UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
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)
1 (877) 827-3959
(Registrant’s telephone number, including area code)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| (Do not check if a smaller reporting company) | Emerging growth company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of Common Stock outstanding at June 21, 2018:
| Common Stock, par value $0.00001 per share | 1,000,000,000 | |
| (Class) | (Number of Shares) |
VAPE HOLDINGS INC.
FORM 10-Q
June 30, 2017
INDEX TO FORM 10-Q
| PAGE | ||
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Consolidated Balance Sheets (unaudited) at June 30, 2017 and September 30, 2016 | 2 | |
| Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended June 30, 2017 and 2016 | 3 | |
| Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended June 30, 2017 and 2016 | 4 | |
| Notes to Unaudited Consolidated Financial Statements | 5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 17 |
| Item 4. | Controls and Procedures | 17 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 19 |
| Item 1A. | Risk Factors | 20 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 20 |
| Item 3. | Defaults Upon Senior Securities | 20 |
| Item 4. | Mine Safety Disclosures | 20 |
| Item 5. | Other Information | 20 |
| Item 6. | Exhibits | 21 |
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q.
ii
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements |
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). It is suggested that the following consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the annual financial statements included on Form 10-K for Vape Holdings, Inc. for the fiscal year ended September 30, 2016, filed with the Commission on March 7, 2018.
1
VAPE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| June 30, 2017 | September 30, 2016 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 13,125 | $ | - | ||||
| Accounts receivable, net | 2,010 | 2,010 | ||||||
| Inventory | - | 18,254 | ||||||
| Other current assets | 14,836 | 8,219 | ||||||
| Total current assets | 29,971 | 28,483 | ||||||
| TOTAL ASSETS | $ | 29,971 | $ | 28,483 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 397,660 | $ | 473,654 | ||||
| Accrued expenses | 949,391 | 555,994 | ||||||
| Related party convertible notes payable | 200,000 | 300,000 | ||||||
| Convertible notes payable, net of unamortized discount of $105,000 and $119,680, respectively | 906,431 | 537,291 | ||||||
| Related party notes payable | 15,000 | 15,000 | ||||||
| Settlement liability | 281,618 | 422,000 | ||||||
| Derivative liabilities | 1,716,439 | 2,755,544 | ||||||
| Total current liabilities | 4,466,539 | 5,059,483 | ||||||
| Long term liabilities: | ||||||||
| Convertible notes payable, long-term, net of unamortized discount of $0 and $0, respectively | - | 41,121 | ||||||
| Total liabilities | 4,466,539 | 5,100,604 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock, $0.00001 par value - 100,000,000 authorized; 500,000 outstanding at March 31, 2017 and September 30, 2016 | - | - | ||||||
| Common stock, $0.00001 par value - authorized 1,000,000,000 shares; 666,027,781 issued at June 30, 2017, 666,587,156 outstanding at June 30, 2017 and 588,837,978 issued at September 30, 2016, 588,397,353 outstanding at September 30, 2016 | 6,665 | 5,883 | ||||||
| Additional paid-in capital | 31,038,705 | 30,319,265 | ||||||
| Treasury stock, 1,025,625 shares at June 30, 2017 and September 30, 2016 | (372,601 | ) | (372,601 | ) | ||||
| Accumulated deficit | (35,109,337 | ) | (35,024,668 | ) | ||||
| Total stockholders’ deficit | (4,436,568 | ) | (5,072,121 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 29,971 | $ | 28,483 | ||||
See notes to unaudited consolidated financial statements.
2
VAPE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended June 30, | For the Nine Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| (Restated) | (Restated) | |||||||||||||||
| Revenue | $ | 24,291 | $ | 156,514 | $ | 109,051 | $ | 890,742 | ||||||||
| Cost of revenue | 9,513 | 385,705 | 83,308 | 1,040,420 | ||||||||||||
| Gross profit (loss) | 14,778 | (229,191 | ) | 25,743 | (149,678 | ) | ||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing [A] | 22,617 | 84,246 | 85,805 | 342,618 | ||||||||||||
| Research and development | - | 950 | - | 47,648 | ||||||||||||
| General and administrative [B] | 218,663 | 280,470 | 486,169 | 841,319 | ||||||||||||
| Total operating expenses | 241,280 | 365,666 | 571,974 | 1,231,585 | ||||||||||||
| Operating loss | (226,502 | ) | (594,857 | ) | (546,231 | ) | (1,381,263 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (69,175 | ) | (337,707 | ) | (211,274 | ) | (1,887,152 | ) | ||||||||
| Interest expense - related party | (3,506 | ) | (4,776 | ) | (13,061 | ) | (13,792 | ) | ||||||||
| Change in derivative liabilities | 537,550 | 3,099,805 | 685,897 | 554,885 | ||||||||||||
| Total other income (expense), net | 464,869 | 2,757,322 | 461,562 | (1,346,059 | ) | |||||||||||
| Income (loss) before provision for income taxes | 238,367 | 2,162,465 | (84,669 | ) | (2,727,322 | ) | ||||||||||
| Provision for income taxes | - | - | - | 800 | ||||||||||||
| Net income (loss) | $ | 238,367 | $ | 2,162,465 | $ | (84,669 | ) | $ | (2,728,122 | ) | ||||||
| Net loss available to common shareholders: | ||||||||||||||||
| Income (loss) per common share - basic | $ | 0.00 | $ | 0.01 | $ | (0.00 | ) | $ | (0.01 | ) | ||||||
| Income (loss) per common share - diluted | $ | 0.00 | $ | 0.00 | $ | (0.00 | ) | $ | (0.01 | ) | ||||||
| Weighted average shares - basic | 635,028,015 | 215,717,808 | 631,046,743 | 220,677,405 | ||||||||||||
| Weighted average shares - diluted | 993,499,503 | 1,097,384,088 | 631,046,743 | 220,677,405 | ||||||||||||
| [A] | Stock-based compensation was $0 and $0, and $0 and $34,800 for the three and nine months ended June 30, 2017 and 2016, respectively. | |
| [B] | Stock-based compensation was $0 and $0, and $0 and $128,597 for the three and nine months ended June 30, 2017 and 2016, respectively. |
See notes to unaudited consolidated financial statements.
3
VAPE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | (Restated) | |||||||
| Net loss | $ | (84,669 | ) | $ | (2,728,122 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | - | 106,967 | ||||||
| Accretion of debt discounts | 180,533 | 1,696,706 | ||||||
| Fair value in excess of stock issued for conversion of notes payable and accrued interest | - | - | ||||||
| Gain on change in derivative liabilities | (685,897 | ) | (586,287 | ) | ||||
| Forbearance and assignment settlements | - | 190,718 | ||||||
| Common stock issued for services | - | 31,689 | ||||||
| Stock-based compensation | - | 131,708 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | - | 57,999 | ||||||
| Inventory | 18,254 | 220,210 | ||||||
| Other assets | (6,617 | ) | 27,214 | |||||
| Accounts payable | 75,006 | 220,152 | ||||||
| Accrued expenses | 253,015 | 128,903 | ||||||
| Net cash used in operating activities | (250,375 | ) | (502,143 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | - | (43,101 | ) | |||||
| Net cash used in investing activities | - | (43,101 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from issuances of common stock | - | - | ||||||
| Net proceeds from issuance of convertible notes payable | 263,500 | 312,150 | ||||||
| Net proceeds from issuances of related party convertible notes payable | - | 50,000 | ||||||
| Repayments on convertible notes payable | - | (85,400 | ) | |||||
| Net cash provided by financing activities | 263,500 | 276,750 | ||||||
| Net change in cash | 13,125 | (268,494 | ) | |||||
| Cash, beginning of period | - | 273,904 | ||||||
| Cash, end of period | $ | 13,125 | $ | 5,410 | ||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Taxes | $ | - | $ | 800 | ||||
| Non-cash investing and financing activities: | ||||||||
| Conversion of notes payable, accrued interest, and derivatives | $ | 569,222 | $ | 3,707,140 | ||||
| Issuance of common stock for settlement liability | $ | 151,000 | $ | - | ||||
See notes to unaudited consolidated financial statements.
4
VAPE HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| NOTE 1. | DESCRIPTION OF BUSINESS 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”) was the premier brand under the VAPE umbrella. HIVE outsource 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.
HIVE Ceramics saw a significant decrease in sales due to competition in the market and restricted operations. While sales channels are still open, without an infusion, the revenues are not large enough to support HIVE Ceramics outside of its existing product line.
| NOTE 2. | ACCOUNTING POLICIES AND BASIS OF PRESENTATION |
GOING CONCERN
VAPE’s consolidated financial statements reflect a net loss of $84,669 during the nine months ended June 30, 2017. As of June 30, 2017, we had cash of $13,125, a working capital deficit of $4,436,568, and an accumulated deficit of $35,109,337. 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 8 for subsequent events regarding financing activities.
5
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.
Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2017 and September 30, 2016. 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 June 30, 2017:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents | $ | 13,125 | $ | - | $ | - | $ | 13,125 | ||||||||
| Total assets measured at fair value | $ | 13,125 | $ | - | $ | - | $ | 13,125 | ||||||||
| Liabilities | ||||||||||||||||
| Derivative instruments | $ | - | $ | 1,716,439 | $ | - | $ | 1,716,439 | ||||||||
| Total liabilities measured at fair value | $ | - | $ | 1,716,439 | $ | - | $ | 1,716,439 | ||||||||
6
The following table presents the Company’s fair value hierarchy for assets measured at fair value on a recurring basis at September 30, 2016:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents | $ | - | $ | - | $ | - | $ | - | ||||||||
| Total assets measured at fair value | $ | - | $ | - | $ | - | $ | - | ||||||||
| Liabilities | ||||||||||||||||
| Derivative instruments | $ | - | $ | 2,755,544 | $ | - | $ | 2,755,544 | ||||||||
| Total liabilities measured at fair value | $ | - | $ | 2,755,544 | $ | - | $ | 2,755,544 | ||||||||
EARNINGS (LOSS) PER COMMON SHARE
The following is a summary of outstanding securities which have been included in the calculation of diluted net income per share and reconciliation of net income to net income available to common stock holders for the three months ended June 30, 2017 and 2016:
| For the Three Months Ended June 30, | For the Three Months Ended June 30, | |||||||
| 2017 | 2016 | |||||||
| Weighted average common shares outstanding used in calculating basic earnings per share | 635,028,015 | 215,717,808 | ||||||
| Effect of preferred stock | 500,000 | 500,000 | ||||||
| Effect of convertible notes payable | 357,971,489 | 881,166,280 | ||||||
| Weighted average common and common equivalent shares used in calculating diluted earnings per share | 993,499,503 | 1,097,384,088 | ||||||
| Net income as reported | $ | 238,367 | $ | 2,162,465 | ||||
| Add - interest on convertible notes payable | 69,175 | 337,707 | ||||||
| Net income available to common stockholders | $ | 307,542 | $ | 2,500,171 | ||||
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 had the Company generated net income for the nine months ended June 30, 2017 and 2016:
| For the Nine Months Ended | For the Nine Months Ended | |||||||
| June 30, | June 30, | |||||||
| 2017 | 2016 | |||||||
| Series A Preferred stock | 500,000 | 500,000 | ||||||
| Common stock warrants | - | 1,184,726 | ||||||
| Convertible notes | 357,971,489 | 631,560,394 | ||||||
| 358,471,489 | 633,245,120 | |||||||
The Company does not have sufficient shares to accommodate the convertible notes.
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.
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.
7
AMENDMENT
We have amended the previous three and nine months ended June 30, 2016 in this Form 10-Q 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. Accordingly, we adjusted the consolidated financial statements to recognize the embedded conversion feature of the instruments.
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-Q to account for the embedded conversion features as derivative financial instruments at fair value upon their original issuance dates. 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 | |||||||||||
| June 30, 2016 | Change | June 30, 2016 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||
| Total current liabilities | $ | 2,032,366 | $ | 414,726 | $ | 2,447,092 | ||||||
| Total liabilities | $ | 2,366,199 | $ | 224,309 | $ | 2,590,508 | ||||||
| Total stockholders’ deficit | $ | (2,116,505 | ) | $ | (224,309 | ) | $ | (2,340,814 | ) | |||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 249,694 | $ | - | $ | 249,694 | ||||||
| As Previously Reported Three Months Ended June 30, 2016 | Change | As Restated Three Months Ended June 30, 2016 | ||||||||||
| Interest expense | $ | (408,419 | ) | $ | 70,712 | $ | (337,707 | ) | ||||
| Gain from the effects of derivative liabilities | $ | 2,579,283 | $ | 657,049 | $ | 3,236,332 | ||||||
| Net income | $ | 1,434,703 | $ | 727,762 | $ | 2,162,465 | ||||||
| Net loss available to common shareholders | ||||||||||||
| Income per common share - basic | $ | 0.01 | $ | 0.01 | ||||||||
| Income per common share - diluted | $ | 0.00 | $ | 0.00 | ||||||||
| As Previously Reported Nine Months Ended June 30, 2016 | Change | As Restated Nine Months Ended June 30, 2016 | ||||||||||
| Interest expense | $ | (1,727,304 | ) | $ | (159,848 | ) | $ | (1,887,152 | ) | |||
| Gain from the effects of derivative liabilities | $ | 452,425 | $ | 1,297,483 | $ | 1,749,908 | ||||||
| Net loss | $ | (3,865,758 | ) | $ | 1,137,636 | $ | (2,728,122 | ) | ||||
| Net loss available to common shareholders | ||||||||||||
| Loss per common share - basic | $ | (0.02 | ) | $ | (0.01 | ) | ||||||
| Loss per common share - diluted | $ | (0.02 | ) | $ | (0.01 | ) | ||||||
8
| NOTE 3. | ACCRUED EXPENSES |
The following is a summary of accrued expenses as of June 30, 2017 and September 30, 2016:
| June 30, 2017 | September 30, 2016 | |||||||
| Accrued interest | $ | 203,513 | $ | 183,390 | ||||
| Accrued interest - related party | 56,223 | 43,162 | ||||||
| Accrued wages and taxes | 685,087 | 324,086 | ||||||
| Other | 4,568 | 5,356 | ||||||
| $ | 949,391 | $ | 555,994 | |||||
As of June 30, 2017, $25,000 for Kyle Tracey, $16,667 for Joe Andreae, $73,742 for Mike Cook, $168,881 for Allan Viernes, $170,548 for Benjamin Beaulieu, $66,333 for Alex Viernes and $65,000 for Justin Braune are recorded in accrued wages.
| NOTE 4. | CONVERTIBLE NOTES PAYABLE |
At June 30, 2017, convertible notes payable consisted of the following:
| Counterparty | Principal Amount | Unamortized Discount | Carrying Value | Accrued Interest | Derivative Liability | Interest Expense | ||||||||||||||||||
| GHS Investments | $ | 457,265 | $ | - | $ | 457,265 | $ | 142,854 | $ | 975,134 | $ | 122,227 | ||||||||||||
| Adar Bays | 187,500 | - | 187,500 | 36,417 | 190,926 | 11,375 | ||||||||||||||||||
| JMJ Financial | 171,666 | - | 171,666 | 23,174 | 224,802 | 16,605 | ||||||||||||||||||
| Odyssey Research | 90,000 | - | 90,000 | - | 146,241 | 15,000 | ||||||||||||||||||
| Illiad Research and Trading | 105,000 | 105,000 | - | 1,068 | 179,336 | 46,067 | ||||||||||||||||||
| $ | 1,011,431 | $ | 105,000 | $ | 906,431 | $ | 203,513 | $ | 1,716,439 | $ | 211,274 | |||||||||||||
At September 30, 2016, convertible notes payable consisted of the following:
| Counterparty | Principal Amount | Unamortized Discount | Carrying Value | Accrued Interest | Derivative Liability | Interest Expense | ||||||||||||||||||
| GHS Investments | $ | 248,926 | $ | 88,075 | $ | 160,852 | $ | 124,872 | $ | 1,255,774 | $ | 1,323,000 | ||||||||||||
| Adar Bays | 187,500 | - | 187,500 | 25,042 | 610,117 | 153,174 | ||||||||||||||||||
| JMJ Financial | 171,666 | 16,605 | 155,060 | 23,174 | 578,288 | 211,790 | ||||||||||||||||||
| Union | - | - | - | - | - | 90,909 | ||||||||||||||||||
| LG Capital | - | - | - | - | - | 91,017 | ||||||||||||||||||
| Oddyssey Research | 90,000 | 15,000 | 75,000 | - | 311,365 | 75,341 | ||||||||||||||||||
| $ | 698,092 | $ | 119,680 | $ | 578,412 | $ | 173,088 | $ | 2,755,544 | $ | 1,945,231 | |||||||||||||
Securities Purchase Agreement with Typenex Co-Investment, LLC
On November 1, 2016, the Company closed a Securities Purchase Agreement (the “Typenex Agreement”) with Typenex. Pursuant to the Typenex Agreement, Typenex purchased a Convertible Promissory Note from the Company in the original principal amount of up to $1,413,000 (the “Typenex Note”), at an interest rate of ten percent (10%) per annum. The Typenex Note is unsecured. The principal amount of the Typenex Note included an original issue discount of $128,000 and a transaction fee of $5,000.
The investment from Typenex is scheduled to occur in a series of sixteen (16) tranches, represented each by a separate Secured Investor Promissory Note (the “Tranche Notes”) in varying amounts. The first Tranche Note of $40,000 is memorialized in Secured Promissory Note #1, the funding of which occurred on or immediately after the execution of the Typenex Agreement.
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Each Tranche Note, or any part of it, is convertible into fully paid and non-assessable $0.00001 par value common stock of the Company. The Conversion Price is as described in the Typenex Agreement and is based on at least a 45% discount to the trading price of the Company’s common stock.
As a part of the Typenex Agreement, the Company agreed to use its best efforts to cause its authorized but unissued stock to be increased in order for the Company to create a reserve sufficient to meet its conversion obligations under the Typenex Note. The Company is in the process of taking steps in order to increase its authorized but unissued stock to meet its obligations.
There is no guarantee that Typenex will fund the remainder of the Typenex Note and in fact it is within Typenex’s sole and absolute discretion whether it ultimately funds Tranche Notes #2- #12. However, in order to secure Typenex’s performance of its obligations under the Typenex Note, as well as any subsequent Tranche Notes, Typenex agreed to pledge a 40% membership interest in Typenex Medical, LLC, an Illinois limited liability company. Should Typenex decide it won’t fund the remainder of the Tranche Notes, the Company’s operating results will suffer and its ability to remain a going concern will be jeopardized.
Securities Purchase Agreement with GHS Investments, LLC
On October 28, 2016, the Company closed a Securities Purchase Agreement (the “GHS Purchase Agreement”) with GHS. Pursuant to the GHS Purchase Agreement, GHS agreed to purchase and the Company agreed to sell up to $1,105,000 of convertible securities, in the form of a Convertible Promissory Note (the “GHS Note”), at an interest rate of ten percent (10%) per annum. The GHS Note is also attached as Exhibit 10.6 to the 12/27/16 Form 8K and is incorporated herein by this reference. The GHS Note included a ten percent (10%) original issuance discount (i.e., $100,000) and a $5,000 initial transaction fee, as defined in the GHS Purchase Agreement. Upon the closing of the GHS Purchase Agreement, GHS funded $40,000 to the Company (the “Initial Tranche”). Within 15 days of certain conditions being met, an additional $40,000 shall be disbursed by GHS to the Company, in its sole discretion (“Second Tranche”). Within 30 days from the Second Tranche’s issuance, so long as there are no defaults under the GHS Note, GHS in its discretion may fund an additional $50,000 to the Company every 30 days (“Subsequent Tranches”) until $1,000,000 has been funded to the Company. During the three and nine months ended June 30, 2017, GHS provided other tranches of $0 and $263,500.
The principal sum and corresponding interest due to GHS shall be prorated based on the consideration actually paid by GHS to the Company in accordance with the GHS Purchase Agreement.
Each GHS Note, or any part of it, is convertible into fully paid and non-assessable $0.00001 par value common stock of the Company. The Conversion Price is as described in the GHS Purchase Agreement and is based on at least a 45% discount to the trading price of the Company’s common stock.
As a part of the GHS Purchase Agreement, the Company agreed to use its best efforts to cause its authorized but unissued stock to be increased in order for the Company to create a reserve sufficient to meet its conversion obligations.
There is no guarantee that GHS will fund the remainder of the Subsequent Tranches and in fact it is within GHS’s sole and absolute discretion whether it ultimately funds the Subsequent Tranches. Should GHS decide it won’t fund the Subsequent Tranches, the Company’s operating results will suffer and its ability to remain a going concern will be jeopardized.
During the three and nine months ended June 30, 2017, GHS converted $0 and $70,795 of principal and accrued interest into 36,398,894 shares of common stock.
The following weighted average variables were used in the Black Scholes model for the derivative liabilities as of June 30, 2017 and September 30, 2016:
| Balance Sheet Date | Stock Price at Valuation Date | Dividend Yield | Exercise Price | Risk Free Interest Rate | Volatility | Average Life | ||||||||||||||||||
| June 30, 2017 | $ | 0.003 | - | % | $ | 0.002 | 1.26 | % | 216 | % | 0.8 | |||||||||||||
| September 30, 2016 | $ | 0.004 | - | % | $ | 0.001 | 0.45 | % | 298 | % | 0.5 | |||||||||||||
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| NOTE 5. | RELATED PARTY DEBT |
Related Party Note Payable
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 June 30, 2017, there is $3,243 in accrued interest expense related to this note and the Company recorded $228 and $683 in interest expense related to this note during the three and nine months ended June 30, 2017, respectively.
Related Party Convertible Notes Payable
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 Company failed to pay the Series B Note and the Amended Note on the Maturity Date (December 10, 2016). On December 15, 2016, the Company received a Notice of Default from counsel for Holder. Holder’s counsel demanded that all amounts owed under the Series B Note and the Amended Note be paid no later than December 20, 2016. The Company was unable to pay the demanded amounts by December 20, 2016. The Company believes that the Holder intends to execute on the security for the Series B Note and the Amended Note, namely, all of the assets of the Company. The Company is attempting to negotiate a resolution that does not include seizure of the Company’s assets however there is no guarantee that the Company will be able to work out a satisfactory resolution that does not include seizure of the Company’s assets.
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.
On May 24, 2017, Illiad Research and Trading purchased $100,000 of the Series B convertible note payable for $125,000 with the reserve to convert into common stock at 58% of the lowest trading price of the previous thirteen (13) days. During the three and nine months ended June 30, 2017, $20,000 of the note and accrued interest were converted into 9,090,909 shares of common stock. See Note 4 for the principal, accrued interest, and interest expense related to the convertible note payable.
During the three and nine months ended June 30, 2017, the Company recorded $3,533 and $12,633, respectively, of interest expense related to the Series B Notes. As of June 30, 2017, $200,000 of the Series B Notes along with $53,235 of accrued interest are outstanding. 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. The value ascribed to the Series B Notes were based on the fixed conversion price of the instruments into common stock and such no beneficial conversion feature was recorded.
| NOTE 6. | COMMITMENTS AND CONTINGENCIES |
Settlement LiabilitIES
On or about December 1, 2016, LG Capital Funding, LLC (“LG Capital”) obtained a judgment in the amount of $151,000. On or about December 10, 2016, the Company learned that LG Capital had placed a judgment lien on the Company’s operating account. The effect of the lien was that the Company’s operating account was frozen for an amount twice the judgment, or approximately $300,000. In or around December 2016 and continuing into early January 2017, GHS Investments, LLC (“GHS”) and LG Capital negotiated a transaction whereby GHS purchased the rights to the LG Capital Convertible Promissory Note and/or the right to collect on the LG Capital judgment for $161,000. As of September 30, 2016, the Company recorded a settlement liability of $151,000. On January 25, 2017, the Company issued 32,700,000 shares of common stock in satisfaction of the $151,000 settlement liability.
On February 22, 2016, a convertible promissory note holder, Union Capital, LLC (“Union”), filed suit against the Company in the United States District Court for the Southern District of New York claiming breach of contract and conversion and seeking specific performance, permanent injunction, and damages arising from the Company’s rejection of certain conversion notices submitted by Union. The Company and Union subsequently settled this matter without further court proceedings for $170,000 in 2017. As of September 30, 2016, the Company recorded a settlement liability of $170,000.
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Justin Braune v. Vape Holdings, Inc. et.al.
On May 16, 2017, Justin Braune, the Company’s former Chief Executive Officer filed a civil lawsuit in Los Angeles County Superior Court against the Company, Allan Viernes and Ben Beaulieu claiming breach of Mr. Braune’s employment contract, including, but not limited to failure to pay wages including deferred salary and commissions, and wages upon separation of employment and seeking damages arising from the Company’s breach. The Company and Justin Braune subsequently settled this matter without further court proceedings. On September 25, 2017, the parties participated in a full-day mediation and agreed to settle and resolve all matters including the lawsuit. On December 6, 2017, the parties entered into a Settlement Agreement whereby, the Allan Viernes and Ben Beaulieu 1) shall pay the sum of $15,000 by December 8, 2017 and the Company shall, 2) $40,000 on or before December 31, 2018, and 3) a convertible promissory note in the amount of $100,000.00. The convertible note and/or any shares issued in connection shall have a buyout cash value of no less than 125% of the cash value. The Company recorded a provision for loss of approximately $165,000 during the year ended September 30, 2016.
| NOTE 7. | 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.
On December 10, 2015, the Company approved the filing of a Preferred Stock Designation for up to 30,000,000 shares of Series B Preferred Stock. No Series B Preferred Stock are issued or outstanding. See discussion of designation of Series B Preferred Stock in Note 5.
| NOTE 8. | SUBSEQUENT EVENTS |
HIVE
On April 28, 2018, the Company received a Notice of Default from Hive Ceramics and Kyle Tracey (the “Notice”) with respect to the Company’s breach of the Settlement Agreement and Release, dated as of April 28, 2017. The breaches consist of failure to pay $234,000 owed under the Tracey Note and failure to pay the $7,000 monthly payment obligations set forth in the Settlement Agreement, and $216,222 owed for failure to repay the Hive Note. The Company has not been able to resolve the defaults set forth in the Notice and Hive/Tracey have been informed the Company will hand over possession of the Hive Assets when arrangements can be made. Concurrently, the Company has proposed to enter into a Sales Representative Agreement whereby the Company may continue to sell Hive products for a period of 12 months on a non-exclusive basis in exchange for a commission on net sales. The HIVE/Tracey Settlement Agreement and Release documents are qualified in their entirety by reference to the full text of the agreements, copies of which were filed on Company’s Current Report on Form 8-K May 3, 2017 as Exhibit 10.1.
Justin Braune
On April 4, 2018, Braune filed an Ex Parte Application for an Order to Enter Judgement Against the Company for breach of the Settlement Agreement for failure to pay under the terms of the Settlement Agreement, which the Court granted in favor of Braune. The Ex Parte Application was denied.
On May 23, 2018, Braune brought a different Ex Parte Application for Appointment of a Receiver. The hearing was held on May 23, 2018, during which the Company submitted papers opposing the appointment, and which ultimately resulted in the Court denying Braune’s application. The Ex Parte Application was denied.
Common Stock Issued for Conversion of Debt
Subsequent to June 30, 2017, the Company issued 332,972,219 shares of common stock for conversion of $468,208 of notes payable and accrued interest. As of the date of this filing the Company has 1,000,000,000 shares of common stock outstanding.
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis is intended to provide information about VAPE’s financial condition and results of operations for the three and nine months ended June 30, 2017 and 2016. This information should be read in conjunction with VAPE’s audited consolidated financial statements for the year ended September 30, 2016 and 2015. 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.
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.
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”) was the premier brand under the VAPE umbrella. HIVE manufactured and distributed 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 was 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, featuring the ONYX 14mm Domeless, The HIVE x QUAVE – Ceramic Club Banger and the HIVE x Brothership Ceramic Honey Bucket. The HIVE line also showcases the 2 piece domeless, domeless direct inject, domeless and regular 10mm, 14mm and 18mm elements, Flower Cup, Carb Cap, Stinger Dabber, and the HIVE x D-Nail 16mm V2 and 20mm attachments.
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The Company’s premiere brand, HIVE Ceramics has seen a significant decrease in sales due to competition in the market and restricted operations. While sales channels are still open, without a capital infusion, the revenues are not large enough to support HIVE Ceramics outside of its existing product line.
The Company intends to take on additional funding to target key brands and products in the vaporization industry as well as revamp the HIVE Ceramics operations. Diversity in the products we carry will help support the need for variety in today’s rapidly growing market. With the proper investment, we believe that there are key acquisitions and/or partnerships in the CBD market that would directly benefit The Company’s need for increased revenue and exposure.
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 sell disposable cartridges that complement HIVE Ceramic’s product lines utilizing its sales and distribution channels and via its own designated e-commerce site at www.revivalvapes.com. The Company ceased the Revival product line upon Justin Braun’s resignation.
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 Three Months Ended June 30, 2017 and 2016
Net Income. For the three months ended June 30, 2017 and 2016, net income was $238,367 and $2,162,465, net of the gain on change in derivative liabilities of $537,550 and $3,099,805, respectively.
Revenue. For the three months ended June 30, 2017 and 2016, revenue was $24,291 and $156,514, respectively. Revenue decreased in 2017 due to a decrease in new product releases of HIVE Ceramics and a decline in our ability to generate revenues due to lack of liquidity.
Cost of Revenue. For the three months ended June 30, 2017 and 2016, cost of revenue was $9,513 and $385,705, respectively. In 2017, cost of revenue included approximately $3,000 of freight, $2,000 of quality assurance, and $3,000 of royalties. In 2016, cost of revenue included approximately $64,000 of ceramic products costs, $30,000 of depreciation, $8,000 of freight, $17,000 of quality assurance, $9,000 of occupancy and warehouse costs, and $13,000 of royalties.
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Gross Profit (Loss). For the three months ended June 30, 2017 and 2016, gross profit (loss) was $14,778 or 61% and ($229,191) or (146%), respectively. Gross profit increased due to no further write-offs of inventory and obsolescence of ceramics.
Sales and Marketing. For the three months ended June 30, 2017 and 2016, sales and marketing expenses were $22,617 and $84,246, respectively. In 2017, sales and marketing expenses included approximately $19,000 of outside sales expense and $1,000 of investor relations. In 2016, sales and marketing expenses included approximately $16,000 of general advertising, $24,000 of outside sales expense, $12,000 off investor relations, and $12,000 of payroll expenses.
Research and Development. For the three months ended June 30, 2017 and 2016, there was $0 and $950 in research and development expenses, respectively.
General and Administrative. For the three months ended June 30, 2017 and 2016, general and administrative expenses were $218,663 and $280,470, respectively. In 2017, general and administrative expenses included approximately $7,000 of insurance expense, $4,000 of office expense, and $153,000 of payroll expenses. In 2016, general and administrative expenses included approximately $12,000 of insurance expense, $9,000 of office expense, $143,000 of payroll expenses, $31,000 of accounting fees, and $46,000 of legal fees.
Interest Expense. For the three months ended June 30, 2017 and 2016, interest expense was $69,175 and $337,707, respectively. There were significant increase in conversions into common stock in 2016 versus 2017, which resulted in full accretion of discounts to interest expense upon conversion.
Interest Expense - related party. For the three months ended June 30, 2017 and 2016, related party interest expense was $3,506 and $4,776, respectively.
Change in Derivative Liabilities. For the three months ended June 30, 2017 and 2016, the gain on change in derivative liabilities was $537,550 and $3,099,805, respectively due to the fluctuation in the stock price versus the lowest traded prices during a period of time prior to notice of conversion.
For the Nine Months Ended June 30, 2017 and 2016
Net Loss. For the nine months ended June 30, 2017 and 2016, net loss was $84,669 and $2,728,122, net of the gain on change in derivative liabilities of $685,897 and $554,885, respectively.
Revenue. For the nine months ended June 30, 2017 and 2016, revenue was $109,051 and $890,742, respectively. Revenue decreased in 2017 due to a decrease in new product releases of HIVE Ceramics and a decline in our ability to generate revenues due to lack of liquidity.
Cost of Revenue. For the nine months ended June 30, 2017 and 2016, cost of revenue was $83,308 and $1,040,420, respectively. In 2017, cost of revenue included approximately $5,000 of ceramic products costs, $10,000 of freight, $15,000 of quality assurance, $16,000 of royalties, and $26,000 of obsolescence reserve. In 2016, cost of revenue included approximately $322,000 of ceramic products costs, $107,000 of depreciation, $36,000 of freight, $31,000 of quality assurance, $38,000 of occupancy and warehouse costs, and $91,000 of royalties.
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Gross Profit (Loss). For the nine months ended June 30, 2017 and 2016, gross profit was $25,743 or 24% and ($149,678) or (17%), respectively. Gross profit increased due to no further write-offs of inventory and obsolescence of ceramics.
Sales and Marketing. For the nine months ended June 30, 2017 and 2016, sales and marketing expenses were $85,805 and $342,618, respectively. In 2017, sales and marketing expenses included approximately $54,000 of outside sales expense and $26,000 of investor relations. In 2016, sales and marketing expenses included approximately $29,000 of general advertising, $43,000 of outside sales expense, $35,000 of stock compensation, and $90,000 of payroll expenses.
Research and Development. For the nine months ended June 30, 2017 and 2016, were $0 and $47,648, respectively. In 2016, research and development included approximately $20,000 of payroll expenses, $13,000 of benefits, and $7,000 of travel.
General and Administrative. For the nine months ended June 30, 2017 and 2016, general and administrative expenses were $486,169 and $841,319, respectively. In 2017, general and administrative expenses included approximately $24,000 of insurance expense, $15,000 of office expense, $37,000 of accounting fees, and $438,000 of payroll expenses. In 2016, general and administrative expenses included approximately $35,000 of insurance expense, $31,000 of office expense, $366,000 of payroll expenses, $35,000 of stock compensation, $80,000 of accounting fees, and $131,000 of legal fees.
Interest Expense. For the nine months ended June 30, 2017 and 2016, interest expense was $211,274 and $1,887,152, respectively. There were significant increase in conversions into common stock in 2016 versus 2017, which resulted in full accretion of discounts to interest expense upon conversion.
Interest Expense - related party. For the nine months ended June 30, 2017 and 2016, related party interest expense was $13,061 and $13,792, respectively.
Change in Derivative Liabilities. For the nine months ended June 30, 2017 and 2016, the gain on change in derivative liabilities was $685,897 and $554,885, respectively due to the fluctuation in the stock price versus the lowest traded prices during a period of time prior to notice of conversion.
Liquidity and Capital Resources
As of June 30, 2017, we had cash of $13,125 and a working capital deficit of $4,436,568 as compared to cash of $0 and a working capital deficit of $5,031,000 as of September 30, 2016. We believe our current liquidity and securities purchase commitments are not sufficient and the Company requires immediate capital to assume any sort of normal operations, let alone new business initiatives. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management plans to raise additional capital to funds immediate operating needs, and ultimately, work the Company’s creditors to restructure the convertible notes, so we can raise growth capital to acquire new businesses.
We had total liabilities of $4,466,539 as of June 30, 2017, including current liabilities of $397,660 of accounts payable, $949,391 of accrued expenses, $906,431 of convertible notes payable, $15,000 of related party notes payable, $200,000 of related party convertible notes payable, $1,716,439 of derivative liabilities, and $281,618 of settlement liability. We had total liabilities of $5,100,604 as of September 30, 2016, including current liabilities of $473,654 of accounts payable, $555,994 of accrued expenses, $537,291 of convertible notes payable, $15,000 of related party notes payable, $300,000 of related party convertible notes payable, $2,755,544 of derivative liabilities, $422,000 of settlement liability, and long-term liabilities of $41,121 of convertible notes payable.
We had a total stockholders’ deficit of $4,436,568 and an accumulated deficit of $35,109,337 as of June 30, 2017.
We used $250,375 of cash in operating activities during the nine months ended June 30, 2017, which was attributable to our net loss of $84,669, which was offset by a $685,897 gain on change in derivative liabilities, $180,533 of accretion of debt discounts, and $339,658 of net cash provided by the change in operating assets and liabilities. We used $502,143 of cash in operating activities during the nine months ended June 30, 2016, which was attributable to our net loss of $2,728,122, which was offset by $106,967 of depreciation, $586,287 gain on change in derivative liabilities, $1,696,706 of accretion of debt discounts, $131,708 of stock-based compensation, $31,689 of common stock issued for services, and $654,478 of net cash used by the change in operating assets and liabilities.
There were no investing activities during the nine months ended June 30, 2017. Investing activities used $43,101 during the nine months ended June 30, 2016 consisting of capital expenditures.
We had $263,500 of net cash provided by financing activities during the nine months ended June 30, 2017 consisting of $263,500 from additional proceeds towards its GHS Investments convertible notes payable. We had $276,750 of net cash provided by financing activities during the nine months ended June 30, 2016 consisting of $312,150 of net proceeds from issuance of convertible notes payable, $50,000 of net proceeds from issuance of related party convertible notes payable, and $85,400 of repayments on convertible notes payable.
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Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
VAPE is a smaller reporting company and is therefore not required to provide this information.
VAPE is currently out of authorized shares to operate properly as this severely affects our ability to finance continued operation, make business transactions, compensate employees, and compensate vendors.
VAPE is currently involved in litigation with convertible noteholders seeking the specific performance of VAPE’s issuance of shares underlying a denied conversion notice. If the noteholders are allowed to convert their respective notes VAPE shareholders will experience substantial dilution.
VAPE is not able to pay base salaries of its officers and directors.
VAPE cannot currently pay its vendors.
VAPE does not have sufficient capital to reorder Revival products to fulfill orders ready to be placed on the books.
VAPE does not have sufficient capital to order new HIVE Ceramics products.
| Item 4. | 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.
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Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2017, we have a material weakness with regards to our disclosure controls and procedures not designed at a reasonable assurance level and 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, 2018.
(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.
(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 consolidated 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 consolidated 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 consolidated 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 June 30, 2017.
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PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings |
Union Capital, LLC, v. Vape Holdings, Inc. On February 22, 2016, a convertible promissory note holder, Union Capital, LLC (“Union”), filed suit against the Company in the United States District Court for the Southern District of New York claiming breach of contract and conversion and seeking specific performance, permanent injunction, and damages arising from the Company’s rejection of certain conversion notices submitted by Union. On February 24, 2016, the Court denied Union’s request for a TRO holding that Union failed to meet its burden of establishing irreparable harm and ordered the Company to show cause why a preliminary injunction should not be granted. The Court denied Union’s motion for a preliminary injunction. On March 31, 2017, the court ruled on the Company’s motion to dismiss and on Union’s motion for summary judgment. The court granted the Company’s motion to dismiss as it related to Union’s conversion claim but denied the Company’s motion to dismiss Union’s breach of contract claim. The court granted Union’s Motion for Summary Judgment as to the Company’s liability for breach of contract but denied Union’s motion in all other respects, including Union’s request for an award of damages, and struck down portions of Union’s note as penalty provisions. The Company and Union subsequently settled this matter without further court proceedings for $170,000 in 2017.
LG Capital Funding, LLC, v. Vape Holdings, Inc. On May 3, 2016, convertible promissory note holder LG Capital Funding, LLC, (“LG”), filed suit against the Company in the United State District Court for the Eastern District of New York claiming breach of contract and conversion and seeking a preliminary injunction and declaratory relief arising from the Company’s rejection of certain conversion notices submitted by LG. The court denied LG both a temporary restraining order and a preliminary injunction and referred the parties to mediation. At mediation, the parties agreed that the Company would pay LG the sum of $151,000 in settlement of its claims.
On or about December 1, 2016, upon LG’s request, the court entered judgment in the amount of $151,000. On or about December 10, 2016, the Company learned that LG had placed a judgment lien on the Company’s operating account. The effect of the lien was that the Company’s operating account was frozen for an amount twice the judgment, or approximately $300,000. In or around December of 2016 and continuing into early January 2017, GHS Investments, LLC, a Nevada limited liability company (“GHS”) and LG Capital negotiated a transaction whereby GHS purchased the rights to the LG Capital Convertible Promissory Note and/or the right to collect on the LG Capital judgment. On or about January 10, 2017, GHS and the Company entered into a Convertible Promissory Note in the amount of $161,000 (the “GHS Convertible Note”) which represented that amount paid by GHS to LG Capital. The GHS Convertible Note carries a 10% interest rate, is due on October 15, 2017 and is convertible into common stock of the Company at a 45% discount off the lowest trading price for the Company’s common stock during the 20 trading days immediately preceding the conversion date.
HIVE, LLC. On December 10, 2015, the Company entered into a Secured Series B Preferred Stock Convertible Promissory Note in the principal amount of $50,000 (“Series B Note”) with HIVE Ceramics, LLC (the “Holder”). The Series B Note carried an interest rate of 8.0%. The Series B Note was due and payable by the Company on December 10, 2016 (the “Maturity Date”). The Series B Note was convertible into shares of the Company’s Series B Preferred Stock at the option of Holder. The indebtedness represented by the Series B Note was secured by all the Company’s assets. The Series B Note is attached as Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on December 27, 2016 (the “12/27/16 Form 8-K”) and incorporated herein by this reference.
Also, on December 10, 2015, the Company entered into an Amended and Restated Secured Series B Preferred Stock Convertible Promissory Note in the principal amount of $250,000 (“Amended Note”) with the Holder. The Amended Note amended, restated, modified and superseded that $250,000 Promissory Note, dated March 27, 2014, entered into by and between the Company and Holder, which note had a principal of $250,000 and a maturity date of February 27, 2016. The Amended Note carried an interest rate of 8.0%. The Amended Note was due and payable by the Company on December 10, 2016 (the “Maturity Date”). The Amended Note was convertible into shares of the Company’s Series B Preferred Stock at the option of Holder. The indebtedness represented by the Amended Note was secured by all the Company’s assets. The Amended Note is attached as Exhibit 10.8 to the 12/27/16 Form 8K and incorporated herein by this reference.
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The Company failed to pay the Series B Note and the Amended Note on the Maturity Date (December 10, 2016). On December 15, 2016, the Company received a Notice of Default from counsel for Holder. Holder’s counsel demanded that all amounts owed under the Series B Note and the Amended Note be paid no later than December 20, 2016. The Company was unable to pay the demanded amounts by December 20, 2016. The Company believes that the Holder intends to execute on the security for the Series B Note and the Amended Note, namely, all of the assets of the Company. The Company is attempting to negotiate a resolution that does not include seizure of the Company’s assets however there is no guarantee that the Company will be able to work out a satisfactory resolution that does not include seizure of the Company’s assets.
Justin Braune v. Vape Holdings, Inc., Ben Beaulieu and Allan Viernes. On May 16, 2017, Justin Braune, the Company’s former Chief Executive Officer filed a civil lawsuit in Los Angeles County Superior Court against the Company, Allan Viernes and Ben Beaulieu claiming breach of Mr. Braune’s employment contract, including, but not limited to failure to pay wages including deferred salary and commissions, and wages upon separation of employment and seeking damages arising from the Company’s breach. The Company and Justin Braune subsequently settled this matter without further court proceedings. On September 25, 2017, the parties participated in a full-day mediation and agreed to settle and resolve all matters including the lawsuit. On December 6, 2017, the parties entered into a Settlement Agreement whereby, the Allan Viernes and Ben Beaulieu 1) shall pay the sum of $15,000 by December 8, 2017 and the Company shall, 2) $40,000 on or before December 31, 2018, and 3) a convertible promissory note in the amount of $100,000. The convertible note and/or any shares issued in connection shall have a buyout cash value of no less than 125% of the cash value.
The Company and Holder subsequently settled this matter without further court proceedings.
| Item 1A. | Risk Factors |
VAPE is a smaller reporting company and is therefore not required to provide this information.
VAPE is a smaller reporting company and is therefore not required to provide this information.
VAPE is currently out of authorized shares to operate properly as this severely affects our ability to finance continued operation, make business transactions, compensate employees, and compensate vendors.
VAPE is currently involved in litigation with convertible noteholders seeking the specific performance of VAPE’s issuance of shares underlying a denied conversion notice. If the noteholders are allowed to convert their respective notes VAPE shareholders will experience substantial dilution.
VAPE is not able to pay base salaries of its officers and directors.
VAPE cannot currently pay its vendors.
VAPE does not have sufficient capital to reorder Revival products to fulfill orders ready to be placed on the books.
VAPE does not have sufficient capital to order new HIVE Ceramics products.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
See Note 5 for subsequent conversions related to third party debt.
See Note 8 for common stock issued for wages, services, and bonuses and for $90,000 equity investment.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not Applicable.
| Item 5. | Other Information |
None.
20
| Item 6. | Exhibits |
EXHIBIT INDEX
21
| * | Filed concurrently herewith |
| ** | The certifications attached as Exhibit 32.1 and Exhibit 32.2 accompanying this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Vape Holdings, Inc., under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. |
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Vape Holdings, Inc. | |
| Registrant | |
| Dated: June 21, 2018 | /s/ Benjamin Beaulieu |
| Benjamin Beaulieu | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| Dated: June 21, 2018 | /s/ Allan Viernes |
| Allan Viernes | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
23
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, Benjamin Beaulieu, certify that:
| 1. | I have reviewed this report on Form 10-Q 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: June 21, 2018 | /s/ Benjamin Beaulieu |
| Benjamin Beaulieu, | |
| Chief Executive Officer |
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-Q 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: June 21, 2018 | /s/ Allan Viernes |
| Allan Viernes, | |
| Chief Financial Officer |
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 Quarterly Report of Vape Holdings, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Benjamin Beaulieu, 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: June 21, 2018
/s/ Benjamin Beaulieu |
|
Benjamin Beaulieu Chief Executive Officer |
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 Quarterly Report of Vape Holdings, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2017 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: June 21, 2018 |
/s/ Allan Viernes |
|
Allan Viernes Chief Financial Officer |
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Jun. 30, 2017 |
Jun. 21, 2018 |
|
| Document and Entity Information [Abstract] | ||
| Entity Registrant Name | Vape Holdings, Inc. | |
| Entity Central Index Key | 0001455819 | |
| Amendment Flag | false | |
| Trading Symbol | VAPE | |
| Current Fiscal Year End Date | --09-30 | |
| Document Type | 10-Q | |
| Document Period End Date | Jun. 30, 2017 | |
| Document Fiscal Period Focus | Q3 | |
| Document Fiscal Year Focus | 2017 | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Common Stock, Shares Outstanding | 1,000,000,000 |
Consolidated Balance Sheets (Parenthetical) (Unaudited) - USD ($) |
Jun. 30, 2017 |
Sep. 30, 2016 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Unamortized discount convertible notes payable, current | $ 105,000 | $ 119,680 |
| Unamortized discount convertible notes payable, non current | $ 0 | $ 0 |
| 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 | 666,027,781 | 588,837,978 |
| Common stock, shares outstanding | 666,587,156 | 588,397,353 |
| Treasury stock, shares | 1,025,625 | 1,025,625 |
Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
||||||
| Income Statement [Abstract] | |||||||||
| Revenue | $ 24,291 | $ 156,514 | $ 109,051 | $ 890,742 | |||||
| Cost of revenue | 9,513 | 385,705 | 83,308 | 1,040,420 | |||||
| Gross profit (loss) | 14,778 | (229,191) | 25,743 | (149,678) | |||||
| Operating expenses: | |||||||||
| Sales and marketing | [1] | 22,617 | 84,246 | 85,805 | 342,618 | ||||
| Research and development | 950 | 47,648 | |||||||
| General and administrative | [2] | 218,663 | 280,470 | 486,169 | 841,319 | ||||
| Total operating expenses | 241,280 | 365,666 | 571,974 | 1,231,585 | |||||
| Operating loss | (226,502) | (594,857) | (546,231) | (1,381,263) | |||||
| Other income (expense): | |||||||||
| Interest expense | (69,175) | (337,707) | (211,274) | (1,887,152) | |||||
| Interest expense - related party | (3,506) | (4,776) | (13,061) | (13,792) | |||||
| Change in derivative liabilities | 537,550 | 3,099,805 | 685,897 | 554,885 | |||||
| Total other income (expense), net | 464,869 | 2,757,322 | 461,562 | (1,346,059) | |||||
| Income (loss) before provision for income taxes | 238,367 | 2,162,465 | (84,669) | (2,727,322) | |||||
| Provision for income taxes | 800 | ||||||||
| Net income (loss) | $ 238,367 | $ 2,162,465 | $ (84,669) | $ (2,728,122) | |||||
| Net loss available to common shareholders: | |||||||||
| Income (loss) per common share - basic | $ 0 | $ 0.01 | $ 0 | $ (0.01) | |||||
| Income (loss) per common share - diluted | $ 0 | $ 0 | $ 0 | $ (0.01) | |||||
| Weighted average shares - basic | 635,028,015 | 215,717,808 | 631,046,743 | 220,677,405 | |||||
| Weighted average shares - diluted | 993,499,503 | 1,097,384,088 | 631,046,743 | 220,677,405 | |||||
| |||||||||
Consolidated Statements of Operations (Unaudited) (Parenthetical) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
| General and administrative [Member] | ||||
| Stock-based compensation | $ 0 | $ 0 | $ 0 | $ 128,597 |
| Sales and marketing [Member] | ||||
| Stock-based compensation | $ 0 | $ 0 | $ 0 | $ 34,800 |
Description of Business and Summary of Significant Accounting Policies |
9 Months Ended | ||
|---|---|---|---|
Jun. 30, 2017 | |||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
| DESCRIPTION OF BUSINESS 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”) was the premier brand under the VAPE umbrella. HIVE outsource 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.
HIVE Ceramics saw a significant decrease in sales due to competition in the market and restricted operations. While sales channels are still open, without an infusion, the revenues are not large enough to support HIVE Ceramics outside of its existing product line. |
Accounting Policies and Basis of Presentation |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCOUNTING POLICIES AND BASIS OF PRESENTATION |
GOING CONCERN
VAPE’s consolidated financial statements reflect a net loss of $84,669 during the nine months ended June 30, 2017. As of June 30, 2017, we had cash of $13,125, a working capital deficit of $4,436,568, and an accumulated deficit of $35,109,337. 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 8 for subsequent events regarding financing activities.
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.
Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2017 and September 30, 2016. 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 June 30, 2017:
The following table presents the Company’s fair value hierarchy for assets measured at fair value on a recurring basis at September 30, 2016:
EARNINGS (LOSS) PER COMMON SHARE
The following is a summary of outstanding securities which have been included in the calculation of diluted net income per share and reconciliation of net income to net income available to common stock holders for the three months ended June 30, 2017 and 2016:
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 had the Company generated net income for the nine months ended June 30, 2017 and 2016:
The Company does not have sufficient shares to accommodate the convertible notes.
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.
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.
AMENDMENT
We have amended the previous three and nine months ended June 30, 2016 in this Form 10-Q 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. Accordingly, we adjusted the consolidated financial statements to recognize the embedded conversion feature of the instruments.
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-Q to account for the embedded conversion features as derivative financial instruments at fair value upon their original issuance dates. 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.
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Accrued Expenses |
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| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ACCRUED EXPENSES |
The following is a summary of accrued expenses as of June 30, 2017 and September 30, 2016:
As of June 30, 2017, $25,000 for Kyle Tracey, $16,667 for Joe Andreae, $73,742 for Mike Cook, $168,881 for Allan Viernes, $170,548 for Benjamin Beaulieu, $66,333 for Alex Viernes and $65,000 for Justin Braune are recorded in accrued wages. |
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Convertible Notes Payable |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CONVERTIBLE NOTES PAYABLE |
At June 30, 2017, convertible notes payable consisted of the following:
At September 30, 2016, convertible notes payable consisted of the following:
Securities Purchase Agreement with Typenex Co-Investment, LLC
On November 1, 2016, the Company closed a Securities Purchase Agreement (the “Typenex Agreement”) with Typenex. Pursuant to the Typenex Agreement, Typenex purchased a Convertible Promissory Note from the Company in the original principal amount of up to $1,413,000 (the “Typenex Note”), at an interest rate of ten percent (10%) per annum. The Typenex Note is unsecured. The principal amount of the Typenex Note included an original issue discount of $128,000 and a transaction fee of $5,000.
The investment from Typenex is scheduled to occur in a series of sixteen (16) tranches, represented each by a separate Secured Investor Promissory Note (the “Tranche Notes”) in varying amounts. The first Tranche Note of $40,000 is memorialized in Secured Promissory Note #1, the funding of which occurred on or immediately after the execution of the Typenex Agreement.
Each Tranche Note, or any part of it, is convertible into fully paid and non-assessable $0.00001 par value common stock of the Company. The Conversion Price is as described in the Typenex Agreement and is based on at least a 45% discount to the trading price of the Company’s common stock.
As a part of the Typenex Agreement, the Company agreed to use its best efforts to cause its authorized but unissued stock to be increased in order for the Company to create a reserve sufficient to meet its conversion obligations under the Typenex Note. The Company is in the process of taking steps in order to increase its authorized but unissued stock to meet its obligations.
There is no guarantee that Typenex will fund the remainder of the Typenex Note and in fact it is within Typenex’s sole and absolute discretion whether it ultimately funds Tranche Notes #2- #12. However, in order to secure Typenex’s performance of its obligations under the Typenex Note, as well as any subsequent Tranche Notes, Typenex agreed to pledge a 40% membership interest in Typenex Medical, LLC, an Illinois limited liability company. Should Typenex decide it won’t fund the remainder of the Tranche Notes, the Company’s operating results will suffer and its ability to remain a going concern will be jeopardized.
Securities Purchase Agreement with GHS Investments, LLC
On October 28, 2016, the Company closed a Securities Purchase Agreement (the “GHS Purchase Agreement”) with GHS. Pursuant to the GHS Purchase Agreement, GHS agreed to purchase and the Company agreed to sell up to $1,105,000 of convertible securities, in the form of a Convertible Promissory Note (the “GHS Note”), at an interest rate of ten percent (10%) per annum. The GHS Note is also attached as Exhibit 10.6 to the 12/27/16 Form 8K and is incorporated herein by this reference. The GHS Note included a ten percent (10%) original issuance discount (i.e., $100,000) and a $5,000 initial transaction fee, as defined in the GHS Purchase Agreement. Upon the closing of the GHS Purchase Agreement, GHS funded $40,000 to the Company (the “Initial Tranche”). Within 15 days of certain conditions being met, an additional $40,000 shall be disbursed by GHS to the Company, in its sole discretion (“Second Tranche”). Within 30 days from the Second Tranche’s issuance, so long as there are no defaults under the GHS Note, GHS in its discretion may fund an additional $50,000 to the Company every 30 days (“Subsequent Tranches”) until $1,000,000 has been funded to the Company. During the three and nine months ended June 30, 2017, GHS provided other tranches of $0 and $263,500.
The principal sum and corresponding interest due to GHS shall be prorated based on the consideration actually paid by GHS to the Company in accordance with the GHS Purchase Agreement.
Each GHS Note, or any part of it, is convertible into fully paid and non-assessable $0.00001 par value common stock of the Company. The Conversion Price is as described in the GHS Purchase Agreement and is based on at least a 45% discount to the trading price of the Company’s common stock.
As a part of the GHS Purchase Agreement, the Company agreed to use its best efforts to cause its authorized but unissued stock to be increased in order for the Company to create a reserve sufficient to meet its conversion obligations.
There is no guarantee that GHS will fund the remainder of the Subsequent Tranches and in fact it is within GHS’s sole and absolute discretion whether it ultimately funds the Subsequent Tranches. Should GHS decide it won’t fund the Subsequent Tranches, the Company’s operating results will suffer and its ability to remain a going concern will be jeopardized.
During the three and nine months ended June 30, 2017, GHS converted $0 and $70,795 of principal and accrued interest into 36,398,894 shares of common stock.
The following weighted average variables were used in the Black Scholes model for the derivative liabilities as of June 30, 2017 and September 30, 2016:
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Related Party Debt |
9 Months Ended | ||
|---|---|---|---|
Jun. 30, 2017 | |||
| Related Party Transactions [Abstract] | |||
| RELATED PARTY DEBT |
Related Party Note Payable
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 June 30, 2017, there is $3,243 in accrued interest expense related to this note and the Company recorded $228 and $683 in interest expense related to this note during the three and nine months ended June 30, 2017, respectively.
Related Party Convertible Notes Payable
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 Company failed to pay the Series B Note and the Amended Note on the Maturity Date (December 10, 2016). On December 15, 2016, the Company received a Notice of Default from counsel for Holder. Holder’s counsel demanded that all amounts owed under the Series B Note and the Amended Note be paid no later than December 20, 2016. The Company was unable to pay the demanded amounts by December 20, 2016. The Company believes that the Holder intends to execute on the security for the Series B Note and the Amended Note, namely, all of the assets of the Company. The Company is attempting to negotiate a resolution that does not include seizure of the Company’s assets however there is no guarantee that the Company will be able to work out a satisfactory resolution that does not include seizure of the Company’s assets.
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.
On May 24, 2017, Illiad Research and Trading purchased $100,000 of the Series B convertible note payable for $125,000 with the reserve to convert into common stock at 58% of the lowest trading price of the previous thirteen (13) days. During the three and nine months ended June 30, 2017, $20,000 of the note and accrued interest were converted into 9,090,909 shares of common stock. See Note 4 for the principal, accrued interest, and interest expense related to the convertible note payable.
During the three and nine months ended June 30, 2017, the Company recorded $3,533 and $12,633, respectively, of interest expense related to the Series B Notes. As of June 30, 2017, $200,000 of the Series B Notes along with $53,235 of accrued interest are outstanding. 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. The value ascribed to the Series B Notes were based on the fixed conversion price of the instruments into common stock and such no beneficial conversion feature was recorded. |
Commitments and Contingencies |
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|---|---|---|---|
Jun. 30, 2017 | |||
| Commitments and Contingencies Disclosure [Abstract] | |||
| COMMITMENTS AND CONTINGENCIES |
Settlement LiabilitIES
On or about December 1, 2016, LG Capital Funding, LLC (“LG Capital”) obtained a judgment in the amount of $151,000. On or about December 10, 2016, the Company learned that LG Capital had placed a judgment lien on the Company’s operating account. The effect of the lien was that the Company’s operating account was frozen for an amount twice the judgment, or approximately $300,000. In or around December 2016 and continuing into early January 2017, GHS Investments, LLC (“GHS”) and LG Capital negotiated a transaction whereby GHS purchased the rights to the LG Capital Convertible Promissory Note and/or the right to collect on the LG Capital judgment for $161,000. As of September 30, 2016, the Company recorded a settlement liability of $151,000. On January 25, 2017, the Company issued 32,700,000 shares of common stock in satisfaction of the $151,000 settlement liability.
On February 22, 2016, a convertible promissory note holder, Union Capital, LLC (“Union”), filed suit against the Company in the United States District Court for the Southern District of New York claiming breach of contract and conversion and seeking specific performance, permanent injunction, and damages arising from the Company’s rejection of certain conversion notices submitted by Union. The Company and Union subsequently settled this matter without further court proceedings for $170,000 in 2017. As of September 30, 2016, the Company recorded a settlement liability of $170,000.
Justin Braune v. Vape Holdings, Inc. et.al.
On May 16, 2017, Justin Braune, the Company’s former Chief Executive Officer filed a civil lawsuit in Los Angeles County Superior Court against the Company, Allan Viernes and Ben Beaulieu claiming breach of Mr. Braune’s employment contract, including, but not limited to failure to pay wages including deferred salary and commissions, and wages upon separation of employment and seeking damages arising from the Company’s breach. The Company and Justin Braune subsequently settled this matter without further court proceedings. On September 25, 2017, the parties participated in a full-day mediation and agreed to settle and resolve all matters including the lawsuit. On December 6, 2017, the parties entered into a Settlement Agreement whereby, the Allan Viernes and Ben Beaulieu 1) shall pay the sum of $15,000 by December 8, 2017 and the Company shall, 2) $40,000 on or before December 31, 2018, and 3) a convertible promissory note in the amount of $100,000.00. The convertible note and/or any shares issued in connection shall have a buyout cash value of no less than 125% of the cash value. The Company recorded a provision for loss of approximately $165,000 during the year ended September 30, 2016. |
Stockholders' Deficit |
9 Months Ended | ||
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Jun. 30, 2017 | |||
| Equity [Abstract] | |||
| 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.
On December 10, 2015, the Company approved the filing of a Preferred Stock Designation for up to 30,000,000 shares of Series B Preferred Stock. No Series B Preferred Stock are issued or outstanding. See discussion of designation of Series B Preferred Stock in Note 5. |
Subsequent Events |
9 Months Ended | ||
|---|---|---|---|
Jun. 30, 2017 | |||
| Subsequent Events [Abstract] | |||
| SUBSEQUENT EVENTS |
HIVE
On April 28, 2018, the Company received a Notice of Default from Hive Ceramics and Kyle Tracey (the “Notice”) with respect to the Company’s breach of the Settlement Agreement and Release, dated as of April 28, 2017. The breaches consist of failure to pay $234,000 owed under the Tracey Note and failure to pay the $7,000 monthly payment obligations set forth in the Settlement Agreement, and $216,222 owed for failure to repay the Hive Note. The Company has not been able to resolve the defaults set forth in the Notice and Hive/Tracey have been informed the Company will hand over possession of the Hive Assets when arrangements can be made. Concurrently, the Company has proposed to enter into a Sales Representative Agreement whereby the Company may continue to sell Hive products for a period of 12 months on a non-exclusive basis in exchange for a commission on net sales. The HIVE/Tracey Settlement Agreement and Release documents are qualified in their entirety by reference to the full text of the agreements, copies of which were filed on Company’s Current Report on Form 8-K May 3, 2017 as Exhibit 10.1.
Justin Braune
On April 4, 2018, Braune filed an Ex Parte Application for an Order to Enter Judgement Against the Company for breach of the Settlement Agreement for failure to pay under the terms of the Settlement Agreement, which the Court granted in favor of Braune. The Ex Parte Application was denied.
On May 23, 2018, Braune brought a different Ex Parte Application for Appointment of a Receiver. The hearing was held on May 23, 2018, during which the Company submitted papers opposing the appointment, and which ultimately resulted in the Court denying Braune’s application. The Ex Parte Application was denied.
Common Stock Issued for Conversion of Debt
Subsequent to June 30, 2017, the Company issued 332,972,219 shares of common stock for conversion of $468,208 of notes payable and accrued interest. As of the date of this filing the Company has 1,000,000,000 shares of common stock outstanding. |
Accounting Policies and Basis of Presentation (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GOING CONCERN | GOING CONCERN
VAPE’s consolidated financial statements reflect a net loss of $84,669 during the nine months ended June 30, 2017. As of June 30, 2017, we had cash of $13,125, a working capital deficit of $4,436,568, and an accumulated deficit of $35,109,337. 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 8 for subsequent events regarding financing activities. |
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| 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.
Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2017 and September 30, 2016. 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 June 30, 2017:
The following table presents the Company’s fair value hierarchy for assets measured at fair value on a recurring basis at September 30, 2016:
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| EARNINGS (LOSS) PER COMMON SHARE | EARNINGS (LOSS) PER COMMON SHARE
The following is a summary of outstanding securities which have been included in the calculation of diluted net income per share and reconciliation of net income to net income available to common stock holders for the three months ended June 30, 2017 and 2016:
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 had the Company generated net income for the nine months ended June 30, 2017 and 2016:
The Company does not have sufficient shares to accommodate the convertible notes. |
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| 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.
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. |
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| AMENDMENT | AMENDMENT
We have amended the previous three and nine months ended June 30, 2016 in this Form 10-Q 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. Accordingly, we adjusted the consolidated financial statements to recognize the embedded conversion feature of the instruments.
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-Q to account for the embedded conversion features as derivative financial instruments at fair value upon their original issuance dates. 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.
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Accounting Policies and Basis of Presentation (Tables) |
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| 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 June 30, 2017:
The following table presents the Company’s fair value hierarchy for assets measured at fair value on a recurring basis at September 30, 2016:
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| Schedule of securities to be included in diluted net income calculation |
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| Schedule of securities to be included in diluted share calculation |
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| Schedule of previously reported consolidated financial statements |
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Accrued Expenses (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of accrued expenses |
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Convertible Notes Payable (Tables) |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of convertible notes payable | At June 30, 2017, convertible notes payable consisted of the following:
At September 30, 2016, convertible notes payable consisted of the following:
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| Schedule of weighted average variables derivative liabilities |
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Accounting Policies and Basis of Presentation (Details) - Fair Value, Measurements, Recurring [Member] - USD ($) |
Jun. 30, 2017 |
Sep. 30, 2016 |
|---|---|---|
| Assets | ||
| Cash and cash equivalents | $ 13,125 | |
| Total assets measured at fair value | 13,125 | |
| Liabilities | ||
| Derivative instruments | 1,716,439 | 2,755,544 |
| Total liabilities measured at fair value | 1,716,439 | 2,755,544 |
| Level 1 [Member] | ||
| Assets | ||
| Cash and cash equivalents | 13,125 | |
| Total assets measured at fair value | 13,125 | |
| 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 | 1,716,439 | 2,755,544 |
| Total liabilities measured at fair value | 1,716,439 | 2,755,544 |
| Level 3 [Member] | ||
| Assets | ||
| Cash and cash equivalents | ||
| Total assets measured at fair value | ||
| Liabilities | ||
| Derivative instruments | ||
| Total liabilities measured at fair value |
Accounting Policies and Basis of Presentation (Details 1) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
| Weighted average common shares outstanding used in calculating basic earnings per share | 635,028,015 | 215,717,808 | 631,046,743 | 220,677,405 |
| Effect of preferred stock | 500,000 | 500,000 | ||
| Effect of convertible notes payable | 357,971,489 | 881,166,280 | ||
| Weighted average common and common equivalent shares used in calculating diluted earnings per share | 993,499,503 | 1,097,384,088 | 631,046,743 | 220,677,405 |
| Net income as reported | $ 238,367 | $ 2,162,465 | $ (84,669) | $ (2,728,122) |
| Add - interest on convertible notes payable | 69,175 | 337,707 | $ 211,274 | $ 1,887,152 |
| Net income available to common stockholders | $ 307,542 | $ 2,500,171 | ||
Accounting Policies and Basis of Presentation (Details 2) - shares |
9 Months Ended | |
|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
|
| Diluted shares outstanding | 358,471,489 | 633,245,120 |
| Series A Preferred Stock [Member] | ||
| Diluted shares outstanding | 500,000 | 500,000 |
| Common stock warrants [Member] | ||
| Diluted shares outstanding | 1,184,726 | |
| Convertible notes [Member] | ||
| Diluted shares outstanding | 357,971,489 | 631,560,394 |
Accounting Policies and Basis of Presentation (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Accounting Policies and Basis of Presentation (Textual) | ||||||
| Net income | $ 238,367 | $ 2,162,465 | $ (84,669) | $ (2,728,122) | ||
| Cash | 13,125 | $ 5,410 | 13,125 | $ 5,410 | $ 273,904 | |
| Working capital deficit | 4,436,568 | 4,436,568 | ||||
| Accumulated deficit | $ (35,109,337) | $ (35,109,337) | $ (35,024,668) | |||
Accrued Expenses (Details) - USD ($) |
Jun. 30, 2017 |
Sep. 30, 2016 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accrued interest | $ 203,513 | $ 183,390 |
| Accrued interest - related party | 56,223 | 43,162 |
| Accrued wages and taxes | 685,087 | 324,086 |
| Other | 4,568 | 5,356 |
| Accrued expenses | $ 949,391 | $ 555,994 |
Accrued Expenses (Details Textual) |
9 Months Ended |
|---|---|
|
Jun. 30, 2017
USD ($)
| |
| Justin Brauneare [Member] | |
| Accrued Expenses (Textual) | |
| Accrued wages | $ 65,000 |
| Allan Viernes [Member] | |
| Accrued Expenses (Textual) | |
| Accrued wages | 168,881 |
| Benjamin Beaulieu [Member] | |
| Accrued Expenses (Textual) | |
| Accrued wages | 170,548 |
| Kyle Tracey [Member] | |
| Accrued Expenses (Textual) | |
| Accrued wages | 25,000 |
| Mike Cook [Member] | |
| Accrued Expenses (Textual) | |
| Accrued wages | 73,742 |
| Alex Viernes [Member] | |
| Accrued Expenses (Textual) | |
| Accrued wages | 66,333 |
| Joe Andreae [Member] | |
| Accrued Expenses (Textual) | |
| Accrued wages | $ 16,667 |
Convertible Notes Payable (Details 1) - $ / shares |
9 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2017 |
Sep. 30, 2016 |
|
| Debt Disclosure [Abstract] | ||
| Stock Price at Valuation Date | $ 0.003 | $ 0.004 |
| Dividend Yield | ||
| Exercise Price | $ 0.002 | $ 0.001 |
| Risk Free Interest Rate | 1.26% | 0.45% |
| Volatility | 216.00% | 298.00% |
| Average Life | 9 months 18 days | 6 months |
Convertible Notes Payable (Details Textual) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|---|
Nov. 01, 2016 |
Oct. 28, 2016 |
Jun. 30, 2017 |
Jun. 30, 2017 |
Sep. 30, 2016 |
|
| Convertible Notes Payable (Textual) | |||||
| Original issue discount | $ 105,000 | $ 105,000 | $ 119,680 | ||
| Common stock, par value | $ 0.00001 | $ 0.00001 | $ 0.00001 | ||
| Securities Purchase Agreement [Member] | Typenex Co-Investment, LLC [Member] | |||||
| Convertible Notes Payable (Textual) | |||||
| Original principal amount | $ 1,413,000 | ||||
| Interest rate | 10.00% | ||||
| Original issue discount | $ 128,000 | ||||
| Transaction fee | $ 5,000 | ||||
| Description of tranches | The investment from Typenex is scheduled to occur in a series of sixteen (16) tranches, represented each by a separate Secured Investor Promissory Note (the "Tranche Notes") in varying amounts. | ||||
| First tranche note | $ 40,000 | ||||
| Common stock, par value | $ 0.00001 | ||||
| Description of conversion price | The Conversion Price is as described in the Typenex Agreement and is based on at least a 45% discount to the trading price of the Company's common stock. | ||||
| Membership interest, percentage | 40.00% | ||||
| Securities Purchase Agreement [Member] | GHS Investments, LLC [Member] | |||||
| Convertible Notes Payable (Textual) | |||||
| Issuance of convertible securities | $ 1,105,000 | ||||
| Interest rate | 10.00% | ||||
| Original issue discount | $ 100,000 | ||||
| Transaction fee | $ 5,000 | ||||
| Description of tranches | GHS Purchase Agreement, GHS funded $40,000 to the Company (the “Initial Tranche”). Within 15 days of certain conditions being met, an additional $40,000 shall be disbursed by GHS to the Company, in its sole discretion (“Second Tranche”). Within 30 days from the Second Tranche’s issuance, so long as there are no defaults under the GHS Note, GHS in its discretion may fund an additional $50,000 to the Company every 30 days (“Subsequent Tranches”) until $1,000,000 has been funded to the Company. During the three and nine months ended June 30, 2017, GHS provided other tranches of $0 and $263,500. |
||||
| Common stock, par value | $ 0.00001 | ||||
| Description of conversion price | The Conversion Price is as described in the GHS Purchase Agreement and is based on at least a 45% discount to the trading price of the Company's common stock. | ||||
| Common stock issued on conversion | 36,398,894 | 36,398,894 | |||
| Principal amount converts of common stock | $ 0 | $ 70,795 |
Commitments and Contingencies (Details) - USD ($) |
1 Months Ended | 9 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|---|
Dec. 06, 2017 |
Dec. 10, 2016 |
Feb. 22, 2016 |
Jun. 30, 2017 |
Sep. 30, 2016 |
Jan. 25, 2017 |
Dec. 01, 2016 |
|
| Commitments and Contingencies (Textual) | |||||||
| Recorded a settlement liability | $ 281,618 | $ 422,000 | |||||
| Convertible promissory note | 41,121 | ||||||
| Provision for loss | 165,000 | ||||||
| LG Capital Funding [Member] | |||||||
| Commitments and Contingencies (Textual) | |||||||
| Gain on settlement | $ 300,000 | ||||||
| Recorded a settlement liability | $ 151,000 | ||||||
| Subsequent Events [Member] | |||||||
| Commitments and Contingencies (Textual) | |||||||
| Settlement agreement, description | The parties entered into a Settlement Agreement whereby, the Allan Viernes and Ben Beaulieu 1) shall pay the sum of $15,000 by December 8, 2017 and the Company shall, 2) $40,000 on or before December 31, 2018, and 3) a convertible promissory note in the amount of $100,000.00. The convertible note and/or any shares issued in connection shall have a buyout cash value of no less than 125% of the cash value. | ||||||
| Convertible Promissory Note [Member] | LG Capital Funding [Member] | |||||||
| Commitments and Contingencies (Textual) | |||||||
| Recorded a settlement liability | 151,000 | ||||||
| Right to collect on the LG Capital judgment amount | $ 161,000 | ||||||
| Convertible Promissory Note [Member] | Union Capital, LLC [Member] | |||||||
| Commitments and Contingencies (Textual) | |||||||
| Recorded a settlement liability | $ 170,000 | $ 151,000 | |||||
| Court proceedings amount | $ 170,000 | ||||||
| Shares of common stock issued | 32,700,000 |
Stockholders' Deficit (Details) - shares |
1 Months Ended | |||||
|---|---|---|---|---|---|---|
Apr. 01, 2014 |
Jun. 19, 2014 |
Jun. 30, 2017 |
Sep. 30, 2016 |
Dec. 10, 2015 |
Nov. 27, 2013 |
|
| Stockholders' Deficit (Textual) | ||||||
| Common stock, shares authorized | 1,000,000,000 | 1,000,000,000 | ||||
| Preferred stock, shares authorized | 100,000,000 | 100,000,000 | ||||
| Preferred Stock [Member] | ||||||
| Stockholders' Deficit (Textual) | ||||||
| Preferred stock, shares authorized | 100,000,000 | |||||
| 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 $4,000,000 in aggregate gross revenues over the two-year period then the convertible ratio will adjust to 5-1). In no event will the issuance convert into more than 5,000,000 shares of common stock of the Company. | |||||
| Description of asset purchase agreement ratio | Series A Shares are entitled to vote at a 15-1 ratio to Common Stock. | |||||
| Common Stock [Member] | ||||||
| Stockholders' Deficit (Textual) | ||||||
| Common stock, shares authorized | 1,000,000,000 | |||||
| Preferred stock, shares authorized | 100,000,000 | |||||
| Series A Preferred Stock [Member] | ||||||
| Stockholders' Deficit (Textual) | ||||||
| Shares issued during period | 500,000 | 500,000 | ||||
| Preferred stock, shares authorized | 500,000 | |||||
| Series B Preferred Stock [Member] | ||||||
| Stockholders' Deficit (Textual) | ||||||
| Preferred stock, shares authorized | 30,000,000 |
Subsequent Events (Details) - USD ($) |
1 Months Ended | 9 Months Ended | |
|---|---|---|---|
Apr. 28, 2018 |
Jun. 30, 2017 |
Sep. 30, 2016 |
|
| Subsequent Events (Textual) | |||
| Conversion of common stock shares issued | 332,972,219 | ||
| Conversion of common stock amount | $ 468,208 | ||
| Common stock, shares outstanding | 666,587,156 | 588,397,353 | |
| Subsequent Event [Member] | |||
| Subsequent Events (Textual) | |||
| Settlement agreement, description | The Company's breach of the Settlement Agreement and Release, dated as of April 28, 2017. The beaches consist of failure to pay $234,000 owed under the Tracey Note and failure to pay the $7,000 monthly payment obligations set forth in the Settlement Agreement, and $216,222 owed for failure to repay the Hive Note. | ||
| Conversion Debt [Member] | |||
| Subsequent Events (Textual) | |||
| Common stock, shares outstanding | 1,000,000,000 |