UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 2
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
☐TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from :
ICON VAPOR, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 000-55284 | 46-1471251 | ||
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
8525 Arjons Drive, Suite A
San Diego, CA 92126
(Address of principal executive offices)
(858) 564-9513
(Registrant’s telephone number)
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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒ Yes ☐ No (Not required)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| 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
As of May 21, 2015, there were 43,896,163 shares of the registrant’s $0.001 par value common stock issued and outstanding.
EXPLANATORY NOTE
On May 21, 2015, Icon Vapor, Inc. (the “Company”) filed its Quarterly Report on Form 10-Q/A for the quarterly period ended March 31, 2015 (the “Original Form 10-Q”).The purpose of this second amendment to the Original 10-Q/A is to reflect subsequent adjustments made to financial statements which have been reviewed by our current auditor, KWCO, PC.
This Form 10-Q/A Amendment No. 2 speaks as of the original filing date of the Original Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update in any way disclosures made in the Original Form 10-Q, other than as noted above.
ICON VAPOR, INC.
TABLE OF CONTENTS
| Page | ||
| PART I. FINANCIAL INFORMATION | ||
| ITEM 1. | FINANCIAL STATEMENTS | 1 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 9 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 11 |
| ITEM 4. | CONTROLS AND PROCEDURES | 12 |
| PART II. OTHER INFORMATION | ||
| ITEM 1. | LEGAL PROCEEDINGS | 12 |
| ITEM 1A. | RISK FACTORS | 12 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 12 |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 13 |
| ITEM 4. | MINE SAFETY DISCLOSURES | 13 |
| ITEM 5. | OTHER INFORMATION | 13 |
| ITEM 6. | EXHIBITS | 14 |
Special Note Regarding Forward-Looking Statements
Information included in this Form 10-Q/A contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Icon Vapor, Inc. (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
*Please note that throughout this Quarterly Report, and unless otherwise noted, the words "we," "our," "us," the "Company," "ICNV" or “Icon” refers to Icon Vapor, Inc.
PART I - FINANCIAL INFORMATION
| ITEM 1. | CONDENSED FINANCIAL STATEMENTS |
| INDEX | |
| Unaudited Balance Sheet as of March 31, 2015 and Audited Balance Sheet as of December 31, 2014 (restated) | 2 |
| Unaudited Statements of Operations for the Three Months Ended March 31, 2015 and 2014 | 3 |
| Unaudited Statements of Cash Flows for the Three Months Ended March 31, 2015 and 2014 | 4 |
| Notes to Condensed Financial Statements (Unaudited) | 5 |
| 1 |
ICON VAPOR, INC.
BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2015 | 2014 | |||||||
| Assets: | (Unaudited and Restated) | (Restated) | ||||||
| Current Assets | ||||||||
| Cash and Cash Equivalents | $ | 199,925 | $ | 159,138 | ||||
| Inventory | 319,819 | - | ||||||
| Prepaid Expenses | - | 3,710 | ||||||
| Total Current Assets | 519,744 | 162,848 | ||||||
| Fixed Assets-net | 18,149 | 12,062 | ||||||
| Other assets, Security Deposit | 5,414 | 5,414 | ||||||
| Total Assets | $ | 543,307 | $ | 180,324 | ||||
| Liabilities and Stockholders' Deficit: | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable and Accrued Expenses | $ | 179,168 | $ | 140,059 | ||||
| Convertible Notes Payable | 173,329 | 80,000 | ||||||
| Note Payable | 257,066 | 8,066 | ||||||
| Related Party Debt | 145,141 | 146,641 | ||||||
| Total Liabilities | 754,704 | 374,766 | ||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, Par value $0.001, Authorized 10,000,000 shares Issued 0 shares at December 31, 2014 and 2013 | - | - | ||||||
| Common Stock, Par value $0.001 Authorized 500,000,000 shares Issued 45,996,163 and 42,696,163 shares respectively | 45,996 | 42,696 | ||||||
| Additional Paid in Capital | 2,240,538 | 1,795,708 | ||||||
| Unearned Services | (268,412 | ) | (233,333 | ) | ||||
| Retained Deficit | (2,229,519 | ) | (1,799,513 | ) | ||||
| Total Stockholders' Equity | (211,397 | ) | (194,442 | ) | ||||
| Total Liabilities and Stockholders' Equity | $ | 543,307 | $ | 180,324 | ||||
The accompanying notes are an integral part of these financial statements.
| 2 |
ICON VAPOR, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2015 | 2014 | |||||||
| (Restated) | ||||||||
| Revenues | $ | 51,177 | $ | 4,912 | ||||
| Costs of Goods | 38,111 | 2,846 | ||||||
| Gross Margin | 13,066 | 2,066 | ||||||
| Expenses: | ||||||||
| Professional Fees | 24,500 | 21,502 | ||||||
| General and Administrative | 274,621 | 139,049 | ||||||
| Operating Expenses | 299,121 | 160,551 | ||||||
| Loss from operations | (286,055 | ) | (158,485 | ) | ||||
| Interest | (26,306 | ) | (10,534 | ) | ||||
| Loss on Inventory | (117,645 | ) | - | |||||
| Total Other Expense | (143,951 | ) | (10,534 | ) | ||||
| Net Loss | $ | (430,006 | ) | (169,019 | ) | |||
| Loss per Share | $ | (0.01 | ) | $ | (0.00 | ) | ||
| Weighted Average Shares Outstanding | 43,896,163 | 39,277,137 | ||||||
The accompanying notes are an integral part of these financial statements.
| 3 |
ICON VAPOR, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
| For the three Months Ended | ||||||||
| 2015 | 2014 | |||||||
| (Restated) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss for the Period | $ | (430,006 | ) | $ | (169,019 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Amortization of Debt Discount | 3,329 | - | ||||||
| Depreciation and Amortization | 2,434 | 3,160 | ||||||
| Shares Issued for Services | 138,051 | 36,760 | ||||||
| Changes in Operating Assets and Liabilities: | ||||||||
| Decrease (Increase) in Accounts Payable and Accrued Expenses | 39,109 | 4,751 | ||||||
| (Increase) Decrease in Prepaids | 3,710 | |||||||
| (Increase) Decrease in Inventory | (319,819 | ) | 3,166 | |||||
| (Decrease) Increase in Interest | - | 11,872 | ||||||
| Net Cash Used in Operating Activities | (563,192 | ) | (109,310 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of Property and Equipment | (8,521 | ) | - | |||||
| Net cash provided by Investing Activities | (8,521 | ) | - | |||||
| CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||
| Common Stock issued for Cash | 275,000 | - | ||||||
| Proceeds from Loans, net of debt of $13,000 in 2015 | 339,000 | 110,000 | ||||||
| Reduction of Debt | (1,500 | ) | (5,000 | ) | ||||
| Net Cash Provided by Financing Activities | 612,500 | 105,000 | ||||||
| Net (Decrease) Increase in Cash | 40,787 | (4,310 | ) | |||||
| Cash at Beginning of Period | 159,138 | 74,843 | ||||||
| Cash at End of Period | 199,925 | $ | 70,533 | |||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Franchise and Income Taxes | $ | - | $ | - | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Increase in Unearned Services | $ | 173,130 | $ | - | ||||
The accompanying notes are an integral part of these financial statements.
| 4 |
ICON VAPOR, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2015
NOTE 1 – ORGANIZATION
Icon Vapor, Inc. (“the Company) was originally incorporated under the laws of the state of Nevada. On April 3, 2006 the Company changed its name to Xero Mobile and then in April 2011 to MYEZSMOKES, INC. In February 2014 the name was changed to Icon Vapor, Inc. The Company specializes in the distribution of a smoke free cigarette.
On November 3, 2014, The Company purchased all of the outstanding stock of Green Tree Syndicate, Inc. a private company incorporated under the laws of the state of California.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report filed with the SEC on its 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for our interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosure contained in the audited financial statements for the year ended December 31, 2014, as reported in the Form 10-K, have been omitted.
NOTE 3 – NOTES PAYABLE
The Company has four notes payable totaling $257,066 the largest of which is for $249,000 due to an individual and maturing on July 19, 2015. This note is personally guaranteed by the Chief Executive officer as well as by the receivables of the Company. Payment terms are an interest only payment of $10,000 a month with a balloon principal payment due on July 16, 2015.
NOTE 4 – CONVERTIBLE NOTES
The Company at March 31, 2015 has four convertible notes payable in the amount of $217,000, of which $173,329 is net of deferred costs and bond amortization.
At March 31, 2015 the derivative liability is $0.
NOTE 5 – GOING CONCERN
As reflected in the accompanying financial statements, the Company had a significant retained deficit at March 31, 2015 and had a net loss for the three months ended March 31, 2015.
Management intends to raise additional funds now that it has merged thru a private placement or thru the public process. Management believes that the actions presently being taken to further implement its business plan will enable the Company to continue as a going concern. While the Company believes in the viability 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 the Company’s ability to further implement its business plan and generate funds
| 5 |
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 6 – STOCKHOLDERS’ EQUITY
Common Stock
For the Period from January 1, 2015 through March 31, 2015
On February 13, 2015, the Company issued 750,000 shares valued at market on that day of $0.1674 for services from January 15, 2015 to January 15, 2016 for a total cost of $125,550 prorated over the term of the agreement.
On March 19, 2015, the Company issued 250,000 shares for cash of $25,000.
On March 19, 2015, the Company issued 300,000 shares for services to be earned thru June of 2015 valued at market of $0.1586 for a total cost of $47,580, which is prorated over the term of the agreement.
On March 27, 2015, the Company issued 2,000,000 shares for cash of $250,000.
All shares issued above for this period were to non-related third party individuals.
NOTE 7 – SUBSEQUENT EVENTS
Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855 and has determined that one material subsequent event existed.
In April 2015 the Company received $50,000 in the form of a convertible note.
| 6 |
NOTE 8 – RESTATED FINANCIAL STATEMENTS
The Company restated its December 31, 2014 balance sheet. The differences are as follows:
ICON VAPOR, INC.
BALANCE SHEETS
| December 31, 2014 | ||||||||||||
| Originally Reported | Restated | Difference | ||||||||||
| ASSETS | ||||||||||||
| Current Assets: | ||||||||||||
| Cash | $ | 79,867 | $ | 159,138 | 79,271 | (1) | ||||||
| Inventory | 123,259 | - | (123,259 | )(2) | ||||||||
| Other | $ | 4,197 | $ | 3,710 | (487 | )(2) | ||||||
| Total current assets | 207,323 | 162,848 | (44,475 | ) | ||||||||
| Equipment, Net | 35,356 | 12,062 | (23,294 | )(2) | ||||||||
| Other | 5,414 | 5,414 | - | |||||||||
| Total Assets | $ | 248,093 | $ | 180,324 | (67,769 | ) | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||||
| CURRENT LIABILITIES: | ||||||||||||
| Derivative Liability | $ | 579,583 | $ | - | (579,583 | )(3) | ||||||
| Accrued Liabilities | 19,700 | 140,059 | 120,359 | (4) | ||||||||
| Convertible Notes Payable | 90,000 | 80,000 | (10,000 | )(1) | ||||||||
| Notes Payable | 64,707 | 8,066 | (56,641 | )(1) | ||||||||
| Notes Payable - Related Party | - | 146,641 | 146,641 | (1) | ||||||||
| Customer Deposits | $ | 48,366 | $ | - | (48,366 | )(2) | ||||||
| Total Current Liabilities | 802,356 | 374,766 | (427,590 | ) | ||||||||
| Total Liabilities | $ | 802,356 | $ | 374,766 | (427,590 | ) | ||||||
| STOCKHOLDERS' DEFICIT | ||||||||||||
| Preferred stock | - | - | - | |||||||||
| Common stock | 42,696 | 42,696 | - | |||||||||
| Additional Paid in Capital | 7,451,899 | 1,795,708 | (5,656,191 | )(5) | ||||||||
| Common Stock to be issued | (33,000 | ) | - | (33,000 | )(5) | |||||||
| Unearned Services | (233,333 | ) | (233,333 | ) | - | |||||||
| Retained deficit | (7,848,525 | ) | (1,799,513 | ) | 6,049,012 | (6) | ||||||
| Total stockholders' deficit | (554,263 | ) | (194,442 | ) | 359,821 | |||||||
| Total liabilities and stockholders' deficit | $ | 248,093 | $ | 180,324 | (67,769 | ) | ||||||
The explanations of the changes noted above, respectively, are as follows:
| (1) | The increase in cash is a result of the Company not properly recording proceeds of an $84,000 note payable (less $4,000 original issue discount) reduced by $1,214 of cash held by Green Tree Syndicate, Inc. (“Green Tree”). |
| (2) | The Green Tree acquisition was terminated and the assets and liabilities were removed from the financial statements. |
| (3) | The Company had computed derivative liabilities on the $146,641 related party debt; however, this debt was not convertible into common shares according to loan documents. The $84,000 convertible debt was only convertible after one hundred and eighty days (180) had passed, therefore at December 31, 2014 there was no derivative liability as the note was not convertible at that time. |
| (4) | The increase in accounts payable is the result of accrual of wages for an executive employee based on the terms of his employment agreement, offset by a reduction of $4,340 in liabilities related to Green Tree. |
| (5) | Reversal of value assigned to the 33,000,000 shares of common stock issued to owners of Green Tree upon termination of the Green Tree acquisition. |
| 7 |
| (6) | The following summarize the changes in retained deficit: |
| Balance December 31, 2013 | $ | 1,185,919 | ||
| Adjustments – | ||||
| Reversal of derivative Liability | (170,870 | ) | ||
| Accrual of Wages | 20,843 | |||
| Adjusted Balance December 31, 2013 | 1,035,892 | |||
| Net Loss as reported – 2014 | 6,662,606 | |||
| Adjustments – | ||||
| Green Tree Loss | (5,605,038 | ) | ||
| Change in Derivative Liability | (405,199 | ) | ||
| Accrual of Expenses | 111,252 | |||
| Adjusted Net Loss | 763,621 | |||
| Adjusted Retained Deficit, December 31, 2014 | $ | 1,799,513 |
The March 31, 2015 financial statements have also been restated to reflect the elimination of the $923,159 derivative liability and the reduction in the derivative expense for the three months ended March 31, 2015 of $211,438, as the convertible notes were not convertible at March 31, 2015. The issuance of 33,000,000 common stock shares related to the Green Tree Syndicate, Inc. acquisition were also reversed.
End of Notes to Financial Statements
| 8 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following Management's Discussion and Analysis should be read in conjunction with Icon Vapor, Inc. financial statements and the related notes thereto. The Management's Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Report on Form 10-Q/A. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements because of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report on Form 10-Q/A.
The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes and other financial data included elsewhere in this report. See also the notes to our consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on April 14, 2015.
Overview
We are an electronic cigarette company headquartered in San Diego, California, that design, markets and sells electronic cigarettes, cigars, cartomizers and related accessories under the Icon Vapor brand. We have commercially launched our Icon Vapor products, which are now being sold online. Our initial sales campaign began in August of 2012, but sales are not to the point that our operations are profitable.
Our initial strategy has been to drive online sales through our Icon Vapor eCommerce website. We do not intend to compete with larger, significantly greater capitalized e-cigarette companies in the brick-and-mortar retail environment, which we believe would require substantial advertising, particularly direct television marketing, advertisements in trade magazines, point of sale materials, display, price promotions, in-store and on-premise promotions and slotting fees. We intend to launch a network marketing sales program, which we believe will result in a more dedicated sales program and produce stronger results.
We intend to distribute and sell our Icon Vapor products through a network of independent members using the direct selling channel. We believe that this strategy will enhance consumer awareness and the demand for our products for smokers who are looking for, and shifting to, a potentially more healthy “smoking” choice. We believe that these selling channels are ideally suited to marketing our products because sales of electronic and vapor cigarettes involves an education process strengthened by ongoing personal contact between members of the network and their customers. We expect that our members will consume Icon Vapor products themselves and, therefore, would provide first-hand testimonials of our products to their customers, which we believe can serve as a powerful sales tool.
Results of Operations
Total revenue for the three months ended March 31, 2015 was $51,177 as compared to $4,912 for the three months ended March 31, 2014. Operating expenses in the quarter ended March 31, 2015 amounted to $299,121 as compared to $160,551 for the quarter ended March 31, 2014. The increase in revenue can be attributed primarily to the asset acquisition of Green Tree Syndicate, Inc. on December 4, 2014 and its recognition of revenue from the merger date to March 31, 2015.
The net loss for the quarter ended March 31, 2015 was $430,006 as compared to $169,019 for the quarter ended March 31, 2014. This increase in loss is due to expenses associated with our acquisition of Green Tree Syndicate, Inc. of $117,645 and an increase in general and administrative expenses, associated with the same, of $135,572 from the prior three-month period ending March 31, 2014.
| 9 |
Operating Expenses
Total operating expenses, including expenses for professional fees and general and administrative services, for the three month period ended March 31, 2015 were $299,121, which was comprised of $24,500 in professional fees and $274,621 in other general and administrative costs, as compared to $160,551 for the three month period ended March 31, 2014, which was comprised of $21,502 in professional fees and $139,049 in other general and administrative costs. The overall increase in operating expenses can be attributed to expenses incurred from the of becoming a reporting company and $135,572 in general and administrative costs that increased as a result of the implementation of our marketing and business plans.
Liquidity and Capital Resources
Our cash, current assets, intangible assets, total assets, current liabilities and total liabilities as of March 31, 2015 (restated) and December 31, 2014 (restated) were as follows:
| March 31, 2015 (Restated) | December 31, 2014 (Restated) | $ Change | % Change | |||||||||||||
| Cash | 199,925 | 159,138 | 40,787 | 25,62 | % | |||||||||||
| Total current assets | 519,744 | 162,848 | 356,896 | 219.15 | % | |||||||||||
| Total assets | 543,307 | 180,324 | 362,983 | 201.29 | % | |||||||||||
| Accounts payable and accrued expenses | 179,168 | 140,059 | 39,108 | 27.92 | % | |||||||||||
| Notes payable | 257,066 | 8,066 | 249,000 | 3087.03 | % | |||||||||||
| Total liabilities | 754,704 | 374,766 | 379,938 | 101.38 | % | |||||||||||
Cash Requirements/Going Concern
As of March 31, 2015, our primary source of liquidity was our cash and cash equivalents on hand of $199,925. However, we believe our current cash balances, together with the net product revenues are not sufficient to meet our anticipated cash requirements to fund our further commercialization of our Icon Vapor product line and to develop and implement a network marketing sales plan which are critical to driving sales to bring our business operations to profitability for the next twelve months. Given our existing sources of liquidity and expected cash burn, we believe that we will need approximately $3,500,000 in financing in order to continue as a going concern for the next twelve months from December 31, 2014, of which we expect to use approximately $2,000,000 to fund our acquisition of Green Tree Syndicate, Inc., an electronic cigarette sales and distribution company, $700,000 to purchase inventory, $300,000 for marketing and trade shows, $200,000 for consultant compensation and $300,000 for administrative and operational expense. We plan to obtain this financing through private placement offerings of the Company’s securities.
Our forecast of the period of time through which our financial resources and capital requirements will be adequate to support our operations, further expand the commercialization of Icon Vapor are forward-looking statements and involve risks and uncertainties, and actual results could vary materially and negatively as a result of a number of factors. A copy of applicable “Risk Factors” can be found in our registration statement on Form 10, originally filed with the Commission on September 16, 2014 and most recently amended on April 23, 2015. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.
Due to the numerous risks and uncertainties associated with the development and commercialization of Icon Vapor, we are unable to estimate precisely the amounts of capital outlays and operating expenditures necessary to complete the development of our network marketing strategy and continued deployment of our online sales strategy sufficient to achieve profitability in our operations. Our funding requirements will depend on many factors, including, but not limited to, the following:
| ● | The rate of progress and cost or our commercialization activities; | |
| ● | The expenses we incur in marketing and selling Icon Vapor products and accessories; | |
| ● | The revenue generated by sales of Icon Vapor; | |
| ● | The success of our investment in our network marketing channel; and | |
| ● | The costs of defending any patent claims and other intellectual property rights. |
We may, from time to time, consider additional funding through a combination of new collaborative arrangements, strategic alliances, and additional equity and debt financings or from other sources. We will continue to manage our capital structure and to consider all financing opportunities, whenever they may occur, that could strengthen our long-term liquidity profile. Any such capital transactions may or may not be similar to transactions in which we have engaged in the past. There can be no assurance that any such financing opportunities will also be available on acceptable terms, if at all.
| 10 |
Cash Flow from Operating Activities
During the three months ended March 31, 2015, the Company’s operating activities used $563,192 in cash as compared to $109,310 used by operating activities for the three months ended March 31, 2014. The increase in cash used for operating activities is primarily due to the increased loss.
Cash Flow from Investing Activities
During the three-month period ended March 31, 2015 and 2014, the Company used $8,521and $NIL, respectively, in cash for investing activities. The increase in cash used for investing activities is primarily due to purchase of leasehold improvements.
Cash Flow from Financing Activities
During the three months ended March 31, 2015, the Company received $612,500 in cash from financing activities. This consisted of $275,000 in proceeds from the issuance of common stock, $339,000 in proceeds from net loans, offset by $2,500 in reduction of debt. This compares with $105,000 provided during the three months ended March 31, 2014, which consisted of $110,000 in net financing from loans less $5,000 from the reduction of debt.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.
Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance and the performance of our subsidiaries.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. The preparation of these financial statements requires us to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reported periods and related disclosures. These estimates and assumptions, including those related to revenue recognition, inventory valuation, impairment of long-lived assets, income taxes including the valuation allowance for deferred tax assets, research and development and stock-based compensation are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on our historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.
We believe that our application of the following accounting policies, each of which require significant judgments and estimates on the part of management, are the most critical to aid in fully understanding and evaluating our reported financial results. Our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies” of our Notes to Financial Statements, contained herein.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
| 11 |
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2015.
Changes in Internal Control over Financial Reporting
Our management has also evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.
The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
In the ordinary course of business, we may be subject to claims, counter claims, suits and other litigation of the type that generally arise from the conduct of our business. We are not aware of any threatened or pending litigation that we expect will have a material adverse effect on our business operations, financial condition or results of operations.
| ITEM 1A. | RISK FACTORS |
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| 1. | Quarterly Issuances: |
On January 8, 2015, the Company issued 7,500,000 restricted common stock shares to Bashar Ballo pursuant to the Asset Acquisition Agreement with Green Tree Syndicate, Inc. The Asset Acquisition closed on December 4, 2014. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
On January 8, 2015, the Company issued 7,500,000 restricted common stock shares to Rawi Ballo pursuant to the Asset Acquisition Agreement with Green Tree Syndicate, Inc. The Asset Acquisition closed on December 4, 2014. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
On January 8, 2015, the Company issued 15,000,000 restricted common stock shares to Sater Tommka pursuant to the Asset Acquisition Agreement with Green Tree Syndicate, Inc. The Asset Acquisition closed on December 4, 2014. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
On January 8, 2015, the Company issued 3,000,000 restricted common stock shares to Everest Capitol LLC pursuant to the Asset Acquisition Agreement with Green Tree Syndicate, Inc. The Asset Acquisition closed on December 4, 2014. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
| 12 |
On February 13, 2015, the Company issued 750,000 restricted common stock shares to Motivated Minds LLC as compensation for consulting services rendered to the Company; cost basis $0.20 per share. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
On March 19, 2015, the Company issued 250,000 restricted common stock shares to Matthew Dana pursuant to a Subscription Agreement, cost basis $0.10.The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
On March 19, 2015, the Company issued 150,000 restricted common stock shares to Radius Consulting, Inc. as compensation for consulting services rendered to the Company, cost basis $0.10. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
On March 19, 2015, the Company issued 150,000 restricted common stock shares to Sarah R. Speno as compensation for consulting services rendered to the Company, cost basis $0.10. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
On March 27, 2015, the Company issued 2,000,000 restricted shares of common stock to one investor pursuant to a subscription and purchases agreement, cost basis $0.13. The issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
| 2. | Subsequent Issuances: |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
N/A.
| ITEM 5. | OTHER INFORMATION |
None.
| 13 |
| ITEM 6. | EXHIBITS |
| 3.1.1 | Articles of Incorporation of Desitv.com | Filed as an exhibit to our Registration Statement on Form 10-12G of the Company, filed with the SEC on September 16, 2014 | ||
| 3.1.2 | Articles of Amendment Desitiv, Inc. | Filed as an exhibit to our Registration Statement on Form 10-12G of the Company, filed with the SEC on September 16, 2014 | ||
| 3.1.3 | Articles of Amendment Xero Mobile, Inc. | Filed as an exhibit to our Registration Statement on Form 10-12G of the Company, filed with the SEC on September 16, 2014 | ||
| 3.1.4 | Articles of Amendment Myezsmokes, Inc. | Filed as an exhibit to our Registration Statement on Form 10-12G of the Company, filed with the SEC on September 16, 2014 | ||
| 3.2 | Amended and Restated Bylaws dated January 7, 2011 | Filed as an exhibit to our Registration Statement on Form 10-12G of the Company, filed with the SEC on September 16, 2014 | ||
| 10.1 | Option Agreement | Filed as an exhibit to our registration statement on Form 1-A of the Company, filed with the SEC on November 14, 2013. | ||
| 10.2 | Amendment to Option Agreement | Filed as an exhibit to our Registration Statement on Form 10-12G of the Company, filed with the SEC on December 10, 2014 | ||
| 10.3 | Letter of Employment of Daniel Balsiger dated July 1, 2014 | Filed as an exhibit to our Registration Statement on Form 10-12G of the Company, filed with the SEC on September 16, 2014 | ||
| 10.4 | Sales Compensation Plan | Filed as an exhibit to our Registration Statement on Form 10-12G of the Company, filed with the SEC on September 16, 2014 | ||
| 31.01 | Certification of Principal Executive Officer Pursuant to Rule 13a-14 | Filed Herewith. | ||
| 31.02 | Certification of Principal Financial Officer Pursuant to Rule 13a-14 | Filed Herewith. | ||
| 32.01 | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act | Filed Herewith. | ||
| 32.02 | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act | Filed Herewith. | ||
| 101.INS* | XBRL Instance Document | Filed Herewith. | ||
| 101.SCH* | XBRL Taxonomy Extension Schema Document | Filed Herewith. | ||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | Filed Herewith. | ||
| 101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document | Filed Herewith. | ||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | Filed Herewith. | ||
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | Filed Herewith. |
*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
| 14 |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ICON VAPOR, INC. | ||
| Dated: January 19, 2016 | /s/Daniel W. Balsiger | |
| Name: Daniel W. Balsiger | ||
| Title: Chief Executive Officer, | ||
| President and Chief Financial Officer |
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated:
| Dated: January 19, 2016 | /s/Daniel W. Balsiger | |
| Name: Daniel W. Balsiger | ||
| Title: Chief Executive Officer, | ||
| President and Chief Financial Officer, Director | ||
| Dated: January 19, 2016 | /s/Michael J. Klepper | |
| Name: Michael J. Klepper | ||
| Title: Secretary and Director | ||
| Dated: January 19, 2016 | /s/Mark Bednarz | |
| Name: Mark Bednarz | ||
| Title: Director |
15
