Description of Business, Recent Acquisitions and Summary of Significant Accounting Policies | 6 Months Ended |
Mar. 31, 2014 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
DESCRIPTION OF BUSINESS, RECENT ACQUISITIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ' |
NOTE 1. DESCRIPTION OF BUSINESS, RECENT ACQUISITIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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BUSINESS |
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Vape Holdings, Inc. (formerly PeopleString Corporation) (“Vape,” the “Company,” “we,” “us,” “our,” “our company”) is a holding company with its primary focus in the manufacturing and distribution of healthy and sustainable vaporization products. The Company has designed and recently began marketing and distributing vaporization products under a unique brand. The Company has introduced a nonporous, non-corrosive, chemically inert ceramic vaporization element as a healthy, sustainable alternative to traditional titanium and quartz vaporization materials, as well as lower-grade ceramic found in traditional electronic cigarettes and vaporizers. This material can be used for a wide range of applications, including stand-alone vaporization products and "E-cigs." Electronic cigarettes come in a variety of designs ranging from those that look vastly like traditional cigarettes, to larger vaporizer units which are capable of vaporizing liquid with varying viscosity. The process of vaporization is believed to eliminate the smoke, tar, ash, and other byproducts of traditional smoking by utilizing lower temperatures in a controlled electronic environment. |
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HIVE Ceramics is the premier brand under the Vape umbrella, bringing to market a medical and food grade ceramic that has countless design and product crossover capabilities in existing and emerging markets. |
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The Company intends to rely on a combination of trademark, copyright, trade secret and patent laws in the United States as well as confidentiality procedures and contractual provisions to protect future proprietary technology and its brands, as they are developed. The Company has created or acquired and continues in the process of creating and/or acquiring proprietary vaporizers and e-cigarettes, and various trademarks, patents and copyrights for brands which are developed or in development. The Company is actively engaged in improving and expanding lines of branded products through business alliances and acquisitions, as well as developing its branded retail business expansion. Vape and its business units are organized and directed to operate strictly in accordance with all applicable state and federal laws. |
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RECENT ACQUISITIONS |
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On September 30, 2013, the then PeopleString Corporation, and its wholly-owned subsidiary, RewardString Corporation (“RewardString”), and Vape Holdings, Inc., a Nevada corporation (the “Private Company”) formed on March 26, 2013, closed a Merger and Reorganization Agreement whereby the Private Company merged with RewardString, with the Private Company being the surviving entity (the “Merger”). The Private Company shareholders represented approximately 74.95% of the total issued and outstanding common stock of the merged company. |
The merger among PeopleString, RewardString and the Private Company was accounted for as a reverse acquisition and change in reporting entity, whereby the Private Company was the accounting acquirer. The Merger was accounted for using the purchase method of accounting in accordance with ASC 805 Business Combinations, whereby the estimated purchase was allocated to tangible net assets acquired based upon preliminary fair values at the date of acquisition. Accordingly, the assets and liabilities of PeopleString and RewardString were recorded at fair value; the assets of PeopleString and RewardString were not significant. The historical results of operations and cash flows of the Private Company were reported since its inception on March 26, 2013 (“Inception”). On September 30, 2013, the Company approved a change in fiscal year end of the Company from December 31st to September 30th due to a change in reporting entity. Following such change, the date of the Company’s next fiscal year end is September 30, 2014. |
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Vape commenced revenue generating operations and exited the development stage late in the three month period ended March 31, 2014. There was no significant activity during the prior period from March 26, 2013 to March 31, 2013 and thus, such periods are not presented. |
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Effective as of January 8, 2014, the Company amended its Certificate of Incorporation with the Delaware Secretary of State pursuant to a certificate of amendment to formally change its name from PeopleString Corporation to Vape Holdings, Inc. (the “Name Change”). The Company’s Board of Directors and shareholders representing approximately 53.3% of the outstanding shares of the Company’s common stock approved the Name Change by written consent on December 24, 2013. |
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HIVE Ceramics Asset Purchase |
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On February 28, 2014, the Company entered into an Asset Purchase Agreement (the “Agreement”) with HIVE Ceramics, LLC (“HIVE”) whereby the Company agreed to acquire all right, title and interest to the HIVE vaporization product and related intellectual property in exchange for the issuance of 500,000 shares of Series A Preferred Stock (“Series A Shares”) to HIVE. The Transaction formally closed on March 27, 2014; however, the Series A Shares had not yet been issued as of the period ended March 31, 2014. |
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HIVE has been in development of a ceramic product line for use in the vaporization market. The development of this initial product line was completed in 2014. No sales of this product line were made prior to the acquisition of the HIVE product on March 27, 2014. |
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The Company also received $250,000 in capital from HIVE at closing and, as a result, the Company issued a note payable to HIVE (the “HIVE Note”). The HIVE Note is dated March 27, 2014 payable to HIVE. In accordance with the Agreement, the Company issued the HIVE Note in exchange for the principal amount of $250,000. Per the terms of the HIVE Note, the maturity date is February 27, 2016 and the annual rate of interest is six percent (6%). No prepayment penalty exists. The HIVE Note is unsecured. |
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Employment Agreements for Michael Cook as Director of Business Development and Kyle Tracey as Chief Executive Officer were also executed at Closing. Per Mr. Cook’s employment agreement, he is entitled to $80,000 per year in salary over a two (2) year employment term In the event that his employment is terminated without cause he will be entitled to payment of his base salary for a six (6) month period following termination. Per Mr. Tracey’s employment agreement, he is entitled to $120,000 per year in salary over a two (2) year employment term. In the event that his employment is terminated without cause he will be entitled to the remaining salary of the two (2) year employment term plus the issuance of five percent (5%) of the Company’s common stock on a fully diluted basis. |
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During the three and six months ended March 31, 2014 and as of March 31, 2014, the Company accrued wages and taxes of $8,153 and $815 and for Mr. Cook and Mr. Tracey, respectively. |
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BASIS OF PRESENTATION |
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The accompanying unaudited interim financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC. Certain information and disclosures normally included in the annual financial statements prepared in accordance with the accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. Such adjustments consist of normal recurring adjustments. |
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As a result of the merger between Vape and PeopleString, the Vape shareholders controlled the Company post-merger. This resulted in a change in reporting entity, whereby the historical financial statements of Vape are presented herein. The assets acquired and liabilities assumed were recorded at fair value; however, there were no significant assets acquired and approximately $24,000 in liabilities assumed. |
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USE OF ESTIMATES |
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The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates and assumptions include losses for warrant contingencies and the valuation of conversion features in notes. |
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CONCENTRATION |
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Credit Risk |
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At times, the Company maintains cash balances at a financial institution in excess of the FDIC insurance limit. In addition, at we extend credit to customers in the normal course of business, after we evaluate the credit worthiness. The Company does not expect to take any unnecessary credit risks causing significant causing write-offs of potentially uncollectible accounts. |
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REVENUE RECOGNITION |
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The Company recognizes revenues from product sales when (a) persuasive evidence that an agreement exists; (b) the products have been delivered; (c) the prices are fixed and determinable and not subject to refund or adjustment; and (d) collection of the amounts due is reasonably assured. |
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INVENTORY |
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Inventory is valued at the lower of cost or market, as determined primarily by the average cost inventory method, and are stated using the first-in, first-out (FIFO) method. Management will record a provision for loss for obsolete or slow moving inventory to reduce carrying amounts to net realizable value. |
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RESEARCH AND DEVELOPMENT |
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Research and development costs are expensed as incurred. The costs of materials and equipment that will be acquired or constructed for research and development activities, and that have alternative future uses, both in research and development, marketing or sales, will be classified as property and equipment and depreciated over their estimated useful lives. To date, research and development costs include the research and development expenses related to prototypes of the Company’s products. During the three and six months ended March 31, 2014, research and development costs were $29,087 and $37,587, respectively. |
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PER-SHARE INFORMATION |
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Basic per-share information includes the weighted average shares outstanding during the periods. Dilutive per-share information includes shares available under convertible notes, options and warrants, to the extent these are not anti-dilutive. During the periods presented, 642,346 convertible note shares would have been included in the computation of dilutive shares outstanding since the exercise prices did not exceed the average market value of the Company's common stock if the Company generated net income. During the periods presented, no options and warrants would have been included had the Company generated net income in the computation of dilutive shares outstanding using the treasury-stock method since the exercise prices exceeded the average market value of the Company's common stock. |
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CONVERTIBLE DEBT |
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Convertible debt is accounted for under the guidelines established by Accounting Standards Codification (“ASC”) 470-20 “Debt with Conversion and Other Options”. ASC 470-20 governs the calculation of an embedded beneficial conversion, which is treated as an additional discount to the instruments where derivative accounting (explained below) does not apply. The amount of the value of warrants and beneficial conversion feature may reduce the carrying value of the instrument to zero, but no further. The discounts relating to the initial recording of the derivatives or beneficial conversion features are accreted over the term of the debt. Many of the conversion features embedded in the Company's convertible notes are variable and are adjusted based on a discount to market prices which could cause an unlimited number of common stock to be issued. The management and board of directors currently have the ability to authorize additional shares of common stock (See “NOTE 5 – CONVERTIBLE NOTES PAYABLE”). |
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When applicable, the Company calculates the fair value of warrants and conversion features issued with the convertible instruments using the Black-Scholes valuation method, using the same assumptions used for valuing employee options for purposes of ASC 718 “Compensation – Stock Compensation”, except that the contractual life of the warrant or conversion feature is used. Under these guidelines, the Company allocates the value of the proceeds received from a convertible debt transaction between the conversion feature and any other detachable instruments (such as warrants) on a relative fair value basis. The allocated fair value is recorded as a debt discount or premium and is amortized over the expected term of the convertible debt to interest expense. If the fair value exceeds the carrying value of the debt, an immediate charge to operations is recorded by management. Each reporting period, the Company will compute the estimated fair value of derivatives and record changes to operations. |
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The Company accounts for modifications of its BCF’s in accordance with ASC 470-50 “Modifications and Extinguishments.” ASC 470-50 requires the modification of a convertible debt instrument that changes the fair value of an embedded conversion feature and the subsequent recognition of interest expense or the associated debt instrument when the modification does not result in a debt extinguishment. |
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RECENT ACCOUNTING PRONOUNCEMENTS |
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The Financial Accounting Standards Board issues Accounting Standard Updates (“ASUs”) to amend the authoritative literature in Accounting Standards Codification (“ASC”). There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company. |