UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly period ended September 30, 2015 |
or
☐ | TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from | to | ||
Commission file number: 000-55470 |
VapAria Corporation
(Exact name of registrant as specified in its charter)
Delaware | 27-1521364 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5550 Nicollet Avenue, Minneapolis, MN | 55419 |
(Address of principal executive offices) | (Zip Code) |
(612) 812-2037 (Registrant’s telephone number, including area code) |
not applicable |
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.4.05 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
☐ Yes ☒ No
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 50,160,000 shares of common stock are issued and outstanding as of October 30, 2015.
TABLE OF CONTENTS
Page No. | |||
Part I | |||
Item 1. | Financial Statements | 4 | |
Item 2. | Management Discussion and Analysis of Financial Condition and Results of Operations | 11 | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 14 | |
Item 4. | Controls and Procedures. | 14 | |
Part II | |||
Item 1. | Legal Proceedings. | 15 | |
Item 1A. | Risk Factors | 15 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 15 | |
Item 3. | Defaults upon Senior Securities | 15 | |
Item 4. | Mine Safety Disclosures | 15 | |
Item 5. | Other Information. | 15 | |
Item 6. | Exhibits | 15 |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:
● | our lack of products or revenues and the substantial risks inherent in the establishment of a new business venture | |
● | our very limited operating history and our unproven business plan; | |
● | our history of losses; | |
● | our ability to continue as a going concern; | |
● | our ability to raise capital to fund our business plan, pay our operating expense and satisfy our obligations; | |
● | our ability to achieve certain milestones under our agreement with Chong Corporation; | |
● | conflicts of interest facing certain of our officers and directors; | |
● | future reliance on third party manufacturers; | |
● | our future ability to comply with government regulations; | |
● | our lack of experience in selling, marketing or distributing products; | |
● | our future ability to establish and maintain strategic partnerships; | |
● | our possible future dependence on licensing or collaboration agreements; | |
● | the inability of Chong Corporation to protect the intellectual property which is licensed to us, and risks of possible third-party infringement of intellectual property rights; | |
● | anti-takeover provisions of Delaware law; | |
● | the dilution impact of the issuance of shares of our common stock upon a conversion of shares of our Series A 10% convertible preferred stock and as payment for dividends; and | |
● | the impact of penny stock rules on the future trading in our common stock. |
You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements, Part 1. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2014 and our other filings with the Securities and Exchange Commission. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “VapAria,” “we,” “our,” “us,” and similar terms refers to VapAria Corporation, a Delaware corporation formerly known as OICco Acquisition IV, Inc., and our wholly-owned subsidiary VapAria Solutions Inc., a Minnesota corporation (“VapAria Solutions”). In addition, “third quarter 2015” refers to the three months ended September 30, 2015, “third quarter 2014” refers to the three months ended September 30, 2014 and “2015” refers to the year ending December 31, 2015.
Unless specifically set forth to the contrary, the information which appears on our web site atwww.vaparia.com is not part of this report.
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PART 1 – FINANCIAL INFORMATION
Item 1 | Financial Statements |
VapAria Corporation
Consolidated Balance Sheets
September 30, 2015 | December 31, 2014 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 3,414 | $ | 497 | ||||
Prepaid expenses | 3,524 | — | ||||||
Total Current Assets | 6,938 | 497 | ||||||
Intellectual property, net | 176,178 | 184,845 | ||||||
TOTAL ASSETS | $ | 183,117 | $ | 185,342 | ||||
LIABILITIES & STOCKHOLDERS' EQUITY | ||||||||
LIABILITIES | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 71,225 | $ | 36,436 | ||||
Interest payable | 14,194 | 8,210 | ||||||
Notes payable | 50,000 | 50,000 | ||||||
Convertible note payable | 40,000 | 40,000 | ||||||
Loan from related party | 87,544 | 36,544 | ||||||
Total Current Liabilities | 262,963 | 171,190 | ||||||
TOTAL LIABILITIES | 262,963 | 171,190 | ||||||
STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
Preferred Stock: $0.0001 par value; 1,000,000 shares authorized; 500,000 shares issued and outstanding at September 30, 2015 and December 31, 2014 repectively. | 50 | 50 | ||||||
Common Stock: $0.0001 par value; 100,000,000 shares authorized; 50,160,000 and 50,000,000 shares issued and outstanding at September 30, 2015 and December 31, 2014 repectively. | 5,016 | 5,000 | ||||||
Additional paid-in capital | 334,229 | 130,156 | ||||||
Accumulated deficit | (419,141 | ) | (121,054 | ) | ||||
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | (79,846 | ) | 14,152 | |||||
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) | $ | 183,117 | $ | 185,342 |
See accompanying notes to unaudited consolidated financial statements
4 |
VapAria Corporation
Consolidated Statement of Expenses
(Unaudited)
Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Operating Expenses | ||||||||||||||||
General and Administrative | $ | 20,055 | $ | 5,573 | $ | 59,732 | $ | 16,314 | ||||||||
Research and Development | 42,201 | — | 69,316 | — | ||||||||||||
Professional Fees | 46,022 | 10,817 | 112,606 | 27,242 | ||||||||||||
Total Operating Expenses | 108,278 | 16,390 | 241,654 | 43,556 | ||||||||||||
Other (Expense) | ||||||||||||||||
Other (Expense) | (2,017 | ) | (1,008 | ) | (6,433 | ) | (2,992 | ) | ||||||||
Total Other (Expense) | (2,017 | ) | (1,008 | ) | (6,433 | ) | (2,992 | ) | ||||||||
Net Loss | $ | 110,295 | $ | 17,398 | $ | 248,087 | $ | 46,548 | ||||||||
Stock dividend | — | — | 50,000 | — | ||||||||||||
Net Loss available to common shareholders | 110,295 | 17,398 | 298,087 | 46,548 | ||||||||||||
Basic and diluted loss per common share | (0.00 | ) | (0.00 | ) | (0.01 | ) | (0.00 | ) | ||||||||
Basic and diluted weighted average shares outstanding | 50,160,000 | 45,282,609 | 50,136,960 | 38,339,726 |
See accompanying notes to unaudited consolidated financial statements
5 |
VapAria Corporation
Consolidated Statement of Changes in Stockholders' Equity
For the nine months ended September 30, 2015
(Unaudited)
Series A | ||||||||||||||||||||||||||||
Preferred Stock | Common Stock | |||||||||||||||||||||||||||
Number of shares | $0.0001 Par Value | Number of Shares | $0.0001 Par Value | Additional Paid in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
Balance, December 31, 2014 | 500,000 | 50 | 50,000,000 | 5,000 | 130,156 | (121,054 | ) | 14,152 | ||||||||||||||||||||
Common stock issued for cash | 110,000 | 11 | 109,989 | 110,000 | ||||||||||||||||||||||||
Common stock issued for dividend | 50,000 | 5 | 49,995 | (50,000 | ) | — | ||||||||||||||||||||||
Forgiven related party accounts payable | 44,088 | 44,088 | ||||||||||||||||||||||||||
Net Loss | (248,087 | ) | (248,087 | ) | ||||||||||||||||||||||||
Balance, September 30, 2015 (unaudited) | 500,000 | 50 | 50,160,000 | 5,016 | 334,228 | (419,141 | ) | $ | (79,847 | ) |
See accompanying notes to unaudited consolidated financial statements
6 |
VapAria Corporation
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended September 30, | ||||||||||||
2015 | 2014 | |||||||||||
Cash flows from operating activities | ||||||||||||
Net loss | $ | (248,087 | ) | $ | (46,548 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by operations: | ||||||||||||
Amortization Expense | 8,667 | 8,667 | ||||||||||
(Increase) decrease in operation assets and liabilities: | ||||||||||||
Accounts receivable | — | 3,000 | ||||||||||
Prepaid Expenses | (3,524 | ) | — | |||||||||
Accounts Payable | 78,877 | (356 | ) | |||||||||
Interest Payable | 5,984 | 2,992 | ||||||||||
Net cash used by operating activities | (158,083 | ) | (32,245 | ) | ||||||||
Investing Activities | ||||||||||||
Principal proceeds from repayment of loan to related party | — | 6,490 | ||||||||||
Cash receipt from reverse merger | — | 8,057 | ||||||||||
Net Cash provided by investing activities | — | 14,547 | ||||||||||
Cash flows from financing activities | ||||||||||||
Proceeds from Issuance of common stock | 110,000 | — | ||||||||||
Borrowing on debt with related party | 61,000 | 22,010 | ||||||||||
Repayment to related party | (10,000 | ) | — | |||||||||
Net Cash provided by financing activities | 161,000 | 22,010 | ||||||||||
Net change in cash | 2,917 | 4,312 | ||||||||||
Cash, beginning of period | 497 | 2,395 | ||||||||||
Cash, end of period | $ | 3,414 | $ | 6,707 | ||||||||
Supplementary Information | ||||||||||||
Interest | $ | — | $ | — | ||||||||
Income Taxes | $ | — | $ | — | ||||||||
Non cash investing and financing activities | ||||||||||||
Dividends on Preferred Series A Stock | (50,000 | ) | — | |||||||||
Forgiven related party accounts payable | 44,088 | — | ||||||||||
Reverse merger adjustments | — | 56,026 | ||||||||||
Related party loan borrowed for accounts payable | — | 4,534 |
See accompanying notes to unaudited consolidated financial statements
7 |
VapAria Corporation
Notes to Consolidated Unaudited Financial Statements
September 30, 2015
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF BASIS OF PRESENTATION
Nature of Business
VapAria Corporation (the “Company”) was incorporated under the laws of the State of Delaware on December 21, 2009 under the name OICco Acquisition IV, Inc.
On April 11, 2014 the Company entered into that certain Share Exchange Agreement and Plan of Reorganization (the “Agreement”) with VapAria Solutions, Inc., a Minnesota corporation formerly known as VapAria Corporation (“VapAria Solutions”) and the shareholders of VapAria Solutions (the “VapAria Solutions Shareholders”) pursuant to which we agreed to acquire 100% of the outstanding capital stock of VapAria Solutions from the VapAria Solutions Shareholders in exchange for certain shares of our capital stock. On July 31, 2014 all conditions precedent to the closing were satisfied, including the reconfirmation by the investors of the prior purchase of 1,000,000 shares of our common stock pursuant to the requirements of Rule 419 of the Securities Act of 1933, as amended (the “Securities Act”), and the transaction closed.
At closing, we issued the VapAria Solutions Shareholders 36,000,000 shares of our common stock and 500,000 shares of our 10% Series A Convertible Preferred Stock in exchange for the common stock and preferred stock owned by the VapAria Solutions Shareholders.
As a result of the closing of this transaction, VapAria Solutions is now a wholly owned subsidiary of our company and its business and operations represent those of our company. Information regarding VapAria Solutions’ business and operations, together with its financial statements, are included in the Post-Effective Amendment No. 4 to our Registration Statement on Form S-1 as filed with the Securities and Exchange Commission on June 30, 2014 (the “Post-Effective Amendment”).
On August 19, 2014 the board of directors of the Company and the holders of a majority of its issued and outstanding common stock approved a Certificate of Amendment to our Amended and Restated Certificate of Incorporation changing the name of our company to VapAria Corporation. The name change was effective on August 19, 2014. Our Board determined it was in our best interests to change our corporate name to better reflect our business and operations following our recent acquisition of VapAria Solutions.
The Company is a pre-clinical specialty pharmaceutical company engaged in the research, design and development of methods and medicants to address chronic conditions with novel, vapor-centric approaches to pain management, appetite suppression, smoking cessation and various sleep disorders. Our management, through an affiliate, has built an extensive and robust portfolio of intellectual property that includes patented and patent-pending methods of vaporization and vapor delivery and patented and patent-pending, proven medicants and herbal remedies selected for their effectiveness and suitability. This portfolio has been licensed or optioned to license by the Company. By year end 2015 the Company expects to have fully functional prototypes and the results of pre-clinical assessments conducted on these prototypes. The prototypes and the results of the assessments will be used to identify and undertake efforts to secure partnerships with international pharmaceutical and consumer product companies.
While the Company has no employees as of September 30, 2015, its officers and directors have devoted and continue to devote a substantial amount of their time to the Company without compensation.
The Company has a fiscal year end of December 31.
Basis of presentation
Basis of Presentation - The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows as of September 30, 2015 have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2014 audited financial statements. The results of the operations for the period ended September 30, 2015 are not necessarily indicative of the operating results for the full year.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
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NOTE 2 – GOING CONCERN
The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company has limited cash and no source of revenue sufficient to cover its operations costs and allow it to continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company will be dependent upon the raising of additional capital.
NOTE 3 – STOCKHOLDER’S EQUITY
In January 2015 we sold 100,000 shares of our common stock for $100,000 to a non-U.S. Person in a private transaction. We did not pay a commission or finder’s fee and are using the proceeds for working capital.
In January 2015 we also sold 10,000 shares of our common stock for $10,000 to an investor in a private transaction. We did not pay a commission or finder’s fee and are using the proceeds for working capital.
In April 2015 we declared and issued 50,000 shares of our common stock to Chong Corporation as a dividend on our 10% Series A convertible preferred stock. The stock was valued at $1.00 per share.
On September 30, 2015, the Company had 50,160,000 shares of common stock issued and outstanding.
NOTE 4 – RELATED PARTY TRANSACTIONS
In February 2015 the Company repaid $10,000 previously borrowed from Chong Corporation, a related entity. In May and June of 2015 the Company borrowed $10,000 and $13,000, respectively, and in August and September the Company borrowed $15,000 and $23,000 respectively from Chong Corporation. The balance outstanding at September 30, 2015 is $87,544. The loan is unsecured, noninterest bearing and due on demand.
We maintain our corporate offices at 5550 Nicollet Avenue, Minneapolis, MN 55419. We lease these premises from 5550 Nicollet LLC, an affiliate of Mr. Chong, under the terms of a three year lease expiring in December 2016 at an annual rent of $9,000. We have the right to renew the lease for an additional 12 month term at an annual rental of $9,180 upon 60 days’ notice prior to the expiration of the initial term. Rent was $6,750 for this nine month period in both 2015 and 2014. As of September 30, 2015 $6,750 is due to 5550 Nicollet LLC.
See other related party transactions in note 7 – commitment and contingencies.
NOTE 5 – NOTE PAYABLE
As of September 30, 2015, the Company has a note payable in the amount of $50,000 due to an individual. The note was issued on May 30, 2013 and bears eight per cent (8%) annual interest. The note was originally due June 30, 2015 but the due date has been extended and, all principal and accrued interest is due and payable December 31, 2015.
The Company analyzed the modification of the term under ASC 470-60 “Trouble Debt Restructurings” and ASC 470-50 “Extinguishment of Debt”. The Company determined the modification is not substantial and the transaction should not be accounted for as an extinguishment with the old debt written off and the new debt initially recorded at fair value with a new effective interest rate.
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NOTE 6 – CONVERTIBLE NOTE
The Company assumed an unsecured convertible note for $40,000 that was issued on July 14, 2014 as part of the reverse merger described in note 1. The note matures on December 31, 2015 and bears interest at 10% per annum. The note is convertible into shares of our common stock at $0.08 per share. The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting. The Company therefore performed an analysis to determine if the conversion option was subject to a beneficial conversion feature and determined that the instrument does not have a beneficial conversion feature.
The note was originally due on September 1, 2014. The Company entered into a note amendment on September 1, 2014 and the due date was extended to December 1, 2014. On December 1, 2014, the Company extended the note again to December 31, 2015. The Company analyzed the modification of the term under ASC 470-60 “Trouble Debt Restructurings” and ASC 470-50 “Extinguishment of Debt”. The Company determined the modification is not substantial and the transaction should not be accounted for as an extinguishment with the old debt written off and the new debt initially recorded at fair value with a new effective interest rate.
NOTE 7 – COMMITMENT AND CONTINGENCIES
Relating to the December 2013 agreement with Chong Corporation, a related party, beginning in the calendar year in which the first licensed products or licensed services takes place, but not prior to January 1, 2015, the Company is required to pay to Chong Corporation, a related entity, a 3% royalty for revenues with a $50,000 annual minimum royalty commitment.
The December 31, 2013 agreement with Chong Corporation also requires us to pay for the costs associated with maintaining the patent applications and patents licensed to us. For the nine months ended September 30, 2015, the amount of reimbursable costs was $44,088. In October 2015 Chong Corporation agreed to waive all reimbursements through September 30, 2015. Therefore the reimbursements costs are recognized as additional contribution to paid in capital at September 30, 2015.
During April, 2015, the Company declared a dividend in the form of common shares pursuant to the designations, rights and preferences of its 10% Series A convertible preferred stock. This 50,000 common share dividend with a fair value of $1 per share was issued on April 9, 2015.
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The followingdiscussionofourfinancialconditionandresultsofoperationsforthethreemonth and nine monthperiods endedSeptember 30, 2015and2014 shouldbereadinconjunctionwiththe unaudited consolidatedfinancialstatements andthenotestothosestatementsthatareincludedelsewhereinthisreport.Ourdiscussionincludesforward-lookingstatements baseduponcurrentexpectationsthatinvolverisksanduncertainties,suchasourplans,objectives,expectationsandintentions.Actualresultsandthe timingofeventscoulddiffermateriallyfromthoseanticipatedintheseforward-lookingstatements asaresultofanumberoffactors,includingthosesetforth under “Cautionary Statements Regarding Forward-Looking Information” appearing earlier in this report, Part I. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2014,andourotherfilingswiththeSecuritiesandExchangeCommission.Weusewordssuchas“anticipate,” “estimate,”“plan,”“project,” “continuing,”“ongoing,”“expect,”“believe,”“intend,”“may,”“will,”“should,”“could,”andsimilar expressionstoidentifyforward-lookingstatements.Inaddition, anystatementsthatrefertoprojectionsofourfuturefinancialperformance,ouranticipatedgrowthandtrendsinourbusinesses,andothercharacterizationsoffuture events orcircumstancesareforward-lookingstatements.Such statementsarebasedonourcurrentexpectationsandcouldbeaffectedbytheuncertaintiesandriskfactors describedthroughout thisreport.
Overview and plan of operations
On July 31, 2014, we closed the acquisition of VapAria Solutions which is now our wholly-owned subsidiary. The transaction was accounted for as a reverse merger and recapitalization of VapAria Solutions whereby VapAria Solutions was considered the acquirer for accounting purposes. As a result, all historical financial information contained in this report is that of VapAria Solutions.
Today, we are a now a pre-clinical specialty pharmaceutical company. Prior to forming VapAria Solutions in 2010, our management had 28 years collective experience in vaporization and vapor delivery of medicants, having been partners in a joint venture with pioneers in the industry and having had undertaken significant work internationally researching and developing products, shepherding them through the patent process and introducing them into the U.S. wholesale and retail supply chain.
Our initial goal was to leverage rights we acquired in December 2013 from an affiliate to develop and successfully launch a product in partnership with well-capitalized and experienced industry participants based on our exclusive license and exclusive options to license patented and patent-pending technologies and formulations designed to significantly improve on current electronic nicotine delivery systems and other consumer products in the marketplace. During 2015, in addition to discussions with third party financing sources, we engaged in substantive discussions with several international companies which have expressed interest in our licensed technology in pursuit of this strategy.
During the recently completed quarter we adjusted our business focus owing to continuing research, development and design throughout the past 12 months and, as a result, we completed a full design of a product embodiment based on our proprietary technology, authorized the production of fully functional prototypes and are scheduling pre-clinical assessments for the prototypes. During the third quarter of 2015 we spent $42,201 in research and development costs related to these efforts. These assessments are expected to be completed before the end of 2015.
We are presently committed to developing and commercializing methods and medicants to address chronic conditions with novel, vapor-centric approaches to pain management, appetite suppression, mood enhancement, smoking cessation and various sleep disorders and doing so as a specialty pharmaceutical company. Our management, through the Chong Corporation, an affiliated entity that is the licensor of the intellectual property rights we acquired in December 2013, has built an extensive and robust portfolio of intellectual property that includes patented and patent-pending methods of vaporization and patented and patent-pending medicants and herbal remedies identified for their effectiveness and suitability to address the markets identified above. We are in the process of formalizing exclusive licenses for all of this intellectual property which we expect to enter into during the fourth quarter of 2015. Historically we have relied upon on a loan of $73,000, and the $110,000 from the sale of our securities in private transactions that occurred in the first quarter of 2015 to provide working capital. In the third quarter we received a loan from an affiliated party totaling $38,000. Our management has worked without compensation. For the balance of 2015, our foreseeable cash requirements will include payment of expenses associated with research, development and design, patent protection prosecution activities and ordinary business expenses associated with identifying, meeting with and negotiating with potential business partners and our general operating expenses, including the payment of our obligations. Such expenses could include the establishment of salaries and benefits for the key members of our management and administrative team. We estimate that we will need to raise between $1 million and $2 million over the next 12 months to continue to implement our business plan.
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We may seek to raise the necessary capital through future public or private debt or equity offerings of our securities, although we do not have any commitments from any third parties to provide any capital to us. While we believe that the exclusive rights to the proprietary technology on which our business plan is predicated could provide us with a significant competitive advantage if we are able to bring one or more products to market, our ability to accomplish that in the near term is dependent on a successful prototype and positive pre-clinical assessments of the prototype. Given the current lack of a public market for our common stock, our status as a pre-clinical stage company and the difficulties small companies experience in accessing the capital markets, we expect to encounter difficulties in pursuing public or private capital raises. We may also seek to minimize our capital needs by securing partnerships or joint ventures with well capitalized companies in the pharmaceutical or OTC consumer products industries. Until such time as we are able to raise all or a portion of the necessary capital, our ability to continue to implement our business plan will be in jeopardy.
Going Concern
We incurrednetlosses of$110,295 for the third quarterendedSeptember 30, 2015 resulting in a $248,087 net loss for the first three quarters of 2015.The report from our independent registered public accounting firm on our consolidated financial statementsfortheyearendedDecember31,2014containedanexplanatoryparagraphregarding our abilitytocontinueasagoing concernbasedon our minimal cash and no source of revenues which are sufficient to cover our operating costs.Thesefactors, amongothers,raisedsubstantialdoubtaboutourabilitytocontinueasagoingconcern.Our consolidatedfinancialstatements appearingelsewhereinthisreportdonotincludeanyadjustmentsthatmightresultfromtheoutcomeofthisuncertainty.Therearenoassuranceswewillbesuccessful inoureffortstogenerateconsistentrevenuesorreportprofitableoperationsortocontinueasagoingconcern,inwhicheventinvestorswouldlosetheirentire investmentinourcompany.
Results ofoperations
We did not generateanyrevenues fromouroperations for the third quarters of 2015 or 2014 or the nine month periods ended September 30, 2015 or 2014. Ourtotaloperatingexpensesincreased 561% and 455%, respectively,forthethird quarterof 2015 and the nine months then ended fromthecomparable periodsin2014. The increases in the 2015 periodare primarilyattributable to the increase in legal andprofessional fees and research and development expenses. General and administrative expenses, which include amortization, rent and IP related expenses, increased 260% in the third quarter of 2015 and 266% for the nine months then ended from the comparable periods in 2014. Research and development expenses relating to the licensed IP were incurred in the 2015 periods, for which there were no comparable expenses in the 2014 periods. In the third quarter of 2015 and for the nine months then ended, professional fees which include legal, accounting, and web design services, increased 325% and 313%, respectively, compared to the same periods in 2014. The increase in the 2015 periods over the comparable 2014 periods is directly attributable to the additional legal fees related to due diligence costs associated with ongoing discussions and negotiations with potential licensees or product development partners, as well as increases in our legal and accounting fees incurred in connection with our SEC reporting obligations. During the 2015 periods we also incurred one-time legal fees associated with securing a freedom to operate opinion for which there was not a comparable expense in the 2014 periods.
We expectthatouroperatingexpenseswillincreaseaswecontinuetodevelopourbusinessandwedevoteadditionalresourcestowardspromotingthatgrowth, mostnotablyreflectedinanticipatedincreasesingeneraloverhead,salariesforpersonnelandtechnicalresources, as well as increased costs associated with our SEC reporting obligations. However,assetforthelsewhereinthisreport,our abilitytocontinuetodevelopourbusinessandachieveouroperationalgoalsisdependentuponourabilitytoraisesignificantadditionalworkingcapital.Asthe availabilityofthiscapitalisunknown,weareunabletoquantifyatthistimetheexpectedincreasesinoperatingexpensesinfutureperiods.
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Liquidity andcapitalresources
Liquidity istheabilityofacompanytogeneratesufficientcashtosatisfyitsneedsforcash.AsofSeptember 30, 2015wehad$3,414 incashandcash equivalentsandaworkingcapitaldeficitof$256,025,ascomparedtocashandcashequivalentsof$497andaworkingcapitaldeficitof$170,693atDecember31, 2014.Ourcurrentassetsincreased 1,296%andourcurrentliabilitiesincreased 53.6%atSeptember 30, 2015 fromDecember31,2014.Ourprincipalsourceofoperating capitalduring the third quarter of 2015hascome from additional borrowing from a related partywhich lent us an additional $38,000.
We donothaveanycommitmentsforcapitalexpenditures.Ourworkingcapitalisnotsufficienttofundouroperationsforatleastthenext12monthsandto satisfyourobligationsastheybecomedue.We have $90,000 principal amount notes which are due December 31, 2015. During the second quarter of 2015, the holder of a $50,000 principal amount note agreed to the extension of the due date of the note from June 30, 2015 to December 31, 2015. The remaining note in the principal amount of $40,000 is convertible into 500,000 shares of our common stock at the option of the holder. While there are no assurances the holder will elect to convert the note, in that event we granted the holder demand and piggyback registration rights over those shares. We also owe a related party $87,544 which is due on demand. We do not have the funds necessary to repay these obligations or to fund the costs associated with filing a registration statement if the noteholder converts the note and exercises its registration rights. Asdescribedearlierinthisreport,wewillneedtoraiseatleast$1,000,000inadditionalcapitalduringthenext12months. Aswedonothaveanyfirmcommitmentsforalloranyportionofthisnecessarycapital,therearenoassuranceswewillhavesufficientfundstofundouroperating expensesandcontinued developmentofourproductsandtosatisfyourobligationsastheybecomedue.Inthatevent,ourabilitytocontinueasagoingconcernisin jeopardy.
Net Cash UsedinOperatingActivities
We used$158,083ofcashinouroperatingactivitiesduringthefirstninemonthsof2015comparedto$32,245usedbyouroperatingactivitiesforthe firstnine monthsof2014.Theincreaseincashusedinoperatingactivitieswasprimarilyattributabletoanincreaseinnetloss(afteradjustingfornon-cashexpenses),partially offset byanincreaseinaccountspayable and interest payable.
Net Cash Providedby(Usedin)InvestingActivities
There was no netcashprovidedby (used in)investingactivities inthefirstninemonthsof2015comparedtonetcashprovided byinvestingactivitiesinthefirstninemonthsof2014of $14,547whichreflectsrepayment fromChongCorporation of a prior period loan from the Company.
Net Cash ProvidedbyFinancingActivities
Net cash provided by financing consisted of$110,000 in proceedsfrom the sale of our common stock and the net borrowing of $51,000 from Chong Corporation, a related entityduringthefirst nine monthsof 2015ascomparedtono raise of capital and the borrowing of $22,010 from Chong Corporation in the comparable period of 2014.
Non cash investing and financing activities
Dividends of common stock issued on the shares of outstanding Series A 10% convertible preferred stock resulted in $50,000 in non-cash financing. The Company recognized the waiver of IP related expenses by Chong Corporation, a related entity, resulting in non-cash investment of $44,088.
Critical accountingpolicies
The preparationoffinancialstatementsinconformitywithU.S.GAAPrequiresmanagementtomakeestimatesandassumptionsthataffectthereported amountofassetsandliabilities,thedisclosureofcontingentassetsandliabilitiesandthereportedamountsofrevenueandexpensesduringthereportedperiods.The morecriticalaccountingestimatesincludeestimatesrelatedtorevenuerecognition, accountsreceivable allowances and impairment of long-lived assets.Wealsohaveotherkeyaccountingpolicies, whichinvolvetheuseofestimates,judgmentsandassumptionsthataresignificanttounderstandingourresults,whicharedescribedinNote 2toour auditedconsolidated financial statementsfor2014 as contained in our Annual Report on Form 10-K for the year ended December 31, 2014.
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Recent accountingpronouncements
During 2014, we elected to early adopt Accounting Standards Update No. 2014-10,Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allowed our company to remove the inception to date information and all references to development stage.AdditionalrecentaccountingstandardsthathavebeenissuedorproposedbytheFASBorotherstandards settingbodies thatdonotrequireadoptionuntilafuture datearenotexpectedtohaveamaterialimpactonour consolidatedfinancialstatementsupon adoption.
Off balance sheetarrangements
As ofthedateofthisreport,wedonothaveanyoff-balancesheetarrangementsthathaveorarereasonablylikelytohaveacurrentorfutureeffectonourfinancial condition,changesinfinancialcondition,revenuesorexpenses,resultsofoperations,liquidity,capitalexpendituresorcapitalresourcesthatarematerialtoinvestors. Theterm“off-balancesheetarrangement”generallymeans anytransaction,agreementorothercontractualarrangementtowhichanentityunconsolidatedwithusisa party,underwhichwehaveanyobligationarisingunderaguaranteecontract,derivativeinstrumentorvariableinterestoraretainedorcontingentinterestinassets transferredtosuchentityorsimilararrangementthatservesascredit,liquidityormarketrisksupportforsuchassets.
Item 3. | QuantitativeandQualitativeDisclosuresAboutMarketRisk. |
Not applicableforasmallerreportingcompany.
Item 4. | ControlsandProcedures. |
Evaluation ofDisclosureControlsandProcedures.
We maintain“disclosurecontrolsandprocedures”assuchtermisdefinedinRules13a-15(e)undertheSecurities ExchangeActof1934.Indesigningandevaluatingourdisclosurecontrolsandprocedures,ourmanagementrecognizedthatdisclosurecontrolsandprocedures,no matterhowwellconceivedandoperated,canprovideonlyreasonable,notabsolute,assurancethattheobjectivesofdisclosurecontrolsandproceduresaremet. Additionally,indesigningdisclosurecontrolsandprocedures,ourmanagementnecessarilywasrequiredtoapplyitsjudgmentinevaluatingthecost-benefitrelationship ofpossibledisclosure controlsandprocedures.Thedesignofanydisclosurecontrolsandproceduresalsoisbasedinpartuponcertainassumptionsaboutthelikelihood offutureevents,andtherecanbenoassurancethatanydesignwillsucceedinachievingitsstatedgoalsunderallpotentialfutureconditions.
Based ontheirevaluationas oftheendoftheperiodcoveredbythisreport,ourChiefExecutiveOfficerandourChief Financial Officerhave concludedthatourdisclosurecontrolsandprocedureswerenoteffectivetoensurethattheinformationrelatingtoourcompanyrequiredtobedisclosedinourSecurities andExchangeCommissionreports(i)isrecorded,processed,summarizedandreportedwithinthetimeperiodsspecifiedinSECrulesandforms,and(ii)isaccumulated andcommunicated toourmanagement,includingourChiefExecutiveOfficer,toallow timelydecisionsregarding requireddisclosureduetothepresenceof continuing materialweaknessinour internal control over financial reporting as reported in our Annual Report on Form 10-K for the year ended December 31, 2014 These material weaknesses in our internal control over financial reporting result from limited segregation of duties and limited multiple level of review in the financial close process.
The existence of the continuing material weaknesses in our internal control over financial reporting increases the risk that a future restatement of our financials is possible. In order to remediate these material weaknesses, we will need to expand our accounting resources. We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal control over financial reporting on an ongoing basis, however, we do not expect that the deficiencies in our disclosure controls will be remediated until such time as we have remediated the material weaknesses in our internal control over financial reporting. Subject to the availability of sufficient capital, we expect to expand our accounting resources during 2015 in an effort to remediate the material weaknesses in our internal control over financial reporting.
Changes inInternalControloverFinancialReporting.
There havebeennochangesinourinternalcontroloverfinancialreportingduringourlastfiscalquarter thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.
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Item 1. | LegalProceedings. |
We arenotawareofanylegalproceedingstowhichweareapartyorofwhichourpropertyisthesubject.Noneofourdirectors,officers,affiliates, anyowner ofrecordorbeneficiallyofmorethan5%ofourvotingsecurities,oranyassociateofanysuchdirector,officer,affiliateorsecurityholderare(i)apartyadversetousin anylegalproceedings,or(ii)haveamaterialinterestadversetousinanylegalproceedings.Wearenotawareofanyotherlegalproceedings thathavebeenthreatened againstus.
Item 1A. | RiskFactors. |
Not applicable to a smaller reporting company.
Item 2. | UnregisteredSalesofEquitySecuritiesandUseofProceeds. |
None except as previously reported.
Item 3. | DefaultsUponSeniorSecurities. |
None.
Item 4. | MineSafetyDisclosures. |
Not applicabletoourcompany’soperations.
Item 5. | OtherInformation. |
None.
Item 6. | Exhibits. |
No. | Description |
31.1 | Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer* |
31.2 | Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer* |
32.1 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer* |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VapAria Corporation | ||
October 30, 2015 | By: | /s/ Alexander Chong |
Alexander Chong, Chief Executive Officer | ||
October 30, 2015 | By: | /s/ Daniel Markes |
Daniel Markes, Chief Financial Officer |
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