature, and any such document shall be considered to have the same binding legal effect as an original document
executed, delivered and exchanged between or among the parties. At the request of any party, any executed document delivered by
facsimile machine shall be re-executed by all parties in a “hard-copy” form. The parties hereto hereby agree that none
of them shall raise the use of a facsimile machine for the transmission of signatures as a defense to this Agreement, and each
such party hereby waives such defense.
23. Confidentiality.
Without the prior written consent of the other party, neither Seller nor Buyer will disclose to any person, other than their legal
counsel or a proposed lender, either the fact that this Agreement has been entered into or any of the terms, conditions or other
facts with respect thereto, including the status thereof; provided, that either party hereto may make such disclosure if compelled
by court order or to comply with any Legal Requirement.
24. Effective
Date. Buyer and Seller understand and agree that this Agreement shall not be binding on either Seller or Buyer until such time
as it has been signed by all parties. Once executed by all parties, this Agreement shall be effective as of the date first written
above.
IN WITNESS WHEREOF, Seller executed this
Agreement as of the date first set forth above.
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“Seller:” |
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ALPHA CAPITAL ANSTALT, a Lichtenstein corporation |
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By: |
/s/ Konrad Ackerman |
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Name: |
Konrad Ackerman |
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Title: |
Director |
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ADVENTURE VENTURES LLC, a New York limited liability
company |
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By: |
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Name: |
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Title: |
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WHALEHAVEN CAPITAL FUND LTD., a Bermuda corporation |
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By: |
/s/ Michael Finkelstein |
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Name: |
Michael Finkelstein |
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Title: |
PRO |
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DPIT 5 LLC, a Nevada limited liability company |
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By: |
/s/ Samuel Del Presto |
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Name: |
Samuel Del Presto |
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Title: |
Managing Member DPIT 5 LLC |
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OJA LLC, a Florida limited liability company |
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By: |
/s/ Hilary L. Marx - Averbach |
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Name: |
Hilary L. Marx – Averbach |
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Title: |
President |
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IN WITNESS WHEREOF,
Buyer executed this Agreement as of the date first set forth above.
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“Buyer:” |
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FAL EXPLORATION CORP., a Nevada corporation |
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By: |
/s/ Adan Kotkin |
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Name: |
Adan Kotkin |
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Title: |
CEO |
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EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
Parcel I (a/k/a Hancock Tract I): Commencing
at a 1 inch solid iron rod accepted as being the SE Corner of Section 01, Township 20 South, Range 7 East, Clay County, Alabama,
said point being the point of beginning; thence North 87 degrees 19 minutes 08 seconds West a distance of 2575.35 feet to a 3/8
inch rebar set in a found rock pile painted white; thence North 02 degrees 16 minutes 48 seconds East, a distance of 1219.03 feet
to a found 3/8 inch capped rebar stamped JLS 15151; thence North 03 degrees 05 minutes 25 seconds East, a distance of 1368.00 feet
to a 3/8 inch rebar set in a found rock pile painted white; thence South 88 degrees 26 minutes 25 seconds East a distance of 631.99
feet to a found 3/8 inch capped rebar stamped JLS 15151; thence South 88 degrees 26 minutes 25 seconds East, a distance of 191.61
feet to a found 3/8 inch capped rebar stamped JLS 15151; thence South 88 degrees 44 minutes 39 seconds East a distance of 1773.40
feet to an axle found being 3 inches round and standing 18 inches tall; thence South 03 degrees 09 minutes 40 seconds West a distance
of 2647.28 feet to the point of beginning; said described tract containing 155.53 acres, more or less. NOTE white painted lines
are leading East from the NW Corner, white painted lines are leading South from the NE Corner, white painted lines are leading West
from the SE Corner, white painted line is leading North from the SW Corner. Situated, lying and being in Clay County, Alabama.
Parcel II (a/k/a Hancock Tract II): Commencing
at a 3/8 inch rebar set in a found rock pile, accepted as being the NW Corner of Section 12, Township 20 South, Range 7 East, Clay
County, Alabama, said point being the point of beginning; thence South 02 degrees 49 minutes 17 seconds West a distance of 667.93
feet to a rock pile found painted white; thence North 88 degrees 58 minutes 35 seconds East, a distance of 1320.07 feet to a 3/8
inch rebar set in a found rock pile painted white; thence North 02 degrees 00 minutes 19 seconds East, a distance of 661.09 feet
to a 3/8 inch rebar set in a found rock pile painted white; thence South 89 degrees 15 minutes 01 seconds West, a distance of 1310.22
feet to the point of beginning; said described tract containing 20.03 acres, more or less. NOTE white painted lines are leading
East from the NW Corner, white painted lines are leading South from the NE Corner, white painted lines are leading West from the
SE Corner, white painted line is leading North from the SW Corner. Situated, lying and being in Clay County, Alabama.
PARCEL III (a/k/a Riley Tract): Commencing
at a 3/8 inch rebar set in a found rock pile painted white, accepted as being the SW corner of the SE 1/4 of the SW 1/4 of Section
01, Township 20 South, Range 7 East, Clay County, Alabama, said point being the Point of Beginning; thence North 00 degrees 43
minutes 50 seconds East along an old fence leading North, a distance of 1270.39 feet to a corner set; thence South 77 degrees 23
minutes 31 seconds West along an old fence leading Southwest, a distance of 340.77 feet to a corner set; thence North 02 degrees
26 minutes 39 seconds West along an old fence leading North a distance of 132.82 feet to a corner set; thence South 85 degrees 42
minutes 02 seconds West along an old fence leading West, a distance of 287.71 feet to a corner set; thence North 01 degrees 00 minutes
55 seconds West along an old fence leading North, a distance of 201.42 feet to a corner set on the South right of way of Mountain
View Road (R/W 80 feet); thence North 79 degrees 14 minutes 44 seconds East along said road, a distance of 562.82 feet to the point
of curvature of a non-tangent curve; concave to the Northwest, having a radius of 1325.27 feet a central angle of 36 degrees 23
minutes 40 seconds, and a chord of 827.74 feet bearing North 66 degrees 54 minutes 36 seconds East; thence East along said curve,
a distance of 841.82 feet to a corner set; thence leaving said road proceed South 00 degrees 00 minutes 41 seconds West a distance
of 649.45 feet to a corner set; thence South 89 degrees 31 minutes 12 seconds East a distance of 654.65 feet to a corner set; thence
South 02 degrees 16 minutes 48 seconds West a distance of 1219.03 feet to a corner set in a rock pile painted white; thence South
87 degrees 09 minutes 06 seconds West a distance of 1309.49 feet to the point of beginning; said described tract containing 49.47
acres, more or less. Situated, lying and being in Clay County, Alabama.
ALSO: ALL INTEREST, RIGHTS, PRIVILEGES, DUTIES,
OBLIGATIONS AND COVENANTS UNDER THAT CERTAIN MINERAL LEASE AMENDMENT RECORDED IN BOOK 381, BEGINNING ON PAGE 193 AND ASSIGNED IN
BOOK 383, PAGE 9, ALL IN THE OFFICE OF THE JUDGE OF PROBATE OF CLAY COUNTY, ALABAMA.
Exhibit 10.4
Short Term Loan Contract
This Loan Agreement (the “Agreement”)
is an agreement between Vapir Enterprise Inc henceforth known as “Borrower,” and Hamid Emarlou henceforth known as
“Lender.”
Borrower wishes to borrow $ as needed, known as “Loan,”
from Lender. Loan will be furnished to Borrower on demand. This loan will be used for working capital purposes.
Conditions for this Short Term Loan
are as follows:
• This Loan bears interest
at 5% per annum.
• This Loan is payable to the
lender on demand.
Borrower and Lender agree to the conditions
above, and sign to that effect on the first day of Jan, 2014.
/s/ HAMID EMARLOU |
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CEO & President |
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Borrower Signature |
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/s/ HAMID EMARLOU |
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Lender Signature |
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Exhibit 10.5
TERMINATION AGREEMENT
This Termination Agreement, dated as of December
___, 2014 (the ’’Termination Agreement”), between Alpha Capital Anstalt, a Lichtenstein corporation, Adventure
Ventures LLC, a New York limited liability company, Whalehaven. Capital Fuad, Ltd., a Bermuda corporation, DPIT 5 LLC, a Nevada
limited liability company, and OJA LLC, a Florida Limited liability company (collectively, the "Seller"), and Vapir Enterprises
Inc. f/k/a FAL Exploration Corp., a Nevada corporation (the "Buyer” and together with Seller, the "Parties”
and each, a ’’Party”), agree as follows:
WHEREAS, the Parties have entered into a Real
Estate Purchase and Sale Agreement, dated as of November 13, 2013 (the “Agreement”); and
WHEREAS, the Parties have agreed to unwind
the purchase of the Property and the Buyer has agreed to sell the Property and return all proceeds of such sale of the Property
back to the Seller and all consideration paid for the Property shall be returned to the Buyer, including the Promissory Note in
the amount of $200,000 and the 800,000 pre-reverse stock split shares of common stock of the Buyer; and
WHEREAS, the Buyer hereby agrees to sell the
Property for an estimated total price of $224,755 (the “Sale Proceeds") and put the proceeds in escrow to be held for
the Seller pursuant to the terms of this Termination Agreement; and
WHEREAS, the Parties hereto desire to terminate
the Agreement on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises
set forth above and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties
agree as follows:
1. Definitions Capitalized
terms used and not defined in this Termination Agreement have the respective meanings assigned to them in the Agreement.
2. Termination of the Agreement
Subject to the terms and conditions of this Termination Agreement, the Agreement is hereby terminated as of the date first written
above (the “Termination Date"). From and after the Termination Date, the Agreement will be of no further force or effect,
and the rights and obligations of each of the Parties thereunder shall terminate.
3. Return of Purchase Price
and Remittance of Proceeds of Sale to Seller. Pursuant to the terms of the Agreement, as consideration for the Property, the
Buyer agreed to purchase the property for $400,000 (the “Purchase Price”) which consisted of: (i) a total of 800,000
shares of stock of the Buyer, based on a price of $0.25 per share (the “Shares’’); and (ii) a promissory note
in the original principal amount of $200,000 bearing interest at the lowest imputed rate, with no payments or principal or interest
due or payable until the thirty-sixth month after Closing (the “Note”). Pursuant to this Termination Agreement, the
Buyer hereby agrees to sell the Property and place the Sale Proceeds in trust to be delivered to the Seller and, in exchange for
the Sale Proceeds, the Seller hereby agrees to return the total Purchase Price by deeming their Note satisfied in full and returning
the Shares to treasury immediately upon the Termination Date.
For the avoidance of doubt, the Shares were
issued prior to the 5 to 1 reverse stock split that was approved and effective by the Company on October 3, 2014. Therefore, as
of the date of this Termination Agreement and on a post-reverse split adjustment, the Shares are a total of 160,000 shares of common
stock.
| 4. | Certain Rights and Obligations |
As material consideration for the covenants,
agreements and undertakings of the Parties under this Termination Agreement;
(a) Promptly following
the full execution of this Termination Agreement, the Buyer shall execute the necessary documents to transfer ownership of the
Property back to the Sellers (the ‘‘Termination Transfer”).
(b) Promptly following
the full execution of this Termination Agreement, the Seller shall deliver to Buyer (i) all the Shares issued to them in connection
with the Agreement; and (ii) the Note to be cancelled and deemed satisfied in full.
(a) In consideration
of the covenants, agreements and undertakings of the Parties under this Termination Agreement, each Party, on behalf of itself
and its respective present and former parents, subsidiaries, affiliates, officers, directors, shareholders, members, successors
and assigns (collectively, “Releasers”) hereby releases, waives and forever discharges the other Party and its respective
present and former, direct and indirect, parents, subsidiaries, affiliates, employees, officers, directors, shareholders, members,
agents, representatives, permitted successors and permitted assigns (collectively, “Releasees”) of and from any and
all actions, causes of action, suits, losses, liabilities, rights, debts, dues, sums of money, accounts, reckonings, obligations,
costs, expeases, liens, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses,
damages, judgments, extents, executions, claims, and demands, of every kind and nature whatsoever, whether now known or unknown,
foreseen or unforeseen, matured or unmatured, suspected or unsuspected, in law, admiralty or equity (collectively, “Claims”),
which any of such Releasors ever had, now have, or hereafter can, shall, or may have against any of such Releasees for, upon, or
by reason of any matter, cause, or thing whatsoever from the beginning of time through the date of this Termination Agreement arising
out of or relating to the Agreement, except for any Claims relating to rights and obligations preserved by, created by or otherwise
arising out of this Termination Agreement.
(b) Each Party,
on behalf of itself and each of its respective Releasors, understands that it may later discover Claims or facts that may be different
than, or in addition to, those that it or any other Releasor now knows or believes to exist regarding the subject matter of the
release contained in this Section 5, and which, if known at the time of signing this Tennination Agreement, may have materially
affected this Termination Agreement and such Party’s decision to enter into it and grant the release contained in this Section
5. Nevertheless, the Releasors intend to fully finally and forever settle and release all Claims that now exist, may exist or previously
existed, as set forth in, the release contained in this Section 5, whether known or unknown, foreseen or unforeseen, or suspected
or unsuspected, and the release given herein is and will remain in effect as a complete release, notwithstanding the discovery
or existence of such additional or different facts. The Releasors hereby waive any right or Claim that might arise as a result
of such different or additional Claims or facts.
| 6. | Representations and Warranties Each Party hereby
represents and warrants to the other Party that: |
(a) It has the
full right, corporate power and authority to enter into this Termination Agreement and to perform its obligations hereunder.
(b) The execution
of this Termination Agreement by the individual whose signature is set forth at the end of this Termination Agreement on behalf
of such Party, and the delivery of this Termination Agreement by such Party, have been duly authorized by all necessary corporate
action on the part of such Party.
(c) This Termination
Agreement has been executed and delivered by such Party and (assuming due authorization, execution and delivery by the other Party
hereto) constitutes the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its
terms, except as may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws and equitable
principles related to or affecting creditors' rights generally or the effect of general principles of equity.
(d) It (i) knows
of no Claims against the other Party relating to or arising out of the Agreement that are not covered by the release contained
in Section 5 and (ii) has neither assigned not transferred any of the Claims released herein to any person or entity and no person
or entity has subrogated to or has any interest or rights in any Claims.
EXCEPT FOR THE EXPRESS REPRESENTATIONS AND
WARRANTIES SET FORTH IN THE AGREEMENT AND IN THIS TERMINATION AGREEMENT, (A) NEITHER PARTY HERETO NOR ANY PERSON ON SUCH PARTY’S
BEHALF HAS MADE OR MAKES ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WHATSOEVER, EITHER ORAL OR WRITTEN, WHETHER ARISING
BY LAW, COURSE OF DEALING, COURSE OF PERFORMANCE, USAGE OF TRADE OR OTHERWISE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED, AND (B) EACH
PARTY HERETO ACKNOWLEDGES THAT, IN ENTERING INTO THIS TERMINATION AGREEMENT, IT HAS NOT RELIED UPON ANY REPRESENTATION OR WARRANTY
MADE BY THE OTHER PARTY, OR ANY OTHER PERSON ON SUCH OTHER PARTY’S BEHALF, EXCEPT AS SPECIFICALLY PROVIDED IN THIS SECTION
6.
(a) Each Party
(as "Indemnifying Party”) shall defend, indemnify and hold harmless the other Party, and its officers, directors, employees,
agents, affiliates, permitted successors and permitted assigns (collectively, "Indemnified Party”), against any and
all losses, damages, liabilities, deficiencies, claims, actions, judgments, settlements, interest, awards, penalties, fines, costs,
or expenses of whatever kind, including reasonable attorneys' fees, fees and the costs of enforcing any right to indemnification
under this Termination Agreement and the cost of pursuing any insurance providers, awarded against an Indemnified Party in a final
non-appealable judgment (collectively, ’’Losses”), arising out or resulting from any claim of a third party alleging:
(i) material breach by Indemnifying Party or its employees, consultants or other personnel of any representation, warranty, covenant
or other obligations set forth in this Termination Agreement; or (ii) gross negligence or more culpable act or omission of an Indemnifying
Party or its employees, consultants or other personnel (including any recklessness or willful misconduct) in connection with the
performance of its obligations under this Termination Agreement.
(b) Notwithstanding
anything to the contrary in this Termination Agreement, the Indemnifying Party is not obligated to indemnify, defend or hold harmless
the other Party and the other Indemnified Parties against any Losses arising out of or resulting, in whole or in part, from an
Indemnified Party’s: (i) willful acts or omissions; or (ii) bad faith failure to materially comply with any of its obligations
set forth in this Termination Agreement.
(c) An Indemnified
Party seeking indemnification under this Section 7 shall give the Indemnifying Party: (i) prompt Notice (as defined below) of the
relevant claim; provided, however, that failure to provide such notice shall not relieve the Indemnifying Party from its liability
or obligation hereunder except to the extent of any material prejudice directly resulting from such failure; and (ii) reasonable
cooperation, at the Indemnifying Party’s expense, in the defense of such claim. The Indemnifying Party shall have the right
to control the defense and settlement of any such claim; provided, however, that the Indemnifying Party shall not, without the
prior written approval of the Indemnified Party, settle or dispose of any claims in a manner that affects the Indemnified Party’s
rights or Interests, The Indemnified Party shall have the right to participate in the defense at its own expense.
(d) THIS SECTION
7 SETS FORTH THE ENTIRE LIABILITY AND OBLIGATION OF EACH INDEMNIFYING PARTY AND THE SOLE AND EXCLUSIVE REMEDY OF EACH INDEMNIFIED
PARTY FOR ANY DAMAGES COVERED BY THIS SECTION 7.
8. Confidentiality
Subject to the terms and conditions of Section 9(a), each Party acknowledges the confidential nature of the terms and conditions
of this Termination Agreement (collectively, the "Confidential Information”) and agrees that it shall not (a) disclose
any of such Confidential Information to any person or entity, except to such affiliates, employees, advisors and other representatives
who need to know the Confidential Information to assist such Party, or act on its behalf, to exercise its rights or perform its
obligations under this Termination Agreement, or (b) use the Confidential Information, or permit it to be accessed or used, for
any purpose other than to exercise its rights or perform its obligations under this Termination Agreement. Each Party shall be
responsible for any breach of this Section 8 caused by any of its affiliates, employees, advisors, or other representatives. Notwithstanding
the foregoing, if any Confidential Information is permissibly disclosed pursuant to Section 9(a), such information will no longer
be deemed “Confidential information” for the purposes of this Section 8.
| 9. | Publicity and Announcements |
(a) Neither Party
shall (orally or in writing) publicly disclose or issue any press release or make any other public statement, or otherwise communicate
with the media, concerning the existence of this Termination Agreement or the subject matter hereof, without the prior written
approval of the other Party (which shall not be unreasonably withheld or delayed), except to the extent that such Party (based
upon the reasonable advice of counsel) is required to make any public disclosure or filing with respect to the subject matter of
this Termination Agreement (i) by applicable law, or (ii) pursuant to any rules or regulations of any securities exchange of which
the securities of such party are listed or traded, or (iii) in connection with enforcing its rights under this Tennination Agreement.
(a) All notices,
requests, consents, claims, demands, waivers, summons and other legal process, and other similar types of communications hereunder
(each, a ’’Notice”) must be in writing and addressed to the relevant Party at the address set forth on the first
page of this Termination Agreement (or to such other address that may be designated by the receiving Party from time to time in
accordance with this Section 10(a). All Notices must be delivered by personal delivery, nationally recognized overnight courier
(with all fees pre-paid), or certified or registered mail (in each case, return receipt requested, postage prepaid). A Notice is
effective only (i) upon receipt by the receiving Party and (ii) if the Party giving the Notice has complied with the requirements
of this Section 10(a).
(b) This Termination
Agreement and all matters arising out of or relating to this Termination Agreement are governed by, and construed in accordance
with, the laws of the State of New York, without regard to the conflict of Jaws provisions of such State. Any legal suit, action
or proceeding arising out of or relating to this Termination Agreement must be instituted in the federal courts of the United States
of America or the courts of the State of New York, in each case located in the City of New York and County of New York, and each
Party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding.
(c) This Termination
Agreement, and each of the terras and provisions hereof, may only be amended, modified, waived or supplemented by an agreement
in writing signed by each Party.
(d) Neither Party
may assign, transfer or delegate any or all of its rights or obligations under this Termination Agreement without the prior written
consent of the other party, which consent shall not be unreasonably withheld or delayed; provided, however, that either Party may
assign this Termination Agreement to an affiliate, a successor-in-interest by consolidation, merger or operation of law or to
a purchaser of all or substantially all of the Party’s assets. No assignment will relieve the assigning party of any of its
obligations hereunder. Any attempted assignment, transfer or other conveyance in violation of the foregoing will be null and void.
This Termination Agreement will inure to the benefit of and be binding upon each of the Parties and each of their respective permitted
successors and permitted assigns.
(e) This Tennination
Agreement may be executed in counterparts, each of which is deemed an original, but all of which constitutes one and the same agreement.
Delivery of an executed counterpart of this Termination Agreement electronically or by facsimile shall be effective as delivery
of an original executed counterpart of this Termination Agreement.
(f) For purposes
of this Termination Agreement, (i) the words “include," “includes” and “including" are deemed
to be followed by the words “without limitation”; (ii) the word “or” is not exclusive; (iii) the words
"herein,” “hereof,” “hereby,” "hereto” and “hereunder" refer to this Termination
Agreement as a whole; (iv) words denoting the singular have a comparable meaning when used in the plural, and vice-versa; and (y)
words denoting any gender include all genders. The Parties drafted this Termination Agreement without regard to any presumption
or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.
(g) The headings
in this Termination Agreement are for reference only and do not affect the interpretation of this Termination Agreement.
(h) If any term
or provision of this Termination Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality
or unenforceability shall not affect any other term or provision of this Termination Agreement or invalidate or render unenforceable
such term or provision in any other jurisdiction; provided, however, that if any fundamental term or provision of this Termination
Agreement is invalid, illegal or unenforceable, the remainder of this agreement shall be unenforceable.
(i) Each of the
Parties shall, from time to time at the request and sole expense of the other Party, furnish the other Party such further information
or assurances, execute and deliver such additional documents, instruments and conveyances, and take such other actions and do such
other things, as may be reasonably necessary to carry out the provisions of this Termination Agreement and give effect to the transactions
contemplated hereby.
(j) Each Party
acknowledges and agrees that (i) & breach or threatened breach by such party of any of its obligations under this Termination
Agreement would give rise to irreparable harm to the other party for which monetary damages would not be an adequate remedy and
(ii) in the event of a breach or a threatened breach by such Party of any such obligations, the other Party will, in addition to
any and all other rights and remedies that may be available to such party at law, at equity or otherwise in respect of such breach,
be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief
that may be available from a court of competent jurisdiction, without any requirement to post a bond or other security, and without
any requirement to prove actual damages or that monetary damages will not afford an adequate remedy. Each Party agrees that it
shall not oppose or otherwise challenge the appropriateness of equitable relief or the entry by a court of competent jurisdiction
of an order granting equitable relief, in either case, consistent with the terms of this Section 10(j).
(k) This Termination
Agreement constitutes the sole and entire agreement of the Parties with respect to the subject matter contained herein, and supersedes
all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to
such subject matter.
(l) Each Party
shall pay its own costs and expenses in connection with the drafting, negotiation and execution of this Termination Agreement (including
the fees and expenses of its advisors, accounts and legal counsel).
(m) Except as expressly
set forth in this Section 9(m), this Termination Agreement benefits solely the Parties hereto and their respective permitted successors
and permitted assigns, and nothing in this Termination Agreement, express or implied, confers on any other person or entity any
legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Termination Agreement.
IN WITNESS WHEREOF, the Parties have executed
this Termination Agreement as of the date first written above.
SELLER
ALPHA
CAPITAL ANSTALT, |
DPIT 5 LLC |
a Lichtenstein corporation |
a Nevada limited liability
company |
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By |
/s/
Konrad Ackerman |
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By |
/s/
Samuel Del Presto |
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Name: Konrad Ackerman |
Name: Samuel Del Presto |
Title: President |
Title: Managing Member |
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ADVENTURE VENTURES, LLC, |
OJA, LLC |
a New York limited liability
company |
a Florida limited liability
company |
|
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By |
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By |
/s/
Hilary L. Marx - Averbach |
|
Name: |
Name: Hilary L. Marx -
Averbach |
Title: |
Title: President |
|
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WHALEHAVEN CAPITAL FUND, LTD., |
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a Bermuda corporation |
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By |
/s/
Michael Finkelstein |
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Name: |
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Title: PRO |
|
Exhibit 16.1
December 30, 2014
Office of the Chief Accountant
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: |
Vapir Enterprises, Inc. |
|
File Reference No. 333-170715 |
We were previously the independent registered
public accounting firm for Vapir Enterprises, Inc. and under the date of April 11, 2014, we reported on the financial statements
of FAL Exploration Corp. (now known as Vapir Enterprises, Inc.), as of December 31, 2013 and 2012, and for each of the two years
in the period ended December 31, 2013.
Effective December 30, 2014 we were dismissed
as the independent registered public accounting firm. We have read Vapir Enterprises, Inc's disclosures included in Item 4.01 "Changes
in Registrant's Certifying Accountant" on Vapir Enterprises, Inc 's Form 8-K dated December 30, 2014 be filed with the Securities
and Exchange Commission and we agree with such statements as they pertain to Salberg & Company, P.A.
Very truly yours,
SALBERG & COMPANY, P.A.
2295 NW Corporate Blvd., Suite 240 ●
Boca Raton, FL 33431-7328
Phone: (561) 995-8270 ● Toll Free: (866) CPA-8500 ● Fax: (561) 995-1920
www.salbergco.com
● info@salbergco.com
Member National Association of Certified Valuation Analysts ● Registered with the PCAOB
Member CPAConnect with Affiliated Offices Worldwide ● Member AICPA Center for Audit Quality
Exhibit 99.1
VAPIR INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2013
VAPIR, INC.
DECEMBER 31, 2013 and 2012
INDEX TO THE FINANCIAL STATEMENTS
CONTENTS
Financial Statements: |
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Report of Independent Registered Public Accounting Firm |
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F-2 |
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Balance Sheets at December 31, 2013 and 2012 |
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F-3 |
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Statements of Operations - |
|
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For the Year Ended December 31, 2013, and 2012 |
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F-4 |
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|
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Statements of Stockholder’s Equity - |
|
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For the Year Ended December 31, 2013 and 2012 |
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F-5 |
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|
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Statements of Cash Flows – |
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For the Year Ended December 31, 2013 and 2012 |
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F-6 |
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Notes to the Financial Statements |
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F-7 to F-19 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
The Board of Directors and Stockholder
Vapir, Inc.
We have audited the balance sheets of Vapir,
Inc. (the “Company”) as of December 31, 2013 and 2012 and the related statements of operations, stockholder’s
equity and cash flows for the reporting periods then ended. These 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 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 financial statements referred
to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012 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 financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements,
the Company has incurred negative results in the interim reporting period ended September 30, 2014 and at that time has an accumulated
deficit, and incurred a net loss and net cash used in operating activities for the interim reporting period 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 |
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Li and Company, PC |
|
Skillman, New Jersey
December 30, 2014
VAPIR, INC. |
BALANCE SHEETS |
|
| |
December 31, 2013 | | |
December 31, 2012 | |
| |
| | |
| |
ASSETS | |
| | |
| |
| |
| | |
| |
CURRENT ASSETS: | |
| | | |
| | |
Cash | |
$ | 24,803 | | |
$ | 108,872 | |
Accounts receivable | |
| 122,729 | | |
| 125 | |
Inventory | |
| 46,352 | | |
| 96,649 | |
Other receivable | |
| - | | |
| 5,000 | |
Due from related party | |
| - | | |
| 189,956 | |
| |
| | | |
| | |
Total Current Assets | |
| 193,884 | | |
| 400,602 | |
| |
| | | |
| | |
OTHER ASSETS: | |
| | | |
| | |
Property and equipment, net | |
| 27,175 | | |
| 29,782 | |
Intangible assets, net | |
| 509,528 | | |
| 572,532 | |
| |
| | | |
| | |
Total Other Assets | |
| 536,703 | | |
| 602,314 | |
| |
| | | |
| | |
Total Assets | |
$ | 730,587 | | |
$ | 1,002,916 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDER'S EQUITY | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 41,317 | | |
$ | 152,427 | |
Loan payable | |
| 176,000 | | |
| 66,000 | |
Note payable - current maturities | |
| 19,800 | | |
| 19,800 | |
Customer deposits | |
| 13,929 | | |
| 164,057 | |
Due to related party | |
| - | | |
| 135,982 | |
| |
| | | |
| | |
Total Current Liabilities | |
| 251,046 | | |
| 538,266 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES: | |
| | | |
| | |
Note payable, net of current maturities | |
| 44,850 | | |
| 64,650 | |
| |
| | | |
| | |
Total Long-term Liabilities | |
| 44,850 | | |
| 64,650 | |
| |
| | | |
| | |
Total Liabilities | |
| 295,896 | | |
| 602,916 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDER'S EQUITY: | |
| | | |
| | |
Common stock no par value: 100,000 shares authorized; 100,000 shares issued and outstanding | |
| - | | |
| - | |
Additional paid in capital | |
| 400,000 | | |
| 400,000 | |
Retained earnings | |
| 34,691 | | |
| - | |
| |
| | | |
| | |
Total Stockholder's Equity | |
| 434,691 | | |
| 400,000 | |
| |
| | | |
| | |
Total Liabilities and Stockholder's Equity | |
$ | 730,587 | | |
$ | 1,002,916 | |
See accompanying notes to the financial statements
VAPIR, INC. |
STATEMENTS OF OPERATIONS |
|
| |
For the Year Ended | |
| |
December 31, 2013 | | |
December 31, 2012 | |
| |
| | |
| |
| |
| | |
| |
Net Sales | |
$ | 3,053,752 | | |
$ | 4,070,025 | |
| |
| | | |
| | |
Cost of sales | |
| 1,546,821 | | |
| 2,242,393 | |
| |
| | | |
| | |
Gross profit | |
| 1,506,931 | | |
| 1,827,632 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
Depreciation and amortization | |
| 74,151 | | |
| 73,940 | |
Marketing and selling expenses | |
| 76,075 | | |
| 50,975 | |
Compensation | |
| 533,702 | | |
| 588,463 | |
Professional fees | |
| 15,828 | | |
| 57,294 | |
Research and development | |
| 88,847 | | |
| 13,658 | |
Rent | |
| 72,966 | | |
| 77,017 | |
General and administrative | |
| 303,677 | | |
| 275,467 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 1,165,246 | | |
| 1,136,814 | |
| |
| | | |
| | |
INCOME FROM OPERATIONS | |
| 341,685 | | |
| 690,818 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Interest expense | |
| (33,167 | ) | |
| (39,892 | ) |
Interest income | |
| 1 | | |
| 195 | |
| |
| | | |
| | |
Other
Income (Expense), net | |
| (33,166 | ) | |
| (39,697 | ) |
| |
| | | |
| | |
NET INCOME | |
$ | 308,519 | | |
$ | 651,121 | |
| |
| | | |
| | |
PRO FORMA FINANCIAL INFORMATION (UNAUDITED): | |
| | | |
| | |
| |
| | | |
| | |
INCOME BEFORE INCOME TAX PROVISION | |
| 308,519 | | |
| 651,121 | |
| |
| | | |
| | |
INCOME TAX PROVISION | |
| 104,896 | | |
| 221,381 | |
| |
| | | |
| | |
NET INCOME | |
$ | 203,623 | | |
$ | 429,740 | |
| |
| | | |
| | |
NET INCOME PER COMMON SHARE: | |
| | | |
| | |
Basic and diluted | |
$ | 3.09 | | |
$ | 6.51 | |
| |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | |
| | | |
| | |
Basic and diluted | |
| 100,000 | | |
| 100,000 | |
See accompanying notes to the financial statements
VAPIR, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S
EQUITY
For the Year Ended December 31, 2012
and 2013
| |
Common Stock No Par Value | | |
Additional | | |
| | |
Total | |
| |
Number of | | |
| | |
Paid-in | | |
Retained | | |
Stockholder's | |
| |
Shares | | |
Amount | | |
Capital | | |
Earnings | | |
Equity | |
| |
| | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| |
Balance, December 31, 2011 | |
| 100,000 | | |
$ | - | | |
$ | 400,000 | | |
$ | 77,945 | | |
$ | 477,945 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Stockholder's Distribution | |
| | | |
| | | |
| | | |
| (729,066 | ) | |
| (729,066 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| | | |
| | | |
| | | |
| 651,121 | | |
| 651,121 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2012 | |
| 100,000 | | |
| - | | |
| 400,000 | | |
| - | | |
| 400,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Stockholder's Distribution | |
| | | |
| | | |
| | | |
| (273,828 | ) | |
| (273,828 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| | | |
| | | |
| | | |
| 308,519 | | |
| 308,519 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2013 | |
| 100,000 | | |
$ | - | | |
$ | 400,000 | | |
$ | 34,691 | | |
$ | 434,691 | |
See accompanying notes to the financial
statements
VAPIR, INC. |
STATEMENTS OF CASH FLOWS |
| |
For the Year Ended | |
| |
December 31,
2013 | | |
December 31, 2012 | |
| |
| | |
| |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net income | |
$ | 308,519 | | |
$ | 651,121 | |
Adjustments to reconcile net income to net cash provided by operating activities | |
| | | |
| | |
Depreciation and amortization | |
| 74,151 | | |
| 73,940 | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (122,604 | ) | |
| - | |
Inventory | |
| 50,297 | | |
| (12,124 | ) |
Other receivable | |
| 5,000 | | |
| (4,216 | ) |
Accounts payable and accrued expenses | |
| (111,110 | ) | |
| 70,954 | |
Customer deposits | |
| (150,128 | ) | |
| (61,108 | ) |
| |
| | | |
| | |
NET CASH PROVIDED BY OPERATING ACTIVITIES | |
| 54,125 | | |
| 718,567 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Capitalized cost of trademark | |
| (3,900 | ) | |
| - | |
Purchase of property and equipment | |
| (4,640 | ) | |
| - | |
| |
| | | |
| | |
NET CASH USED IN INVESTING ACTIVITIES | |
| (8,540 | ) | |
| - | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Advances from (repayments to) to related party | |
| 53,974 | | |
| (299,656 | ) |
Proceeds received from loan | |
| 110,000 | | |
| 100,000 | |
Payments on loan | |
| - | | |
| (34,000 | ) |
Proceeds received from note payable | |
| - | | |
| 100,000 | |
Payments on notes payable | |
| (19,800 | ) | |
| (120,586 | ) |
Stockholder's distribution | |
| (273,828 | ) | |
| (729,066 | ) |
| |
| | | |
| | |
NET
CASH USED IN FINANCING ACTIVITIES | |
| (129,654 | ) | |
| (983,308 | ) |
| |
| | | |
| | |
NET CHANGE IN CASH | |
| (84,069 | ) | |
| (264,741 | ) |
| |
| | | |
| | |
CASH - beginning of year | |
| 108,872 | | |
| 373,613 | |
| |
| | | |
| | |
CASH - end of year | |
$ | 24,803 | | |
$ | 108,872 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
Interest paid | |
$ | 33,166 | | |
$ | 39,892 | |
Income taxes paid | |
$ | - | | |
$ | - | |
See accompanying notes to the financial statements
Vapir, Inc.
December 31, 2013 and 2012
Notes to the Financial Statements
NOTE 1 – ORGANIZATION AND OPERATIONS
Organization
Vapir, Inc. (the “Company”) was
incorporated in the State of California in October 2006. The Company’s principal business is focused on inventing, developing
and producing aromatherapy devices and vaporizers. The Company’s aromatherapy device utilizes heat and convection air and
thereby extract natural essences and produce fresh fragrances.
In October 2006, the Company acquired 100%
of the outstanding stock including all assets of Advanced Inhalation Revolution Inc. which was dissolved after it was acquired
by the Company. The Company accounted for the acquisition utilizing the purchase method of accounting in accordance with ASC 805
“Business Combinations”.
NOTE 2 – SIGNFICIANT 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 (“U.S.
GAAP”).
Use of Estimates and Assumptions and
Critical Accounting Estimates and Assumptions
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).
Critical
accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment
necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate
on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions
affecting the financial statements were:
| (i) | Assumption as a going concern: Management assumes
that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation
of liabilities in the normal course of business. |
| (ii) | Allowance for doubtful accounts: Management’s
estimate of the allowance for doubtful accounts is based on historical sales, historical
loss levels, and an analysis of the collectability of individual accounts; and general economic conditions
that may affect a client’s ability to pay. The Company evaluated the key factors and
assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as
a whole. |
| (iii) | Inventory Obsolescence and Markdowns: The Company’s
estimate of potentially excess and slow-moving inventories is based on evaluation of inventory levels and aging, review of inventory
turns and historical sales experiences. The Company’s estimate of reserve for inventory shrinkage is based on the historical
results of physical inventory cycle counts. |
| (iv) | Fair value of long-lived assets: Fair value
is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than
originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated
useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review:
(i) significant under-performance or losses of assets relative to expected historical or projected future operating results;
(ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner
or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry
or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price
for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment
indicators at least annually and more frequently upon the occurrence of such events. |
These significant accounting estimates or assumptions
bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates
or assumptions are difficult to measure or value.
Management bases its estimates on historical
experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.
Management regularly evaluates the key factors
and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical
experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.
Actual results could differ from those estimates.
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, accounts payable and accrued liabilities, and customer deposits
approximate their fair values because of the short maturity of these instruments. The carrying amount of the note and loan payable
at December 31, 2013 approximate their respective fair value based on the Company’s incremental borrowing rate.
Transactions involving related parties cannot
be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not
exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were
consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
Fair Value of Non-Financial Assets or
Liabilities Measured on a Recurring Basis
The Company’s non-financial assets include
inventories. The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and
other factors. Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical
sales experiences. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories.
The Company establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle
counts.
Carrying Value, Recoverability and Impairment
of Long-Lived Assets
The Company has adopted Section 360-10-35 of
the FASB Accounting Standards Codification for its long-lived assets. Pursuant to ASC Paragraph 360-10-35-17 an impairment loss
shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value.
The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying
amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount
by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC Paragraph 360-10-35-20
if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable
long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration
of a previously recognized impairment loss is prohibited.
Pursuant to ASC Paragraph 360-10-35-21 the
Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate
that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes
in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset
group); (b) A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in
its physical condition; (c) A significant adverse change in legal factors or in the business climate that could affect the value
of a long-lived asset (asset group), including an adverse action or assessment by a regulator; (d) An accumulation of costs significantly
in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); (e) A current-period
operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates
continuing losses associated with the use of a long-lived asset (asset group); and (f) A current expectation that, more likely
than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously
estimated useful life. The Company tests its long-lived assets for potential impairment indicators at least annually and more frequently
upon the occurrence of such events.
Pursuant to ASC Paragraphs 360-10-45-4 and
360-10-45-5 an impairment loss recognized for a long-lived asset (asset group) to be held and used shall be included in income
from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from
operations is presented, it shall include the amount of that loss. A gain or loss recognized on the sale of a long-lived asset
(disposal group) that is not a component of an entity shall be included in income from continuing operations before income taxes
in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amounts
of those gains or losses.
Cash equivalents
The Company considers all highly liquid debt
instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents.
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, if any.
Pursuant to FASB
ASC paragraph 310-10-35-41 Credit losses for trade receivables (uncollectible trade receivables), which may be for all or part
of a particular trade receivable, shall be deducted from the allowance. The related trade receivable balance shall be charged off
in the period in which the trade receivables are deemed uncollectible. Recoveries of trade receivables previously charged off shall
be recorded when received. The Company charges off its trade account receivables against the allowance after all means of
collection have been exhausted and the potential for recovery is considered remote.
As of December 31, 2013 and 2012, there
is no allowance for doubtful accounts. The Company did not consider it necessary to record any bad debt expense during the year
ended December 31, 2013 and 2012.
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, 2013 or 2012.
There was no lower of cost or market adjustments
for the reporting period ended December 31, 2013 or 2012.
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.
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.
Leases
Lease agreements are evaluated to determine
whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards Codification
(“Paragraph 840-10-25-1”). Pursuant to Paragraph 840-10-25-1 a lessee and a lessor shall consider whether a lease meets
any of the following four criteria as part of classifying the lease at its inception under the guidance in the Lessees Subsection
of this Section (for the lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer of ownership. The lease
transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the
lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of
a nominal fee, for example, the minimum required by statutory regulation to transfer title. b. Bargain purchase option. The
lease contains a bargain purchase option. c. Lease term. The lease term is equal to 75 percent or more of the estimated economic
life of the leased property. d. Minimum lease payments. The present value at the beginning of the lease term of the minimum
lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to
be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased
property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized
by the lessor. In accordance with paragraphs 840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four lease
classification criteria in Paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease; and if none of
the four criteria in Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an operating lease. Pursuant
to Paragraph 840-10-25-31 a lessee shall compute the present value of the minimum lease payments using the lessee's incremental
borrowing rate unless both of the following conditions are met, in which circumstance the lessee shall use the implicit rate: a. It
is practicable for the lessee to learn the implicit rate computed by the lessor. b. The implicit rate computed by the lessor
is less than the lessee's incremental borrowing rate. Capital lease assets are depreciated on a straight line method, over the
capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets.
Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.
Operating leases primarily relate to the Company’s
leases of office spaces. When the terms of an operating lease include tenant improvement allowances, periods of free rent, rent
concessions, and/or rent escalation amounts, the Company establishes a deferred rent liability for the difference between the scheduled
rent payment and the straight-line rent expense recognized, which is amortized over the underlying lease term on a straight-line
basis as a reduction of rent expense.
Customer Deposit
Customer deposits at December 31, 2013
and 2012 were $13,929 and $164,057, respectively, which consist 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 (“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) of the Company; b. entities for which investments
in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection
of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit
of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal
owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the
management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests.
The financial statements shall include disclosures
of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the
ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined
financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s)
involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for
each of the periods for which income statements are presented, and such other information deemed necessary to an understanding
of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods
for which income statements are presented and the effects of any change in the method of establishing the terms from that used
in the preceding period; and d. amount due from or to related parties as of the date of each balance sheet presented and, if not
otherwise apparent, the terms and manner of settlement.
Commitment and Contingencies
The Company follows subtopic 450-20 of the
FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the
consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one
or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or
unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of
the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Revenue recognition
The Company follows paragraph 605-10-S99-1 of the FASB Accounting
Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned.
The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence
of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales
price is fixed or determinable, and (iv) collectability is reasonably assured.
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.
Marketing, selling and advertising
Marketing, selling and advertising are expensed
as incurred. For the year ended December 31, 2013 and 2012, such expenses were $76,075 and 50,975, respectively.
Income Tax Provision
The Company was a Subchapter S corporation,
whereby 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.
Tax
years that remain subject to examination by major tax jurisdictions
The Company discloses tax
years that remain subject to examination by major tax jurisdictions pursuant to the ASC Paragraph 740-10-50-15.
Pro Forma Income
Tax Provision (Benefit) (Unaudited)
The unaudited pro forma income tax provision,
deferred tax assets, and the valuation allowance of deferred tax assets, if any, included in the consolidated financial statements
and income tax provision note reflect the income tax provision which would have been recorded as if the S corporation had always
been a C corporation upon its incorporation.
Earnings per Share
Earnings per share ("EPS") is the
amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or
loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs
260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by dividing income available to common stockholders (the numerator)
by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders
shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends
accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that
amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation
of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding
if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from
common shares issuable through contingent shares issuance arrangement, stock options or warrants.
Pursuant to ASC Paragraphs 260-10-45-45-21
through 260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint
of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting
entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35
through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include
non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions (see paragraph 260–10–55–23).
Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the
treasury stock method: a. Exercise of options and warrants shall be assumed at the beginning of the period (or at time of
issuance, if later) and common shares shall be assumed to be issued. b. The proceeds from exercise shall be assumed to be
used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through
55-5.) c. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed
purchased) shall be included in the denominator of the diluted EPS computation.
At December 31, 2013 and 2012, the Company
did not have any potentially dilutive securities outstanding.
Cash Flows Reporting
The Company adopted paragraph 230-10-45-24
of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether
they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or
reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification
to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities
by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating
cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The
Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of
the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the
reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing
and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB
Accounting Standards Codification.
Subsequent Events
The Company follows the guidance in Section
855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent
events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting
Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed
to users, such as through filing them on EDGAR.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued the FASB Accounting
Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”).
This guidance amends the existing FASB Accounting
Standards Codification, creating a new Topic 606, Revenue from Contracts with Customer.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services.
To achieve that core principle, an entity should
apply the following steps:
|
1 |
Identify the contract(s) with the customer |
|
2 |
Identify the performance obligations in the contract |
|
3 |
Determine the transaction price |
|
4 |
Allocate the transaction price to the performance obligations in the contract |
|
5 |
Recognize revenue when (or as) the entity satisfies a performance obligations |
The ASU also provides guidance on disclosures
that should be provided to enable financial statement users to understand the nature, amount, timing, and uncertainty of revenue
recognition and cash flows arising from contracts with customers. Qualitative and quantitative information is required about
the following:
|
1. |
Contracts
with customers – including revenue and impairments
recognized, disaggregation of revenue, and information about contract balances and performance obligations (including the
transaction price allocated to the remaining performance obligations) |
|
2. |
Significant judgments
and changes in judgments – determining the timing
of satisfaction of performance obligations (over time or at a point in time), and determining the transaction price and amounts
allocated to performance obligations |
|
3. |
Assets recognized from the costs to obtain or fulfill a contract. |
ASU 2014-09 is effective for periods beginning
after December 15, 2016, including interim reporting periods within that reporting period for all public entities. Early
application is not permitted.
In August 2014, the FASB issued the FASB Accounting
Standards Update No. 2014-15 “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).
In connection with preparing financial statements
for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events,
considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within
one year after the date that the financial statements are issued (or within one year after the date that the financial
statements are available to be issued when applicable). Management’s evaluation should be based on relevant conditions
and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that
the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability
to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable
that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements
are issued (or available to be issued). The term probable is used consistently with its use in Topic 450, Contingencies.
When management identifies conditions or events
that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether
its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The mitigating
effect of management’s plans should be considered only to the extent that (1) it is probable that the plans will be effectively
implemented and, if so, (2) it is probable that the plans will mitigate the conditions or events that raise substantial doubt about
the entity’s ability to continue as a going concern.
If conditions or events raise substantial doubt
about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration
of management’s plans, the entity should disclose information that enables users of the financial statements to understand
all of the following (or refer to similar information disclosed elsewhere in the footnotes):
| a. | Principal conditions or events that raised substantial doubt about the entity’s ability to
continue as a going concern (before consideration of management’s plans) |
| b. | Management’s evaluation of the significance of those conditions or events in relation to
the entity’s ability to meet its obligations |
| c. | Management’s plans that alleviated substantial doubt about the entity’s ability to
continue as a going concern. |
If conditions or events raise substantial doubt
about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of
management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about
the entity’s ability to continue as a going concern within one year after the date that the financial statements are
issued (or available to be issued). Additionally, the entity should disclose information that enables users of the financial statements
to understand all of the following:
| a. | Principal conditions or events that raise substantial doubt about the entity’s ability to
continue as a going concern |
| b. | Management’s evaluation of the significance of those conditions or events in relation to
the entity’s ability to meet its obligations |
| c. | Management’s plans that are intended to mitigate the conditions or events that raise substantial
doubt about the entity’s ability to continue as a going concern. |
The amendments in this Update are effective
for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application
is permitted.
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
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
interim financial statements, included with this filing, the Company had an accumulated deficit at September 30, 2014, a net loss
and net cash used in operating activities for the interim reporting period then ended. These factors raise substantial doubt
about the Company’s ability to continue as a going concern.
The Company is attempting
to further implement its business plan and generate sufficient revenue; however, the Company’s cash position may not be sufficient
to support its daily operations. Management intends to raise additional funds by way of a private or public offering.
While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenue
and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue
as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenue and its
ability to raise additional funds by way of a public or private offering.
The financial statements
do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification
of liabilities that might be necessary should the Company is unable to continue as a going concern.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, less
accumulated depreciation consisted of the following:
| |
Estimated life | |
December 31, 2013 | | |
December 31, 2012 | |
| |
| |
| | |
| |
Auto | |
3 years | |
| 12,522 | | |
| 12,522 | |
Furniture and fixtures | |
5 years | |
| 23,743 | | |
| 19,103 | |
Leasehold improvements | |
5 years | |
| 35,206 | | |
| 35,206 | |
Less: Accumulated depreciation | |
| |
| (44,296 | ) | |
| (37,049 | ) |
| |
| |
$ | 27,175 | | |
$ | 29,782 | |
For the year ended December 31, 2013 and 2012,
depreciation expense amounted to $7,247 and $7,024, respectively.
The Company completed the annual impairment
test 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, 2013.
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consist of the following:
| |
December 31, | | |
December 31, | |
| |
2013 | | |
2012 | |
| |
| | |
| |
Customer relationships associated with a 2006 acquisition (see Note 1) | |
$ | 1,001,212 | | |
$ | 1,001,212 | |
Trademarks | |
| 6,430 | | |
| 2,530 | |
| |
| 1,007,642 | | |
| 1,003,742 | |
Accumulated amortization | |
| (498,114 | ) | |
| (431,210 | ) |
Intangible assets, net | |
$ | 509,528 | | |
$ | 572,532 | |
Customer Relationships are amortized based
upon the estimated percentage of annual or period projected cash flows generated by such relationships, to the total cash flows
generated over the estimated fifteen year life of the Customer Relationships.
Legal costs associated with serving and protecting
trademark are being capitalized. The Company filed trademarks for its company logos with an estimated useful life of 15 years.
The Company will amortize the costs of intangible assets over their estimated useful lives on a straight-line basis. Amortization
of intangible assets is included in operating expenses as reflected in the accompanying statements of operations. The Company assesses
fair market value for any impairment to the carrying values.
As of December 31, 2013 and 2012 management
concluded that there was no impairment to the acquired assets. Amortization expense for the year ended December 31, 2013 and 2012
was $66,904 and $66,916, respectively.
Future amortization of intangible assets is
as follows:
2014 | |
$ | 67,205 | |
2015 | |
| 67,205 | |
2016 | |
| 67,205 | |
2017 | |
| 67,205 | |
2018 | |
| 67,205 | |
2019 and thereafter | |
| 173,503 | |
Total | |
$ | 509,528 | |
Impairment
The Company completed the annual impairment
test of intangibles and determined that there was no impairment as the fair value of property and equipment, exceeded their carrying
values at December 31, 2013.
NOTE 6 – NOTE AND LOAN PAYABLE
Loan payable
| |
December 31, 2013 | | |
December 31, 2012 | |
| |
| | | |
| | |
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. | |
$ | 176,000 | | |
$ | 66,000 | |
Note payable
| |
December 31, 2013 | | |
December 31, 2012 | |
| |
| | | |
| | |
4.75% Promissory note of $100,000 issued to Bank of the West on May 10, 2011 payable at 60 consecutive monthly installments starting in June 2012 | |
| 64,650 | | |
| 84,450 | |
| |
| | | |
| | |
Less : Current maturities | |
| (19,800 | ) | |
| (19,800 | ) |
Note payable, net of current maturities | |
$ | 44,850 | | |
$ | 64,650 | |
Future minimum principal and interest payment
under the note are as follows:
Fiscal Year ending December 31: | |
| | |
| |
| | |
2014 | |
$ | 22,440 | |
| |
| | |
2015 | |
| 21,499 | |
| |
| | |
2016 | |
| 20,559 | |
| |
| | |
2017 | |
| 5,294 | |
| |
| | |
| |
| 69,792 | |
| |
| | |
Less interest portion | |
| (5,142 | ) |
| |
| | |
Total | |
| 64,650 | |
| |
| | |
Less current maturities | |
| (19,800 | ) |
| |
| | |
Note payable, net of current maturities | |
$ | 44,850 | |
Amounts outstanding under the loan and note above are personally
guaranteed by the President of the Company.
NOTE 7 – RELATED PARTY TRANSACTIONS
Parties are considered to be related to the
Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common
control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal with 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. The Company discloses all related party transactions.
All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is
recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected
as compensation or distribution to related parties depending on the transaction.
During fiscal 2012, the Company’s sole
shareholder who is the President of the Company distributed dividends in excess of earnings and therefore the Company accounted
such excess dividend distribution as due from related party of $189,956 as of December 31, 2012. The due from related party was
due on demand and bear no interest. During fiscal 2013, the Company had adequate and sufficient earnings to cover the 2012 excess
dividend distribution which therefore satisfied the balance of the due from related party of $189,956. As of December 31, 2013,
due from related party was $0.
From time to time, the Company’s President,
provided advances to the Company for payment of the Company’s loans. During fiscal 2013, the Company fully repaid the balance
of such advances. At December 31, 2013 and 2012, the Company had a payable to the President of the Company of $0 and $135,982.
The advances were due on demand and bear no interest.
Amounts outstanding under the loan and note to a bank (see Note
6) are personally guaranteed by the President of the Company.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Operating lease
A lease agreement was signed for an office
and warehousing space consisting of approximately 3,200 square feet located in San Jose, California with an initial term commencing
in October 2009 and expiring in September 30, 2030. The lease required the Company to pay a monthly base rent of $3,135 plus real
property taxes on the lease premises. In June 2014, the Company entered into a termination agreement with the landlord thereby
terminating this lease agreement. The Company has fulfilled its obligation under this lease agreement upon termination.
In August 2011, the Company entered into a
1 year lease agreement for a temporary housing space located in San Jose, California for a marketing contractor of the Company.
This lease became a month to month lease after the initial 1 year lease term. The lease required the Company to pay
a monthly base rent of $2,590. This month to month lease was terminated in June 2014.
In February 2013, the Company entered into
a motor vehicle lease agreement. The lease is for 24 months with monthly payments of $759.
Future minimum rental payments required under
this operating lease are as follows:
Fiscal Year ending December 31: | |
| | |
| |
| | |
2014 | |
$ | 27,918 | |
| |
| | |
2015 | |
| 459 | |
| |
| | |
Total | |
$ | 28,377 | |
Rent expense was $72,966
and $77,017 for the year ended December 31, 2013 and 2012, respectively.
Litigation
From time to time, the Company is involved
in litigation matters relating to claims arising from the ordinary course of business. While the results of such claims and legal
actions cannot be predicted with certainty, the Company’s management does not believe that there are claims or actions, pending
or threatened against the Company, the ultimate disposition of which would have a material adverse effect on the Company’s
business, results of operations, financial condition or cash flows.
Notwithstanding the foregoing, on November
3, 2014, the Company was served with a lawsuit from Storz & Bickel, a German competitor of the Company. The lawsuit claims
patent infringement of Storz & Bickel’s German patent no DE 198 03 376 C1. The lawsuit was filed in Germany with the
regional court of Mannheim. The lawsuit alleges estimated damages in the amount of €750,000 euros. The Company has
filed a notice of its intent to defend the lawsuit and has filed an answer to the complaint requesting additional time. The lawsuit
is still ongoing and the Company is working to settle the matter.
Additionally, on October 15, 2014, Storz
& Bickel have filed a lawsuit with the United States District Court, Central District of California against the Company alleging
patent infringement of Storz & Bickel’s US patent no. 6,513,524, which is the US counterpart to the German patent. The
US District lawsuit seeks injunction against distribution of the Company’s VapiRise product, damages, interest, costs, treble
damages, and attorney’s fees.
Storz & Bickel have not yet served
the US District lawsuit; Storz & Bickel’s US counsel have contacted the Company to initiate settlement discussion, but
it is anticipated that Storz & Bickel will serve the US District complaint if settlement discussions are not productive.
The Company may be subject to legal
proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these
claims cannot be predicted with certainty, the Company does not believe that any of the outcomes will have a material effect on
the Company’s operations.
NOTE 9 – STOCKHOLDER’S EQUITY
The Company was authorized to issue up to 100,000
shares of common stock, no par value per share.
In October 2006, the Company issued 100,000
shares of its common stock to the founder and President of the Company.
In October 2006, the President of the Company
contributed capital amounting to $400,000 to the Company and were used in connection with a 2006 acquisition (see Note 1) of a
company.
NOTE 10 – INCOME TAX PROVISION
Pro Forma Income Tax Provision in the
Statements of Operations (Unaudited)
The Company was a Subchapter S corporation,
whereby 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 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
included in the 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 Company:
| |
For the Year Ended December 31, 2013 | | |
For the Year Ended December 31, 2012 | |
| |
| | |
| |
Federal statutory income tax rate | |
| 34.0 | % | |
| 34.0 | % |
| |
| | | |
| | |
Effective income tax rate | |
| 34.0 | % | |
| 34.0 | % |
NOTE 11 – CONCENTRATION OF CREDIT
RISK
Concentration of Revenue and Supplier
During the year ended December 31, 2013 sales
to two customers represented approximately 67% of the Company’s net sales. During the year ended December 31, 2012 sales
to two customers represented approximately 69% of the Company’s net sales. As of December 31, 2013 and 2012, the Company
had one customer representing approximately 93% of accounts receivable and one customer representing approximately 100% of accounts
receivable, respectively.
The Company purchased inventories and products
for sale from one vendor totaling approximately $1.3 million and $2.4 million during the years ended December 31, 2013 and 2012,
respectively.
NOTE 12 – SUBSEQUENT EVENTS
The Company has evaluated all events that occurred
after the balance sheet date through the date when the financial statements were issued to determine if they must be reported.
The Management of the Company determined that there were certain reportable subsequent event(s) to be disclosed as followed:
In June 2014, a lease agreement was signed
for an office and warehousing space consisting of approximately 5,000 square feet located in San Jose, California with a term commencing
in June 2014 and expiring in October 2015. The lease required the Company to pay a monthly base rent of $3,535 plus a pro rata
share of operating expenses. The base rent is subject to an annual increase beginning in November 2014 as defined in the lease
agreement. This lease agreement is personally guaranteed by the President of the Company.
F-19
Exhibit 99.2
Vapir, Inc.
September 30, 2014 and 2013
Index to the Financial Statements
CONTENTS
Financial Statements: |
|
|
|
Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013 |
F-2 |
|
|
Statements of Operations - |
|
For the Nine Months Ended September 30, 2014, and 2013 (Unaudited) |
F-3 |
|
|
Statements of Cash Flows - |
|
For the Nine Months Ended September 30, 2014, and 2013 (Unaudited) |
F-4 |
|
|
Notes to the Unaudited Financial Statements (Unaudited) |
F-5 |
VAPIR, INC. |
BALANCE SHEETS |
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | |
| |
| |
| | |
| |
CURRENT ASSETS: | |
| | |
| |
Cash | |
$ | - | | |
$ | 24,803 | |
Accounts receivable | |
| 944 | | |
| 122,729 | |
Inventory | |
| 56,253 | | |
| 46,352 | |
| |
| | | |
| | |
Total Current Assets | |
| 57,197 | | |
| 193,884 | |
| |
| | | |
| | |
OTHER ASSETS: | |
| | | |
| | |
Property and equipment, net | |
| 4,122 | | |
| 27,175 | |
Intangible assets, net | |
| 459,146 | | |
| 509,528 | |
| |
| | | |
| | |
Total Other Assets | |
| 463,268 | | |
| 536,703 | |
| |
| | | |
| | |
Total Assets | |
$ | 520,465 | | |
$ | 730,587 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDER'S EQUITY | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Bank overdraft | |
$ | 1,434 | | |
$ | - | |
Accounts payable and accrued expenses | |
| 68,276 | | |
| 41,317 | |
Loan payable | |
| 197,000 | | |
| 176,000 | |
Note payable - current maturities | |
| 19,800 | | |
| 19,800 | |
Customer deposits | |
| 188,809 | | |
| 13,929 | |
| |
| | | |
| | |
Total Current Liabilities | |
| 475,319 | | |
| 251,046 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES: | |
| | | |
| | |
Note payable, net of current maturities | |
| 30,000 | | |
| 44,850 | |
| |
| | | |
| | |
Total Long-term Liabilities | |
| 30,000 | | |
| 44,850 | |
| |
| | | |
| | |
Total Liabilities | |
| 505,319 | | |
| 295,896 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDER'S EQUITY: | |
| | | |
| | |
Common stock no par value:
100,000 shares authorized; 100,000 shares issued and outstanding | |
| - | | |
| - | |
Additional paid in capital | |
| 400,000 | | |
| 400,000 | |
Retained earnings (accumulated deficit) | |
| (384,854 | ) | |
| 34,691 | |
| |
| | | |
| | |
Total Stockholder's Equity | |
| 15,146 | | |
| 434,691 | |
| |
| | | |
| | |
Total Liabilities and Stockholder's Equity | |
$ | 520,465 | | |
$ | 730,587 | |
See accompanying notes to the unaudited financial statements
VAPIR, INC. |
STATEMENTS OF OPERATIONS |
| |
For the Nine Months Ended | |
| |
September 30, 2014 | | |
September 30, 2013 | |
| |
(Unaudited) | | |
(Unaudited) | |
| |
| | |
| |
Net Sales | |
$ | 1,136,886 | | |
$ | 1,962,883 | |
| |
| | | |
| | |
Cost of Sales | |
| 564,124 | | |
| 1,001,497 | |
| |
| | | |
| | |
Gross margin | |
| 572,762 | | |
| 961,386 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
Depreciation and amortization | |
| 73,435 | | |
| 55,613 | |
Marketing and selling expenses | |
| 41,467 | | |
| 63,346 | |
Compensation | |
| 516,587 | | |
| 392,430 | |
Professional fees | |
| 47,573 | | |
| 12,486 | |
Research and development | |
| 54,039 | | |
| 80,766 | |
Rent | |
| 57,894 | | |
| 55,016 | |
General and administrative | |
| 189,854 | | |
| 206,810 | |
| |
| | | |
| | |
Total Operating Expenses | |
| 980,849 | | |
| 866,467 | |
| |
| | | |
| | |
INCOME (LOSS) FROM OPERATIONS | |
| (408,087 | ) | |
| 94,919 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | |
Interest expense | |
| (11,458 | ) | |
| (23,359 | ) |
| |
| | | |
| | |
Other Income (Expense), net | |
| (11,458 | ) | |
| (23,359 | ) |
| |
| | | |
| | |
NET INCOME (LOSS) | |
$ | (419,545 | ) | |
$ | 71,560 | |
| |
| | | |
| | |
PRO FORMA FINANCIAL INFORMATION (UNAUDITED): | |
| | | |
| | |
| |
| | | |
| | |
INCOME (LOSS) BEFORE INCOME TAX PROVISION | |
| (419,545 | ) | |
| 71,560 | |
| |
| | | |
| | |
INCOME
TAX PROVISION (BENEFIT) | |
| (142,645 | ) | |
| 24,330 | |
| |
| | | |
| | |
NET
INCOME (LOSS) | |
$ | (276,900 | ) | |
$ | 47,230 | |
| |
| | | |
| | |
EARNINGS PER SHARE: | |
| | | |
| | |
Basic and diluted | |
$ | (4.20 | ) | |
$ | 0.72 | |
| |
| | | |
| | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | |
| | | |
| | |
Basic and diluted | |
| 100,000 | | |
| 100,000 | |
See accompanying notes to the unaudited financial statements
VAPIR, INC. |
STATEMENTS OF CASH FLOWS |
| |
For the Nine Months Ended | |
| |
September 30, 2014 | | |
September 30, 2013 | |
| |
(Unaudited) | | |
(Unaudited) | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net income (loss) | |
$ | (419,545 | ) | |
$ | 71,560 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | |
| | | |
| | |
Depreciation and amortization | |
| 73,435 | | |
| 55,613 | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 121,785 | | |
| (16,975 | ) |
Inventory | |
| (9,901 | ) | |
| (119,850 | ) |
Accounts payable and accrued expenses | |
| 26,959 | | |
| (40,862 | ) |
Customer deposits | |
| 174,880 | | |
| 95,764 | |
| |
| | | |
| | |
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | |
| (32,387 | ) | |
| 45,250 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Capitalized cost of trademark | |
| - | | |
| (3,900 | ) |
Purchase of property and equipment | |
| - | | |
| (4,640 | ) |
| |
| | | |
| | |
NET CASH USED IN INVESTING ACTIVITIES | |
| - | | |
| (8,540 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Advances from (repayments to) to related party | |
| - | | |
| (11,316 | ) |
Bank overdraft | |
| 1,434 | | |
| 23,345 | |
Proceeds received from loan | |
| 21,000 | | |
| 160,000 | |
Payments on loan | |
| - | | |
| (50,000 | ) |
Payments on notes payable | |
| (14,850 | ) | |
| (14,850 | ) |
Stockholder's distribution | |
| - | | |
| (180,855 | ) |
| |
| | | |
| | |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | |
| 7,584 | | |
| (73,676 | ) |
| |
| | | |
| | |
NET CHANGE IN CASH | |
| (24,803 | ) | |
| (36,966 | ) |
| |
| | | |
| | |
CASH - beginning of reporting period | |
| 24,803 | | |
| 108,872 | |
| |
| | | |
| | |
CASH - end of reporting period | |
$ | - | | |
$ | 71,906 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
Interest paid | |
$ | 11,458 | | |
$ | 23,359 | |
Income taxes paid | |
$ | - | | |
$ | - | |
See accompanying notes to the unaudited financial statements
Vapir, Inc.
September 30, 2014 and 2013
Notes to the Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION AND OPERATIONS
Organization
Vapir, Inc. (the “Company”) was
incorporated in the State of California in October 2006. The Company’s principal business is focused on inventing, developing
and producing aromatherapy devices and vaporizers. The Company’s aromatherapy device utilizes heat and convection air and
thereby extracts natural essences and produce fresh fragrances.
In October 2006, the Company acquired 100%
of the outstanding stock including all assets of Advanced Inhalation Revolution Inc. which was dissolved after it was acquired
by the Company. The Company accounted for the acquisition utilizing the purchase method of accounting in accordance with ASC 805
“Business Combinations”.
NOTE 2 – SIGNFICIANT 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- Unaudited Interim
Financial Information
The accompanying
unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations
of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited
interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily
indicative of the results for the full year. These unaudited interim consolidated financial statements should be read in conjunction
with the financial statements of the Company as of and for the year ended December 31, 2013 and notes thereto included elsewhere
in the Company’s Registration Statement on Form S-1 filed with the SEC herewith.
Use of Estimates and Assumptions and
Critical Accounting Estimates and Assumptions
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).
Critical
accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment
necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate
on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions
affecting the financial statements were:
| (i) | Assumption as a going concern: Management assumes
that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation
of liabilities in the normal course of business. |
| (ii) | Allowance for doubtful accounts: Management’s
estimate of the allowance for doubtful accounts is based on historical sales, historical
loss levels, and an analysis of the collectability of individual accounts; and general economic conditions that may affect
a client’s ability to pay. The Company evaluated the key factors and assumptions used
to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole. |
| (iii) | 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. |
| (iv) | 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 not considered more likely
than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management
made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability
to raise additional funds to support its daily operations by way of a public or private offering, among other factors. |
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.
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, accounts payable and accrued liabilities, and customer deposits
approximate their fair values because of the short maturity of these instruments. The carrying amount of the note and loan payable
at September 30, 2014 approximate their respective fair value based on the Company’s incremental borrowing rate.
Transactions involving related parties cannot
be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not
exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were
consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
Fair Value of Non-Financial Assets or
Liabilities Measured on a Recurring Basis
The Company’s non-financial assets include
inventories. The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and
other factors. Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical
sales experiences. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories.
The Company establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle
counts.
Carrying Value, Recoverability and Impairment
of Long-Lived Assets
The Company has adopted Section 360-10-35 of
the FASB Accounting Standards Codification for its long-lived assets. Pursuant to ASC Paragraph 360-10-35-17 an impairment loss
shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value.
The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying
amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount
by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC Paragraph 360-10-35-20
if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable
long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration
of a previously recognized impairment loss is prohibited.
Pursuant to ASC Paragraph 360-10-35-21 the
Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate
that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes
in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset
group); (b) A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in
its physical condition; (c) A significant adverse change in legal factors or in the business climate that could affect the value
of a long-lived asset (asset group), including an adverse action or assessment by a regulator; (d) An accumulation of costs significantly
in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); (e) A current-period
operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates
continuing losses associated with the use of a long-lived asset (asset group); and (f) A current expectation that, more likely
than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously
estimated useful life. The Company tests its long-lived assets for potential impairment indicators at least annually and more frequently
upon the occurrence of such events.
Pursuant to ASC Paragraphs 360-10-45-4 and
360-10-45-5 an impairment loss recognized for a long-lived asset (asset group) to be held and used shall be included in income
from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from
operations is presented, it shall include the amount of that loss. A gain or loss recognized on the sale of a long-lived asset
(disposal group) that is not a component of an entity shall be included in income from continuing operations before income taxes
in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amounts
of those gains or losses.
Cash equivalents
The Company considers all highly liquid debt
instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents.
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, if any.
Pursuant to FASB ASC paragraph 310-10-35-41
Credit losses for trade receivables (uncollectible trade receivables), which may be for all or part of a particular trade receivable,
shall be deducted from the allowance. The related trade receivable balance shall be charged off in the period in which the trade
receivables are deemed uncollectible. Recoveries of trade receivables previously charged off shall be recorded when received. The
Company charges off its trade account receivables against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote.
As of September 30, 2014 and December 31,
2013, there is no allowance for doubtful accounts. The Company recorded bad debt expense of $170 and $0 during the nine months
ended September 30, 2014 and 2013, respectively.
Inventory
Inventory Valuation
The Company values inventory, consisting of
finished goods, at the lower of cost or market. Cost is determined on the first-in and first-out (“FIFO”) method. The
Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability,
equal to the difference between the cost of the inventory and its estimated market value. Factors utilized in the determination
of estimated market value include (i) estimates of future demand, and (ii) competitive pricing pressures.
Inventory Obsolescence
and Markdowns
The Company evaluates its current level of
inventory considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the income
statement as a component of cost of goods sold pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification to
adjust inventory to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements
if future economic conditions, customer demand or competition differ from expectations.
There was no inventory obsolescence for the
reporting period ended September 30, 2014 and 2013.
There was no lower of cost or market adjustments
for the reporting period ended September 30, 2014 and 2013.
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.
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.
Leases
Lease agreements are evaluated to determine
whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards Codification
(“Paragraph 840-10-25-1”). Pursuant to Paragraph 840-10-25-1 a lessee and a lessor shall consider whether a lease meets
any of the following four criteria as part of classifying the lease at its inception under the guidance in the Lessees Subsection
of this Section (for the lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer of ownership. The lease
transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the
lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of
a nominal fee, for example, the minimum required by statutory regulation to transfer title. b. Bargain purchase option. The
lease contains a bargain purchase option. c. Lease term. The lease term is equal to 75 percent or more of the estimated economic
life of the leased property. d. Minimum lease payments. The present value at the beginning of the lease term of the minimum
lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to
be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased
property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized
by the lessor. In accordance with paragraphs 840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four lease
classification criteria in Paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease; and if none of
the four criteria in Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an operating lease. Pursuant
to Paragraph 840-10-25-31 a lessee shall compute the present value of the minimum lease payments using the lessee's incremental
borrowing rate unless both of the following conditions are met, in which circumstance the lessee shall use the implicit rate: a. It
is practicable for the lessee to learn the implicit rate computed by the lessor. b. The implicit rate computed by the lessor
is less than the lessee's incremental borrowing rate. Capital lease assets are depreciated on a straight line method, over the
capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets.
Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.
Operating leases primarily relate to the Company’s
leases of office spaces. When the terms of an operating lease include tenant improvement allowances, periods of free rent, rent
concessions, and/or rent escalation amounts, the Company establishes a deferred rent liability for the difference between the scheduled
rent payment and the straight-line rent expense recognized, which is amortized over the underlying lease term on a straight-line
basis as a reduction of rent expense.
Customer Deposit
Customer deposits at September 30, 2014
and December 31, 2013 were $188,809 and $13,929, respectively, which consist 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 (“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) of the Company; b. entities for which investments
in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection
of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit
of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal
owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the
management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests.
The financial statements shall include disclosures
of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the
ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined
financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s)
involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for
each of the periods for which income statements are presented, and such other information deemed necessary to an understanding
of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods
for which income statements are presented and the effects of any change in the method of establishing the terms from that used
in the preceding period; and d. amount due from or to related parties as of the date of each balance sheet presented and, if not
otherwise apparent, the terms and manner of settlement.
Commitment and Contingencies
The Company follows subtopic 450-20 of the
FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the
consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one
or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or
unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially
material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of
the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Revenue recognition
The Company follows paragraph 605-10-S99-1
of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or
realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met:
(i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer,
(iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
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.
Marketing, selling and advertising
Marketing, selling and advertising are expensed
as incurred. For the nine months ended September 30, 2014 and 2013, such expenses were $41,467 and $63,346, respectively.
Income Tax Provision
The Company was a Subchapter S corporation,
whereby 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.
Tax years that remain
subject to examination by major tax jurisdictions
The Company discloses tax years that remain
subject to examination by major tax jurisdictions pursuant to the ASC Paragraph 740-10-50-15.
Pro Forma Income
Tax Provision (Benefit) (Unaudited)
The unaudited pro forma income tax provision,
deferred tax assets, and the valuation allowance of deferred tax assets, if any, included in the financial statements and income
tax provision note reflect the income tax provision which would have been recorded as if the S corporation had always been a C
corporation upon its incorporation.
Earnings per Share
Earnings per share ("EPS") is the
amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or
loss per share. EPS is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Pursuant to ASC Paragraphs
260-10-45-10 through 260-10-45-16 Basic EPS shall be computed by dividing income available to common stockholders (the numerator)
by the weighted-average number of common shares outstanding (the denominator) during the period. Income available to common stockholders
shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) and the dividends
accumulated for the period on cumulative preferred stock (whether or not earned) from income from continuing operations (if that
amount appears in the income statement) and also from net income. The computation of diluted EPS is similar to the computation
of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding
if the dilutive potential common shares had been issued during the period to reflect the potential dilution that could occur from
common shares issuable through contingent shares issuance arrangement, stock options or warrants.
Pursuant to ASC Paragraphs 260-10-45-45-21
through 260-10-45-45-23 Diluted EPS shall be based on the most advantageous conversion rate or exercise price from the standpoint
of the security holder. The dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting
entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35
through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include
non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions (see paragraph 260–10–55–23).
Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the
treasury stock method: a. Exercise of options and warrants shall be assumed at the beginning of the period (or at time of
issuance, if later) and common shares shall be assumed to be issued. b. The proceeds from exercise shall be assumed to be
used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through
55-5.) c. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed
purchased) shall be included in the denominator of the diluted EPS computation.
At September 30, 2014 and 2013, the Company
did not have any potentially dilutive securities outstanding.
Cash Flows Reporting
The Company adopted paragraph 230-10-45-24
of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether
they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or
reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification
to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities
by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating
cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The
Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of
the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the
reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing
and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB
Accounting Standards Codification.
Subsequent Events
The Company follows the guidance in Section
855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent
events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting
Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed
to users, such as through filing them on EDGAR.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued the FASB Accounting
Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”).
This guidance amends the existing FASB Accounting
Standards Codification, creating a new Topic 606, Revenue from Contracts with Customer.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or services.
To achieve that core principle, an entity should
apply the following steps:
- Identify the contract(s) with the customer
- Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the performance obligations in the contract
- 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:
- 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)
- 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
- 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 2014, the FASB issued the FASB Accounting
Standards Update No. 2014-15 “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of
Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).
In connection with preparing financial statements
for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events,
considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within
one year after the date that the financial statements are issued (or within one year after the date that the financial
statements are available to be issued when applicable). Management’s evaluation should be based on relevant conditions
and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that
the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability
to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable
that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements
are issued (or available to be issued). The term probable is used consistently with its use in Topic 450, Contingencies.
When management identifies conditions or events
that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether
its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The mitigating
effect of management’s plans should be considered only to the extent that (1) it is probable that the plans will be effectively
implemented and, if so, (2) it is probable that the plans will mitigate the conditions or events that raise substantial doubt about
the entity’s ability to continue as a going concern.
If conditions or events raise substantial doubt
about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration
of management’s plans, the entity should disclose information that enables users of the financial statements to understand
all of the following (or refer to similar information disclosed elsewhere in the footnotes):
| a. | Principal conditions or events that raised substantial doubt about the entity’s ability to
continue as a going concern (before consideration of management’s plans) |
| b. | Management’s evaluation of the significance of those conditions or events in relation to
the entity’s ability to meet its obligations |
| c. | Management’s plans that alleviated substantial doubt about the entity’s ability to
continue as a going concern. |
If conditions or events raise substantial doubt
about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of
management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about
the entity’s ability to continue as a going concern within one year after the date that the financial statements are
issued (or available to be issued). Additionally, the entity should disclose information that enables users of the financial statements
to understand all of the following:
| a. | Principal conditions or events that raise substantial doubt about the entity’s ability to
continue as a going concern |
| b. | Management’s evaluation of the significance of those conditions or events in relation to
the entity’s ability to meet its obligations |
| c. | Management’s plans that are intended to mitigate the conditions or events that raise substantial
doubt about the entity’s ability to continue as a going concern. |
The amendments in this Update are effective
for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application
is permitted.
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
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
financial statements, the Company had an accumulated deficit at September 30, 2014, a net loss and net cash used in operating activities for
the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going
concern.
The Company is attempting
to further implement its business plan and generate sufficient revenue; however, the Company’s cash position may not be sufficient
to support its daily operations. Management intends to raise additional funds by way of a private or public offering.
While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenue
and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue
as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenue and its
ability to raise additional funds by way of a public or private offering.
The financial statements
do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification
of liabilities that might be necessary should the Company is unable to continue as a going concern.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, less
accumulated depreciation consisted of the following:
| |
Estimated life | |
September 30, 2014 | | |
December 31, 2013 | |
| |
| |
| | |
| |
Auto | |
3 years | |
| 12,522 | | |
| 12,522 | |
Furniture and fixtures | |
5 years | |
| 23,743 | | |
| 23,743 | |
Leasehold improvements | |
5 years | |
| 35,206 | | |
| 35,206 | |
Less: Accumulated depreciation | |
| |
| (67,349 | ) | |
| (44,296 | ) |
| |
| |
$ | 4,122 | | |
$ | 27,175 | |
For the nine months ended September 30, 2014
and 2013, depreciation expense amounted to $23,053 and $5,435, respectively. During the nine months ended September 30, 2014, the
Company fully depreciated the cost of leasehold improvements as the Company moved to a new office space in June 2014.
The Company completed the annual impairment
test 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, 2013.
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consist of the following:
| |
September 30, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Customer relationships associated with a 2006 acquisition (see Note 1) | |
$ | 1,001,212 | | |
$ | 1,001,212 | |
Trademarks | |
| 6,430 | | |
| 6,430 | |
| |
| 1,007,642 | | |
| 1,007,642 | |
Accumulated amortization | |
| (548,496 | ) | |
| (498,114 | ) |
Intangible assets, net | |
$ | 459,146 | | |
$ | 509,528 | |
Customer relationships are amortized based
upon the estimated percentage of annual or period projected cash flows generated by such relationships, to the total cash flows
generated over the estimated fifteen year life of the customer relationships.
Legal costs associated with serving and protecting
trademark are being capitalized. The Company filed trademarks for its company logos with an estimated useful life of 15 years.
The Company will amortize the costs of intangible assets over their estimated useful lives on a straight-line basis. Amortization
of intangible assets is included in operating expenses as reflected in the accompanying statements of operations. The Company assesses
fair market value for any impairment to the carrying values.
As of September 30, 2014 and December 31, 2013
management concluded that there was no impairment to the acquired assets. Amortization expense for the nine months ended September
30, 2014 and 2013 was $50,382 and $50,178, respectively.
Future amortization of intangible assets is
as follows:
2014 | | |
$ | 16,823 | |
2015 | | |
| 67,205 | |
2016 | | |
| 67,205 | |
2017 | | |
| 67,205 | |
2018 | | |
| 67,205 | |
2019 and thereafter | | |
| 173,503 | |
Total | | |
$ | 459,146 | |
Impairment
The Company completed the annual impairment
test of intangibles and determined that there was no impairment as the fair value of property and equipment, exceeded their carrying
values at December 31, 2013.
NOTE 6 – NOTE AND LOAN PAYABLE
Loan payable
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
| | | |
| | |
Business loan obtained in May 2011 from Bank of the West with a credit line up to $200,000 and secured by all assets of the Company. This loan bears interest at 4.75% per annum. | |
$ | 197,000 | | |
$ | 176,000 | |
Note payable
| |
September 30, 2014 | | |
December 31, 2013 | |
| |
| | |
| |
4.75% Promissory note of $100,000 issued to Bank of the West on May 10, 2011 payable in 60 consecutive monthly installments starting in June 2012 | |
$ | 49,800 | | |
$ | 64,650 | |
| |
| | | |
| | |
Less : Current maturities | |
| (19,800 | ) | |
| (19,800 | ) |
Note payable, net of current maturities | |
$ | 30,000 | | |
$ | 44,850 | |
Future minimum principal and interest payment
under the note are as follows:
Fiscal Year ending December 31: | |
| |
| |
| |
2014 (remainder of the year) | |
$ | 5,522 | |
| |
| | |
2015 | |
| 21,499 | |
| |
| | |
2016 | |
| 20,559 | |
| |
| | |
2017 | |
| 5,294 | |
| |
| | |
| |
| 52,874 | |
| |
| | |
Less interest portion | |
| (3,074 | ) |
| |
| | |
Total | |
| 49,800 | |
| |
| | |
Less current maturities | |
| (19,800 | ) |
| |
| | |
Note payable, net of current maturities | |
$ | 30,000 | |
Amounts outstanding under the loan and note above are personally
guaranteed by the President of the Company.
NOTE 7 – RELATED PARTY TRANSACTIONS
Parties are considered to be related to the
Company if the parties directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common
control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal with 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. The Company discloses all related party transactions.
All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is
recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected
as compensation or distribution to related parties depending on the transaction.
Amounts outstanding under the loan and note to a bank (see Note
6) are personally guaranteed by the President of the Company.
Between August 2014 and September 2014, the Company’s President provided advances to the Company for
working capital purposes for a total of $70,000. The advance was due on demand and bore interest at 5% per annum. This advance
was paid by the end of September 2014.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Operating lease
A lease agreement was signed for an office
and warehousing space consisting of approximately 3,200 square feet located in San Jose, California with an initial term commencing
in October 2009 and expiring on 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 February 2013, the Company entered into
a motor vehicle lease agreement. The lease is for 24 months with monthly payments of $759.
In June 2014, a lease agreement was signed
for an office and warehousing space consisting of approximately 5,000 square feet located in San Jose, California with a term commencing
in June 2014 and expiring in October 2015. The lease required the Company to pay a monthly base rent of $3,535 plus a pro rata
share of operating expenses. The base rent is subject to an annual increase beginning in November 2014 as defined in the lease
agreement. This lease agreement is personally guaranteed by the President of the Company.
Future minimum rental payments required under
this operating lease are as follows:
Fiscal Year ending December 31: | | |
| |
| | |
| |
| 2014 (remainder of the year) | | |
$ | 12,882 | |
| | | |
| | |
| 2015 | | |
| 36,868 | |
| | | |
| | |
| Total | | |
$ | 49,750 | |
Rent expense was $57,894 and $55,015 for the
nine months ended September 30, 2014 and 2013, respectively.
Litigation
From time to time, the Company is involved
in litigation matters relating to claims arising from the ordinary course of business. While the results of such claims and legal
actions cannot be predicted with certainty, the Company’s management does not believe that there are claims or actions, pending
or threatened against the Company, the ultimate disposition of which would have a material adverse effect on the Company’s
business, results of operations, financial condition or cash flows.
Notwithstanding the foregoing, on November
3, 2014, the Company was served with a lawsuit from Storz & Bickel, a German competitor of the Company. The lawsuit claims
patent infringement of Storz & Bickel’s German patent no DE 198 03 376 C1. The lawsuit was filed in Germany with the
regional court of Mannheim. The lawsuit alleges estimated damages in the amount of €750,000 euros. The Company has
filed a notice of its intent to defend the lawsuit and has filed an answer to the complaint requesting additional time. The lawsuit
is still ongoing and the Company is working to settle the matter.
Additionally, on October 15, 2014, Storz
& Bickel have filed a lawsuit with the United States District Court, Central District of California against the Company alleging
patent infringement of Storz & Bickel’s US patent no. 6,513,524, which is the US counterpart to the German patent. The
US District lawsuit seeks injunction against distribution of the Company’s VapiRise product, damages, interest, costs, treble
damages, and attorney’s fees.
Storz & Bickel have not yet served
the US District lawsuit; Storz & Bickel’s US counsel have contacted the Company to initiate settlement discussion, but
it is anticipated that Storz & Bickel will serve the US District complaint if settlement discussions are not productive.
The Company may be subject to legal
proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these
claims cannot be predicted with certainty, the Company does not believe that any of the outcomes will have a material effect on
the Company’s operations.
NOTE 9 – CONCENTRATION OF CREDIT RISK
Concentration of Revenue and Supplier
During the nine months ended September 30,
2014 sales to two customers represented approximately 61% of the Company’s net sales. During the nine months ended September
30, 2013 sales to two customers represented approximately 63% of the Company’s net sales. As of September 30, 2014 and
December 31, 2013, the Company had two customers representing approximately 100% of accounts receivable and one customer representing
approximately 100% of accounts receivable, respectively.
The Company purchased inventories and products
for sale from one vendor totaling approximately $473,000 and $1.0 million during the nine months ended September 30, 2014 and 2013,
respectively.
NOTE 10 – SUBSEQUENT EVENTS
The Company has evaluated all events that occurred
after the balance sheet date through the date when the financial statements were issued to determine if they must be reported.
The Management of the Company determined that there were certain reportable subsequent event(s) to be disclosed as followed:
On December 30, 2014, the Company entered into
a Share Exchange Agreement (the “Exchange Agreement”) with all of the stockholders of the Company (the “Vapir
Shareholders”), Vapir Enterprises, Inc. (“Vapir Enterprises”), and its controlling stockholders.
Pursuant to the Exchange Agreement,
Vapir Enterprises will acquire all of the outstanding shares of the Company in exchange for the issuance of 38,624,768 shares of
Vapir Enterprises’ common stock to Vapir Shareholders. The shares to be issued to the Vapir Shareholders shall
constitute 80% of Vapir Enterprises issued and outstanding shares of common stock as of and immediately after the consummation
of the Exchange Agreement.
Upon closing of the Exchange Agreement, the
Company became Vapir Enterprises wholly owned subsidiary and Vapir Enterprises ceases its prior operations.
The Exchange Agreement is being accounted for
as a reverse merger and recapitalization of the Company whereby the Company is deemed to be the acquirer in the reverse merger
for accounting purposes. The consolidated financial statements after the acquisition include the balance sheets of both companies
at historical cost, the historical results of the Company and the results of Vapir Enterprises from the acquisition date.
Upon the closing of the transaction, a new
board of directors and new officers were appointed which consists of Mr. Hamid Emarlou and Dr. Shadi Shayegan. Following the closing,
Mr. Emarlou was also appointed as Chief Executive Officer and President of Vapir Enterprises.
F-17
Exhibit 99.3
VAPIR ENTERPRISES, INC.
PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
VAPIR ENTERPRISES, INC.
Index to Unaudited Pro Forma Combined Financial
Information
|
|
Pages |
|
|
|
Introduction to Unaudited Pro Forma Combined Financial Information |
|
2 |
|
|
|
Unaudited Pro Forma Combined Balance Sheet |
|
3 |
|
|
|
Unaudited ProForma Combined Statements of Operations |
|
4 |
|
|
|
Notes to Unaudited Pro Forma Combined Balance Sheet |
|
5 |
VAPIR ENTERPRISES, INC.
Introduction to Unaudited Pro Forma Combined
Financial Information
The following unaudited pro forma combined financial information
is presented to illustrate the estimated effects of our merger with Vapir, Inc.
On December 30, 2014, we entered into a Share
Exchange Agreement (the “Exchange Agreement”) with Vapir, Inc., a California corporation (“Vapir”), all
of the stockholders of Vapir (the “Vapir Shareholders”), and our controlling stockholders.
Pursuant to the Exchange Agreement, we will
acquire all of the outstanding shares of Vapir in exchange for the issuance of 38,624,768 shares of our common stock to the Vapir
Shareholders. The shares to be issued to the Vapir Shareholders shall constitute 80% of our issued and outstanding
shares of common stock as of and immediately after the consummation of the Exchange Agreement.
Upon closing of the Exchange Agreement, Vapir
became our wholly owned subsidiary and the Company ceases its prior operations.
The Exchange Agreement is being accounted for
as a reverse merger and recapitalization of Vapir whereby Vapir is deemed to be the acquirer in the reverse merger for accounting
purposes. The consolidated financial statements after the acquisition include the balance sheets of both companies at historical
cost, the historical results of Vapir and the results of the Company from the acquisition date.
Upon the closing of the transaction, a new
board of directors and new officers were appointed which consists of Mr. Hamid Emarlou and Dr. Shadi Shayegan. Following the closing,
Mr. Emarlou was also appointed as Chief Executive Officer and President of the Company.
The unaudited pro forma combined financial
information assumes the Exchange Agreement was consummated as of September 30, 2014. The financial statements of the Company included
in the following unaudited pro forma combined financial information are derived from the unaudited financial statements of the
Company for the interim period September 30, 2014 contained on Form 10-Q as filed with the Securities and Exchange Commission.
The financial statements of Vapir, included in the following unaudited pro forma combined financial information are derived
from the unaudited financial statements for the interim period ended September 30, 2014 contained elsewhere in the Form 8-K.
The unaudited pro forma combined balance sheet is prepared as though the transactions occurred at the close of business on January
1, 2014.
The information presented in the unaudited
pro forma combined financial information does not purport to represent what our financial position would have been had the Exchange
Agreement occurred as of the dates indicated, nor is it indicative of our future financial position for any period. You should
not rely on this information as being indicative of the historical results that would have been achieved had the companies always
been consolidated or the future results that the consolidated company will experience after the Share Exchange Agreement Transaction.
The pro forma adjustments are based upon available information and
certain assumptions that the Company believes is reasonable under the circumstances. The unaudited pro forma combined financial
information should be read in conjunction with the historical financial statements and related notes of the Company.
VAPIR ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE
SHEET
| |
Vapir Enterprises, Inc. | | |
Vapir, Inc. | | |
| | |
| | |
| |
| |
September 30, | | |
September 30, | | |
| | |
| | |
| |
| |
2014 | | |
2014 | | |
Pro Forma Adjustments | | |
Pro Forma | |
| |
Historical | | |
Historical | | |
Dr | | |
Cr. | | |
Balances | |
ASSETS | |
( see Note) | | |
( see Note) | | |
| | |
| | |
(Unaudited) | |
| |
| | |
| | |
| | |
| | |
| |
CURRENT ASSETS: | |
| | |
| | |
| | |
| | |
| |
Cash | |
$ | 140,065 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 140,065 | |
Accounts receivable | |
| - | | |
| 944 | | |
| - | | |
| - | | |
| 944 | |
Inventory | |
| - | | |
| 56,253 | | |
| - | | |
| - | | |
| 56,253 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Current Assets | |
| 140,065 | | |
| 57,197 | | |
| - | | |
| - | | |
| 197,262 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Other assets: | |
| | | |
| | | |
| | | |
| | | |
| | |
Property and equipment, net | |
| 400,000 | | |
| 4,122 | | |
| - | | |
| - | | |
| 404,122 | |
Intangible assets, net | |
| - | | |
| 459,146 | | |
| - | | |
| - | | |
| 459,146 | |
Total other assets | |
| 400,000 | | |
| 463,268 | | |
| - | | |
| - | | |
| 863,268 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Assets | |
$ | 540,065 | | |
$ | 520,465 | | |
$ | - | | |
$ | - | | |
$ | 1,060,530 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | | |
| | | |
| | | |
| | |
Bank overdraft | |
$ | - | | |
$ | 1,434 | | |
$ | - | | |
$ | - | | |
$ | 1,434 | |
Accounts payable and accrued expenses | |
| 54,181 | | |
| 68,276 | | |
| - | | |
| - | | |
| 122,457 | |
Interest payable | |
| 947 | | |
| - | | |
| - | | |
| - | | |
| 947 | |
Accounts payable and accrued expenses - related party | |
| 54,500 | | |
| - | | |
| - | | |
| - | | |
| 54,500 | |
Loan payable | |
| - | | |
| 197,000 | | |
| - | | |
| - | | |
| 197,000 | |
Notes payable - current maturities | |
| 45,000 | | |
| 19,800 | | |
| - | | |
| - | | |
| 64,800 | |
Customer deposits | |
| - | | |
| 188,809 | | |
| - | | |
| - | | |
| 188,809 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Current Liabilities | |
| 154,628 | | |
| 475,319 | | |
| - | | |
| - | | |
| 629,947 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
LONG-TERM LIABILITIES: | |
| | | |
| | | |
| | | |
| | | |
| | |
Notes payable, net of current maturities | |
| 137,500 | | |
| 30,000 | | |
| - | | |
| - | | |
| 167,500 | |
Notes payable - related party | |
| 62,500 | | |
| - | | |
| - | | |
| - | | |
| 62,500 | |
Interest payable - net of current portion | |
| 240 | | |
| - | | |
| - | | |
| - | | |
| 240 | |
Interest payable - related party | |
| 109 | | |
| - | | |
| - | | |
| - | | |
| 109 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Long-term Liabilities | |
| 200,349 | | |
| 30,000 | | |
| - | | |
| - | | |
| 230,349 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Liabilities | |
| 354,977 | | |
| 505,319 | | |
| - | | |
| - | | |
| 860,296 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
STOCKHOLDERS' EQUITY : | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
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; 6,816,194 shares issued and outstanding prior to merger; $0.001 par value; 100,000,000 shares authorized;
45,440,962 issued and outstanding after the merger) | |
| 6,816 | | |
| - | | |
| | (a) | |
| 38,625 | | |
| 45,441 | |
Additional paid-in capital | |
| 3,107,752 | | |
| 400,000 | (a) | |
| 2,968,105 | | |
| | | |
| 539,647 | |
Accumulated deficit | |
| (2,929,480 | ) | |
| (384,854 | ) | |
| | (a) | |
| 2,929,480 | | |
| (384,854 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Stockholders' Equity | |
| 185,088 | | |
| 15,146 | | |
| 2,968,105 | | |
| 2,968,105
| | |
| 200,234 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total Liabilities and Stockholders' Equity | |
$ | 540,065 | | |
$ | 520,465 | | |
$ | 2,968,105 | | |
$ | 2,968,105
| | |
$ | 1,060,530 | |
See accompanying notes to unaudited
pro forma combined financial statements.
VAPIR ENTERPRISES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS
OF OPERATIONS
| |
Vapir Enterprises, Inc. | | |
Vapir, Inc. | | |
| | |
| | |
| |
| |
For the Nine Months | | |
For the Nine Months | | |
| | |
| | |
| |
| |
Ended September 30, 2014 | | |
Ended September 30, 2014 | | |
Pro Forma Adjustments | | |
Pro Forma | |
| |
Historical | | |
Historical | | |
Dr | | |
Cr. | | |
Balances | |
| |
( see Note) | | |
( see Note) | | |
| | |
| | |
(Unaudited) | |
| |
| | |
| | |
| | |
| | |
| |
Net sales | |
$ | - | | |
$ | 1,136,886 | | |
$ | - | | |
$ | - | | |
$ | 1,136,886 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Cost of sales | |
| - | | |
| 564,124 | | |
| - | | |
| - | | |
| 564,124 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| - | | |
| 572,762 | | |
| - | | |
| - | | |
| 572,762 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| - | | |
| 73,435 | | |
| - | | |
| - | | |
| 73,435 | |
Marketing and selling expenses | |
| - | | |
| 41,467 | | |
| - | | |
| - | | |
| 41,467 | |
Compensation | |
| 64,000 | | |
| 516,587 | | |
| - | | |
| - | | |
| 580,587 | |
Professional fees | |
| 30,792 | | |
| 47,573 | | |
| - | | |
| - | | |
| 78,365 | |
Research and development | |
| - | | |
| 54,039 | | |
| - | | |
| - | | |
| 54,039 | |
Rent | |
| - | | |
| 57,894 | | |
| - | | |
| - | | |
| 57,894 | |
General and administrative expenses | |
| 11,283 | | |
| 189,854 | | |
| - | | |
| - | | |
| 201,137 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 106,075 | | |
| 980,849 | | |
| - | | |
| - | | |
| 1,086,924 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Loss from continuing operations | |
| (106,075 | ) | |
| (408,087 | ) | |
| - | | |
| - | | |
| (514,162 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
OTHER INCOME (EXPENSE): | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (1,296 | ) | |
| (11,458 | ) | |
| - | | |
| - | | |
| (12,754 | ) |
Loss on disposal of property and equipment | |
| (631 | ) | |
| - | | |
| - | | |
| - | | |
| (631 | ) |
Gain from settlement of accounts payable | |
| 16,376 | | |
| - | | |
| - | | |
| - | | |
| 16,376 | |
Gain from settlement of accounts payable - related party | |
| 37,130 | | |
| - | | |
| - | | |
| - | | |
| 37,130 | |
Total other income (expense), net | |
| 51,579 | | |
| (11,458 | ) | |
| - | | |
| - | | |
| 40,121 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Loss from continuing operation before income taxes | |
| (54,496 | ) | |
| (419,545 | ) | |
| - | | |
| - | | |
| (474,041 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Provision for income taxes | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss from continuing operations | |
| (54,496 | ) | |
| (419,545 | ) | |
| - | | |
| - | | |
| (474,041 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Discontinued operations: | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss from discontinued operations, net of tax | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| 13,122 | | |
| - | | |
| - | | |
| - | | |
| 13,122 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (41,374 | ) | |
$ | (419,545 | ) | |
$ | - | | |
$ | - | | |
$ | (460,919 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss per common share, Basic and Diluted: | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss from continuing operations | |
$ | (0.01 | ) | |
| | | |
| | | |
| | | |
$ | (0.07 | ) |
Net loss from discontinued operations | |
$ | 0.00 | | |
| | | |
| | | |
| | | |
$ | 0.00 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Weighted average shares outstanding:
| |
| | | |
| | | |
| | | |
| | | |
| | |
Basic and Diluted | |
| 6,456,963 | | |
| | | |
| | | |
| | | |
| 6,456,963 | |
See accompanying notes to unaudited pro forma
combined financial statements.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE
SHEET
Unaudited pro forma adjustments reflect the following transaction:
a) | |
| | |
|
Additional paid in capital | |
2,968,105
| | |
|
Common stock, at par | |
| | | |
38,625 |
Accumulated deficit | |
| | | |
2,929,480 |
| |
| | |
To recapitalize for the Share Exchange Agreement. On December 30, 2014, the Company entered into a Share Exchange Agreement with Vapir and the shareholders of Vapir 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. | |
| | | |
|
5