0001213900-16-013783.txt : 20160524 0001213900-16-013783.hdr.sgml : 20160524 20160524172842 ACCESSION NUMBER: 0001213900-16-013783 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 71 CONFORMED PERIOD OF REPORT: 20150930 FILED AS OF DATE: 20160524 DATE AS OF CHANGE: 20160524 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Vape Holdings, Inc. CENTRAL INDEX KEY: 0001455819 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC HOUSEWARES & FANS [3634] IRS NUMBER: 900436540 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-55328 FILM NUMBER: 161672800 BUSINESS ADDRESS: STREET 1: 5304 DERRY AVE. STREET 2: UNIT C CITY: AGOURA HILLS STATE: CA ZIP: 91301 BUSINESS PHONE: 1-877-827-3959 MAIL ADDRESS: STREET 1: 5304 DERRY AVE. STREET 2: UNIT C CITY: AGOURA HILLS STATE: CA ZIP: 91301 FORMER COMPANY: FORMER CONFORMED NAME: PEOPLESTRING CORP DATE OF NAME CHANGE: 20090209 10-K/A 1 f10k2015a2_vapeholdings.htm AMENDMENT NO. 2 TO FORM 10-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K/A

  

(Mark One)

☒   Annual Report PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended September 30, 2015

 

or

 

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from                to               .

 

Commission File Number 333-163290

 

VAPE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   90-0436540
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

5304 Derry Avenue, Suite C, Agoura Hills, CA 91301

(Address of principal executive offices) (Zip Code)

 

(877) 827-3959

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, par value $0.00001

(Title of class)

 

Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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 ☒

At May 20, 2016, the aggregate market value of shares held by non-affiliates of the Registrant (based upon the closing sale price of such shares on OTCQB on January 11, 2016 of $0.004) was $1,467,493.

At May 20, 2016, there were 366,873,168 shares of the Registrant’s common stock outstanding.

 

 

 

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain information included in this Annual Report on Form 10-K and other filings of the Registrant under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as information communicated orally or in writing between the dates of such filings, contains or may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.  Forward-looking statements in this Annual Report on Form 10-K/A, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from expected results.  Among these risks, trends and uncertainties are the availability of working capital to fund our operations, the competitive market in which we operate, the efficient and uninterrupted operation of our computer and communications systems, our ability to generate a profit and execute our business plan, the retention of key personnel, our ability to protect and defend our intellectual property, the effects of governmental regulation and other risks identified in the Registrant’s filings with the Securities and Exchange Commission from time to time.

 

In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology.  Although the Registrant believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements.  Moreover, neither the Registrant, nor any other person, assumes responsibility for the accuracy and completeness of such statements.  The Registrant is under no duty to update any of the forward-looking statements contained herein after the date of this Annual Report on Form 10-K/A.

 

EXPLANATORY NOTE ON AMENDMENT

 

This Amendment No. 1 to Form 10-K (“Amendment”) amends the Annual Report on Form 10-K for the fiscal year ended September 30, 2015 (the “2015 Form 10-K”) originally filed on January 13, 2016 (the “Original Filing”) by Vape Holdings, Inc. (“Vape,” the “Company,” “we,” or “us”). We are filing this Amendment to correctly account for the following non-cash transactions:

 

In August 2015 the Company entered into convertible notes without conversion floors resulting in an unlimited potential of shares to be issued. The notes were not convertible until six months from the issuance date, and accordingly, we adjusted the consolidated financial statements to defer recognition of the embedded conversion feature until the instruments are convertible.

 

On August 13, 2015 and August 26, 2015, the fixed conversion floors of the Redwood and Typenex notes, respectively, were removed creating a potentially unlimited number of shares to be issued on the date of the amendment. Accordingly, we amended this Form 10-K/A to account for the embedded conversion features as derivative financial instruments at fair value. This increased the loss on debt extinguishments and interest expense previously recorded, as well as the derivative liabilities at fair value.

 

Except as described above, no other changes have been made to the Original Filing. The Original Filing continues to speak as of the date of the Original Filing, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Original Filing.

 

 2 

 

 

VAPE HOLDINGS INC.

 

INDEX TO FORM 10-K/A

 

PART I PAGE
     
Item 1. Business 4
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 7
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Mine Safety Disclosure 7
     
PART II  
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities 8
Item 6. Selected Financial Data 12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 21
Item 9A. Controls and Procedures 21
Item 9B. Other Information 22
     
PART III  
     
Item 10. Directors, Executive Officers and Corporate Governance 22
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 29
Item 13. Certain Relationships and Related Transactions and Director Independence 30
Item 14. Principal Accountant Fees and Services 32
Item 15. Exhibits, Financial Statement Schedules 33
  Index to Consolidated Financial Statements F-1
  Index of Exhibits  
     
Signatures 34

 

 3 

 

 

PART I

 

Item 1. Business

 

Background

 

On August 9, 2013, PeopleString Corporation, and its wholly-owned subsidiary, RewardString Corporation (“RewardString”), and Vape Holdings, Inc., a Nevada corporation (the “Private Company”), entered into a Merger and Reorganization Agreement (the “Agreement”) whereby the Private Company merged with RewardString, with the Private Company being the surviving entity (the “Merger”). In consideration for the merger, the shareholders of the Private Company received a total of approximately 4,684,538   shares of common stock of the merged company on a pro rata basis in exchange for 8,875 shares of the Private Company’s common stock, representing 100% of the outstanding common stock of the Private Company. The total shares of the merged company issued on a pro rata basis to 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 Corporation were not significant.  The historical results of operations and cash flows of the Private Company are being reported beginning in the quarter ended December 31, 2013 in this Quarterly Report.  The Merger closed on September 30, 2013.  On September 30, 2013, the Company approved a change in fiscal year end of the Company from December 31st to September 30th.  The Company’s decision to change the fiscal year end was related to the Merger. Following such change, the date of the Company’s next fiscal year end is September 30, 2014.

 

On March 27, 2014, the Company formally closed its asset purchase of the HIVE Ceramics LLC ("HIVE") vaporization product and related intellectual property and has begun distributing the HIVE products through various wholesale distribution channels.  HIVE had been in development of a ceramic product for use in the vaporization market.  The development for one product line was completed in 2014.  No sales of this product line were made prior to Vape’s acquisition of the HIVE ceramic product line on March 27, 2014.  We determined that HIVE's assets acquired were not deemed a business prior to being acquired by the Company under Rule 11-01(d) of Regulation S-X since there were no significant revenue activities, physical assets, employees or customers. 

 

Overview

 

General

 

Vape Holdings, Inc. (“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 ceramic vaporization products under a unique brand. The Company has also introduced a nonporous, non-corrosive, chemically inert medical-grade 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.

 

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 is organized and directed to operate strictly in accordance with all applicable state and federal laws.

 

 4 

 

 

HIVE Ceramics

 

HIVE Ceramics (“HIVE”) is the premier brand under the VAPE umbrella. HIVE manufactures and distributes a proprietarily blended ceramic vaporization element for torched, electronic and portable vaporizers with countless design and product crossover capabilities in existing and emerging markets. HIVE is dedicated to bringing the healthiest and cleanest vaporization experience possible to the market. The HIVE product line currently consists of over 15 distinct ceramic elements, including the 2 piece domeless, domeless direct inject, and HIVE’s signature domeless elements covering 10mm, 14mm and 18mm applications as well as regular elements, the HIVE Flower Cup, the HIVE Carb Cap, HIVE Stinger Dabber, the 14mm HIVE x Quave - Club Banger, the HIVE x D-Nail 16mm and 20mm attachments and the highly anticipated Brothership Ceramic Honey Bucket developed on collaboration with Mothership Glass.

 

Revival

 

On December 28, 2015, the Company created a new wholly-owned subsidiary, Revival Products, LLC (“Revival”), which is in the business of portable vaporization devices. Revival will complement HIVE Ceramics’ product lines utilizing its sales and distribution channels. 

 

Distribution Channels

 

HIVECERAMICS.COM is the Company’s e-commerce site for its premier HIVE Ceramics product line. The website will also be used in connection with the Company’s new HIVE Glass product line. A beta version of the e-commerce site was successfully launched in April 2014 with a limited product line and no paid or formal advertising. The e-commerce site has since become fully operational since July 1, 2014 with a full product line and is taking orders daily with same or next day shipping available direct to the consumer on all orders.

 

The Company’s AUTHORIZED DEALER NETWORK has grown to over 1,100 authorized shops for the Company’s wholesale distribution platform. The Company and its principals have relied on their industry reputation and contacts to rapidly expand this vast wholesale distribution network in a matter of months. The Company has already funneled the HIVE Ceramics product line through these channels and anticipates parlaying this expansive network into the success of future product lines and related ventures, including the HIVE Glass line.

 

 5 

 

 

GOTVAPE.COM is an Orange County, California based online distributor that boasts the top online vaporizer retail site in the world and sells a full range of vaporization products for shipment nationwide. The Company has partnered with GotVape.com for the U.S. distribution of its HIVE product lines through its expansive nationwide distribution chain.

 

DNA GENETICS is a world-renowned name in cannabis genetics with a global reach and trusted brand poised to assist the Company with its expansion into the emerging European markets. DNA Genetics will serve as the Company’s European distributor assisting the Company in reaching the European market from its base in Amsterdam.

 

PURE DNA is DNA Genetics’ South American distributor based in Chile which will partner with the Company to distribute HIVE products throughout the South American Market. Pure DNA is backed by DNA Genetics’ brand which can be found throughout the world.

 

PUFF PIPES is a Vancouver, B.C. Canada based distributor and one of two Canadian distributors partnering with the Company to blanket the Canadian market. Puff Pipes is one of Canada's leading suppliers of high quality glass works for over 20 years and a trusted name in the vaporizer industry.

 

WEST COAST GIFTS is also based in Vancouver, B.C. Canada and is known for having an excellent reputation as one of the longest-running distributors of nationally recognized brands of vaporizers and related accessories in Canada.

  

Subsequent to the Company’s fiscal year ended September 30, 2015, the Company began taking steps to curtail its Offset, HIVE Glass and HIVE Supply business lines to focus more on consumer vaporization products including the launch of “Revival” discussed above. The Company also curtailed its ‘THE HIVE’ retail store in order to reduce overhead costs and focus on HIVE Ceramics. Moreover, the Company curtailed its exploration into providing real estate, management and consulting solutions to the legal cannabis industry in states where such cannabis cultivation and extraction is legal. The Company was never able to execute on any of these plans and ultimately determined that the Company’s capital reserves for such projects as well as the risks inherent in each project due to the current regulatory environment surrounding the cannabis industry made this line of business too difficult to pursue.

 

Competition

 

Vape’s brands and retail and online distributions channels compete for customers and sales with many different companies and products that are competitive today and likely to be even more competitive in the future. Accordingly, it is essential that Vape and its HIVE brand product lines continue to innovate, expand, develop and refine its product and the underlying value offered to consumers. Competition in the retail and wholesale vaporizer and e-cigarette industries is significant as competing shops, manufacturers and distributors continually open.

 

The competition for the Company’s premier HIVE Ceramics product line, which offers a nonporous, non-corrosive, chemically inert medical-grade ceramic vaporization element that can be used for a range of applications exists in the form of traditional quartz and titanium vaporization products and other lesser grade ceramic vaporizers.

 

With regard to our company’s size relative to its competition, that is difficult to gauge as most of our competition is privately held and does not publicly report their earnings. We do know of several competitors who own and operate larger online retail vaporizer and e-cigarette stores than we currently do, but, like our Company, many are in their initial stages of development and are focusing on different areas of this industry.

 

While our management believes that we have the opportunity to be an innovative group of industry professionals focused on providing the most relevant and effective products to our consumers, there can be no assurance that we will be successful in accomplishing our business initiatives, or that we will be able to maintain significant levels of revenues, or recognize net income, from the sale of our products and services.

 

Intellectual Property and Proprietary Rights

 

Our intellectual property consists of our brands and their related trademarks and websites, expansive customer lists and affiliations, product know-how and technology and related marketing intangibles plus our pending patent applications on our ceramic vaporizer line of products.

 

The Company intends to prosecute all of its pending patent applications to completions as well as its current and planned brand names for which the Company has applied for federal trademark protection.

 

 6 

 

 

We have a policy of entering into confidentiality and non-disclosure agreements with our employees and some of our vendors and customers as we deem necessary. These agreements and policies are intended to protect our intellectual property, but we cannot ensure that these agreements or the other steps we have taken to protect our intellectual property will be sufficient to prevent theft, unauthorized use or adverse infringement claims. We cannot prevent piracy of our methods and features, and we cannot fully determine the extent to which our methods and features are being pirated.

 

Employees

 

As of September 30, 2015, we had 8 employees. Since inception, we have never had a work stoppage, and our employees are not represented by a labor union. We consider our relationship with our employees to be positive.

 

Item 1A. Risk Factors

 

Vape is a smaller reporting company and is therefore not required to provide this information.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

As of September 30, 2015, the Company leases a 5,000 square foot office in Chatsworth, California.

 

Item 3. Legal Proceedings

  

Vape is not currently a party to, and none of its property is the subject of, any pending legal proceedings. To Vape’s knowledge, no governmental authority is contemplating any such proceedings.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

 7 

 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock commenced quotation on the OTCQB under the trading symbol “VAPE” on January 8, 2014. Our common stock is currently quoted on OTCQB. The closing price of our common stock on September 30, 2015 was $0.04 per share. The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported on the OTCQB. This information reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

From the Year Ended September 30, 2015  High   Low 
First Quarter  $1.92   $0.52 
Second Quarter  $0.92   $0.51 
Third Quarter  $0.60   $0.26 
Fourth Quarter  $0.43   $0.03 

 

The OTCQB is generally considered to be a less active and efficient market than the NASDAQ Global Market, the NASDAQ Capital Market or any national exchange and will not provide investors with the liquidity that the NASDAQ Global Market, the NASDAQ Capital Market or a national exchange would offer.  

 

Holders

 

As of September 30, 2015, the approximate number of registered holders of our common stock was 71. As of September 30, 2015, the number of outstanding shares of our common stock was 19,455,896; there were 1,184,727 shares of common stock subject to outstanding warrants, and there were no shares of common stock subject to outstanding stock options.

 

Dividends

 

No dividends were declared on Vape’s common stock in the year ended September 30, 2015 and 2014, and it is anticipated that cash dividends will not be declared on Vape’s common stock in the foreseeable future.  Our dividend policy is subject to the discretion of our board of directors and depends upon a number of factors, including operating results, financial condition and general business conditions.  Holders of common stock are entitled to receive dividends as, if and when declared by our board of directors out of funds legally available therefor.  We may pay cash dividends if net income available to stockholders fully funds the proposed dividends, and the expected rate of earnings retention is consistent with capital needs, asset quality and overall financial condition.

 

Details of Issuance of Shares of Our Common Stock in Connection with Investor Relation Services

 

On January 31, 2014, the Company entered into an agreement to issue a 10% convertible promissory note to a consultant as compensation for investor relations services for a period of up to one (1) year. The agreement was terminated after five (5) months. On July 10, 2014, the holder converted principal of $41,667 and outstanding accrued and unpaid interest of $345 into 21,006 shares of the Company’s common stock at a per share conversion price of $2.00, which is in accordance with the terms of the convertible note payable. The conversion of the 10% Note was in full satisfaction of the note payable. See Note 4 for terms of the 10% Note.

 

On June 6, 2014, the Company entered into an agreement to issue 20,000 shares of its common stock to a consultant as compensation for investor relations services for a period of six (6) months valued at $29,600 at the date of issuance and $41,600 as of September 30, 2014. Per the terms of the agreement, 10,000 shares vest immediately, 5,000 shares vest after ninety (90) days, and 5,000 shares vest after one hundred days. The 20,000 shares were formally issued on August 4, 2014. The fair value of the stock vested and recorded during the year ended September 30, 2014 was $31,200.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

As of September 30, 2015, there were no options issued and outstanding under the 2014 Plan and 2009 Plan as all options were forfeited and cancelled as of September 30, 2015.

 

 8 

 

 

Recent Sales of Unregistered Securities

 

On December 3, 2014, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an accredited investor (the “Investor”) pursuant to which the Company agreed to sell, and the Investor agreed to purchase, an unsecured convertible promissory note (the “Note”) in the principal amount of $560,000 less an original issue discount (“OID”) of $50,000 and transaction expenses of $10,000 for a total purchase price of $500,000. Repayment of principal on the Note, together with accrued interest thereon, is due in twelve monthly installments, commencing six months from issuance. See Note 5 for more details regarding the Securities Purchase Agreement and Note.

 

Between June 2015 and September 2015, the Company issued the following conversions for repayment of the Note by Investor:

 

Conversion Date  Principal
Converted
   Accrued
Interest
Converted
   Total
Converted
   Conversion
Rate
   Common
Shares
Issued
 
June 4, 2015  $46,667   $28,871   $75,538   $0.342    220,949 
July 3, 2015   46,667    4,295    50,962   $0.194    263,141 
August 11, 2015   25,000    -    25,000   $0.138    181,818 
September 3, 2015   25,000    -    25,000   $0.056    445,196 
September 23, 2015   25,000    -    25,000   $0.041    606,061 
September 29, 2015   23,000    -    23,000   $0.015    1,548,822 
   $191,334   $33,166   $224,500         3,265,987 

 

Subsequent to year end, the Company issued the following conversions:

 

Conversion Date  Principal
Converted
   Accrued
Interest
Converted
   Total
Converted
   Conversion
Rate
   Common
Shares
Issued
 
October 8, 2015  $21,000   $-   $21,000   $0.012    1,818,182 
October 16, 2015   18,900    -    18,900   $0.012    1,636,364 
October 22, 2015   25,800    -    25,800   $0.011    2,333,786 
October 29, 2015   22,460    -    22,460   $0.011    2,031,660 
November 11, 2015   33,500    -    33,500   $0.007    4,649,549 
November 18, 2015   24,000    -    24,000   $0.006    4,195,804 
November 30, 2015   30,000    -    30,000   $0.005    5,741,627 
December 11, 2015   22,000    -    22,000   $0.002    9,090,909 
December 28, 2015   22,500    -    22,500   $0.002    9,297,521 
January 7, 2016   20,000    -    20,000   $0.002    10,101,010 
   $240,160   $-   $240,160         50,896,412 

  

On February 10, 2015, the Company entered into a securities purchase agreement (the “February 2015 Securities Purchase Agreement”) with an accredited investor pursuant to which the Company agreed to sell, and the investor agreed to purchase, an unsecured convertible promissory note (the “$2M Note”) in the principal amount of $2,000,000 less an original issue discount (“OID”) of $182,000 and transaction expenses of $10,000 for a total purchase price of $1,808,000. The closing under the February 2015 Securities Purchase Agreement occurred on February 10, 2015. The accredited investor only funded a total of $800,000 in principal under the $2M Note. See Note 5 for more details regarding $2M Securities Purchase Agreement and $2M Note.

 

 9 

 

 

The following is summary of conversions by the $2M Note holder and its assignees during the year ended September 30, 2015:

 

Conversion Date  Principal Converted   Accrued
Interest Converted
   Total Converted   Conversion Rate   Common Shares Issued 
August 13, 2015  $50,000   $-   $50,000   $0.127    393,701 
August 26, 2015   25,000    -    25,000   $0.056    446,428 
September 8, 2015   25,000    -    25,000   $0.056    446,428 
September 14, 2015  25,000   -   25,000   $0.053    469,925 
September 16, 2015   10,000    -    10,000   $0.053    188,679 
September 17, 2015   25,000    -    25,000   $0.053    469,925 
September 22, 2015   10,000    -    10,000   $0.043    232,558 
September 24, 2015   10,000    -    10,000   $0.026    390,625 
September 25, 2015   10,000    -    10,000   $0.019    518,135 
September 29, 2015   13,410    -    13,410   $0.015    900,000 
   $203,410   $-   $203,410         4,456,404 

 

Subsequent to year end, the $2M Note holder and its assignees also enacted the following conversions:

 

Conversion Date  Principal Converted   Accrued Interest Converted   Total Converted   Conversion Rate   Common Shares Issued 
October 1, 2015  $10,000   $-   $10,000   $0.0148    675,676 
October 5, 2015   10,000    -    10,000   $0.0148    675,676 
October 6, 2015   13,262    -    13,262   $0.0138    961,000 
October 7, 2015   10,000    -    10,000   $0.0115    865,801 
October 9, 2015   11,728    -    11,728   $0.0116    1,011,000 
October 9, 2015   10,000    -    10,000   $0.0115    865,801 
October 12, 2015   14,680    -    14,680   $0.0115    1,271,000 
October 13, 2015   11,601    -    11,601   $0.0116    1,000,052 
October 15, 2015   14,680    -    14,680   $0.0115    1,271,000 
October 19, 2015   17,400    -    17,400   $0.0116    1,500,000 
October 19, 2015   15,000    -    15,000   $0.0116    1,298,701 
October 20, 2015   16,650    -    16,650   $0.0111    1,500,000 
October 21, 2015   17,500    -    17,500   $0.0115    1,515,152 
October 23, 2015   20,000    -    20,000   $0.0115    1,731,602 
October 26, 2015   24,420    -    24,420   $0.0111    2,200,000 
October 29, 2015   26,640    -    26,640   $0.0111    2,400,000 
November 2, 2015   29,970    -    29,970   $0.0111    2,700,000 
November 2, 2015   20,000    -    20,000   $0.0111    1,809,136 
November 5, 2015   32,190    -    32,190   $0.0111    2,900,000 
November 10, 2015   28,800    -    28,800   $0.0096    3,000,000 
November 12, 2015   23,930    -    23,930   $0.0072    3,323,611 
November 17, 2015   16,500    -    16,500   $0.0060    2,727,273 
November 19, 2015   1,640    11,225    12,865   $0.0056    2,316,013 
November 23, 2015   23,111    -    23,111   $0.0056    4,127,000 
November 27, 2015   24,750    -    24,750   $0.0055    4,500,000 
December 2, 2015   18,450    -    18,450   $0.0041    4,500,000 
December 8, 2015   18,000    -    18,000   $0.0036    5,000,000 
December 11, 2015   13,368    -    13,368   $0.0024    5,570,000 
December 16, 2015   14,181    -    14,181   $0.0024    5,860,000 
December 22, 2015   15,488    -    15,488   $0.0024    6,400,000 
December 29, 2015   17,666    -    17,666   $0.0024    7,300,000 
   $541,604   $11,225   $552,830         82,775,494 

 

 10 

 

 

On March 12, 2015, the Board issued bonus stock grants of 30,000 shares of restricted common stock each to Kyle Tracey, Joseph Andreae, and Allan Viernes. An additional 100,000 shares of restricted common stock each were granted to Kyle Tracey and Joseph Andreae for serving on the Board. In addition, a total of 60,000 shares were granted to three (3) employees. These immediately vested issuances resulted in $9,150, $9,150, and $195,200 being charged to cost of revenue, sales and marketing, and general and administrative expense during the three and six months ended March 31, 2015, respectively.

 

On March 12, 2015, the Board issued a bonus stock grant of 60,277 shares of restricted common stock to an outside sales consultant for services performed. This immediately vested issuance resulted in $36,769 being charged to sales and marketing expense during the three and six months ended March 31, 2015.

  

On March 12, 2015, Kyle Tracey converted $59,718 of accrued wages into 97,898 shares of immediately vested restricted common stock.

 

On March 12, 2015, Michael Cook converted $36,769 of accrued wages into 60,277 shares of immediately vested restricted common stock.

 

On March 12, 2015, the Company offered to pay accrued interest and modify the terms of the six (6) Holders’ outstanding 6% Notes, decreasing the conversion floor from $1.00 to $0.50 in order to entice the noteholders to convert their promissory notes. The Company recorded a loss on debt extinguishment of $23,443 as a result of the fair value in excess of the modified conversion floor. In March 2015, the Company paid all accrued interest on the 6% notes of $17,200. Five (5) of the six (6) holders converted in full a total of $80,000 of 6% Notes into 160,000 shares of common stock. The remaining note holder partially converted $20,000 of 6% Notes into 40,000 of common shares and extended the terms on the remaining $30,000 for six (6) months. See Note 5 regarding Convertible Notes Payable.

 

On June 1, 2015, the Board issued 100,000 shares of restricted common stock at $0.50 per share for payment of $82,648 of accrued legal services.

 

On July 1, 2015, the Company issued 250,000 shares of common stock to its Chief Science Officer Dr. Mark Scialdone in exchange for 80% of the outstanding common stock of BetterChem Consulting, Inc. See Note 1 regarding the acquisition of 80% of BetterChem.

 

 11 

 

 

On August 5, 2015, and August 12, 2015, the Company issued convertible notes totaling an aggregate of $622,000 pursuant to a series of convertible note financings with several accredited investors. None of these convertible notes have been converted in whole or in part to date. See Note 5 regarding convertible note financings.

 

In connection with the above stock sales, we did not pay any underwriting discounts or commissions. None of the sales of securities described or referred to above was registered under the Securities Act of 1933, as amended (the “Securities Act”). We had or one of our affiliates had a prior business relationship with each of the purchasers, and no general solicitation or advertising was used in connection with the sales. In making the sales without registration under the Securities Act, we relied upon the exemption from registration contained in Section 4(a)(2) of the Securities Act. 

  

Item 6.       Selected Financial Data

 

Vape is a smaller reporting company and is therefore not required to provide this information.

 

Item 7.        Management’s Discussion and Analysis of Financial Condition and Results of Operation

 

The following discussion and analysis is intended to provide information about Vape’s financial condition and results of operations for the year ended September 30, 2015 and 2014. This information should be read in conjunction with Vape’s audited consolidated financial statements for the year ended September 30, 2015 and 2014, which begin on page F-2 of this report. Some of the information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this report, includes forward-looking statements based on our current management’s expectations. There can be no assurance that actual results, outcomes, or business conditions will not differ materially from those projected or suggested in such forward-looking statements. Some of the factors that may cause results to differ are described in the forward-looking statements cautionary language on page two of this report. 

 

Background

 

On August 9, 2013, PeopleString Corporation, and its wholly-owned subsidiary, RewardString Corporation (“RewardString”), and Vape Holdings, Inc., a Nevada corporation (the “Private Company”), entered into a Merger and Reorganization Agreement (the “Agreement”) whereby the Private Company merged with RewardString, with the Private Company being the surviving entity (the “Merger”). In consideration for the merger, the shareholders of the Private Company received a total of approximately 4,684,538   shares of common stock of the merged company on a pro rata basis in exchange for 8,875 shares of the Private Company’s common stock, representing 100% of the outstanding common stock of the Private Company. The total shares of the merged company issued on a pro rata basis to the Private Company shareholders represented approximately 74.95% of the total issued and outstanding common stock of the merged company.

 

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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 Corporation were not significant. The historical results of operations and cash flows of the Private Company are being reported beginning in the quarter ended December 31, 2013 in this Quarterly Report. The Merger closed on September 30, 2013. On September 30, 2013, the Company approved a change in fiscal year end of the Company from December 31st to September 30th. The Company’s decision to change the fiscal year end was related to the Merger.

 

On March 27, 2014, the Company formally closed its asset purchase of the HIVE Ceramics LLC ("HIVE") vaporization product and related intellectual property and has begun distributing the HIVE products through various wholesale distribution channels.  HIVE had been in development of a ceramic product for use in the vaporization market.  The development for one product line was completed in 2014.  No sales of this product line were made prior to Vape’s acquisition of the HIVE ceramic product line on March 27, 2014.  We determined that HIVE's assets acquired were not deemed a business prior to being acquired by the Company under Rule 11-01(d) of Regulation S-X since there were no significant revenue activities. 

 

Overview

 

General

 

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 ceramic vaporization products under a unique brand. The Company has also introduced a nonporous, non-corrosive, chemically inert medical-grade 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.

 

HIVE Ceramics (“HIVE”) is the premier brand under the VAPE umbrella. HIVE manufactures and distributes a proprietarily blended ceramic vaporization element for torched, electronic and portable vaporizers with countless design and product crossover capabilities in existing and emerging markets. HIVE is dedicated to bringing the healthiest and cleanest vaporization experience possible to the market. The HIVE product line currently consists of over 15 distinct ceramic elements, including the 2 piece domeless, domeless direct inject, and HIVE’s signature domeless elements covering 10mm, 14mm and 18mm applications as well as regular elements, the HIVE Flower Cup, the HIVE Carb Cap, HIVE Stinger Dabber, the 14mm HIVE x Quave - Club Banger, and the HIVE x D-Nail 16mm and 20mm attachments.

 

The Company has also launched ‘HIVE Glass.’ HIVE Glass is VAPE’s newest line of products under the HIVE brand name. The HIVE GLASS line is precision made using state of the art manufacturing processes and techniques, and exclusively uses German Schott glass caliber and fittings through all production phases. The aim with HIVE Glass is to create an affordable, high quality glass product that is both aesthetically pleasing and a highly functional vaporization product. VAPE’s existing customer base and distribution network will be the catalyst for expansion of this new HIVE product line. Under HIVE Glass, the Company also buys and sells high-end collector pieces. Subsequent to year end, the Company curtailed the product line in order to focus on HIVE Ceramics.

 

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VAPE has also recently launched ‘HIVE Supply.’ HIVE Supply is a packaging and sourcing division of VAPE designed to serve as a competitively priced, comprehensive “one-stop shop” for all medical and recreational marijuana packaging needs. As with all of VAPE’s products, HIVE Supply will operate in full compliance with all federal laws and the laws of each individual state in which it does business. HIVE Supply will focus on providing much-needed support to cannabis businesses in regards to sourcing consumer products, brand management and marketing services. HIVE Supply is currently operated out of three (3) locations: HIVE Supply in Southern California, HIVE Supply Washington in Spokane and HIVE Supply Oregon in Portland. Under HIVE Supply, the Company also buys and sells high-end manufacturing machines. Subsequent to year end, the Company curtailed the product line in order to focus on HIVE Ceramics.

 

In connection with its launch of HIVE Supply and HIVE Glass, the Company opened ‘THE HIVE’ retail store and gallery in Los Angeles, an end-user experience to showcase the complete line of HIVE Ceramics and HIVE Glass products, while introducing HIVE Supply and all the new products being tested and developed through each vertical. Subsequent to year end, the Company curtailed its retail store in order to reduce overhead costs and focus on HIVE Ceramics.

 

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.

 

Critical Accounting Policies

 

Vape’s discussion and analysis of financial condition and results of operations are based upon Vape’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited consolidated financial statements requires Vape to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Vape evaluated its estimates, including but not limited to those related to such items as costs to complete performance contracts, accruals, depreciable/useful lives, revenue recognition and valuation allowances for deferred tax assets. Vape based its estimates on historical experience and on various other assumptions that were believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that were not readily apparent from other sources. Actual results could differ from those estimates.

 

CONVERTIBLE DEBT

 

Convertible debt is accounted for under the guidelines established by 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. Many of the conversion features embedded in the Company's 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.  In these cases, we record the embedded conversion feature as a derivate instrument, at fair value. The embedded conversion features are recorded as discounts when the notes become convertible. The excess of fair value of the embedded conversion feature over the carrying value of the debt is recorded as an immediate charge to operations.  Each reporting period, the Company will compute the estimated fair value of derivatives and record changes to operations. The discounts relating to the initial recording of the derivatives or beneficial conversion features are accreted over the term of the debt using the effective interest method.

 

The Company has lost the ability to increase the share reserves due to the significantly increased outstanding held by convertible noteholders and a shareholder vote is required to increase the authorized amount of shares the Company may issue. Further, the combination of limited capital and depleted share reserves have severely damaged the Company’s ability to find continued finance, properly run the Company, and proceed with business to include any mergers or acquisitions or any transactions that would require available stock.

 

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DERIVATIVE FINANCIAL INSTRUMENTS

 

Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

 

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including senior convertible notes payable and freestanding stock purchase warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our consolidated financial statements.

 

The Company estimates the fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with objectively measuring fair values. In selecting the appropriate technique, consideration is given to, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, the Company generally uses the Black-Scholes option valuation technique because it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company's operating results will reflect the volatility in these estimate and assumption changes.

  

REVENUE RECOGNITION

 

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.  Sales tax is charged on retail sales in in the applicable district. Products are warrantied 24 hours of delivery if they are damaged during the shipping.

 

INVENTORY

 

Inventory is valued at the lower of cost or market, using the first-in, first-out (FIFO) method. The Company provides for an allowance for slow moving inventories based on current demand and competition.

 

COMMITMENTS AND CONTINGENCIES

 

The Company recorded the estimated settlement liability as of March 31, 2014 for the Warrant Shares issued and the Warrants that remain outstanding and unexercised that would be entitled to the same settlement based on the number of shares expected to be issued and the market price of the Company’s common stock on the dates of the actual settlements from $4.72 per share to $7.25 per share, and market price of the first settlement of $7.25 for the unsettled claims. We believe the issuance of convertible notes in the three months ended March 31, 2014 triggered the full ratchet anti-dilution adjustment; before the provision was triggered, the fair value of the warrant liability was not significant as the exercise was so far out of the money. As a result of the above settlements with warrant holders, the Company recorded a loss on settlement of warrants of $29,528,844 during the six months ended March 31, 2014 and a long-term warrant liability of $29,430,022 as of March 31, 2014 based on 4,407,200 shares of common stock under the settlement at the Company’s closing stock prices discussed above. As of September 30, 2015, the estimated settlement liability is $25,025 based on the fair market value of 1,184,727 remaining warrants and therefore the Company recorded a gain on the change in warrant liability of $2,439,207 during the year ended September 30, 2015.

 

PREFERRED STOCK

 

On April 1, 2014, the Board formally approved the filing of a Preferred Stock Designation in connection with the commitment of 500,000 Series A Shares to HIVE Ceramics, LLC on March 27, 2014 pursuant to its authority to issue blank check preferred stock as provided in the Company’s Certificate of Incorporation.  Per the Certificate of Designation (the “Designation”), there are 100,000,000 shares of preferred stock authorized by the Company’s Certificate of Incorporation. The Company is authorized to commit 500,000 shares of Series A pursuant to the Designation.  As provided in the Designation (and as set forth in the HIVE Asset Purchase Agreement), Series A Shares are entitled to vote at a 15-1 ratio to Common Stock and are convertible on a maximum 10 for one basis into Common Stock. (See NOTE 1 re HIVE Ceramics Asset Purchase). The acquisition of HIVE assets was not considered a business combination and was consummated under common control of the Company’s Chief Executive officer and therefore the carryover basis of the assets was assigned to the Preferred Stock.  The parties to the acquisition of HIVE closed the transaction on March 27, 2014. On June 19, 2014, the Company formally issued the 500,000 Series A Shares to HIVE.

 

 15 

 

 

On December 10, 2015, the Board formally approved the designation of Series B Preferred Stock. See Note 11 regarding Subsequent Events. 

 

Results of Operations

 

The results of operations information below provides details on net loss and general and administrative expenses. General and administrative expenses provide details on continuing operations and include items such as management compensation, SEC compliance, insurance, office and other general expenses.

 

For the Year Ended September 30, 2015 and 2014

 

Net Loss. For the year ended September 30, 2015 and 2014, net loss was $2,785,850 and $25,063,658, respectively.

 

Revenue. For the year ended September 30, 2015 and 2014, revenue was $1,277,657 and $841,724, respectively. Revenue was greater in 2015 as it was HIVE Ceramics’ first full year along with its new products. The Company derived its revenue from the sale of ceramics, supplies, glass, merchandise, and services.

 

Cost of Revenue. For the year ended September 30, 2015 and 2014, cost of revenue was $1,013,641 and $458,387, respectively. In 2015, cost of revenue included approximately $623,000 of ceramic products costs, $27,000 of supply costs, $97,000 of glass costs, $66,000 of merchandise costs and $200,000 of inventory reserve. In 2014, the recorded costs were ceramic product costs.

 

Gross Profit. For the year ended September 30, 2015 and 2014, gross profit was $264,016 or 36% and $383,337 or 46%, respectively. Gross profit decreased due to higher failure rates than expected of ceramics and low margin sales over multiple revenue streams.

 

Sales and Marketing. For the year ended September 30, 2015 and 2014, sales and marketing expenses were $715,292 and $219,891, respectively. In 2015, sales and marketing expenses included approximately $26,000 of general advertising, $54,000 of outside sales expense, $162,000 of payroll expenses, $156,000 of stock-based compensation, and $65,000 of trade show expenses. In 2014, it mostly consisted of approximately $92,000 of trade show expenses, $32,000 of promotional items, $21,000 of outside sales expense, $26,000 of E-commerce costs, and $12,000 of public relations.

 

Research and Development. For the year ended September 30, 2015 and 2014, research and development expenses were $212,424 and $45,757, respectively. In 2015, research and development expenses included approximately $117,000 for product design prototypes and research equipment, $47,000 of payroll expenses, $12,000 of employee benefits, $8,000 of travel expenses, and $27,000 of patent research. In 2014, it consisted of approximately $46,000 of product design prototypes and research equipment.

 

General and Administrative. For the year ended September 30, 2015 and 2014, general and administrative expenses were $2,126,538 and $1,315,710, respectively. In 2015, general and administrative expenses included approximately $45,000 of insurance expense, $110,000 of office expense, $481,000 of payroll expenses, $66,000 of accounting fees, $80,000 of business development expense, $182,000 of legal fees, $800,000 of stock-based compensation, and $121,000 of travel expense. It 2014, it mostly consisted of approximately $97,000 of investor relations and filing fees, $359,000 of payroll and taxes, $98,000 of accounting fees, and $114,000 of legal fees, $58,000 of office expense, $41,000 of bank and credit card processing fees, and $53,000 of travel expenses.

 

Interest Expense. For the year ended September 30, 2015 and 2014, interest expense was $1,745,408 and $241,065 respectively. In 2015, interest expense included approximately $1,566,000 of accretion of debt discounts, $51,000 of amortization of deferred financing costs, and $128,000 of interest expense. In 2014, interest expense on convertible notes payable was $241,065.

 

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Interest Expense - related party. For the year ended September 30, 2015 and 2014, related party interest expense on convertible notes was $148,562 and $219,714, respectively. In 2015, interest expense included approximately $118,000 of accretion of debt discounts and $31,000 of interest expense. In 2014, interest expense on related party notes payable was $219,714.

 

Change in Derivative Liabilities. For the year ended September 30, 2015 and 2014, the gain and loss on change in derivative liabilities was $2,315,916 and ($23,404,058), respectively due to the fluctuation in the stock price.

 

Gain on Settlement. For the year ended September 30, 2015 and 2014, the gain on settlement was $625,461 and $0, respectively due to a confidential settlement by and between the Company and certain shareholders. On December 15, 2014, the Company recorded a gain on settlement of $257,930 for a confidential settlement by and between the Company and certain shareholders and related parties as settlement for certain potential legal claims held by the Company. As a result of the settlement, the Company received net proceeds of $62,930 and vendor credits of $200,000 during the year ended September 30, 2015. A total of $325,000 in vendor credits has been received in connection with the settlement and no further credits will be given. In January 2015, the Company received 440,625 shares from the settlement that was to be assigned to the officers of the Company. The officers decided it was in the best interest to return these shares to the Company to be used for future strategic issuances. Accordingly, the 440,625 shares were recorded as treasury stock and a gain on settlement valued at $367,531.

 

Loss on Debt Extinguishments, net. For the year ended September 30, 2015 and 2014, the loss on debt extinguishments, net was $971,560 and $0, respectively. In 2015, the net loss on debt extinguishments consisted primarily of the loss on modification of the Redwood and Typenex convertible notes payable.

 

Liquidity and Capital Resources

 

As of September 30, 2015, we had cash of $273,904 and working capital deficit of $1,797,437 as compared to cash of $48,370 and a working capital deficit of $36,138 as of September 30, 2014. See Note 11 for subsequent funding. We believe our current liquidity and securities purchase commitments will be sufficient to continue operating as a going concern through September 2016.

 

We had total liabilities of $3,128,736 as of September 30, 2015, including current liabilities of $115,938 of accounts payable, $207,609 of accrued expenses, customer deposits of $1,275, $522,396 of convertible notes payable, derivative liabilities of $1,672,726, and warrant liability of $31,401, and long-term liabilities of $300,156 of convertible notes payable, $265,000 of related party notes payable, and $12,235 of other liabilities. We had total liabilities of $3,802,237 as of September 30, 2014, consisting of current liabilities which consisted of $216,388 of accounts payable, $169,513 of accrued expenses, $187,667 of convertible notes payable, $45,832 of related party convertible notes payable, and long-term liabilities of $178,200 convertible notes payable, $199,115 of related party convertible notes payable, $341,290 of related party notes payable, and $2,464,232 of warrant liability.

 

We had a total stockholders’ deficit of $2,121,284 and an accumulated deficit of $28,166,745 as of September 30, 2015.

 

We used $1,420,945 of cash in operating activities during the year ended September 30, 2015, which was primarily attributable to our net loss of $2,785,850, which was offset by $71,305 of depreciation, $2,315,916 gain on change in derivative liabilities, $625,461 gain on settlement, $1,735,119 of accretion of debt discounts, loss on debt extinguishments of $971,560, $969,577 of stock-based compensation, and $483,929 of net cash provided by change in operating assets and liabilities. We used $980,003 of cash in operating activities for the year ended September 30, 2014, which was attributable primarily to our net loss of $25,063,658, which was offset by $23,404,058 loss on settlement of warrants, $366,431 in accretion of debt discounts, fair value in excess of stock issued for conversion of notes payable of $1,323, fair value in excess of stock issued for conversion of related party notes payable of $44,239, fair value of officer services of $15,000, common stock issued for services of $133,200, stock-based compensation of $450,501, and net use in the change in operating assets and liabilities of $347,275.

 

Investing activities provided $45,350 during the year ended September 30, 2015 consisting of $62,930 of net proceeds from settlement offset by $83,255 of capital expenditures, $69,250 of other proceeds, and $3,575 for purchase of trademarks. We used $257,020 of cash in investing activities for the year ended September 30, 2014 consisting of $122,555 of capital expenditures and $134,465 for trademarks and pending patents.

 

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We had $1,601,129 of net cash provided by financing activities during the year ended September 30, 2015 consisting of $1,763,957 of net proceeds from issuance of a convertible notes payable, repayments on convertible notes payable of $40,000, repayments on related party convertible notes payable of $50,000, and repayments on related party notes payable of $72,828. We had $1,284,825 of net cash provided by financing activities during the year ended September 30, 2014 consisting of $438,000 from convertible notes payable, $505,535 from related party convertible notes payable, and $341,290 from related party convertible notes payable.

 

Since we have limited liquidity and have suffered losses, we depend to a great degree on the ability to attract external financing in order to conduct our business activities and expand our operations.  These factors raise substantial doubt about the Company’s ability to continue as a going concern. If we are unable to raise additional capital from conventional sources, including increases in related party and non-related party loans and/or additional sales of stock, we may be forced to curtail or cease our operations. Even if we are able to continue our operations, the failure to obtain financing could have a substantial adverse effect on our business and financial results. We have no commitments to provide us with financing in the future, other than described above.  Our independent registered public accounting firm included an explanatory paragraph raising substantial doubt about the Company’s ability to continue as a going concern. 

 

We anticipate generating losses and therefore may be unable to continue operations in the future. We anticipate that we will require additional capital in order to grow our business by increasing headcount and our budget for 2016. We may use a combination of equity and/or debt instruments to funds our growth strategy or enter into a strategic arrangement with a third party.

 

Related Party Notes Payable Repayments

 

On May 12, 2014, the Company issued a note payable to its President, Joe Andreae in the amount of $40,000 for monies previously borrowed during the six months ended March 31, 2014 (the “Andreae Note”).  The note is unsecured and bears interest of 6% per annum and matures on May 1, 2016. On December 4, 2014, the Company repaid the principal balance of $40,000 and accrued interest of $1,348. See Note 6 to the financial statements.

 

On August 11, 2014, the Company issued a 6% note payable to its President, Joe Andreae, for monies borrowed from Mr. Andreae to cover outstanding accounts payable in the amount of $12,828 (the “Andreae Note II”). Per the terms of the Andreae Note II, the original principal balance is $12,828, and is not secured by any collateral or any assets pledged to the holder. The maturity date is November 30, 2014, and the annual rate of interest is six percent (6%). The monies were funded during the three and nine months ended June 30, 2014. On December 4, 2014, the Company repaid principal balance of $12,828 and accrued interest of $240. See Note 6 to the financial statements.

 

Kyle Tracey Convertible Notes

 

On October 28, 2014, the Company received a Notice of Conversion on an 8% Convertible Note issued on February 18, 2014 to its CEO, Kyle Tracey, to cover expenses of the Company (the “Tracey Note”). Mr. Tracey converted principal of $10,612 and outstanding accrued and unpaid interest of $584 into 22,481 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Tracey Note was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. See Note 6 to the financial statements.

 

On October 28, 2014, the Company received a Notice of Conversion on an 8% Convertible Note issued on May 12, 2014 to Mr. Tracey to cover expenses of the Company (the “Tracey Note II”). Mr. Tracey converted principal of $11,042 and outstanding accrued and unpaid interest of $407 into 22,989 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Tracey Note II was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. See Note 6 to the financial statements.

 

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On October 28, 2014, the Company received a Notice of Conversion on an 8% Convertible Note issued on August 11, 2014 to Mr. Tracey to cover expenses of the Company (the “Tracey Note III”). Mr. Tracey converted principal of $216,001 and outstanding accrued and unpaid interest of $3,645 into 441,057 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Tracey Note III was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. See Note 6 to the financial statements.

 

On October 28, 2014, the Company received a Notice of Conversion on a 6% Convertible Note issued on May 13, 2014 to Mr. Tracey (the “Tracey PPM Note”) as part of a private placement transaction in exchange for capital of $40,000. Mr. Tracey converted principal of $40,000 and outstanding accrued and unpaid interest of $1,098 into 41,098 shares of restricted common stock of the Company at a per share conversion price of $1.00 in accordance with the terms of the convertible note. The conversion of the Tracey PPM Note was in full satisfaction of the note. The shares of common stock under the conversion were issued by the Company on November 7, 2014. See Note 6 to the financial statements. See Note 5 to the financial statements.

 

Michael Cook Convertible Notes

 

On October 28, 2014, the Company received a Notice of Conversion on an 8% Convertible Note issued on May 12, 2014 to its Director of Business Development, Michael Cook, to cover expenses of the Company (the “Cook Note”). Mr. Cook converted principal of $11,825 and outstanding accrued and unpaid interest of $435 into 24,619 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Cook Note was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. See Note 6 to the financial statements.

 

On October 28, 2014, the Company received a Notice of Conversion on an 8% Convertible Note issued on August 11, 2014 to Mr. Cook to cover expenses of the Company (the “Cook Note II”). Mr. Cook converted principal of $15,115 and outstanding accrued and unpaid interest of $255 into 30,864 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Cook Note II was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. See Note 6 to the financial statements.

 

Misc. Convertible Notes

 

On October 28, 2014, the Company received a Notice of Conversion on two (2) 8% Convertible Notes issued to third parties on February 18, 2014 to cover expenses of the Company. The noteholders converted aggregate principal of $20,000 and aggregate outstanding accrued and unpaid interest of $1,100 into an aggregate of 42,370 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of their convertible notes payable. The conversion of these notes was in full satisfaction of the notes payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. See Note 5 to the financial statements.

 

On October 28, 2014, the Company received a Notice of Conversion on an 8% Convertible Note issued to a third party on March 19, 2014. The noteholder converted principal of $198,000 and outstanding accrued and unpaid interest of $9,764 into 207,764 shares of restricted common stock of the Company at a per share conversion price of $1.00 in accordance with the terms of the convertible note payable. The conversion of this note was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. See Note 5 to the financial statements.

 

Securities Purchase Agreement

 

On December 3, 2014, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an accredited investor (the “Investor”) pursuant to which the Company agreed to sell, and the Investor agreed to purchase, an unsecured convertible promissory note (the “Note”) in the principal amount of $560,000 less an original issue discount (“OID”) of $50,000 and transaction expenses of $10,000 for a total purchase price of $500,000. The Company also paid a finder’s fee in the amount of $25,000 in connection with this transaction, which was recorded as a discount to the note as it was paid from the proceeds. The closing under the Securities Purchase Agreement occurred on December 3, 2014. The Company received $475,000 net proceeds after transactions costs.

 

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The Note bears interest at the rate of 10% per annum and is convertible into common stock of the Company at a conversion price per share of 70% of the average of the three (3) lowest Closing Sale Prices in the ten (10) Trading Days immediately preceding the applicable Conversion (subject to adjustment in the event of stock splits, stock dividends, and similar transactions, and in the event of subsequent sales of common stock at a lower purchase price (subject to certain exceptions))(the “Conversion Price”). In no event will the Conversion Price be less than $0.50 per share. Repayment of principal on the Note, together with accrued interest thereon, is due in twelve monthly installments, commencing six months from issuance. The Company may make such payments in cash (in which event the Company will pay a 25% premium) or, subject to certain conditions, in shares of common stock valued at the lower of the Conversion Price or 70% of the average of the three (3) lowest Closing Sale Prices in the ten (10) Trading Days immediately preceding the applicable payment date (the “Amortization Conversion Rate”). The Maturity Date of the Note is seventeen months from the date of issuance. On August 26, 2015, the Company and Investor entered into an Amendment whereby the conversion rate of the note was amended to 55% of the lowest price of the prior fifteen (15) trading days and conversion floor removed which amendment was triggered by the dilutive issuances of the August 2015 convertible note financing thereby entitling Investor to the lowest conversion rate granted during the year ended September 30, 2015 per the terms of the Securities Purchase Agreement. See Note 5 to the financial statements.

 

$2M Securities Purchase Agreement

 

On February 10, 2015, the Company entered into a securities purchase agreement (the “February 2015 Securities Purchase Agreement”) with an accredited investor pursuant to which the Company agreed to sell, and the investor agreed to purchase, an unsecured convertible promissory note (the “$2M Note”) in the principal amount of $2,000,000 less an OID of $182,000 and transaction expenses of $10,000 for a total purchase price of $1,808,000. The closing under the February 2015 Securities Purchase Agreement occurred on February 10, 2015.

 

The $2M Note bears interest at the rate of 10% per annum and is immediately convertible into common stock of the Company at a conversion price per share of 70% of the lowest daily VWAP in the ten (10) Trading Days immediately preceding the applicable Conversion (subject to adjustment in the event of stock splits, stock dividends, and similar transactions, and in the event of subsequent sales of common stock at a lower purchase price (subject to certain exceptions))(the “Conversion Price”). In no event will the Conversion Price be less than $0.50 per share. Repayment of principal on the $2M Note, together with accrued interest thereon, is due in twelve bi-monthly installments, commencing approximately six months from issuance. The Company may make such payments in cash (in which event the Company will pay a 25% premium) or, subject to certain conditions, in shares of common stock valued at the lower of the Conversion Price or 70% of the lowest daily VWAP in the ten (10) Trading Days immediately preceding the applicable payment date (the “Amortization Conversion Rate”). The Maturity Date of the $2M Note is twelve months from the date of issuance.

 

During the year ended September 30, 2015, the Company received $800,000 toward the $2M Note with an original issue discount of $76,800 and transaction costs for net proceeds of $651,395, respectively. We amortized $45,600 of the discount to interest expense during the year ended September 30, 2015. In addition, we recorded a discount totaling $108,641 related to the beneficial conversion feature embedded in the note upon issuance.

 

On August 13, 2015, the Company entered into an Amendment, Waiver and Modification Agreement (the “Amendment”) to its $2M Securities Purchase Agreement and related Transaction Documents with Redwood Management, LLC including any designees and or assignees thereto.  Under the terms of the Amendment, the parties agreed to reduce the $2,000,000 outstanding balance of the $2M Note to $800,000 to reflect the total amount funded under the note, to terminate the offsetting investor note securing the additional unfunded balance and to waive any past claims of default or offsetting interest on the $2M Note or investor note. In addition, the conversion rate of the note was amended to 55% of the lowest price of the prior fifteen (15) trading days and conversion floor removed which amendment was triggered by the dilutive issuances of the August 2015 convertible note financing thereby entitling Investor to the lowest conversion rate granted during the year ended September 30, 2015 per the terms of the $2M Securities Purchase Agreement. See Note 5 to the financial statements.

 

 20 

 

 

Convertible Note Financing

 

On August 5, 2015, the Company entered into a series of convertible note financings with several accredited investors totaling an aggregate of $517,000 in aggregate proceeds raised less certain fees and costs as set forth in the financing documents known as the “August 2015 Notes”. The financing was disclosed on the Company’s Current Report on Form 8-K filed on August 11, 2015 and is incorporated herein by reference.

 

On August 12, 2015, the Company entered into an additional convertible note financing transaction with an accredited investor in the principal amount of $105,000 less fees and costs. The closing under the financing occurred concurrently with the execution of the financing documents on August 12, 2015. The convertible note bears interest at the rate of 8% per annum and is convertible into common stock of the Company at any time after 180 days from issuance of the note at a conversion price per share equal to 58% of the average of the lowest trading price of the common stock in the thirteen (13) trading days immediately preceding the applicable conversion date. The Company has the option to prepay the convertible note in the first 180 days from closing subject to a prepayment penalty of 150% of principal plus interest. The maturity date of the convertible note is June 12, 2016 subject to the noteholder’s right to extend maturity an additional nine (9) month period. See Note 5 to the financial statements.

 

Item 7A.     Quantitative and Qualitative Disclosure About Market Risk

 

Vape is a smaller reporting company and is therefore not required to provide this information.

 

Item 8.        Financial Statements and Supplementary Data

 

The consolidated financial statements and supplementary data of Vape called for by this item are submitted under a separate section of this report.  Reference is made to the Index of Financial Statements contained on page F-1 herein.

 

Item 9.        Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A.     Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures.

 

Management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2015, we have a material weakness with regards to our disclosure controls and procedures not designed at a reasonable assurance level and not are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

We plan to engage a financial expert to assist the Company with procedures related to the treatment convertible debt. We expect to resolve the material weakness during the year ended September 30, 2016.

 

(b) Changes in internal control over financial reporting.

 

We review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

 

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(c) Management’s report on internal control over financial reporting.

 

Management is responsible for establishing and maintaining adequate control over financial reporting for Vape. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.  Internal controls over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Vape; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of Vape are being made only in accordance with authorizations of management and directors of Vape; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Vape’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management, with the participation of our principal executive officer and principal financial and accounting officer, conducted an evaluation of the effectiveness of Vape’s internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of September 30, 2015.

 

Item 9B.     Other Information

 

None.

 

PART III

 

Item 10.      Directors, Executive Officers and Corporate Governance

 

The following table sets forth the names, ages and positions of our executive officers and directors. All directors serve for a term set to expire at the next annual meeting of stockholders of Vape or until their successors are elected and qualified. All officers are appointed by our board of directors and their terms of officer are, except to the extent governed by an employment contract, at the discretion of our board of directors.

 

Name and Address  Age  Principal Occupation or Employment
       
Benjamin Beaulieu  29  Chief Operating Officer and Director since May 11, 2015 and Chairman of the Board since December 10, 2015
       
Allan Viernes  30  Chief Financial Officer since June 25, 2014, Director since May 11, 2015
       
Justin Braune  34  Chief Executive Officer and Director, since December 10, 2015.
       
Kyle Tracey  34  Former Chief Executive Officer, Secretary and Chairman of Vape beginning on December 30, 2013. Former Chief Financial Officer of Vape beginning on April 16, 2014, resigned June 25, 2014. Resigned as Chief Executive Officer, Chairman of the Board and all officer positions on December 10, 2015.
       
Joseph Andreae  29  Former President and Director of Vape beginning on March 26, 2014. Resigned as President and Director on December 10, 2015.

 

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There are no family relationships among Vape’s directors and executive officers. None of the directors of Vape is a director of any company registered pursuant to Section 12 of the Exchange Act, or subject to the requirements of Section 15(d) of the Exchange Act, or any company registered as an investment company under the Investment Company Act of 1940, as amended.

 

Directors

 

Number of Directors. Our board of directors currently consists of three individuals.

 

Director Qualifications. While the selection of directors is a complex and subjective process that requires considerations of many intangible factors, the Company believes that candidates should generally meet the following criteria:

 

Broad training, experience and a successful track record at senior policy-making levels in business, government, education, technology, accounting, law, consulting and/or administration;
The highest personal and professional ethics, integrity and values;
Commitment to representing the long-term interests of the Company and all of its shareholders;
An inquisitive and objective perspective, strength of character and the mature judgment essential to effective decision-making;
Expertise that is useful to the Company and complementary to the background and experience of other Board members; and
Sufficient time to devote to Board and committee activities and to enhance their knowledge of our business, operations and industry.

 

The Board believes that our current directors meet these criteria. In addition, as outlined below, the directors bring a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a wide variety of areas, including the legal cannabis industry, related horticulture and concentrate extraction industries, business and management, operations, corporate governance, board service and executive management. We believe that the Board as a whole and our directors possess the necessary qualifications and skills to effectively advise management on strategy, monitor our performance and serve our best interests and the best interests of our shareholders.

 

Biographical Information

 

See Executive Officer Section below for biographical information for Mr. Tracey, Mr. Andreae, Mr. Viernes, Mr. Beaulieu, and Mr. Braune. 

 

Executive Officers

  

Kyle Tracey, 34, Former Chief Executive Officer and Chairman

 

Kyle Tracey brings extensive developmental and managerial experience in the public cannabis space to the Vape Holdings executive team.

 

Mr. Tracey’s diversified experience literally from the ground up to top executive positions includes tenures where he helped develop several integral brands in the space, working as an R&D Specialist for companies like BC Northern Lights and Eco Growing Systems, as well as owning and operating a major horticulture light manufacturer.

 

As Co-Founder and former President of GrowLife Inc., Mr. Tracey helped to grow the company’s market cap from 10M to over 100M while establishing a trusted and respected industry brand. Upon his departure from GrowLife in 2013, Kyle recognized the market opportunity for a more sustainable and efficient vaporization medium, and developed the HIVE Ceramics brand under the VAPE umbrella.

 

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Strategically appointed as Chairman and CEO of VAPE Holdings Inc. on December 30, 2013 for his industry credentials, work ethic, and capacity to innovate, market, and sell relative industry products, Mr. Tracey delivers the imperative contacts and respect to achieve market penetration for VAPE Holdings brands and products.

 

Kyle’s association and experience with High Times Magazine, various live event promoters and high profile artists, and entertainment industry powerhouses, all have the potential to position VAPE Holdings business units for expansive sponsorship opportunities and global success.

 

Mr. Tracey holds a B.A. in Business Management from the University of Rhode Island.

 

Joseph Andreae, 29, Former President and Board of Directors

 

Joseph Andreae, a native of the Washington D.C. area, has been an instrumental part of several top brands in the rapidly growing MMJ industry. After working in the hospitality sector, Joe decided to team with a dispensary and concentrates laboratory in Boulder, Colorado on a new initiative.

 

Joe’s leadership and expertise assisted in making those companies successful and earned him useful relationships and pedigree in the emerging vertical. Mr. Andreae has spent the last 5 years moving from state to state, following the industry and laws as they’ve progressed. His most recent project in Colorado boasted an impressive 15,000 square foot cultivation facility, the city’s first licensed indoor concentrate extraction laboratory, and a beautiful store front that saw a 650% increase to $6M in sales following Joe’s arrival. Previously, Joe was also a national sales manager of a successful LED lighting company based out of California and remains an active member on several MMJ brand boards, executing a collective vision and strategy for the industry.

 

Allan Viernes, 30, Chief Financial Officer and Board of Directors

 

Mr. Viernes, 30, is an accounting and financial advisor specializing in public and private accounting and finance, SEC matters, bankruptcy reporting and analysis, mergers and acquisitions, and financial modelling/analysis. Mr. Viernes has served in such positions as Chief Financial Officer of an oil and gas company, Corporate Controller of a software company, and consulted with various retail and restaurant franchises and real estate companies through troubled debt restructurings and leveraged buy outs. Mr. Viernes also has past experience as an auditor with McKennon Wilson & Morgan, a PCAOB registered accounting firm, focusing on audits of private and publicly-held companies. Mr. Viernes graduated with a Bachelor of Administration with a concentration in accounting from Devry University, earned a Master of Business Administration from the Keller Graduate School of Management, and is a Certified Public Accountant.

 

Benjamin Beaulieu, 29, Chief Operating Officer and Chairman

 

Mr. Beaulieu delivers valued experience in the implementation and integration of operational and sales systems to the VAPE Holdings executive team. Mr. Beaulieu has owned operated several multi-million-dollar retail garden supply and technology businesses. With a focus on automation and functionality, Mr. Beaulieu has successfully expanded those companies from brick and mortar locations to E-commerce superstores with global sales and partnerships with the industry’s top distributors in the United States and Canada. Mr. Beaulieu’s experience operating various companies in the ancillary MMJ markets has already improved Hive Ceramics and VAPE Holdings employee management and development. With a focus on streamlining operations Mr. Beaulieu will allow Vape Holdings, Inc. and subsidiaries to rapidly grow while combating the associated costs responsibly.

 

Justin Braune, 34, Chief Executive Officer and Board of Directors

 

On December 10, 2015, the Board appointed Justin Braune to serve as the Company’s Chief Executive Officer and as a director, effective immediately.

 

Prior to joining the Company, Mr. Braune, 33, served as the chief operating officer of Voodoo Science, LLC and Vapor Wild from 2014 to 2015. From 2013 to 2014, Mr. Braune served as the Chief of Operations for Veracity Security, a technology company located in San Diego. From 2013-2014 Mr. Braune was the Director of Sales at Lear Capital. Since 2010 he owned and operated Braune Enterprises a real estate and investment brokerage firm. Mr. Braune graduated from the United States Naval Academy with a B.S. degree in electrical engineering in and was commissioned as an officer in the U.S. Navy. After earning his master’s degree in nuclear engineering, Mr. Braune operated the nuclear reactors onboard the USS RONALD REAGAN aircraft carrier. He served in the U.S. Navy until 2009 and subsequently earned his MBA at the University of Southern California, Marshall School of Business. Our Board believes that Mr. Braune’s extensive relationships and experience in the industry of vaporization products and e-cigarettes will bring added value to the Company’s management team.

 

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Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires Vape’s executive officers and directors, and persons who own more than ten percent of a registered class of Vape’s equity securities, to file reports of ownership and changes of ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission. Executive officers, directors and greater than ten percent stockholders are required by Securities and Exchange Commission regulation to furnish Vape with copies of all Forms 3, 4 and 5 they file. 

 

Vape believes that all filings required to be made by its executive officers and directors pursuant to Section 16(a) of the Exchange Act have been filed within the time periods prescribed. 

 

Committees of the Board of Directors

 

On May 11, 2015, the Board authorized the establishment of separate audit and compensation committees consisting of a certain numbers of independent directors. The Company is still in the process of seeking out independent directors for its Board and committees and, as a result, the Company has not yet begun use of these committees. As such, we do not currently have a separately designated audit, compensation, or nominating committee of our Board and the function customarily delegated to these committees are performed by our full Board. We are not a “listed company” under SEC rules and are therefore not required to have separate committees comprised of independent directors.

 

The Board does not have a nominations committee because the Board does not believe that a defined policy with regard to the consideration of candidates recommended by stockholders is necessary at this time because the functions of such committee are adequately performed by our Board. There are no specific minimum qualifications that the Board believes must be met by a candidate recommended by the Board. Currently, the entire Board decides on nominees, on the recommendation of any member of the Board, followed by the Board’s review of the candidates’ resumes and interviews of candidates. Based on the information gathered, the Board then makes a decision on whether to recommend the candidates as nominees for director. We do not pay any fee to any third party, or parties, to identify or evaluate or assist in identifying or evaluating potential nominees.

 

The Board has not yet begun use of an audit committee. However, for certain purposes of the rules and regulations of the SEC and in accordance with the Sarbanes-Oxley Act of 2002, our Board is deemed to be its audit committee and as such functions as an audit committee and performs some of the same functions as an audit committee including: (i) selection and oversight of our independent accountant; (ii) establishing procedures for the receipt, retention, and treatment of complaints regarding accounting, internal controls, and auditing matters; and (iii) engaging outside advisors. Our Board has determined that its members do not include a person who is an “audit committee financial expert” within the meaning of the rules and regulations of the SEC. Our Board has determined that each of its members is able to read and understand fundamental financial statements and has substantial business experience that results in that member’s financial sophistication. Accordingly, our Board believes that each of its members has sufficient knowledge and experience to fulfill the duties and obligations of an audit committee.

 

The Board has not yet begun use of a compensation committee because the Board believes that it is not necessary to have a compensation committee at this time because the functions of such committee are adequately performed by our Board.

 

Stockholder Communications

 

Our Board has determined not to adopt a formal methodology for communications from stockholders directly to the Board on the belief that any communication sent to the Company’s current investor relations firm, Hayden I.R., would be brought to the Board’s attention by our Chief Executive Officer, Kyle Tracey.

 

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Meetings of the Board of Directors

 

The Board of Directors of Vape conducts business through meetings of the Board or by unanimous written consents of the Board. Such actions by written consent of all directors are, according to Delaware corporate law and our bylaws, valid and effective as if they had been passed at a meeting of the directors duly called and held. The Board of Directors for the fiscal year ended September 30, 2015 consisted of: Kyle Tracey, Joe Andreae, Allan Viernes, and Benjamin Beaulieu. None of Mr. Tracey, Mr. Andreae, Mr. Viernes, or Mr. Beaulieu qualifies as an “independent director” pursuant to the rules and regulations of the Securities and Exchange Commission. During the fiscal year ended September 30, 2015, the Board held no formal meetings, and the Board acted by unanimous written consent on multiple occasions.

 

On May 17, 2013, the Company selected the accounting firm of dbbmckennon to act as the then PeopleString’s independent public accounting firm for the year ended December 31, 2012. dbbmckennon audited the financial statements of Vape for the year ended September 30, 2015 and 2014.

 

Board Leadership Structure and Role in Risk Oversight

 

During the year ended September 30, 2015, we did not separate the roles of Chief Executive Officer and Chairman of the Board because we believe that such roles are adequately performed by Kyle Tracey. The benefits of Mr. Tracey’s leadership of the Board stem from his experience in managing small to medium sized businesses and his involvement in the legal cannabis industry, which provide a unique understanding of our culture and business. Also, serving as both the Chief Executive Officer and Chairman of the Board ensures that a constant flow of Company related information is available between the Board and our senior management. This flow of communication enables Mr. Tracey to identify issues, proposals, strategies and other considerations for future Board discussions and to assume the lead in many of the resulting discussions during Board meetings. Our Board has responsibility for the oversight of risk management. A fundamental part of risk management is not only understanding the risks we face and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for us. The involvement of the Board in setting our business strategy is a key part of its assessment of risk management and the determination of what constitutes our appropriate level of risk. The Board regularly discusses with management our major risk exposures, their potential impact on us, and the steps taken to manage these risks. In addition, the Board may retain, on such terms as determined by the Board, in its sole discretion, independent legal, financial, and other consultants and advisors to advise and assist the Board in fulfilling its oversight responsibilities. Subsequently, upon Kyle Tracey’s resignation as Chief Executive Officer and Chairman of the Board and Justin Braune’s appointment as Chief Executive Officer, we separated the roles of Chief Executive Officer and Chairman of the Board as Benjamin Beaulieu was appointed as Chairman.

 

Code of Ethics

 

The executive officers of Vape are held to the highest standards of honest and ethical conduct when conducting the affairs of Vape. All such individuals must act ethically at all times in connection with services provided to the Company. We have adopted a formal, written corporate code of ethics that applies to our executive officers as of May 11, 2015.

  

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Item 11.      Executive Compensation

 

EXECUTIVE COMPENSATION

 

The following table sets forth information concerning the annual and long-term compensation of the Named Executive Officers (as defined below) for services in all capacities to Vape for the year ended September 30, 2015 and 2014. The Named Executive Officers are (1) Kyle Tracey, Chief Executive Officer and Chairman, (2) Joseph Andreae, President, (3) Allan Viernes, Chief Financial Officer, (4) Benjamin Beaulieu, Chief Operating Officer, and (4) Michael Cook, Former Director of Business Development (the “Named Executive Officers”).

 

2015 SUMMARY COMPENSATION TABLE
Name and Principal
Position
  Year   Salary
($)
   Bonus
($)
   Stock Awards
($)
   Option Awards ($) (1)   Non-Equity Incentive Plan Compensation ($)   Nonqualified Deferred Compensation Earnings
($)
   All Other Compensation
($)
   Total
($)
 
Kyle Tracey,   2015   $137,173   $2,000   $104,200   $437,900   $-   $-   $-   $681,273 
Chief Executive Officer and Chairman (2)   2014   $60,000   $-   $-   $315,400   $-   $-   $-   $375,400 
                                              
Joseph   2015   $112,756   $2,000   $104,200   $437,900   $-   $-   $-   $656,856 
Andreae, President (3)   2014   $31,731   $-   $-   $315,400   $-   $-   $-   $347,131 
                                              
Allan   2015   $96,977   $5,000   $18,300   $122,500   $-   $-   $-   $242,777 
Viernes, Chief Financial Officer (4)   2014   $17,676   $-   $-   $-   $-   $-   $-   $17,676 
                                              
Benjamin   2015   $110,246   $5,000   $18,300   $437,900   $-   $-   $-   $571,446 
Beaulieu, Chief Operating Officer (5)   2014   $-   $-   $-   $-   $-   $-   $-   $- 
                                              
Michael   2015   $72,423   $3,000   $-   $183,500   $-   $-   $-   $258,923 
Cook, Director of Business Development (6)   2014   $40,000   $-   $-   $166,000   $-   $-   $-   $206,000 

 

(1) The amounts in this column reflect the dollar amount recognized for financial statement reporting purposes for the year ended September 30, 2015 and 2014 in accordance with ASC 718, of stock option awards pursuant to the Equity Incentive Plan (as defined below). The fair value of each option award is estimated on the date of grant using the Black-Scholes model.  Assumptions used in the calculation of these amounts are included in the footnotes to VAPE’s audited financial statements furnished herewith. All issued and outstanding options were cancelled as of September 30, 2015.
   
(2) As of September 30, 2015 and 2014, $50,000 and $53,885 of Mr. Tracey’s salary remains unpaid, respectively.
   
  

On October 20, 2015, Kyle Tracey surrendered 30,000 shares of stock valued at $18,300 that were issued on March 12, 2015. On October 20, 2015, Kyle Tracey surrendered 100,000 shares valued at $61,000 that were issued on March 12, 2015. All issued and outstanding options were cancelled as of September 30, 2015.

   
(3) As of September 30, 2015, $13,333 of Mr. Andreae’s salary remains unpaid. On October 20, 2015, Joe Andreae surrendered 30,000 shares of stock valued at $18,300 that were issued on March 12, 2015. On October 20, 2015, Joe Andreae surrendered 100,000 shares valued at $61,000 that were issued on March 12, 2015. All issued and outstanding options were cancelled as of September 30, 2015.

 

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(4) As of September 30, 2015, $1,667 of Mr. Viernes’ salary remains unpaid. On December 21, 2015, Allan Viernes surrendered 30,000 shares of stock valued at $18,300 that were issued on March 12, 2015. All issued and outstanding options were cancelled as of September 30, 2015.
   
(5) As of September 30, 2015, $1,667 of Mr. Beaulieu’s salary remains unpaid. On December 21, 2015, Benjamin Beaulieu surrendered 30,000 shares of stock valued at $18,300 that were issued on March 12, 2015. All issued and outstanding options were cancelled as of September 30, 2015.
   
(6)

As of September 30, 2015 and 2014, $30,000 and $26,769 of Mr. Cook’s salary remains unpaid, respectively. As of May 2015, Mr. Cook was removed as an officer and refocused as a Product Development Manager. All issued and outstanding options were cancelled as of September 30, 2015. As of May 2015, Mr. Cook was removed as an officer and refocused as a Product Development Manager.

 

Outstanding Equity Awards at Fiscal Year End

 

All issued and outstanding options were cancelled as of September 30, 2015.

 

Risk Management

 

The Board of Directors does not believe that Vape’s executive compensation program gives rise to any risks that are reasonably likely to have a material adverse effect on Vape.  Executive officers are compensated on a salary basis and have not been awarded any bonuses or other compensation in 2015 and 2014 that might encourage the taking of unnecessary or excessive risks that threaten the long-term value of Vape.

 

DIRECTOR COMPENSATION

 

The following table sets forth information concerning the compensation of the directors of Vape for the year ended September 30, 2015. 

 

2015 DIRECTOR COMPENSATION TABLE

 

Name 

Fees

Earned or

Paid in

Cash

($)(1)

  

Stock

Awards

($)(2)

  

Option

Awards

($)

  

Non-Equity

Incentive Plan

Compensation

($)

  

Nonqualified

Deferred

Compensation

Earnings

($)

  

All Other

Compensation

($)

  

Total

($)

 
Kyle Tracey  $--   $61,000   $--   $--   $--   $--   $61,000 
Joseph Andreae  $--   $61,000   $--   $--   $--   $--   $61,000 
Benjamin Beaulieu  $--   $--   $--   $--   $--   $--   $-- 
Allan Viernes  $--   $--   $--   $--   $--   $--   $-- 

 

(1) Vape does not currently pay its directors any retainer or other fees for service on the Board or any committee thereof. Vape did not have non-employee directors as of September 30, 2015.
   
(2) On October 20, 2015, Kyle Tracey and Joe Andreae each surrendered 100,000 shares valued at $61,000 that were issued on March 12, 2015.

 

 28 

 

 

Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

Principal Stockholders and Security Ownership of Management

 

The following table sets forth information as of January 11, 2016 with respect to the beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of Vape’s Common Stock by (1) each director of Vape, (2) the Named Executive Officers of Vape, (3) each person or group of persons known by Vape to be the beneficial owner of greater than 5% of Vape’s outstanding Common Stock, and (4) all directors and officers of Vape as a group: 

 

BENEFICIAL OWNERSHIP OF COMMON STOCK

 

Name and Address of Beneficial Owner(1)(2)  Amount and Nature of Beneficial Ownership   Percent of Class(3) 
Kyle Tracey(4)   33,307,969    17.2%
Joseph Andreae(5)   585,555    * 
Michael Cook(6)   1,365,760    * 
Benjamin Beaulieu(7)   630,000    * 
Allan Viernes(8)   600,000    * 
All Officers and Directors as a Group   36,489,284    18.9%
           
Shares issued and outstanding as of January 11, 2016   163,026,935      
Options issued to Officers and Directors   0      
Shares of Preferred Stock issued to Officers and Directors   30,500,000      
    193,526,935      

 

* Indicates shareholdings of less than 1%
(1) In accordance with Rule 13d-3 of the Exchange Act, a person is deemed to be the beneficial owner, for purposes of this table, of any shares of Vape’s Common Stock if he or she has voting or investment power with respect to such security. This includes shares (a) subject to options exercisable within sixty (60) days, and (b)(1) owned by a spouse, (2) owned by other immediate family members, or (3) held in trust or held in retirement accounts or funds for the benefit of the named individuals, over which shares the person named in the table may possess voting and/or investment power.
(2) Except as otherwise noted, the address of each person is c/o the Company at 5304 Derry Avenue, Suite C, CA 91301.
(3) The percentage of class is calculated pursuant to Rule 13d-3(d) of the Exchange Act.
(4) Mr. Tracey is the former Chief Executive Officer of the Company.  Includes 30,000,000 shares of Series B Convertible Preferred Stock issuable to Hive Ceramics, LLC upon conversion of Secured Series B Preferred Stock Convertible Promissory Notes in the aggregate amount of $300,000. Mr. Kyle Tracey is the sole managing member with sole voting and dispositive power. Each share of Series B Preferred Stock is currently convertible into one share of common stock of the Issuer.  Also includes 500,000 shares of Series A Preferred Stock currently convertible on a 1:1 basis into the Company’s Common Stock held in the name of HIVE Ceramics, LLC of which Mr. Tracey is the sole managing member (See “NOTE 9 – STOCKHOLDERS’ DEFICIT”).  As of the time of this filing, Mr. Tracey has not exercised any of his rights to convert preferred stock into common stock.
(5) Mr. Andreae is the former President of the Company.
(6) On May 11, 2015, the Board reassigned Michael Cook from his position of Director of Business Development to HIVE Sales and Product Development Manager. In doing so, the Board determined that Mr. Cook's new position does not meet the definition of "Executive Officer" under SEC Rules. Therefore, Mr. Cook has not been considered an executive officer since that time.
(7) Mr. Beaulieu is the Chief Operating Officer of the Company.
(8) Mr. Viernes is the Chief Financial Officer of the Company.

 

 29 

 

 

Item 13.      Certain Relationships and Related Transactions and Director Independence

 

Related Party Transactions

 

SUPPLIER

 

We purchased $60,000 in high-end glass from Kyle Tracey for HIVE Glass, which accounted for 10% of purchases during the year ended September 30, 2015. Kyle Tracey brokered $60,000 of HIVE Glass purchases, which accounted for 10% of total purchases during the year ended September 30, 2015.

 

RELATED PARTY NOTES PAYABLE, LONG-TERM

 

The Company had outstanding accounts payable balance to a related party (shareholder of the Company) in the amount of $15,000 as of September 30, 2013. This payable was converted into a note payable on December 7, 2013. The note payable bears interest of 6% per annum with a maturity date of December 1, 2016. As of September 30, 2015, there is $1,645 in accrued interest expense related to this note and the Company recorded $913 in interest expense related to this note during the year ended September 30, 2015. 

 

On December 7, 2013, the Company issued a note payable to a shareholder of the Company in the amount of $23,462 for monies previously borrowed from shareholder.  The note is unsecured and bears interest of 6% per annum and matures on December 1, 2016. On January 22, 2015, the Company settled and paid the note and accrued interest of $1,504 for $20,000 and recorded a gain on extinguishment of the note of $3,462.

 

On February 28, 2014, the Company issued a note payable to HIVE (the “HIVE Note”) for the principal amount of $250,000 in connection with the Hive asset acquisition. 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. As of September 30, 2015, there is $22,893 in accrued interest expense related to this note and the Company recorded $15,208 in interest expense related to this note during the year ended September 30, 2015, respectively.

 

On May 12, 2014, the Company issued a note payable to its President, Joseph Andreae in the amount of $40,000 for monies previously borrowed during the three and six months ended March 31, 2014 (the “Andreae Note”).  The note was unsecured and bears interest of 6% per annum and matures on May 1, 2016. On December 4, 2014, the Company repaid the principal balance of $40,000 and accrued interest of $1,348 in full satisfaction on the Andreae Note.

 

On August 11, 2014, the Company issued a 6% note payable to its President, Joseph Andreae, for monies borrowed from Mr. Andreae to cover outstanding accounts payable in the amount of $12,828 (the “Andreae Note II”). Per the terms of the Andreae Note, the original principal balance   was $12,828, and was not secured by any collateral or any assets pledged to the holder. The maturity date is November 30, 2014, and the annual rate of interest is six percent (6%). The monies were funded during the three and nine months ended June 30, 2014. On December 4, 2014, the Company repaid principal balance of $12,828 and accrued interest of $240 in full satisfaction of the Andreae Note II.

 

RELATED PARTY CONVERTIBLE NOTES PAYABLE

 

On February 18, 2014, the Company issued 8% Convertible Notes to two third parties to cover outstanding accounts payable in the amount of $20,000.  Per the terms of the notes, the aggregate principal balance is $20,000, and was not secured by any collateral or any assets pledged to the holders. The maturity date is February 18, 2016, and the annual rate of interest is eight percent (8%).  Subject to certain limitations, the holders can, at their sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the notes was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $8,000 related to the beneficial conversion feature embedded in the notes upon issuance.  We amortized $1,000 and $1,667 of the discount to interest expense during the three and nine months ended June 30, 2014, respectively. On October 28, 2014, the Company received a Notice of Conversion on two (2) 8% Convertible Notes issued to third parties on February 18, 2014 to cover expenses of the Company. The noteholders converted aggregate principal of $20,000 and aggregate outstanding accrued and unpaid interest of $1,100 into an aggregate of 42,370 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of their convertible notes payable. The conversion of these notes was in full satisfaction of the notes payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $5,333 to interest expense.

 

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On February 18, 2014, the Company issued an 8% Convertible Note to Kyle Tracey for monies borrowed from Mr. Tracey to cover outstanding accounts payable in the amount of $10,612 (the “Tracey Note”). Per the terms of the Tracey Note, the original principal balance is $10,612, and was not secured by any collateral or any assets pledged to the holder. The maturity date was February 18, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Tracey Note was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $4,245 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $1,415 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion the Tracey Note. Mr. Tracey converted principal of $10,612 and outstanding accrued and unpaid interest of $584 into 22,481 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Tracey Note was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $2,830 to interest expense. 

 

On March 17, 2014, the Company issued an 8% Convertible Note to Jerome Kaiser, former CEO, CFO and Director of the Company for services rendered to the Company in the amount of $50,000 (the “Kaiser Note”) which was charged to expense during the three months March 31, 2014. Per the terms of the Kaiser Note, the principal balance is $50,000, and is not secured by any collateral or any assets pledged to the holders. The maturity date is March 17, 2015, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at his sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Kaiser Note is the market closing price of the market day immediately preceding the date of conversion minus twenty percent (20%). We recorded a discount totaling $10,000 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $4,167 of the discount to interest expense during the year ended September 30, 2015. In March 2015, the Company paid the outstanding principal and accrued interest in satisfaction on the note of $50,000 and $4,000, respectively.

 

On May 12, 2014, in connection with the 6% Notes, the Company issued a note for $40,000 to Kyle Tracey, which was recorded as a related party convertible note payable. We recorded a discount totaling $16,000 related to the beneficial conversion feature embedded in the 6% note to Mr. Tracey upon issuance. We amortized $6,667 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion on the 6% Convertible Note issued on May 13, 2014 to Mr. Tracey (the “Tracey PPM Note”) as part of a private placement transaction in exchange for capital of $40,000. Mr. Tracey converted principal of $40,000 and outstanding accrued and unpaid interest of $1,098 into 41,098 shares of restricted common stock of the Company at a per share conversion price of $1.00 in accordance with the terms of the convertible note. The conversion of the Tracey PPM Note was in full satisfaction of the note. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $13,333 to interest expense. 

 

On May 12, 2014, the Company issued an 8% Convertible Note to Kyle Tracey for monies borrowed from Mr. Tracey to cover outstanding accounts payable in the amount of $11,042 (the “Tracey Note II”). Per the terms of the Tracey Note II, the original principal balance is $11,042, and was not secured by any collateral or any assets pledged to the holder. The maturity date was May 12, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Tracey Note II was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $4,417 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $920 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion on the Tracey Note II. Tracey converted principal of $11,042 and outstanding accrued and unpaid interest of $407 into 22,989 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Tracey Note II was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $3,497 to interest expense. 

 

 31 

 

 

On May 12, 2014, the Company issued an 8% Convertible Note to its Director of Business Development, Michael Cook, for monies borrowed from Mr. Cook to cover outstanding accounts payable in the amount of $11,825 (the “Cook Note”). Per the terms of the Cook Note, the original principal balance was $11,825, and was not secured by any collateral or any assets pledged to the holder. The maturity date is May 12, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Cook Note was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $4,730 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $985 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion on the “Cook Note. Mr. Cook converted principal of $11,825 and outstanding accrued and unpaid interest of $435 into 24,619 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Cook Note was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $3,745 to interest expense.

 

On August 11, 2014, the Company issued a second 8% Convertible Note to Mr. Cook for monies borrowed from Mr. Cook to cover outstanding accounts payable in the amount of $15,115 (the “Cook Note II”). Per the terms of the Cook Note II, the original principal balance was $15,115, and is was secured by any collateral or any assets pledged to the holder. The maturity date is August 11 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Cook Note II was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $6,046 related to the beneficial conversion feature embedded in the notes upon issuance. On October 28, 2014, the Company received a Notice of Conversion on the Cook Note II. Mr. Cook converted principal of $15,115 and outstanding accrued and unpaid interest of $255 into 30,864 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Cook Note II was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $5,542 to interest expense.

 

On August 11, 2014, the Company issued an 8% Convertible Note to Mr. Tracey for monies borrowed from Mr. Tracey to cover outstanding accounts payable in the amount of $216,001 (the “Tracey Note III”). Per the terms of the Tracey Note III, the original principal balance was $216,001, and is not secured by any collateral or any assets pledged to the holder. The maturity date was August 11, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Tracey Note III was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $86,401 related to the beneficial conversion feature embedded in the notes upon issuance. On October 28, 2014, the Company received a Notice of Conversion on the Tracey Note III. Mr. Tracey converted principal of $216,001 and outstanding accrued and unpaid interest of $3,645 into 441,057 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $79,200 to interest expense. 

  

Item 14.      Principal Accounting Fees and Services.

 

Audit Fees

 

Vape incurred audit and review fees of $56,000 and $43,000 for the periods ended September 30, 2015 and 2014 to dbbmckennon.

 

Audit Related Fees

 

During the year ended September 30, 2014, Vape paid $16,000 for audit related services to dbbmckennon in connection with the merger. 

 

 32 

 

 

Tax Fees

 

During the year ended September 30, 2015 and 2014, Vape paid $4,500 and $3,000 for tax services to dbbmckennon.

 

All Other Fees

 

As of September 30, 2015 and 2014, Vape has not paid any fees associated with non-audit services to dbbmckennon, or any other accounting firm. 

 

Policy on Pre-Approval of Audit and Permissible Non-Audit Services

 

The Board (functioning in the capacity of an audit committee as discussed in Item 10 above) is responsible for appointing and setting compensation and overseeing the work of the independent registered public accounting firm. The Board approves, in advance, all audit and permissible non-audit services to be performed by the independent registered public accounting firm. Such approval process ensures that the independent registered public accounting firm does not provide any non-audit services to Vape that are prohibited by law or regulation.

 

Item 15.      Exhibits and Financial Statement Schedules.

 

(a)       Exhibits

Reference is made to the Index of Exhibits beginning on page E-1 herein.

 

(b)       Financial Statements

Reference is made to the Index to Consolidated Financial Statements on page F-1. 

 

 33 

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  VAPE HOLDINGS, INC.
     
Date:  May 24, 2016 By: /s/ Justin Braune
    Justin Braune
    Chief Executive Officer
     
Date:  May 24, 2016 By: /s/ Allan Viernes
    Allan Viernes
    Chief Financial Officer

  

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed by the following persons in the capacities and on the dates stated.

 

Signatures   Title   Date
         
/s/ Justin Braune   Chief Executive Officer, Director   May 24, 2016
Justin Braune   (Principal Executive Officer)    
         
/s/ Allan Viernes   Chief Financial Officer, Director   May 24, 2016
Allan Viernes   (Principal Financial and Accounting Officer)    
         

/s/ Benjamin Beaulieu

  Chief Operating Officer,   May 24, 2016
Benjamin Beaulieu    Chairman of Board of Directors    

 

 34 

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

VAPE HOLDINGS, INC.

(FORMERLY PEOPLESTRING CORPORATION)

Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets at September 30, 2015 and 2014 F-3
Consolidated Statements of Operations for the years ended September 30, 2015 and 2014 F-4
Consolidated Statements of Stockholders’ Deficit for the years ended September 30, 2015 and 2014 F-5
Consolidated Statements of Cash Flows for the years ended September 30, 2015 and 2014 F-6
Notes to Consolidated Financial Statements F-7

 

 F-1 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders

Vape Holdings, Inc.

 

We have audited the accompanying consolidated balance sheets of Vape Holdings, Inc. and subsidiaries (collectively, the “Company”) as of September 30, 2015 and 2014, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended September 30, 2015 and 2014.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2015 and 2014, and the results of their operations and their cash flows for the periods then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As more fully explained in Note 2 to the consolidated financial statements, the Company has incurred losses and has a working capital deficit as of September 30, 2015.  These factors raise substantial doubt about the Company's ability to continue as a going concern.  Management's plans with respect to these factors are also described on Note 2.   The Company's consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties should the Company be unable to continue as a going concern.

 

As discussed in Note 1 to the consolidated financial statements, the accompanying 2015 consolidated financial statements have been restated to correct misstatements.

 

dbbmckennon

Newport Beach, California

January 13, 2016, except for the paragraphs in

Note 1 under Amendments, for which the date is May 24, 2016

 

 F-2 

 

 

Vape Holdings, Inc.

Consolidated Balance Sheets

 

    September 30, 2015    September 30, 2014  
    (Restated)       
ASSETS           
Current assets:           
Cash   $ 273,904     $ 48,370  
Accounts receivable     72,401       16,771  
Inventory     194,937       227,530  
Prepaid inventory     64,079       246,491  
Other current assets     40,679       44,100  
Deferred financing costs     107,908       -  
Total current assets     753,908       583,262  
                 
Fixed assets, net of accumulated depreciation     118,327       106,377  
Trademarks     123,150       119,575  
Pending patents     -       14,890  
Deferred financing costs, long-term     12,067       -  
TOTAL ASSETS   $ 1,007,452     $ 824,104  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current liabilities:                
Accounts payable   $ 115,938     $ 216,388  
Accrued expenses     207,609       169,513  
Customer deposits     1,275       -  
Convertible notes payable, net of unamortized discount of  $153,096 and $32,333, respectively     522,396       187,667  
Related party convertible notes payable, net of unamortized discount of $4,168 at September 30, 2014     -       45,832  
Derivative liabilities     1,672,726          
Warrant liability     31,401          
Total current liabilities     2,551,345       619,400  
                 
Long -term liabilities:                
Convertible notes payable, long-term, net of unamortized discount of $665,607 and $19,800, respectively     300,156       178,200  
Related party convertible notes payable, long-term, net of  unamortized discount of $125,480 at September 30, 2014     -       199,115  
Related party notes payable, long-term     265,000       341,290  
Other liabilities, long-term     12,235       -  
Warrant liability     -       2,464,232  
Total liabilities     3,128,736       3,802,237  
                 
Commitments and contingencies                
                 
Stockholders' deficit:                
Preferred stock, $0.00001 par value - 100,000,000 authorized;
500,000 outstanding at September 30, 2015 and September 30, 2014
    -       -  
Common stock, $0.00001 par value - authorized 1,000,000,000 shares; 19,896,521 issued at September 30, 2015, 19,205,896 outstanding at September 30, 2015, and 10,032,436 issued and outstanding at September 30, 2014     192       100  
Additional paid-in capital     26,412,800       22,402,662  
Treasury stock, 690,625 shares at September 30, 2015     (367,531 )     -  
Accumulated deficit     (28,166,745 )     (25,380,895 )
Total stockholders' deficit     (2,121,284 )     (2,978,133 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ 1,007,452     $ 824,104  

 

See notes to consolidated financial statements.

 

 F-3 

 

 

Vape Holdings, Inc.

Consoliated Statements of Operations

 

    For the Year Ended
September 30,
 
    2015     2014  
    (Restated)        
Revenue   $ 1,277,657     $ 841,724  
                 
Cost of revenue [A]     1,013,641       458,387  
                 
Gross profit     264,016       383,337  
                 
Operating expenses:                
Sales and marketing [B]     715,292       219,891  
Research and development     212,424       45,757  
General and administrative [C]     2,126,538       1,315,710  
Total operating expenses     3,054,2543       1,581,358  
                 
Operating loss     (2,790,238 )     (1,198,021 )
                 
Other income (expense):                
Interest expense     (1,745,408 )     (241,065 )
Interest expense - related party     (148,562 )     (219,714 )
Change in derivative liabilities     2,315,916       (23,404,058 )
Gain on settlement     625,461       -  
Loss on debt extinguishments, net     (971,560 )     -  
Other     (69,250     -  
Total other income (expense), net     6,597       (23,864,837 )
                 
Loss before provision for income taxes     (2,783,641 )     (25,062,858 )
                 
Provision for income taxes     2,209       800  
                 
Net loss   $ (2,785,850 )   $ (25,063,658 )
                 
Net loss available to common shareholders:                
Loss per common share - basic   $ (0.24 )   $ (3.20 )
Loss per common share - diluted   $ (0.24 )   $ (3.20 )
                 
Weighted average shares - basic     11,563,247       7,822,212  
Weighted average shares - diluted     11,563,247       7,822,212  

  

[A] Stock-based compensation was $50,558 and $0 for the years ended September 30, 2015 and 2014, respectively.

 

[B] Stock-based compensation was $156,086 and $0 for the years ended September 30, 2015 and 2014, respectively.

 

[C] Stock-based compensation was $799,699 and $450,501 for the years ended September 30, 2015 and 2014, respectively.

 

See notes to consolidated financial statements.

 

 F-4 

 

 

VAPE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT 

 

    Series A                 Additional                 Total  
    Preferred Stock     Common Stock     Paid-in     Accumulated     Treasury     Stockholders'  
    Shares     Amount     Shares     Amount     Capital     Deficit     Stock     Deficit  
Balance at September 30, 2013 - Prior to merger     -     $ -       4,684,537     $ 46     $ -     $ (317,237 )   $ -     $ (317,191 )
Shares retained by PeopleString shareholders upon merger on September 30, 2013     -       -       1,565,463       16       -       -       -       16  
Conversion of related party notes payable and accrued interest     -       -       571,630       7       341,538       -       -       341,545  
Conversion of note payables and accrued interest     -       -       28,836       -       55,586       -       -       55,586  
Fair value of officer services     -       -       -       -       15,000       -       -       15,000  
Common stock issued for services     -       -       50,000       -       133,200       -       -       133,200  
Discount on convertible note payable at 10%     -       -       -       -       4,424       -       -       4,424  
Discount on convertible notes payable at 8%     -       -       -       -       158,402       -       -       158,402  
Discount on convertible note payable at 6%     -       -       -       -       108,000       -       -       108,000  
Discount on related party convertible note payable at 8%     -       -       -       -       193,217       -       -       193,217  
Discount on related party convertible note payable at 6%     -       -       -       -       3,000       -       -       3,000  
Common stock issued in connection with warrant settlement     -       -       3,542       -       98,822       -       -       98,822  
Cashless exercise of warrants     -       -       3,128,428       31       20,840,972       -       -       20,841,003  
Stock-based compensation - employee options     -       -       -       -       326,812       -       -       326,812  
Stock-based compensation - non - employee options     -       -       -       -       123,689       -       -       123,689  
Issuance of preferred stock for HIVE asset acquisition     500,000       -       -       -       -       -       -       -  
Net loss     -       -       -       -       -       (25,063,658 )     -       (25,063,658 )
Balance at September 30, 2014     500,000     $ -       10,032,436     $ 100     $ 22,402,662     $ (25,380,895 )   $ -     $ (2,978,133 )
Conversion of related party notes payable and accrued interest     -       -       625,478       6       341,741       -       -       341,747  
Conversion of notes payable and accrued interest     -       -       8,230,155       80       1,168,199       -       -       1,168,279  
Conversion of unpaid wages     -       -       158,175       2       96,485       -       -       96,487  
Common stock issued for services     -       -       60,277       1       36,768       -       -       36,769  
Common stock issued for bonuses     -       -       440,000       6       288,196       -       -       288,202  
Stock issued for settlement of accounts payable     -       -       100,000       1       99,999       -       -       100,000  
Discount on convertible note payable at 10%     -       -       -       -       252,079       -       -       252,079  
Discount on related party convertible note payable at 10%     -       -       -       -       525,000       -       -       525,000  
Discount on related party convertible note payable at 6%     -       -       -       -       5,410       -       -       5,410  
Extinguishment of related party accrued interest     -       -       -       -       1,625       -       -       1,625  
Modification of convertible notes payable     -       -       -       -       444,008       -       -       444,008  
Stock-based compensation - employee options     -       -       -       -       606,362       -       -       606,362  
Stock-based compensation - non-employee options     -       -       -       -       75,012       -       -       75,012  
Issuance of common stock for BetterChem Acquisition     -       -       250,000       3       67,497       -       -       67,500  
Unwinding of BetterChem Acquisition     -       -       (250,000 )     (3 )     1,753       -           1,750
Surrender of common stock     -       -       (440,625 )     (4 )     4       -       (367,531 )     (367,531 )
Net income     -       -       -       -       -       (2,785,850 )   -       (2,785,850 )
Balance at September 30, 2015 (Restated)     500,000     $ -       19,205,896     $ 192     $ 26,412,800     $ (28,166,745 )   $ (367,531 )   $ (2,121,284 )

 

See notes to consolidated financial statements.

 

 F-5 

 

 

Vape Holdings, Inc.

Consolidated Statements of Cash Flows

 

    For the Year Ended September 30,  
    2015     2014  
    (Restated)        
Cash flows from operating activities:            
Net loss   $ (2,785,850 )   $ (25,063,658 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     71,305       16,178  
Accretion of debt discounts and deferred financing costs     1,735,119       366,431  
Fair value in excess of stock issued for conversion of notes payable and accrued interest     28,393       1,323  
Fair value in excess of stock issued for conversion of related party notes payable and accrued interest     9,630       44,239  
Gain on change in derivative liabilities     (2,315,916 )     23,404,058  
Gain on settlement     (625,461 )     -  
Loss on debt extinguishments, net     971,560       -  
Fair value of officer services     -       15,000  
Common stock issued for services     36,769       133,200  
Stock-based compensation     969,577       450,501  
Changes in operating assets and liabilities:                
Accounts receivable     (55,630 )     (16,771 )
Inventory     215,005       (474,021 )
Other assets     18,311       (2,433 )
Accounts payable     194,549       156,042  
Accrued expenses     111,694       (10,092 )
Net cash used in operating activities     (1,420,945 )     (980,003 )
                 
Cash flows from investing activities:                
Capital expenditures     (83,255 )     (122,555 )
Purchase of trademarks     (3,575 )     (134,465 )
Net proceeds from settlement     62,930       -  
Other     69,250       -  
Net cash provided by (used in) investing activities     45,350       (257,020 )
                 
Cash flows from financing activities:                
Net proceeds from issuance of convertible note payable     1,763,957       438,000  
Net proceeds from issuances of related party convertible notes payable     -       505,535  
Net proceeds from issuances of related party notes payable     -       341,290  
Repayments on convertible notes payable     (40,000 )     -  
Repayments on related party convertible notes payable     (50,000 )     -  
Repayments on related party notes payable     (72,828 )     -  
Net cash provided by financing activities     1,601,129       1,284,825  
                 
Net change in cash     225,534       47,802  
Cash, beginning of period     48,370       568  
Cash, end of period   $ 273,904     $ 48,370  
                 
Supplemental disclosures of cash flow information Cash paid during the period for:                
Interest   $ 18,788     $ -  
Taxes   $ 2,209     $ -  
                 
Non-cash investing and financing activities:                
Conversion of notes payable and accrued interest   $ 1,168,279     $ 55,586  
Conversion of related party notes payable and accrued interest   $ 341,747     $ 341,545  
Issuance of convertible note payable for services   $ -     $ 41,667  
Issuance of convertible note payable for  former officer services   $ -     $ 50,000  
Issuance of common stock in connection with warrant settlement   $ -     $ 98,822  
Beneficial conversion feature recorded with convertible notes payable   $ 252,079     $ -  
Beneficial conversion feature recorded with related party convertible note payable   $ 530,410     $ -  
Other   $ 67,500     $ -  

 

See notes to consolidated financial statements.

 

 F-6 

 

 

VAPE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. DESCRIPTION OF BUSINESS, RECENT ACQUISITIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BUSINESS 

 

Vape Holdings, Inc. (“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 designs, markets and distributes ceramic vaporization products under a unique brand. The Company has introduced a nonporous, non-corrosive, chemically inert medical-grade 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.

 

HIVE CERAMICS

 

HIVE Ceramics (“HIVE”) is the premier brand under the VAPE umbrella. HIVE manufactures and distributes a proprietarily blended ceramic vaporization element for torched, electronic and portable vaporizers with countless design and product crossover capabilities in existing and emerging markets. HIVE is dedicated to bringing the healthiest and cleanest vaporization experience possible to the market. The HIVE product line currently consists of over 15 distinct ceramic elements, including the 2 piece domeless, domeless direct inject, and HIVE’s signature domeless elements covering 10mm, 14mm and 18mm applications as well as regular elements, the HIVE Flower Cup, the HIVE Carb Cap, HIVE Stinger Dabber, the 14mm HIVE x Quave - Club Banger, and the HIVE x D-Nail 16mm and 20mm attachments.

 

The Company has recently launched ‘HIVE Glass.’ HIVE Glass is VAPE’s newest line of products under the HIVE brand name. The HIVE GLASS line is precision made using state of the art manufacturing processes and techniques, and exclusively uses German Schott glass caliber and fittings through all production phases. The aim with HIVE Glass is to create an affordable, high quality glass product that is both aesthetically pleasing and a highly functional vaporization product. VAPE’s existing customer base and distribution network will be the catalyst for expansion of this new HIVE product line. Under HIVE Glass, the Company also buys and sells high-end collector pieces. Subsequent to year end, the Company curtailed the product line in order to focus on HIVE Ceramics.

 

VAPE has also recently launched ‘HIVE Supply.’ HIVE Supply is a packaging and sourcing division of VAPE designed to serve as a competitively priced, comprehensive “one-stop shop” for all medical and recreational marijuana packaging needs. As with all of VAPE’s products, HIVE Supply will operate in full compliance with all federal laws and the laws of each individual state in which it does business. HIVE Supply will focus on providing much-needed support to cannabis businesses in regards to sourcing consumer products, brand management and marketing services. HIVE Supply is currently operated out of three (3) locations: HIVE Supply in Southern California, HIVE Supply Washington in Spokane and HIVE Supply Oregon in Portland. Under HIVE Supply, the Company also buys and sells high-end manufacturing machines. Subsequent to year end, the Company curtailed the product line in order to focus on HIVE Ceramics.

 

In connection with its launch of HIVE Supply and HIVE Glass, the Company opened ‘THE HIVE’ retail store and gallery in Los Angeles, an end-user experience to showcase the complete line of HIVE Ceramics and HIVE Glass products, while introducing HIVE Supply and all the new products being tested and developed through each vertical. Subsequent to year end, the Company curtailed its retail store in order to reduce overhead costs and focus on HIVE Ceramics.

 

 F-7 

 

 

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.

 

REVIVAL PRODUCTS

 

On December 28, 2015, the Company created a new wholly-owned subsidiary, Revival Products, LLC (“Revival”), which is in the business of portable vaporization devices. Revival will disposable cartridge complement HIVE Ceramic’s product lines utilizing its sales and distribution channels and via its own designated e-commerce site at www.revivalvapes.com.

 

BETTERCHEM

 

On July 1, 2015, the Company entered into a Share Exchange Agreement with BetterChem Consulting, Inc. (“BetterChem”), a Pennsylvania corporation, and its sole shareholder and the Company’s current Chief Science Officer Dr. Mark Scialdone (“Dr. Scialdone”), whereby the Company acquired a controlling 80% interest in BetterChem from Dr. Scialdone in exchange for up to 400,000 shares of the Company’s restricted common stock. In consideration for the issuance of the shares to Dr. Scialdone, the Company acquired 80 shares of the common stock of BetterChem which represents 80% of the issued and outstanding shares of BetterChem. Dr. Scialdone retained a 20% interest in BetterChem. The Share Exchange Agreement transaction closed concurrently with its execution on July 1, 2015 and was approved by Unanimous Written Consent of the Board of Directors (the “Board”) of the Company on the same date. At closing, the Company issued 250,000 shares of its common stock valued at $67,500 to BetterChem. The Company acquired an 80% controlling interest of the business in order to expand its science consulting segment and research and development. BetterChem had no assets and liabilities upon closing.

 

An additional up to 150,000 shares of common stock to be issued to Dr. Scialdone will be subject to the following terms:

 

  1. Due to the uncertain nature of the valuation of BetterChem, a privately held consulting business, the parties have agreed that Dr. Scialdone shall have a nonassignable contingent contractual right to receive additional shares contingent on the future gross revenues of BetterChem as follows:

 

  a. On the one year anniversary of the closing, Dr. Scialdone shall be entitled to an additional 75,000 shares if BetterChem has generated at least $100,000 in gross revenues beginning on the date of closing and up to the one year anniversary of the closing. The additional stock issuance will be calculated on a pro rata basis (i.e. If BetterChem only generates $50,000 in gross revenues in the first year then Dr. Scialdone will be entitled to only 37,500 shares).

 

 F-8 

 

 

  b. On the two year anniversary of the closing, Dr. Scialdone shall be entitled to an additional 75,000 shares if BetterChem has generated at least $100,000 in gross revenues beginning on the one year anniversary of the closing up to the two year anniversary of the closing. The additional stock issuance will be calculated on a pro rata basis (i.e. If BetterChem only generates $50,000 in gross revenues in the second year then Dr. Scialdone will be entitled to only 37,500 shares).

 

  2. In the event of a change in control of BetterChem or a sale of all or substantially all of the assets of BetterChem during the two year period, the additional 150,000 shares shall automatically vest and be payable in full to Dr. Scialdone and any salary compensation due Dr. Scialdone under the 2 year term of his employment agreement with the Company dated May 1, 2015, or extensions of that Employment Agreement which the parties may thereafter execute, shall be accelerated and shall be due and payable in full within 30 days of the event of change in control of BetterChem.

 

In connection with the Share Exchange Agreement, on July 1, 2015, Dr. Scialdone and the Company entered into an Intellectual Property Rights Transfer Agreement (the “I.P. Agreement”) whereby Dr. Scialdone agreed to transfer and assign to Company the entire right, title and interest in and to any and all intellectual property in which Dr. Scialdone has a right to convey an interest, including intellectual property conceived, developed, reduced to practice, assigned or acquired by Dr. Scialdone prior to the date of the I.P. Agreement as well as intellectual property held, conceived, developed, reduced to practice, assigned or acquired by BetterChem. There were no assets or liabilities assumed by the Company. On January 12, 2016, the Company unwound the transaction and curtailed the subsidiary’s operations in order to reduce overhead costs and focus on HIVE Ceramics and reflected such as of September 30, 2015 in the consolidated financial statements. During the year ended September 30, 2015, the 250,000 shares issued to BetterChem valued at $67,500 was recorded as an impairment of acquisition on the statement of operations as a result of the settlement to receive the shares back as part of the unwind. Also, the fair value of 250,000 shares as of the unwind date of January 12, 2016 of $1,750 was recorded as an impairment of acquisition during the year ended September 30, 2015.

 

VAPE is organized and directed to operate strictly in accordance with all applicable state and federal laws. Subsequent to year end, the Company abandoned such plans in order to reduce overhead costs and focus on HIVE Ceramics. 

 

Subsequent to the Company’s fiscal year ended September 30, 2015, the Company began taking steps to curtail its Offset, HIVE Glass and HIVE Supply business lines to focus more on consumer vaporization products including the launch of “Revival” discussed above. The Company also curtailed its ‘THE HIVE’ retail store in order to reduce overhead costs and focus on HIVE Ceramics. Moreover, the Company curtailed its exploration into providing real estate, management and consulting solutions to the legal cannabis industry in states where such cannabis cultivation and extraction is legal. The Company was never able to execute on any of these plans and ultimately determined that the Company’s capital reserves for such projects as well as the risks inherent in each project due to the current regulatory environment surrounding the cannabis industry made this line of business too difficult to pursue.

 

BASIS OF PRESENTATION

 

The accompanying unaudited interim consolidated 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 consolidated financial statements have been included. Such adjustments consist of normal recurring adjustments. The current results are not an indication of the full year.

 

CONSOLIDATION

 

The consolidated financial statements include the assets, liabilities, and operating results of the Company and its wholly-owned subsidiaries, HIVE Ceramics, Offset, and Nouveau after elimination of all material inter-company accounts and transactions. No segment information is presented as the assets, liabilities, and results of HIVE represent over 90% of the Company’s operations.

 

USE OF ESTIMATES

 

The preparation of consolidated 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 consolidated 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. 

 

 F-9 

 

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:

 

  Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
  Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.
  Level 3 - Unobservable inputs which are supported by little or no market activity.

  

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Derivative instruments include the convertible notes payable derivative liability and warrant liability (Level 2). Derivative instruments are valued using standard calculations/models that are primarily based on observable inputs, including volatilities and interest rates. Therefore, derivative instruments are included in Level 2.

 

Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2015 and 2014. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, prepaid expenses, accounts payable, accrued liabilities, and notes payable. Fair values for these items were assumed to approximate carrying values because of their short-term nature or they are payable on demand.

 

The following table presents the Company’s fair value hierarchy for assets measured at fair value on a recurring basis at September 30, 2015:

 

    Level 1     Level 2     Level 3     Total  
Assets                        
Cash  and cash equivalents   $ 273,904     $ -     $ -     $ 273,904  
Total assets measured at fair value   $ 273,904     $ -     $ -     $ 273,904  
                                 
Liabilities                                
Derivative instruments   $ -     $ 1,704,127     $ -     $ 1,704,127  
Total liabilities measured at fair value   $ -     $ 1,704,127     $ -     $ 1,704,127  

 

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at September 30, 2014:

   

   Level 1   Level 2   Level 3   Total 
Assets                
Cash and cash equivalents  $48,370   $-   $-   $48,370 
Total assets measured at fair value  $48,370   $-   $-   $48,370 
                     
Liabilities                    
Derivative instruments  $-   $2,464,232   $-   $2,464,232 
Total liabilities measured at fair value  $-   $2,464,232   $-   $2,464,232 

 

 F-10 

 

 

CONCENTRATION

 

Credit Risk

 

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 write-offs of potentially uncollectible accounts. 

 

Customers

 

One (1) customer accounted for 37% of our accounts receivable as of September 30, 2015. The loss of this customer would have a significant impact on the Company’s financial results.

 

Suppliers

 

One (1) supplier accounted for 54% of our purchases during the year ended September 30, 2015. We purchased $60,000 in high-end glass from Kyle Tracey for HIVE Glass, which accounted for 10% of purchases during the year ended September 30, 2015. The loss of these suppliers would have a significant impact on the Company’s financial results.

 

REVENUE RECOGNITION

 

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. Revenue is recorded when sales orders are shipped.

 

INVENTORY

 

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.

 

We purchase product sourced from China which we are required to pay 50% upon placing the order. Amounts paid for products, which have not been received, are recorded as prepaid inventory. There are no amounts paid which are in dispute or considered impaired.

 

FIXED ASSETS

 

Fixed assets are recorded at cost and depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The estimated life of tooling related to our ceramic products is three (3) years. The estimated life of our leasehold improvements is the lesser of the term of the related lease and useful life.

 

 F-11 

 

 

IMPAIRMENT OF LONG-LIVED AND PURCHASED INTANGIBLE ASSETS

 

The Company has adopted Accounting Standards Codification (“ASC”) 350 “Intangibles - Goodwill and Other.” The Statement requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undercounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 350 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

 

Long-lived assets, such as fixed assets and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to undiscounted future net cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair market value. Estimates of expected future cash flows represent management's best estimate based on currently available information and reasonable and supportable assumptions. Any impairment recognized is permanent and may not be restored. During the year ended September 30, 2015 and 2014, the Company recorded $22,133 and $0 of impairment of its pending patents as its expected cash flows did not exceed its carrying amounts and none towards its trademarks as its expected future cash flows are in excess of their carrying amounts.

 

RESEARCH AND DEVELOPMENT

 

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 fixed assets 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 year ended September 30, 2015 and 2014, research and development costs were $212,424 and $45,757, respectively.

 

CONVERTIBLE DEBT

 

Convertible debt is accounted for under the guidelines established by 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. Many of the conversion features embedded in the Company's 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.  In these cases, we record the embedded conversion feature as a derivate instrument, at fair value. The embedded conversion features are recorded as discounts when the notes become convertible. The excess of fair value of the embedded conversion feature over the carrying value of the debt is recorded as an immediate charge to operations.  Each reporting period, the Company will compute the estimated fair value of derivatives and record changes to operations. The discounts relating to the initial recording of the derivatives or beneficial conversion features are accreted over the term of the debt using the effective interest method.  

 

The Company has lost the ability to increase the share reserves due to the significantly increased outstanding held by convertible noteholders and a shareholder vote is required to increase the authorized amount of shares the Company may issue. Further, the combination of limited capital and depleted share reserves have severely damaged the Company’s ability to find continued finance, properly run the Company, and proceed with business to include any mergers or acquisitions or any transactions that would require available stock.

 

 F-12 

 

 

DERIVATIVE FINANCIAL INSTRUMENTS

 

Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

 

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including senior convertible notes payable and freestanding stock purchase warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our consolidated financial statements.

 

The Company estimates the fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with objectively measuring fair values. In selecting the appropriate technique, consideration is given to, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, the Company generally uses the Black-Scholes option valuation technique because it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company's operating results will reflect the volatility in these estimate and assumption changes.

 

EARNINGS PER COMMON SHARE

 

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income available to common shareholders by the combination of dilutive common share equivalents, comprised of shares issuable under the Company’s share-based compensation plans and the weighted-average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated, based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an award, if any, the amount of compensation cost, if any, for future service that the Company has not yet recognized, and the estimated tax benefits that would be recorded in paid-in capital, if any, when an award is settled are assumed to be used to repurchase shares in the current period.

 

The following is a summary of outstanding securities that would have been included in the calculation of diluted 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 for the year ended September 30, 2015 and 2014:

 

   For the Year Ended   For the Year Ended 
   September 30,   September 30, 
   2015   2014 
Series A Preferred stock   500,000    500,000 
Common stock options   -    303,889 
Common stock warrants   1,184,727    1,184,727 
Convertible notes   79,699,946    843,213 
    81,384,673    2,831,829 

 

 F-13 

 

 

The Company would have excluded 125,000 options from the computation for the year ended September 30, 2014 as their exercise prices were in excess of the average closing market price of the Company’s common stock, causing their effects to be anti-dilutive using the treasury stock method. 

 

STOCK-BASED COMPENSATION

 

ASC 718, “Share-Based Payment” requires that compensation cost related to share-based payment transactions be recognized in the consolidated financial statements. Share-based payment transactions within the scope of ASC 718 include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans.

 

The Company adopted ASC 718, which requires disclosure of the fair value and other characteristics of stock options and more prominent disclosure about the effects of an entity’s accounting policy decisions with respect to stock-based compensation on reported net loss. The Company has reflected the expense of such stock based compensation based on the fair value at the grant date for awards consistent with the provisions of ASC 718.

 

In connection with the adoption of ASC 718, the fair value of our share-based compensation has been determined utilizing the Black-Scholes pricing model. The fair value of the options granted is amortized as compensation expense on a straight line basis over the requisite service period of the award, which is generally the vesting period. The fair value calculations involve significant judgments, assumptions, estimates and complexities that impact the amount of compensation expense to be recorded in current and future periods. Upon option exercise, the Company issues new shares of stock.

 

The following weighted average variables were used in the Black Scholes model for all option issuances valued during the year ended September 30, 2015 and 2014:

 

Year Ended September 30,  Stock Price at
Grant Date
   Dividend
Yield
  Exercise
Price
   Risk Free
Interest Rate
   Volatility   Average
Life
 
2015  $0.73   -%  $0.73    2.2%   380%   10.0 
2014  $1.66   -%  $1.66    2.5%   401%   10.0 

 

The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of Emerging Issues Task Force (“EITF”) 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”, codified into ASC 505-50.  The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete.  In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

  

RECENT ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers”, which supersedes most of the current revenue recognition requirements. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for these goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. This guidance is effective for the Company in the first quarter of fiscal year 2018 and early application is not permitted. Entities must adopt the new guidance using one of two retrospective application methods. The Company is currently evaluating the standard but does not expect it to have a material impact on our financial position, results of operations or cash flows.

 

In August 2014, the FASB issued ASU 2014-15, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued.2 An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.

 

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.

 

 F-14 

 

 

RISKS AND UNCERTAINTIES

 

Although forward-looking statements in this Quarterly Report reflect our good faith judgment, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under the heading “Risk Factors” below, as well as those discussed elsewhere in this Quarterly Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

AMENDMENT 

 

We have amended this Form 10-K/A to correctly account for the following non-cash transactions:

 

In August 2015 the Company entered into convertible notes without conversion floors resulting in an unlimited potential of shares to be issued. The notes are not convertible until six months from the issuance date, and accordingly, we adjusted the consolidated financial statements to defer recognition of the embedded conversion feature until the instruments are convertible.

 

On August 13, 2015 and August 26, 2015, the convertible notes due to Redwood and Typenex, respectively, were amended which removed the fixed conversion floors per common share creating a potentially unlimited number of shares to be issued on the date of the amendment. Accordingly, we amended this Form 10-K/A to account for the embedded conversion features as derivative financial instruments at fair value. This increased the loss on debt extinguishments and interest expense previously recorded, as well as the derivative liabilities at fair value.

 

The following was the effect on the previously reported consolidated financial statements.

 

    As Previously Reported           As Restated  
    September 30, 2015     Change     September 30, 2015  
LIABILITIES AND STOCKHOLDERS' DEFICIT                  
Total current liabilities   $ 631,801     $ 1,919,544     $ 2,551,345  
Total liabilities   $ 1,392,465     $ 1,736,271     $ 3,128,736  
                         
Total stockholders' deficit   $ (385,013 )   $ (1,736,271 )   $ (2,121,284 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ 1,007,452     $ -     $ 1,007,452  
                         
Interest expense   $ (788,038 )   $ (957,370 )   $ (1,745,408 )
Change in derivative liabilities   $ 2,439,207     $ (123,291 )   $ 2,315,916  
Loss on debt extinguishment, net   $ (564,712 )   $ (406,848 )   $ (971,560 )
Other   $ -     $ (69,250 )   $ (69,250 )
Net loss   $ (1,230,147 )   $ (1,555,703 )   $ (2,785,850 )
                         
Net loss available to common shareholders:                        
Loss per common share - basic   $ (0.11 )           $ (0.24 )
Loss per common share - diluted   $ (0.11 )           $ (0.24 )

  

NOTE 2. GOING CONCERN

 

VAPE’s consolidated financial statements reflect a net loss of $2,785,850 during the year ended September 30, 2015. As of September 30, 2015, we had cash of $273,904 and working capital deficit of $1,797,437. VAPE has suffered an accumulated deficit of $28,166,745 and subsequent to the Company’s fiscal year ended September 30, 2015, the Company began taking steps to curtail its Offset, HIVE Glass and HIVE Supply business lines to focus more on consumer vaporization products including the launch of “Revival” discussed above. The Company also curtailed its ‘THE HIVE’ retail store in order to reduce overhead costs and focus on HIVE Ceramics. Moreover, the Company curtailed its exploration into providing real estate, management and consulting solutions to the legal cannabis industry in states where such cannabis cultivation and extraction is legal. The Company was never able to execute on any of these plans and ultimately determined that the Company’s capital reserves for such projects as well as the risks inherent in each project due to the current regulatory environment surrounding the cannabis industry made this line of business too difficult to pursue. All of which have resulted in losses and opportunity costs. In addition, the ongoing need to obtain financing to fund operations also raise substantial doubt about the ability of Vape to continue as a going concern. Management expects to obtain funding for the new operations for the foreseeable future; however, there are no assurances that the Company will obtain such funding. VAPE’s financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the inability to continue as a going concern. See Note 11 for subsequent events regarding financing activities.

 

 F-15 

 

 

NOTE 3. FIXED ASSETS

 

The following is a summary of fixed assets as of September 30, 2015 and 2014:

 

   September 30,
2015
   September 30,
2014
 
Molds and Tooling  $176,015   $122,555 
Leasehold improvements   29,795    - 
Accumulated depreciation   (87,483)   (16,178)
   $118,327   $106,377 

 

During the year ended September 30, 2015 and 2014, depreciation expense included in cost of revenue were $71,305 and $16,178, respectively.

 

NOTE 4. ACCRUED EXPENSES

 

The following is a summary of accrued expenses as of September 30, 2015 and 2014:

 

    September 30,
2015
    September 30,
2014
 
Accrued interest   $ 46,337     $ 16,300  
Accrued interest - related party     24,538       18,325  
Accrued wages and taxes     112,322       108,374  
Other     24,412       26,514  
    $ 207,609     $ 169,513  

 

As of September 30, 2015 and 2014, the Company recorded accrued wages and taxes for Kyle Tracey of $55,000 and $59,273, Joe Andreae of $14,667 and $0, Allan Viernes of $1,833 and $0, and Benjamin Beaulieu of $1,833 and $0, respectively.

 

NOTE 5.   THIRD PARTY DEBT

 

CONVERTIBLE NOTES PAYABLE

  

Beginning on February 11, 2014, the Company issued 6% Convertible Notes (the “6% Notes”) pursuant to subscription agreements to ten (10) accredited investors (the “Holders”) with the aggregate principal amount of $230,000. The 6% Notes are not secured by any collateral or any assets pledged to the Holders. The maturity dates are from February 28, 2015 to March 31, 2015, and the annual rate of interest is six percent (6%). Subject to certain limitations, the Holders can, at their sole discretion, convert the outstanding and unpaid principal and interest of their notes into fully paid and nonassessable shares of the Company’s common stock. The conversion price of these 6% Notes is the average of the fifteen (15) lowest daily VWAP’s occurring during the twenty (20) consecutive trading days immediately preceding the date each Holder elects convert all of their 6% Note minus a discount of 40%. In no event will the conversion price be less than $1.00 per share or greater than $3.00 per share. The Company had a preexisting relationship with each of the Holders, and no general solicitation or advertising was used in connection with the issuance of the 6% Notes. We recorded a discount totaling $92,000 related to the beneficial conversion feature embedded in the notes upon issuance and amortized $32,333 and $57,667 of the discount to interest expense during the year ended September 30, 2015 and 2014, respectively.

 

On March 12, 2015, the Company offered to pay accrued interest and modify the terms of the six (6) Holders’ outstanding 6% Notes, decreasing the conversion floor from $1.00 to $0.50 in order to encourage the noteholders to convert their promissory notes. The Company recorded a loss on debt extinguishment of $23,443 as a result of the fair value in excess of the modified conversion floor. In March 2015, the Company paid all accrued interest on the 6% notes of $17,200. Five (5) of the six (6) holders converted in full a total of $80,000 of 6% Notes into 160,000 shares of common stock. The remaining note holder partially converted $20,000 of 6% Notes into 40,000 of common shares and extended the terms on the remaining $30,000 for six (6) months. As of September 30, 2015, there is $1,010 in accrued interest expense related to the one (1) remaining note and the Company recorded $1,010 in interest expense related to the 6% note during the year ended September 30, 2015. On December 14, 2015, the note holder converted $30,000 in principal and $1,351 of accrued interest into 13,063,013 shares of common stock. As a result of the subsequent conversion the principal balance and accrued interest as of September 30, 2015 were classified as long-term.

 

Securities Purchase Agreement

 

On December 3, 2014, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an accredited investor (the “Investor”) pursuant to which the Company agreed to sell, and the Investor agreed to purchase, an unsecured convertible promissory note (the “Note”) in the principal amount of $560,000 less an original issue discount (“OID”) of $50,000 and transaction expenses of $10,000 for a total purchase price of $500,000. The Company also paid a finder’s fee in the amount of $25,000 in connection with this transaction, which was recorded as a discount to the note as it was paid from the proceeds. The closing under the Securities Purchase Agreement occurred on December 3, 2014. The Company received $475,000 net proceeds after transactions costs. We amortized $27,778 of the discount to interest expense during the year ended September 30, 2015. In addition, the Company recorded $45,940 in deferred financing costs and amortized $25,522 to interest expense during the year ended September 30, 2015. As of September 30, 2015, the Company had unamortized costs of $20,418 in current deferred financing costs. The deferred financing costs are amortized through the maturity date.

 

 F-16 

 

 

The Note bears interest at the rate of 10% per annum and is convertible into common stock of the Company at a conversion price per share of 70% of the average of the three (3) lowest Closing Sale Prices in the ten (10) Trading Days immediately preceding the applicable Conversion (subject to adjustment in the event of stock splits, stock dividends, and similar transactions, and in the event of subsequent sales of common stock at a lower purchase price (subject to certain exceptions))(the “Conversion Price”). In no event will the Conversion Price be less than $0.50 per share. Repayment of principal on the Note, together with accrued interest thereon, is due in twelve monthly installments, commencing six months from issuance. The Company may make such payments in cash (in which event the Company will pay a 25% premium) or, subject to certain conditions, in shares of common stock valued at the lower of the Conversion Price or 70% of the average of the three (3) lowest Closing Sale Prices in the ten (10) Trading Days immediately preceding the applicable payment date (the “Amortization Conversion Rate”). The Maturity Date of the Note is seventeen months from the date of issuance. We recorded a discount totaling $168,000 related to the beneficial conversion feature embedded in the note upon issuance. We amortized $84,000 of the discount to interest expense during the year ended September 30, 2015. On August 26, 2015, the Company and Investor entered into an Amendment whereby the conversion rate of the note was amended to 55% of the lowest price of the prior fifteen (15) trading days and conversion floor removed which amendment was triggered by the dilutive issuances of the August 2015 convertible note financing thereby entitling Investor to the lowest conversion rate granted during the year ended September 30, 2015 per the terms of the Securities Purchase Agreement. As a result, we expensed the unamortized discount of $84,000 to loss on debt extinguishment. On August 26, 2015, the carrying value on the note was $332,666, net of unamortized discounts of $109,000. The Company recorded the note as a derivative liability at fair value of $830,921, a derivative discount of $332,666, and the excess in fair value of $498,254 to loss on debt extinguishment. The total loss on debt extinguishment on this note was $582,254. During the year ended September 30, 2015, the Company amortized $54,984 of the derivative discount to interest expense, recorded a gain on the change in fair value of the derivative liability of $63,699, and allocated the fair value of $123,310 of the conversions below as a reduction in the derivative liability. As of September 30, 2015, the derivative liability was $643,912. On December 10, 2015, the Company and the Investor entered into a forbearance agreement regarding the Investor’s convertible note and added $105,000 to the principal. See Note 11 to the consolidated financial statements.

 

Between June 2015 and September 2015, the Company issued the following conversions for payment towards Investor:

 

Conversion Date  Principal
Converted
   Accrued
Interest
Converted
   Total
Converted
   Conversion
Rate
   Common
Shares
Issued
 
June 4, 2015  $46,667   $28,871   $75,538   $0.342    220,949 
July 3, 2015   46,667    4,295    50,962   $0.194    263,141 
August 11, 2015   25,000    -    25,000   $0.138    181,818 
September 3, 2015   25,000    -    25,000   $0.056    445,196 
September 23, 2015   25,000    -    25,000   $0.041    606,061 
September 29, 2015   23,000    -    23,000   $0.015    1,548,822 
   $191,334   $33,166   $224,500         3,265,987 

 

Subsequent to year end, the Investor also enacted the following conversions:

 

Conversion Date  Principal
Converted
   Accrued
Interest
Converted
   Total
Converted
   Conversion
Rate
   Common
Shares
Issued
 
October 8, 2015  $21,000   $-   $21,000   $0.012    1,818,182 
October 16, 2015   18,900    -    18,900   $0.012    1,636,364 
October 22, 2015   25,800    -    25,800   $0.011    2,333,786 
October 29, 2015   22,460    -    22,460   $0.011    2,031,660 
November 11, 2015   33,500    -    33,500   $0.007    4,649,549 
November 18, 2015   24,000    -    24,000   $0.006    4,195,804 
November 30, 2015   30,000    -    30,000   $0.005    5,741,627 
December 11, 2015   22,000    -    22,000   $0.002    9,090,909 
December 28, 2015   22,500    -    22,500   $0.002    9,297,521 
January 7, 2016   20,000    -    20,000   $0.002    10,101,010 
   $240,160   $-   $240,160         50,896,412 

 

As a result, as of September 30, 2015, $23,969 and $44,794, net of total unamortized discounts of $104,538 and $195,366 are classified as current and long-term on the accompanying consolidated balance sheet. As of September 30, 2015, there is $9,945 in accrued interest expense related to this note and the Company recorded $43,111 in interest expense related to this note during the year ended September 30, 2015.

 

 F-17 

 

 

$2M Securities Purchase Agreement

 

On February 10, 2015, the Company entered into a securities purchase agreement (the “February 2015 Securities Purchase Agreement”) with an accredited investor pursuant to which the Company agreed to sell, and the investor agreed to purchase, an unsecured convertible promissory note (the “$2M Note”) in the principal amount of $2,000,000 less an OID of $182,000 and transaction expenses of $10,000 for a total purchase price of $1,808,000. The closing under the February 2015 Securities Purchase Agreement occurred on February 10, 2015.

 

The $2M Note bears interest at the rate of 10% per annum and is immediately convertible into common stock of the Company at a conversion price per share of 70% of the lowest daily VWAP in the ten (10) Trading Days immediately preceding the applicable Conversion (subject to adjustment in the event of stock splits, stock dividends, and similar transactions, and in the event of subsequent sales of common stock at a lower purchase price (subject to certain exceptions))(the “Conversion Price”). In no event will the Conversion Price be less than $0.50 per share. Repayment of principal on the $2M Note, together with accrued interest thereon, is due in twelve bi-monthly installments, commencing approximately six months from issuance. The Company may make such payments in cash (in which event the Company will pay a 25% premium) or, subject to certain conditions, in shares of common stock valued at the lower of the Conversion Price or 70% of the lowest daily VWAP in the ten (10) Trading Days immediately preceding the applicable payment date (the “Amortization Conversion Rate”). The Maturity Date of the $2M Note is twelve months from the date of issuance.

 

During the year ended September 30, 2015, the Company received $800,000 toward the $2M Note with an original issue discount of $148,600 and transaction costs for net proceeds of $651,395, respectively. We amortized $46,087 of the discount to interest expense during the year ended September 30, 2015. In addition, we recorded a discount totaling $108,641 related to the beneficial conversion feature embedded in the note upon issuance. During the year ended September 30, 2015, we amortized $54,456 of the discount to interest expense.

 

On August 13, 2015, the Company entered into an Amendment, Waiver and Modification Agreement (the “Amendment”) to its $2M Securities Purchase Agreement and related Transaction Documents with Redwood Management, LLC including any designees and or assignees thereto.  Under the terms of the Amendment, the parties agreed to reduce the $2,000,000 outstanding balance of the $2M Note to $800,000 to reflect the total amount funded under the note, to terminate the offsetting investor note securing the additional unfunded balance and to waive any past claims of default or offsetting interest on the $2M Note or investor note. In addition, the conversion rate of the note was amended to 55% of the lowest price of the prior fifteen (15) trading days and conversion floor removed which amendment was triggered by the dilutive issuances of the August 2015 convertible note financing thereby entitling Investor to the lowest conversion rate granted during the year ended September 30, 2015 per the terms of the $2M Securities Purchase Agreement. As a result, we expensed the unamortized discount of $40,000 to loss on debt extinguishment. On August 13, 2015, the carrying value on the note was $655,816, net of unamortized discounts of $94,184. The Company recorded the note as a derivative liability at fair value of $970,956, a derivative discount of $655,816, and the excess in fair value of $315,140 to loss on debt extinguishment. The total loss on debt extinguishment on this note was $369,324. During the year ended September 30, 2015, the Company amortized $183,189 of the derivative discount to interest expense, recorded a loss on the change in fair value of the derivative liability of $288,763, and allocated the fair value of $230,905 of the conversions below as a reduction in the derivative liability. As of September 30, 2015, the derivative liability was $1,028,814.

 

 F-18 

 

 

The following is summary of conversions by the $2M Note holder during the year ended September 30, 2015:

 

Conversion Date  Principal Converted   Accrued
Interest Converted
   Total Converted   Conversion Rate   Common Shares Issued 
August 13, 2015  $50,000    -   $50,000   $0.127    393,701 
August 26, 2015   25,000    -    25,000   $0.056    446,428 
September 8, 2015   25,000    -    25,000   $0.056    446,428 
September 14, 2015   25,000   $-    25,000   $0.053    469,925 
September 16, 2015   10,000    -    10,000   $0.053    188,679 
September 17, 2015   25,000    -    25,000   $0.053    469,925 
September 22, 2015   10,000    -    10,000   $0.043    232,558 
September 24, 2015   10,000    -    10,000   $0.026    390,625 
September 25, 2015   10,000    -    10,000   $0.019    518,135 
September 29, 2015   13,410    -    13,410   $0.015    900,000 
   $203,410   $-   $203,410         4,456,404 

 

 F-19 

 

 

Subsequent to year end, the $2M Note holder also enacted the following conversions:

 

Conversion Date  Principal Converted   Accrued Interest Converted   Total Converted   Conversion Rate   Common Shares Issued 
October 1, 2015  $10,000   $-   $10,000   $0.0148    675,676 
October 5, 2015   10,000    -    10,000   $0.0148    675,676 
October 6, 2015   13,262    -    13,262   $0.0138    961,000 
October 7, 2015   10,000    -    10,000   $0.0115    865,801 
October 9, 2015   11,728    -    11,728   $0.0116    1,011,000 
October 9, 2015   10,000    -    10,000   $0.0115    865,801 
October 12, 2015   14,680    -    14,680   $0.0115    1,271,000 
October 13, 2015   11,601    -    11,601   $0.0116    1,000,052 
October 15, 2015   14,680    -    14,680   $0.0115    1,271,000 
October 19, 2015   17,400    -    17,400   $0.0116    1,500,000 
October 19, 2015   15,000    -    15,000   $0.0116    1,298,701 
October 20, 2015   16,650    -    16,650   $0.0111    1,500,000 
October 21, 2015   17,500    -    17,500   $0.0115    1,515,152 
October 23, 2015   20,000    -    20,000   $0.0115    1,731,602 
October 26, 2015   24,420    -    24,420   $0.0111    2,200,000 
October 29, 2015   26,640    -    26,640   $0.0111    2,400,000 
November 2, 2015   29,970    -    29,970   $0.0111    2,700,000 
November 2, 2015   20,000    -    20,000   $0.0111    1,809,136 
November 5, 2015   32,190    -    32,190   $0.0111    2,900,000 
November 10, 2015   28,800    -    28,800   $0.0096    3,000,000 
November 12, 2015   23,930    -    23,930   $0.0072    3,323,611 
November 17, 2015   16,500    -    16,500   $0.0060    2,727,273 
November 19, 2015   1,640    11,225    12,865   $0.0056    2,316,013 
November 23, 2015   23,111    -    23,111   $0.0056    4,127,000 
November 27, 2015   24,750    -    24,750   $0.0055    4,500,000 
December 2, 2015   18,450    -    18,450   $0.0041    4,500,000 
December 8, 2015   18,000    -    18,000   $0.0036    5,000,000 
December 11, 2015   13,368    -    13,368   $0.0024    5,570,000 
December 16, 2015   14,181    -    14,181   $0.0024    5,860,000 
December 22, 2015   15,488    -    15,488   $0.0024    6,400,000 
December 29, 2015   17,666         17,666   $0.0024    7,300,000 
   $541,604   $11,225   $552,830         82,775,494 

 

As a result, as of September 30, 2015, $10,427 and $82,822, net of total unamortized discounts of $44,558 and $458,782 are classified as current and long-term on the accompanying consolidated balance sheet. As of September 30, 2015, there is $26,861 and $11,225 in current and long-term accrued interest expense related to this note, respectively, and the Company recorded $38,086 in interest expense related to this note during the year ended September 30, 2015.

 

Convertible Note Financing

 

On August 5, 2015, the Company entered into a series of convertible note financings with several accredited investors totaling an aggregate of $541,000 in aggregate proceeds raised less certain fees and costs as set forth in the financing documents known as the “August 2015 Notes”. The financing was disclosed on the Company’s Current Report on Form 8-K filed on August 11, 2015 and is incorporated herein by reference. The Company recorded an original issue discount of $12,500 along with these notes and amortized $1,042 of the discount to interest expense during the year ended September 30, 2015. As of September 30, 2015, there is $8,388 of accrued interest related to these notes and the Company recorded $8,388 in interest expense related to the notes during the year ended September 30, 2015. The Company will record an embedded beneficial conversion feature at estimated fair value as a derivative liability at fair value in six months when the notes become convertible. 

 

 F-20 

 

 

On August 12, 2015, the Company entered into an additional convertible note financing transaction with an accredited investor in the principal amount of $105,000 less fees and costs. The closing under the financing occurred concurrently with the execution of the financing documents on August 12, 2015. The convertible note bears interest at the rate of 8% per annum and is convertible into common stock of the Company at any time after 180 days from issuance of the note at a conversion price per share equal to 58% of the average of the lowest trading price of the common stock in the thirteen (13) trading days immediately preceding the applicable conversion date. The Company has the option to prepay the convertible note in the first 180 days from closing subject to a prepayment penalty of 150% of principal plus interest. The maturity date of the convertible note is June 12, 2016 subject to the noteholder’s right to extend maturity an additional nine (9) month period. The Company recorded an original issue discount of $5,000 along with these notes and amortized $1,000 of the discount to interest expense during the year ended September 30, 2015. The Company will record an embedded beneficial conversion feature at estimated fair value as a derivative liability at fair value in six months when the notes become convertible. The discount will be amortized over the remaining term of the note. As of September 30, 2015, there is $1,143 of accrued interest and related interest expense on the notes during the year ended September 30, 2015.

 

The foregoing descriptions of the August 12, 2015 note financing and related documentation do not purport to be complete and are qualified in their entirety by reference to the full text of the documents, which are filed as exhibits to this Quarterly Report on Form 10-K and are incorporated herein by reference.

 

As of September 30, 2015, future minimum principal payments for the years ending September 30, 2016 and 2017 are $1,487,256 and $154,000, respectively. As of September 30, 2015, expected amortization of debt discounts for the years ending September 30, 2016 and 2017 are $179,528 and $695,963, respectively. As of September 30, 2015, expected amortization of deferred financing costs for the years ending September 30, 2016 and 2017 are $107,909 and $12,067, respectively. The Company has the ability to increase the authorized common stock of the Company in the event that the convertible notes require more shares than available.

  

NOTE 6.   RELATED PARTY DEBT

 

RELATED PARTY NOTES PAYABLE, LONG-TERM

 

The Company had outstanding accounts payable balance to a related party (shareholder of the Company) in the amount of $15,000 as of September 30, 2013. This payable was converted into a note payable on December 7, 2013. The note payable bears interest of 6% per annum with a maturity date of December 1, 2016. As of September 30, 2015, there is $1,645 in accrued interest expense related to this note and the Company recorded $913 in interest expense related to this note during the year ended September 30, 2015. 

 

On December 7, 2013, the Company issued a note payable to a shareholder of the Company in the amount of $23,462 for monies previously borrowed from shareholder.  The note is unsecured and bears interest of 6% per annum and matures on December 1, 2016. On January 22, 2015, the Company settled and paid the note and accrued interest of $1,504 for $20,000 and recorded a gain on extinguishment of the note of $3,462.

 

On February 28, 2014, the Company issued a note payable to HIVE (the “HIVE Note”) for the principal amount of $250,000 in connection with the Hive asset acquisition. 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. As of September 30, 2015, there is $22,893 in accrued interest expense related to this note and the Company recorded $15,208 in interest expense related to this note during the year ended September 30, 2015, respectively. On December 10, 2015, the HIVE Note was converted into a Series B Convertible Preferred Note payable and the maturity date was extended to December 10, 2016. See Note 11 to the consolidated financial statements.

 

On May 12, 2014, the Company issued a note payable to its President, Joseph Andreae in the amount of $40,000 for monies previously borrowed during the three and six months ended March 31, 2014 (the “Andreae Note”).  The note was unsecured and bears interest of 6% per annum and matures on May 1, 2016. On December 4, 2014, the Company repaid the principal balance of $40,000 and accrued interest of $1,348 in full satisfaction on the Andreae Note.

 

 F-21 

 

 

On August 11, 2014, the Company issued a 6% note payable to its President, Joseph Andreae, for monies borrowed from Mr. Andreae to cover outstanding accounts payable in the amount of $12,828 (the “Andreae Note II”). Per the terms of the Andreae Note, the original principal balance   was $12,828, and was not secured by any collateral or any assets pledged to the holder. The maturity date is November 30, 2014, and the annual rate of interest is six percent (6%). The monies were funded during the three and nine months ended June 30, 2014. On December 4, 2014, the Company repaid principal balance of $12,828 and accrued interest of $240 in full satisfaction of the Andreae Note II.

 

RELATED PARTY CONVERTIBLE NOTES PAYABLE

 

On February 18, 2014, the Company issued 8% Convertible Notes to two third parties to cover outstanding accounts payable in the amount of $20,000.  Per the terms of the notes, the aggregate principal balance is $20,000, and was not secured by any collateral or any assets pledged to the holders. The maturity date is February 18, 2016, and the annual rate of interest is eight percent (8%).  Subject to certain limitations, the holders can, at their sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the notes was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $8,000 related to the beneficial conversion feature embedded in the notes upon issuance.  We amortized $1,000 and $1,667 of the discount to interest expense during the three and nine months ended June 30, 2014, respectively. On October 28, 2014, the Company received a Notice of Conversion on two (2) 8% Convertible Notes issued to third parties on February 18, 2014 to cover expenses of the Company. The noteholders converted aggregate principal of $20,000 and aggregate outstanding accrued and unpaid interest of $1,100 into an aggregate of 42,370 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of their convertible notes payable. The conversion of these notes was in full satisfaction of the notes payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $5,333 to interest expense.

  

On February 18, 2014, the Company issued an 8% Convertible Note to Kyle Tracey for monies borrowed from Mr. Tracey to cover outstanding accounts payable in the amount of $10,612 (the “Tracey Note”). Per the terms of the Tracey Note, the original principal balance is $10,612, and was not secured by any collateral or any assets pledged to the holder. The maturity date was February 18, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Tracey Note was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $4,245 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $1,415 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion the Tracey Note. Mr. Tracey converted principal of $10,612 and outstanding accrued and unpaid interest of $584 into 22,481 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Tracey Note was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $2,830 to interest expense. 

 

On March 17, 2014, the Company issued an 8% Convertible Note to Jerome Kaiser, former CEO, CFO and Director of the Company for services rendered to the Company in the amount of $50,000 (the “Kaiser Note”) which was charged to expense during the three months March 31, 2014. Per the terms of the Kaiser Note, the principal balance is $50,000, and is not secured by any collateral or any assets pledged to the holders. The maturity date is March 17, 2015, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at his sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Kaiser Note is the market closing price of the market day immediately preceding the date of conversion minus twenty percent (20%). We recorded a discount totaling $10,000 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $4,167 of the discount to interest expense during the year ended September 30, 2015. In March 2015, the Company paid the outstanding principal and accrued interest in satisfaction on the note of $50,000 and $4,000, respectively.

 

 F-22 

 

 

On May 12, 2014, in connection with the 6% Notes, the Company issued a note for $40,000 to Kyle Tracey, which was recorded as a related party convertible note payable. We recorded a discount totaling $16,000 related to the beneficial conversion feature embedded in the 6% note to Mr. Tracey upon issuance. We amortized $6,667 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion on the 6% Convertible Note issued on May 13, 2014 to Mr. Tracey (the “Tracey PPM Note”) as part of a private placement transaction in exchange for capital of $40,000. Mr. Tracey converted principal of $40,000 and outstanding accrued and unpaid interest of $1,098 into 41,098 shares of restricted common stock of the Company at a per share conversion price of $1.00 in accordance with the terms of the convertible note. The conversion of the Tracey PPM Note was in full satisfaction of the note. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $13,333 to interest expense. 

  

On May 12, 2014, the Company issued an 8% Convertible Note to Kyle Tracey for monies borrowed from Mr. Tracey to cover outstanding accounts payable in the amount of $11,042 (the “Tracey Note II”). Per the terms of the Tracey Note II, the original principal balance is $11,042, and was not secured by any collateral or any assets pledged to the holder. The maturity date was May 12, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Tracey Note II was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $4,417 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $920 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion on the Tracey Note II. Tracey converted principal of $11,042 and outstanding accrued and unpaid interest of $407 into 22,989 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Tracey Note II was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $3,497 to interest expense. 

 

On May 12, 2014, the Company issued an 8% Convertible Note to its Director of Business Development, Michael Cook, for monies borrowed from Mr. Cook to cover outstanding accounts payable in the amount of $11,825 (the “Cook Note”). Per the terms of the Cook Note, the original principal balance was $11,825, and was not secured by any collateral or any assets pledged to the holder. The maturity date is May 12, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Cook Note was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $4,730 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $985 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion on the “Cook Note. Mr. Cook converted principal of $11,825 and outstanding accrued and unpaid interest of $435 into 24,619 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Cook Note was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $3,745 to interest expense.

 

On August 11, 2014, the Company issued a second 8% Convertible Note to Mr. Cook for monies borrowed from Mr. Cook to cover outstanding accounts payable in the amount of $15,115 (the “Cook Note II”). Per the terms of the Cook Note II, the original principal balance was $15,115, and is was secured by any collateral or any assets pledged to the holder. The maturity date is August 11 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Cook Note II was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $6,046 related to the beneficial conversion feature embedded in the notes upon issuance. On October 28, 2014, the Company received a Notice of Conversion on the Cook Note II. Mr. Cook converted principal of $15,115 and outstanding accrued and unpaid interest of $255 into 30,864 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Cook Note II was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $5,542 to interest expense.

 

 F-23 

 

 

On August 11, 2014, the Company issued an 8% Convertible Note to Mr. Tracey for monies borrowed from Mr. Tracey to cover outstanding accounts payable in the amount of $216,001 (the “Tracey Note III”). Per the terms of the Tracey Note III, the original principal balance was $216,001, and is not secured by any collateral or any assets pledged to the holder. The maturity date was August 11, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Tracey Note III was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $86,401 related to the beneficial conversion feature embedded in the notes upon issuance. On October 28, 2014, the Company received a Notice of Conversion on the Tracey Note III. Mr. Tracey converted principal of $216,001 and outstanding accrued and unpaid interest of $3,645 into 441,057 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $79,200 to interest expense. 

  

NOTE 7.   COMMITMENTS AND CONTINGENCIES

 

Office Lease

 

As of September 30, 2015, the Company leases a 5,000 square foot office in Chatsworth, California for $4,947 per month which expires in November 2015.

 

Warrant Liability  

 

The Company recorded the estimated settlement liability as of March 31, 2014 for the Warrant Shares issued and the Warrants that remain outstanding and unexercised that would be entitled to the same settlement based on the number of shares expected to be issued and the market price of the Company’s common stock on the dates of the actual settlements from $4.72 per share to $7.25 per share, and market price of the first settlement of $7.25 for the unsettled claims. We believe the issuance of convertible notes in the three months ended March 31, 2014 triggered the full ratchet anti-dilution adjustment; before the provision was triggered, the fair value of the warrant liability was not significant as the exercise was so far out of the money. As a result of the above settlements with warrant holders, the Company recorded a loss on settlement of warrants of $29,528,844 during the six months ended March 31, 2014 and a long-term warrant liability of $29,430,022 as of March 31, 2014 based on 4,407,200 shares of common stock under the settlement at the Company’s closing stock prices discussed above. As of September 30, 2015, the estimated settlement liability is $31,401 based on the fair market value of 1,184,727 remaining warrants and using the Black-Scholes model and therefore the Company recorded a gain on the change in warrant liability of $2,432,832 during the year ended September 30, 2015.

 

Settlement of Company Legal Claims

 

On December 15, 2014, the Company recorded a gain on settlement of $257,930 for a confidential settlement by and between the Company and certain shareholders and related parties as settlement for certain potential legal claims held by the Company. As a result of the settlement, the Company received net proceeds of $62,930 and vendor credits of $200,000 during the year ended September 30, 2015. A total of $325,000 in vendor credits has been received in connection with the settlement and no further credits will be given. In January 2015, the Company received 440,625 shares from the settlement that was assigned to officers of the Company. The officers decided it was in the best interest of the Company to return these shares to the Company to be used for future strategic issuances. Accordingly, the 440,625 shares valued at $367,531 were recorded as treasury stock as of September 30, 2015, and the Company recorded a gain on settlement of $625,461 during the year ended September 30, 2015.   

 

Chief Science Officer

 

On May 1, 2015, the Company appointed Dr. Mark A. Scialdone to the newly-created executive officer position of Chief Science Officer.

 

Dr. Scialdone’s Executive Employment Agreement was for a period of two (2) years. Dr. Scialdone shall receive an annual salary of $102,000, he shall be eligible for any benefits made generally available by the Company, he shall be eligible to receive any bonuses made generally available by the Company, and he shall be reimbursed for any reasonable expenses incurred while performing his duties as the Company’s Chief Science Officer. Additionally, Dr. Scialdone is entitled to receive severance equal to six (6) months base salary if terminated without cause by the Company.

 

 F-24 

 

 

The Chief Science Officer was also receive bonus compensation associated with revenue generated from consulting services revenues generated over the term of this Agreement such bonus compensation to be calculated in accordance with the schedule below.

 

On January 12, 2016, the Company unwound the transaction and curtailed the subsidiary’s operations in order to reduce overhead costs and focus on HIVE Ceramics and reflected such as of September 30, 2015 in the consolidated financial statements. As of September 30, 2015, the 250,000 shares issued to BetterChem were recorded as treasury stock valued at $67,500 as a result of the settlement to receive the shares back as part of the unwind.

 

Officer & Director Appointments and Related Matters

 

Pursuant to Board consent on May 11, 2015, the Company made several changes to its management structure.

 

The Company confirmed the appointment of Dr. Mark Scialdone to the newly-created officer position of Chief Science Officer which was announced by Current Report on Form 8-K dated May 5, 2015 which is incorporated by reference herein. See above in this section for more information about Dr. Scialdone.

 

NOTE 8. INCOME TAXES

 

The following table presents the current and deferred income tax provision for federal and state income taxes for the year ended September 30, 2015 and 2014:

 

   2015   2014 
Current tax provision (benefit):        
Federal  $-   $- 
State   2,209    800 
Total   2,209    800 
Deferred tax provision (benefit)          
Federal   (418,000)   (262,000)
State   -    - 
Valuation allowance   418,000    262,000 
Total   -    - 
Total provision (benefit) for income taxes  $2,209   $800 

 

Reconciliations of the U.S. federal statutory rate to the actual tax rate for the year ended September 30, 2015 and 2014:

 

   2015   2014 
US federal statutory income tax rate   (34.0%)   (34.0%)
State taxnet of benefit   (6.0%)   (6.0%)
    (40.0%)   (40.0%)
           
Permanent differences:   -%   38.7%
Stock-based compensation   2.8%   0.2%
Changes in warrant liability   -%   1.0%
Increase in valuation allowance   37.2%   0.1%
Effective tax rate   -%   -%

 

The Company incurred certain non-cash transactions which are not includable or deductible for income tax reporting purposes, such the change in fair value of warrant liability, certain stock-based compensation and accretion of debt discounts.

 

 F-25 

 

 

The components of the Company’s deferred tax assets and (liabilities) for federal and state income taxes as of September 30, 2015 and 2014:

 

   As of September, 
   2015   2014 
Current deferred tax assets (liabilities):        
Accrued expenses and other  $-   $- 
Total current deferred tax assets   -    - 
Non-current deferred tax assets and liabilities:          
Property, plant and equipment   29,000    29,000 
Net operating losses   680,000    262,000 
Total non-current deferred tax assets   709,000    291,000 
Valuation allowance   (709,000)   (291,000)
Total non-current deferred tax assets   -    - 
Net deferred tax assets  $-   $- 

 

During the year ended September 30, 2015 and 2014 the valuation allowance increased by $418,000 and $233,000, respectively. At September 30, 2015, the Company had approximately $680,000 of federal and state gross net operating losses allocated to continuing operations available. The net operating loss carry forwards, if not utilized, will begin to expire in 2033 for federal purposes and 2031 for state purposes.

 

Based on the available objective evidence, including the Company’s limited operating history and current liabilities in excess of assets, management believes it is more likely than not that some of the net deferred tax assets, specifically certain net operating losses, at September 30, 2014 will not be fully realizable. In addition, subsequent to year end significant shares were issued to shareholders in connection with the conversion of notes payable and a subscription for the purchase of common stock. In connection, with these issuances the Company determined that the historical NOLs have probably been impaired due to IRS Section 382 limitations. Due to the uncertainty surrounding realization of the remaining deferred tax assets, specifically the NOLs, the Company has provided a valuation allowance of $709,000 and $291,000 against its net deferred tax assets at September 30, 2015 and 2014, respectively. We will continue to monitor the recoverability of our net deferred tax assets.

 

As of September 30, 2015 and 2014, the Company has a State tax liability of $0 and $0, respectively. As of September 30, 2015 and 2014, the Company recorded no estimated taxes payable for Federal and State.

   

The Company has filed all United States Federal and State tax returns. The Company has identified the United States Federal tax returns as its “major” tax jurisdiction. The United States Federal return years 2014 through 2015 are still subject to tax examination by the United States Internal Revenue Service; however, we do not currently have any ongoing tax examinations. The Company is subject to examination by the California Franchise Tax Board for the year ended 2014 through 2015 and currently does not have any ongoing tax examinations.

  

NOTE 9. STOCKHOLDERS’ DEFICIT

 

COMMON STOCK

 

On November 27, 2013, the Board and shareholders approved an increase in the authorized number of shares of common and preferred stock which may be issued by the Company to 1,000,000,000 shares and 100,000,000 shares, respectively.  On December 3, 2013, the certificate of amendment was filed with the Secretary of State of Delaware to reflect the increase in authorized.

 

 F-26 

 

 

PREFERRED STOCK 

 

On April 1, 2014, the Board formally approved the filing of a Preferred Stock Designation in connection with the commitment of 500,000 Series A Shares to HIVE on March 27, 2014 pursuant to its authority to issue blank check preferred stock as provided in the Company’s Certificate of Incorporation.  Per the Certificate of Designation (the “Designation”), there are 100,000,000 shares of preferred stock authorized by the Company’s Certificate of Incorporation. The Company is authorized to issue 500,000 shares of Series A Shares pursuant to the Designation.  As provided in the Designation (and as set forth in the HIVE Asset Purchase Agreement), Series A Shares are entitled to vote at a 15-1 ratio to Common Stock.  Each share of preferred stock shall initially be convertible into one share of common stock (500,000 shares of common stock in the aggregate).  On the two year anniversary of the transaction of HIVE, the preferred stock conversion ratio shall be adjusted as follows: a one-time pro rata adjustment of up to ten-for-one (10-1) based upon the Company generating aggregate gross revenues over the two years of at least $8,000,000 (e.g. If the Company generates only $4,000,000 in aggregate gross revenues over the two year period then the convertible ratio will adjust to 5-1). In no event will the issuance convert into more than 5,000,000 shares of common stock of the Company.

 

On June 19, 2014, the Company formally issued the 500,000 Series A Shares to HIVE.

 

The value ascribed to the Series A Shares was based on the historical costs of the assets acquired on March 27, 2014 from HIVE since the transfer of assets was made among entities under common control.

  

COMMON STOCK ISSUED FOR BONUSES  

 

On October 20, 2014, the Company’s Board of Directors issued bonus stock grants of 30,000 shares of restricted common stock each to Kyle Tracey, Joseph Andreae, and Benjamin Beaulieu. These issuances were based on the fair market value on the date of issuance immediately vested and resulted in $24,900, $24,900, and $24,900 being charged to and general and administrative expense during the year ended September 30, 2015. 

 

On March 12, 2015, the Company’s Board of Directors issued bonus stock grants of 30,000 shares of restricted common stock each to Kyle Tracey, Joseph Andreae, and Allan Viernes. In addition, a total of 60,000 shares were granted to three (3) employees. These issuances were based on the fair market value on the date of issuance immediately vested and resulted in $9,150, $9,150, and $195,200 being charged to cost of revenue, sales and marketing, and general and administrative expense during the year ended September 30, 2015. 

 

COMMON STOCK ISSUED FOR SERVICES

 

On March 12, 2015, the Company’s Board of Directors issued a bonus stock grant of 60,277 shares of restricted common stock to an outside sales consultant for services performed. This issuance based on the fair market value on the date of issuance immediately vested resulting in $36,769 being charged to sales and marketing expense during the year ended September 30, 2015.

 

COMMON STOCK ISSUED FOR ACCRUED WAGES

 

On March 12, 2015, Kyle Tracey converted $59,718 of accrued wages into 97,898 shares of immediately vested restricted common stock based on the fair market value on the date of issuance.

 

On March 12, 2015, Michael Cook converted $36,769 of accrued wages into 60,277 shares of immediately vested restricted common stock based on the fair market value on the date of issuance.

 

COMMON STOCK ISSUED AS DIRECTOR COMPENSATION

 

On March 12, 2015, the Company’s Board of Directors issued 100,000 shares of restricted common stock each were granted to Kyle Tracey and Joseph Andreae for serving on the Board of Directors.

  

COMMON STOCK ISSUED FOR ACCOUNTS PAYABLE

 

On June 1, 2015, the Board issued 100,000 shares of restricted common stock at $1.00 per share for payment of accrued legal services. This $100,000 issuance was based on the fair market value of $50,000 and additional consideration of $50,000 given on the date of issuance.

 

 F-27 

 

 

COMMON STOCK ISSUED FOR ACQUISITION OF BETTERCHEM

 

See Note 1 for common stock issued for the acquisition of BetterChem.

 

WARRANTS

 

The table below summarizes the Company’s warrant activity during the year ended September 30, 2015:

 

   Shares   Weighted Average
Price
   Weighted Average Remaining Contractual Term   Aggregate Intrinsic
Value
 
Warrants outstanding at September 30, 2014   1,184,726   $0.114    1.6   $7,217,234 
Warrants issued   -    -           
Warrants exercised   -    -           
Cancelled/forfeited/expired   -    -           
Warrants outstanding at September 30, 2015   1,184,726   $0.021    0.6   $694,008 

 

As a result of the anti-dilution provision of the warrants, the exercise price as of September 30, 2015 was reduced to $0.021 per share using the following weighted average variables in the Black Scholes model during the year ended September 30, 2015:

 

Year Ended September 30,  Stock Price at
Grant Date
   Dividend
Yield
   Exercise
Price
   Risk Free
Interest Rate
   Volatility   Average
Life
 
2015  $0.04    -%  $0.023    0.08%   351%   0.7 

 

The Company’s warrants above are accounted for as derivative liabilities in the accompanying consolidated balance sheets.

 

OPTIONS

 

On June 27, 2014, the Company authorized the “2014 Incentive and Nonstatutory Stock Option Plan” (the “Plan”) whereby a maximum of 2,000,000 shares of the Company’s common stock could be granted in the form of incentive and nonstatutory stock options. If any shares of common stock subject to an award under the Plan are forfeited, expire, are settled for cash or are tendered by the participant or withheld by us to satisfy any tax withholding obligation, then, in each case, the shares subject to the award may be used again for awards under the Plan to the extent of the forfeiture, expiration, cash settlement or withholding.  The stock option awards issuable under the Plan can be made up of any combination of incentive and nonstatutory stock options.  The stock options will be granted at fair market value on the date of grant and will vest as directed by the Board.  Incentive stock options are available to employees only whereas nonstatutory stock options are available to independent contractors and consultants of the Company.

 

On June 27, 2014, concurrent with the formal adoption of the Plan, the Company’s Board granted a total of 1,000,000 stock options to certain employees, consultants and/or independent contractors of the Company (the “Option Grant”). The Option Grant includes options to purchase 520,000 shares granted to employees, consultants and/or independent contractors of the Company that are not executive officers.  In addition, the Board determined that executive officer Michael Cook, Director of Business Development, should receive options to purchase 100,000 shares and that Kyle Tracey, Chief Executive Officer and Chairman, and Joseph Andreae, President and member of the Board, should receive options to purchase 190,000 shares each.  The options were granted at the market price of the Company’s common stock at close of business ($1.66 per share) on June 27, 2014, pursuant to the Company’s standard form stock option agreements under the Plan.  The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant. The aggregate value of the 1,000,000 options on the grant date was $1,660,000 and the amount expensed upon the grant date was $415,000 as result of 250,000 options immediately vested. On September 30, 2014 an additional $22,312 was expensed due to the revaluing 212,500 non-employee options.

 

The description of the incentive and nonstatutory stock options herein is qualified in its entirety by reference to the full text of the Form of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement, which are attached as Exhibits 10.2 and 10.3, respectively, to the Current Report on Form 8-K filed with the SEC on July 3, 2014.

 

 F-28 

 

 

Additional Option Grants Under 2014 Stock Option Plan

 

On October 20, 2014, the Board granted a total of 20,000 stock options to certain employees and canceled 20,000 options previously allocated (but not issued) to employees. The options were granted at the market price of the Company’s common stock at close of business ($0.83 per share). The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant. The aggregate value of the 20,000 options on the grant date was $16,600 and the amount expensed upon the grant date was $4,150 as result of 5,000 options immediately vested.

 

On December 22, 2014, the Company’s Board granted a total of 775,000 stock options to certain employees. The option grant includes options to purchase 225,000 shares granted to employees that are not executive officers. In addition, the Board determined that executive officer Michael Cook, Director of Business Development, should receive options to purchase 25,000 shares and that Kyle Tracey, Chief Executive Officer and Chairman, and Joseph Andreae, President and member of the Board, and Allan Viernes, Chief Financial Officer should receive options to purchase 175,000 shares each. The options were granted at the market price of the Company’s common stock at close of business ($0.70 per share). The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant. The aggregate value of the 775,000 options on the grant date was $542,500 and the amount expensed upon the grant date was $135,625 as result of 193,750 options immediately vested.

 

Consulting Agreements

 

On October 20, 2014, the Company entered into consulting agreements with two consultants to provide business development and acquisition services to the Company. The consultants were each issued 100,000 options to purchase common stock of the Company by the Board as consideration for consulting services. The options were granted at the market price of the Company’s common stock at close of business ($0.83 per share). The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant. The aggregate value of the 200,000 options on the grant date was $166,000 and the amount expensed upon the grant date was $41,500 as result of 50,000 options immediately vested. On December 31, 2014 an additional $3,000 was expensed due to the revaluing the 200,000 non-employee options.

 

Cancellation of Option Plans

 

Collectively, officers, employees, and consultants of the Company decided to surrender and cancel all options outstanding.

 

Option activity during the year ended September 30, 2015, was as follows:

 

   Shares   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual Term
   Aggregate
Intrinsic
Value
 
Options outstanding at September 30, 2014   1,150,000   $2.92    8.7   $4,648,294 
Options granted   995,000   $0.73    10.0      
Options exercised   -   $-    -      
Options cancelled/forfeited/expired   (2,145,000)  $1.91    9.0      
Options outstanding at September 30, 2015   -   $-    -   $- 
Options exercisable at September 30, 2015   -   $-    -   $- 

 

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference between the closing stock prices of VAPE’s common stock at the specified dates and the exercise prices for in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on the specified dates.

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model, consistent with the provisions of ASC 718. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. VAPE has limited relevant historical information to support the expected exercise behavior because no exercises have taken place.

 

During the year ended September 30, 2015 and 2014, $1,006,343 and $681,375 were recorded as stock-based compensation related to options, respectively. As of September 30, 2015, there is no future stock compensation expense related to options.

 

 F-29 

 

 

NOTE 10. INTELLECTUAL PROPERTY

 

The Company plans 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 begun to execute on this plan with the acquisition of the patent pending HIVE Ceramic vaporization product and the HIVE trademark as well as several pending trademark applications. The Company intends to continue to create or acquire proprietary vaporizers and e-cigarettes, and various trademarks, patents and/or copyrights for brands which are developed.

 

TRADEMARKS

 

On March 27, 2014, the Company and Stone Arch Studio, LLC entered into a Trademark Assignment Agreement whereby the Company acquired all right, title, priority and interest to the HIVE trademark U.S. Registration No. 44513069 as registered with the U.S. Patent and Trade Office (“USPTO”). This acquisition further protects the Company’s HIVE Ceramics brand vaporization line. As of September 30, 2015, the Company has capitalized $123,150 in costs paid related to the trademarks.

 

PATENTS

 

On March 27, 2014, the Company formally closed its acquisition of the patent pending HIVE Ceramics vaporization technology. The Company has already begun exploiting this technology and intends to prosecute the patent application to completion. As of September 30, 2015, the Company has capitalized had no costs of patents capitalized and recorded impairment to pending patents of $22,133 based on its expected cash flow not exceeding its carrying amount.

 

The Company also has been in discussions to acquire additional patented technology from third parties to further grow and develop its branded product lines in the vaporization market. 

 

NOTE 11. SUBSEQUENT EVENTS

 

Common Stock Issued for Accrued Wages

 

On October 22, 2015, the Company’s Board of Directors issued 2,083,333 shares of restricted common stock each to Kyle Tracey at $0.024 per share for payment of $50,000 in accrued wages. On October 22, 2015, the Company’s Board of Directors issued 555,555 shares of restricted common stock each to Kyle Tracey at $0.024 per share for payment of $13,333 in accrued wages. On October 22, 2015, the Company’s Board of Directors issued 1,250,000 shares of restricted common stock each to Michael Cook at $0.024 per share for payment of $3,000 in accrued wages.

 

Common Stock Issued for Bonuses

 

On October 22, 2015, the Company’s Board of Directors issued bonus stock grants of 600,000 shares of restricted common stock each to Allan Viernes and Benjamin Beaulieu at $0.024 per share. In addition, the Company issued 300,000 shares of restricted common stock to employees at $0.024 per share. These issuances were based on the fair market value on the date of issuance immediately vested and resulted in $36,000 being charged to general and administrative expense during the three months ended December 31, 2015. 

 

On October 22, 2015, the Company’s Board of Directors issued bonus stock grants of 1,250,000 shares of restricted common stock an outside sales consultant at $0.024 per share. The issuance was based on the fair market value on the date of issuance immediately vested and resulted in $30,000 being charged to sales and marketing expense during the three months ended December 31, 2015. 

 

Common Stock Surrenders

 

On October 22, 2015, the Kyle Tracey and Joe Andreae each surrendered 130,000 shares of restricted common stock, with 60,000 shares valued at $49,800 and 200,000 shares valued at $122,000. As result, 260,000 shares of common stock were recorded as treasury stock valued at $171,800. In addition, on October 22, 2015, an employee also surrendered 30,000 shares valued at $9,150 which was recorded as treasury stock.

 

On December 21, 2015, the Allan Viernes and Benjamin Beaulieu each surrendered 30,000 shares of restricted common stock valued at $36,600. As result, 60,000 shares of common stock were recorded as treasury stock valued at $36,600.

 

Appointment of Justin Braune as Chief Executive Officer

 

On December 10, 2015, the Board appointed Justin Braune to serve as the Company’s Chief Executive Officer and as a director, effective immediately.

 

Prior to joining the Company, Mr. Braune, 33, served as the chief operating officer of Voodoo Science, LLC and Vapor Wild from 2014 to 2015. From 2013 to 2014, Mr. Braune served as the Chief of Operations for Veracity Security, a technology company located in San Diego. From 2013-2014 Mr. Braune was the Director of Sales at Lear Capital. Since 2010 he owned and operated Braune Enterprises a real estate and investment brokerage firm. Mr. Braune graduated from the United States Naval Academy with a B.S. degree in electrical engineering in and was commissioned as an officer in the U.S. Navy. After earning his master’s degree in nuclear engineering, Mr. Braune operated the nuclear reactors onboard the USS RONALD REAGAN aircraft carrier. He served in the U.S. Navy until 2009 and subsequently earned his MBA at the University of Southern California, Marshall School of Business. Our Board believes that Mr. Braune’s extensive relationships and experience in the industry of vaporization products and e-cigarettes will bring added value to the Company’s management team.

 

 F-30 

 

 

In connection with his appointment as Chief Executive Officer and a member of our Board, Mr. Braune entered into an employment agreement dated as of December 10, 2015 (the “Employment Agreement”) with the Company pursuant to which he will receive an annual salary of $150,000, subject to adjustment, and bi-monthly sales-based compensation of $1.00 USD per unit of wholesale sales of Mr. Braune’s new vaporizer pen product line and $3.00 USD per unit on retail sales. The sales-based compensation and salary is payable in cash or stock as further described in the Employment Agreement.

 

In addition, the Company will issue to Mr. Braune 20,000,000 shares of the Company’s common stock, to be held in escrow and released by the Company to Mr. Braune in accordance with the following vesting schedule: (i) 5,000,000 shares shall vest on June 10, 2015, (ii) 5,000,000 shares shall vest on December 10, 2016, (iii) 5,000,000 shares shall vest on June 10, 2016, and (iv) 5,000,000 shares shall vest on December 10, 2016. Mr. Braune also is eligible to participate in any stock option plan maintained by the Company and available to other employees and standard benefit programs for similarly situated employees. The Employment Agreement continues until terminated by either party upon 30 days’ prior written notice.

 

Resignations of Kyle Tracey and Joe Andreae; Appointment of Benjamin Beaulieu as Chairman

 

On December 10, 2015, the Board accepted the resignation of Kyle Tracey as Chief Executive Officer, Chairman of the Board and all other officer positions held by him with the Company. Mr. Tracey will remain in a consultant role with the Company focusing on sales and business development of HIVE Ceramics for a period of two (2) years. Mr. Tracey also retains a large block of voting control of the Company due to the above issuance of the Series B Notes issued to HIVE Ceramics, LLC an entity he co-owns. The Board also accepted the resignation of Joe Andreae as President and a director as of December 10, 2015. The President seat will remain vacant until a qualified candidate is located.

 

Benjamin Beaulieu was elevated from his position as a member of the Board to Chairman of the Board on December 10, 2015 to replace Mr. Tracey. Mr. Beaulieu also currently serves as the Company’s COO and will remain in that role.

 

Series B Preferred Stock Convertible Notes

 

On December 10, 2015, the Company entered into two Secured Series B Preferred Stock Convertible Notes (the “Series B Notes”) for an aggregate principal of $300,000 including 1) $50,000 from Hive Ceramics, LLC in new capital to the Company and 2) an amended and restated note for Hive Ceramics LLC in the amount of $250,000 for capital previously contributed which is soon to be due and payable.

 

The Series B Notes accrue interest at eight percent (8%) per annum, mature one (1) year from issuance and are secured by all of the assets and property of the Company. Upon the election of the noteholder, the Series B Notes are convertible into newly created Series B Preferred Stock on a one-for-one (1:1) basis into shares of common stock of the Company at a fixed price per share of $0.01.

 

Concurrently, the Company filed a Certificate of Designation with the Delaware Secretary of State on the Series B Preferred Stock which provides, in pertinent part, for the following rights and privileges:

 

Authorized Amount of Series B Preferred Stock: There are authorized 30,000,000 shares of Series B Preferred Stock, subject to the Certificate of Designation. There shall be no additional Series B Shares authorized or issued.

 

Voting Rights: Each share of Series B shall be entitled to five (5) votes for every one (1) vote entitled to each share of Common Stock.

 

Rank: All shares of Series B shall rank (i) senior to the Company’s Common Stock, (ii) pari passu with all other series of preferred stock whether currently outstanding or hereafter created, including the Series A Preferred Stock, and specifically ranking, by its terms, on par with Series B, and (iii) junior to any class or series of capital stock of the Company hereafter created specifically ranking, by its terms, senior to the Series B, in each case as to the distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary.

 

The Board of Directors authorized the designation of the Series B Preferred Stock pursuant to the authority of the Certificate of Incorporation, which confers said authority on the Board, and the issuance of the Series B Notes pursuant to a unanimous written consent of the Board dated December 10, 2015.

 

 F-31 

 

 

Equity Investment by the Investor

 

On December 10, 2015, the Investor purchased $90,000 in common stock at a purchase price equal to 90% of the average of the closing prices of the common stock for the three (3) trading days immediately preceding the date that is 6 months from the date of the agreement.

 

Forbearance Agreement

 

On December 10, 2015, the Company and the Investor entered into a forbearance agreement regarding the Investor’s convertible note. The Investor alleged certain breaches by the Company of its obligations under the note. The Company denied any breaches or defaults occurred under the note. However, in an effort to avoid protracted litigation about the dispute, the parties agreed to enter into the forbearance agreement which provided that the outstanding balance of the note increased by $105,000 as provided for in the original note.

 

Additional Funding Under August 2015 Note

 

On December 15, 2015, an accredited investor provided the Company with $50,000 in additional proceeds under the same terms of their original convertible note.

 

Third Party Debt Conversions

 

See Note 5 for subsequent conversions related to third party debt.

 

Unwinding of BetterChem Acquisition

 

See Note 1 for the unwinding of BetterChem.

 

 F-32 

 

 

INDEX OF EXHIBITS

 

Exhibit No.   Description of Exhibit
3.1   Certificate of Incorporation of Vape Holdings, Inc., as amended, placed into effect on January 2, 2009, incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (Registration No. 333-163290) filed with the SEC on November 23, 2009.
3.2   Amended and Restated By-laws of Vape Holdings, Inc., incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (Registration No. 333-163290) filed with the SEC on November 23, 2009.
3.3   Certificate of Designation for Series A Preferred Stock, incorporated by reference to Exhibit 2.1(E) to the Company’s Current Report on Form 8-K filed with the SEC on February 28, 2014.
3.4   Certificate of Designation for Series B Preferred Stock, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2015.
10.1   Securities Purchase Agreement entered into by and between Vape Holdings, Inc. and Redwood Management, LLC dated February 10, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on February 17, 2015.
10.2   Unsecured Convertible Promissory Note entered into by and between Vape Holdings, Inc. and Redwood Management, LLC dated February 10, 2015, incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on February 17, 2015.
10.3   Executive Employment Agreement by and between Vape Holdings, Inc. and Dr. Mark Scialdone, dated May 1, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 5, 2015.
10.4   Form of Stock Surrender Agreement Stock, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2015.
10.5   Form of Option Surrender Agreement, incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2015.
10.6   Share Exchange Agreement by and between Vape Holdings, Inc. and BetterChem Consulting, Inc., dated July 1, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 1, 2015.
10.7   Intellectual Property Rights Transfer Agreement by and between Vape Holdings, Inc. and BetterChem Consulting, Inc., dated July 1, 2015, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 1, 2015.
10.8   Form of Securities Purchase Agreement, dated August 5, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 11, 2015.
10.9   Form of 8% Note, dated August 5, 2015, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 11, 2015.
10.10   Form of Back End Note, dated August 5, 2015, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on August 11, 2015.
10.11   Form of Collateralized Note, dated August 5, 2015, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on August 11, 2015.
10.12   12% Note I, dated August 5, 2015, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on August 11, 2015.
10.13   12% Note II, dated August 5, 2015, incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on August 11, 2015.
10.14   Securities Purchase Agreement, dated August 12, 2015, by and between Darling Capital LLC and the Company, incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 14, 2015.
10.15   8% Convertible Promissory Note, dated August 12, 2015, by and between Darling Capital LLC and the Company, incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 14, 2015.
10.16   Amendment, Waiver and Modification Agreement, dated August 13, 2015, by and among the Company and Redwood Management, LLC including any designees or assignees thereto, incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 14, 2015.
10.17   Amendment to Unsecured Convertible Promissory Note, dated August 26, 2015, by and between Vape Holdings, Inc. and Typenex Co-Investment, LLC. *
10.18   Form of Option Surrender Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 22, 2015.
10.19   Form of Stock Surrender Agreement Stock, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 22, 2015.
10.20   Secured Series B Preferred Stock Convertible Promissory Note by and between the Company and Hive Ceramics LLC, dated December 10, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2015.
10.21   Amended and Restated Secured Series B Preferred Stock Convertible Promissory Note by and between the Company and Hive Ceramics LLC, dated December 10, 2015, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2015.
10.22   Executive Employment Agreement, dated December 10, 2015, by and between the Company and Justin Braune, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2015.
10.23   Consulting Agreement, dated December 10, 2015, by and between the Company and Kyle Tracey, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 11, 2015.
10.24   Common Stock Purchase Agreement, dated December 10, 2015, by and between Vape Holdings, Inc. and Odyssey Research and Trading, LLC. *
10.25   Forbearance Agreement, dated December 10, 2015, by and between Vape Holdings, Inc. and Typenex Co-Investment, LLC. *

10.26   Share Exchange Unwind Agreement, dated January 12, 2015, by and among Vape Holdings, Inc., BetterChem Consulting, Inc. and Mark Scialdone. *

E-1

 

 

Exhibit No.   Description of Exhibit
14.1   Code of Ethics, dated May 11, 2015, incorporated by reference to our Quarterly Report on Form 10-Q filed with the SEC on May 15, 2015.
21.1   List of Subsidiaries of Vape Holdings, Inc. *
23.1   Consent of DBBMcKennon, Independent Registered Public Accountants, as to the report relating to the consolidated financial statements of Vape Holdings, Inc. *
31.1   Section 302 Certification of Chief Executive Officer *
31.2   Section 302 Certification of Chief Financial Officer *
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 *
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 *
99.1   Audit Committee Charter, dated May 11, 2015, incorporated by reference to our Quarterly Report on Form 10-Q filed with the SEC on May 15, 2015.
99.2   Compensation Committee Charter, dated May 11, 2015, incorporated by reference to our Quarterly Report on Form 10-Q filed with the SEC on May 15, 2015.
99.3   Insider Trading Policy, dated May 11, 2015, incorporated by reference to our Quarterly Report on Form 10-Q filed with the SEC on May 15, 2015.
101.INS **   XBRL Instance Document
101.SCH **   XBRL Taxonomy Schema
101.CAL **   XBRL Taxonomy Calculation Linkbase
101.DEF **   XBRL Taxonomy Definition Linkbase
101.LAB **   XBRL Taxonomy Label Linkbase
101.PRE **   XBRL Taxonomy Presentation Linkbase

 

*Filed herewith

 

**Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

E-2

 

 

EX-10.17 2 f10k2015a2ex10xvii_vapehold.htm AMENDMENT TO UNSECURED CONVERTIBLE PROMISSORY NOTE, DATED AUGUST 26, 2015, BY AND BETWEEN VAPE HOLDINGS, INC. AND TYPENEX CO-INVESTMENT, LLC

Exhibit 10.17

 

AMENDMENT TO UNSECURED CONVERTIBLE PROMISSORY NOTE

 

This Amendment to Unsecured Convertible Promissory Note (this “Amendment”) is entered into as of August 26, 2015, by and between Typenex Co-Investment, LLC, a Utah limited liability company (“Lender”), and Vape Holdings, Inc., a Delaware corporation (“Borrower”). Capitalized terms used in this Amendment without definition shall have the meanings given to them in the Note (as defined below).

 

A.       Borrower previously issued to Lender an Unsecured Convertible Promissory Note dated December 3, 2014 in the principal amount of $560,000.00 (the “Note,” and together with all other documents entered into in conjunction therewith, the “Transaction Documents”).

 

B.       Borrower and Lender have mutually agreed to eliminate Borrower’s obligation to make Amortization Payments pursuant to the Note, subject to the terms, amendments, conditions and understandings expressed in this Amendment.

 

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

 

1.       Recitals. Each of the parties hereto acknowledges and agrees that the recitals set forth above in this Amendment are true and accurate and are hereby incorporated into and made a part of this Amendment.

 

2.       Amendments to Section 2 of the Note. Each of Section 2.2 of the Note and Section 2.3 of the Note is deleted in its entirety.

 

3.       Amendments to Section 3.1 of the Note. Section 3.1 of the Note is deleted in its entirety and replaced with the following:

 

Conversion Price. Subject to the adjustments set forth herein, the conversion price for each Lender Conversion (the “Conversion Price”) shall be 55% (the “Conversion Factor”) of the lowest intra-day trade price of the Common Stock in the fifteen (15) Trading Days immediately preceding the applicable Conversion. Additionally, if at any time after the Effective Date, the Conversion Shares are not DTC Eligible, then the then-current Conversion Factor will automatically be reduced by 5% for all future Conversions. Finally, in addition to the Default Effect, if any Major Default occurs after the Effective Date, the Conversion Factor shall automatically be reduced for all future Conversions by an additional 5% for each of the first three (3) Major Defaults that occur after the Effective Date (for the avoidance of doubt, each occurrence of any Major Default shall be deemed to be a separate occurrence for purposes of the foregoing reductions in Conversion Factor, even if the same Major Default occurs three (3) separate times). For example, the first time the Conversion Shares are not DTC Eligible, the Conversion Factor for future Conversions thereafter will be reduced from 55% to 50% for purposes of this example. If, thereafter, there are three (3) separate occurrences of a Major Default pursuant to Section Error! Reference source not found.(i), then for purposes of this example the Conversion Factor would be reduced by 5% for the first such occurrence, and so on for each of the second and third occurrences of such Major Default.”

 

 

 

 

In addition to the foregoing, and for the avoidance of doubt, all references to the term “Conversion Floor Price” in the Note and any other Transaction Document are hereby eliminated due to the Dilutive Issuance issued by the Company on or about August 5, 2015 and delivered to Lender pursuant to a Dilutive Issuance Notice on August 6, 2015 and Lender shall be entitled to make Lender Conversions under the Note without regard to any floor price hereafter. All references to the term “Amortization Conversion” in the Note and any other Transaction Document are hereby eliminated. All references to the term “Conversion” are in the Note and any other Transaction Document are hereby eliminated and replaced with the term “Lender Conversion.”

 

4.       Representations and Warranties. In order to induce Lender to enter into this Amendment, Borrower, for itself, and for its affiliates, successors and assigns, hereby acknowledges, represents, warrants and agrees as follows:

 

(a)       Borrower has full power and authority to enter into this Amendment and to incur and perform all obligations and covenants contained herein, all of which have been duly authorized by all proper and necessary action. No consent, approval, filing or registration with or notice to any governmental authority is required as a condition to the validity of this Amendment or the performance of any of the obligations of Borrower hereunder.

 

(b)       There is no fact known to Borrower or which should be known to Borrower which Borrower has not disclosed to Lender on or prior to the date of this Amendment which would or could materially and adversely affect the understanding of Lender expressed in this Amendment or any representation, warranty, or recital contained in this Amendment.

 

(c)       Except as expressly set forth in this Amendment, Borrower acknowledges and agrees that neither the execution and delivery of this Amendment nor any of the terms, provisions, covenants, or agreements contained in this Amendment shall in any manner release, impair, lessen, modify, waive, or otherwise affect the liability and obligations of Borrower under the terms of the Transaction Documents.

 

(d)       Borrower has no defenses, affirmative or otherwise, rights of setoff, rights of recoupment, claims, counterclaims, actions or causes of action of any kind or nature whatsoever against Lender, directly or indirectly, arising out of, based upon, or in any manner connected with, the transactions contemplated hereby, whether known or unknown, which occurred, existed, was taken, permitted, or begun prior to the execution of this Amendment and occurred, existed, was taken, permitted or begun in accordance with, pursuant to, or by virtue of any of the terms or conditions of the Transaction Documents. To the extent any such defenses, affirmative or otherwise, rights of setoff, rights of recoupment, claims, counterclaims, actions or causes of action exist or existed, such defenses, rights, claims, counterclaims, actions and causes of action are hereby waived, discharged and released. Borrower hereby acknowledges and agrees that the execution of this Amendment by Lender shall not constitute an acknowledgment of or admission by Lender of the existence of any claims or of liability for any matter or precedent upon which any claim or liability may be asserted.

 

 2 

 

 

(e)       Borrower represents and warrants that as of the date hereof no Events of Default or other material breaches exist under the Transaction Documents or have occurred prior to the date hereof.

 

5.       Certain Acknowledgments. Each of the parties acknowledges and agrees that no property or cash consideration of any kind whatsoever has been or shall be given by Lender to Borrower in connection with any amendment to the Note granted herein.

 

6.       Other Terms Unchanged. The Note, as amended by this Amendment, remains and continues in full force and effect, constitutes legal, valid, and binding obligations of each of the parties, and is in all respects agreed to, ratified, and confirmed. Any reference to the Note after the date of this Amendment is deemed to be a reference to the Note as amended by this Amendment. If there is a conflict between the terms of this Amendment and the Note, the terms of this Amendment shall control. No forbearance or waiver may be implied by this Amendment. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment to, any right, power, or remedy of Lender under the Note, as in effect prior to the date hereof.

 

7.       Waiver of Past Default. Lender agrees to waive any claims made regarding an alleged default relating to Borrower’s failure to make the August 3, 2015 Amortization Payment (the “August Amortization Payment”). It is understood and agreed by Borrower and Lender that this waiver applies only to the failure to make the August Amortization Payment and does not apply to events that may trigger default provisions in the Transaction Documents in the future.

 

8.       Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. The parties hereto confirm that any electronic copy of another party’s executed counterpart of this Amendment (or such party’s signature page thereof) will be deemed to be an executed original thereof.

 

9.       Further Assurances. Each party shall do and perform or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Amendment and the consummation of the transactions contemplated hereby.

 

[Remainder of page intentionally left blank]

 

 3 

 

 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date set forth above.

 

  BORROWER:
     
  VAPE HOLDINGS, INC.
     
  By: /s/ Kyle Tracey
  Name: Kyle Tracey
  Title: CEO  

  

  LENDER:
   
  TYPENEX CO-INVESTMENT, LLC
     
  By: Red Cliffs Investments, Inc., its Manager
     
  By: /s/ John Fife
    John M. Fife, President

 

 

[Signature page to Amendment to Unsecured Convertible Promissory Note]

 

 

EX-10.24 3 f10k2015a2ex10xxiv_vapehold.htm COMMON STOCK PURCHASE AGREEMENT, DATED DECEMBER 10, 2015, BY AND BETWEEN VAPE HOLDINGS, INC. AND ODYSSEY RESEARCH AND TRADING, LLC

Exhibit 10.24

 

VAPE HOLDINGS, INC.

 

COMMON STOCK PURCHASE AGREEMENT

 

This Common Stock Purchase Agreement (this “Agreement”) is made and entered into as of December 10, 2015 (the “Agreement Date”), by and between Vape Holdings, Inc., a Delaware corporation (the “Company”), and Odyssey Research and Trading, LLC, a Utah limited liability company (the “Purchaser”).

 

Recitals

 

Whereas, the Company desires to issue and sell common stock of the Company, par value $0.00001 (the “Common Stock”), on the terms and conditions set forth herein, and has authorized such sale and issuance; and

 

Whereas, the Purchaser desires to purchase such Common Stock on the terms and conditions set forth herein.

 

Agreement

 

Now, Therefore, in consideration of the foregoing recitals and the mutual promises, representations, warranties, and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.           Agreement To Sell And Purchase.

 

The Purchaser hereby agrees to purchase, and the Company hereby agrees to sell and issue to the Purchaser, a number of shares (the “Shares”) of newly issued restricted Common Stock of the Company determined pursuant to the following formula for an aggregate purchase price of $90,000.00 (the “Purchase Price”): the total number of Shares being purchased hereunder shall be equal to (a) the Purchase Price divided by (b) 90% multiplied by the average of the closing prices of the Common Stock on the Company’s principal trading market for the three (3) Trading Days (as defined below) immediately preceding the date that is six (6) months from the date hereof. In the event of any stock split, stock combination, recapitalization, stock dividend, or similar transaction that occurs prior to the Company’s delivery of any Shares pursuant to the terms hereof, the number of Shares shall be adjusted accordingly based on such stock split, stock combination, recapitalization, stock dividend, or similar transaction. For purposes hereof, the term “Trading Day” means any day on which the New York Stock Exchange is open for trading.

 

 

 

 

2.           Closing, Delivery And Payment.

 

The closing of the sale and purchase of the Shares under this Agreement (the “Closing”) will take place simultaneously with the execution of this Agreement or at such other time as the parties may otherwise agree. At the Closing, the Purchaser will pay the entire Purchase Price for all of the Shares by wire transfer of immediately available funds to such account as may be designated by the Company. Notwithstanding the foregoing, the Company will not issue or otherwise put in the Purchaser’s name any Shares until the satisfaction of each of the following conditions (the “Share Delivery Conditions”): (a) no Shares shall be delivered prior to the date that is six (6) months from the date hereof; (b) the Purchaser shall have delivered to the Company written notice specifying the number of Shares to be delivered (a “Share Delivery Notice”); and (c) such delivery of Shares will not result in the Purchaser owning Common Stock in excess of the Maximum Percentage (as defined below). Upon satisfaction of the Share Delivery Conditions, the Company will deliver the number of Shares specified in the applicable Share Delivery Notice within three (3) days of the Purchaser’s delivery of the applicable Share Delivery Notice. Upon execution of this Agreement, the Company will cause to be executed and delivered to the Purchaser a fully executed secretary’s certificate substantially in the form attached hereto as Exhibit A evidencing the Company’s approval of this Agreement.

 

3.           Representations, Warranties and Covenants of the Company.

 

The Company hereby represents, warrants and covenants to the Purchaser that as of the Closing and each date Shares are delivered to the Purchaser pursuant to the terms hereof:

 

(a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all necessary corporate power and authority to (i) own, operate and occupy its properties and to carry on its business as presently conducted, and (ii) enter into this Agreement and the other agreements, instruments and documents contemplated hereby, and to consummate the transactions contemplated hereby and thereby. The Company is qualified to do business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect.

 

(b) All necessary corporate proceedings, votes, resolutions and approvals relating to the issuance and sale of the Shares will have been completed by the Company. Upon execution, this Agreement will constitute a valid and legally binding obligation of the Company, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

 

(c) The Shares purchased pursuant to this Agreement will be, upon issuance and payment by the Purchaser in accordance with this Agreement, duly authorized, validly issued, fully paid, non-assessable, and free of all liens, claims and encumbrances.

 

(d) There is no action, suit, investigation or proceeding pending against or, to the knowledge of the Company, threatened against or affecting, the Company as of the date hereof which in any manner challenges or seeks to prevent, enjoin, alter or delay the transactions contemplated by this Agreement.

 

(e) No insolvency or bankruptcy proceedings of any nature are pending against or with respect to the Company under the laws of the United States or any state or any foreign jurisdiction.

 

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(f) In order to allow for, as of the relevant date of determination, the purchase of all of the Shares to be purchased hereunder, the Company shall take all action necessary from time to time to reserve for the benefit of the Purchaser the number of authorized but unissued shares of Common Stock equal to the number of Shares set forth in Section 1 above (or if such number of Shares cannot be calculated on any given date, such number shall be calculated based on 90% of the average of the closing prices of the Common Stock on its principal trading market for the three (3) Trading Days immediately preceding any given date of measurement) (such calculated amount is referred to as the “Share Reserve”). If at any time the Share Reserve is less than required herein, the Company shall immediately increase the Share Reserve in an amount equal to no less than the deficiency. If the Company does not have sufficient authorized and unissued shares of Common Stock available to increase the Share Reserve, the Company shall call a special meeting of the stockholders as soon as practicable after such occurrence, but in no event later than thirty (30) calendar days after such occurrence, and hold such meeting as soon as practicable thereafter, but in no event later than sixty (60) calendar days after such occurrence, for the sole purpose of increasing the number of authorized shares of Common Stock. The Company’s management shall recommend to the Company’s stockholders to vote in favor of increasing the number of authorized shares of Common Stock. Management shall also vote all of its shares in favor of increasing the number of authorized shares of Common Stock. The Company shall use its best efforts to cause such additional shares of Common Stock to be authorized so as to comply with the requirements of this subsection.

 

4.           Representations and Warranties of the Purchaser.

 

The Purchaser hereby represents and warrants to the Company that as of the Closing hereunder:

 

(a) The Purchaser has full power and authority to enter into this Agreement. Upon execution, this Agreement will constitute a valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

 

(b) The Shares will be acquired for investment for the Purchaser’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Purchaser has no present intention of selling, granting any participation in or otherwise distributing the same except in compliance with applicable U.S. securities laws.

 

(c) The Purchaser is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

 

 3 

 

 

(d) The Purchaser is an experienced investor in securities of companies in the development stage, can bear the economic risk of its investment, including a total loss, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares. The Purchaser has conducted its own due diligence review of the Company and received copies or originals of all documents it has requested from the Company.

 

(e) The Purchaser understands that the issuance of the Shares has not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Purchaser’s representations as expressed herein. The Purchaser understands that the Shares are characterized as “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Purchaser must hold the Shares indefinitely unless subsequently registered for resale with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available.

 

5.           Ownership Limitation.

 

Notwithstanding anything to the contrary contained in this Agreement, if at any time the Purchaser shall or would be issued shares of Common Stock hereunder, but such issuance would cause the Purchaser (together with its affiliates) to own a number of shares exceeding 9.99% of the number of shares of Common Stock outstanding on such date (the “Maximum Percentage”), the Company must not issue to the Purchaser shares of the Common Stock which would exceed the Maximum Percentage. The shares of Common Stock issuable to the Purchaser that would cause the Maximum Percentage to be exceeded are referred to herein as the “Ownership Limitation Shares”. The Company will reserve the Ownership Limitation Shares for the exclusive benefit of the Purchaser. From time to time, the Purchaser may notify the Company in writing of the number of the Ownership Limitation Shares that may be issued to the Purchaser without causing the Purchaser to exceed the Maximum Percentage. Upon receipt of such notice, the Company shall be unconditionally obligated to immediately issue such designated shares to the Purchaser, with a corresponding reduction in the number of the Ownership Limitation Shares. For purposes of this Section, beneficial ownership of Common Stock will be determined under Section 13(d) of the Securities Exchange Act of 1934, as amended. By written notice to the Company, the Purchaser may increase, decrease or waive the Maximum Percentage as to itself but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable, unconditional and non-waivable and shall apply to all affiliates and assigns of the Purchaser.

 

6.           Miscellaneous.

 

6.1           Governing Law; Venue. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Utah without giving effect to the principles thereof regarding the conflict of laws. Each party consents to and expressly agrees that exclusive venue for the resolution of any dispute arising out of or relating to this Agreement or the relationship of the parties or their affiliates shall be in Salt Lake County, Utah. For any litigation arising in connection with this Agreement, each party hereto hereby (i) consents to and expressly submits to the exclusive personal jurisdiction of any state or federal court sitting in Salt Lake County, Utah, (ii) expressly submits to the exclusive venue of any such court for the purposes hereof, and (iii) waives any claim of improper venue and any claim or objection that such courts are an inconvenient forum or any other claim or objection to the bringing of any such proceeding in such jurisdictions or to any claim that such venue of the suit, action or proceeding is improper.

 

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6.2           Entire Agreement; Amendments. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Except as otherwise expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the Company and the Purchaser.

 

6.3           Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to be effective upon delivery when delivered (a) personally; (b) by facsimile, provided a positive transmission report is received and a copy is mailed no later than the next business day through a nationally recognized overnight delivery service; (c) by overnight delivery with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications will be,

 

in the case of the Purchaser:           

 

Odyssey Research and Trading, LLC

Attention: John Fife

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

jfife@chicagoventure.com

 

with a copy to (which copy shall not constitute notice):

 

Hansen Black Anderson Ashcraft PLLC

Attention: Jon Hansen

3051 West Maple Loop Drive

Suite 325

Lehi, Utah 84043

jhansen@hbaalaw.com

 

and in the case of the Company:

 

Vape Holdings, Inc.

Attn: Kyle Tracey

21822 Lassen Street, Suite A

Chatsworth, California 91311

 

with a copy to (which copy shall not constitute notice):

 

Horwitz + Armstrong, LLP

Attn: Christopher L. Tinen

26475 Rancho Parkway South

Lake Forest, California 92630

 

or at such other address and facsimile number as the receiving party will have furnished to the sending party in writing.

 

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6.4           Survival. The representations, warranties, covenants and agreements made and incorporated by reference herein will survive any investigation made by or on behalf of the Purchaser or the Company, and will survive until the date that is two (2) years following the date of the final Closing that occurs hereunder.

 

6.5           Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof will inure to the benefit of, and be binding upon, the respective successors, assigns, heirs, executors and administrators of the parties hereto. The Purchaser may transfer or assign all or any portion of its rights under this Agreement to any person or entity permitted under applicable securities laws.

 

6.6           Interpretations. All pronouns and any variations thereof will be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or persons or entity or entities may require. All references to “$” or dollars herein will be construed to refer to United States dollars. The titles of the Sections and subsections of this Agreement are for convenience or reference only and are not to be considered in construing this Agreement. All references to “including” shall be deemed to mean “including, without limitation.”

 

6.7           Severability. In case any provision of this Agreement is determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby.

 

6.8           Attorneys’ Fees. In the event of any action at law or in equity to enforce or interpret the terms of this Agreement or collect any amounts owed hereunder, the parties agree that the party who is awarded the most money shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees and expenses paid by such prevailing party in connection with the litigation, collection and/or dispute without reduction or apportionment based upon the individual claims or defenses giving rise to the fees and expenses. Nothing herein shall restrict or impair a court’s power to award fees and expenses for frivolous or bad faith pleading.            

 

6.9           Counterparts. This Agreement may be executed in counterparts, each of which when so executed and delivered will constitute a complete and original instrument but all of which together will constitute one and the same agreement, and it will not be necessary when making proof of this Agreement or any counterpart thereof to account for any counterpart other than the counterpart of the party against whom enforcement is sought.

 

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6.10           No Reliance. The Company acknowledges and agrees that neither the Purchaser nor any of its officers, directors, members, managers, representatives or agents has made any representations or warranties to the Company or any of its officers, directors, representatives, agents or employees except as expressly set forth in this Agreement and, in making its decision to enter into the transactions contemplated by this Agreement, the Company is not relying on any representation, warranty, covenant or promise of the Purchaser or its officers, directors, members, managers, agents or representatives other than as set forth in this Agreement.

 

6.11           Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT IRREVOCABLY WAIVES ANY AND ALL RIGHTS SUCH PARTY MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, EACH PARTY HERETO ACKNOWLEDGES THAT SUCH PARTY IS KNOWINGLY AND VOLUNTARILY WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.

 

6.12           Voluntary Agreement. The Company has carefully read this Agreement and has asked any questions needed for the Company to understand the terms, consequences and binding effect of this Agreement. The Company has had the opportunity to seek the advice of an attorney of the Company’s choosing and is executing this Agreement voluntarily and without any duress or undue influence by the Purchaser or anyone else.

 

6.13           Specific Performance. The Company acknowledges and agrees that irreparable damage would occur to the Purchaser in the event that the Company fails to perform any provision of this Agreement in accordance with its specific terms. It is accordingly agreed that the Purchaser shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which the Purchaser may be entitled hereunder, by law or at equity. For the avoidance of doubt, in the event the Purchaser seeks to obtain an injunction against the Company or specific performance of any provision of this Agreement, such action shall not be a waiver of any right of the Purchaser under this Agreement, at law, or in equity.

 

[signatures on following page]

 

 7 

 

 

In Witness Whereof, the parties hereto have executed this Common Stock Purchase Agreement as of the date set forth in the first paragraph hereof.

 

  COMPANY:
     
  VAPE HOLDINGS, INC.
     
  By: /s/ Kyle Tracey
  Kyle Tracey, CEO

  

  PURCHASER:
   
  ODYSSEY RESEARCH AND TRADING, LLC
     
  By: Iliad Management, LLC, its Manager
   
  By: Fife Trading, Inc., its Manager
     
  By: /s/ John Fife
    John M. Fife, President

  

 

[Signature page to Common Stock Purchase Agreement]

 

 8 

 

 

Exhibit A

 

SECRETARY’S CERTIFICATE

 

 

 

 

 

 

 

 

 

 

 

 

EX-10.25 4 f10k2015a2ex10xxv_vapehold.htm FORBEARANCE AGREEMENT, DATED DECEMBER 10, 2015, BY AND BETWEEN VAPE HOLDINGS, INC. AND TYPENEX CO-INVESTMENT, LLC

Exhibit 10.25

 

FORBEARANCE AGREEMENT

 

This Forbearance Agreement (this “Agreement”) is entered into as of December 10, 2015 by and between Typenex Co-Investment, LLC, a Utah limited liability company (“Lender”), and Vape Holdings, Inc., a Delaware corporation (“Borrower”). Capitalized terms used in this Agreement without definition shall have the meanings given to them in the Note (defined below).

 

A.       Borrower previously sold and issued to Lender that certain Unsecured Convertible Promissory Note dated December 3, 2014 in the original principal amount of $560,000.00 (as amended by that certain Amendment to Unsecured Convertible Promissory Note dated August 26, 2015 between Lender and Borrower, the “Note”).

 

B.       The Note was issued pursuant to a certain Securities Purchase Agreement dated December 3, 2014 between Borrower and Lender (the “Purchase Agreement,” and together with the Note and all other documents entered into in conjunction therewith, the “Transaction Documents”).

 

C.       Lender has asserted that Borrower has breached certain of its obligations under the Transaction Documents (the “Breaches”), which Breaches constitute Events of Default under the Note.

 

D.       Borrower denies that it has breached such obligations and asserts that no Events of Default have occurred under the Note.

 

E.       No new or additional consideration is being provided in connection with this Agreement other than the modification of terms as provided herein.

 

F.       In order to resolve any disputes between Borrower and Lender, Lender has agreed, subject to the terms, conditions and understandings expressed in this Agreement, to refrain and forbear temporarily from exercising and enforcing remedies against Borrower with respect to the Breaches as provided in this Agreement.

 

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

1.       Recitals and Definitions. Each of the parties hereto acknowledges and agrees that the recitals set forth above in this Agreement are true and accurate, are contractual in nature, and are hereby incorporated into and made a part of this Agreement.

 

2.       Forbearance. Subject to the terms, conditions and understandings contained in this Agreement, Lender hereby agrees to refrain and forbear from exercising and enforcing its remedies under the Note, any of the Transaction Documents, or under applicable laws, with respect to the Breaches until the earliest occurrence of (a) any breach of this Agreement, or (b) any Event of Default that occurs after the date hereof (the “Forbearance”). For the avoidance of doubt, the Forbearance shall only apply to the Breaches and any Event of Default that occurred prior to the date hereof but not to any Events of Default that may occur subsequent to the date hereof.

 

 

 

 

3.       Forbearance Effect. As a material inducement and partial consideration for Lender’s agreement to enter into this Agreement and to grant the Forbearance, each of Borrower and Lender acknowledges and agrees that the Outstanding Balance of the Note shall be increased by $105,000.00 (the “Forbearance Effect”) as of the date hereof. In furtherance thereof, it is the intent of the parties hereto that the Forbearance Effect will tack back to the Purchase Price Date for purposes of determining the holding period under Rule 144 and the parties hereto further agree to not take a position that is contrary to such intent in any setting, document, or circumstance.

 

4.       Ratification of the Note. The Note shall be and remains in full force and effect in accordance with its terms, and is hereby ratified and confirmed in all respects. Borrower acknowledges that it is unconditionally obligated to pay the remaining balance of the Note and represents that such obligation is not subject to any defenses, rights of offset or counterclaims. Subject to the terms of Section 5 below, after giving effect to the terms of the Forbearance described herein and the application of the Forbearance Effect, the Outstanding Balance shall be deemed and affirmed to be equal to $314,934.08 and interest shall accrue on such amount at the rate of 10% per annum, as set forth in Section 2 of the Note, as of the date hereof. No forbearance or waiver other than as expressly set forth herein may be implied by this Agreement. Except as expressly set forth herein, the execution, delivery, and performance of this Agreement shall not operate as a waiver of, or as an amendment to, any right, power or remedy of Lender under the Note or the Transaction Documents, as in effect prior to the date hereof.

 

5.       Failure to Comply. Borrower understands that the Forbearance shall terminate immediately upon the occurrence of any material breach of this Agreement or upon the occurrence of any Event of Default after the date hereof and that in any such case, Lender may seek all recourse available to it under the terms of the Note, this Agreement, any other Transaction Document, or applicable law, including without limitation applying any remedies it has under the Note with respect to any Events of Default that occurred prior to the date hereof (with the application of such remedies being effective as of the date the applicable Event of Default occurred).

 

6.       Increase of Share Reserve. Borrower and Lender agree that in conjunction with the Forbearance granted herein, within three (3) Trading Days of the date of this Agreement, the Share Reserve shall be increased to 210,000,000 shares of Common Stock (as defined in the Purchase Agreement). In furtherance of the foregoing, Borrower shall take all such actions as are necessary to increase the Share Reserve as set forth herein, including without limitation executing and delivering to its transfer agent such documents and instructions as are necessary to cause its transfer agent to increase the Share Reserve to 210,000,000 shares of Common Stock.

 

7.       Representations, Warranties and Agreements. In order to induce Lender to enter into this Agreement, Borrower, for itself, and for its affiliates, successors and assigns, hereby acknowledges, represents, warrants and agrees as follows:

 

(a)       Borrower has full power and authority to enter into this Agreement and to incur and perform all obligations and covenants contained herein, all of which have been duly authorized by all proper and necessary action. No consent, approval, filing or registration with or notice to any governmental authority is required as a condition to the validity of this Agreement or the performance of any of the obligations of Borrower hereunder.

 

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(b)       Any Event of Default which may have occurred under the Note has not been, is not hereby, and shall not be deemed to be waived by Lender, expressly, impliedly, through course of conduct or otherwise except as set forth herein, and then only upon full satisfaction of Borrower’s obligations under this Agreement. The agreement of Lender to refrain and forbear from exercising any rights and remedies by reason of any existing default or any future default shall not constitute a waiver of, consent to, or condoning of, any other existing or future default. For the avoidance of any doubt, the Forbearance described herein only applies to the Breaches, and shall not constitute a waiver or forbearance of any other rights or remedies available to Lender with respect to any other defaults under the Note or other breach of the Transaction Documents by Borrower.

 

(c)       All understandings, representations, warranties and recitals contained or expressed in this Agreement are true, accurate, complete, and correct in all respects; and no such understanding, representation, warranty, or recital fails or omits to state or otherwise disclose any material fact or information necessary to prevent such understanding, representation, warranty, or recital from being misleading. Borrower acknowledges and agrees that Lender has been induced in part to enter into this Agreement based upon Lender’s justifiable reliance on the truth, accuracy, and completeness of all understandings, representations, warranties, and recitals contained in this Agreement. There is no fact known to Borrower or which should be known to Borrower which Borrower has not disclosed to Lender on or prior to the date hereof which would or could materially and adversely affect the understandings of Lender expressed in this Agreement or any representation, warranty, or recital contained in this Agreement.

 

(d)       Except as expressly set forth in this Agreement, Borrower acknowledges and agrees that neither the execution and delivery of this Agreement nor any of the terms, provisions, covenants, or agreements contained in this Agreement shall in any manner release, impair, lessen, modify, waive, or otherwise affect the liability and obligations of Borrower under the terms of the Note or any of the other Transaction Documents.

 

(e)       Borrower has no defenses, affirmative or otherwise, rights of setoff, rights of recoupment, claims, counterclaims, actions or causes of action of any kind or nature whatsoever against Lender, directly or indirectly, arising out of, based upon, or in any manner connected with, the transactions contemplated hereby, whether known or unknown, which occurred, existed, was taken, permitted, or begun prior to the execution of this Agreement and occurred, existed, was taken, permitted or begun in accordance with, pursuant to, or by virtue of any of the terms or conditions of the Transaction Documents. To the extent any such defenses, affirmative or otherwise, rights of setoff, rights of recoupment, claims, counterclaims, actions or causes of action exist or existed, such defenses, rights, claims, counterclaims, actions and causes of action are hereby waived, discharged and released. Borrower hereby acknowledges and agrees that the execution of this Agreement by Lender shall not constitute an acknowledgment of or admission by Lender of the existence of any claims or of liability for any matter or precedent upon which any claim or liability may be asserted.

 

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(f)       Borrower hereby acknowledges that it has freely and voluntarily entered into this Agreement after an adequate opportunity and sufficient period of time to review, analyze, and discuss (i) all terms and conditions of this Agreement, (ii) any and all other documents executed and delivered in connection with the transactions contemplated by this Agreement, and (iii) all factual and legal matters relevant to this Agreement and/or any and all such other documents, with counsel freely and independently selected by Borrower (or had the opportunity to be represented by counsel). Borrower further acknowledges and agrees that it has actively and with full understanding participated in the negotiation of this Agreement and all other documents executed and delivered in connection with this Agreement after consultation and review with its counsel (or had the opportunity to be represented by counsel), that all of the terms and conditions of this Agreement and the other documents executed and delivered in connection with this Agreement have been negotiated at arm’s-length, and that this Agreement and all such other documents have been negotiated, prepared, and executed without fraud, duress, undue influence, or coercion of any kind or nature whatsoever having been exerted by or imposed upon any party by any other party. No provision of this Agreement or such other documents shall be construed against or interpreted to the disadvantage of any party by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured, dictated, or drafted such provision.

 

(g)       There are no proceedings or investigations pending or threatened before any court or arbitrator or before or by, any governmental, administrative, or judicial authority or agency, or arbitrator, against Borrower.

 

(h)       There is no statute, regulation, rule, order or judgment and no provision of any mortgage, indenture, contract or other agreement binding on Borrower, which would prohibit or cause a default under or in any way prevent the execution, delivery, performance, compliance or observance of any of the terms and conditions of this Agreement and/or any of the other documents executed and delivered in connection with this Agreement.

 

(i)       Borrower is solvent as of the date of this Agreement, and none of the terms or provisions of this Agreement shall have the effect of rendering Borrower insolvent. The terms and provisions of this Agreement and all other instruments and agreements entered into in connection herewith are being given for full and fair consideration and exchange of value.

 

(j)       To the best of its belief, after diligent inquiry, Borrower represents and warrants that, as of the date hereof, no Event of Default under the Note (nor any material breach by Borrower under any of the other Transaction Documents) exists.

 

(k)       Borrower acknowledges that the application of the Forbearance Effect is separate from and in addition to its right to apply the Default Effect described in Section 4.2 of the Note and that, for the avoidance of doubt, shall not reduce the number of times the Default Effect may be applied pursuant to the terms of the Note. Specifically, the Default Effect may still be applied to three (3) Major Defaults and three (3) Minor Defaults.

 

8.       Headings. The headings contained in this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement.

 

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9.       Arbitration. Each party agrees that any dispute arising out of or relating to this Agreement shall be subject to the Arbitration Provisions (as defined in the Purchase Agreement).

 

10.       Governing Law; Venue. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Utah without regard to the principles of conflict of laws. Each party agrees that the proper venue for any dispute arising out of or relating to this Agreement shall be determined in accordance with the provisions of Section 8.3 of the Purchase Agreement. BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

11.       Counterparts. This Agreement may be executed in any number of counterparts with the same effect as if all signing parties had signed the same document. All counterparts shall be construed together and constitute the same instrument. The exchange of copies of this Agreement and of signature pages by facsimile transmission or other electronic transmission (including email) shall constitute effective execution and delivery of this Agreement as to the parties and may be used in lieu of the original Agreement for all purposes. Signatures of the parties transmitted by facsimile transmission or other electronic transmission (including email) shall be deemed to be their original signatures for all purposes.

 

12.       Attorneys’ Fees. In the event of any arbitration or action at law or in equity to enforce or interpret the terms of this Agreement, the parties agree that the party who is awarded the most money (which, for the avoidance of doubt, shall be determined without regard to any statutory fines, penalties, fees, or other charges awarded to any party) shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees and expenses  paid by such prevailing party in connection with the arbitration, litigation and/or dispute without reduction or apportionment based upon the individual claims or defenses giving rise to the fees and expenses.  Nothing herein shall restrict or impair an arbitrator’s or a court’s power to award fees and expenses for frivolous or bad faith pleading.

 

13.       Severability. If any part of this Agreement is construed to be in violation of any law, such part shall be modified to achieve the objective of the parties to the fullest extent permitted and the balance of this Agreement shall remain in full force and effect.

 

14.       Entire Agreement. This Agreement, together with the Transaction Documents, and all other documents referred to herein, supersedes all other prior oral or written agreements between Borrower, Lender, its affiliates and persons acting on its behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither Lender nor Borrower makes any representation, warranty, covenant or undertaking with respect to such matters.

 

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15.       No Reliance. Borrower acknowledges and agrees that neither Lender nor any of its officers, directors, members, managers, equity holders, representatives or agents has made any representations or warranties to Borrower or any of its agents, representatives, officers, directors, or employees except as expressly set forth in this Agreement and the Transaction Documents and, in making its decision to enter into the transactions contemplated by this Agreement and the Transaction Documents, Borrower is not relying on any representation, warranty, covenant or promise of Lender or its officers, directors, members, managers, equity holders, agents or representatives other than as set forth in this Agreement and in the Transaction Documents.

 

16.       Amendments. This Agreement may be amended, modified, or supplemented only by written agreement of the parties. No provision of this Agreement may be waived except in writing signed by the party against whom such waiver is sought to be enforced.

 

17.       Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. This Agreement or any of the severable rights and obligations inuring to the benefit of or to be performed by Lender hereunder may be assigned by Lender to a third party, including its financing sources, in whole or in part. Borrower may not assign this Agreement or any of its obligations herein without the prior written consent of Lender.

 

18.       Continuing Enforceability; Conflict Between Documents. Except as otherwise modified by this Agreement, each of the Note and all of the other Transaction Documents shall remain in full force and effect, enforceable in accordance with all of its original terms and provisions. This Agreement shall not be effective or binding unless and until it is fully executed and delivered by Lender and Borrower. If there is any conflict between the terms of this Agreement, on the one hand, and the Note or any other Transaction Document, on the other hand, the terms of this Agreement shall prevail.

 

19.       Time is of Essence. Time is of the essence with respect to each and every provision of this Agreement.

 

20.       Notices. Unless otherwise specifically provided for herein, all notices, demands or requests required or permitted under this Agreement to be given to Borrower or Lender shall be given as set forth in the “Notices” section of the Purchase Agreement.

 

21.       Further Assurances. Each party shall do and perform or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first set forth above.

 

  COMPANY:
     
  VAPE HOLDINGS, INC.
     
  By: /s/ Kyle Tracey
  Name: Kyle Tracey
  Title: CEO  

  

  LENDER:
   
  TYPENEX CO-INVESTMENT, LLC
     
  By: Red Cliffs Investments, Inc., its Manager
     
  By: /s/ John Fife
    John M. Fife, President

 

 

[Signature Page to Forbearance Agreement]

 

EX-10.26 5 f10k2015a2ex10xxvi_vapehold.htm SHARE EXCHANGE UNWIND AGREEMENT, DATED JANUARY 12, 2015, BY AND AMONG VAPE HOLDINGS, INC., BETTERCHEM CONSULTING, INC. AND MARK SCIALDONE

Exhibit 10.26

 

SHARE EXCHANGE
UNWIND AGREEMENT

 

THIS SHARE EXCHANGE UNWIND AGREEMENT (“Unwind Agreement”) is made effective as of this _12th ___ day of January, 2016 by and between VAPE Holdings, Inc., a Delaware corporation (“VAPE”) and BetterChem Consulting, Inc., a Pennsylvania corporation (“BetterChem”), and Mark Scialdone, an individual (“Scialdone”). VAPE, BetterChem, and Scialdone, each a Party, may be collectively referred to herein as the Parties.

 

RECITALS

 

WHEREAS, prior to the Share Exchange Agreement (defined below) Scialdone, owned 100% of the issued and outstanding common stock of BetterChem;

 

WHEREAS, on July 1, 2015, the Parties entered into a Share Exchange Agreement attached hereto as Exhibit A and incorporated by reference herein, whereby VAPE acquired 80 shares of BetterChem common stock from BetterChem sole shareholder Scialdone representing a controlling 80% of the issued and outstanding shares of common stock of BetterChem (the “BetterChem Shares”), in exchange for up to 400,000 shares of voting common stock, par value $0.00001 per share, of VAPE (the “VAPE Common Stock”), as set forth in Schedule 1 thereto (the “VAPE Shares”);

 

WHEREAS, on or about July 1, 2015, pursuant to the terms of the Share Exchange Agreement, Scialdone transferred the BetterChem Shares to VAPE;

 

WHEREAS, on or about July 1, 2015, pursuant to the terms of the Share Exchange Agreement, VAPE issued 250,000 restricted shares of Vape Common Stock to Scialdon;

 

WHEREAS, pursuant to the terms set forth in Schedule 1 of the Share Exchange Agreement, due to the uncertain nature of the valuation of BetterChem, VAPE granted Scialdone a nonassignable contingent contractual right to receive up to 150,000 shares of VAPE Common Stock representing the balance of the VAPE Shares, contingent on the future gross revenues of BetterChem as follows:

 

a.On the one year anniversary of the Closing Date of the Share Exchange Agreement (as defined therein), Scialdone shall be entitled to an additional 75,000 shares of VAPE common stock if BetterChem has generated at least $100,000 in gross revenues beginning on the Closing Date up to the one year anniversary of the Closing Date.

 

b.On the two year anniversary of the Closing Date, Scialdone shall be entitled to an additional 75,000 shares of VAPE Common Stock if BetterChem has generated at least $100,000 in gross revenues beginning on the one year anniversary of the Closing Date up to the two year anniversary of the Closing Date.

 

WHEREAS, as of the date of this Unwind Agreement, VAPE has not issued any VAPE Common Stock to Scialdone under the contingent contractual right to receive up to 150,000 shares of VAPE Common Stock representing the balance of the VAPE Shares;

 

WHEREAS, upon the terms and subject to the conditions set forth in this Unwind Agreement, the Parties have agreed to unwind the transactions contemplated under the Share Exchange Agreement, such that: (i) Scialdone shall surrender to VAPE any and all VAPE Shares issued to him thereunder (250,000); and (ii) VAPE shall return the BetterChem Shares to Scialdone;

 

WHEREAS, immediately upon the Closing of this Unwind Agreement: (i) Scialdone will once again hold all 100 shares of BetterChem representing 100% of the issued and outstanding shares of common stock therein; and the (ii) 250,000 shares of VAPE Common Stock held by Scialdone shall be surrendered to the treasury, and thereafter cancelled and extinguished by VAPE’s Transfer Agent, Island Stock Transfer, such that there shall be 250,000 fewer shares of VAPE common stock issued and outstanding; and

 

WHEREAS, It is the intention of the Parties that: (i) the transactions contemplated by this Unwind Agreement shall qualify as a tax-free reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the “Code”); and (ii) the issuance of the Shares shall be exempted from registration or qualification under the Securities Act.

 

 

 

 

AGREEMENT

 

NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties covenant and agree as follows:

 

ARTICLE I
SHARE EXCHANGE UNWIND

 

Section 1.1 Surrender of the VAPE Shares.  Subject to the terms and conditions of this Unwind Agreement, as of the date first above written, the Scialdone hereby surrenders all legal right, title and interest in the Shares to the Company to be held by the Company as treasury stock.

 

Section 1.2 Transfer of the BetterChem Shares. Subject to the terms of this Unwind Agreement, VAPE hereby covenants and agrees to assign and transfer all legal right, title and interest in the BetterChem Shares to Scialdone.

 

Section 1.3 Delivery of Stock Certificates and Stock Powers

 

a.Vape Shares. Island Stock Transfer has not issued certificates to Scialdone representing the VAPE Shares, which are currently held in book entry.  At the Closing (defined below), Scialdone shall deliver to VAPE  signed and medallion guaranteed stock power to the Transfer Agent’s satisfaction in order to cancel and/or transfer title to the VAPE Shares.

 

b.BetterChem Shares. At the Closing, VAPE shall surrender BetterChem Share Certificate No. 2 representing the BetterChem Shares, and BetterChem shall record the transfer of the BetterChem Shares in the shareholder records of BetterChem.

 

Section 1.4 Closing; Closing Date.  The Closing shall take place, subject to the terms and conditions of this Unwind Agreement, as of the date first written above (the “Closing Date”).

 

Section 1.5 Closing Deliveries of BetterChem and Scialdone.  At the Closing, BetterChem and Scialdone shall deliver or cause to be delivered the following, fully executed and in the form and substance reasonably satisfactory to VAPE:

 

a.copies of all resolutions and/or consent actions adopted by or on behalf of the board of directors of BetterChem evidencing approval of this Unwind Agreement and the transactions contemplated herein;

 

b.executed and medallion guaranteed stock power representing the surrender of the VAPE Shares by Scialdone, and ;

 

c.copies of this Unwind Agreement, and all other Unwind Documents, each duly executed by BetterChem and/or Scialdone, as required to give effect to the transactions contemplated by this Unwind Agreement.

 

Section 1.6 Closing Deliveries of VAPE.  At Closing, VAPE will deliver or cause to be delivered the following, fully executed and in the form and substance reasonably satisfactory to BetterChem and Scialdone:

 

a.copies of all resolutions and/or consent actions adopted by or on behalf of the board of directors of VAPE evidencing approval of this Unwind Agreement and the transactions contemplated herein;

 

b.BetterChem Share Certificate No. 2, all stock powers, and other documents required for the cancellation of the BetterChem Shares;

 

c.any other necessary documents, each duly executed by VAPE as required to give effect to the transactions contemplated by this Unwind Agreement.

 

Section 1.7 Waiver of Rights/Acknowledgment of Obligations.  The Parties hereby and acknowledge that the Parties have also entered into the following agreements, and respective rights and obligations of the Parties there under shall be addressed separately from this Unwind Agreement:

 

a.Executive Employment Agreement by and between VAPE and Scialdone, dated May 1, 2015;

 

b.Intellectual Property Rights Transfer Agreement by and between VAPE and Scialdone, dated July 1, 2015.

 

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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF BETTERCHEM AND SCIALDONE

 

BetterChem and Scialdone represent and warrant to VAPE as follows:

 

Section 2.1 Capitalization of BetterChem.  The entire authorized capital stock of BetterChem was issued and outstanding and solely held by Scialdone prior to the Share Exchange Agreement, and 80% of the total issued and outstanding shares of capital stock of BetterChem was transferred to VAPE via the BetterChem Shares.

 

Section 2.2 Marketable Title; Corporate Authority. Scialdone, as President of BetterChem, is the registered and beneficial owner of, and has good and marketable title to the VAPE Shares and will hold such shares free and clear of all liens, charges and encumbrances whatsoever. Scialdone, as President of BetterChem, has due and sufficient right and authority to enter into this Unwind Agreement on the terms and conditions herein set forth and to transfer the registered, legal and beneficial title and ownership of all the VAPE Shares held him to VAPE at the Closing.

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VAPE

 

VAPE represents and warrants to BetterChem and Scialdone and acknowledges that BetterChem and Scialdone are relying upon such representations and warranties in connection with the execution, delivery and performance of this Unwind Agreement as follows:

 

Section 3.1 Organization and Good Standing.  VAPE is duly incorporated, organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and to carry on its business as now being conducted.  VAPE is qualified to do business and is in good standing as a foreign corporation in each of the jurisdictions in which it owns property, leases property, does business, or is otherwise required to do so, where the failure to be so qualified would have a material adverse effect on the businesses, operations, or financial condition of VAPE.

 

Section 3.2 Corporate Authority.  VAPE has all requisite corporate power and authority to execute and deliver this Unwind Agreement and any other document contemplated by this Unwind Agreement (collectively, the “Unwind Documents”) to be signed by VAPE and to perform its obligations hereunder and to consummate the transactions contemplated hereby.  The execution and delivery of each of the Unwind Documents by VAPE and the consummation by VAPE of the transactions contemplated hereby have been duly authorized by its board of directors and no other corporate or shareholder proceedings on the part of VAPE is necessary to authorize such documents or to consummate the transactions contemplated hereby.  This Unwind Agreement has been, and the other VAPE Documents when executed and delivered by VAPE as contemplated by this Agreement will be, duly executed and delivered by VAPE and this Unwind Agreement is, and the other Unwind Documents when executed and delivered by VAPE, as contemplated hereby will be, valid and binding obligations of VAPE enforceable in accordance with their respective terms, except:

 

a.as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally;

 

b.as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies; and

 

c.as limited by public policy.

 

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ARTICLE IV
CLOSING CONDITIONS

 

Section 4.1 Conditions Precedent to Closing by VAPE.  The obligation of VAPE to consummate the transactions contemplated hereunder are subject to the satisfaction or written waiver of the conditions set forth below.  The Closing of the transactions contemplated by this Unwind Agreement will be deemed a waiver of all conditions to Closing.  These conditions precedent are for the benefit of VAPE and may be waived by VAPE in its sole discretion.

 

a.Representations and Warranties.  The representations and warranties of BetterChem and Scialdone set forth in Article II of this Unwind Agreement shall be true, correct and complete in all respects as of the Closing Date, and BetterChem and Scialdone shall deliver to VAPE a certificate dated as of the Closing Date, to the effect that the representations and warranties made by VAPE in this Agreement are true and correct.

 

b.Performance.  All of the covenants and obligations that BetterChem and Scialdone are required to perform or to comply with pursuant to this Unwind Agreement at or prior to the Closing shall have been performed and complied with in all material respects.

 

c.Unwind Documents.  This Unwind Agreement and all other documents necessary or reasonably required to consummate the transactions contemplated hereunder, all in form and substance reasonably satisfactory to VAPE, shall have been executed and delivered to VAPE.

 

Section 4.2 Conditions Precedent to Closing by BetterChem and Scialdone.  The obligation of BetterChem and Scialdone to consummate the transactions contemplated hereunder is subject to the satisfaction or written waiver of the conditions set forth below.  The Closing of the transactions contemplated by this Unwind Agreement will be deemed a waiver of all conditions to Closing.  These conditions precedent are for the benefit of BetterChem and Scialdone and may be waived by them in their joint discretion.

 

a.Representations and Warranties.  The representations and warranties of VAPE set forth in this Agreement shall be true, correct and complete in all respects as of the Closing Date and VAPE shall deliver to BetterChem and Scialdone, a certificate dated as of the Closing Date, to the effect that the representations and warranties made by VAPE in this Unwind Agreement are true and correct.

 

b.Performance.  All of the covenants and obligations that VAPE is required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been performed and complied with in all material respects.  VAPE must have delivered each of the documents required to be delivered by it pursuant to this Unwind Agreement.

 

c.Unwind Documents.  This Unwind Agreement and all other documents necessary or reasonably required to consummate the Unwind, all in form and substance reasonably satisfactory to BetterChem and Scialdone, will have been executed and delivered by VAPE.

 

ARTICLE V
ADDITIONAL COVENANTS OF THE PARTIES

 

Section 5.1 Mutual Confidentiality of Business Information.  All information regarding the business affairs of Parties including, without limitation, financial information provided due diligence purposes prior to the Share Exchange Agreement, or during the period between execution of the Share Exchange Agreement through the Closing Date of this Unwind Agreement shall be kept in strict confidence by the Parties and will not be used, dealt with, exploited or commercialized by the Parties or disclosed to any third party without the prior written consent of the non-disclosing Party.

 

Section 5.2 Confidentiality of Transaction and Unwind.  VAPE is a public company and the dissemination of material non-public information about the transaction contemplated under this Unwind Agreement shall be included in a press releases made public by VAPE and certain other public filings to the extent required by the Securities and Exchange Commission.

 

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Section 5.3 Notification.  Each of the Parties to this Unwind Agreement shall promptly notify the other Parties in writing if it becomes aware of any fact or condition that causes or constitutes a material breach of any of its representations and warranties as of the date of this Unwind Agreement, if it becomes aware of the occurrence after the date of this Unwind Agreement of any fact or condition that would cause or constitute a material breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition.  Should any such fact or condition require a material amendment relating to such Party, such Party will promptly deliver to the other Parties any such supplemental information specifying such change as may be reasonably requested by the non-breaching Parties.  Each party will promptly notify the other Parties of the occurrence of any material breach of any of its covenants in this Agreement or of the occurrence of any event that may make the satisfaction of such conditions impossible or unlikely.

 

Section 5.4 VAPE Directors and Officers.  Any offices vacancies occasioned by the transactions contemplated in the Unwind Documents shall be filled, if at all, by the Board of Directors of VAPE pursuant to procedures prescribed in the VAPE Bylaws, as amended.

 

Section 5.5 Assumption of Liabilities. BetterChem, hereby irrevocably assumes any and all debts, obligations and liabilities, present or future, direct or indirect, absolute or contingent, matured or not, whenever arising, that might at any time be determined to be owing by BetterChem to any Creditors. BetterChem, will indemnify, defend, and hold harmless, to the full extent of the law, VAPE and its shareholders from, against, and in respect of any and all losses and liabilities asserted by Creditors of BetterChem, against, relating to, imposed upon, or incurred by BetterChem.

 

Section 5.6 Indemnification by BetterChem and Scialdone.  BetterChem and Scialdone will indemnify, defend, and hold harmless, to the full extent of the law, VAPE and its members, from, against, and in respect of any and all losses and damages asserted against, relating to, imposed upon, or incurred by VAPE and its shareholders by reason of, resulting from, based upon or arising out of the breach by BetterChem and/or Scialdone of any representation or warranty of BetterChem and/or Scialdone contained in or made pursuant to this Unwind Agreement, any Unwind Document or any certificate or other instrument delivered pursuant to this Unwind Agreement; or the breach or partial breach by BetterChem and/or Scialdone of any covenant or agreement of BetterChem and/or Scialdone made in or pursuant to this Unwind Agreement, any Unwind Document or any certificate or other instrument delivered pursuant to this Agreement.

 

Section 5.7 Indemnification by VAPE.  VAPE will indemnify, defend, and hold harmless, to the full extent of the law, BetterChem and Scialdone, from, against, and in respect of any and all losses and damages asserted against, relating to, imposed upon, or incurred by BetterChem and/or Scialdone by reason of, resulting from, based upon or arising out of the breach by VAPE of any representation or warranty of VAPE contained in or made pursuant to this Unwind Agreement, any Unwind Document or any certificate or other instrument delivered pursuant to this Unwind Agreement; or the breach or partial breach by VAPE of any covenant or agreement of VAPE made in or pursuant to this Unwind Agreement, any Unwind Document or any certificate or other instrument delivered pursuant to this Agreement.

 

ARTICLE VI
MISCELLANEOUS PROVISIONS

 

Section 6.1 Effectiveness of Representations; Survival.  Each Party is entitled to rely on the representations, warranties and agreements of each of the other parties and all such representation, warranties and agreement will be effective regardless of any investigation that any party has undertaken or failed to undertake.  Unless otherwise stated in this Unwind Agreement, and except for instances of fraud, the representations, warranties and agreements will survive the Closing Date and continue in full force and effect until one (1) year after the Closing Date.

 

Section 6.2 Further Assurances.  Each of the Parties hereto will co-operate with the others and execute and deliver to the other Parties hereto such other instruments and documents and take such other actions as may be reasonably requested from time to time by any other Party hereto as necessary to carry out, evidence, and confirm the intended purposes of this Unwind Agreement.

 

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Section 6.3 Amendment.  This Unwind Agreement may not be amended except by an instrument in writing signed by each of the Parties.

 

Section 6.4 Expenses.  Each Party will bear their own costs incurred in connection with the preparation, execution and performance of this Unwind Agreement and giving effect to the transactions contemplated hereunder.

 

Section 6.5 Entire Agreement.  This Unwind Agreement, the schedules attached hereto and the other documents in connection with this transaction contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior arrangements and understandings, both written and oral, expressed or implied, with respect thereto.  Any preceding correspondence or offers are expressly superseded and terminated by this Unwind Agreement.

 

Section 9.4  Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been given or made if in writing and delivered personally or sent by registered or certified mail (postage prepaid, return receipt requested)or facsimile to the Parties at the following addresses:

 

If to BetterChem or Scialdone, to:

 

BetterChem Consulting, Inc.

Attn: Mark Scialdone

77 Allsmeer Drive

West Grove, PA 19390

 

If to VAPE, to:

 

VAPE Holdings, Inc.

Attn: Justin Braune, CEO

5304 Derry Ave., Unit C

Agoura Hills, CA 91301

Tel: (877) 827-3959 

 

Section 9.7  Titles and Headings. The Article and Section headings contained in this Unwind Agreement are solely for convenience of reference and shall not affect the meaning or interpretation of this Agreement or of any term or provision hereof.

 

Section 9.2  Successors and Assigns. This Unwind Agreement shall inure to the benefit of, and be binding upon, the Parties hereto and their respective successors and assigns; provided, however, that no party shall assign or delegate any of the obligations created under this Unwind Agreement without the prior written consent of the other parties.

 

Section 9.6  Severability. This Unwind Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Unwind Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Unwind Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible so as to be valid and enforceable.

 

Section 9.9  Governing Law; Attorneys’ Fees. This Unwind Agreement and Unwind Documents shall be governed by and construed and interpreted in accordance with the laws of the State of California, without giving effect to the rules of conflicts of law. In the event of any action at law or in equity to enforce or interpret the terms of this Unwind Agreement or any of the other transaction documents, the parties agree that the party who is awarded the most money shall be deemed the prevailing party for all purposes and shall therefore be entitled to an additional award of the full amount of the attorneys’ fees, deposition costs, and expenses paid by such prevailing Party in connection with arbitration or litigation without reduction or apportionment based upon the individual claims or defenses giving rise to the fees and expenses.

 

Section 9.10  Enforcement of the Agreement. The Parties hereto agree that irreparable damage would occur if any of the provisions of this Unwind Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Unwind Agreement and to enforce specifically the terms and provisions hereto, this being in addition to any other remedy to which they are entitled at law or in equity.

 

[ Signature Page Follows ]

 

 6 
 

 

IN WITNESS WHEREOF, the Parties hereto have executed this Share Exchange Unwind Agreement as of the date first above written.

 

BetterChem Consulting, Inc.  
     
/s/ Mark Scialdone  
Name:  Mark Scialdone  
Title:   President  
     
Mark Scialdone, Ph.D., an Individual  
     
/s/ Mark Scialdone  
Mark Scialdone  
77 Allsmeer Road  
West Grove, PA 19390  
     
VAPE HOLDINGS, INC.  
     
/s/ Justin Braune  
Name:   Justin Braune  
Title: CEO  

 

 7 
 

 

Exhibit A

 

SHARE EXCHANGE AGREEMENT DATED JULY 1, 2015.

 

 

8

 

 

EX-21.1 6 f10k2015a2ex21i_vapehold.htm LIST OF SUBSIDIARIES OF VAPE HOLDINGS, INC.

Exhibit 21.1

 

List of Subsidiaries of Vape Holdings, Inc.

 

Name of Subsidiary  State of Incorporation  Status
Revival Products, LLC  California  Active
Nouveau, LLC  California  Active
Offset, LLC  California  Dissolved; 11/9/2015
Hive Supply Washington, LLC  Washington  Dissolved; 04/12/2016

 

 

 

EX-31.1 7 f10k2015a2ex31i_vapehold.htm CERTIFICATION

EXHIBIT 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Justin Braune, certify that:

 

1. I have reviewed this report on Form 10-K/A of Vape Holdings, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 24, 2016

/s/ Justin Braune
  Justin Braune,
  Chief Executive Officer 

 

EX-31.2 8 f10k2015a2ex31ii_vapehold.htm CERTIFICATION

EXHIBIT 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Allan Viernes, certify that:

 

1. I have reviewed this report on Form 10-K/A of Vape Holdings, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 24, 2016

/s/ Allan Viernes
  Allan Viernes,
  Chief Financial Officer

 

EX-32.1 9 f10k2015a2ex32i_vapehold.htm CERTIFICATION

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Vape Holdings, Inc. (the "Company") on Form 10-K/A for the fiscal year ended September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Justin Braune, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.

 

This certificate is being made for the exclusive purpose of compliance by the Chief Executive and Financial and Accounting Officer of the Company with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by any person or for any reason other than as specifically required by law.

 

Date: May 24, 2016 /s/ Justin Braune
  Justin Braune,
  Chief Executive Officer
   

 

EX-32.2 10 f10k2015a2ex32ii_vapehold.htm CERTIFICATION

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Vape Holdings, Inc. (the "Company") on Form 10-K/A for the fiscal year ended September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Allan Viernes, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.

 

This certificate is being made for the exclusive purpose of compliance by the Chief Executive and Financial and Accounting Officer of the Company with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by any person or for any reason other than as specifically required by law.

 

Date: May 24, 2016 /s/ Allan Viernes
  Allan Viernes
  Chief Financial Officer

 

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Accordingly, we amended this Form 10-K/A to account for the embedded conversion features as derivative financial instruments at fair value. This increased the loss on debt extinguishments and interest expense previously recorded, as well as the derivative liabilities at fair value.</font></p> <p style="font: 10pt/normal times new roman, times, serif; margin: 0px; text-align: justify; text-indent: 36pt; font-size-adjust: none; font-stretch: normal;"><font style="font-family: times new roman, times, serif; font-size: 10pt;">&#160;</font></p> <p style="font: 10pt/normal times new roman, times, serif; margin: 0px; text-align: justify; text-indent: 36pt; font-size-adjust: none; font-stretch: normal;"><font style="font-family: times new roman, times, serif; font-size: 10pt;">Except as described above, no other changes have been made to the Original Filing. 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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 consolidated financial statements have been included. Such adjustments consist of normal recurring adjustments. 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On August 26, 2015, the Company and Investor entered into an Amendment whereby the conversion rate of the note was amended to 55% of the lowest price of the prior fifteen (15) trading days and conversion floor removed which amendment was triggered by the dilutive issuances of the August 2015 convertible note financing thereby entitling Investor to the lowest conversion rate granted during the year ended September 30, 2015 per the terms of the Securities Purchase Agreement. As a result, we expensed the unamortized discount of $84,000 to&#160;loss on debt extinguishment. On August 26, 2015, the carrying value on the note was $332,666, net of unamortized discounts of $109,000. The Company recorded the note as a derivative liability at fair value of $830,921, a derivative discount of $332,666, and the excess in fair value of $498,254 to loss on debt extinguishment. The total loss on debt extinguishment on this note was $582,254. 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The Company has the ability to increase the authorized common stock of the Company in the event that the convertible notes require more shares than available.</p></div> <div><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><b>NOTE 6.&#160;&#160;&#160;RELATED PARTY DEBT</b></p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><u>RELATED PARTY NOTES PAYABLE, LONG-TERM</u></p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">The Company had outstanding accounts payable balance to a related party (shareholder of the Company) in the amount of $15,000 as of September 30, 2013.&#160;This payable was converted into a note payable on December 7, 2013.&#160;The note payable bears interest of 6% per annum with a maturity date of December 1, 2016. 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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. As of September 30, 2015, there is $22,893 in accrued interest expense related to this note and the Company recorded $15,208 in interest expense related to this note during the year ended September 30, 2015, respectively. On December 10, 2015, the HIVE Note was converted into a Series B Convertible Preferred Note payable and the maturity date was extended to December 10, 2016. 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Per the terms of the Andreae Note, the original principal balance &#160;&#160;was $12,828, and was not secured by any collateral or any assets pledged to the holder. The maturity date is November 30, 2014, and the annual rate of interest is six percent (6%). The monies were funded during the three and nine months ended June 30, 2014. 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The maturity date is February 18, 2016, and the annual rate of interest is eight percent (8%).&#160;&#160;Subject to certain limitations, the holders can, at their sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company&#8217;s common stock. The conversion price for the notes was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $8,000 related to the beneficial conversion feature embedded in the notes upon issuance.&#160;&#160;We amortized $1,000 and $1,667 of the discount to interest expense during the three and nine months ended June 30, 2014, respectively. On October 28, 2014, the Company received a Notice of Conversion on two (2) 8% Convertible Notes issued to third parties on February 18, 2014 to cover expenses of the Company. The noteholders converted aggregate principal of $20,000 and aggregate outstanding accrued and unpaid interest of $1,100 into an aggregate of 42,370 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of their convertible notes payable. The conversion of these notes was in full satisfaction of the notes payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $5,333 to interest expense.</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">On February 18, 2014, the Company issued an 8% Convertible Note to Kyle Tracey for monies borrowed from Mr.&#160;Tracey to cover outstanding accounts payable in the amount of $10,612 (the &#8220;Tracey Note&#8221;). Per the terms of the Tracey Note, the original principal balance is $10,612, and was not secured by any collateral or any assets pledged to the holder. The maturity date was February 18, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company&#8217;s common stock. The conversion price for the Tracey Note was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $4,245 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $1,415 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion the Tracey Note. Mr. Tracey converted principal of $10,612 and outstanding accrued and unpaid interest of $584 into 22,481 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Tracey Note was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $2,830 to interest expense.&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">On March 17, 2014, the Company issued an 8% Convertible Note to Jerome Kaiser, former CEO, CFO and Director of the Company for services rendered to the Company in the amount of $50,000 (the &#8220;Kaiser Note&#8221;) which was charged to expense during the three months March 31, 2014. Per the terms of the Kaiser Note, the principal balance is $50,000, and is not secured by any collateral or any assets pledged to the holders. The maturity date is March 17, 2015, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at his sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company&#8217;s common stock. The conversion price for the Kaiser Note is the market closing price of the market day immediately preceding the date of conversion minus twenty percent (20%). We recorded a discount totaling $10,000 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $4,167 of the discount to interest expense during the year ended September 30, 2015. In March 2015, the Company paid the outstanding principal and accrued interest in satisfaction on the note of $50,000 and $4,000, respectively.</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">On May 12, 2014, in connection with the 6% Notes, the Company issued a note for $40,000 to Kyle Tracey, which was recorded as a related party convertible note payable. We recorded a discount totaling $16,000 related to the beneficial conversion feature embedded in the 6% note to Mr.&#160;Tracey upon issuance. We amortized $6,667 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion on the 6% Convertible Note issued on May 13, 2014 to Mr.&#160;Tracey (the &#8220;Tracey PPM Note&#8221;) as part of a private placement transaction in exchange for capital of $40,000. Mr.&#160;Tracey converted principal of $40,000 and outstanding accrued and unpaid interest of $1,098 into 41,098 shares of restricted common stock of the Company at a per share conversion price of $1.00 in accordance with the terms of the convertible note. The conversion of the Tracey PPM Note was in full satisfaction of the note. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $13,333 to interest expense.&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">On May 12, 2014, the Company issued an 8% Convertible Note to Kyle Tracey for monies borrowed from Mr. Tracey to cover outstanding accounts payable in the amount of $11,042 (the &#8220;Tracey Note II&#8221;). Per the terms of the Tracey Note II, the original principal balance is $11,042, and was not secured by any collateral or any assets pledged to the holder. The maturity date was May 12, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company&#8217;s common stock. The conversion price for the Tracey Note II was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $4,417 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $920 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion on the Tracey Note II. Tracey converted principal of $11,042 and outstanding accrued and unpaid interest of $407 into 22,989 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conver<i>s</i>ion of the Tracey Note II was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $3,497 to interest expense.&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">On May 12, 2014, the Company issued an 8% Convertible Note to its Director of Business Development, Michael Cook, for monies borrowed from Mr. Cook to cover outstanding accounts payable in the amount of $11,825 (the &#8220;Cook Note&#8221;). Per the terms of the Cook Note, the original principal balance was $11,825, and was not secured by any collateral or any assets pledged to the holder. The maturity date is May 12, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company&#8217;s common stock. The conversion price for the Cook Note was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $4,730 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $985 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion on the &#8220;Cook Note. Mr. Cook converted principal of $11,825 and outstanding accrued and unpaid interest of $435 into 24,619 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Cook Note was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $3,745 to interest expense.</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">On August 11, 2014, the Company issued a second 8% Convertible Note to Mr. Cook for monies borrowed from Mr. Cook to cover outstanding accounts payable in the amount of $15,115 (the &#8220;Cook Note II&#8221;). Per the terms of the Cook Note II, the original principal balance was $15,115, and is was secured by any collateral or any assets pledged to the holder. The maturity date is August 11 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company&#8217;s common stock. The conversion price for the Cook Note II was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $6,046 related to the beneficial conversion feature embedded in the notes upon issuance. On October 28, 2014, the Company received a Notice of Conversion on the Cook Note II. Mr. Cook converted principal of $15,115 and outstanding accrued and unpaid interest of $255 into 30,864 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Cook Note II was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $5,542 to interest expense.</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">On August 11, 2014, the Company issued an 8% Convertible Note to Mr. Tracey for monies borrowed from Mr. Tracey to cover outstanding accounts payable in the amount of $216,001 (the &#8220;Tracey Note III&#8221;). Per the terms of the Tracey Note III, the original principal balance was $216,001, and is not secured by any collateral or any assets pledged to the holder. The maturity date was August 11, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company&#8217;s common stock. The conversion price for the Tracey Note III was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $86,401 related to the beneficial conversion feature embedded in the notes upon issuance. On October 28, 2014, the Company received a Notice of Conversion on the Tracey Note III. Mr. Tracey converted principal of $216,001 and outstanding accrued and unpaid interest of $3,645 into 441,057 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. 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The Company has already begun exploiting this technology and intends to prosecute the patent application to completion. 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On October 22, 2015, the Company&#8217;s Board of Directors issued 555,555 shares of restricted common stock each to Kyle Tracey at $0.024 per share for payment of $13,333 in accrued wages. 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From 2013 to 2014, Mr. Braune served as the Chief of Operations for Veracity Security, a technology company located in San Diego. From 2013-2014 Mr. Braune was the Director of Sales at Lear Capital. Since 2010 he owned and operated Braune Enterprises a real estate and investment brokerage firm. Mr. Braune graduated from the United States Naval Academy with a B.S. degree in electrical engineering in and was commissioned as an officer in the U.S. Navy. After earning his master&#8217;s degree in nuclear engineering, Mr. Braune operated the nuclear reactors onboard the USS RONALD REAGAN aircraft carrier. He served in the U.S. Navy until 2009 and subsequently earned his MBA at the University of Southern California, Marshall School of Business. 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Mr. Braune also is eligible to participate in any stock option plan maintained by the Company and available to other employees and standard benefit programs for similarly situated employees. 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Mr. Tracey will remain in a consultant role with the Company focusing on sales and business development of HIVE Ceramics for a period of two (2) years. Mr. Tracey also retains a large block of voting control of the Company due to the above issuance of the Series B Notes issued to HIVE Ceramics, LLC an entity he co-owns. The Board also accepted the resignation of Joe Andreae as President and a director as of December 10, 2015. 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Revival will disposable cartridge complement HIVE Ceramic&#8217;s product lines utilizing its sales and distribution channels and via its own designated e-commerce site at www.revivalvapes.com.</p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify;">&#160;</p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify;"><font style="text-transform: uppercase;"><b>BETTERCHEM</b></font></p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify; text-indent: 0.5in;">&#160;</p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify; text-indent: 0.5in;">On July 1, 2015, the Company entered into a Share Exchange Agreement with BetterChem Consulting, Inc. (&#8220;BetterChem&#8221;), a Pennsylvania corporation, and its sole shareholder and the Company&#8217;s current Chief Science Officer Dr. Mark Scialdone (&#8220;Dr. Scialdone&#8221;), whereby the Company acquired a controlling 80% interest in BetterChem from Dr. Scialdone in exchange for up to 400,000 shares of the Company&#8217;s restricted common stock. In consideration for the issuance of the shares to Dr. Scialdone, the Company acquired 80 shares of the common stock of BetterChem which represents 80% of the issued and outstanding shares of BetterChem. Dr. Scialdone retained a 20% interest in BetterChem. The Share Exchange Agreement transaction closed concurrently with its execution on July 1, 2015 and was approved by Unanimous Written Consent of the Board of Directors (the &#8220;Board&#8221;) of the Company on the same date. At closing, the Company issued 250,000 shares of its common stock valued at $67,500 to BetterChem. The Company acquired an 80% controlling interest of the business in order to expand its science consulting segment and research and development. BetterChem had no assets and liabilities upon closing.</p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify; text-indent: 0.5in;">&#160;</p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify; text-indent: 0.5in;">An additional up to 150,000 shares of common stock to be issued to Dr. Scialdone will be subject to the following terms:</p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify; text-indent: 0.5in;">&#160;</p><table style="width: 1567px; text-transform: none; text-indent: 0px; letter-spacing: normal; font-family: 'times new roman', times, serif; word-spacing: 0px; widows: 1; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.2667px; font-family: calibri, helvetica, sans-serif; width: 0.25in;">&#160;</td><td style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.2667px; font-family: calibri, helvetica, sans-serif; text-align: justify; width: 0.25in;"><font style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.1333px; font-family: 'times new roman', times, serif;">1.</font></td><td style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.2667px; font-family: calibri, helvetica, sans-serif; text-align: justify;"><font style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.1333px; font-family: 'times new roman', times, serif;">Due to the uncertain nature of the valuation of BetterChem, a privately held consulting business, the parties have agreed that Dr. Scialdone shall have a nonassignable contingent contractual right to receive additional shares contingent on the future gross revenues of BetterChem as follows:</font></td></tr></table><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify; text-indent: 0.5in;">&#160;</p><table style="width: 1567px; text-transform: none; text-indent: 0px; letter-spacing: normal; font-family: 'times new roman', times, serif; word-spacing: 0px; widows: 1; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.2667px; font-family: calibri, helvetica, sans-serif; width: 0.5in;">&#160;</td><td style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.2667px; font-family: calibri, helvetica, sans-serif; text-align: justify; width: 0.25in;"><font style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.1333px; font-family: 'times new roman', times, serif;">a.</font></td><td style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.2667px; font-family: calibri, helvetica, sans-serif; text-align: justify;"><font style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.1333px; font-family: 'times new roman', times, serif;">On the one year anniversary of the closing, Dr. Scialdone shall be entitled to an additional 75,000 shares if BetterChem has generated at least $100,000 in gross revenues beginning on the date of closing and up to the one year anniversary of the closing. The additional stock issuance will be calculated on a pro rata basis (i.e. If BetterChem only generates $50,000 in gross revenues in the first year then Dr. Scialdone will be entitled to only 37,500 shares).</font></td></tr></table><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify; text-indent: 0.5in;">&#160;</p><table style="width: 1567px; text-transform: none; text-indent: 0px; letter-spacing: normal; font-family: 'times new roman', times, serif; word-spacing: 0px; widows: 1; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="line-height: 17.12px; width: 0.5in;">&#160;</td><td style="text-align: justify; line-height: 17.12px; width: 0.25in;"><font style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.1333px; font-family: 'times new roman', times, serif;">b.</font></td><td style="text-align: justify; line-height: 17.12px;"><font style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.1333px; font-family: 'times new roman', times, serif;">On the two year anniversary of the closing, Dr. Scialdone shall be entitled to an additional 75,000 shares if BetterChem has generated at least $100,000 in gross revenues beginning on the one year anniversary of the closing up to the two year anniversary of the closing. The additional stock issuance will be calculated on a pro rata basis (i.e. If BetterChem only generates $50,000 in gross revenues in the second year then Dr. Scialdone will be entitled to only 37,500 shares).</font></td></tr></table><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify; text-indent: 0.5in;">&#160;</p><table style="width: 1567px; text-transform: none; text-indent: 0px; letter-spacing: normal; font-family: 'times new roman', times, serif; word-spacing: 0px; widows: 1; -webkit-text-stroke-width: 0px;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="line-height: 17.12px; width: 0.25in;">&#160;</td><td style="text-align: justify; line-height: 17.12px; width: 0.25in;"><font style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.1333px; font-family: 'times new roman', times, serif;">2.</font></td><td style="text-align: justify; line-height: 17.12px;"><font style="font-style: normal; font-variant: normal; font-weight: normal; font-stretch: normal; font-size: 10pt; line-height: 14.1333px; font-family: 'times new roman', times, serif;">In the event of a change in control of BetterChem or a sale of all or substantially all of the assets of BetterChem during the two year period, the additional 150,000 shares shall automatically vest and be payable in full to Dr. Scialdone and any salary compensation due Dr. Scialdone under the 2 year term of his employment agreement with the Company dated May 1, 2015, or extensions of that Employment Agreement which the parties may thereafter execute, shall be accelerated and shall be due and payable in full within 30 days of the event of change in control of BetterChem.</font></td></tr></table><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; orphans: auto; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; line-height: 15.3333px; margin: 0px; text-align: justify; text-indent: 0.5in;">&#160;</p><p style="color: #000000; font-family: 'times new roman', times, serif; font-size: 10pt; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: auto; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; -webkit-text-stroke-width: 0px; font-stretch: normal; margin: 0px; text-align: justify; text-indent: 36pt;">In connection with the Share Exchange Agreement, on July 1, 2015, Dr. Scialdone and the Company entered into an Intellectual Property Rights Transfer Agreement (the &#8220;I.P. 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During the year ended September 30, 2015, the 250,000 shares issued to BetterChem valued at $67,500 was recorded as an impairment of acquisition on the statement of operations as a result of the settlement to receive the shares back as part of the unwind. 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The Company also curtailed its &#8216;THE HIVE&#8217; retail store in order to reduce overhead costs and focus on HIVE Ceramics. Moreover, the Company curtailed its exploration into providing real estate, management and consulting solutions to the legal cannabis industry in states where such cannabis cultivation and extraction is legal. The Company was never able to execute on any of these plans and ultimately determined that the Company&#8217;s capital reserves for such projects as well as the risks inherent in each project due to the current regulatory environment surrounding the cannabis industry made this line of business too difficult to pursue.</p> <div><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><u>BASIS OF PRESENTATION</u></p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">The accompanying unaudited interim consolidated 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 consolidated financial statements have been included. Such adjustments consist of normal recurring adjustments. The current results are not an indication of the full year.</p></div> <div><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><u>CONSOLIDATION</u></p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">The consolidated financial statements include the assets, liabilities, and operating results of the Company and its wholly-owned subsidiaries, HIVE Ceramics, Offset, and Nouveau after elimination of all material inter-company accounts and transactions.&#160;No segment information is presented as the assets, liabilities, and results of HIVE represent over 90% of the Company&#8217;s operations.</p></div> <div><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><u>USE OF ESTIMATES</u></p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. 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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.</p> </div> <div><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><u>RISKS AND UNCERTAINTIES</u></p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0.5in; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">Although forward-looking statements in this Quarterly Report reflect our good faith judgment, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under the heading &#8220;Risk Factors&#8221; below, as well as those discussed elsewhere in this Quarterly Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.</p></div> <p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><font style="font-family: 'times new roman', times, serif;"><u>AMENDMENT</u></font>&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0px; text-align: justify; color: #000000; text-transform: none; text-indent: 0px; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;">&#160;</p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0pt; text-align: justify; color: #000000; text-transform: none; text-indent: 36pt; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">We have amended this Form 10-K/A to correctly account for the following non-cash transactions:</font></p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0pt; text-align: justify; color: #000000; text-transform: none; text-indent: 36pt; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">&#160;</font></p><p style="font: 10pt/normal 'times new roman', times, serif; margin: 0pt; text-align: justify; color: #000000; text-transform: none; text-indent: 36pt; letter-spacing: normal; word-spacing: 0px; white-space: normal; widows: 1; font-stretch: normal; -webkit-text-stroke-width: 0px;"><font style="font-family: 'times new roman', times, serif; font-size: 10pt;">In August 2015 the Company entered into convertible notes without conversion floors resulting in an unlimited potential of shares to be issued. 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Dr. Scialdone retained a 20% interest in BetterChem. 12828 97898 60277 100000 100000 100000 400000 500000 500000 150000 250000 250000 60000 200000 13063013 67500 1750 9150 49800 122000 36600 36600 In the event of a change in control of BetterChem or a sale of all or substantially all of the assets of BetterChem during the two year period, the additional 150,000 shares shall automatically vest and be payable in full to Dr. Scialdone and any salary compensation due Dr. Scialdone under the 2 year term of his employment agreement with the Company dated May 1, 2015, or extensions of that Employment Agreement which the parties may thereafter execute, shall be accelerated and shall be due and payable in full within 30 days of the event of change in control of BetterChem. On the one year anniversary of the closing, Dr. Scialdone shall be entitled to an additional 75,000 shares if BetterChem has generated at least $100,000 in gross revenues beginning on the date of closing and up to the one year anniversary of the closing. The additional stock issuance will be calculated on a pro rata basis (i.e. If BetterChem only generates $50,000 in gross revenues in the first year then Dr. Scialdone will be entitled to only 37,500 shares). On the two year anniversary of the closing, Dr. Scialdone shall be entitled to an additional 75,000 shares if BetterChem has generated at least $100,000 in gross revenues beginning on the one year anniversary of the closing up to the two year anniversary of the closing. The additional stock issuance will be calculated on a pro rata basis (i.e. If BetterChem only generates $50,000 in gross revenues in the second year then Dr. Scialdone will be entitled to only 37,500 shares). 0.06 0.06 0.08 0.08 0.06 0.08 0.06 0.08 0.08 0.06 0.06 0.08 0.08 0.10 0.10 0.80 0.08 0.06 250000 67500 1 1 0.10 0.37 0.54 60000 P3Y 0 22133 125000 1797437 122555 176015 29795 16178 87483 16300 1348 240 1504 4000 46337 1645 22893 18325 24538 108374 0 59273 0 0 112322 14667 55000 1833 1833 26514 24412 230000 10612 20000 250000 11042 11825 15115 216001 15115 216001 500000 50000 105000 2000000 800000 2000000 203410 800000 191334 46667 46667 25000 25000 25000 23000 50000 25000 25000 25000 10000 25000 10000 10000 10000 13410 21000 18900 25800 22460 33500 24000 30000 22000 22500 20000 240160 10000 10000 10000 11728 15000 16650 17500 20000 26640 29970 20000 32190 28800 23930 16500 1640 23111 24750 18450 18000 13368 14181 15488 17666 13262 10000 14680 11601 14680 17400 24420 541604 33166 28871 4295 11225 11225 80000 123310 203410 224500 75538 50962 25000 25000 25000 23000 50000 25000 25000 25000 10000 25000 10000 10000 10000 13410 230905 21000 18900 25800 22460 33500 24000 30000 22000 22500 20000 240160 10000 10000 10000 11728 15000 16650 17500 20000 26640 29970 20000 32190 28800 23930 16500 12865 23111 24750 18450 18000 13368 14181 15488 17666 13262 10000 14680 11601 14680 17400 24420 552830 30000 0.342 0.194 0.138 0.056 0.041 0.015 0.127 0.056 0.056 0.053 0.053 0.053 0.043 0.026 0.019 0.015 0.012 0.012 0.011 0.011 0.007 0.006 0.005 0.002 0.002 0.002 0.0148 0.0148 0.0115 0.0116 0.0116 0.0111 0.0115 0.0115 0.0111 0.0111 0.0111 0.0111 0.0096 0.0072 0.0060 0.0056 0.0056 0.0055 0.0041 0.0036 0.0024 0.0024 0.0024 0.0024 0.0138 0.0115 0.0115 0.0116 0.0115 0.0116 0.0111 42370 22481 22989 24619 41098 30864 441057 160000 4456404 3265987 220949 263141 181818 445196 606061 1548822 393701 446428 446428 469925 188679 469925 232558 390625 518135 900000 1818182 1636364 2333786 2031660 4649549 4195804 5741627 9090909 9297521 10101010 50896412 675676 675676 865801 1011000 1298701 1500000 1515152 1731602 2400000 2700000 1809136 2900000 3000000 3323611 2727273 2316013 4127000 4500000 4500000 5000000 5570000 5860000 6400000 7300000 961000 865801 1271000 1000052 1271000 1500000 2200000 82775494 2016-12-01 2015-02-28 2015-03-31 2016-02-18 2016-02-18 2016-02-27 2015-03-17 2016-05-01 2016-05-01 2016-05-12 2016-05-12 2014-11-30 2016-08-11 2016-08-11 1.00 3.00 0.498 0.498 0.498 0.498 1.00 0.498 0.498 0.50 0.50 0.50 1.00 58 0.01 1000 1667 57667 1415 920 985 6667 4167 1000 32333 27778 179528 695963 92000 4245 8000 10000 4417 4730 16000 6046 86401 168000 108641 2830 5333 3497 3745 13333 5542 79200 50000 182000 400000 12500 1808000 17200 1100 11225 10 The conversion price of these 6% Notes is the average of the fifteen (15) lowest daily VWAP's occurring during the twenty (20) consecutive trading days immediately preceding the date each Holder elects convert all of their 6% Note minus a discount of 40%. The conversion price for the Tracey Note was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). The conversion price for the notes was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). The conversion price for the Kaiser Note is the market closing price of the market day immediately preceding the date of conversion minus twenty percent (20%). The conversion price for the Tracey Note II was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). The conversion price for the Cook Note was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). The conversion price for the Cook Note II was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). The conversion price for the Tracey Note III was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). The Note bears interest at the rate of 10% per annum and is convertible into common stock of the Company at a conversion price per share of 70% of the average of the three (3) lowest Closing Sale Prices in the ten (10) Trading Days immediately preceding the applicable Conversion (subject to adjustment in the event of stock splits, stock dividends, and similar transactions, and in the event of subsequent sales of common stock at a lower purchase price (subject to certain exceptions))(the "Conversion Price"). In no event will the Conversion Price be less than $0.50 per share. Repayment of principal on the Note, together with accrued interest thereon, is due in twelve monthly installments, commencing six months from issuance. The Company may make such payments in cash (in which event the Company will pay a 25% premium) or, subject to certain conditions, in shares of common stock valued at the lower of the Conversion Price or 70% of the average of the three (3) lowest Closing Sale Prices in the ten (10) Trading Days immediately preceding the applicable payment date. 1143 1010 26861 8388 9945 1351 10000 10000 148600 25000 655816 332666 800000 5000 148600 1042 54456 46087 25522 107909 12067 183189 94184 109000 44558 108641 458782 0.06 0.08 23443 288763 0.25 0.70 1.50 30000 560000 2000000 800000 541000 105000 1487256 154000 3462 369324 315140 582254 498254 625461 84000 970956 830921 643912 63699 1028814 655816 332666 54984 15000 10612 20000 40000 11042 11825 15115 216001 40000 12828 50000 584 407 435 1098 255 3645 913 15208 50000 20000 5000 4947 2015-11-30 7.25 4.72 7.25 1.00 0.024 0.024 0.024 0.024 0.024 0.024 0.024 29528844 29430022 4407200 1184727 200000 325000 440625 20000000 P2Y 102000 Additionally, Dr. Scialdone is entitled to receive severance equal to six (6) months base salary if terminated without cause by the Company. 2432832 800 2209 800 2209 -262000 -418000 -262000 -418000 -0.340 -0.340 -0.060 -0.060 -0.400 -0.400 0.387 0.002 0.028 0.010 0.001 0.372 29000 29000 262000 680000 291000 709000 -291000 -709000 233000 418000 680000 The net operating loss carry forwards, if not utilized, will begin to expire in 2033 for federal purposes and 2031 for state purposes. 291000 709000 1184726 1150000 1184726 1000000 200000 20000 775000 775000 60000 60000 60000 995000 20000 2145000 0.114 2.92 0.021 1.66 0.83 0.83 0.70 0.73 1.91 P1Y7M6D P8Y8M12D P10Y P7M6D P9Y 7217234 4648294 694008 0.04 0.023 0.0008 3.51 P8M12D Series A Shares are entitled to vote at a 15-1 ratio to Common Stock. A one-time pro rata adjustment of up to ten-for-one (10-1) based upon the Company generating aggregate gross revenues over the two years of at least $8,000,000 (e.g. If the Company generates only $4,000,000 in aggregate gross revenues over the two year period then the convertible ratio will adjust to 5-1). In no event will the issuance convert into more than 5,000,000 shares of common stock of the Company. The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant. The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant. The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant. The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant. 1000000 166000 16600 542500 2000000 520000 100000 190000 100000 175000 175000 175000 25000 225000 1660000 681375 41500 4150 135625 1006343 415000 22312 3000 212500 200000 250000 50000 5000 193750 300000 24900 24900 24900 9150 9150 195200 36769 36000 3 100000 50000 0.021 2 150000 <div>Bi-monthly sales-based compensation of $1.00 USD per unit of wholesale sales of Mr. Braune&#8217;s new vaporizer pen product line and $3.00 USD per unit on retail sales.</div> 5000000 5000000 5000000 The Employment Agreement continues until terminated by either party upon 30 days' prior written notice. P1Y Series B Preferred Stock on a one-for-one (1:1) basis into shares of common stock Each share of Series B shall be entitled to five (5) votes for every one (1) vote entitled to each share of Common Stock. 300000 90000 1) $50,000 from Hive Ceramics, LLC in new capital to the Company and 2) an amended and restated note for Hive Ceramics LLC in the amount of $250,000 for capital previously contributed which is soon to be due and payable. Common stock at a purchase price equal to 90% of the average of the closing prices of the common stock for the three (3) trading days immediately preceding the date that is 6 months from the date of the agreement. 30000 30000 130000 130000 30000 30000 Stock-based compensation was $50,558 and $0 for the years ended September 30, 2015 and 2014, respectively. Stock-based compensation was $156,086 and $0 for the years ended September 30, 2015 and 2014, respectively. Stock-based compensation was $799,699 and $450,501 for the years ended September 30, 2015 and 2014, respectively. 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Document and Entity Information - USD ($)
12 Months Ended
Sep. 30, 2015
May. 20, 2016
Document and Entity Information [Abstract]    
Entity Registrant Name Vape Holdings, Inc.  
Entity Central Index Key 0001455819  
Amendment Flag true  
Amendment Description

This Amendment No. 1 to Form 10-K (“Amendment”) amends the Annual Report on Form 10-K for the fiscal year ended September 30, 2015 (the “2015 Form 10-K”) originally filed on January 13, 2016 (the “Original Filing”) by Vape Holdings, Inc. (“Vape,” the “Company,” “we,” or “us”). We are filing this Amendment to correctly account for the following non-cash transactions:

 

In August 2015 the Company entered into convertible notes without conversion floors resulting in an unlimited potential of shares to be issued. The notes were not convertible until six months from the issuance date, and accordingly, we adjusted the consolidated financial statements to defer recognition of the embedded conversion feature until the instruments are convertible.

 

On August 13, 2015 and August 26, 2015, the fixed conversion floors of the Redwood and Typenex notes, respectively, were removed creating a potentially unlimited number of shares to be issued on the date of the amendment. Accordingly, we amended this Form 10-K/A to account for the embedded conversion features as derivative financial instruments at fair value. This increased the loss on debt extinguishments and interest expense previously recorded, as well as the derivative liabilities at fair value.

 

Except as described above, no other changes have been made to the Original Filing. The Original Filing continues to speak as of the date of the Original Filing, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Original Filing.

 
Current Fiscal Year End Date --09-30  
Document Type 10-K  
Document Period End Date Sep. 30, 2015  
Document Fiscal Period Focus FY  
Document Fiscal Year Focus 2015  
Entity Well-known Seasoned Issuer No  
Entity Voluntary Filers No  
Entity Current Reporting Status Yes  
Entity Filer Category Smaller Reporting Company  
Entity Public Float   $ 1,467,493
Entity Common Stock, Shares Outstanding   366,873,168
XML 18 R2.htm IDEA: XBRL DOCUMENT v3.4.0.3
Consolidated Balance Sheets - USD ($)
Sep. 30, 2015
Sep. 30, 2014
Current assets:    
Cash $ 273,904 $ 48,370
Accounts receivable 72,401 16,771
Inventory 194,937 227,530
Prepaid inventory 64,079 246,491
Other current assets 40,679 $ 44,100
Deferred financing costs 107,908
Total current assets 753,908 $ 583,262
Fixed assets, net of accumulated depreciation 118,327 106,377
Trademarks $ 123,150 119,575
Pending patents $ 14,890
Deferred financing costs, long-term $ 12,067
TOTAL ASSETS 1,007,452 $ 824,104
Current liabilities:    
Accounts payable 115,938 216,388
Accrued expenses 207,609 $ 169,513
Customer deposits 1,275
Convertible notes payable, net of unamortized discount of $153,096 and $32,333, respectively $ 522,396 $ 187,667
Related party convertible notes payable, net of unamortized discount of $4,168 at September 30, 2014 $ 45,832
Derivative liabilities $ 1,672,726
Warrant liability 31,401
Total current liabilities 2,551,345 $ 619,400
Long -term liabilities:    
Convertible notes payable, long-term, net of unamortized discount of $665,607 and $19,800, respectively $ 300,156 178,200
Related party convertible notes payable, long-term, net of unamortized discount of $125,480 at September 30, 2014 199,115
Related party notes payable, long-term $ 265,000 $ 341,290
Other liabilities, long-term $ 12,235
Warrant liability $ 2,464,232
Total liabilities $ 3,128,736 $ 3,802,237
Commitments and contingencies
Stockholders' deficit:    
Preferred stock, $0.00001 par value - 100,000,000 authorized; 500,000 outstanding at September 30, 2015 and September 30, 2014
Common stock, $0.00001 par value - authorized 1,000,000,000 shares; 19,896,521 issued at September 30, 2015, 19,205,896 outstanding at September 30, 2015, and 10,032,436 issued and outstanding at September 30, 2014 $ 192 $ 100
Additional paid-in capital 26,412,800 $ 22,402,662
Treasury stock, 690,625 shares at September 30, 2015 (367,531)
Accumulated deficit (28,166,745) $ (25,380,895)
Total stockholders' deficit (2,121,284) (2,978,133)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,007,452 $ 824,104
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Consolidated Balance Sheets (Parenthetical) - USD ($)
Sep. 30, 2015
Sep. 30, 2014
Balance Sheets [Abstract]    
Unamortized discount convertible notes payable, current $ 153,096 $ 32,333
Unamortized discount related party convertible notes payable, current 4,168
Unamortized discount convertible notes payable, non current $ 665,607 19,800
Unamortized discount related party convertible notes payable, non current $ 125,480
Preferred stock, par value $ 0.00001 $ 0.00001
Preferred stock, shares authorized 100,000,000 100,000,000
Preferred stock, shares outstanding 500,000 500,000
Common stock, par value $ 0.00001 $ 0.00001
Common stock, shares authorized 1,000,000,000 1,000,000,000
Common stock, shares issued 19,896,521 10,032,436
Common stock, shares outstanding 19,205,896 10,032,436
Treasury stock, shares 690,625  
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Consolidated Statements of Operations - USD ($)
12 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Income Statement [Abstract]    
Revenue $ 1,277,657 $ 841,724
Cost of revenue [A] [1] 1,013,641 458,387
Gross profit 264,016 383,337
Operating expenses:    
Sales and marketing [B] [2] 715,292 219,891
Research and development 212,424 45,757
General and administrative [C] [3] 2,126,538 1,315,710
Total operating expenses 30,542,543 1,581,358
Operating loss (2,790,238) (1,198,021)
Other income (expense):    
Interest expense (1,745,408) (241,065)
Interest expense - related party (148,562) (219,714)
Change in derivative liabilities 2,315,916 $ (23,404,058)
Gain on settlement 625,461
Loss on debt extinguishments, net (971,560)
Other (69,250)
Total other income (expense), net 6,597 $ (23,864,837)
Loss before provision for income taxes (2,783,641) (25,062,858)
Provision for income taxes 2,209 800
Net loss $ (2,785,850) $ (25,063,658)
Net loss available to common shareholders:    
Loss per common share - basic $ (0.24) $ (3.20)
Loss per common share - diluted $ (0.24) $ (3.20)
Weighted average shares - basic 11,563,247 7,822,212
Weighted average shares - diluted 11,563,247 7,822,212
[1] Stock-based compensation was $50,558 and $0 for the years ended September 30, 2015 and 2014, respectively.
[2] Stock-based compensation was $156,086 and $0 for the years ended September 30, 2015 and 2014, respectively.
[3] Stock-based compensation was $799,699 and $450,501 for the years ended September 30, 2015 and 2014, respectively.
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Consolidated Statements of Operations (Parenthetical) - USD ($)
12 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Stock-based compensation $ 969,577 $ 450,501
Cost of Revenue    
Stock-based compensation 50,558 0
Sales and Marketing    
Stock-based compensation 156,086 0
General and Administrative    
Stock-based compensation $ 799,699 $ 450,501
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Consolidated Statements of Stockholders' Deficit - USD ($)
Total
Series A Preferred stock
Common Stock
Additional Paid-in Capital
Accumulated Deficit
Treasury Stock
Balance at Sep. 30, 2013 $ (317,191) $ 46 $ (317,237)
Balance, Shares at Sep. 30, 2013   4,684,537      
Shares retained by PeopleString shareholders upon merger 16 $ 16
Shares retained by PeopleString shareholders upon merger, Shares   1,565,463      
Conversion of related party notes payables and accrued interest 341,545 $ 7 $ 341,538
Conversion of related party notes payables and accrued interest, Shares   571,630      
Conversion of notes payable and accrued interest 55,586 55,586
Conversion of notes payable and accrued interest, Shares   28,836      
Fair value of officer services 15,000 15,000
Common stock issued for services 133,200 133,200
Common stock issued for services, Shares   50,000      
Discount on convertible note payable at 10% 4,424 4,424
Discount on convertible notes payable at 8% 158,402 158,402
Discount on convertible note payable at 6% 108,000 108,000
Discount on related party convertible note payable at 8% 193,217 193,217
Discount on related party convertible note payable at 6% 3,000 3,000
Common stock issued in connection with warrant settlement 98,822 98,822
Common stock issued in connection with warrant settlement, Shares     3,542      
Cashless exercise of warrants 20,841,003 $ 31 20,840,972
Cashless exercise of warrants, Shares     3,128,428      
Stock-based compensation - employee options 326,812 326,812
Stock-based compensation - non-employee options $ 123,689 $ 123,689
Issuance of preferred stock for HIVE asset acquisition
Issuance of preferred stock for HIVE asset acquisition, shares   500,000        
Net income $ (25,063,658)       $ (25,063,658)  
Balance at Sep. 30, 2014 (2,978,133) $ 100 $ 22,402,662 $ (25,380,895)  
Balance, Shares at Sep. 30, 2014   500,000 10,032,436      
Conversion of related party notes payables and accrued interest 341,747 $ 6 341,741  
Conversion of related party notes payables and accrued interest, Shares   625,478      
Conversion of notes payable and accrued interest 1,168,279 $ 80 1,168,199  
Conversion of notes payable and accrued interest, Shares   8,230,155      
Conversion of unpaid wages 96,487   $ 2 96,485    
Conversion of unpaid wages, Shares     158,175      
Common stock issued for services 36,769   $ 1 36,768    
Common stock issued for services, Shares     60,277      
Common stock issued for bonuses 288,202 $ 6 288,196  
Common stock issued for bonuses, Shares   440,000      
Stock issued for settlement of accounts payable 100,000   $ 1 99,999    
Stock issued for settlement of accounts payable, Shares     100,000      
Discount on convertible note payable at 10% 252,079 252,079  
Discount on related party convertible note payable at 10% 525,000     525,000    
Discount on related party convertible note payable at 6% 5,410     5,410    
Extinguishment of related party accrued interest 1,625     1,625    
Modification of convertible notes payable 444,008     444,008    
Stock-based compensation - employee options 606,362 606,362  
Stock-based compensation - non-employee options 75,012 75,012  
Issuance of common stock for BetterChem Acquisition 67,500 $ 3 67,497
Issuance of common stock for BetterChem Acquisition,Shares   250,000      
Unwinding of BetterChem Acquisition 1,750   $ (3) 1,753
Unwinding of BetterChem Acquisition, Shares     (250,000)      
Surrender of common stock (367,531)   $ (4) $ 4 $ (367,531)
Surrender of common stock, Shares     (440,625)      
Net income (2,785,850) $ (2,785,850)  
Balance at Sep. 30, 2015 $ (2,121,284) $ 192 $ 26,412,800 $ (28,166,745) $ (367,531)
Balance, Shares at Sep. 30, 2015   500,000 19,205,896      
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Consolidated Statements of Stockholders' Deficit (Parenthetical)
12 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Statement of Stockholders' Equity [Abstract]    
Discount on convertible note payable percentage 10.00% 10.00%
Discount on convertible note payable percentage one   8.00%
Discount on convertible note payable percentage two   6.00%
Discount on related party convertible note payable 10.00% 8.00%
Discount on related arty convertible note payable one 6.00% 6.00%
XML 24 R8.htm IDEA: XBRL DOCUMENT v3.4.0.3
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Cash flows from operating activities:    
Net loss $ (2,785,850) $ (25,063,658)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation 71,305 16,178
Accretion of debt discounts and deferred financing costs 1,735,119 366,431
Fair value in excess of stock issued for conversion of notes payable and accrued interest 28,393 1,323
Fair value in excess of stock issued for conversion of related party notes payable and accrued interest 9,630 44,239
Gain on change in derivative liabilities (2,315,916) $ 23,404,058
Gain on settlement (625,461)
Loss on debt extinguishments, net $ 971,560
Fair value of officer services $ 15,000
Common stock issued for services $ 36,769 133,200
Stock-based compensation 969,577 450,501
Changes in operating assets and liabilities:    
Accounts receivable (55,630) (16,771)
Inventory 215,005 (474,021)
Other assets 18,311 (2,433)
Accounts payable 194,549 156,042
Accrued expenses 111,694 (10,092)
Net cash used in operating activities (1,420,945) (980,003)
Cash flows from investing activities:    
Capital expenditures (83,255) (122,555)
Purchase of trademarks (3,575) $ (134,465)
Net proceeds from settlement 62,930
Other 69,250
Net cash provided by (used in) investing activities 45,350 $ (257,020)
Cash flows from financing activities:    
Net proceeds from issuance of convertible note payable $ 1,763,957 438,000
Net proceeds from issuances of related party convertible notes payable 505,535
Net proceeds from issuances of related party notes payable $ 341,290
Repayments on convertible notes payable $ (40,000)
Repayments on related party convertible notes payable (50,000)
Repayments on related party notes payable (72,828)
Net cash provided by financing activities 1,601,129 $ 1,284,825
Net change in cash 225,534 47,802
Cash, beginning of period 48,370 568
Cash, end of period 273,904 $ 48,370
Supplemental disclosures of cash flow information Cash paid during the period for:    
Interest 18,788
Taxes 2,209
Non-cash investing and financing activities:    
Conversion of notes payable and accrued interest 1,168,279 $ 55,586
Conversion of related party notes payable and accrued interest $ 341,747 341,545
Issuance of convertible note payable for services 41,667
Issuance of convertible note payable for former officer services 50,000
Issuance of common stock in connection with warrant settlement $ 98,822
Beneficial conversion feature recorded with convertible notes payable $ 252,079
Beneficial conversion feature recorded with related party convertible note payable 530,410
Other $ 67,500
XML 25 R9.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Business, Recent Acquisitions and Summary of Significant Accounting Policies
12 Months Ended
Sep. 30, 2015
Description of Business, Recent Acquisitions and Summary of Significant Accounting Policies [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

 

BUSINESS 

 

Vape Holdings, Inc. (“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 designs, markets and distributes ceramic vaporization products under a unique brand. The Company has introduced a nonporous, non-corrosive, chemically inert medical-grade 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.

 

HIVE CERAMICS

 

HIVE Ceramics (“HIVE”) is the premier brand under the VAPE umbrella. HIVE manufactures and distributes a proprietarily blended ceramic vaporization element for torched, electronic and portable vaporizers with countless design and product crossover capabilities in existing and emerging markets. HIVE is dedicated to bringing the healthiest and cleanest vaporization experience possible to the market. The HIVE product line currently consists of over 15 distinct ceramic elements, including the 2 piece domeless, domeless direct inject, and HIVE’s signature domeless elements covering 10mm, 14mm and 18mm applications as well as regular elements, the HIVE Flower Cup, the HIVE Carb Cap, HIVE Stinger Dabber, the 14mm HIVE x Quave - Club Banger, and the HIVE x D-Nail 16mm and 20mm attachments.

 

The Company has recently launched ‘HIVE Glass.’ HIVE Glass is VAPE’s newest line of products under the HIVE brand name. The HIVE GLASS line is precision made using state of the art manufacturing processes and techniques, and exclusively uses German Schott glass caliber and fittings through all production phases. The aim with HIVE Glass is to create an affordable, high quality glass product that is both aesthetically pleasing and a highly functional vaporization product. VAPE’s existing customer base and distribution network will be the catalyst for expansion of this new HIVE product line. Under HIVE Glass, the Company also buys and sells high-end collector pieces. Subsequent to year end, the Company curtailed the product line in order to focus on HIVE Ceramics.

 

VAPE has also recently launched ‘HIVE Supply.’ HIVE Supply is a packaging and sourcing division of VAPE designed to serve as a competitively priced, comprehensive “one-stop shop” for all medical and recreational marijuana packaging needs. As with all of VAPE’s products, HIVE Supply will operate in full compliance with all federal laws and the laws of each individual state in which it does business. HIVE Supply will focus on providing much-needed support to cannabis businesses in regards to sourcing consumer products, brand management and marketing services. HIVE Supply is currently operated out of three (3) locations: HIVE Supply in Southern California, HIVE Supply Washington in Spokane and HIVE Supply Oregon in Portland. Under HIVE Supply, the Company also buys and sells high-end manufacturing machines. Subsequent to year end, the Company curtailed the product line in order to focus on HIVE Ceramics.

 

In connection with its launch of HIVE Supply and HIVE Glass, the Company opened ‘THE HIVE’ retail store and gallery in Los Angeles, an end-user experience to showcase the complete line of HIVE Ceramics and HIVE Glass products, while introducing HIVE Supply and all the new products being tested and developed through each vertical. Subsequent to year end, the Company curtailed its retail store in order to reduce overhead costs and focus on HIVE Ceramics.

  

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.

 

REVIVAL PRODUCTS

 

On December 28, 2015, the Company created a new wholly-owned subsidiary, Revival Products, LLC (“Revival”), which is in the business of portable vaporization devices. Revival will disposable cartridge complement HIVE Ceramic’s product lines utilizing its sales and distribution channels and via its own designated e-commerce site at www.revivalvapes.com.

 

BETTERCHEM

 

On July 1, 2015, the Company entered into a Share Exchange Agreement with BetterChem Consulting, Inc. (“BetterChem”), a Pennsylvania corporation, and its sole shareholder and the Company’s current Chief Science Officer Dr. Mark Scialdone (“Dr. Scialdone”), whereby the Company acquired a controlling 80% interest in BetterChem from Dr. Scialdone in exchange for up to 400,000 shares of the Company’s restricted common stock. In consideration for the issuance of the shares to Dr. Scialdone, the Company acquired 80 shares of the common stock of BetterChem which represents 80% of the issued and outstanding shares of BetterChem. Dr. Scialdone retained a 20% interest in BetterChem. The Share Exchange Agreement transaction closed concurrently with its execution on July 1, 2015 and was approved by Unanimous Written Consent of the Board of Directors (the “Board”) of the Company on the same date. At closing, the Company issued 250,000 shares of its common stock valued at $67,500 to BetterChem. The Company acquired an 80% controlling interest of the business in order to expand its science consulting segment and research and development. BetterChem had no assets and liabilities upon closing.

 

An additional up to 150,000 shares of common stock to be issued to Dr. Scialdone will be subject to the following terms:

 

  1. Due to the uncertain nature of the valuation of BetterChem, a privately held consulting business, the parties have agreed that Dr. Scialdone shall have a nonassignable contingent contractual right to receive additional shares contingent on the future gross revenues of BetterChem as follows:

 

  a. On the one year anniversary of the closing, Dr. Scialdone shall be entitled to an additional 75,000 shares if BetterChem has generated at least $100,000 in gross revenues beginning on the date of closing and up to the one year anniversary of the closing. The additional stock issuance will be calculated on a pro rata basis (i.e. If BetterChem only generates $50,000 in gross revenues in the first year then Dr. Scialdone will be entitled to only 37,500 shares).

  

  b. On the two year anniversary of the closing, Dr. Scialdone shall be entitled to an additional 75,000 shares if BetterChem has generated at least $100,000 in gross revenues beginning on the one year anniversary of the closing up to the two year anniversary of the closing. The additional stock issuance will be calculated on a pro rata basis (i.e. If BetterChem only generates $50,000 in gross revenues in the second year then Dr. Scialdone will be entitled to only 37,500 shares).

 

  2. In the event of a change in control of BetterChem or a sale of all or substantially all of the assets of BetterChem during the two year period, the additional 150,000 shares shall automatically vest and be payable in full to Dr. Scialdone and any salary compensation due Dr. Scialdone under the 2 year term of his employment agreement with the Company dated May 1, 2015, or extensions of that Employment Agreement which the parties may thereafter execute, shall be accelerated and shall be due and payable in full within 30 days of the event of change in control of BetterChem.

 

In connection with the Share Exchange Agreement, on July 1, 2015, Dr. Scialdone and the Company entered into an Intellectual Property Rights Transfer Agreement (the “I.P. Agreement”) whereby Dr. Scialdone agreed to transfer and assign to Company the entire right, title and interest in and to any and all intellectual property in which Dr. Scialdone has a right to convey an interest, including intellectual property conceived, developed, reduced to practice, assigned or acquired by Dr. Scialdone prior to the date of the I.P. Agreement as well as intellectual property held, conceived, developed, reduced to practice, assigned or acquired by BetterChem. There were no assets or liabilities assumed by the Company. On January 12, 2016, the Company unwound the transaction and curtailed the subsidiary’s operations in order to reduce overhead costs and focus on HIVE Ceramics and reflected such as of September 30, 2015 in the consolidated financial statements. During the year ended September 30, 2015, the 250,000 shares issued to BetterChem valued at $67,500 was recorded as an impairment of acquisition on the statement of operations as a result of the settlement to receive the shares back as part of the unwind. Also, the fair value of 250,000 shares as of the unwind date of January 12, 2016 of $1,750 was recorded as an impairment of acquisition during the year ended September 30, 2015.

 

VAPE is organized and directed to operate strictly in accordance with all applicable state and federal laws. Subsequent to year end, the Company abandoned such plans in order to reduce overhead costs and focus on HIVE Ceramics. 

 

Subsequent to the Company’s fiscal year ended September 30, 2015, the Company began taking steps to curtail its Offset, HIVE Glass and HIVE Supply business lines to focus more on consumer vaporization products including the launch of “Revival” discussed above. The Company also curtailed its ‘THE HIVE’ retail store in order to reduce overhead costs and focus on HIVE Ceramics. Moreover, the Company curtailed its exploration into providing real estate, management and consulting solutions to the legal cannabis industry in states where such cannabis cultivation and extraction is legal. The Company was never able to execute on any of these plans and ultimately determined that the Company’s capital reserves for such projects as well as the risks inherent in each project due to the current regulatory environment surrounding the cannabis industry made this line of business too difficult to pursue.

 

BASIS OF PRESENTATION

 

The accompanying unaudited interim consolidated 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 consolidated financial statements have been included. Such adjustments consist of normal recurring adjustments. The current results are not an indication of the full year.

 

CONSOLIDATION

 

The consolidated financial statements include the assets, liabilities, and operating results of the Company and its wholly-owned subsidiaries, HIVE Ceramics, Offset, and Nouveau after elimination of all material inter-company accounts and transactions. No segment information is presented as the assets, liabilities, and results of HIVE represent over 90% of the Company’s operations.

 

USE OF ESTIMATES

 

The preparation of consolidated 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 consolidated 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. 

  

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:

 

  Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
  Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.
  Level 3 - Unobservable inputs which are supported by little or no market activity.

  

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Derivative instruments include the convertible notes payable derivative liability and warrant liability (Level 2). Derivative instruments are valued using standard calculations/models that are primarily based on observable inputs, including volatilities and interest rates. Therefore, derivative instruments are included in Level 2.

 

Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2015 and 2014. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, prepaid expenses, accounts payable, accrued liabilities, and notes payable. Fair values for these items were assumed to approximate carrying values because of their short-term nature or they are payable on demand.

 

The following table presents the Company’s fair value hierarchy for assets measured at fair value on a recurring basis at September 30, 2015:

 

    Level 1     Level 2     Level 3     Total  
Assets                        
Cash  and cash equivalents   $ 273,904     $ -     $ -     $ 273,904  
Total assets measured at fair value   $ 273,904     $ -     $ -     $ 273,904  
                                 
Liabilities                                
Derivative instruments   $ -     $ 1,704,127     $ -     $ 1,704,127  
Total liabilities measured at fair value   $ -     $ 1,704,127     $ -     $ 1,704,127  

 

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at September 30, 2014:

   

    Level 1     Level 2     Level 3     Total  
Assets                        
Cash and cash equivalents   $ 48,370     $ -     $ -     $ 48,370  
Total assets measured at fair value   $ 48,370     $ -     $ -     $ 48,370  
                                 
Liabilities                                
Derivative instruments   $ -     $ 2,464,232     $ -     $ 2,464,232  
Total liabilities measured at fair value   $ -     $ 2,464,232     $ -     $ 2,464,232  

  

CONCENTRATION

 

Credit Risk

 

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 write-offs of potentially uncollectible accounts. 

 

Customers

 

One (1) customer accounted for 37% of our accounts receivable as of September 30, 2015. The loss of this customer would have a significant impact on the Company’s financial results.

 

Suppliers

 

One (1) supplier accounted for 54% of our purchases during the year ended September 30, 2015. We purchased $60,000 in high-end glass from Kyle Tracey for HIVE Glass, which accounted for 10% of purchases during the year ended September 30, 2015. The loss of these suppliers would have a significant impact on the Company’s financial results.

 

REVENUE RECOGNITION

 

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. Revenue is recorded when sales orders are shipped.

 

INVENTORY

 

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.

 

We purchase product sourced from China which we are required to pay 50% upon placing the order. Amounts paid for products, which have not been received, are recorded as prepaid inventory. There are no amounts paid which are in dispute or considered impaired.

 

FIXED ASSETS

 

Fixed assets are recorded at cost and depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The estimated life of tooling related to our ceramic products is three (3) years. The estimated life of our leasehold improvements is the lesser of the term of the related lease and useful life.

  

IMPAIRMENT OF LONG-LIVED AND PURCHASED INTANGIBLE ASSETS

 

The Company has adopted Accounting Standards Codification (“ASC”) 350 “Intangibles - Goodwill and Other.” The Statement requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undercounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 350 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

 

Long-lived assets, such as fixed assets and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to undiscounted future net cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair market value. Estimates of expected future cash flows represent management's best estimate based on currently available information and reasonable and supportable assumptions. Any impairment recognized is permanent and may not be restored. During the year ended September 30, 2015 and 2014, the Company recorded $22,133 and $0 of impairment of its pending patents as its expected cash flows did not exceed its carrying amounts and none towards its trademarks as its expected future cash flows are in excess of their carrying amounts.

 

RESEARCH AND DEVELOPMENT

 

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 fixed assets 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 year ended September 30, 2015 and 2014, research and development costs were $212,424 and $45,757, respectively.

 

CONVERTIBLE DEBT

 

Convertible debt is accounted for under the guidelines established by 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. Many of the conversion features embedded in the Company's 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.  In these cases, we record the embedded conversion feature as a derivate instrument, at fair value. The embedded conversion features are recorded as discounts when the notes become convertible. The excess of fair value of the embedded conversion feature over the carrying value of the debt is recorded as an immediate charge to operations.  Each reporting period, the Company will compute the estimated fair value of derivatives and record changes to operations. The discounts relating to the initial recording of the derivatives or beneficial conversion features are accreted over the term of the debt using the effective interest method.  

 

The Company has lost the ability to increase the share reserves due to the significantly increased outstanding held by convertible noteholders and a shareholder vote is required to increase the authorized amount of shares the Company may issue. Further, the combination of limited capital and depleted share reserves have severely damaged the Company’s ability to find continued finance, properly run the Company, and proceed with business to include any mergers or acquisitions or any transactions that would require available stock.

  

DERIVATIVE FINANCIAL INSTRUMENTS

 

Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

 

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including senior convertible notes payable and freestanding stock purchase warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our consolidated financial statements.

 

The Company estimates the fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with objectively measuring fair values. In selecting the appropriate technique, consideration is given to, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, the Company generally uses the Black-Scholes option valuation technique because it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company's operating results will reflect the volatility in these estimate and assumption changes.

 

EARNINGS PER COMMON SHARE

 

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income available to common shareholders by the combination of dilutive common share equivalents, comprised of shares issuable under the Company’s share-based compensation plans and the weighted-average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated, based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an award, if any, the amount of compensation cost, if any, for future service that the Company has not yet recognized, and the estimated tax benefits that would be recorded in paid-in capital, if any, when an award is settled are assumed to be used to repurchase shares in the current period.

 

The following is a summary of outstanding securities that would have been included in the calculation of diluted 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 for the year ended September 30, 2015 and 2014:

 

    For the Year Ended     For the Year Ended  
    September 30,     September 30,  
    2015     2014  
Series A Preferred stock     500,000       500,000  
Common stock options     -       303,889  
Common stock warrants     1,184,727       1,184,727  
Convertible notes     79,699,946       843,213  
      81,384,673       2,831,829  

 

The Company would have excluded 125,000 options from the computation for the year ended September 30, 2014 as their exercise prices were in excess of the average closing market price of the Company’s common stock, causing their effects to be anti-dilutive using the treasury stock method. 

 

STOCK-BASED COMPENSATION

 

ASC 718, “Share-Based Payment” requires that compensation cost related to share-based payment transactions be recognized in the consolidated financial statements. Share-based payment transactions within the scope of ASC 718 include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans.

 

The Company adopted ASC 718, which requires disclosure of the fair value and other characteristics of stock options and more prominent disclosure about the effects of an entity’s accounting policy decisions with respect to stock-based compensation on reported net loss. The Company has reflected the expense of such stock based compensation based on the fair value at the grant date for awards consistent with the provisions of ASC 718.

 

In connection with the adoption of ASC 718, the fair value of our share-based compensation has been determined utilizing the Black-Scholes pricing model. The fair value of the options granted is amortized as compensation expense on a straight line basis over the requisite service period of the award, which is generally the vesting period. The fair value calculations involve significant judgments, assumptions, estimates and complexities that impact the amount of compensation expense to be recorded in current and future periods. Upon option exercise, the Company issues new shares of stock.

 

The following weighted average variables were used in the Black Scholes model for all option issuances valued during the year ended September 30, 2015 and 2014:

 

Year Ended September 30,   Stock Price at
Grant Date
    Dividend 
Yield
  Exercise
Price
    Risk Free
Interest Rate
    Volatility     Average
Life
 
2015   $ 0.73     -%   $ 0.73       2.2 %     380 %     10.0  
2014   $ 1.66     -%   $ 1.66       2.5 %     401 %     10.0  

 

The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of Emerging Issues Task Force (“EITF”) 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”, codified into ASC 505-50.  The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete.  In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

  

RECENT ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers”, which supersedes most of the current revenue recognition requirements. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for these goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. This guidance is effective for the Company in the first quarter of fiscal year 2018 and early application is not permitted. Entities must adopt the new guidance using one of two retrospective application methods. The Company is currently evaluating the standard but does not expect it to have a material impact on our financial position, results of operations or cash flows.

 

In August 2014, the FASB issued ASU 2014-15, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued.2 An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.

 

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.

 

RISKS AND UNCERTAINTIES

 

Although forward-looking statements in this Quarterly Report reflect our good faith judgment, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under the heading “Risk Factors” below, as well as those discussed elsewhere in this Quarterly Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

AMENDMENT 

 

We have amended this Form 10-K/A to correctly account for the following non-cash transactions:

 

In August 2015 the Company entered into convertible notes without conversion floors resulting in an unlimited potential of shares to be issued. The notes are not convertible until six months from the issuance date, and accordingly, we adjusted the consolidated financial statements to defer recognition of the embedded conversion feature until the instruments are convertible.

 

On August 13, 2015 and August 26, 2015, the convertible notes due to Redwood and Typenex, respectively, were amended which removed the fixed conversion floors per common share creating a potentially unlimited number of shares to be issued on the date of the amendment. Accordingly, we amended this Form 10-K/A to account for the embedded conversion features as derivative financial instruments at fair value. This increased the loss on debt extinguishments and interest expense previously recorded, as well as the derivative liabilities at fair value.

 

The following was the effect on the previously reported consolidated financial statements.

 

    As Previously Reported           As Restated  
    September 30, 2015     Change     September 30, 2015  
LIABILITIES AND STOCKHOLDERS' DEFICIT                  
Total current liabilities   $ 631,801     $ 1,919,544     $ 2,551,345  
Total liabilities   $ 1,392,465     $ 1,736,271     $ 3,128,736  
                         
Total stockholders' deficit   $ (385,013 )   $ (1,736,271 )   $ (2,121,284 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   $ 1,007,452     $ -     $ 1,007,452  
                         
Interest expense   $ (788,038 )   $ (957,370 )   $ (1,745,408 )
Change in derivative liabilities   $ 2,439,207     $ (123,291 )   $ 2,315,916  
Loss on debt extinguishment, net   $ (564,712 )   $ (406,848 )   $ (971,560 )
Other   $ -     $ (69,250 )   $ (69,250 )
Net loss   $ (1,230,147 )   $ (1,555,703 )   $ (2,785,850 )
                         
Net loss available to common shareholders:                        
Loss per common share - basic   $ (0.11 )           $ (0.24 )
Loss per common share - diluted   $ (0.11 )           $ (0.24 )
XML 26 R10.htm IDEA: XBRL DOCUMENT v3.4.0.3
Going Concern
12 Months Ended
Sep. 30, 2015
Going Concern [Abstract]  
GOING CONCERN

NOTE 2. GOING CONCERN

 

VAPE’s consolidated financial statements reflect a net loss of $2,785,850 during the year ended September 30, 2015. As of September 30, 2015, we had cash of $273,904 and working capital deficit of $1,797,437. VAPE has suffered an accumulated deficit of $28,166,745 and subsequent to the Company’s fiscal year ended September 30, 2015, the Company began taking steps to curtail its Offset, HIVE Glass and HIVE Supply business lines to focus more on consumer vaporization products including the launch of “Revival” discussed above. The Company also curtailed its ‘THE HIVE’ retail store in order to reduce overhead costs and focus on HIVE Ceramics. Moreover, the Company curtailed its exploration into providing real estate, management and consulting solutions to the legal cannabis industry in states where such cannabis cultivation and extraction is legal. The Company was never able to execute on any of these plans and ultimately determined that the Company’s capital reserves for such projects as well as the risks inherent in each project due to the current regulatory environment surrounding the cannabis industry made this line of business too difficult to pursue. All of which have resulted in losses and opportunity costs. In addition, the ongoing need to obtain financing to fund operations also raise substantial doubt about the ability of Vape to continue as a going concern. Management expects to obtain funding for the new operations for the foreseeable future; however, there are no assurances that the Company will obtain such funding. VAPE’s financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the inability to continue as a going concern. See Note 11 for subsequent events regarding financing activities.

XML 27 R11.htm IDEA: XBRL DOCUMENT v3.4.0.3
Fixed Assets
12 Months Ended
Sep. 30, 2015
Fixed Assets [Abstract]  
FIXED ASSETS

NOTE 3. FIXED ASSETS

 

The following is a summary of fixed assets as of September 30, 2015 and 2014:

 

    September 30,
2015
    September 30,
2014
 
Molds and Tooling   $ 176,015     $ 122,555  
Leasehold improvements     29,795       -  
Accumulated depreciation     (87,483 )     (16,178 )
    $ 118,327     $ 106,377  
XML 28 R12.htm IDEA: XBRL DOCUMENT v3.4.0.3
Accrued Expenses
12 Months Ended
Sep. 30, 2015
Accrued Expenses [Abstract]  
ACCRUED EXPENSES

NOTE 4. ACCRUED EXPENSES

 

The following is a summary of accrued expenses as of September 30, 2015 and 2014:

 

  September 30,
2015
  September 30,
2014
 
Accrued interest $46,337  $16,300 
Accrued interest - related party  24,538   18,325 
Accrued wages and taxes  112,322   108,374 
Other  24,412   26,514 
  $207,609  $169,513 

 

As of September 30, 2015 and 2014, the Company recorded accrued wages and taxes for Kyle Tracey of $55,000 and $59,273, Joe Andreae of $14,667 and $0, Allan Viernes of $1,833 and $0, and Benjamin Beaulieu of $1,833 and $0, respectively.

XML 29 R13.htm IDEA: XBRL DOCUMENT v3.4.0.3
Third Party Debt
12 Months Ended
Sep. 30, 2015
Third Party Debt [Abstract]  
THIRD PARTY DEBT

NOTE 5.   THIRD PARTY DEBT

 

CONVERTIBLE NOTES PAYABLE

  

Beginning on February 11, 2014, the Company issued 6% Convertible Notes (the “6% Notes”) pursuant to subscription agreements to ten (10) accredited investors (the “Holders”) with the aggregate principal amount of $230,000. The 6% Notes are not secured by any collateral or any assets pledged to the Holders. The maturity dates are from February 28, 2015 to March 31, 2015, and the annual rate of interest is six percent (6%). Subject to certain limitations, the Holders can, at their sole discretion, convert the outstanding and unpaid principal and interest of their notes into fully paid and nonassessable shares of the Company’s common stock. The conversion price of these 6% Notes is the average of the fifteen (15) lowest daily VWAP’s occurring during the twenty (20) consecutive trading days immediately preceding the date each Holder elects convert all of their 6% Note minus a discount of 40%. In no event will the conversion price be less than $1.00 per share or greater than $3.00 per share. The Company had a preexisting relationship with each of the Holders, and no general solicitation or advertising was used in connection with the issuance of the 6% Notes. We recorded a discount totaling $92,000 related to the beneficial conversion feature embedded in the notes upon issuance and amortized $32,333 and $57,667 of the discount to interest expense during the year ended September 30, 2015 and 2014, respectively.

 

On March 12, 2015, the Company offered to pay accrued interest and modify the terms of the six (6) Holders’ outstanding 6% Notes, decreasing the conversion floor from $1.00 to $0.50 in order to encourage the noteholders to convert their promissory notes. The Company recorded a loss on debt extinguishment of $23,443 as a result of the fair value in excess of the modified conversion floor. In March 2015, the Company paid all accrued interest on the 6% notes of $17,200. Five (5) of the six (6) holders converted in full a total of $80,000 of 6% Notes into 160,000 shares of common stock. The remaining note holder partially converted $20,000 of 6% Notes into 40,000 of common shares and extended the terms on the remaining $30,000 for six (6) months. As of September 30, 2015, there is $1,010 in accrued interest expense related to the one (1) remaining note and the Company recorded $1,010 in interest expense related to the 6% note during the year ended September 30, 2015. On December 14, 2015, the note holder converted $30,000 in principal and $1,351 of accrued interest into 13,063,013 shares of common stock. As a result of the subsequent conversion the principal balance and accrued interest as of September 30, 2015 were classified as long-term.

 

Securities Purchase Agreement

 

On December 3, 2014, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with an accredited investor (the “Investor”) pursuant to which the Company agreed to sell, and the Investor agreed to purchase, an unsecured convertible promissory note (the “Note”) in the principal amount of $560,000 less an original issue discount (“OID”) of $50,000 and transaction expenses of $10,000 for a total purchase price of $500,000. The Company also paid a finder’s fee in the amount of $25,000 in connection with this transaction, which was recorded as a discount to the note as it was paid from the proceeds. The closing under the Securities Purchase Agreement occurred on December 3, 2014. The Company received $475,000 net proceeds after transactions costs. We amortized $27,778 of the discount to interest expense during the year ended September 30, 2015. In addition, the Company recorded $45,940 in deferred financing costs and amortized $25,522 to interest expense during the year ended September 30, 2015. As of September 30, 2015, the Company had unamortized costs of $20,418 in current deferred financing costs. The deferred financing costs are amortized through the maturity date.

 

The Note bears interest at the rate of 10% per annum and is convertible into common stock of the Company at a conversion price per share of 70% of the average of the three (3) lowest Closing Sale Prices in the ten (10) Trading Days immediately preceding the applicable Conversion (subject to adjustment in the event of stock splits, stock dividends, and similar transactions, and in the event of subsequent sales of common stock at a lower purchase price (subject to certain exceptions))(the “Conversion Price”). In no event will the Conversion Price be less than $0.50 per share. Repayment of principal on the Note, together with accrued interest thereon, is due in twelve monthly installments, commencing six months from issuance. The Company may make such payments in cash (in which event the Company will pay a 25% premium) or, subject to certain conditions, in shares of common stock valued at the lower of the Conversion Price or 70% of the average of the three (3) lowest Closing Sale Prices in the ten (10) Trading Days immediately preceding the applicable payment date (the “Amortization Conversion Rate”). The Maturity Date of the Note is seventeen months from the date of issuance. We recorded a discount totaling $168,000 related to the beneficial conversion feature embedded in the note upon issuance. We amortized $84,000 of the discount to interest expense during the year ended September 30, 2015. On August 26, 2015, the Company and Investor entered into an Amendment whereby the conversion rate of the note was amended to 55% of the lowest price of the prior fifteen (15) trading days and conversion floor removed which amendment was triggered by the dilutive issuances of the August 2015 convertible note financing thereby entitling Investor to the lowest conversion rate granted during the year ended September 30, 2015 per the terms of the Securities Purchase Agreement. As a result, we expensed the unamortized discount of $84,000 to loss on debt extinguishment. On August 26, 2015, the carrying value on the note was $332,666, net of unamortized discounts of $109,000. The Company recorded the note as a derivative liability at fair value of $830,921, a derivative discount of $332,666, and the excess in fair value of $498,254 to loss on debt extinguishment. The total loss on debt extinguishment on this note was $582,254. During the year ended September 30, 2015, the Company amortized $54,984 of the derivative discount to interest expense, recorded a gain on the change in fair value of the derivative liability of $63,699, and allocated the fair value of $123,310 of the conversions below as a reduction in the derivative liability. As of September 30, 2015, the derivative liability was $643,912. On December 10, 2015, the Company and the Investor entered into a forbearance agreement regarding the Investor’s convertible note and added $105,000 to the principal. See Note 11 to the consolidated financial statements.

 

Between June 2015 and September 2015, the Company issued the following conversions for payment towards Investor:

 

Conversion Date Principal 
Converted
  Accrued 
Interest 
Converted
  Total 
Converted
  Conversion 
Rate
  Common 
Shares 
Issued
 
June 4, 2015 $46,667  $28,871  $75,538  $0.342   220,949 
July 3, 2015  46,667   4,295   50,962  $0.194   263,141 
August 11, 2015  25,000   -   25,000  $0.138   181,818 
September 3, 2015  25,000   -   25,000  $0.056   445,196 
September 23, 2015  25,000   -   25,000  $0.041   606,061 
September 29, 2015  23,000   -   23,000  $0.015   1,548,822 
  $191,334  $33,166  $224,500       3,265,987 

 

Subsequent to year end, the Investor also enacted the following conversions:

 

Conversion Date Principal 
Converted
  Accrued 
Interest 
Converted
  Total 
Converted
  Conversion 
Rate
  Common 
Shares 
Issued
 
October 8, 2015 $21,000  $-  $21,000  $0.012   1,818,182 
October 16, 2015  18,900   -   18,900  $0.012   1,636,364 
October 22, 2015  25,800   -   25,800  $0.011   2,333,786 
October 29, 2015  22,460   -   22,460  $0.011   2,031,660 
November 11, 2015  33,500   -   33,500  $0.007   4,649,549 
November 18, 2015  24,000   -   24,000  $0.006   4,195,804 
November 30, 2015  30,000   -   30,000  $0.005   5,741,627 
December 11, 2015  22,000   -   22,000  $0.002   9,090,909 
December 28, 2015  22,500   -   22,500  $0.002   9,297,521 
January 7, 2016  20,000   -   20,000  $0.002   10,101,010 
  $240,160  $-  $240,160       50,896,412 

 

As a result, as of September 30, 2015, $23,969 and $44,794, net of total unamortized discounts of $104,538 and $195,366 are classified as current and long-term on the accompanying consolidated balance sheet. As of September 30, 2015, there is $9,945 in accrued interest expense related to this note and the Company recorded $43,111 in interest expense related to this note during the year ended September 30, 2015.

$2M Securities Purchase Agreement

 

On February 10, 2015, the Company entered into a securities purchase agreement (the “February 2015 Securities Purchase Agreement”) with an accredited investor pursuant to which the Company agreed to sell, and the investor agreed to purchase, an unsecured convertible promissory note (the “$2M Note”) in the principal amount of $2,000,000 less an OID of $182,000 and transaction expenses of $10,000 for a total purchase price of $1,808,000. The closing under the February 2015 Securities Purchase Agreement occurred on February 10, 2015.

 

The $2M Note bears interest at the rate of 10% per annum and is immediately convertible into common stock of the Company at a conversion price per share of 70% of the lowest daily VWAP in the ten (10) Trading Days immediately preceding the applicable Conversion (subject to adjustment in the event of stock splits, stock dividends, and similar transactions, and in the event of subsequent sales of common stock at a lower purchase price (subject to certain exceptions))(the “Conversion Price”). In no event will the Conversion Price be less than $0.50 per share. Repayment of principal on the $2M Note, together with accrued interest thereon, is due in twelve bi-monthly installments, commencing approximately six months from issuance. The Company may make such payments in cash (in which event the Company will pay a 25% premium) or, subject to certain conditions, in shares of common stock valued at the lower of the Conversion Price or 70% of the lowest daily VWAP in the ten (10) Trading Days immediately preceding the applicable payment date (the “Amortization Conversion Rate”). The Maturity Date of the $2M Note is twelve months from the date of issuance.

 

During the year ended September 30, 2015, the Company received $800,000 toward the $2M Note with an original issue discount of $148,600 and transaction costs for net proceeds of $651,395, respectively. We amortized $46,087 of the discount to interest expense during the year ended September 30, 2015. In addition, we recorded a discount totaling $108,641 related to the beneficial conversion feature embedded in the note upon issuance. During the year ended September 30, 2015, we amortized $54,456 of the discount to interest expense.

 

On August 13, 2015, the Company entered into an Amendment, Waiver and Modification Agreement (the “Amendment”) to its $2M Securities Purchase Agreement and related Transaction Documents with Redwood Management, LLC including any designees and or assignees thereto.  Under the terms of the Amendment, the parties agreed to reduce the $2,000,000 outstanding balance of the $2M Note to $800,000 to reflect the total amount funded under the note, to terminate the offsetting investor note securing the additional unfunded balance and to waive any past claims of default or offsetting interest on the $2M Note or investor note. In addition, the conversion rate of the note was amended to 55% of the lowest price of the prior fifteen (15) trading days and conversion floor removed which amendment was triggered by the dilutive issuances of the August 2015 convertible note financing thereby entitling Investor to the lowest conversion rate granted during the year ended September 30, 2015 per the terms of the $2M Securities Purchase Agreement. As a result, we expensed the unamortized discount of $40,000 to loss on debt extinguishment. On August 13, 2015, the carrying value on the note was $655,816, net of unamortized discounts of $94,184. The Company recorded the note as a derivative liability at fair value of $970,956, a derivative discount of $655,816, and the excess in fair value of $315,140 to loss on debt extinguishment. The total loss on debt extinguishment on this note was $369,324. During the year ended September 30, 2015, the Company amortized $183,189 of the derivative discount to interest expense, recorded a loss on the change in fair value of the derivative liability of $288,763, and allocated the fair value of $230,905 of the conversions below as a reduction in the derivative liability. As of September 30, 2015, the derivative liability was $1,028,814.


The following is summary of conversions by the $2M Note holder during the year ended September 30, 2015:

 

Conversion Date Principal Converted  Accrued 
Interest Converted
  Total Converted  Conversion Rate  Common Shares Issued 
August 13, 2015 $50,000   -  $50,000  $0.127   393,701 
August 26, 2015  25,000   -   25,000  $0.056   446,428 
September 8, 2015  25,000   -   25,000  $0.056   446,428 
September 14, 2015  25,000  $-   25,000  $0.053   469,925 
September 16, 2015  10,000   -   10,000  $0.053   188,679 
September 17, 2015  25,000   -   25,000  $0.053   469,925 
September 22, 2015  10,000   -   10,000  $0.043   232,558 
September 24, 2015  10,000   -   10,000  $0.026   390,625 
September 25, 2015  10,000   -   10,000  $0.019   518,135 
September 29, 2015  13,410   -   13,410  $0.015   900,000 
  $203,410  $-  $203,410       4,456,404 

  

Subsequent to year end, the $2M Note holder also enacted the following conversions:

 

Conversion Date Principal Converted  Accrued Interest Converted  Total Converted  Conversion Rate  Common Shares Issued 
October 1, 2015 $10,000  $-  $10,000  $0.0148   675,676 
October 5, 2015  10,000   -   10,000  $0.0148   675,676 
October 6, 2015  13,262   -   13,262  $0.0138   961,000 
October 7, 2015  10,000   -   10,000  $0.0115   865,801 
October 9, 2015  11,728   -   11,728  $0.0116   1,011,000 
October 9, 2015  10,000   -   10,000  $0.0115   865,801 
October 12, 2015  14,680   -   14,680  $0.0115   1,271,000 
October 13, 2015  11,601   -   11,601  $0.0116   1,000,052 
October 15, 2015  14,680   -   14,680  $0.0115   1,271,000 
October 19, 2015  17,400   -   17,400  $0.0116   1,500,000 
October 19, 2015  15,000   -   15,000  $0.0116   1,298,701 
October 20, 2015  16,650   -   16,650  $0.0111   1,500,000 
October 21, 2015  17,500   -   17,500  $0.0115   1,515,152 
October 23, 2015  20,000   -   20,000  $0.0115   1,731,602 
October 26, 2015  24,420   -   24,420  $0.0111   2,200,000 
October 29, 2015  26,640   -   26,640  $0.0111   2,400,000 
November 2, 2015  29,970   -   29,970  $0.0111   2,700,000 
November 2, 2015  20,000   -   20,000  $0.0111   1,809,136 
November 5, 2015  32,190   -   32,190  $0.0111   2,900,000 
November 10, 2015  28,800   -   28,800  $0.0096   3,000,000 
November 12, 2015  23,930   -   23,930  $0.0072   3,323,611 
November 17, 2015  16,500   -   16,500  $0.0060   2,727,273 
November 19, 2015  1,640   11,225   12,865  $0.0056   2,316,013 
November 23, 2015  23,111   -   23,111  $0.0056   4,127,000 
November 27, 2015  24,750   -   24,750  $0.0055   4,500,000 
December 2, 2015  18,450   -   18,450  $0.0041   4,500,000 
December 8, 2015  18,000   -   18,000  $0.0036   5,000,000 
December 11, 2015  13,368   -   13,368  $0.0024   5,570,000 
December 16, 2015  14,181   -   14,181  $0.0024   5,860,000 
December 22, 2015  15,488   -   15,488  $0.0024   6,400,000 
December 29, 2015  17,666       17,666  $0.0024   7,300,000 
  $541,604  $11,225  $552,830       82,775,494 

 

As a result, as of September 30, 2015, $10,427 and $82,822, net of total unamortized discounts of $44,558 and $458,782 are classified as current and long-term on the accompanying consolidated balance sheet. As of September 30, 2015, there is $26,861 and $11,225 in current and long-term accrued interest expense related to this note, respectively, and the Company recorded $38,086 in interest expense related to this note during the year ended September 30, 2015.

 

Convertible Note Financing

 

On August 5, 2015, the Company entered into a series of convertible note financings with several accredited investors totaling an aggregate of $541,000 in aggregate proceeds raised less certain fees and costs as set forth in the financing documents known as the “August 2015 Notes”. The financing was disclosed on the Company’s Current Report on Form 8-K filed on August 11, 2015 and is incorporated herein by reference. The Company recorded an original issue discount of $12,500 along with these notes and amortized $1,042 of the discount to interest expense during the year ended September 30, 2015. As of September 30, 2015, there is $8,388 of accrued interest related to these notes and the Company recorded $8,388 in interest expense related to the notes during the year ended September 30, 2015. The Company will record an embedded beneficial conversion feature at estimated fair value as a derivative liability at fair value in six months when the notes become convertible. 

 

On August 12, 2015, the Company entered into an additional convertible note financing transaction with an accredited investor in the principal amount of $105,000 less fees and costs. The closing under the financing occurred concurrently with the execution of the financing documents on August 12, 2015. The convertible note bears interest at the rate of 8% per annum and is convertible into common stock of the Company at any time after 180 days from issuance of the note at a conversion price per share equal to 58% of the average of the lowest trading price of the common stock in the thirteen (13) trading days immediately preceding the applicable conversion date. The Company has the option to prepay the convertible note in the first 180 days from closing subject to a prepayment penalty of 150% of principal plus interest. The maturity date of the convertible note is June 12, 2016 subject to the noteholder’s right to extend maturity an additional nine (9) month period. The Company recorded an original issue discount of $5,000 along with these notes and amortized $1,000 of the discount to interest expense during the year ended September 30, 2015. The Company will record an embedded beneficial conversion feature at estimated fair value as a derivative liability at fair value in six months when the notes become convertible. The discount will be amortized over the remaining term of the note. As of September 30, 2015, there is $1,143 of accrued interest and related interest expense on the notes during the year ended September 30, 2015.

 

The foregoing descriptions of the August 12, 2015 note financing and related documentation do not purport to be complete and are qualified in their entirety by reference to the full text of the documents, which are filed as exhibits to this Quarterly Report on Form 10-K and are incorporated herein by reference.

 

As of September 30, 2015, future minimum principal payments for the years ending September 30, 2016 and 2017 are $1,487,256 and $154,000, respectively. As of September 30, 2015, expected amortization of debt discounts for the years ending September 30, 2016 and 2017 are $179,528 and $695,963, respectively. As of September 30, 2015, expected amortization of deferred financing costs for the years ending September 30, 2016 and 2017 are $107,909 and $12,067, respectively. The Company has the ability to increase the authorized common stock of the Company in the event that the convertible notes require more shares than available.

XML 30 R14.htm IDEA: XBRL DOCUMENT v3.4.0.3
Related Party Debt
12 Months Ended
Sep. 30, 2015
Related Party Debt [Abstract]  
RELATED PARTY DEBT

NOTE 6.   RELATED PARTY DEBT

 

RELATED PARTY NOTES PAYABLE, LONG-TERM

 

The Company had outstanding accounts payable balance to a related party (shareholder of the Company) in the amount of $15,000 as of September 30, 2013. This payable was converted into a note payable on December 7, 2013. The note payable bears interest of 6% per annum with a maturity date of December 1, 2016. As of September 30, 2015, there is $1,645 in accrued interest expense related to this note and the Company recorded $913 in interest expense related to this note during the year ended September 30, 2015. 

 

On December 7, 2013, the Company issued a note payable to a shareholder of the Company in the amount of $23,462 for monies previously borrowed from shareholder.  The note is unsecured and bears interest of 6% per annum and matures on December 1, 2016. On January 22, 2015, the Company settled and paid the note and accrued interest of $1,504 for $20,000 and recorded a gain on extinguishment of the note of $3,462.

 

On February 28, 2014, the Company issued a note payable to HIVE (the “HIVE Note”) for the principal amount of $250,000 in connection with the Hive asset acquisition. 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. As of September 30, 2015, there is $22,893 in accrued interest expense related to this note and the Company recorded $15,208 in interest expense related to this note during the year ended September 30, 2015, respectively. On December 10, 2015, the HIVE Note was converted into a Series B Convertible Preferred Note payable and the maturity date was extended to December 10, 2016. See Note 11 to the consolidated financial statements.

 

On May 12, 2014, the Company issued a note payable to its President, Joseph Andreae in the amount of $40,000 for monies previously borrowed during the three and six months ended March 31, 2014 (the “Andreae Note”).  The note was unsecured and bears interest of 6% per annum and matures on May 1, 2016. On December 4, 2014, the Company repaid the principal balance of $40,000 and accrued interest of $1,348 in full satisfaction on the Andreae Note.

 

On August 11, 2014, the Company issued a 6% note payable to its President, Joseph Andreae, for monies borrowed from Mr. Andreae to cover outstanding accounts payable in the amount of $12,828 (the “Andreae Note II”). Per the terms of the Andreae Note, the original principal balance   was $12,828, and was not secured by any collateral or any assets pledged to the holder. The maturity date is November 30, 2014, and the annual rate of interest is six percent (6%). The monies were funded during the three and nine months ended June 30, 2014. On December 4, 2014, the Company repaid principal balance of $12,828 and accrued interest of $240 in full satisfaction of the Andreae Note II.

 

RELATED PARTY CONVERTIBLE NOTES PAYABLE

 

On February 18, 2014, the Company issued 8% Convertible Notes to two third parties to cover outstanding accounts payable in the amount of $20,000.  Per the terms of the notes, the aggregate principal balance is $20,000, and was not secured by any collateral or any assets pledged to the holders. The maturity date is February 18, 2016, and the annual rate of interest is eight percent (8%).  Subject to certain limitations, the holders can, at their sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the notes was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $8,000 related to the beneficial conversion feature embedded in the notes upon issuance.  We amortized $1,000 and $1,667 of the discount to interest expense during the three and nine months ended June 30, 2014, respectively. On October 28, 2014, the Company received a Notice of Conversion on two (2) 8% Convertible Notes issued to third parties on February 18, 2014 to cover expenses of the Company. The noteholders converted aggregate principal of $20,000 and aggregate outstanding accrued and unpaid interest of $1,100 into an aggregate of 42,370 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of their convertible notes payable. The conversion of these notes was in full satisfaction of the notes payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $5,333 to interest expense.

  

On February 18, 2014, the Company issued an 8% Convertible Note to Kyle Tracey for monies borrowed from Mr. Tracey to cover outstanding accounts payable in the amount of $10,612 (the “Tracey Note”). Per the terms of the Tracey Note, the original principal balance is $10,612, and was not secured by any collateral or any assets pledged to the holder. The maturity date was February 18, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Tracey Note was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $4,245 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $1,415 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion the Tracey Note. Mr. Tracey converted principal of $10,612 and outstanding accrued and unpaid interest of $584 into 22,481 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Tracey Note was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $2,830 to interest expense. 

 

On March 17, 2014, the Company issued an 8% Convertible Note to Jerome Kaiser, former CEO, CFO and Director of the Company for services rendered to the Company in the amount of $50,000 (the “Kaiser Note”) which was charged to expense during the three months March 31, 2014. Per the terms of the Kaiser Note, the principal balance is $50,000, and is not secured by any collateral or any assets pledged to the holders. The maturity date is March 17, 2015, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at his sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Kaiser Note is the market closing price of the market day immediately preceding the date of conversion minus twenty percent (20%). We recorded a discount totaling $10,000 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $4,167 of the discount to interest expense during the year ended September 30, 2015. In March 2015, the Company paid the outstanding principal and accrued interest in satisfaction on the note of $50,000 and $4,000, respectively.

 

On May 12, 2014, in connection with the 6% Notes, the Company issued a note for $40,000 to Kyle Tracey, which was recorded as a related party convertible note payable. We recorded a discount totaling $16,000 related to the beneficial conversion feature embedded in the 6% note to Mr. Tracey upon issuance. We amortized $6,667 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion on the 6% Convertible Note issued on May 13, 2014 to Mr. Tracey (the “Tracey PPM Note”) as part of a private placement transaction in exchange for capital of $40,000. Mr. Tracey converted principal of $40,000 and outstanding accrued and unpaid interest of $1,098 into 41,098 shares of restricted common stock of the Company at a per share conversion price of $1.00 in accordance with the terms of the convertible note. The conversion of the Tracey PPM Note was in full satisfaction of the note. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $13,333 to interest expense. 

  

On May 12, 2014, the Company issued an 8% Convertible Note to Kyle Tracey for monies borrowed from Mr. Tracey to cover outstanding accounts payable in the amount of $11,042 (the “Tracey Note II”). Per the terms of the Tracey Note II, the original principal balance is $11,042, and was not secured by any collateral or any assets pledged to the holder. The maturity date was May 12, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Tracey Note II was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $4,417 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $920 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion on the Tracey Note II. Tracey converted principal of $11,042 and outstanding accrued and unpaid interest of $407 into 22,989 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Tracey Note II was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $3,497 to interest expense. 

 

On May 12, 2014, the Company issued an 8% Convertible Note to its Director of Business Development, Michael Cook, for monies borrowed from Mr. Cook to cover outstanding accounts payable in the amount of $11,825 (the “Cook Note”). Per the terms of the Cook Note, the original principal balance was $11,825, and was not secured by any collateral or any assets pledged to the holder. The maturity date is May 12, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Cook Note was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $4,730 related to the beneficial conversion feature embedded in the notes upon issuance. We amortized $985 of the discount to interest expense during the year ended September 30, 2014. On October 28, 2014, the Company received a Notice of Conversion on the “Cook Note. Mr. Cook converted principal of $11,825 and outstanding accrued and unpaid interest of $435 into 24,619 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Cook Note was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $3,745 to interest expense.

 

On August 11, 2014, the Company issued a second 8% Convertible Note to Mr. Cook for monies borrowed from Mr. Cook to cover outstanding accounts payable in the amount of $15,115 (the “Cook Note II”). Per the terms of the Cook Note II, the original principal balance was $15,115, and is was secured by any collateral or any assets pledged to the holder. The maturity date is August 11 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Cook Note II was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $6,046 related to the beneficial conversion feature embedded in the notes upon issuance. On October 28, 2014, the Company received a Notice of Conversion on the Cook Note II. Mr. Cook converted principal of $15,115 and outstanding accrued and unpaid interest of $255 into 30,864 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The conversion of the Cook Note II was in full satisfaction of the note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $5,542 to interest expense.

 

On August 11, 2014, the Company issued an 8% Convertible Note to Mr. Tracey for monies borrowed from Mr. Tracey to cover outstanding accounts payable in the amount of $216,001 (the “Tracey Note III”). Per the terms of the Tracey Note III, the original principal balance was $216,001, and is not secured by any collateral or any assets pledged to the holder. The maturity date was August 11, 2016, and the annual rate of interest is eight percent (8%). Subject to certain limitations, the holder can, at its sole discretion, convert the outstanding and unpaid principal and interest into fully paid and nonassessable shares of the Company’s common stock. The conversion price for the Tracey Note III was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%). We recorded a discount totaling $86,401 related to the beneficial conversion feature embedded in the notes upon issuance. On October 28, 2014, the Company received a Notice of Conversion on the Tracey Note III. Mr. Tracey converted principal of $216,001 and outstanding accrued and unpaid interest of $3,645 into 441,057 shares of restricted common stock of the Company at a per share conversion price of $0.498 in accordance with the terms of the convertible note payable. The shares of common stock under the conversion were issued by the Company on November 7, 2014. Upon conversion, we expensed the unamortized discount of $79,200 to interest expense.

XML 31 R15.htm IDEA: XBRL DOCUMENT v3.4.0.3
Commitments and Contingencies
12 Months Ended
Sep. 30, 2015
Commitments and Contingencies [Abstract]  
COMMITMENTS AND CONTINGENCIES

NOTE 7.   COMMITMENTS AND CONTINGENCIES

 

Office Lease

 

As of September 30, 2015, the Company leases a 5,000 square foot office in Chatsworth, California for $4,947 per month which expires in November 2015.

 

Warrant Liability  

 

The Company recorded the estimated settlement liability as of March 31, 2014 for the Warrant Shares issued and the Warrants that remain outstanding and unexercised that would be entitled to the same settlement based on the number of shares expected to be issued and the market price of the Company’s common stock on the dates of the actual settlements from $4.72 per share to $7.25 per share, and market price of the first settlement of $7.25 for the unsettled claims. We believe the issuance of convertible notes in the three months ended March 31, 2014 triggered the full ratchet anti-dilution adjustment; before the provision was triggered, the fair value of the warrant liability was not significant as the exercise was so far out of the money. As a result of the above settlements with warrant holders, the Company recorded a loss on settlement of warrants of $29,528,844 during the six months ended March 31, 2014 and a long-term warrant liability of $29,430,022 as of March 31, 2014 based on 4,407,200 shares of common stock under the settlement at the Company’s closing stock prices discussed above. As of September 30, 2015, the estimated settlement liability is $31,401 based on the fair market value of 1,184,727 remaining warrants and using the Black-Scholes model and therefore the Company recorded a gain on the change in warrant liability of $2,432,832 during the year ended September 30, 2015.

 

Settlement of Company Legal Claims

 

On December 15, 2014, the Company recorded a gain on settlement of $257,930 for a confidential settlement by and between the Company and certain shareholders and related parties as settlement for certain potential legal claims held by the Company. As a result of the settlement, the Company received net proceeds of $62,930 and vendor credits of $200,000 during the year ended September 30, 2015. A total of $325,000 in vendor credits has been received in connection with the settlement and no further credits will be given. In January 2015, the Company received 440,625 shares from the settlement that was assigned to officers of the Company. The officers decided it was in the best interest of the Company to return these shares to the Company to be used for future strategic issuances. Accordingly, the 440,625 shares valued at $367,531 were recorded as treasury stock as of September 30, 2015, and the Company recorded a gain on settlement of $625,461 during the year ended September 30, 2015.   

 

Chief Science Officer

 

On May 1, 2015, the Company appointed Dr. Mark A. Scialdone to the newly-created executive officer position of Chief Science Officer.

 

Dr. Scialdone’s Executive Employment Agreement was for a period of two (2) years. Dr. Scialdone shall receive an annual salary of $102,000, he shall be eligible for any benefits made generally available by the Company, he shall be eligible to receive any bonuses made generally available by the Company, and he shall be reimbursed for any reasonable expenses incurred while performing his duties as the Company’s Chief Science Officer. Additionally, Dr. Scialdone is entitled to receive severance equal to six (6) months base salary if terminated without cause by the Company.

 

The Chief Science Officer was also receive bonus compensation associated with revenue generated from consulting services revenues generated over the term of this Agreement such bonus compensation to be calculated in accordance with the schedule below.

 

On January 12, 2016, the Company unwound the transaction and curtailed the subsidiary’s operations in order to reduce overhead costs and focus on HIVE Ceramics and reflected such as of September 30, 2015 in the consolidated financial statements. As of September 30, 2015, the 250,000 shares issued to BetterChem were recorded as treasury stock valued at $67,500 as a result of the settlement to receive the shares back as part of the unwind.

 

Officer & Director Appointments and Related Matters

 

Pursuant to Board consent on May 11, 2015, the Company made several changes to its management structure.

 

The Company confirmed the appointment of Dr. Mark Scialdone to the newly-created officer position of Chief Science Officer which was announced by Current Report on Form 8-K dated May 5, 2015 which is incorporated by reference herein. See above in this section for more information about Dr. Scialdone.

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Income Taxes
12 Months Ended
Sep. 30, 2015
Income Taxes [Abstract]  
INCOME TAXES

NOTE 8. INCOME TAXES

 

The following table presents the current and deferred income tax provision for federal and state income taxes for the year ended September 30, 2015 and 2014:

 

  2015  2014 
Current tax provision (benefit):      
Federal $-  $- 
State  2,209   800 
Total  2,209   800 
Deferred tax provision (benefit)        
Federal  (418,000)  (262,000)
State  -   - 
Valuation allowance  418,000   262,000 
Total  -   - 
Total provision (benefit) for income taxes $2,209  $800 

 

Reconciliations of the U.S. federal statutory rate to the actual tax rate for the year ended September 30, 2015 and 2014:

 

  2015  2014 
US federal statutory income tax rate  (34.0%)  (34.0%)
State tax – net of benefit  (6.0%)  (6.0%)
   (40.0%)  (40.0%)
         
Permanent differences:  -%  38.7%
Stock-based compensation  2.8%  0.2%
Changes in warrant liability  -%  1.0%
Increase in valuation allowance  37.2%  0.1%
Effective tax rate  -%  -%

 

The Company incurred certain non-cash transactions which are not includable or deductible for income tax reporting purposes, such the change in fair value of warrant liability, certain stock-based compensation and accretion of debt discounts.

 

The components of the Company’s deferred tax assets and (liabilities) for federal and state income taxes as of September 30, 2015 and 2014:

 

  As of September, 
  2015  2014 
Current deferred tax assets (liabilities):      
Accrued expenses and other $-  $- 
Total current deferred tax assets  -   - 
Non-current deferred tax assets and liabilities:        
Property, plant and equipment  29,000   29,000 
Net operating losses  680,000   262,000 
Total non-current deferred tax assets  709,000   291,000 
Valuation allowance  (709,000)  (291,000)
Total non-current deferred tax assets  -   - 
Net deferred tax assets $-  $- 

 

During the year ended September 30, 2015 and 2014 the valuation allowance increased by $418,000 and $233,000, respectively. At September 30, 2015, the Company had approximately $680,000 of federal and state gross net operating losses allocated to continuing operations available. The net operating loss carry forwards, if not utilized, will begin to expire in 2033 for federal purposes and 2031 for state purposes.

 

Based on the available objective evidence, including the Company’s limited operating history and current liabilities in excess of assets, management believes it is more likely than not that some of the net deferred tax assets, specifically certain net operating losses, at September 30, 2014 will not be fully realizable. In addition, subsequent to year end significant shares were issued to shareholders in connection with the conversion of notes payable and a subscription for the purchase of common stock. In connection, with these issuances the Company determined that the historical NOLs have probably been impaired due to IRS Section 382 limitations. Due to the uncertainty surrounding realization of the remaining deferred tax assets, specifically the NOLs, the Company has provided a valuation allowance of $709,000 and $291,000 against its net deferred tax assets at September 30, 2015 and 2014, respectively. We will continue to monitor the recoverability of our net deferred tax assets.

 

As of September 30, 2015 and 2014, the Company has a State tax liability of $0 and $0, respectively. As of September 30, 2015 and 2014, the Company recorded no estimated taxes payable for Federal and State.

   

The Company has filed all United States Federal and State tax returns. The Company has identified the United States Federal tax returns as its “major” tax jurisdiction. The United States Federal return years 2014 through 2015 are still subject to tax examination by the United States Internal Revenue Service; however, we do not currently have any ongoing tax examinations. The Company is subject to examination by the California Franchise Tax Board for the year ended 2014 through 2015 and currently does not have any ongoing tax examinations.

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Stockholders' Deficit
12 Months Ended
Sep. 30, 2015
Stockholders' Deficit [Abstract]  
STOCKHOLDERS' DEFICIT

NOTE 9. STOCKHOLDERS’ DEFICIT

 

COMMON STOCK

 

On November 27, 2013, the Board and shareholders approved an increase in the authorized number of shares of common and preferred stock which may be issued by the Company to 1,000,000,000 shares and 100,000,000 shares, respectively.  On December 3, 2013, the certificate of amendment was filed with the Secretary of State of Delaware to reflect the increase in authorized.

 

PREFERRED STOCK 

 

On April 1, 2014, the Board formally approved the filing of a Preferred Stock Designation in connection with the commitment of 500,000 Series A Shares to HIVE on March 27, 2014 pursuant to its authority to issue blank check preferred stock as provided in the Company’s Certificate of Incorporation.  Per the Certificate of Designation (the “Designation”), there are 100,000,000 shares of preferred stock authorized by the Company’s Certificate of Incorporation. The Company is authorized to issue 500,000 shares of Series A Shares pursuant to the Designation.  As provided in the Designation (and as set forth in the HIVE Asset Purchase Agreement), Series A Shares are entitled to vote at a 15-1 ratio to Common Stock.  Each share of preferred stock shall initially be convertible into one share of common stock (500,000 shares of common stock in the aggregate).  On the two year anniversary of the transaction of HIVE, the preferred stock conversion ratio shall be adjusted as follows: a one-time pro rata adjustment of up to ten-for-one (10-1) based upon the Company generating aggregate gross revenues over the two years of at least $8,000,000 (e.g. If the Company generates only $4,000,000 in aggregate gross revenues over the two year period then the convertible ratio will adjust to 5-1). In no event will the issuance convert into more than 5,000,000 shares of common stock of the Company.

 

On June 19, 2014, the Company formally issued the 500,000 Series A Shares to HIVE.

 

The value ascribed to the Series A Shares was based on the historical costs of the assets acquired on March 27, 2014 from HIVE since the transfer of assets was made among entities under common control.

  

COMMON STOCK ISSUED FOR BONUSES  

 

On October 20, 2014, the Company’s Board of Directors issued bonus stock grants of 30,000 shares of restricted common stock each to Kyle Tracey, Joseph Andreae, and Benjamin Beaulieu. These issuances were based on the fair market value on the date of issuance immediately vested and resulted in $24,900, $24,900, and $24,900 being charged to and general and administrative expense during the year ended September 30, 2015. 

 

On March 12, 2015, the Company’s Board of Directors issued bonus stock grants of 30,000 shares of restricted common stock each to Kyle Tracey, Joseph Andreae, and Allan Viernes. In addition, a total of 60,000 shares were granted to three (3) employees. These issuances were based on the fair market value on the date of issuance immediately vested and resulted in $9,150, $9,150, and $195,200 being charged to cost of revenue, sales and marketing, and general and administrative expense during the year ended September 30, 2015. 

 

COMMON STOCK ISSUED FOR SERVICES

 

On March 12, 2015, the Company’s Board of Directors issued a bonus stock grant of 60,277 shares of restricted common stock to an outside sales consultant for services performed. This issuance based on the fair market value on the date of issuance immediately vested resulting in $36,769 being charged to sales and marketing expense during the year ended September 30, 2015.

 

COMMON STOCK ISSUED FOR ACCRUED WAGES

 

On March 12, 2015, Kyle Tracey converted $59,718 of accrued wages into 97,898 shares of immediately vested restricted common stock based on the fair market value on the date of issuance.

 

On March 12, 2015, Michael Cook converted $36,769 of accrued wages into 60,277 shares of immediately vested restricted common stock based on the fair market value on the date of issuance.

 

COMMON STOCK ISSUED AS DIRECTOR COMPENSATION

 

On March 12, 2015, the Company’s Board of Directors issued 100,000 shares of restricted common stock each were granted to Kyle Tracey and Joseph Andreae for serving on the Board of Directors.

  

COMMON STOCK ISSUED FOR ACCOUNTS PAYABLE

 

On June 1, 2015, the Board issued 100,000 shares of restricted common stock at $1.00 per share for payment of accrued legal services. This $100,000 issuance was based on the fair market value of $50,000 and additional consideration of $50,000 given on the date of issuance.

 

COMMON STOCK ISSUED FOR ACQUISITION OF BETTERCHEM

 

See Note 1 for common stock issued for the acquisition of BetterChem.

 

WARRANTS

 

The table below summarizes the Company’s warrant activity during the year ended September 30, 2015:

 

  Shares  Weighted Average
Price
  Weighted Average Remaining Contractual Term  Aggregate Intrinsic
Value
 
Warrants outstanding at September 30, 2014  1,184,726  $0.114   1.6  $7,217,234 
Warrants issued  -   -         
Warrants exercised  -   -         
Cancelled/forfeited/expired  -   -         
Warrants outstanding at September 30, 2015  1,184,726  $0.021   0.6  $694,008 

 

As a result of the anti-dilution provision of the warrants, the exercise price as of September 30, 2015 was reduced to $0.021 per share using the following weighted average variables in the Black Scholes model during the year ended September 30, 2015:

 

Year Ended September 30, Stock Price at
Grant Date
  Dividend 
Yield
  Exercise
Price
  Risk Free
Interest Rate
  Volatility  Average
Life
 
2015 $0.04   -% $0.023   0.08%  351%  0.7 

 

The Company’s warrants above are accounted for as derivative liabilities in the accompanying consolidated balance sheets.

 

OPTIONS

 

On June 27, 2014, the Company authorized the “2014 Incentive and Nonstatutory Stock Option Plan” (the “Plan”) whereby a maximum of 2,000,000 shares of the Company’s common stock could be granted in the form of incentive and nonstatutory stock options. If any shares of common stock subject to an award under the Plan are forfeited, expire, are settled for cash or are tendered by the participant or withheld by us to satisfy any tax withholding obligation, then, in each case, the shares subject to the award may be used again for awards under the Plan to the extent of the forfeiture, expiration, cash settlement or withholding.  The stock option awards issuable under the Plan can be made up of any combination of incentive and nonstatutory stock options.  The stock options will be granted at fair market value on the date of grant and will vest as directed by the Board.  Incentive stock options are available to employees only whereas nonstatutory stock options are available to independent contractors and consultants of the Company.

 

On June 27, 2014, concurrent with the formal adoption of the Plan, the Company’s Board granted a total of 1,000,000 stock options to certain employees, consultants and/or independent contractors of the Company (the “Option Grant”). The Option Grant includes options to purchase 520,000 shares granted to employees, consultants and/or independent contractors of the Company that are not executive officers.  In addition, the Board determined that executive officer Michael Cook, Director of Business Development, should receive options to purchase 100,000 shares and that Kyle Tracey, Chief Executive Officer and Chairman, and Joseph Andreae, President and member of the Board, should receive options to purchase 190,000 shares each.  The options were granted at the market price of the Company’s common stock at close of business ($1.66 per share) on June 27, 2014, pursuant to the Company’s standard form stock option agreements under the Plan.  The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant. The aggregate value of the 1,000,000 options on the grant date was $1,660,000 and the amount expensed upon the grant date was $415,000 as result of 250,000 options immediately vested. On September 30, 2014 an additional $22,312 was expensed due to the revaluing 212,500 non-employee options.

 

The description of the incentive and nonstatutory stock options herein is qualified in its entirety by reference to the full text of the Form of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement, which are attached as Exhibits 10.2 and 10.3, respectively, to the Current Report on Form 8-K filed with the SEC on July 3, 2014.

 

Additional Option Grants Under 2014 Stock Option Plan

 

On October 20, 2014, the Board granted a total of 20,000 stock options to certain employees and canceled 20,000 options previously allocated (but not issued) to employees. The options were granted at the market price of the Company’s common stock at close of business ($0.83 per share). The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant. The aggregate value of the 20,000 options on the grant date was $16,600 and the amount expensed upon the grant date was $4,150 as result of 5,000 options immediately vested.

 

On December 22, 2014, the Company’s Board granted a total of 775,000 stock options to certain employees. The option grant includes options to purchase 225,000 shares granted to employees that are not executive officers. In addition, the Board determined that executive officer Michael Cook, Director of Business Development, should receive options to purchase 25,000 shares and that Kyle Tracey, Chief Executive Officer and Chairman, and Joseph Andreae, President and member of the Board, and Allan Viernes, Chief Financial Officer should receive options to purchase 175,000 shares each. The options were granted at the market price of the Company’s common stock at close of business ($0.70 per share). The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant. The aggregate value of the 775,000 options on the grant date was $542,500 and the amount expensed upon the grant date was $135,625 as result of 193,750 options immediately vested.

 

Consulting Agreements

 

On October 20, 2014, the Company entered into consulting agreements with two consultants to provide business development and acquisition services to the Company. The consultants were each issued 100,000 options to purchase common stock of the Company by the Board as consideration for consulting services. The options were granted at the market price of the Company’s common stock at close of business ($0.83 per share). The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant. The aggregate value of the 200,000 options on the grant date was $166,000 and the amount expensed upon the grant date was $41,500 as result of 50,000 options immediately vested. On December 31, 2014 an additional $3,000 was expensed due to the revaluing the 200,000 non-employee options.

 

Cancellation of Option Plans

 

Collectively, officers, employees, and consultants of the Company decided to surrender and cancel all options outstanding.

 

Option activity during the year ended September 30, 2015, was as follows:

 

  Shares  Weighted 
Average 
Exercise 
Price
  Weighted 
Average 
Remaining 
Contractual Term
  Aggregate 
Intrinsic 
Value
 
Options outstanding at September 30, 2014  1,150,000  $2.92   8.7  $4,648,294 
Options granted  995,000  $0.73   10.0     
Options exercised  -  $-   -     
Options cancelled/forfeited/expired  (2,145,000) $1.91   9.0     
Options outstanding at September 30, 2015  -  $-   -  $- 
Options exercisable at September 30, 2015  -  $-   -  $- 

 

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference between the closing stock prices of VAPE’s common stock at the specified dates and the exercise prices for in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on the specified dates.

 

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model, consistent with the provisions of ASC 718. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. VAPE has limited relevant historical information to support the expected exercise behavior because no exercises have taken place.

 

During the year ended September 30, 2015 and 2014, $1,006,343 and $681,375 were recorded as stock-based compensation related to options, respectively. As of September 30, 2015, there is no future stock compensation expense related to options.

XML 34 R18.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intellectual Property
12 Months Ended
Sep. 30, 2015
Intellectual Property [Abstract]  
INTELLECTUAL PROPERTY

NOTE 10. INTELLECTUAL PROPERTY

 

The Company plans 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 begun to execute on this plan with the acquisition of the patent pending HIVE Ceramic vaporization product and the HIVE trademark as well as several pending trademark applications. The Company intends to continue to create or acquire proprietary vaporizers and e-cigarettes, and various trademarks, patents and/or copyrights for brands which are developed.

 

TRADEMARKS

 

On March 27, 2014, the Company and Stone Arch Studio, LLC entered into a Trademark Assignment Agreement whereby the Company acquired all right, title, priority and interest to the HIVE trademark U.S. Registration No. 44513069 as registered with the U.S. Patent and Trade Office (“USPTO”). This acquisition further protects the Company’s HIVE Ceramics brand vaporization line. As of September 30, 2015, the Company has capitalized $123,150 in costs paid related to the trademarks.

 

PATENTS

 

On March 27, 2014, the Company formally closed its acquisition of the patent pending HIVE Ceramics vaporization technology. The Company has already begun exploiting this technology and intends to prosecute the patent application to completion. As of September 30, 2015, the Company has capitalized had no costs of patents capitalized and recorded impairment to pending patents of $22,133 based on its expected cash flow not exceeding its carrying amount.

 

The Company also has been in discussions to acquire additional patented technology from third parties to further grow and develop its branded product lines in the vaporization market.

XML 35 R19.htm IDEA: XBRL DOCUMENT v3.4.0.3
Subsequent Events
12 Months Ended
Sep. 30, 2015
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 11. SUBSEQUENT EVENTS

 

Common Stock Issued for Accrued Wages

 

On October 22, 2015, the Company’s Board of Directors issued 2,083,333 shares of restricted common stock each to Kyle Tracey at $0.024 per share for payment of $50,000 in accrued wages. On October 22, 2015, the Company’s Board of Directors issued 555,555 shares of restricted common stock each to Kyle Tracey at $0.024 per share for payment of $13,333 in accrued wages. On October 22, 2015, the Company’s Board of Directors issued 1,250,000 shares of restricted common stock each to Michael Cook at $0.024 per share for payment of $3,000 in accrued wages.

 

Common Stock Issued for Bonuses

 

On October 22, 2015, the Company’s Board of Directors issued bonus stock grants of 600,000 shares of restricted common stock each to Allan Viernes and Benjamin Beaulieu at $0.024 per share. In addition, the Company issued 300,000 shares of restricted common stock to employees at $0.024 per share. These issuances were based on the fair market value on the date of issuance immediately vested and resulted in $36,000 being charged to general and administrative expense during the three months ended December 31, 2015. 

 

On October 22, 2015, the Company’s Board of Directors issued bonus stock grants of 1,250,000 shares of restricted common stock an outside sales consultant at $0.024 per share. The issuance was based on the fair market value on the date of issuance immediately vested and resulted in $30,000 being charged to sales and marketing expense during the three months ended December 31, 2015. 

 

Common Stock Surrenders

 

On October 22, 2015, the Kyle Tracey and Joe Andreae each surrendered 130,000 shares of restricted common stock, with 60,000 shares valued at $49,800 and 200,000 shares valued at $122,000. As result, 260,000 shares of common stock were recorded as treasury stock valued at $171,800. In addition, on October 22, 2015, an employee also surrendered 30,000 shares valued at $9,150 which was recorded as treasury stock.

 

On December 21, 2015, the Allan Viernes and Benjamin Beaulieu each surrendered 30,000 shares of restricted common stock valued at $36,600. As result, 60,000 shares of common stock were recorded as treasury stock valued at $36,600.

 

Appointment of Justin Braune as Chief Executive Officer

 

On December 10, 2015, the Board appointed Justin Braune to serve as the Company’s Chief Executive Officer and as a director, effective immediately.

 

Prior to joining the Company, Mr. Braune, 33, served as the chief operating officer of Voodoo Science, LLC and Vapor Wild from 2014 to 2015. From 2013 to 2014, Mr. Braune served as the Chief of Operations for Veracity Security, a technology company located in San Diego. From 2013-2014 Mr. Braune was the Director of Sales at Lear Capital. Since 2010 he owned and operated Braune Enterprises a real estate and investment brokerage firm. Mr. Braune graduated from the United States Naval Academy with a B.S. degree in electrical engineering in and was commissioned as an officer in the U.S. Navy. After earning his master’s degree in nuclear engineering, Mr. Braune operated the nuclear reactors onboard the USS RONALD REAGAN aircraft carrier. He served in the U.S. Navy until 2009 and subsequently earned his MBA at the University of Southern California, Marshall School of Business. Our Board believes that Mr. Braune’s extensive relationships and experience in the industry of vaporization products and e-cigarettes will bring added value to the Company’s management team.

 

In connection with his appointment as Chief Executive Officer and a member of our Board, Mr. Braune entered into an employment agreement dated as of December 10, 2015 (the “Employment Agreement”) with the Company pursuant to which he will receive an annual salary of $150,000, subject to adjustment, and bi-monthly sales-based compensation of $1.00 USD per unit of wholesale sales of Mr. Braune’s new vaporizer pen product line and $3.00 USD per unit on retail sales. The sales-based compensation and salary is payable in cash or stock as further described in the Employment Agreement.

 

In addition, the Company will issue to Mr. Braune 20,000,000 shares of the Company’s common stock, to be held in escrow and released by the Company to Mr. Braune in accordance with the following vesting schedule: (i) 5,000,000 shares shall vest on June 10, 2015, (ii) 5,000,000 shares shall vest on December 10, 2016, (iii) 5,000,000 shares shall vest on June 10, 2016, and (iv) 5,000,000 shares shall vest on December 10, 2016. Mr. Braune also is eligible to participate in any stock option plan maintained by the Company and available to other employees and standard benefit programs for similarly situated employees. The Employment Agreement continues until terminated by either party upon 30 days’ prior written notice.

 

Resignations of Kyle Tracey and Joe Andreae; Appointment of Benjamin Beaulieu as Chairman

 

On December 10, 2015, the Board accepted the resignation of Kyle Tracey as Chief Executive Officer, Chairman of the Board and all other officer positions held by him with the Company. Mr. Tracey will remain in a consultant role with the Company focusing on sales and business development of HIVE Ceramics for a period of two (2) years. Mr. Tracey also retains a large block of voting control of the Company due to the above issuance of the Series B Notes issued to HIVE Ceramics, LLC an entity he co-owns. The Board also accepted the resignation of Joe Andreae as President and a director as of December 10, 2015. The President seat will remain vacant until a qualified candidate is located.

 

Benjamin Beaulieu was elevated from his position as a member of the Board to Chairman of the Board on December 10, 2015 to replace Mr. Tracey. Mr. Beaulieu also currently serves as the Company’s COO and will remain in that role.

 

Series B Preferred Stock Convertible Notes

 

On December 10, 2015, the Company entered into two Secured Series B Preferred Stock Convertible Notes (the “Series B Notes”) for an aggregate principal of $300,000 including 1) $50,000 from Hive Ceramics, LLC in new capital to the Company and 2) an amended and restated note for Hive Ceramics LLC in the amount of $250,000 for capital previously contributed which is soon to be due and payable.

 

The Series B Notes accrue interest at eight percent (8%) per annum, mature one (1) year from issuance and are secured by all of the assets and property of the Company. Upon the election of the noteholder, the Series B Notes are convertible into newly created Series B Preferred Stock on a one-for-one (1:1) basis into shares of common stock of the Company at a fixed price per share of $0.01.

 

Concurrently, the Company filed a Certificate of Designation with the Delaware Secretary of State on the Series B Preferred Stock which provides, in pertinent part, for the following rights and privileges:

 

Authorized Amount of Series B Preferred Stock: There are authorized 30,000,000 shares of Series B Preferred Stock, subject to the Certificate of Designation. There shall be no additional Series B Shares authorized or issued.

 

Voting Rights: Each share of Series B shall be entitled to five (5) votes for every one (1) vote entitled to each share of Common Stock.

 

Rank: All shares of Series B shall rank (i) senior to the Company’s Common Stock, (ii) pari passu with all other series of preferred stock whether currently outstanding or hereafter created, including the Series A Preferred Stock, and specifically ranking, by its terms, on par with Series B, and (iii) junior to any class or series of capital stock of the Company hereafter created specifically ranking, by its terms, senior to the Series B, in each case as to the distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary.

 

The Board of Directors authorized the designation of the Series B Preferred Stock pursuant to the authority of the Certificate of Incorporation, which confers said authority on the Board, and the issuance of the Series B Notes pursuant to a unanimous written consent of the Board dated December 10, 2015.

 

Equity Investment by the Investor

 

On December 10, 2015, the Investor purchased $90,000 in common stock at a purchase price equal to 90% of the average of the closing prices of the common stock for the three (3) trading days immediately preceding the date that is 6 months from the date of the agreement.

 

Forbearance Agreement

 

On December 10, 2015, the Company and the Investor entered into a forbearance agreement regarding the Investor’s convertible note. The Investor alleged certain breaches by the Company of its obligations under the note. The Company denied any breaches or defaults occurred under the note. However, in an effort to avoid protracted litigation about the dispute, the parties agreed to enter into the forbearance agreement which provided that the outstanding balance of the note increased by $105,000 as provided for in the original note.

 

Additional Funding Under August 2015 Note

 

On December 15, 2015, an accredited investor provided the Company with $50,000 in additional proceeds under the same terms of their original convertible note.

 

Third Party Debt Conversions

 

See Note 5 for subsequent conversions related to third party debt.

 

Unwinding of BetterChem Acquisition

 

See Note 1 for the unwinding of BetterChem.

XML 36 R20.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Business, Recent Acquisitions and Summary of Significant Accounting Policies (Policies)
12 Months Ended
Sep. 30, 2015
Description of Business, Recent Acquisitions and Summary of Significant Accounting Policies [Abstract]  
BUSINESS

BUSINESS 

 

Vape Holdings, Inc. (“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 designs, markets and distributes ceramic vaporization products under a unique brand. The Company has introduced a nonporous, non-corrosive, chemically inert medical-grade 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.

 

HIVE CERAMICS

 

HIVE Ceramics (“HIVE”) is the premier brand under the VAPE umbrella. HIVE manufactures and distributes a proprietarily blended ceramic vaporization element for torched, electronic and portable vaporizers with countless design and product crossover capabilities in existing and emerging markets. HIVE is dedicated to bringing the healthiest and cleanest vaporization experience possible to the market. The HIVE product line currently consists of over 15 distinct ceramic elements, including the 2 piece domeless, domeless direct inject, and HIVE’s signature domeless elements covering 10mm, 14mm and 18mm applications as well as regular elements, the HIVE Flower Cup, the HIVE Carb Cap, HIVE Stinger Dabber, the 14mm HIVE x Quave - Club Banger, and the HIVE x D-Nail 16mm and 20mm attachments.

 

The Company has recently launched ‘HIVE Glass.’ HIVE Glass is VAPE’s newest line of products under the HIVE brand name. The HIVE GLASS line is precision made using state of the art manufacturing processes and techniques, and exclusively uses German Schott glass caliber and fittings through all production phases. The aim with HIVE Glass is to create an affordable, high quality glass product that is both aesthetically pleasing and a highly functional vaporization product. VAPE’s existing customer base and distribution network will be the catalyst for expansion of this new HIVE product line. Under HIVE Glass, the Company also buys and sells high-end collector pieces. Subsequent to year end, the Company curtailed the product line in order to focus on HIVE Ceramics.

 

VAPE has also recently launched ‘HIVE Supply.’ HIVE Supply is a packaging and sourcing division of VAPE designed to serve as a competitively priced, comprehensive “one-stop shop” for all medical and recreational marijuana packaging needs. As with all of VAPE’s products, HIVE Supply will operate in full compliance with all federal laws and the laws of each individual state in which it does business. HIVE Supply will focus on providing much-needed support to cannabis businesses in regards to sourcing consumer products, brand management and marketing services. HIVE Supply is currently operated out of three (3) locations: HIVE Supply in Southern California, HIVE Supply Washington in Spokane and HIVE Supply Oregon in Portland. Under HIVE Supply, the Company also buys and sells high-end manufacturing machines. Subsequent to year end, the Company curtailed the product line in order to focus on HIVE Ceramics.

 

In connection with its launch of HIVE Supply and HIVE Glass, the Company opened ‘THE HIVE’ retail store and gallery in Los Angeles, an end-user experience to showcase the complete line of HIVE Ceramics and HIVE Glass products, while introducing HIVE Supply and all the new products being tested and developed through each vertical. Subsequent to year end, the Company curtailed its retail store in order to reduce overhead costs and focus on HIVE Ceramics.

 

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.

 

REVIVAL PRODUCTS

 

On December 28, 2015, the Company created a new wholly-owned subsidiary, Revival Products, LLC (“Revival”), which is in the business of portable vaporization devices. Revival will disposable cartridge complement HIVE Ceramic’s product lines utilizing its sales and distribution channels and via its own designated e-commerce site at www.revivalvapes.com.

 

BETTERCHEM

 

On July 1, 2015, the Company entered into a Share Exchange Agreement with BetterChem Consulting, Inc. (“BetterChem”), a Pennsylvania corporation, and its sole shareholder and the Company’s current Chief Science Officer Dr. Mark Scialdone (“Dr. Scialdone”), whereby the Company acquired a controlling 80% interest in BetterChem from Dr. Scialdone in exchange for up to 400,000 shares of the Company’s restricted common stock. In consideration for the issuance of the shares to Dr. Scialdone, the Company acquired 80 shares of the common stock of BetterChem which represents 80% of the issued and outstanding shares of BetterChem. Dr. Scialdone retained a 20% interest in BetterChem. The Share Exchange Agreement transaction closed concurrently with its execution on July 1, 2015 and was approved by Unanimous Written Consent of the Board of Directors (the “Board”) of the Company on the same date. At closing, the Company issued 250,000 shares of its common stock valued at $67,500 to BetterChem. The Company acquired an 80% controlling interest of the business in order to expand its science consulting segment and research and development. BetterChem had no assets and liabilities upon closing.

 

An additional up to 150,000 shares of common stock to be issued to Dr. Scialdone will be subject to the following terms:

 

 1.Due to the uncertain nature of the valuation of BetterChem, a privately held consulting business, the parties have agreed that Dr. Scialdone shall have a nonassignable contingent contractual right to receive additional shares contingent on the future gross revenues of BetterChem as follows:

 

 a.On the one year anniversary of the closing, Dr. Scialdone shall be entitled to an additional 75,000 shares if BetterChem has generated at least $100,000 in gross revenues beginning on the date of closing and up to the one year anniversary of the closing. The additional stock issuance will be calculated on a pro rata basis (i.e. If BetterChem only generates $50,000 in gross revenues in the first year then Dr. Scialdone will be entitled to only 37,500 shares).

 

 b.On the two year anniversary of the closing, Dr. Scialdone shall be entitled to an additional 75,000 shares if BetterChem has generated at least $100,000 in gross revenues beginning on the one year anniversary of the closing up to the two year anniversary of the closing. The additional stock issuance will be calculated on a pro rata basis (i.e. If BetterChem only generates $50,000 in gross revenues in the second year then Dr. Scialdone will be entitled to only 37,500 shares).

 

 2.In the event of a change in control of BetterChem or a sale of all or substantially all of the assets of BetterChem during the two year period, the additional 150,000 shares shall automatically vest and be payable in full to Dr. Scialdone and any salary compensation due Dr. Scialdone under the 2 year term of his employment agreement with the Company dated May 1, 2015, or extensions of that Employment Agreement which the parties may thereafter execute, shall be accelerated and shall be due and payable in full within 30 days of the event of change in control of BetterChem.

 

In connection with the Share Exchange Agreement, on July 1, 2015, Dr. Scialdone and the Company entered into an Intellectual Property Rights Transfer Agreement (the “I.P. Agreement”) whereby Dr. Scialdone agreed to transfer and assign to Company the entire right, title and interest in and to any and all intellectual property in which Dr. Scialdone has a right to convey an interest, including intellectual property conceived, developed, reduced to practice, assigned or acquired by Dr. Scialdone prior to the date of the I.P. Agreement as well as intellectual property held, conceived, developed, reduced to practice, assigned or acquired by BetterChem. There were no assets or liabilities assumed by the Company. On January 12, 2016, the Company unwound the transaction and curtailed the subsidiary’s operations in order to reduce overhead costs and focus on HIVE Ceramics and reflected such as of September 30, 2015 in the consolidated financial statements. During the year ended September 30, 2015, the 250,000 shares issued to BetterChem valued at $67,500 was recorded as an impairment of acquisition on the statement of operations as a result of the settlement to receive the shares back as part of the unwind. Also, the fair value of 250,000 shares as of the unwind date of January 12, 2016 of $1,750 was recorded as an impairment of acquisition during the year ended September 30, 2015.

 

VAPE is organized and directed to operate strictly in accordance with all applicable state and federal laws. Subsequent to year end, the Company abandoned such plans in order to reduce overhead costs and focus on HIVE Ceramics. 

 

Subsequent to the Company’s fiscal year ended September 30, 2015, the Company began taking steps to curtail its Offset, HIVE Glass and HIVE Supply business lines to focus more on consumer vaporization products including the launch of “Revival” discussed above. The Company also curtailed its ‘THE HIVE’ retail store in order to reduce overhead costs and focus on HIVE Ceramics. Moreover, the Company curtailed its exploration into providing real estate, management and consulting solutions to the legal cannabis industry in states where such cannabis cultivation and extraction is legal. The Company was never able to execute on any of these plans and ultimately determined that the Company’s capital reserves for such projects as well as the risks inherent in each project due to the current regulatory environment surrounding the cannabis industry made this line of business too difficult to pursue.

BASIS OF PRESENTATION

BASIS OF PRESENTATION

 

The accompanying unaudited interim consolidated 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 consolidated financial statements have been included. Such adjustments consist of normal recurring adjustments. The current results are not an indication of the full year.

CONSOLIDATION

CONSOLIDATION

 

The consolidated financial statements include the assets, liabilities, and operating results of the Company and its wholly-owned subsidiaries, HIVE Ceramics, Offset, and Nouveau after elimination of all material inter-company accounts and transactions. No segment information is presented as the assets, liabilities, and results of HIVE represent over 90% of the Company’s operations.

USE OF ESTIMATES

USE OF ESTIMATES

 

The preparation of consolidated 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 consolidated 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:

 

 Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
 Level 2 - Include other inputs that are directly or indirectly observable in the marketplace.
 Level 3 - Unobservable inputs which are supported by little or no market activity.

  

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Derivative instruments include the convertible notes payable derivative liability and warrant liability (Level 2). Derivative instruments are valued using standard calculations/models that are primarily based on observable inputs, including volatilities and interest rates. Therefore, derivative instruments are included in Level 2.

 

Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2015 and 2014. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, prepaid expenses, accounts payable, accrued liabilities, and notes payable. Fair values for these items were assumed to approximate carrying values because of their short-term nature or they are payable on demand.

 

The following table presents the Company’s fair value hierarchy for assets measured at fair value on a recurring basis at September 30, 2015:

 

  Level 1  Level 2  Level 3  Total 
Assets            
Cash  and cash equivalents $273,904  $-  $-  $273,904 
Total assets measured at fair value $273,904  $-  $-  $273,904 
                 
Liabilities                
Derivative instruments $-  $1,704,127  $-  $1,704,127 
Total liabilities measured at fair value $-  $1,704,127  $-  $1,704,127 

 

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at September 30, 2014:

   

  Level 1  Level 2  Level 3  Total 
Assets            
Cash and cash equivalents $48,370  $-  $-  $48,370 
Total assets measured at fair value $48,370  $-  $-  $48,370 
                 
Liabilities                
Derivative instruments $-  $2,464,232  $-  $2,464,232 
Total liabilities measured at fair value $-  $2,464,232  $-  $2,464,232 
CONCENTRATION

CONCENTRATION

 

Credit Risk

 

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 write-offs of potentially uncollectible accounts. 

 

Customers

 

One (1) customer accounted for 37% of our accounts receivable as of September 30, 2015. The loss of this customer would have a significant impact on the Company’s financial results.

 

Suppliers

 

One (1) supplier accounted for 54% of our purchases during the year ended September 30, 2015. We purchased $60,000 in high-end glass from Kyle Tracey for HIVE Glass, which accounted for 10% of purchases during the year ended September 30, 2015. The loss of these suppliers would have a significant impact on the Company’s financial results.

REVENUE RECOGNITION

REVENUE RECOGNITION

 

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. Revenue is recorded when sales orders are shipped.

INVENTORY

INVENTORY

 

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.

 

We purchase product sourced from China which we are required to pay 50% upon placing the order. Amounts paid for products, which have not been received, are recorded as prepaid inventory. There are no amounts paid which are in dispute or considered impaired.

FIXED ASSETS

FIXED ASSETS

 

Fixed assets are recorded at cost and depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The estimated life of tooling related to our ceramic products is three (3) years. The estimated life of our leasehold improvements is the lesser of the term of the related lease and useful life.

IMPAIRMENT OF LONG-LIVED AND PURCHASED INTANGIBLE ASSETS

IMPAIRMENT OF LONG-LIVED AND PURCHASED INTANGIBLE ASSETS

 

The Company has adopted Accounting Standards Codification (“ASC”) 350 “Intangibles - Goodwill and Other.” The Statement requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undercounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 350 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

 

Long-lived assets, such as fixed assets and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to undiscounted future net cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair market value. Estimates of expected future cash flows represent management's best estimate based on currently available information and reasonable and supportable assumptions. Any impairment recognized is permanent and may not be restored. During the year ended September 30, 2015 and 2014, the Company recorded $22,133 and $0 of impairment of its pending patents as its expected cash flows did not exceed its carrying amounts and none towards its trademarks as its expected future cash flows are in excess of their carrying amounts.

RESEARCH AND DEVELOPMENT

RESEARCH AND DEVELOPMENT

 

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 fixed assets 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 year ended September 30, 2015 and 2014, research and development costs were $212,424 and $45,757, respectively.

CONVERTIBLE DEBT

CONVERTIBLE DEBT

 

Convertible debt is accounted for under the guidelines established by 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. Many of the conversion features embedded in the Company's 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.  In these cases, we record the embedded conversion feature as a derivate instrument, at fair value. The embedded conversion features are recorded as discounts when the notes become convertible. The excess of fair value of the embedded conversion feature over the carrying value of the debt is recorded as an immediate charge to operations.  Each reporting period, the Company will compute the estimated fair value of derivatives and record changes to operations. The discounts relating to the initial recording of the derivatives or beneficial conversion features are accreted over the term of the debt using the effective interest method.  

 

The Company has lost the ability to increase the share reserves due to the significantly increased outstanding held by convertible noteholders and a shareholder vote is required to increase the authorized amount of shares the Company may issue. Further, the combination of limited capital and depleted share reserves have severely damaged the Company’s ability to find continued finance, properly run the Company, and proceed with business to include any mergers or acquisitions or any transactions that would require available stock.

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

 

Derivative financial instruments, as defined in ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities”, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

 

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including senior convertible notes payable and freestanding stock purchase warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our consolidated financial statements.

 

The Company estimates the fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with objectively measuring fair values. In selecting the appropriate technique, consideration is given to, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, the Company generally uses the Black-Scholes option valuation technique because it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company's operating results will reflect the volatility in these estimate and assumption changes.

EARNINGS PER COMMON SHARE

EARNINGS PER COMMON SHARE

 

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income available to common shareholders by the combination of dilutive common share equivalents, comprised of shares issuable under the Company’s share-based compensation plans and the weighted-average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated, based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an award, if any, the amount of compensation cost, if any, for future service that the Company has not yet recognized, and the estimated tax benefits that would be recorded in paid-in capital, if any, when an award is settled are assumed to be used to repurchase shares in the current period.

 

The following is a summary of outstanding securities that would have been included in the calculation of diluted 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 for the year ended September 30, 2015 and 2014:

 

  For the Year Ended  For the Year Ended 
  September 30,  September 30, 
  2015  2014 
Series A Preferred stock  500,000   500,000 
Common stock options  -   303,889 
Common stock warrants  1,184,727   1,184,727 
Convertible notes  79,699,946   843,213 
   81,384,673   2,831,829 

The Company would have excluded 125,000 options from the computation for the year ended September 30, 2014 as their exercise prices were in excess of the average closing market price of the Company’s common stock, causing their effects to be anti-dilutive using the treasury stock method. 

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

 

ASC 718, “Share-Based Payment” requires that compensation cost related to share-based payment transactions be recognized in the consolidated financial statements. Share-based payment transactions within the scope of ASC 718 include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans.

 

The Company adopted ASC 718, which requires disclosure of the fair value and other characteristics of stock options and more prominent disclosure about the effects of an entity’s accounting policy decisions with respect to stock-based compensation on reported net loss. The Company has reflected the expense of such stock based compensation based on the fair value at the grant date for awards consistent with the provisions of ASC 718.

 

In connection with the adoption of ASC 718, the fair value of our share-based compensation has been determined utilizing the Black-Scholes pricing model. The fair value of the options granted is amortized as compensation expense on a straight line basis over the requisite service period of the award, which is generally the vesting period. The fair value calculations involve significant judgments, assumptions, estimates and complexities that impact the amount of compensation expense to be recorded in current and future periods. Upon option exercise, the Company issues new shares of stock.

 

The following weighted average variables were used in the Black Scholes model for all option issuances valued during the year ended September 30, 2015 and 2014:

 

Year Ended September 30, Stock Price at
Grant Date
  Dividend 
Yield
 Exercise
Price
  Risk Free
Interest Rate
  Volatility  Average
Life
 
2015 $0.73  -% $0.73   2.2%  380%  10.0 
2014 $1.66  -% $1.66   2.5%  401%  10.0 

 

The Company's accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of Emerging Issues Task Force (“EITF”) 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”, codified into ASC 505-50.  The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor's performance is complete.  In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

RECENT ACCOUNTING PRONOUNCEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers”, which supersedes most of the current revenue recognition requirements. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for these goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. This guidance is effective for the Company in the first quarter of fiscal year 2018 and early application is not permitted. Entities must adopt the new guidance using one of two retrospective application methods. The Company is currently evaluating the standard but does not expect it to have a material impact on our financial position, results of operations or cash flows.

 

In August 2014, the FASB issued ASU 2014-15, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued.2 An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.

 

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.

RISKS AND UNCERTAINTIES

RISKS AND UNCERTAINTIES

 

Although forward-looking statements in this Quarterly Report reflect our good faith judgment, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under the heading “Risk Factors” below, as well as those discussed elsewhere in this Quarterly Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

AMENDMENT

AMENDMENT 

 

We have amended this Form 10-K/A to correctly account for the following non-cash transactions:

 

In August 2015 the Company entered into convertible notes without conversion floors resulting in an unlimited potential of shares to be issued. The notes are not convertible until six months from the issuance date, and accordingly, we adjusted the consolidated financial statements to defer recognition of the embedded conversion feature until the instruments are convertible.

 

On August 13, 2015 and August 26, 2015, the convertible notes due to Redwood and Typenex, respectively, were amended which removed the fixed conversion floors per common share creating a potentially unlimited number of shares to be issued on the date of the amendment. Accordingly, we amended this Form 10-K/A to account for the embedded conversion features as derivative financial instruments at fair value. This increased the loss on debt extinguishments and interest expense previously recorded, as well as the derivative liabilities at fair value.

 

The following was the effect on the previously reported consolidated financial statements.

 

 
  As Previously Reported     As Restated 
  September 30, 2015  Change  September 30, 2015 
LIABILITIES AND STOCKHOLDERS' DEFICIT         
Total current liabilities$631,801  $1,919,544  $2,551,345 
Total liabilities $1,392,465  $1,736,271  $3,128,736 
             
Total stockholders' deficit $(385,013) $(1,736,271) $(2,121,284)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $1,007,452  $-  $1,007,452 
             
Interest expense $(788,038) $(957,370) $(1,745,408)
Change in derivative liabilities $2,439,207  $(123,291) $2,315,916 
Loss on debt extinguishment, net $(564,712) $(406,848) $(971,560)
Other $-  $(69,250) $(69,250)
Net loss $(1,230,147) $(1,555,703) $(2,785,850)
             
Net loss available to common shareholders:            
Loss per common share - basic $(0.11)     $(0.24)
Loss per common share - diluted $(0.11)     $(0.24)
XML 37 R21.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Business, Recent Acquisitions and Summary of Significant Accounting Policies (Tables)
12 Months Ended
Sep. 30, 2015
Description of Business, Recent Acquisitions and Summary of Significant Accounting Policies [Abstract]  
Schedule of assets and liabilities measured at fair value on a recurring basis

The following table presents the Company’s fair value hierarchy for assets measured at fair value on a recurring basis at September 30, 2015:

 

  Level 1  Level 2  Level 3  Total 
Assets            
Cash  and cash equivalents $273,904  $-  $-  $273,904 
Total assets measured at fair value $273,904  $-  $-  $273,904 
                 
Liabilities                
Derivative instruments $-  $1,704,127  $-  $1,704,127 
Total liabilities measured at fair value $-  $1,704,127  $-  $1,704,127 

 

The following table presents the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis at September 30, 2014:

   

  Level 1  Level 2  Level 3  Total 
Assets            
Cash and cash equivalents $48,370  $-  $-  $48,370 
Total assets measured at fair value $48,370  $-  $-  $48,370 
                 
Liabilities                
Derivative instruments $-  $2,464,232  $-  $2,464,232 
Total liabilities measured at fair value $-  $2,464,232  $-  $2,464,232
Schedule of securities to be included in diluted share calculation
  For the Year Ended  For the Year Ended 
  September 30,  September 30, 
  2015  2014 
Series A Preferred stock  500,000   500,000 
Common stock options  -   303,889 
Common stock warrants  1,184,727   1,184,727 
Convertible notes  79,699,946   843,213 
   81,384,673   2,831,829 
Summary of weighted average variables used in the Black Scholes model
Year Ended September 30, Stock Price at
Grant Date
  Dividend 
Yield
 Exercise
Price
  Risk Free
Interest Rate
  Volatility  Average
Life
 
2015 $0.73  -% $0.73   2.2%  380%  10.0 
2014 $1.66  -% $1.66   2.5%  401%  10.0 
Summary of previously reported consolidated financial statements
  As Previously Reported     As Restated 
  September 30, 2015  Change  September 30, 2015 
LIABILITIES AND STOCKHOLDERS' DEFICIT         
Total current liabilities $631,801  $1,919,544  $2,551,345 
Total liabilities $1,392,465  $1,736,271  $3,128,736 
             
Total stockholders' deficit $(385,013) $(1,736,271) $(2,121,284)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $1,007,452  $-  $1,007,452 
             
Interest expense $(788,038) $(957,370) $(1,745,408)
Change in derivative liabilities $2,439,207  $(123,291) $2,315,916 
Loss on debt extinguishment, net $(564,712) $(406,848) $(971,560)
Other $-  $(69,250) $(69,250)
Net loss $(1,230,147) $(1,555,703) $(2,785,850)
             
Net loss available to common shareholders:            
Loss per common share - basic $(0.11)     $(0.24)
Loss per common share - diluted $(0.11)     $(0.24)
XML 38 R22.htm IDEA: XBRL DOCUMENT v3.4.0.3
Fixed Assets (Tables)
12 Months Ended
Sep. 30, 2015
Fixed Assets [Abstract]  
Summary of fixed assets

 

    September 30,
2015
    September 30,
2014
 
Molds and Tooling   $ 176,015     $ 122,555  
Leasehold improvements     29,795       -  
Accumulated depreciation     (87,483 )     (16,178 )
    $ 118,327     $ 106,377  
XML 39 R23.htm IDEA: XBRL DOCUMENT v3.4.0.3
Accrued Expenses (Tables)
12 Months Ended
Sep. 30, 2015
Accrued Expenses [Abstract]  
Summary of accrued expenses
  September 30,
2015
  September 30,
2014
 
Accrued interest $46,337  $16,300 
Accrued interest - related party  24,538   18,325 
Accrued wages and taxes  112,322   108,374 
Other  24,412   26,514 
  $207,609  $169,513 
XML 40 R24.htm IDEA: XBRL DOCUMENT v3.4.0.3
Third Party Debt (Tables)
12 Months Ended
Sep. 30, 2015
Securities Purchase Agreement [Member]  
Debt Instrument [Line Items]  
Shedule of conversions for payments

Between June 2015 and September 2015, the Company issued the following conversions for payment towards Investor:

 

Conversion Date Principal 
Converted
  Accrued 
Interest 
Converted
  Total 
Converted
  Conversion 
Rate
  Common 
Shares 
Issued
 
June 4, 2015 $46,667  $28,871  $75,538  $0.342   220,949 
July 3, 2015  46,667   4,295   50,962  $0.194   263,141 
August 11, 2015  25,000   -   25,000  $0.138   181,818 
September 3, 2015  25,000   -   25,000  $0.056   445,196 
September 23, 2015  25,000   -   25,000  $0.041   606,061 
September 29, 2015  23,000   -   23,000  $0.015   1,548,822 
  $191,334  $33,166  $224,500       3,265,987 

 

Subsequent to year end, the Investor also enacted the following conversions:

 

Conversion Date Principal 
Converted
  Accrued 
Interest 
Converted
  Total 
Converted
  Conversion 
Rate
  Common 
Shares 
Issued
 
October 8, 2015 $21,000  $-  $21,000  $0.012   1,818,182 
October 16, 2015  18,900   -   18,900  $0.012   1,636,364 
October 22, 2015  25,800   -   25,800  $0.011   2,333,786 
October 29, 2015  22,460   -   22,460  $0.011   2,031,660 
November 11, 2015  33,500   -   33,500  $0.007   4,649,549 
November 18, 2015  24,000   -   24,000  $0.006   4,195,804 
November 30, 2015  30,000   -   30,000  $0.005   5,741,627 
December 11, 2015  22,000   -   22,000  $0.002   9,090,909 
December 28, 2015  22,500   -   22,500  $0.002   9,297,521 
January 7, 2016  20,000   -   20,000  $0.002   10,101,010 
  $240,160  $-  $240,160       50,896,412 
$2M Securities Purchase Agreement [Member]  
Debt Instrument [Line Items]  
Shedule of conversions for payments


The following is summary of conversions by the $2M Note holder during the year ended September 30, 2015:

 

Conversion Date Principal Converted  Accrued 
Interest Converted
  Total Converted  Conversion Rate  Common Shares Issued 
August 13, 2015 $50,000   -  $50,000  $0.127   393,701 
August 26, 2015  25,000   -   25,000  $0.056   446,428 
September 8, 2015  25,000   -   25,000  $0.056   446,428 
September 14, 2015  25,000  $-   25,000  $0.053   469,925 
September 16, 2015  10,000   -   10,000  $0.053   188,679 
September 17, 2015  25,000   -   25,000  $0.053   469,925 
September 22, 2015  10,000   -   10,000  $0.043   232,558 
September 24, 2015  10,000   -   10,000  $0.026   390,625 
September 25, 2015  10,000   -   10,000  $0.019   518,135 
September 29, 2015  13,410   -   13,410  $0.015   900,000 
  $203,410  $-  $203,410       4,456,404 

 

Subsequent to year end, the $2M Note holder also enacted the following conversions:

 

Conversion Date Principal Converted  Accrued Interest Converted  Total Converted  Conversion Rate  Common Shares Issued 
October 1, 2015 $10,000  $-  $10,000  $0.0148   675,676 
October 5, 2015  10,000   -   10,000  $0.0148   675,676 
October 6, 2015  13,262   -   13,262  $0.0138   961,000 
October 7, 2015  10,000   -   10,000  $0.0115   865,801 
October 9, 2015  11,728   -   11,728  $0.0116   1,011,000 
October 9, 2015  10,000   -   10,000  $0.0115   865,801 
October 12, 2015  14,680   -   14,680  $0.0115   1,271,000 
October 13, 2015  11,601   -   11,601  $0.0116   1,000,052 
October 15, 2015  14,680   -   14,680  $0.0115   1,271,000 
October 19, 2015  17,400   -   17,400  $0.0116   1,500,000 
October 19, 2015  15,000   -   15,000  $0.0116   1,298,701 
October 20, 2015  16,650   -   16,650  $0.0111   1,500,000 
October 21, 2015  17,500   -   17,500  $0.0115   1,515,152 
October 23, 2015  20,000   -   20,000  $0.0115   1,731,602 
October 26, 2015  24,420   -   24,420  $0.0111   2,200,000 
October 29, 2015  26,640   -   26,640  $0.0111   2,400,000 
November 2, 2015  29,970   -   29,970  $0.0111   2,700,000 
November 2, 2015  20,000   -   20,000  $0.0111   1,809,136 
November 5, 2015  32,190   -   32,190  $0.0111   2,900,000 
November 10, 2015  28,800   -   28,800  $0.0096   3,000,000 
November 12, 2015  23,930   -   23,930  $0.0072   3,323,611 
November 17, 2015  16,500   -   16,500  $0.0060   2,727,273 
November 19, 2015  1,640   11,225   12,865  $0.0056   2,316,013 
November 23, 2015  23,111   -   23,111  $0.0056   4,127,000 
November 27, 2015  24,750   -   24,750  $0.0055   4,500,000 
December 2, 2015  18,450   -   18,450  $0.0041   4,500,000 
December 8, 2015  18,000   -   18,000  $0.0036   5,000,000 
December 11, 2015  13,368   -   13,368  $0.0024   5,570,000 
December 16, 2015  14,181   -   14,181  $0.0024   5,860,000 
December 22, 2015  15,488   -   15,488  $0.0024   6,400,000 
December 29, 2015  17,666       17,666  $0.0024   7,300,000 
  $541,604  $11,225  $552,830       82,775,494 
XML 41 R25.htm IDEA: XBRL DOCUMENT v3.4.0.3
Income Taxes (Tables)
12 Months Ended
Sep. 30, 2015
Income Taxes [Abstract]  
Schedule of current and deferred income tax provision for federal and state income taxes
  2015  2014 
Current tax provision (benefit):      
Federal $-  $- 
State  2,209   800 
Total  2,209   800 
Deferred tax provision (benefit)        
Federal  (418,000)  (262,000)
State  -   - 
Valuation allowance  418,000   262,000 
Total  -   - 
Total provision (benefit) for income taxes $2,209  $800 
Schedule of reconciliations of the U.S. federal statutory rate to the actual tax rate
  2015  2014 
US federal statutory income tax rate  (34.0%)  (34.0%)
State tax – net of benefit  (6.0%)  (6.0%)
   (40.0%)  (40.0%)
         
Permanent differences:  -%  38.7%
Stock-based compensation  2.8%  0.2%
Changes in warrant liability  -%  1.0%
Increase in valuation allowance  37.2%  0.1%
Effective tax rate  -%  -%
Schedule of deferred tax assets and liabilities

  As of September, 
  2015  2014 
Current deferred tax assets (liabilities):      
Accrued expenses and other $-  $- 
Total current deferred tax assets  -   - 
Non-current deferred tax assets and liabilities:        
Property, plant and equipment  29,000   29,000 
Net operating losses  680,000   262,000 
Total non-current deferred tax assets  709,000   291,000 
Valuation allowance  (709,000)  (291,000)
Total non-current deferred tax assets  -   - 
Net deferred tax assets $-  $- 
XML 42 R26.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stockholders' Deficit (Tables)
12 Months Ended
Sep. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Schedule of weighted average variables in the Black Scholes model

 

Year Ended September 30, Stock Price at
Grant Date
  Dividend 
Yield
  Exercise
Price
  Risk Free
Interest Rate
  Volatility  Average
Life
 
2015 $0.04   -% $0.023   0.08%  351%  0.7 
Employee Stock Option [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Schedule of option activity

  Shares  Weighted 
Average 
Exercise 
Price
  Weighted 
Average 
Remaining 
Contractual Term
  Aggregate 
Intrinsic 
Value
 
Options outstanding at September 30, 2014  1,150,000  $2.92   8.7  $4,648,294 
Options granted  995,000  $0.73   10.0     
Options exercised  -  $-   -     
Options cancelled/forfeited/expired  (2,145,000) $1.91   9.0     
Options outstanding at September 30, 2015  -  $-   -  $- 
Options exercisable at September 30, 2015  -  $-   -  $- 
Warrant [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Schedule of option activity

  Shares  Weighted Average
Price
  Weighted Average Remaining Contractual Term  Aggregate Intrinsic
Value
 
Warrants outstanding at September 30, 2014  1,184,726  $0.114   1.6  $7,217,234 
Warrants issued  -   -         
Warrants exercised  -   -         
Cancelled/forfeited/expired  -   -         
Warrants outstanding at September 30, 2015  1,184,726  $0.021   0.6  $694,008 
XML 43 R27.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Business, Recent Acquisitions and Summary of Significant Accounting Policies (Details) - Fair Value, Measurements, Recurring [Member] - USD ($)
Sep. 30, 2015
Sep. 30, 2014
Assets    
Cash and cash equivalents $ 273,904 $ 48,370
Total assets measured at fair value 273,904 48,370
Liabilities    
Derivative instruments 1,704,127 2,464,232
Total liabilities measured at fair value 1,704,127 2,464,232
Level 1 [Member]    
Assets    
Cash and cash equivalents 273,904 48,370
Total assets measured at fair value $ 273,904 $ 48,370
Liabilities    
Derivative instruments
Total liabilities measured at fair value
Level 2 [Member]    
Assets    
Cash and cash equivalents
Total assets measured at fair value
Liabilities    
Derivative instruments $ 1,704,127 $ 2,464,232
Total liabilities measured at fair value $ 1,704,127 $ 2,464,232
Level 3 [Member]    
Assets    
Cash and cash equivalents
Total assets measured at fair value
Liabilities    
Derivative instruments
Total liabilities measured at fair value
XML 44 R28.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Business, Recent Acquisitions and Summary of Significant Accounting Policies (Details 1) - shares
12 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Diluted shares outstanding 81,384,673 2,831,829
Series A Preferred stock [Member]    
Diluted shares outstanding 500,000 500,000
Common stock options [Member]    
Diluted shares outstanding 303,889
Common stock warrants [Member]    
Diluted shares outstanding 1,184,727 1,184,727
Convertible notes [Member]    
Diluted shares outstanding 79,699,946 843,213
XML 45 R29.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Business, Recent Acquisitions and Summary of Significant Accounting Policies (Details 2) - $ / shares
12 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Weighted average variables used in the Black Scholes model    
Stock Price at Grant Date $ 0.73 $ 1.66
Dividend Yield
Exercise Price $ 0.73 $ 1.66
Risk Free Interest Rate 2.20% 2.50%
Volatility 380.00% 401.00%
Average Life 10 years 10 years
XML 46 R30.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Business, Recent Acquisitions and Summary of Significant Accounting Policies (Details 3) - USD ($)
12 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2013
LIABILITIES AND STOCKHOLDERS' DEFICIT      
Total current liabilities $ 2,551,345 $ 619,400  
Total liabilities 3,128,736 3,802,237  
Total stockholders' deficit (2,121,284) (2,978,133) $ (317,191)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 1,007,452 824,104  
Interest expense (1,745,408) (241,065)  
Change in derivative liabilities 2,315,916 $ (23,404,058)  
Loss on debt extinguishments, net 971,560  
Other (69,250)  
Net loss $ (2,785,850) $ (25,063,658)  
Net loss available to common shareholders:      
Loss per common share - basic $ (0.24) $ (3.20)  
Loss per common share - diluted $ (0.24) $ (3.20)  
As Previously Reported [Member]      
LIABILITIES AND STOCKHOLDERS' DEFICIT      
Total current liabilities $ 631,801    
Total liabilities 1,392,465    
Total stockholders' deficit (385,013)    
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 1,007,452    
Interest expense (788,038)    
Change in derivative liabilities 2,439,207    
Loss on debt extinguishments, net $ (564,712)    
Other    
Net loss $ (1,230,147)    
Net loss available to common shareholders:      
Loss per common share - basic $ (0.11)    
Loss per common share - diluted $ (0.11)    
Adjustment [Member]      
LIABILITIES AND STOCKHOLDERS' DEFICIT      
Total current liabilities $ 1,919,544    
Total liabilities 1,736,271    
Total stockholders' deficit $ (1,736,271)    
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT    
Interest expense $ (957,370)    
Change in derivative liabilities (123,291)    
Loss on debt extinguishments, net (406,848)    
Other (69,250)    
Net loss $ (1,555,703)    
XML 47 R31.htm IDEA: XBRL DOCUMENT v3.4.0.3
Description of Business, Recent Acquisitions and Summary of Significant Accounting Policies (Details Textual)
1 Months Ended 12 Months Ended
Mar. 12, 2015
shares
Jul. 31, 2015
USD ($)
shares
Sep. 30, 2015
USD ($)
customers
supplier
shares
Sep. 30, 2014
USD ($)
shares
Description of Business and Summary of Significant Accounting Policies (Textual)        
Estimated useful lives     3 years  
Impairment charges | $     $ 22,133 $ 0
Research and development expense | $     $ 212,424 $ 45,757
Number of options excluded from the compution of diluted shares outstanding       125,000
Customer [Member]        
Description of Business and Summary of Significant Accounting Policies (Textual)        
Number of customers | customers     1  
Credit risk rate     37.00%  
Suppliers [Member]        
Description of Business and Summary of Significant Accounting Policies (Textual)        
Number of suppliers | supplier     1  
Credit risk rate     54.00%  
Dr. Mark Scialdone [Member]        
Description of Business and Summary of Significant Accounting Policies (Textual)        
Common stock shares issued   150,000    
Kyle Tracey [Member]        
Description of Business and Summary of Significant Accounting Policies (Textual)        
Restricted common stock issued 97,898      
Credit risk rate     10.00%  
Purchases of HIVE Glass | $     $ 60,000  
BetterChem Consulting, Inc. [Member]        
Description of Business and Summary of Significant Accounting Policies (Textual)        
Acquired controlling interest percentage     80.00%  
Description of acquired entity   In consideration for the issuance of the shares to Dr. Scialdone, the Company acquired 80 shares of the common stock of BetterChem which represents 80% of the issued and outstanding shares of BetterChem. Dr. Scialdone retained a 20% interest in BetterChem.    
Common stock shares issued   250,000 250,000  
Common stock value | $   $ 67,500 $ 1,750  
Description of share exchange agreement   In the event of a change in control of BetterChem or a sale of all or substantially all of the assets of BetterChem during the two year period, the additional 150,000 shares shall automatically vest and be payable in full to Dr. Scialdone and any salary compensation due Dr. Scialdone under the 2 year term of his employment agreement with the Company dated May 1, 2015, or extensions of that Employment Agreement which the parties may thereafter execute, shall be accelerated and shall be due and payable in full within 30 days of the event of change in control of BetterChem.    
Interest rate   80.00%    
Treasury stock, Share     250,000  
Treasury stock | $     $ 67,500  
BetterChem Consulting, Inc. [Member] | One Year Anniversary [Member]        
Description of Business and Summary of Significant Accounting Policies (Textual)        
Description of share exchange agreement   On the one year anniversary of the closing, Dr. Scialdone shall be entitled to an additional 75,000 shares if BetterChem has generated at least $100,000 in gross revenues beginning on the date of closing and up to the one year anniversary of the closing. The additional stock issuance will be calculated on a pro rata basis (i.e. If BetterChem only generates $50,000 in gross revenues in the first year then Dr. Scialdone will be entitled to only 37,500 shares).    
BetterChem Consulting, Inc. [Member] | Two Year Anniversary [Member]        
Description of Business and Summary of Significant Accounting Policies (Textual)        
Description of share exchange agreement   On the two year anniversary of the closing, Dr. Scialdone shall be entitled to an additional 75,000 shares if BetterChem has generated at least $100,000 in gross revenues beginning on the one year anniversary of the closing up to the two year anniversary of the closing. The additional stock issuance will be calculated on a pro rata basis (i.e. If BetterChem only generates $50,000 in gross revenues in the second year then Dr. Scialdone will be entitled to only 37,500 shares).    
BetterChem Consulting, Inc. [Member] | Dr. Mark Scialdone [Member]        
Description of Business and Summary of Significant Accounting Policies (Textual)        
Acquired controlling interest percentage   80.00%    
Restricted common stock issued   400,000    
XML 48 R32.htm IDEA: XBRL DOCUMENT v3.4.0.3
Going Concern (Details) - USD ($)
12 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2013
Going Concern (Textual)      
Net loss $ (2,785,850) $ (25,063,658)  
Cash 273,904 48,370 $ 568
Working capital deficit 1,797,437    
Accumulated deficit $ (28,166,745) $ (25,380,895)  
XML 49 R33.htm IDEA: XBRL DOCUMENT v3.4.0.3
Fixed Assets (Details) - USD ($)
Sep. 30, 2015
Sep. 30, 2014
Fixed Assets [Abstract]    
Molds and Tooling $ 176,015 $ 122,555
Leasehold improvements 29,795
Accumulated depreciation (87,483) $ (16,178)
Fixed assets, net $ 118,327 $ 106,377
XML 50 R34.htm IDEA: XBRL DOCUMENT v3.4.0.3
Fixed Assets (Details Textual) - USD ($)
12 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Fixed Assets [Abstract]    
Depreciation $ 71,305 $ 16,178
XML 51 R35.htm IDEA: XBRL DOCUMENT v3.4.0.3
Accrued Expenses (Details) - USD ($)
Sep. 30, 2015
Sep. 30, 2014
Summary of Accrued Expenses:    
Accrued interest $ 46,337 $ 16,300
Accrued interest - related party 24,538 18,325
Accrued wages and taxes 112,322 108,374
Other 24,412 26,514
Accrued expenses $ 207,609 $ 169,513
XML 52 R36.htm IDEA: XBRL DOCUMENT v3.4.0.3
Accrued Expenses (Details Textual) - USD ($)
Sep. 30, 2015
Sep. 30, 2014
Related Party Transaction [Line Items]    
Accrued wages and taxes $ 112,322 $ 108,374
Kyle Tracey [Member]    
Related Party Transaction [Line Items]    
Accrued wages and taxes 55,000 59,273
Joseph Andreae [Member]    
Related Party Transaction [Line Items]    
Accrued wages and taxes 14,667 0
Allan Viernes [Member]    
Related Party Transaction [Line Items]    
Accrued wages and taxes 1,833 0
Benjamin Beaulieu [Member]    
Related Party Transaction [Line Items]    
Accrued wages and taxes $ 1,833 $ 0
XML 53 R37.htm IDEA: XBRL DOCUMENT v3.4.0.3
Third Party Debt (Details) - Securities Purchase Agreement [Member]
12 Months Ended
Sep. 30, 2015
USD ($)
$ / shares
shares
Debt Instrument [Line Items]  
Principal Converted $ 191,334
Accrued Interest Converted 33,166
Total Converted $ 224,500
Common Shares Issued | shares 3,265,987
Subsequent Period Conversion [Member]  
Debt Instrument [Line Items]  
Principal Converted $ 240,160
Accrued Interest Converted
Total Converted $ 240,160
Common Shares Issued | shares 50,896,412
June 4, 2015  
Debt Instrument [Line Items]  
Principal Converted $ 46,667
Accrued Interest Converted 28,871
Total Converted $ 75,538
Conversion Rate | $ / shares $ 0.342
Common Shares Issued | shares 220,949
July 3, 2015  
Debt Instrument [Line Items]  
Principal Converted $ 46,667
Accrued Interest Converted 4,295
Total Converted $ 50,962
Conversion Rate | $ / shares $ 0.194
Common Shares Issued | shares 263,141
August 11, 2015  
Debt Instrument [Line Items]  
Principal Converted $ 25,000
Accrued Interest Converted
Total Converted $ 25,000
Conversion Rate | $ / shares $ 0.138
Common Shares Issued | shares 181,818
September 3, 2015  
Debt Instrument [Line Items]  
Principal Converted $ 25,000
Accrued Interest Converted
Total Converted $ 25,000
Conversion Rate | $ / shares $ 0.056
Common Shares Issued | shares 445,196
September 23, 2015  
Debt Instrument [Line Items]  
Principal Converted $ 25,000
Accrued Interest Converted
Total Converted $ 25,000
Conversion Rate | $ / shares $ 0.041
Common Shares Issued | shares 606,061
September 29, 2015  
Debt Instrument [Line Items]  
Principal Converted $ 23,000
Accrued Interest Converted
Total Converted $ 23,000
Conversion Rate | $ / shares $ 0.015
Common Shares Issued | shares 1,548,822
October 8, 2015 | Subsequent Period Conversion [Member]  
Debt Instrument [Line Items]  
Principal Converted $ 21,000
Accrued Interest Converted
Total Converted $ 21,000
Conversion Rate | $ / shares $ 0.012
Common Shares Issued | shares 1,818,182
October 16, 2015 | Subsequent Period Conversion [Member]  
Debt Instrument [Line Items]  
Principal Converted $ 18,900
Accrued Interest Converted
Total Converted $ 18,900
Conversion Rate | $ / shares $ 0.012
Common Shares Issued | shares 1,636,364
October 22, 2015 | Subsequent Period Conversion [Member]  
Debt Instrument [Line Items]  
Principal Converted $ 25,800
Accrued Interest Converted
Total Converted $ 25,800
Conversion Rate | $ / shares $ 0.011
Common Shares Issued | shares 2,333,786
October 29, 2015 | Subsequent Period Conversion [Member]  
Debt Instrument [Line Items]  
Principal Converted $ 22,460
Accrued Interest Converted
Total Converted $ 22,460
Conversion Rate | $ / shares $ 0.011
Common Shares Issued | shares 2,031,660
November 11, 2015 | Subsequent Period Conversion [Member]  
Debt Instrument [Line Items]  
Principal Converted $ 33,500
Accrued Interest Converted
Total Converted $ 33,500
Conversion Rate | $ / shares $ 0.007
Common Shares Issued | shares 4,649,549
November 18, 2015 | Subsequent Period Conversion [Member]  
Debt Instrument [Line Items]  
Principal Converted $ 24,000
Accrued Interest Converted
Total Converted $ 24,000
Conversion Rate | $ / shares $ 0.006
Common Shares Issued | shares 4,195,804
November 30, 2015 | Subsequent Period Conversion [Member]  
Debt Instrument [Line Items]  
Principal Converted $ 30,000
Accrued Interest Converted
Total Converted $ 30,000
Conversion Rate | $ / shares $ 0.005
Common Shares Issued | shares 5,741,627
December 11, 2015 | Subsequent Period Conversion [Member]  
Debt Instrument [Line Items]  
Principal Converted $ 22,000
Accrued Interest Converted
Total Converted $ 22,000
Conversion Rate | $ / shares $ 0.002
Common Shares Issued | shares 9,090,909
December 28, 2015 | Subsequent Period Conversion [Member]  
Debt Instrument [Line Items]  
Principal Converted $ 22,500
Accrued Interest Converted
Total Converted $ 22,500
Conversion Rate | $ / shares $ 0.002
Common Shares Issued | shares 9,297,521
January 7, 2016 | Subsequent Period Conversion [Member]  
Debt Instrument [Line Items]  
Principal Converted $ 20,000
Accrued Interest Converted
Total Converted $ 20,000
Conversion Rate | $ / shares $ 0.002
Common Shares Issued | shares 10,101,010
XML 54 R38.htm IDEA: XBRL DOCUMENT v3.4.0.3
Third Party Debt (Details 1) - $2M Securities Purchase Agreement [Member] - USD ($)
12 Months Ended
Sep. 30, 2015
Aug. 13, 2015
Debt Instrument [Line Items]    
Principal Converted $ 203,410 $ 2,000,000
Accrued Interest Converted  
Total Converted $ 203,410  
Common Shares Issued 4,456,404  
Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 541,604  
Accrued Interest Converted 11,225  
Total Converted $ 552,830  
Common Shares Issued 82,775,494  
August 13, 2015    
Debt Instrument [Line Items]    
Principal Converted $ 50,000  
Accrued Interest Converted  
Total Converted $ 50,000  
Conversion Rate $ 0.127  
Common Shares Issued 393,701  
August 26, 2015    
Debt Instrument [Line Items]    
Principal Converted $ 25,000  
Accrued Interest Converted  
Total Converted $ 25,000  
Conversion Rate $ 0.056  
Common Shares Issued 446,428  
September 8, 2015    
Debt Instrument [Line Items]    
Principal Converted $ 25,000  
Accrued Interest Converted  
Total Converted $ 25,000  
Conversion Rate $ 0.056  
Common Shares Issued 446,428  
September 14, 2015    
Debt Instrument [Line Items]    
Principal Converted $ 25,000  
Accrued Interest Converted  
Total Converted $ 25,000  
Conversion Rate $ 0.053  
Common Shares Issued 469,925  
September 16, 2015    
Debt Instrument [Line Items]    
Principal Converted $ 10,000  
Accrued Interest Converted  
Total Converted $ 10,000  
Conversion Rate $ 0.053  
Common Shares Issued 188,679  
September 17, 2015    
Debt Instrument [Line Items]    
Principal Converted $ 25,000  
Accrued Interest Converted  
Total Converted $ 25,000  
Conversion Rate $ 0.053  
Common Shares Issued 469,925  
September 22, 2015    
Debt Instrument [Line Items]    
Principal Converted $ 10,000  
Accrued Interest Converted  
Total Converted $ 10,000  
Conversion Rate $ 0.043  
Common Shares Issued 232,558  
September 24, 2015    
Debt Instrument [Line Items]    
Principal Converted $ 10,000  
Accrued Interest Converted  
Total Converted $ 10,000  
Conversion Rate $ 0.026  
Common Shares Issued 390,625  
September 25, 2015    
Debt Instrument [Line Items]    
Principal Converted $ 10,000  
Accrued Interest Converted  
Total Converted $ 10,000  
Conversion Rate $ 0.019  
Common Shares Issued 518,135  
September 29, 2015    
Debt Instrument [Line Items]    
Principal Converted $ 13,410  
Accrued Interest Converted  
Total Converted $ 13,410  
Conversion Rate $ 0.015  
Common Shares Issued 900,000  
October 1, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 10,000  
Accrued Interest Converted  
Total Converted $ 10,000  
Conversion Rate $ 0.0148  
Common Shares Issued 675,676  
October 5, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 10,000  
Accrued Interest Converted  
Total Converted $ 10,000  
Conversion Rate $ 0.0148  
Common Shares Issued 675,676  
October 6, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 13,262  
Accrued Interest Converted  
Total Converted $ 13,262  
Conversion Rate $ 0.0138  
Common Shares Issued 961,000  
October 7, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 10,000  
Accrued Interest Converted  
Total Converted $ 10,000  
Conversion Rate $ 0.0115  
Common Shares Issued 865,801  
October 9, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 11,728  
Accrued Interest Converted  
Total Converted $ 11,728  
Conversion Rate $ 0.0116  
Common Shares Issued 1,011,000  
October 9, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 10,000  
Accrued Interest Converted  
Total Converted $ 10,000  
Conversion Rate $ 0.0115  
Common Shares Issued 865,801  
October 12, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 14,680  
Accrued Interest Converted  
Total Converted $ 14,680  
Conversion Rate $ 0.0115  
Common Shares Issued 1,271,000  
October 13, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 11,601  
Accrued Interest Converted  
Total Converted $ 11,601  
Conversion Rate $ 0.0116  
Common Shares Issued 1,000,052  
October 15, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 14,680  
Accrued Interest Converted  
Total Converted $ 14,680  
Conversion Rate $ 0.0115  
Common Shares Issued 1,271,000  
October 19, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 17,400  
Accrued Interest Converted  
Total Converted $ 17,400  
Conversion Rate $ 0.0116  
Common Shares Issued 1,500,000  
October 19, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 15,000  
Accrued Interest Converted  
Total Converted $ 15,000  
Conversion Rate $ 0.0116  
Common Shares Issued 1,298,701  
October 20, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 16,650  
Accrued Interest Converted  
Total Converted $ 16,650  
Conversion Rate $ 0.0111  
Common Shares Issued 1,500,000  
October 21, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 17,500  
Accrued Interest Converted  
Total Converted $ 17,500  
Conversion Rate $ 0.0115  
Common Shares Issued 1,515,152  
October 23, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 20,000  
Accrued Interest Converted  
Total Converted $ 20,000  
Conversion Rate $ 0.0115  
Common Shares Issued 1,731,602  
October 26, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 24,420  
Accrued Interest Converted  
Total Converted $ 24,420  
Conversion Rate $ 0.0111  
Common Shares Issued 2,200,000  
October 29, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 26,640  
Accrued Interest Converted  
Total Converted $ 26,640  
Conversion Rate $ 0.0111  
Common Shares Issued 2,400,000  
November 2, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 29,970  
Accrued Interest Converted  
Total Converted $ 29,970  
Conversion Rate $ 0.0111  
Common Shares Issued 2,700,000  
November 2, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 20,000  
Accrued Interest Converted  
Total Converted $ 20,000  
Conversion Rate $ 0.0111  
Common Shares Issued 1,809,136  
November 5, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 32,190  
Accrued Interest Converted  
Total Converted $ 32,190  
Conversion Rate $ 0.0111  
Common Shares Issued 2,900,000  
November 10, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 28,800  
Accrued Interest Converted  
Total Converted $ 28,800  
Conversion Rate $ 0.0096  
Common Shares Issued 3,000,000  
November 12, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 23,930  
Accrued Interest Converted  
Total Converted $ 23,930  
Conversion Rate $ 0.0072  
Common Shares Issued 3,323,611  
November 17, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 16,500  
Accrued Interest Converted  
Total Converted $ 16,500  
Conversion Rate $ 0.0060  
Common Shares Issued 2,727,273  
November 19, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 1,640  
Accrued Interest Converted 11,225  
Total Converted $ 12,865  
Conversion Rate $ 0.0056  
Common Shares Issued 2,316,013  
November 23, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 23,111  
Accrued Interest Converted  
Total Converted $ 23,111  
Conversion Rate $ 0.0056  
Common Shares Issued 4,127,000  
November 27, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 24,750  
Accrued Interest Converted  
Total Converted $ 24,750  
Conversion Rate $ 0.0055  
Common Shares Issued 4,500,000  
December 2, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 18,450  
Accrued Interest Converted  
Total Converted $ 18,450  
Conversion Rate $ 0.0041  
Common Shares Issued 4,500,000  
December 8, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 18,000  
Accrued Interest Converted  
Total Converted $ 18,000  
Conversion Rate $ 0.0036  
Common Shares Issued 5,000,000  
December 11, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 13,368  
Accrued Interest Converted  
Total Converted $ 13,368  
Conversion Rate $ 0.0024  
Common Shares Issued 5,570,000  
December 16, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 14,181  
Accrued Interest Converted  
Total Converted $ 14,181  
Conversion Rate $ 0.0024  
Common Shares Issued 5,860,000  
December 22, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 15,488  
Accrued Interest Converted  
Total Converted $ 15,488  
Conversion Rate $ 0.0024  
Common Shares Issued 6,400,000  
December 29, 2015 | Subsequent Period Conversion [Member]    
Debt Instrument [Line Items]    
Principal Converted $ 17,666  
Accrued Interest Converted  
Total Converted $ 17,666  
Conversion Rate $ 0.0024  
Common Shares Issued 7,300,000  
XML 55 R39.htm IDEA: XBRL DOCUMENT v3.4.0.3
Third Party Debt (Details Textual)
1 Months Ended 3 Months Ended 9 Months Ended 12 Months Ended
Dec. 14, 2015
USD ($)
shares
Dec. 10, 2015
USD ($)
Aug. 26, 2015
USD ($)
Aug. 13, 2015
USD ($)
Aug. 12, 2015
USD ($)
$ / shares
Aug. 05, 2015
USD ($)
Mar. 12, 2015
USD ($)
$ / shares
shares
Feb. 10, 2015
USD ($)
$ / shares
Dec. 02, 2014
USD ($)
Feb. 11, 2014
USD ($)
investors
$ / shares
Feb. 18, 2014
USD ($)
$ / shares
shares
Jun. 30, 2014
USD ($)
Jun. 30, 2014
USD ($)
Sep. 30, 2015
USD ($)
shares
Sep. 30, 2014
USD ($)
Dec. 03, 2014
USD ($)
$ / shares
Third Party Debt (Textual)                                
Amortized discount to interest expense                           $ 1,000    
Original issue discount                           400,000    
Accrued interest                           1,143    
Interest expense                           1,745,408 $ 241,065  
Deferred financing costs                           107,908  
Deferred financing costs, long-term                           12,067  
Original issue discount of note                           $ 5,000    
Net proceeds                           $ 341,290  
Amortization of interest expense                           $ 54,456    
Convertible notes payable, current                           522,396 187,667  
Convertible notes payable, long-term                           300,156 178,200  
Unamortized discount convertible notes payable, current                           153,096 32,333  
Unamortized discount convertible notes payable, non current                           665,607 19,800  
Total unamortized discounts                           44,558    
Loss on debt extinguishment     $ 582,254 $ 369,324                   625,461    
Fair value of derivative liability                           643,912    
Subsequent Event [Member]                                
Third Party Debt (Textual)                                
Convertible note principal amount   $ 105,000                            
September 30, 2016 [Member]                                
Third Party Debt (Textual)                                
Amortized discount to interest expense                           179,528    
Amortization of interest expense                           107,909    
Minimum principal payments                           1,487,256    
September 30, 2017 [Member]                                
Third Party Debt (Textual)                                
Amortized discount to interest expense                           695,963    
Amortization of interest expense                           12,067    
Minimum principal payments                           154,000    
Securities Purchase Agreement [Member]                                
Third Party Debt (Textual)                                
Principal amount                           191,334    
Amortized discount to interest expense                           27,778    
Deferred financing costs                           45,940    
Amortization of interest expense                           25,522    
Converted amount                           $ 224,500    
Converted shares | shares                           3,265,987    
Securities Purchase Agreement [Member] | Investor [Member]                                
Third Party Debt (Textual)                                
Principal amount                               $ 500,000
Original issue discount                               50,000
Transaction expenses                 $ 10,000              
Finder's fee                               25,000
Net proceeds                 475,000              
Unsecured convertible promissory note principal amount                               $ 560,000
$2M Securities Purchase Agreement [Member]                                
Third Party Debt (Textual)                                
Principal amount       2,000,000                   $ 203,410    
Interest rate               10.00%                
Conversion price | $ / shares               $ 0.50                
Discount related to beneficial conversion feature                           108,641    
Original issue discount               $ 182,000                
Convertible notes payable               1,808,000                
Accrued and unpaid interest                           11,225    
Accrued interest                           26,861    
Interest expense                           38,086    
Transaction expenses               $ 10,000           148,600    
Value of note issued       655,816                   800,000    
Original issue discount of note                           148,600    
Net proceeds                           651,395    
Amortization of interest expense                           46,087    
Unamortized discount convertible notes payable, current                           10,427    
Unamortized discount convertible notes payable, non current                           82,822    
Total unamortized discounts       94,184                   108,641    
Unamortized long term discounts                           458,782    
Percentage of premium amount               25.00%                
Percentage of conversion price               70.00%                
Converted amount                           $ 203,410    
Converted shares | shares                           4,456,404    
Unsecured convertible promissory note principal amount               $ 2,000,000                
Loss on debt extinguishment       315,140                        
Fair value of derivative liability       970,956                        
Derivative discount       655,816                        
$2M Securities Purchase Agreement [Member] | September 30, 2015 [Member]                                
Third Party Debt (Textual)                                
Amortization of interest expense                           $ 183,189    
Fair value of loss on debt                           288,763    
Converted amount                           230,905    
Fair value of derivative liability                           1,028,814    
Minimum [Member] | $2M Securities Purchase Agreement [Member]                                
Third Party Debt (Textual)                                
Principal amount       800,000                   $ 800,000    
Maximum [Member] | $2M Securities Purchase Agreement [Member]                                
Third Party Debt (Textual)                                
Principal amount       $ 2,000,000                        
6% Convertible Notes [Member]                                
Third Party Debt (Textual)                                
Principal amount                   $ 230,000            
Interest rate                   6.00%       6.00%    
Amortized discount to interest expense                           $ 32,333 $ 57,667  
Discount related to beneficial conversion feature                   $ 92,000            
Convertible notes payable             $ 17,200                  
Number of accredited investors | investors                   10            
Conversion description                   The conversion price of these 6% Notes is the average of the fifteen (15) lowest daily VWAP's occurring during the twenty (20) consecutive trading days immediately preceding the date each Holder elects convert all of their 6% Note minus a discount of 40%.            
Accrued interest                           1,010    
Interest expense                           1,010    
Percentage of note outstanding             6.00%                  
Fair value of loss on debt             $ 23,443                  
Converted amount             $ 80,000                  
Converted shares | shares             160,000                  
Converted shares outstanding             $ 30,000                  
Proceeds from initial investor                           800,000    
6% Convertible Notes [Member] | Subsequent Event [Member]                                
Third Party Debt (Textual)                                
Accrued interest $ 1,351                              
Shares of common stock | shares 13,063,013                              
Converted amount $ 30,000                              
6% Convertible Notes [Member] | Securities Purchase Agreement [Member]                                
Third Party Debt (Textual)                                
Deferred financing costs                           20,418    
6% Convertible Notes [Member] | Minimum [Member]                                
Third Party Debt (Textual)                                
Maturity date                   Feb. 28, 2015            
Conversion price | $ / shares             $ 0.50     $ 1.00            
6% Convertible Notes [Member] | Maximum [Member]                                
Third Party Debt (Textual)                                
Maturity date                   Mar. 31, 2015            
Conversion price | $ / shares             $ 1.00     $ 3.00            
10% Convertible Notes [Member] | Securities Purchase Agreement [Member]                                
Third Party Debt (Textual)                                
Interest rate                               10.00%
Conversion price | $ / shares                               $ 0.50
Discount related to beneficial conversion feature                 $ 168,000              
Conversion description                 The Note bears interest at the rate of 10% per annum and is convertible into common stock of the Company at a conversion price per share of 70% of the average of the three (3) lowest Closing Sale Prices in the ten (10) Trading Days immediately preceding the applicable Conversion (subject to adjustment in the event of stock splits, stock dividends, and similar transactions, and in the event of subsequent sales of common stock at a lower purchase price (subject to certain exceptions))(the "Conversion Price"). In no event will the Conversion Price be less than $0.50 per share.              
Repayment of debt description                 Repayment of principal on the Note, together with accrued interest thereon, is due in twelve monthly installments, commencing six months from issuance. The Company may make such payments in cash (in which event the Company will pay a 25% premium) or, subject to certain conditions, in shares of common stock valued at the lower of the Conversion Price or 70% of the average of the three (3) lowest Closing Sale Prices in the ten (10) Trading Days immediately preceding the applicable payment date.              
Value of note issued     332,666                          
Total unamortized discounts     109,000                          
Converted amount                           123,310    
Loss on debt extinguishment     498,254                     84,000    
Fair value of derivative liability     830,921                     63,699    
Derivative discount     $ 332,666                     54,984    
8% Convertible Note [Member]                                
Third Party Debt (Textual)                                
Principal amount                     $ 20,000          
Maturity date                     Feb. 18, 2016          
Interest rate                     8.00%          
Conversion price | $ / shares                     $ 0.498          
Amortized discount to interest expense                       $ 1,000 $ 1,667      
Discount related to beneficial conversion feature                     $ 8,000          
Original issue discount                     5,333          
Accrued and unpaid interest                     $ 1,100          
Conversion description                     The conversion price for the notes was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%).          
Converted shares | shares                     42,370          
Convertible Note [Member]                                
Third Party Debt (Textual)                                
Accrued interest                           9,945    
Interest expense                           43,111    
Convertible notes payable, current                           23,969    
Convertible notes payable, long-term                           44,794    
Unamortized discount convertible notes payable, current                           104,538    
Unamortized discount convertible notes payable, non current                           195,366    
Convertible Note Financing [Member]                                
Third Party Debt (Textual)                                
Principal amount         $ 105,000                      
Interest rate         8.00%                      
Conversion price | $ / shares         $ 58                      
Original issue discount                           12,500    
Accrued interest                           8,388    
Interest expense                           8,388    
Original issue discount of note                           $ 1,042    
Percentage of conversion price         150.00%                      
Certain fees           $ 541,000                    
XML 56 R40.htm IDEA: XBRL DOCUMENT v3.4.0.3
Related Party Debt (Details) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended 9 Months Ended 12 Months Ended
Aug. 26, 2015
Aug. 13, 2015
Jan. 22, 2015
Dec. 04, 2014
Oct. 28, 2014
Aug. 11, 2014
May. 12, 2014
Mar. 17, 2014
Feb. 28, 2014
Dec. 07, 2013
Feb. 18, 2014
Jun. 30, 2014
Mar. 31, 2015
Jun. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Mar. 31, 2014
Sep. 30, 2013
Related Party Debt (Textual)                                    
Unamortized discount convertible notes payable, non current                             $ 665,607 $ 19,800    
Notes payable, related parties                             265,000 341,290    
Accrued interest                             46,337 16,300    
Interest Expense                             1,745,408 241,065    
Unamortized discount                             400,000      
Amortized discount to interest expense                             1,000      
Gain on extinguishment of debt $ 582,254 $ 369,324                         625,461      
Hive Asset Acquisition [Member]                                    
Related Party Debt (Textual)                                    
Interest rate                 6.00%                  
Accrued interest                             22,893      
Maturity date                 Feb. 27, 2016                  
Interest expense related to notes payable                             15,208      
Principal amount                 $ 250,000                  
8% Convertible Note [Member]                                    
Related Party Debt (Textual)                                    
Interest rate                     8.00%              
Accounts payable, related parties                     $ 20,000              
Maturity date                     Feb. 18, 2016              
Principal amount                     $ 20,000              
Conversion price                     $ 0.498              
Unamortized discount                     $ 5,333              
Common stock issued on conversion                     42,370              
Discount related to beneficial conversion feature                     $ 8,000              
Amortized discount to interest expense                       $ 1,000   $ 1,667        
Conversion description                     The conversion price for the notes was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%).              
Accrued and unpaid interest                     $ 1,100              
Related Party [Member]                                    
Related Party Debt (Textual)                                    
Accounts payable, related parties             $ 40,000                      
Maturity date             May 01, 2016                      
Joseph Andreae [Member]                                    
Related Party Debt (Textual)                                    
Accounts payable outstanding           $ 12,828                        
Interest rate           6.00% 6.00%                      
Notes payable, related parties           $ 12,828 $ 40,000                      
Accrued interest       $ 1,348                            
Maturity date           Nov. 30, 2014 May 01, 2016                      
Repayament of principal balance       40,000                            
Joseph Andreae [Member] | Andreae Note II [Member]                                    
Related Party Debt (Textual)                                    
Accrued interest       240                            
Repayament of principal balance       $ 12,828                            
Jerome Kaiser [Member] | 8% Convertible Note [Member]                                    
Related Party Debt (Textual)                                    
Interest rate               8.00%                    
Accrued interest                         $ 4,000          
Maturity date               Mar. 17, 2015                    
Future principal payments of related party notes payable               $ 50,000                    
Notes payable                                 $ 50,000  
Principal amount                         50,000          
Discount related to beneficial conversion feature               $ 10,000                    
Amortized discount to interest expense                         $ 4,167          
Conversion description               The conversion price for the Kaiser Note is the market closing price of the market day immediately preceding the date of conversion minus twenty percent (20%).                    
Kyle [Member] | 6% Note [Member]                                    
Related Party Debt (Textual)                                    
Interest rate             6.00%                      
Notes payable, related parties         $ 40,000   $ 40,000                      
Interest expense related to notes payable         $ 1,098                          
Conversion price         $ 1.00                          
Unamortized discount             13,333                      
Common stock issued on conversion         41,098                          
Discount related to beneficial conversion feature             $ 16,000                      
Amortized discount to interest expense                               6,667    
Kyle Tracey [Member] | 8% Convertible Note [Member]                                    
Related Party Debt (Textual)                                    
Interest rate                     8.00%              
Accounts payable, related parties                     $ 10,612              
Maturity date                     Feb. 18, 2016              
Interest expense related to notes payable         $ 584                          
Principal amount                     $ 10,612              
Conversion price         $ 0.498                          
Unamortized discount                     2,830              
Common stock issued on conversion         22,481                          
Discount related to beneficial conversion feature                     $ 4,245              
Amortized discount to interest expense                               1,415    
Conversion description                     The conversion price for the Tracey Note was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%).              
Kyle Tracey Two [Member] | 8% Convertible Note [Member]                                    
Related Party Debt (Textual)                                    
Interest rate             8.00%                      
Accounts payable, related parties             $ 11,042                      
Maturity date             May 12, 2016                      
Interest expense related to notes payable         $ 407                          
Principal amount             $ 11,042                      
Conversion price         $ 0.498                          
Unamortized discount             3,497                      
Common stock issued on conversion         22,989                          
Discount related to beneficial conversion feature             $ 4,417                      
Amortized discount to interest expense                               920    
Conversion description             The conversion price for the Tracey Note II was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%).                      
Michael Cook [Member] | 8% Convertible Note [Member]                                    
Related Party Debt (Textual)                                    
Interest rate             8.00%                      
Accounts payable, related parties             $ 11,825                      
Maturity date             May 12, 2016                      
Interest expense related to notes payable         $ 435                          
Principal amount             $ 11,825                      
Conversion price         $ 0.498                          
Unamortized discount             3,745                      
Common stock issued on conversion         24,619                          
Discount related to beneficial conversion feature             $ 4,730                      
Amortized discount to interest expense                               $ 985    
Conversion description             The conversion price for the Cook Note was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%).                      
Mr. Cook [Member] | 8% Convertible Note [Member]                                    
Related Party Debt (Textual)                                    
Interest rate           8.00%                        
Accounts payable, related parties           $ 15,115                        
Maturity date           Aug. 11, 2016                        
Interest expense related to notes payable         $ 255                          
Principal amount         $ 15,115 $ 15,115                        
Conversion price         $ 0.498                          
Unamortized discount           5,542                        
Common stock issued on conversion         30,864                          
Discount related to beneficial conversion feature           $ 6,046                        
Conversion description           The conversion price for the Cook Note II was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%).                        
Mr. Tracey [Member] | 8% Convertible Note [Member]                                    
Related Party Debt (Textual)                                    
Interest rate           8.00%                        
Accounts payable, related parties           $ 216,001                        
Maturity date           Aug. 11, 2016                        
Interest expense related to notes payable         $ 3,645                          
Principal amount         $ 216,001 $ 216,001                        
Conversion price         $ 0.498                          
Unamortized discount           79,200                        
Common stock issued on conversion         441,057                          
Discount related to beneficial conversion feature           $ 86,401                        
Conversion description           The conversion price for the Tracey Note III was the lowest market closing price per share within the previous twenty (20) market days of the date of conversion minus a discount of forty percent (40%).                        
Shareholder [Member]                                    
Related Party Debt (Textual)                                    
Interest rate                   6.00%                
Notes payable, related parties                   $ 23,462                
Accounts payable, related parties                                   $ 15,000
Accrued interest     $ 1,504                       1,645      
Maturity date                   Dec. 01, 2016                
Interest expense related to notes payable                             $ 913      
Notes payable     20,000                              
Gain on extinguishment of debt     $ 3,462                              
XML 57 R41.htm IDEA: XBRL DOCUMENT v3.4.0.3
Commitments and Contingencies (Details)
1 Months Ended 6 Months Ended 12 Months Ended
May. 01, 2015
USD ($)
Dec. 15, 2014
USD ($)
Jan. 31, 2015
shares
Mar. 31, 2014
USD ($)
$ / shares
shares
Sep. 30, 2015
USD ($)
ft²
shares
Sep. 30, 2014
USD ($)
Dec. 21, 2015
USD ($)
shares
Oct. 22, 2015
USD ($)
$ / shares
shares
Other Commitments [Line Items]                
Company leases for office | ft²         5,000      
Leases rent expense         $ 4,947      
Lease expiration date         Nov. 30, 2015      
Warrant liability         $ 2,464,232    
Net proceeds from settlement         $ 62,930    
Vendor credits on settlement         200,000      
Total vendor credits on settlement         325,000      
Treasury stock value         $ 367,531    
Treasury stock, shares | shares         690,625      
Gain on settlement         $ 625,461    
Gain on change in warrant liability         2,432,832      
Subsequent Event [Member]                
Other Commitments [Line Items]                
Shares issued, price per share | $ / shares               $ 0.024
Treasury stock value             $ 36,600 $ 171,800
Treasury stock, shares | shares             60,000 260,000
Chief Science Officer [Member]                
Other Commitments [Line Items]                
Term of executive employment agreement 2 years              
Annual salary $ 102,000              
Bonus compensation description Additionally, Dr. Scialdone is entitled to receive severance equal to six (6) months base salary if terminated without cause by the Company.              
Betterchem [Member]                
Other Commitments [Line Items]                
Treasury stock value         $ 67,500      
Treasury stock, shares | shares         250,000      
Shareholders and Related Parties [Member]                
Other Commitments [Line Items]                
Gain on settlement   $ 257,930            
Officer [Member]                
Other Commitments [Line Items]                
Shares assigned to officers | shares     440,625          
Treasury stock value         $ 367,531      
Treasury stock, shares | shares         440,625      
Warrant [Member]                
Other Commitments [Line Items]                
Shares issued, price per share | $ / shares       $ 7.25        
Loss on settlement of warrants       $ 29,528,844        
Long term warrant liability       $ 29,430,022        
Closing stock shares | shares       4,407,200        
Fair value of warrant liability         $ 1,184,727      
Warrant liability         $ 31,401      
Warrant [Member] | Minimum [Member]                
Other Commitments [Line Items]                
Shares issued, price per share | $ / shares       $ 4.72        
Warrant [Member] | Maximum [Member]                
Other Commitments [Line Items]                
Shares issued, price per share | $ / shares       $ 7.25        
XML 58 R42.htm IDEA: XBRL DOCUMENT v3.4.0.3
Income Taxes (Details) - USD ($)
12 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Current tax provision (benefit):    
Federal
State $ 2,209 $ 800
Total 2,209 800
Deferred tax provision (benefit)    
Federal $ (418,000) $ (262,000)
State
Valuation allowance $ 418,000 $ 262,000
Total
Total provision (benefit) for income taxes $ 2,209 $ 800
XML 59 R43.htm IDEA: XBRL DOCUMENT v3.4.0.3
Income Taxes (Details 1)
12 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Reconciliations of the U.S. federal statutory rate to the actual tax rate    
US federal statutory income tax rate (34.00%) (34.00%)
State tax - net of benefit (6.00%) (6.00%)
Effective income tax rate reconciliation total (40.00%) (40.00%)
Permanent differences: 38.70%
Stock-based compensation 2.80% 0.20%
Changes in warrant liability 1.00%
Increase in valuation allowance 37.20% 0.10%
Effective tax rate
XML 60 R44.htm IDEA: XBRL DOCUMENT v3.4.0.3
Income Taxes (Details 2) - USD ($)
Sep. 30, 2015
Sep. 30, 2014
Current deferred tax assets (liabilities):    
Accrued expenses and other
Total current deferred tax assets
Non-current deferred tax assets and liabilities:    
Property, plant and equipment $ 29,000 $ 29,000
Net operating losses 680,000 262,000
Total non-current deferred tax assets 709,000 291,000
Valuation allowance $ (709,000) $ (291,000)
Total non-current deferred tax assets
Net deferred tax assets
XML 61 R45.htm IDEA: XBRL DOCUMENT v3.4.0.3
Income Taxes (Details Textual) - USD ($)
12 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Income Taxes (Textual)    
Valuation allowance, Deferred tax assets $ 418,000 $ 233,000
Net operating losses $ 680,000  
Operating loss carryforward expiration date The net operating loss carry forwards, if not utilized, will begin to expire in 2033 for federal purposes and 2031 for state purposes.  
State tax liability
Valuation allowance $ 709,000 $ 291,000
XML 62 R46.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stockholders' Deficit (Details)
12 Months Ended
Sep. 30, 2015
USD ($)
$ / shares
shares
Warrant [Member]  
STOCK OPTIONS/WARRANTS:  
Options/ Warrants outstanding, Shares, Beginning balance | shares 1,184,726
Options/ Warrants issued/granted | shares
Option/ Warrants exercised | shares
Option/ Warrants Cancelled/forfeited/expired | shares
Options/ Warrants Outstanding, Shares, Ending Balance | shares 1,184,726
Option/ Warrents Weighted Average Exercise Price, Beginning balance | $ / shares $ 0.114
Option/ Warrents issued/granted, Weighted Average Exercise Price | $ / shares
Option/ Warrents exercised, Weighted Average Exercise Price | $ / shares
Option/ Warrents Cancelled/forfeited/expired, Weighted Average Exercise Price | $ / shares
Option/ Warrents Weighted Average Exercise Price, Ending Balance | $ / shares $ 0.021
Options/ Warrants outstanding, Weighted Average Remaining Contractual Term, Beginning 1 year 7 months 6 days
Options/ Warrants outstanding, Weighted Average Remaining Contractual Term, Ending 7 months 6 days
Option/ Warrents Outstanding, Aggregate Intrinsic Value, Beginning balance | $ $ 7,217,234
Option/ Warrents Outstanding, Aggregate Intrinsic value, Balance | $ $ 694,008
Stock Options [Member]  
STOCK OPTIONS/WARRANTS:  
Options/ Warrants outstanding, Shares, Beginning balance | shares 1,150,000
Options/ Warrants issued/granted | shares 995,000
Option/ Warrants exercised | shares
Option/ Warrants Cancelled/forfeited/expired | shares (2,145,000)
Options/ Warrants Outstanding, Shares, Ending Balance | shares
Options/ Warrants exercisable, Shares | shares
Option/ Warrents Weighted Average Exercise Price, Beginning balance | $ / shares $ 2.92
Option/ Warrents issued/granted, Weighted Average Exercise Price | $ / shares $ 0.73
Option/ Warrents exercised, Weighted Average Exercise Price | $ / shares
Option/ Warrents Cancelled/forfeited/expired, Weighted Average Exercise Price | $ / shares $ 1.91
Option/ Warrents Weighted Average Exercise Price, Ending Balance | $ / shares
Options/ Warrants exercisable, Weighted Average Exercise Price | $ / shares
Options/ Warrants outstanding, Weighted Average Remaining Contractual Term, Beginning 8 years 8 months 12 days
Options/ Warrants granted, Weighted Average Remaining Contractual Term 10 years
Options/ Warrants outstanding, Weighted Average Remaining Contractual Term, Ending 9 years
Option/ Warrents Outstanding, Aggregate Intrinsic Value, Beginning balance | $ $ 4,648,294
Option/ Warrents Outstanding, Aggregate Intrinsic value, Balance | $
Options/ Warrants exercisable, Aggregate Intrinsic value | $
XML 63 R47.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stockholders' Deficit (Details 1)
12 Months Ended
Sep. 30, 2015
$ / shares
Stockholders' Deficit [Abstract]  
Stock Price at Grant Date $ 0.04
Dividend Yield
Exercise Price $ 0.023
Risk Free Interest Rate 0.08%
Volatility 351.00%
Average Life 8 months 12 days
XML 64 R48.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stockholders' Deficit (Details Textual)
1 Months Ended 12 Months Ended
Jun. 01, 2015
USD ($)
$ / shares
shares
Mar. 12, 2015
USD ($)
Employee
shares
Oct. 20, 2014
USD ($)
consultant
$ / shares
shares
Dec. 31, 2014
USD ($)
shares
Dec. 22, 2014
USD ($)
$ / shares
shares
Jun. 27, 2014
USD ($)
$ / shares
shares
Jun. 19, 2014
shares
Apr. 30, 2014
shares
Sep. 30, 2015
USD ($)
$ / shares
shares
Sep. 30, 2014
USD ($)
shares
Nov. 27, 2013
shares
Stockholders' Deficit (Textual)                      
Common stock, shares authorized                 1,000,000,000 1,000,000,000 1,000,000,000
Preferred stock, shares authorized                 100,000,000 100,000,000 100,000,000
Common stock issued for services | $                 $ 36,769 $ 133,200  
Conversion of unpaid wages | $                 $ 96,487    
Number of employee | Employee   3                  
Issuance of fair market value | $                 341,290  
Exercise price of warrant | $ / shares                 $ 0.021    
Cost of Revenue [Member]                      
Stockholders' Deficit (Textual)                      
Fair value of the stock vested issuance | $                 $ 24,900    
Sales and Marketing Expense [Member]                      
Stockholders' Deficit (Textual)                      
Fair value of the stock vested issuance | $                 24,900    
General and Administrative Expense [Member]                      
Stockholders' Deficit (Textual)                      
Fair value of the stock vested issuance | $                 $ 24,900    
2014 Incentive and Nonstatutory Stock Option Plan [Member]                      
Stockholders' Deficit (Textual)                      
Maximum number of shares could be granted under the plan           2,000,000          
Under 2014 Stock Option Plan [Member]                      
Stockholders' Deficit (Textual)                      
Vesting rights, Description     The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant.   The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant.            
Options/ Warrants issued/granted     20,000   775,000            
Stock option cancelled     20,000                
Option/ Warrents Granted, Weighted Average Exercise Price | $ / shares     $ 0.83   $ 0.70            
Stock option granted value | $     $ 16,600   $ 542,500            
Share-based compensation expense | $     $ 4,150   $ 135,625            
Number of options vested     5,000   193,750            
Stock Options [Member]                      
Stockholders' Deficit (Textual)                      
Options/ Warrants issued/granted                 995,000    
Stock option cancelled                 2,145,000    
Option/ Warrents Granted, Weighted Average Exercise Price | $ / shares                 $ 0.73    
Share-based compensation expense | $                 $ 1,006,343 $ 681,375  
Consulting Agreements [Member]                      
Stockholders' Deficit (Textual)                      
Vesting rights, Description     The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant.                
Options/ Warrants issued/granted     200,000                
Option/ Warrents Granted, Weighted Average Exercise Price | $ / shares     $ 0.83                
Stock option granted value | $     $ 166,000                
Options to purchase shares     100,000                
Share-based compensation expense | $     $ 41,500                
Additional expenses | $       $ 3,000              
Non employee options       200,000              
Number of options vested     50,000                
Number of consultant | consultant     2                
Series A Preferred stock                      
Stockholders' Deficit (Textual)                      
Shares issued during period             500,000        
Preferred stock, shares authorized                 500,000    
Common stock issued for services, Shares                    
Common stock issued for services | $                    
Common stock issued for bonuses, Shares                    
Common Stock [Member]                      
Stockholders' Deficit (Textual)                      
Common stock issued for services, Shares                 60,277 50,000  
Common stock issued for services | $                 $ 1  
Conversion of unpaid wages, Shares                 158,175    
Conversion of unpaid wages | $                 $ 2    
Common stock issued for bonuses, Shares                 440,000    
Preferred Stock [Member]                      
Stockholders' Deficit (Textual)                      
Shares issued during period               500,000      
Preferred stock, shares authorized               100,000,000      
Description of asset purchase agreement               Series A Shares are entitled to vote at a 15-1 ratio to Common Stock.      
Convertible price, description               A one-time pro rata adjustment of up to ten-for-one (10-1) based upon the Company generating aggregate gross revenues over the two years of at least $8,000,000 (e.g. If the Company generates only $4,000,000 in aggregate gross revenues over the two year period then the convertible ratio will adjust to 5-1). In no event will the issuance convert into more than 5,000,000 shares of common stock of the Company.      
Common Stock Issued For Bonuses [Member] | Cost of Revenue [Member]                      
Stockholders' Deficit (Textual)                      
Fair value of the stock vested issuance | $                 $ 9,150    
Common Stock Issued For Bonuses [Member] | Sales and Marketing Expense [Member]                      
Stockholders' Deficit (Textual)                      
Fair value of the stock vested issuance | $                 9,150    
Common Stock Issued For Bonuses [Member] | General and Administrative Expense [Member]                      
Stockholders' Deficit (Textual)                      
Fair value of the stock vested issuance | $                 195,200    
Common Stock Issued For Services [Member]                      
Stockholders' Deficit (Textual)                      
Common stock issued for bonuses, Shares   60,277                  
Common Stock Issued For Services [Member] | Sales and Marketing Expense [Member]                      
Stockholders' Deficit (Textual)                      
Fair value of the stock vested issuance | $                 $ 36,769    
Kyle Tracey [Member]                      
Stockholders' Deficit (Textual)                      
Options/ Warrants issued/granted   60,000                  
Options to purchase shares         175,000 100,000          
Conversion of unpaid wages | $   $ 59,718                  
Common stock issued for bonuses, Shares   30,000 30,000                
Restricted common stock issued   97,898                  
Kyle Tracey [Member] | Common Stock Issued As Director Compensation [Member]                      
Stockholders' Deficit (Textual)                      
Restricted common stock issued   100,000                  
Employee's, Consultants, Officers and Independent Contractors [Member]                      
Stockholders' Deficit (Textual)                      
Vesting rights, Description           The options vest 25% at grant and 25% each subsequent six (6) months from the date of grant.          
Options/ Warrants issued/granted           1,000,000          
Option/ Warrents Granted, Weighted Average Exercise Price | $ / shares           $ 1.66          
Stock option granted value | $           $ 1,000,000          
Options to purchase shares           520,000          
Share-based compensation expense | $           $ 1,660,000          
Compensation cost upon grant date | $           $ 415,000          
Additional expenses | $                   $ 22,312  
Non employee options                   212,500  
Number of options vested           250,000          
Joseph Andreae [Member]                      
Stockholders' Deficit (Textual)                      
Options/ Warrants issued/granted   60,000                  
Options to purchase shares         175,000 190,000          
Common stock issued for bonuses, Shares   30,000 30,000                
Joseph Andreae [Member] | Common Stock Issued As Director Compensation [Member]                      
Stockholders' Deficit (Textual)                      
Restricted common stock issued   100,000                  
Allan Viernes [Member]                      
Stockholders' Deficit (Textual)                      
Options to purchase shares         175,000            
Michael Cook [Member]                      
Stockholders' Deficit (Textual)                      
Options to purchase shares         25,000            
Conversion of unpaid wages | $   $ 36,769                  
Restricted common stock issued   60,277                  
Board of Directors [Member]                      
Stockholders' Deficit (Textual)                      
Restricted common stock issued 100,000                    
Shares issued, price per share | $ / shares $ 1.00                    
Issuance of common stock | $ $ 100,000                    
Issuance of fair market value | $ 50,000                    
Additional consideration amount | $ $ 50,000                    
Employees [Member] | Under 2014 Stock Option Plan [Member]                      
Stockholders' Deficit (Textual)                      
Options/ Warrants issued/granted         775,000            
Options to purchase shares         225,000            
Benjamin Beaulieu [Member]                      
Stockholders' Deficit (Textual)                      
Options/ Warrants issued/granted   60,000                  
Common stock issued for bonuses, Shares   30,000 30,000                
XML 65 R49.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intellectual Property (Details) - USD ($)
Sep. 30, 2015
Sep. 30, 2014
Intellectual Property (Textual)    
Trademarks $ 123,150 $ 119,575
Pending patents $ 14,890
Patents [Member]    
Intellectual Property (Textual)    
Pending patents $ 22,133  
Trademarks [Member]    
Intellectual Property (Textual)    
Trademarks $ 123,150  
XML 66 R50.htm IDEA: XBRL DOCUMENT v3.4.0.3
Subsequent Events (Details) - USD ($)
1 Months Ended 3 Months Ended 12 Months Ended
Dec. 10, 2016
Jun. 10, 2016
Dec. 15, 2015
Dec. 10, 2015
Jun. 10, 2015
Jun. 01, 2015
Dec. 31, 2015
Dec. 21, 2015
Oct. 22, 2015
Dec. 31, 2015
Sep. 30, 2015
Sep. 30, 2014
Nov. 27, 2013
Subsequent Event (Textual)                          
Preferred stock, shares authorized                     100,000,000 100,000,000 100,000,000
Proceeds from original convertible note                     $ 1,763,957 $ 438,000  
Conversion of unpaid wages                     96,487    
Treasury stock value                     $ 367,531  
Treasury stock, shares                     690,625    
General and Administrative Expense [Member]                          
Subsequent Event (Textual)                          
Fair value of the stock vested issuance                     $ 24,900    
Justin Braune [Member]                          
Subsequent Event (Textual)                          
Common stock shares vested         5,000,000                
Board of Directors [Member]                          
Subsequent Event (Textual)                          
Shares issued, price per share           $ 1.00              
Restricted common stock issued           100,000              
Subsequent Event [Member]                          
Subsequent Event (Textual)                          
Original debt outstanding increased       $ 105,000                  
Shares issued, price per share                 $ 0.024        
Additional shares of restricted common stock, Granted                 300,000        
Sales and marketing expense             $ 30,000            
Shares surrendered                 30,000        
Common stock value                 $ 9,150        
Treasury stock value               $ 36,600 $ 171,800        
Treasury stock, shares               60,000 260,000        
Subsequent Event [Member] | General and Administrative Expense [Member]                          
Subsequent Event (Textual)                          
Fair value of the stock vested issuance                   $ 36,000      
Subsequent Event [Member] | Series B Preferred Stock [Member]                          
Subsequent Event (Textual)                          
Convertible note interest rate       8.00%                  
Term of convertible note       1 year                  
Common stock conversion basis       Series B Preferred Stock on a one-for-one (1:1) basis into shares of common stock                  
Common stock fixed price per share       $ 0.01                  
Preferred stock, shares authorized       30,000,000                  
Voting rights, description       Each share of Series B shall be entitled to five (5) votes for every one (1) vote entitled to each share of Common Stock.                  
Aggregate principal amount       $ 300,000                  
Equity investment by the investor, description       1) $50,000 from Hive Ceramics, LLC in new capital to the Company and 2) an amended and restated note for Hive Ceramics LLC in the amount of $250,000 for capital previously contributed which is soon to be due and payable.                  
Subsequent Event [Member] | Kyle Tracey [Member]                          
Subsequent Event (Textual)                          
Shares surrendered                 130,000        
Common stock value                 $ 49,800        
Shares of common stock                 60,000        
Subsequent Event [Member] | Allan Viernes [Member]                          
Subsequent Event (Textual)                          
Shares surrendered               30,000          
Common stock value               $ 36,600          
Subsequent Event [Member] | Benjamin Beaulieu [Member]                          
Subsequent Event (Textual)                          
Shares surrendered               30,000          
Common stock value               $ 36,600          
Subsequent Event [Member] | Joe Andreae [Member]                          
Subsequent Event (Textual)                          
Shares surrendered                 130,000        
Common stock value                 $ 122,000        
Shares of common stock                 200,000        
Subsequent Event [Member] | Justin Braune [Member]                          
Subsequent Event (Textual)                          
Annual salary       $ 150,000                  
Sales based compensation, description      
Bi-monthly sales-based compensation of $1.00 USD per unit of wholesale sales of Mr. Braune’s new vaporizer pen product line and $3.00 USD per unit on retail sales.
                 
Common stock issued as compensation       20,000,000                  
Common stock shares vested 5,000,000 5,000,000                      
Description of employment agreement       The Employment Agreement continues until terminated by either party upon 30 days' prior written notice.                  
Subsequent Event [Member] | Investor [Member]                          
Subsequent Event (Textual)                          
Equity investment by the investor       $ 90,000                  
Equity investment by the investor, description       Common stock at a purchase price equal to 90% of the average of the closing prices of the common stock for the three (3) trading days immediately preceding the date that is 6 months from the date of the agreement.                  
Subsequent Event [Member] | Board of Directors [Member] | Kyle Tracey [Member]                          
Subsequent Event (Textual)                          
Conversion of unpaid wages, Shares                 2,083,333        
Conversion of unpaid wages                 $ 50,000        
Shares issued, price per share                 $ 0.024        
Subsequent Event [Member] | Board of Directors [Member] | Kyle Tracey Two [Member]                          
Subsequent Event (Textual)                          
Conversion of unpaid wages, Shares                 555,555        
Conversion of unpaid wages                 $ 13,333        
Shares issued, price per share                 $ 0.024        
Subsequent Event [Member] | Board of Directors [Member] | Michael Cook [Member]                          
Subsequent Event (Textual)                          
Conversion of unpaid wages, Shares                 1,250,000        
Conversion of unpaid wages                 $ 3,000        
Shares issued, price per share                 $ 0.024        
Subsequent Event [Member] | Board of Directors [Member] | Allan Viernes [Member]                          
Subsequent Event (Textual)                          
Shares issued, price per share                 $ 0.024        
Common stock issued for bonuses, Shares                 600,000        
Subsequent Event [Member] | Board of Directors [Member] | Consultant [Member]                          
Subsequent Event (Textual)                          
Shares issued, price per share                 $ 0.024        
Common stock issued for bonuses, Shares                 1,250,000        
Subsequent Event [Member] | Board of Directors [Member] | Benjamin Beaulieu [Member]                          
Subsequent Event (Textual)                          
Shares issued, price per share                 $ 0.024        
Common stock issued for bonuses, Shares                 600,000        
Subsequent Event [Member] | Accredited Investor [Member]                          
Subsequent Event (Textual)                          
Proceeds from original convertible note     $ 50,000                    
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