UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)


[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended June 30, ~~2015~~2016


[ ]	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~~000-~~173438~~55363

VAPOR HUB INTERNATIONAL INC.

(Exact Name of Registrant as Specified in Charter)


Nevada		27-3191889
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
1871 Tapo Street Simi Valley, CA		93063
(Address of Principal Executive Offices)		(Zip Code)

(805) 309-0530

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock par value $0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes [ ] No [X]

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 [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

[ ]

Accelerated Filer

[ ]

Non-accelerated Filer

[ ] (Do not check if smaller reporting company)

Smaller Reporting Company [X]

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $~~676~~1,~~350~~075,264, based on ana ~~adjusted~~ closing price of $0.~~0225~~0281 on December 31, ~~2014~~2015.

At October 13, ~~2015~~2016, the registrant had 7290,~~455~~292,~~606~~443 shares of common stock, $0.001 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

VAPOR HUB INTERNATIONAL INC.

FORM 10-K

For The Fiscal Year Ended June 30, ~~2015~~2016

INDEX

		Page
PART I
ITEM 1.	Business	4
ITEM 1A.	Risk Factors	1413
ITEM 1B.	Unresolved Staff Comments	2928
ITEM 2.	Properties	2928
ITEM 3.	Legal Proceedings	3028
ITEM 4.	Mine Safety Disclosures	3028
PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	3029
ITEM 6.	Selected Financial Data	3130
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3130
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	4036
ITEM 8.	Financial Statements and Supplementary Data	4137
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	6667
ITEM 9A.	Controls and Procedures	6667
ITEM 9B.	Other Information	6768
PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	6869
ITEM 11.	Executive Compensation	72
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	74
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	7675
ITEM 14.	Principal Accounting Fees and Services	7877
PART IV
ITEM 15.	Exhibits, Financial Statement Schedules	7978

PART I

Item 1. Business

As used in this annual report, the terms “we”, “us”, “our” and “our company” mean Vapor Hub International Inc. ~~(formerly known as DogInn~~, ~~Inc.),~~ unless otherwise indicated.

Cautionary Statement Regarding Forward-Looking Statements

This Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements. Such statements contain words such as “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “may,” “will,” “might,” “should,” “could,” “would,” “seek,” “pursue,” and “anticipate” or the negative or other variation of these or similar words, or may include discussions of strategy or risks and uncertainties. Forward-looking statements in this Annual Report include, among other things, statements concerning:

•

expectations regarding our business, results of operations and prospects for future development;

•

expenses and our ability to operate efficiently;

•

expectations regarding trends that will affect our market and the electronic cigarette industry generally and the impact of those trends on our business and results of operations; and

•

the potential impact of governmental regulation on our industry.

Any forward-looking statement is based upon a number of estimates and assumptions that, while considered reasonable by us, is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control, and are subject to change. Actual results of operations may vary materially from any forward-looking statement made herein. Forward-looking statements should not be regarded as a representation by us or any other person that the forward-looking statements will be achieved. Undue reliance should not be placed on any forward-looking statements. Some of the contingencies and uncertainties to which any forward-looking statement contained herein is subject include, but are not limited to, the following:

•

the risk that we will not be able to fund our operations and continue as a going concern;

•

the potential impact of governmental regulation on our ability to operate our business;

•

the effects of intense competition that exists in the electronic cigarette industry;

•

general economic and business conditions including changes in customer demand; and

•

adverse outcomes of legal proceedings.

For additional contingencies and uncertainties, see Item 1A. Risk Factors.

Given these risks and uncertainties, we can give no assurances that results contemplated by any forward-looking statements will in fact occur and therefore caution investors not to place undue reliance on them. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Annual Report might not occur.

Market and Industry Data

Some of the market and industry data contained in this Annual Report are based on independent industry publications or other publicly available information. Although we believe that these independent sources are reliable, we have not independently verified and cannot assure you as to the accuracy or completeness of this information. As a result, you should be aware that the market and industry data contained herein, and our beliefs and estimates based on such data, may not be reliable.

Overview

We design, source, market and sell the next generation of smokeless electronic cigarettes which are popularly known as “vaping” devices. We provide a selection of premium vaping devices and related accessories which we design and source, including our popular “ARLimitless ~~Mechanical~~ Mods” and “Limitless ~~Mods~~Atomizers”, and we also purchase vaping devices and related accessories from third parties for resale. We distribute our products nationally and internationally to wholesale customers and retail customers, including through our ~~websites~~website www.vapor-hub.com ~~and www~~.~~smokelessdelite.com.~~ We also market and sell our products through ~~our~~a ~~two~~ retail ~~locations~~location located in southern California.

History of the Company

Vapor Hub International Inc. was incorporated in the State of Nevada on July 15, 2010 under the name DogInn, Inc. toOn ~~become~~February 14, 2014, we entered into a ~~resource~~Share ~~for~~Exchange ~~travelers~~Agreement ~~seeking~~with ~~information~~Vapor ~~and~~Hub, ~~resources~~Inc., ~~regarding~~a ~~pet~~California ~~friendly~~corporation ~~accommodation~~(“Vapor”), ~~services~~Delite Products, Inc., a California corporation (“Delite”) and ~~products~~the shareholders of both companies (the “Exchange Agreement”). ~~Our~~Pursuant ~~intention~~to ~~was~~the terms of Exchange Agreement, we agreed to ~~improve~~acquire ~~upon~~all 30,000 of the ~~small~~issued ~~number~~and outstanding shares of ~~existing~~Vapor’s ~~internet~~common ~~offerings~~stock, as well as all 30,000 of the issued and outstanding shares of Delite’s common stock in exchange for the ~~pet~~issuance ~~friendly~~by ~~travel~~us ~~space~~of 38,000,001 shares of our common stock to the shareholders of both companies. On ~~Unfortunately~~March 14, 2014, we ~~were~~completed ~~not~~the ~~able~~acquisition of Vapor and issued all of the 38,000,001 shares to ~~raise~~the ~~sufficient~~shareholders ~~capital~~of Vapor, who were also the shareholders of Delite. On March 26, 2014, we completed the acquisition of Delite. As a result of the closing of the transactions contemplated by the Exchange Agreement, Vapor and Delite became our wholly owned subsidiaries. In connection with the acquisition of Vapor, we changed our corporate name from Doginn, Inc. to ~~fund~~Vapor Hub International Inc. and our ~~business~~stock ~~development~~symbol changed from “DOGI” to “VHUB.” On May 18, 2015, Vapor and ~~consequently~~Delite ~~our~~were ~~management~~merged ~~began~~with ~~considering~~and ~~alternative~~into ~~strategies~~the company, ~~such~~ending the separate existences of Vapor and Delite. Prior to our acquisition of Vapor, we existed as a “shell company” with nominal assets whose sole business ~~combinations~~was orto ~~acquisitions~~identify, evaluate and investigate various companies to ~~create~~acquire ~~value~~or ~~for~~with ~~our~~which ~~shareholders~~to merge.

On February 14, 2014, we entered into a Share Exchange Agreement with Vapor Hub, Inc., a California corporation (“Vapor”), Delite Products, Inc., a California corporation (“Delite”) and the shareholders of both companies (the “Exchange Agreement”). Pursuant to the terms of Exchange Agreement, we agreed to acquire all 30,000 of the issued and outstanding shares of Vapor’s common stock, as well as all 30,000 of the issued and outstanding shares of Delite’s common stock in exchange for the issuance by us of 38,000,001 shares of our common stock to the shareholders of both companies. On March 14, 2014, we completed the acquisition of Vapor and issued all of the 38,000,001 shares to the shareholders of Vapor, who were also the shareholders of Delite. On March 26, 2014, we completed the acquisition of Delite.

As a result of the closing of the transactions contemplated by the Exchange Agreement, Vapor and Delite became our wholly owned subsidiaries and we now carry on the business of developing, producing, marketing and selling vaping devices and related accessories. The transaction with Vapor was accounted for as a reverse acquisition (recapitalization) and Vapor was deemed to be the accounting acquirer and us the legal acquirer. The transaction with Delite was accounted for as a business acquisition and we assumed the assets and liabilities of Delite at historical basis as of March 26, 2014 and the activity of Delite was included from that date forward. In connection with the acquisition of Vapor, we changed our corporate name from Doginn, Inc. to Vapor Hub International Inc. and our stock symbol changed from “DOGI” to “VHUB.” Upon our acquisition of Vapor, Robin Looban resigned as our sole director, president, secretary, treasurer, Chief Financial Officer and Chairman of the Board of Directors and management members from Vapor were appointed to serve as directors and officers of the Company. On May 18, 2015, Vapor and Delite were merged with and into the Company, ending the separate existences of Vapor and Delite. Prior to our acquisition of Vapor, we existed as a “shell company” with nominal assets whose sole business was to identify, evaluate and investigate various companies to acquire or with which to merge.

Our principal executive office is located at 1871 Tapo Street, Simi Valley CA 93063. The telephone number at our principal executive office is (805) 309-0530.

Our Products - Vaping Devices

~~We market our vaping devices as an alternative to traditional tobacco cigarettes.~~ Vaping devices (as well as electronic cigarettes, also known as e-cigarettes) are battery-powered products that allow users to inhale ~~water~~ vapor instead of the smoke, ash, tar and carbon monoxide associated with traditional cigarettes. In contrast to e-cigarettes, vaping devices are often precision manufactured from metallic materials and do not look like traditional cigarettes. Vaping devices, as compared to e-cigarettes, also offer a unique user experience as a result of greater vapor production, enriched taste, and an ability to highly customize a device with different mechanical components and fashionable accessories, including different colors and finishes. Vaping devices generally consist of three primary components: a battery unit, an atomizer (which includes a heating element), and a tank filled with an “e-liquid,” which e-liquids are available with or without nicotine and in a myriad of flavors.

Battery

Most vaping devices are powered by a lithium-ion rechargeable battery. The housing for the battery and electronic circuitry is usually the largest component of a vaping device. It is generally referred to simply as the battery. This unit may contain an electronic airflow sensor for automated operation, or a button for manual operation. A timed cutoff switch (to prevent overheating) and/or a colored LED may also be included. To recharge the batteries, many different types of battery chargers such as AC outlet, car, and USB adaptors are usually available. Some manufacturers also offer a “Portable Charging Case,” or “PCC”, which contains a large rechargeable battery that is then used to charge a smaller battery within the individual vaping device.

Atomizer

The atomizer is a heating element that serves to vaporize the e-liquid so it can be inhaled. The atomizer contains a filament that degrades over time due to a buildup of sediment, or "burns out" entirely, requiring periodic replacement. To address atomizer degradation, manufacturers introduced swappable replacement parts.

Tank

The tank is a small, sometimes disposable, plastic container with openings on each end. It generally houses an absorbent, sponge-like material saturated with the e-liquid solution to be vaporized. The mouthpiece is constructed so that the vapor produced can flow past the solution container to reach the user's mouth. When the e-liquid in the tank has been depleted, the user can refill the tank with an e-liquid of their choice.

E-Liquid

Liquids used to produce vapor in vaping devices are sold separately for use in refillable tanks. Liquids may or may not contain nicotine and are available in differing nicotine concentrations to suit user preferences. Liquids are available in a myriad of flavors and we offer flavors such as blackberry, krazy kola, blueberry, churro, lemonade, menthol, root beer float and watermelon, as well as proprietary blends we have innovated. Liquid solution consists of flavoring and/or nicotine dissolved in one or several hygroscopic components, which turns the water in the solution into the smoke-like vapor when heated. The most commonly used hygroscopic components are propylene glycol, vegetable glycerin or polyethylene glycol 400. Our proprietary brands of E-liquids are sourced from an ISO Class 7 certified manufacturer in the USA, which helps ensure their purity and quality.

Device Operation

The above-described components may work in conjunction in an assembled vaping device as follows:

User presses button to activate the lithium ion battery.

User draws on the vaping device through a mouth piece.

The battery charges the atomizer.

The atomizer vaporizes the e-liquid.

User gets the smoking experience, which includes water vapor in place of smoke.

[vhub10k2016001.jpg]

Product Examples

The following are examples of some of the products that we market and distribute:

EGO Starter Kit For E-Liquid Atomizers: Our vaping devices are available in kits that contain everything a user needs to begin enjoying their “vaping” experience. For example, our EGO Starter Kit (pictured below) comes with 2 rechargeable batteries, 2 CE4 atomizers, a tank system, a free carrying case, a USB charger, and a wall charger and is designed for a novice vaping customer.

AR Mechanical Mods: Our patent pending AR Mod (pictured below) replicates the barrel of a traditional AR-15 assault rifle and is targeted to consumers who demand high end technical devices.

Limitless Mechanical Mods: Our Limitless Mechanical Mod (pictured below) was developed in August 2014 by our CEO Kyle Winther and our President Jake Perlingos. The Limitless Mechanical Mod allows a consumer to change the look and feel of their device by interchanging sleeves and is available in aluminum, brass, copper, black rhodium plated aluminum and gold plated brass finishes to accommodate market demand. We market and sell our Limitless Mechanical Mods directly to consumers at prices ranging from $99 to $180 and also sell our Limitless Mechanical Mods through our wholesale distribution channels at prices ranging from $45 to $135.

Binary Premium E-Liquid: Our Binary Premium e-liquid (pictured below) was developed internally over a period of approximately six months and is currently available in five flavors at a retail price point of approximately $12 per bottle. To provide consumers with alternatives when reducing nicotine levels, we offer our Binary Premium e-liquid with 0mg, 2.5mg, 5.0mg, 7.5mg, or 10mg of nicotine per bottle. In contrast, it is typical for bottles of e-liquid to be available with the following nicotine levels per bottle: 0mg, 3mg, 6mg, 12mg, and 18mg. To help ensure quality, our Binary Premium e-liquid is manufactured by a third party supplier in an ISO and GMP certified lab with a manufacturing capacity of over 13 million bottles per month. 6

[vhub10k2016002.jpg]

8Binary Premium E-Liquid: Our Binary Premium e-liquid was developed internally over a period of approximately six months and is currently available in five flavors at a retail price point of approximately $12 per bottle. To provide consumers with alternatives when reducing their nicotine consumption, we offer our Binary Premium e-liquid with 0mg, 2.5mg, 5.0mg, 7.5mg, or 10mg of nicotine per bottle. In contrast, it is typical for bottles of e-liquid to be available with the following nicotine levels per bottle: 0mg, 3mg, 6mg, 12mg, and 18mg. To help ensure quality, our Binary Premium e-liquid is manufactured by a third party supplier in the United States in an ISO and GMP certified lab.

In addition to kits, Mods and E-Liquids, we sell replacement parts including batteries, atomizers, refill cartridges or cartomizers and tanks. We also sell accessories such as charging devices and carrying cases and branded apparel.

Our Business

Sourcing

We use third party contract manufacturers to produce and finish our mods (“Mods”), including our Limitless Mechanical Mod, from facilities ~~primarily~~ located in both Southern California and China. Our Mods, which are made from a metallic material such as steel, brass or copper, are custom machined to meet our design specifications. Once machined, unfinished products are delivered to our location in Simi Valley or to a third party service provider to be buffed, polished and to add various treatments and embellishments, such as paint and ~~dog tags~~engravings. Finished products are then held in inventory for distribution and sale. In our fiscal year ended June 30, 2015, we relied on one manufacturer to machine all of our Mods and in the fiscal year ended June 30, 2016, we relied on two. Although we have relied on ~~one~~a ~~manufacturer~~limited tonumber ~~machine~~of ~~our~~manufacturers ~~Mods~~to ~~during~~machine our ~~last fiscal year~~Mods, we believe manufacturing capacity is ~~readily~~ available to meet our current and planned needs. We do not currently have any long term agreements in place for the manufacture of our Mods.

With respect to our vaping accessories, we purchase our batteries from suppliers in China and our atomizers from suppliers in the United States, Austria, the Philippines and China. We believe that suppliers for accessories are readily available to meet our current and planned needs. 7

With respect to our custom designed atomizers which we market and distribute globally, in our fiscal year ended June 30, 2016, we sourced these products from one manufacturer located in the United States. In our fiscal year ended June 30, 2015, we sourced our atomizers from two manufacturers located in the United States. We believe that suppliers for our atomizers are available to meet our current and planned needs.

We source our proprietary E-liquids (such as our Binary Premium E-Liquid) from an ISO Class 7 certified manufacturer in the USA, which helps ensure their purity and quality. In addition to sourcing our own e-liquids, we also purchase e-liquid from other reputable American suppliers for resale through our distribution channels.

~~Distribution~~Product ~~to Retail Stores~~Distribution

We market and sell our vaping devices and related products to end customers through our websites www.vapor-hub.com and www.smokelessdelite.com, to retail stores through direct sales primarily in the United States but also internationally, and through third party wholesalers who then resell our products to retailers in their territory. Retailers of our products include vaping shops throughout the United States as well as convenience stores and several gas stations. Products distributed by the Company include vaping devices and related accessories purchased from third parties for resale as well as our own vaping devices and related accessories, which we design and source, including our popular “ARLimitless Mechanical Mods”, ~~newly~~“Limitless ~~released~~Box Mod” and ~~popular~~ “Limitless ~~Mechanical Mods~~Atomizer”, as well as “Binary Premium e-Liquid”.

9We market and sell our vaping devices and related products to end customers through our website www.vapor-hub.com, to retail stores through direct sales both in the United States and internationally, and through third party wholesalers both in the United States and internationally who then resell our products to retailers in their territory. Retailers of our products include vaping shops throughout the United States and in approximately 23 other countries. We also distribute our products on a limited basis through convenience stores and gas stations. In 2016, approximately 28% of our sales were to customers outside of the United States.

With respect to vaping devices and related products that we sell through third party wholesalers, we typically sell our products to these wholesalers for their re-sale on a non-exclusive basis and we also typically do not have long term contractual arrangements with any of our wholesalers.

Operation of Retail Stores

We ~~also~~ sell our products and those of third parties to end consumers directly through our ~~two~~ retail ~~locations~~location located in ~~Southern California. Our first retail location in~~ Simi Valley, ~~CA was 725 square feet and was the first vapor lounge in Simi Valley~~California. ~~On April 1, 2015, the Company moved its Simi Valley retail location to a larger 1,500 square foot facility. Our second location is located in Chatsworth, CA and measures 1,200 square feet.~~ Through our retail ~~locations~~location, we sell and market vaping devices as well as e-liquid, accessories, and supplies relating to vaping devices to both novice users as well as consumers who demand high end technical devices. October 15, 2015, we closed a second retail location that we previously operated in Chatsworth, California and we have no plans to open additional stores.

We opened our retail locations in order to create brand recognition for our products and also to enable us to gather information about user preferences in the rapidly evolving vaping industry. ByIn ~~learning~~2016 ~~about~~and ~~user preferences~~2015, weour ~~believe~~retail wesales ~~are~~accounted ~~better~~for ~~able~~approximately to6.6% ~~design~~ and ~~source~~10% ~~products~~of toour ~~meet~~revenue, ~~market demand~~respectively.

The format of the retail establishments is to provide a “lounge” atmosphere where “vaping” can be enjoyed by the customer in a congenial environment. The design of our locations is modern, industrial and open. Bar stools are provided for clients to sit and enjoy the tasting experience. A few bar tables are available for customers to try flavors on their own. Inventory is located behind the bar and in cabinets and showcases along the wall. There are TVs located along the wall to drive eyes to the showcases, as well as provide interactive advertising. Additional amenities include servers attending to customers’ needs, as well as free WiFi and electrical charging stations for electronic devices.

Currently, we do not have any plans to open additional stores.

Marketing

We advertise our products primarily through our websites, through email marketing campaigns, magazines, paid social media advertisements, at industry trade shows and through point of sale materials and displays at our retail locations. We also attempt to build brand awareness through innovative social media marketing activities on Facebook, Instagram and Twitter, through in-store and on-premise promotions and through public relation initiatives, such as radio interviews and press releases. We intend to strategically expand our advertising activities in fiscal year ~~2016~~2017 and also increase our public relations campaigns to gain editorial coverage for our products.

Competition

Our industry is ~~extremely~~highly competitive and there are low barriers to entry. We compete with numerous regional, national and international electronic cigarette companies, and several large tobacco companies offer or are in the process of developing electronic cigarette products. We also compete to some extent with traditional tobacco products for customers, and to a lesser extent, we compete with companies that offer smoking cessation aids.

Most of our competitors are larger than we are, have been in operation longer than us and have greater financial and operational resources than we do, which gives them an advantage in marketing their products, securing components, materials and labor at lower prices and delivering their products more quickly and at more favorable prices. In addition, our competitors may be able to provide more competitive products than we can and generally be able to respond more quickly to new or emerging technologies and changes in legislation and regulations relating to the industry. Additionally, our competitors may devote greater resources to the development, promotion and sale of their products or services than we do. 8

We compete for customers based on a variety of factors, including the design and quality of our products which we target to the premium segment of the vaping market, price and customer service. We believe that we compete effectively in our industry as a result of, among other reasons, our innovative products, our ~~retail stores, our~~ team of experienced industry professionals, our marketing initiatives and the reputation of our brands. At a retail price point ofbetween $99 to $250, we ~~also~~ believe that our Mods are competitively priced in ~~our~~the ~~target~~premium ~~markets~~vaping market segment to which we cater.

Markets

According to estimates released by Euromonitor International, ~~the~~growth ~~e-cigarette~~in ~~market~~global ~~reached~~vapor products slowed substantially in 2015 but the $6market ~~billion~~still ~~USD~~recorded ~~mark~~an inincrease ~~2014~~of 21% to reach US$8 billion. Euromonitor International further reports that the United States isand the ~~largest~~United ~~market~~Kingdom are the world’s biggest markets for vaping products, ~~accounting~~and ~~for~~the ~~nearly~~western ~~half~~european ofregion ~~global~~alone ~~sales~~is inlarger ~~2014~~than atall ~~just~~other ~~over~~regions ~~$2.8~~(aside ~~billion~~from ~~USD~~North America). InEuromonitor ~~2014,~~International ~~the~~also UKnoted ~~became~~a ~~the~~continuing ~~second~~shift ~~largest~~in ~~market~~2015 ~~for~~in ~~electronic~~the ~~cigarettes,~~market ~~followed~~from bytraditional ~~Italy,~~e-cigarettes ~~Poland~~to ~~and~~tank ~~France~~systems. Euromonitor International ~~forecasts~~notes that excluding the ~~e-cigarette~~US ~~sector~~market ~~will~~– ~~grow 29.3%~~where ~~compound~~the ~~annual~~split ~~growth~~between ~~rate~~traditional e-cigarettes to ~~reach~~tank ~~$23.4~~systems ~~billion~~is ~~USD~~closer into ~~2019~~50/50 ~~and~~largely ~~$50~~due ~~billion~~to ~~USD~~the bystronger ~~2030,~~involvement ifof ~~the~~tobacco ~~current~~companies ~~regulatory~~– ~~environment~~85% ~~remains~~of ~~unchanged. According~~world toe-cigarette ~~Euromonitor~~use ~~International,~~was ~~there~~in ~~has~~tank ~~been~~systems aagainst ~~shift~~just ~~from~~15% of world vapers consuming traditional e-cigarettes. Euromonitor ~~(which~~International ~~look~~estimates ~~like~~that ~~traditional~~the ~~cigarettes)~~vaping market will continue to ~~open~~grow ~~tank~~to ~~systems~~about ~~which~~US ~~enable~~$20 ~~users~~billion toby ~~customize~~2020. There ~~their~~can ~~e-liquid~~be ~~intake~~no assurances, ~~with~~however, ~~estimated~~that ~~global~~such ~~sales~~predictions ~~for~~will ~~tanks~~manifest, ~~and~~especially ~~e-liquids~~since governmental regulations could severely impact the growth of ~~$2.0~~the ~~billion~~electronic cigarette market both in ~~2014~~the United States and internationally.

We believe a portion of electronic cigarette users are people trying to switch from regular cigarettes. In 2013, worldwide cigarette sales were estimated at approximately $720 billion and domestic sales in the United States were estimated at just over $91 billion. While sales of traditional cigarettes and other tobacco products are widely expected to decline in the United States, some analysts predict that by 2020, electronic cigarettes could out-sell traditional cigarette products in the United States. According to the Centers for Disease Control and Prevention, 68.8% of US adult cigarette smokers report that they want to quit smoking, which we believe presents an opportunity for the electronic cigarette industry.

There can be no assurances, however, that such predictions regarding the global or United States markets will manifest. Additionally, proposed governmental regulations could severely impact the growth of the electronic cigarette market both in the United States and internationally.

Intellectual Property

We are the registered owner of the federal trademarks for “Vapor Hub”, “Tac Mods USA” and “T TAC MODS USA MADE IN USA” and design. ~~We also own the pending trademark application for “Vamped Vapor Cells,” which has been approved and allowed by the United States Patent and Trademark Office.~~

On December 13, 2013, we filed a patent application titled AR MODS with the United States Patent & Trademark Office (Patent Application Number 61/915,919).

We plan to continue to expand our brand names and our proprietary trademarks, designs and patents worldwide as our business grows.

Government Regulation

~~The~~On ~~regulatory~~May ~~landscape~~5, ~~confronting~~2016, the ~~electronic~~U.S. ~~cigarette~~Food ~~industry~~and isDrug ~~difficult~~Administration to(“FDA”) ~~accurately~~issued ~~predict~~a ~~both~~final inrule ~~the~~deeming UScertain ~~and~~products ~~internationally. However,~~to asbe ~~described~~subject into ~~further~~the ~~detail~~Federal ~~below~~Food, ~~the~~Drug, ~~United~~and ~~States~~Cosmetic ~~Food~~Act and ~~Drug~~regulations ~~Administration~~thereunder (the “~~FDA~~FD&C Act”), ~~may~~which ~~impose~~products ~~significant~~include ~~regulations~~electronic oncigarettes ~~our~~and ~~industry~~their ~~under~~component ~~the~~parts, ~~Family~~including ~~Smoking~~e-liquids, ~~Prevention~~atomizers, batteries, cartomizers, tank systems, flavors, vials that contain e-liquids and ~~Tobacco~~programmable ~~Control~~software. On ~~Act~~August of8, ~~2009~~2016, (the ~~“Tobacco~~newly ~~Control~~deemed products became subject to all provisions of the FD&C Act”) and ~~international~~FDA ~~agencies~~regulations ~~may~~applicable ~~seek~~ to ~~impose~~cigarettes, ~~additional~~cigarette ~~regulations~~tobacco onand ~~our~~other ~~industry~~tobacco ~~under~~products. However, for certain provisions that require labeling changes or information submission to the ~~World~~FDA, ~~Health~~the ~~Organization’s~~FDA ~~Framework~~has ~~Convention~~provided onan ~~Tobacco~~extended ~~Control~~compliance ~~(“FCTC”)~~period. Among other requirements, under the new rules:

~~Proposed FDA Regulation~~·

~~Based~~The onsale ~~the December 2010 U.S. Court~~ of ~~Appeals~~covered ~~for~~tobacco ~~the~~products ~~D.C. Circuit’s decision in Sottera, Inc. v. Food & Drug Administration, 627 F.3d 891 (D.C. Cir. 2010), the FDA is permitted~~ to ~~regulate~~individuals ~~electronic cigarettes as “tobacco products”~~ under the ~~Tobacco~~age ~~Control Act. The Tobacco Control Act grants the FDA broad authority over the manufacture, sale, marketing and packaging~~ of ~~tobacco~~18 ~~products, although the FDA~~ is prohibited ~~from~~beginning ~~issuing~~August ~~regulations banning all cigarettes or all smokeless tobacco products~~8, ~~or requiring the reduction of nicotine yields of a tobacco product to zero.~~2016;

11·

~~The~~Vending ~~Tobacco~~machine ~~Control~~sales ~~Act imposes significant restrictions on the advertising and promotion~~ of ~~tobacco~~covered ~~products. These regulations significantly limit the ability of manufacturers, distributors and retailers to advertise and promote~~ tobacco products, by, for example, restricting the use of color, graphics and sound effects in advertising, limiting the use of outdoor advertising, restricting the sale and distribution of non-tobacco items and services, gifts, and sponsorship of events and imposing restrictions on the use for cigarette or smokeless tobacco products of trade or brand names that are ~~used~~prohibited ~~for~~unless ~~non-tobacco products. The law also requires the FDA to issue future regulations regarding the promotion and marketing of tobacco products~~ sold orin ~~distributed over the internet, by mail order or through other non~~adult-~~face-to-face~~only ~~transactions~~facilities inbeginning ~~order~~August ~~to prevent the sale of tobacco products to minors. It is likely that the Tobacco Control Act could result in a decrease in tobacco product sales in the United States~~8, ~~including sales of our electronic cigarettes.~~2016;

While the FDA has not yet mandated electronic cigarettes be regulated as tobacco products, in April 2014, the FDA proposed a new rule that would deem electronic cigarettes to be included under the definition of a “tobacco product” under the Tobacco Control Act and thus subject to the FDA’s jurisdiction. ·

~~Consistent~~Beginning ~~with~~August ~~currently~~8, ~~regulated~~2016, ~~tobacco~~the newly deemed products are subject to rules and regulations relating to adulterated or misbranded products, ~~under~~including rules that prohibit the ~~proposed~~sale ~~rule,~~and ~~makers~~distribution of ~~electronic~~products ~~cigarettes~~with ~~would~~modified risk descriptors (such as “light”, ~~among~~“low” ~~other~~and ~~requirements:~~“mild”) unless authorized by the FDA;

•·

~~Register~~The ~~with~~distribution of free samples of the ~~FDA~~newly ~~and~~deemed ~~report~~tobacco ~~product~~products ~~and~~is ~~ingredient~~prohibited ~~listings~~as of August 8, 2016;

•9

~~Only market new tobacco products after FDA review;~~·

•Companies that own or operate domestic manufacturing establishments engaged in the manufacturing of newly deemed tobacco products are required to register with the FDA and submit details about their products beginning August 8, 2016;

~~Only make direct and implied claims of reduced risk if the FDA confirms that scientific evidence supports the claim and that marketing the product will benefit public health as a whole; and~~·

•Subject to certain exceptions, packaging and advertisements of all covered tobacco products will be required to bear an addictiveness warning beginning May 10, 2018; and

~~Not distribute free samples.~~·

InNewly ~~addition~~deemed tobacco products that were not commercially marketed in the United States as of February 15, ~~under~~2007 or any modification (including a change in design, any component, any part, or any constituent or in the ~~proposed~~content, ~~rule~~delivery or form of nicotine, or any other additive or ingredient) of a tobacco product where the ~~following~~modified ~~provisions~~product ~~would~~was ~~apply~~commercially marketed in the United States after February 15, 2007 are required to ~~electronic~~have ~~cigarettes:~~premarket authorization prior to commercial distribution.

•The FDA process to obtain pre-market authorization will be phased in. For newly deemed tobacco products that were on the market as of August 8, 2016, but that were not on the market as of February 15, 2007, FDA is providing two compliance periods: one for submission to the FDA of applications and one for obtaining premarket authorization. During these compliance periods, the FDA does not intend to take enforcement action for products remaining on the market without authorization. New products for which no application has been submitted by August 8, 2018 will be subject to enforcement. With certain exceptions, newly deemed tobacco products for which timely premarket submissions have been submitted will be subject to an additional compliance period of twelve months after the initial compliance period for submissions ends. Once the continued compliance period ends, new tobacco products on the market without authorization will be subject to enforcement. For newly deemed tobacco products that were not on the market as of August 8, 2016, the above compliance periods will not apply and the new products must obtain a marketing order from FDA specific to the product prior to commercial distribution.

~~Minimum~~As ~~age~~a result of the new regulations, we will have until August 8, 2018 to submit applications to obtain approval to continue to sell our products in the United States which were on the market as of August 8, 2016. We may continue to sell these existing products during this two-year period and, ~~identification~~provided ~~restrictions~~we timely submit applications, we can continue to ~~prevent~~sell ~~sales~~existing products for an additional year while the FDA reviews our applications. Failure to ~~underage~~submit ~~youth;~~applications for any of our existing products would prevent us from marketing and selling such products in the United States beginning in August 2018, which could have a material adverse effect on our business, financial condition and results of operations at that time.

•

Requirements to include health warnings; and

•

Prohibition of vending machine sales, unless in a facility that never admits youth.

In the comment period following the FDA’s announcement of the proposed rule, the FDA received in excess of 72,000 comments. In light of the high volume of comments and considering the typical timeline associated with the federal rule-making process, it is very difficult to predict when final rules, if any, will be enacted. In June 2015, the FDA issued an advance notice of proposed rulemaking to seek public comment related to warnings and child-resistant packaging for liquid nicotine. However, the FDA did not at such time indicate the timing or scope of future regulations. Consequently, it is very difficult to anticipate the impact such rules and regulations will have on our company or the industry at large. In this regard, total compliance and related costs are not possible to predict and depend substantially on the future requirements imposed by regulatory authorities. Costs, however, could be substantial and could have a material adverse effect on our business, results of operations and financial condition and ability to market and sell our products. In addition, failure to comply with any of the rules promulgated in accordance with any applicable law could result in significant financial penalties and could have a material adverse effect on our business, financial condition and results of operations.

Other Federal Regulations

At present, neither the Prevent All Cigarette Trafficking Act (which prohibits the use of the U.S. Postal Service to mail most tobacco products and which amends the Jenkins Act, which would require individuals and businesses that make interstate sales of cigarettes or smokeless tobacco to comply with state tax laws) nor the Federal Cigarette Labeling and Advertising Act (which governs how cigarettes can be advertised and marketed) apply to electronic cigarettes. The application of either or both of these federal laws to electronic cigarettes would have a material adverse effect on our business, results of operations and financial condition.

State and Local Regulations

State and local governments currently legislate and regulate tobacco products, including what is considered a tobacco product, how tobacco taxes are calculated and collected, to whom and by whom tobacco products can be sold and where tobacco products may or may not be smoked. Certain municipalities have enacted local ordinances which preclude the use of electronic cigarettes where traditional tobacco burning cigarettes cannot be used and certain states like California have ~~proposed~~adopted legislation that ~~would~~ categorize electronic cigarettes as tobacco products, equivalent to their tobacco burning counterparts. If a significant number of jurisdictions enact prohibitive laws and regulations, electronic cigarettes may lose their appeal as an alternative to cigarettes, which may have the effect of reducing the demand for our products and as a result have a material adverse effect on our business, results of operations and financial condition. In addition, additional regulations will increase our regulatory compliance costs, which will adversely impact our results from operations and financial condition.

International Regulations

The tobacco industry expects significant regulatory developments to take place over the next few years, driven principally by the WHO Framework Convention on Tobacco Control (FCTC). The ~~FCTC~~objective isof the ~~first~~FCTC ~~international public health treaty on tobacco, and its objective~~ is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. Regulatory initiatives that have been proposed, introduced or enacted include:

•

the levying of substantial and increasing tax and duty charges;

•

restrictions or bans on advertising, marketing and sponsorship;

•

the display of larger health warnings, graphic health warnings and other labeling requirements;

•

restrictions on packaging design, including the use of colors and generic packaging;

•

restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines;

•

requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels;

•

requirements regarding testing, disclosure and use of tobacco product ingredients;

•

increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors;

•

elimination of duty free allowances for travelers; and

•

encouraging litigation against tobacco companies.

Any additional regulations, to the extent they are applicable to our business, will increase our regulatory compliance costs and will adversely impact our results from operations and financial condition.

Research and Development Expenditures

We do not have a formal research and development department. However, an in-house team of approximately four employees is responsible for the design and development of our Mods and related accessories, including e-~~liquid and batteries~~liquids.

Employees

As of ~~October~~June 830, ~~2015~~2016, we had 2422 full-time employees ~~and 3 part-time employees~~ in general and administrative, operations, engineering, research and development, business development, sales and marketing, and finance.

Emerging Growth Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). As an "emerging growth company," we are able to take advantage of specified reduced reporting and other burdens that are otherwise generally applicable to public companies.

The JOBS Act permits emerging growth companies to take advantage of an extended transition period to comply with new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Additionally, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies." These provisions include, among other matters:

•

the ability to provide fewer years of financial statements and other financial data in an initial public offering registration statement;

•

an exemption from the auditor attestation requirement in the assessment of the emerging growth company's internal control over financial reporting;

•

the ability to omit the compensation discussion and analysis and reduce compensation disclosure in our periodic reports and proxy statements; and

•

no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements.

We intend to take advantage of these exemptions as long as we qualify as an emerging growth company. We will remain an emerging growth company until the earliest of:

•

the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement;

•

the last day of the fiscal year in which we have annual gross revenues of $1.0 billion or more;

•

the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; and

•

the date on which we are deemed to be a "large accelerated filer," which will occur at such time as we (a) have an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of our most recently completed second fiscal quarter, (b) have been required to file annual and quarterly reports under the Securities Exchange Act of 1934, or the Exchange Act, for a period of at least 12 months, and (c) have filed at least one annual report pursuant to the Exchange Act.

ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this annual report before purchasing shares of our common stock. If any of the following risks occur, our business, financial condition and/or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.

Risks Related to Our Business and Our Industry

We have incurred losses in the past and cannot assure you that we will achieve or maintain profitable operations.

As of June 30, ~~2015~~2016, we had an accumulated deficit of $1,~~037~~672,~~603~~246 due to our continuing losses from operations. For the ~~year~~years ended June 30, 2016 and 2015, we had net ~~loss~~losses of $634,643 and $613,997, respectively. We cannot assure you that we will generate operating profits on a sustainable basis or at all as we continue to expand our infrastructure, further develop our marketing efforts and otherwise implement our business initiatives.

There is doubt about our ability to continue as a going concern due to insufficient cash resources to meet our business objectives.

Our continuation as a going concern is dependent on our ability to generate sufficient cash flows from operations to meet our obligations, which we have not been able to accomplish to date, and/or obtain additional financing from equity financings, debt financings, or from other sources. The extent of our future capital requirements will depend on many factors, including results of operations and the growth rate of our business. At June 30, ~~2015~~2016, we had a working capital deficit of $~~539~~934,~~496~~884 and we currently face liquidity and capital resources constraints.

Our near term objective is to raise debt or equity capital on more favorable terms to the company to fund our immediate cash needs and to finance our longer term growth ~~and to pursue various means to reduce operating costs and increase cash~~. We cannot provide assurance that we will be able to ~~achieve cost reductions in our operations or~~ raise additional debt or equity capital, and if we are unsuccessful, we may not be able to grow our operations as planned, may not be able to meet our other obligations as they become due and may even need to cease our operations. If we are successfully able to raise capital, the issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders and if capital is raised through debt facilities, such facilities will increase our liabilities and future cash commitments, and may also impose restrictive covenants relating to the operation of our business. We presently do not have any ~~finalized~~ arrangements for additional financing and we continue to evaluate various financing strategies to support our current operations and fund our future growth.

~~Our~~Electronic ~~Convertible~~cigarettes ~~Note~~become ~~financing~~subject ~~may result in significant dilution~~ to ~~existing~~regulation ~~stockholders~~by ~~and~~the ~~could cause us to incur significant financial penalties~~FDA

On ~~November~~May 45, ~~2014~~2016, wethe ~~entered~~U.S. ~~into~~Food aand ~~securities~~Drug ~~purchase~~Administration ~~agreement with Typenex Co-Investment, LLC, a Utah limited liability company~~ (~~the~~ “~~Investor~~FDA”), ~~pursuant~~issued toa ~~which~~final werule ~~concurrently~~deeming ~~issued~~certain products to ~~Investor~~be asubject ~~Secured~~to ~~Convertible~~the ~~Promissory~~Federal ~~Note~~Food, inDrug, aand ~~principal~~Cosmetic ~~amount~~Act ofand ~~$1,687,500~~regulations thereunder (the “~~Company~~FD&C ~~Note~~Act”)~~. Beginning on May 4~~, ~~2015,~~which weproducts ~~are~~include ~~required~~electronic tocigarettes ~~repay~~and ~~the~~their ~~outstanding~~component ~~balance~~parts, onincluding ~~the~~e-liquids, ~~Company~~atomizers, ~~Note~~batteries, incartomizers, ~~monthly~~tank ~~installments~~systems, ~~of approximately $35~~flavors,~~000~~ ~~per~~vials ~~month~~that ~~plus~~contain ~~all~~e-liquids ~~unpaid interest~~ and ~~other~~programmable ~~costs, fees or charges under the Company Note~~software. ~~Although~~On weAugust ~~intend~~8, to2016, ~~repay~~ the ~~note~~newly indeemed ~~cash,~~products ifbecame wesubject ~~are unable~~ to ~~repay~~all ~~the~~provisions ~~borrowings~~of ~~from~~ the ~~Investor~~FD&C inAct ~~cash when they become due~~ and ~~issue~~FDA ~~shares~~regulations ofapplicable ~~common stock~~ to ~~pay an installment~~cigarettes, ~~our~~cigarette ~~existing~~tobacco ~~stockholders will likely be significantly diluted pursuant to the terms of the Company Notes~~ and ~~our~~other ~~shares~~tobacco ~~may significantly decline in value or become worthless~~products. ~~On February 5~~However, ~~2015,~~for wecertain ~~filed~~provisions ~~Amended~~that ~~and~~require ~~Restated~~labeling ~~Articles~~changes ~~with~~or ~~the~~information ~~Secretary~~submission ofto ~~State of~~ the ~~State~~FDA, ~~of Nevada which increases~~ the ~~authorized~~FDA ~~number~~has ofprovided ~~shares~~an ofextended ~~common~~compliance ~~stock, par value $0~~period.~~001,~~ Among ofother ~~the Company from 140~~requirements,~~000,000~~ ~~shares~~under ~~to 1,010,000,000 to comply with covenants contained in our debt facility with~~ the ~~Investor~~new ~~and to ensure that we have sufficient shares available for issuance in the event the Company Note is fully or partially converted into common stock.~~rules:

In addition, if we fail to repay the Company Note when due, or if we are otherwise in default under the Company Note, at the option of Investor a default interest rate of 22% per annum will apply on all portions of the Company Note that are then eligible to be converted into our common stock while the default continues. In the event we are in default under the Company Note, the Investor also has the option to accelerate the note with the outstanding balance becoming immediately due and payable or increase the outstanding balance of the note by an amount of 5% or 15% depending on the particular default. In addition, if we fail to issue stock to the Investor within three trading days of receipt of a notice of conversion, we must pay a penalty equal to the greater of (i) $500 per day; or (ii) 2% of the product of (A) the number of shares to which Investor was entitled that were not issued on a timely basis; and (B) the closing sale price of the common stock on the trading day immediately preceding the last day for us to timely issue the shares. In the event that any of the foregoing circumstances occur, our results of operations may be materially adversely effected, and our stock price may fall. As of June 30, 2015, the Company elected to deduct and offset the principal amount of $1,300,000 and all accrued interest thereon owing by the Investor under the remaining nine investor Notes from the amount owed by the Company under the Company Note. As of October 1, 2015 the aggregate outstanding balance under the Company Note is approximately $158,000.·

15The sale of covered tobacco products to individuals under the age of 18 is prohibited beginning August 8, 2016;

~~If we default under our facility with B of I Federal Bank, we may lose all of our assets and intellectual property~~13

On June 2, 2015, we entered into a Business Loan and Security Agreement with BofI Federal Bank (the “Bank”). Payments of the principal and interest under our agreement with B of I Federal Bank are secured by first priority liens on, and security interests in, substantially all of our present and after-acquired assets and are also personally guaranteed by Lori Winther, our Chief Financial Officer and a director of the Company, Kyle Winther, our Chief Executive Officer and a director of the Company, and Gary Perlingos, our President and a director of the Company. If an event of default occurs under the agreement, all obligations owing by us to the Bank under the agreement will, at the Bank’s election, become immediately due and payable and the Bank may exercise its rights as a secured creditor and obtain our assets. If we lose all or a substantial portion of our assets, our shares will likely significantly decline in value or become worthless. As of October 1, 2015 the aggregate outstanding balance under the Company Note is $71,750.·

~~Our~~Vending ~~lenders~~machine ~~have~~sales ~~rights~~of ~~that~~covered tobacco products are ~~senior~~prohibited tounless ~~those~~sold ofin ~~our~~adult-only ~~common~~facilities ~~stockholders~~beginning August 8, 2016;

On June 4, 2015, we entered into a Note Purchase Agreement with Typenex Co-Investment, LLC, a Utah limited partnership, pursuant to which we concurrently issued to the investor an unsecured non-convertible Promissory Note in a principal amount of $245,000 (the “June Note”). As further described under the heading “Liquidity and Capital Resources”, the June Note matures and is payable in full on December 4, 2015.·

~~Similarly,~~Beginning on August 128, ~~2015~~2016, wethe ~~entered~~newly ~~into~~deemed aproducts ~~Note~~are ~~Purchase~~subject ~~Agreement~~to ~~with~~rules ~~Iliad Research~~ and ~~Trading,~~regulations arelating ~~Utah~~to ~~limited~~adulterated ~~liability~~or ~~company~~misbranded products, ~~pursuant~~including torules ~~which~~that weprohibit ~~concurrently issued to~~ the ~~investor~~sale anand ~~unsecured~~distribution ~~non-convertible~~of ~~Promissory~~products ~~Note~~with inmodified arisk ~~principal~~descriptors ~~amount~~(such ofas ~~$245~~“light”,~~000~~ ~~(the~~ “~~August Note~~low”~~). As~~ ~~further~~and ~~described under the heading~~ “~~Liquidity~~mild”) ~~and~~unless ~~Capital~~authorized ~~Resources”,~~by the ~~August Note matures and is payable in full on February 12, 2016.~~FDA;

Upon the occurrence of an event of default under a note, the outstanding balance of the applicable note will bear interest at the lesser of the rate of 18% per annum or the maximum rate permitted by applicable law. In addition, if an event of default occurs under a note, the applicable investor may declare all unpaid principal, plus all accrued interest and other amounts due under the applicable note to be immediately due and payable at an amount equal to 115% of the outstanding balance of the applicable note as of the date of the event of default, plus all interest, fees and charges that may accrue on such outstanding balance thereafter. ·

~~Our~~The ~~ability~~distribution toof ~~pay~~free ~~interest~~samples ~~and~~of ~~principal on our indebtedness (including~~ the ~~June~~newly ~~Note,~~deemed ~~the~~tobacco ~~August~~products Note, the November 4, 2014 note and under our facility with B of I Federal Bank) and to satisfy our other obligations will depend upon, among other things, our future financial and operating performance, which is ~~affected~~prohibited by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital. We may be unable to effect any of ~~these~~August ~~actions on satisfactory terms~~8, or2016; at all. In the event we issue common stock or other equity securities to satisfy our debt obligations, our existing stockholders may suffer significant dilution. Furthermore, any proceeds that we could realize from any financings or the disposition of assets may not be adequate to meet our debt service or other obligations then due, which would have an immediate material adverse effect on our business, results of operations and financial condition. In the event of our bankruptcy, dissolution or liquidation, the claims of our lenders (including B of I, Typenex and Iliad) must be satisfied before any distributions can be made on our common stock. As a result, our common stockholders would receive distributions only after priority distributions to our lenders are satisfied and may receive nothing in the event of our bankruptcy, dissolution or liquidation.

16·

WeCompanies that own or operate adomestic ~~developing~~manufacturing ~~business,~~establishments ~~and~~engaged itin isthe ~~difficult~~manufacturing toof ~~accurately~~newly ~~predict~~deemed ~~our~~tobacco ~~future~~products ~~sales~~are required to register with the FDA and ~~appropriately~~submit ~~budget~~details ~~expenses.~~about their products beginning August 8, 2016;

Because our business is evolving, it is difficult to accurately predict our future sales and appropriately budget our expenses. Our operations will be subject to risks inherent in the establishment of a developing business, including, among other things, efficiently deploying our capital, developing our products, developing and implementing our marketing campaigns and strategies and developing brand awareness and acceptance of our products. Our ability to generate future sales will be dependent on a number of factors, many of which are beyond our control, including the pricing of competing products, overall demand for our products, changes in consumer preferences, market competition and government regulation. While we believe that we have the opportunity to be successful in the electronic cigarette industry, there can be no assurance that we will be successful in accomplishing our business initiatives, or that we will be able to achieve any significant levels of revenues or net income, from the sale of our products. ·

~~The~~Subject ~~market~~to ~~for~~certain ~~our~~exceptions, ~~products~~packaging isand ~~uncertain~~advertisements ~~and~~of isall ~~still~~covered ~~evolving.~~tobacco product will be required to bear an addictiveness warning beginning May 10, 2018; and

Electronic cigarettes, having recently been introduced to market, are at an early stage of development and are evolving rapidly and are characterized by an increasing number of market entrants. Our future revenues and any future profits are substantially dependent upon the widespread acceptance and use of electronic cigarettes. Rapid growth in the use of, and interest in, electronic cigarettes is a recent phenomenon, and may not continue on a lasting basis. The demand and market acceptance for these products is subject to a high level of uncertainty. We are subject to all of the business risks associated with a new enterprise in a niche market, including risks of unforeseen capital requirements, failure of widespread market acceptance of electronic cigarettes, in general or, specifically our products, failure to establish business relationships and competitive disadvantages as against larger and more established competitors. ·

WeNewly ~~face~~deemed ~~intense~~tobacco ~~competition~~products ~~and~~that ~~our~~were ~~failure~~not tocommercially ~~compete~~marketed ~~effectively~~in ~~could~~the ~~have~~United States as of February 15, 2007 or any modification (including a ~~material~~change ~~adverse~~in ~~effect~~design, onany ~~our~~component, ~~business~~any part, ~~results~~or any constituent or in the content, delivery or form of ~~operations~~nicotine, ~~and~~or ~~financial~~any ~~condition~~other additive or ingredient) of a tobacco product where the modified product was commercially marketed in the United States after February 15, 2007 are required to have premarket authorization prior to commercial distribution.

WeThe ~~face~~FDA ~~intense~~process ~~competition~~to ~~from~~obtain ~~direct~~pre-market ~~and~~authorization ~~indirect~~will ~~competitors,~~be ~~including~~ phased in. For newly deemed tobacco ~~companies~~products that were on the market as of August 8, ~~other~~2016, ~~known~~but ~~and~~that ~~established~~were ornot ~~yet~~on tothe bemarket ~~formed~~as ~~electronic~~of ~~cigarette~~February ~~companies~~15, ~~and~~2007, ~~pharmaceutical~~FDA ~~companies~~is ~~that~~providing ~~market~~two ~~smoking~~compliance ~~cessation~~periods: one ~~aids~~for submission to the FDA of applications and ~~alternative~~one ~~nicotine~~for ~~delivery~~obtaining premarket authorization. During these compliance periods, the FDA does not intend to take enforcement action for products remaining on the market without authorization. New products for which no application has been submitted by August 8, ~~each~~2018 ofwill ~~whom~~be ~~pose~~subject ato ~~competitive~~enforcement. With ~~threat~~certain exceptions, newly deemed tobacco products for which timely premarket submissions have been submitted will be subject to ~~our~~an ~~current~~additional ~~business~~compliance ~~and~~period ~~future~~of ~~prospects~~twelve months after the initial compliance period for submissions ends. Once Wethe ~~are~~continued compliance period ends, new tobacco products on the market without authorization will be subject to ~~highly~~enforcement. For ~~competitive~~newly ~~conditions~~deemed intobacco ~~all~~products ~~aspects~~that were not on the market as of ~~our~~August ~~business~~8, 2016, the above compliance periods will not apply and ~~barriers~~the tonew ~~entry~~products ~~into~~must ~~our~~obtain ~~business~~a ~~are~~marketing ~~low. We~~order ~~expect~~from ~~competition~~FDA specific to ~~intensify~~the inproduct ~~the~~prior ~~future~~to commercial distribution.

WeAs ~~compete~~a ~~primarily~~result onof the ~~basis~~new ofregulations, ~~product~~we ~~quality,~~will ~~brand~~have ~~recognition,~~until ~~brand~~August ~~loyalty~~8, ~~service,~~2018 ~~marketing,~~to ~~advertising~~submit ~~and~~applications ~~price.~~to ~~Some~~obtain ~~tobacco~~approval ~~companies~~to ~~currently~~continue ~~offer~~to ~~traditional~~sell ~~tobacco~~our products ~~and~~in ~~may~~the ~~introduce~~United ~~new~~States ~~tobacco~~which ~~based~~were ~~cigarettes~~on ~~and~~the ~~smoking~~market ~~devices. Because~~as of ~~their~~August ~~well-established~~8, ~~sales~~2016. ~~and~~We ~~distribution~~may ~~channels,~~continue ~~marketing~~to ~~expertise~~sell ~~and~~these ~~significant~~existing ~~resources,~~products ~~large~~during ~~tobacco~~this ~~companies~~two-year ~~are~~period ~~better~~and, ~~positioned~~provided ~~than~~we ~~small~~timely ~~competitors~~submit applications, we can continue to ~~capture~~sell aexisting ~~larger~~products ~~share~~for ofan additional year while the ~~electronic~~FDA ~~cigarette~~reviews ~~market~~our applications. We ~~also~~Failure ~~face~~to ~~competition~~submit ~~from~~applications ~~smaller~~for ~~tobacco~~any ~~companies~~of ~~that~~our ~~are~~existing ~~much~~products ~~larger,~~would ~~better~~prevent ~~funded,~~us from marketing and ~~more~~selling ~~established~~such ~~than~~products usin the United States beginning in August 2018.

~~There~~We ~~can~~believe our costs to comply with the new regulations will be nosubstantial, ~~assurance~~both ~~that~~in terms of management time and out of pocket expenditures. Moreover, if we elect not to obtain or are unable to secure pre-market authorization to continue selling our existing products and any new products targeted for introduction, our future sales in the United States will be ~~able~~adversely impacted. We plan to ~~compete~~further ~~successfully~~evaluate ~~against~~the ~~any~~impact of the ~~aforementioned~~new ~~competitors~~rules and regulations on our ~~inability~~business and modify our business strategies accordingly to ~~successfully~~comply ~~compete~~with ~~against~~the ~~these~~new orrules ~~any~~and ofregulations. However, ~~our~~we ~~competitors~~cannot guarantee that we will be able to comply with the new rules and regulations, particularly the premarket authorization requirement, and the new legislation (including penalties imposed for failure to comply) could have a material adverse effect on our business, results of operations and financial condition.

1714

~~Our~~We ~~products~~ may ~~become~~face ~~obsolete~~liability ~~and~~for ~~unmarketable~~improper ifmarketing, wemedical ~~are~~claims ~~unable to respond adequately to rapidly changing technology~~ and ~~customer demands~~labeling.

~~Our industry is characterized by rapid changes in technology and customer demands.~~ As a ~~result,~~distributor ~~our products~~ and ~~services~~marketer ~~may~~of ~~quickly~~tobacco ~~become~~products, ~~obsolete~~the ~~and~~Company ~~unmarketable.~~faces ~~Our~~potential ~~future~~fines, ~~success~~sanctions, ~~will~~administrative ~~depend on our ability to adapt to technological advances~~actions, ~~anticipate customer demands~~penalties, ~~develop new products~~ and ~~enhance~~other ~~our~~liability ~~current~~for: ~~products~~improper onlabeling, amaking ~~timely~~improper ~~and cost-effective basis. Further~~claims, ~~our~~referencing ~~products must remain competitive with those of other companies with substantially greater resources. We may experience technical~~ or ~~other~~publishing ~~difficulties~~to ~~that~~its ~~could delay or prevent the development~~websites, ~~introduction or~~ marketing ofmaterials, ~~new~~advertisements, ~~products~~testimonials or ~~enhanced~~representations ~~versions~~that certain of ~~existing~~our products. ~~Also,~~have wethe ~~may~~ability ~~not~~or bepotential ~~able~~ to ~~adapt~~treat, ~~new~~cure or ~~enhanced~~otherwise ~~services~~improve toa ~~emerging~~medical ~~industry standards~~condition, and ~~our~~or ~~new~~provide ~~products~~a ~~may~~healthier ~~not~~alternative ~~be favorably received. If we are unable~~ to ~~meet~~other ~~the~~more ~~changing~~traditional ~~demands~~tobacco ~~of our customers, our business and financial condition will be materially adversely affected~~products.

WeAny ~~must~~violation ~~attract~~of law with respect to the Company’s marketing materials and ~~maintain~~or ~~key~~labeling ~~personnel~~could expose our company to liability including but not limited to fines, sanctions, administrative actions, penalties, civil actions and or criminal prosecution. Although our ~~business~~company ~~could~~maintains general liability insurance, our company’s insurance may not cover potential claims of this type or may not be ~~materially~~adequate ~~adversely~~to ~~affected~~indemnify our company for all liability that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our company’s business, results of operations and financial condition.

We must attract and retain key personnel in order to successfully operate our business. We compete with other companies both within and outside the tobacco/ electronic Cigarette industry to recruit and retain competent employees. If we cannot retain qualified employees to meet the needs of our anticipated growth, our business and financial condition could be materially adversely affected.

If we are not able to adequately protect our intellectual property, then we may not be able to compete effectively and we may not be profitable.

Our commercial success may depend, in part, on obtaining and maintaining patent protection, trade secret protection and regulatory protection of our technologies and product candidates as well as successfully defending third-party challenges to such technologies and candidates. We also consider our trademarks invaluable to our ability to continue to develop and maintain the goodwill and recognition associated with our brand.

With respect to our patented technology, the enforceability of a patent is often uncertain and determining whether a patent is enforceable involves complex legal and factual questions. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property. Accordingly, we cannot predict with any certainty the range of claims that may be allowed or enforced concerning our patents.

We may also rely on trade secrets to protect our technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we seek to protect confidential information, in part, through confidentiality agreements with our consultants and scientific and other advisors, they may unintentionally or willfully disclose our information to competitors. Enforcing a claim against a third party related to the illegal acquisition and use of trade secrets can be expensive and time consuming, and the outcome is often unpredictable.

If we are not able to maintain patent or trade secret protection on our technologies and product candidates, then we may not be able to exclude competitors from developing or marketing competing products, and we may not be able to operate profitability.

We could lose our competitive advantages if we are not able to protect our proprietary technology and intellectual property rights against infringement, and any related litigation could be time-consuming and costly.

We may need to bring legal claims to enforce or protect our intellectual property rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources. In addition, notwithstanding any rights we have secured in our intellectual property, other persons may bring claims against us that we have infringed on their intellectual property rights and such parties may further argue that our intellectual property rights are not valid. Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our attention and resources, result in the loss of goodwill associated with our service marks or require us to make changes to our website or other of our technologies, all of which could negatively impact our stock price.

If we are the subject of an intellectual property infringement claim, the cost of participating in any litigation could materially adversely affect our business.

There has been, and we believe that there will continue to be, significant litigation and demands for licenses in our industry regarding patent and other intellectual property rights. Although we anticipate having a valid defense to any allegation that our current products, production methods and other activities infringe the valid and enforceable intellectual property rights of any third parties, we cannot be certain that a third party will not challenge our position in the future. Other parties may own patent rights that we might infringe with our products or other activities, and our competitors or other patent holders may assert that our products and the methods we employ are covered by their patents. These parties could bring claims against us that would cause us to incur substantial litigation expenses and, if successful, may require us to pay substantial damages. Some of our potential competitors may be better able to sustain the costs of complex patent litigation, and depending on the circumstances, we could be forced to stop or delay our research, development, manufacturing or sales activities. Any of these costs could cause us to go out of business.

If we fail to effectively manage our growth, our future business results could be harmed and our managerial and operational resources may be strained.

We expect to experience significant and rapid growth in the scope and complexity of our business in the coming years. We anticipate that we will need to hire a broad range of additional personnel in order to successfully advance our operations, including staff to help source our products, manage operations, increase our sales and marketing efforts and perform finance and accounting functions. This growth is likely to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our potential business, or the failure to manage growth effectively, could have a materially adverse effect on our business and financial condition.

Limitation by states and cities on sales of electronic cigarettes may have a material adverse effect on our ability to sell our products in the United States.

Certain states and cities have enacted laws which preclude the use of electronic cigarettes where traditional tobacco-burning cigarettes cannot be used and others have proposed legislation that would categorize electronic cigarettes as tobacco products, equivalent to their tobacco burning counterparts. If the use of electronic cigarettes is banned in places where the use of traditional tobacco burning cigarettes is banned, electronic cigarettes may lose their appeal as an alternative to cigarettes, which may have the effect of reducing the demand for our products and as a result have a material adverse effect on our business, results of operations and financial condition.

The use of electronic cigarettes may pose health risks as great as, or greater than, regular tobacco products.

According to the FDA, electronic cigarettes may contain ingredients that are known to be toxic to humans and may contain other ingredients that may not be safe. Additionally, electronic cigarettes may be attractive to young people and may lead them to try other tobacco products, including conventional cigarettes that are known to cause disease. Because clinical studies about the safety and efficacy of electronic cigarettes have not been submitted to the FDA, consumers currently have no way of knowing whether electronic cigarettes are safe before their intended use; what types or concentrations of potentially harmful chemicals are found in these products; or how much nicotine is being inhaled. In addition, there have been instances of electronic cigarettes exploding, especially during charging. Consequently there is a risk that an electronic cigarette can cause disease and/or serious bodily injury and the publicity from such instances of disease or injury could dramatically slow the growth of the market for electronic cigarettes.

The recent development of electronic cigarettes has not allowed the medical profession to study the long-term health effects of electronic cigarette use.

Because electronic cigarettes were recently developed, the medical profession has not had a sufficient period of time to study the long-term health effects of electronic cigarette use. Therefore, there is no way of knowing whether or not electronic cigarettes are safe for their intended use. If the medical profession were to determine conclusively that electronic cigarette usage poses long-term health risks, electronic cigarette usage could decline, which could have a material adverse effect on our business, results of operations and financial condition.

Electronic cigarettes may become subject to regulation by the FDA.

The FDA did not appeal the decision of the U.S. Court of Appeals for the D.C. Circuit in Sottera, Inc. v. Food & Drug Administration (2010) which held that electronic cigarettes and other nicotine-containing products are not drugs or devices unless they are marketed for therapeutic purposes. The Court held further that electronic cigarettes and other nicotine-containing products can be regulated as “tobacco products” under the Food, Drug and Cosmetic Act. Consequently, the FDA may choose to develop regulations governing the manufacture, marketing and sale of electronic cigarettes.

Potential FDA regulations, or significant costs to comply with potential FDA regulations, could have a materially adverse effect on our company’s operations and profitability. Failure to comply with FDA regulatory requirements could result in significant financial penalties and could have a material adverse effect on our business, financial condition and results of operations and ability to market and sell our products.

On August 23, 2013, the Wall Street Journal reported that the FDA is considering a ban on online sales of electronic cigarettes. If the FDA implements such a ban or otherwise implements regulations that have the effect of reducing our sales, our financial results would be materially adversely affected and we may ultimately be forced to cease our operations.

We may experience product liability claims in our business, which could adversely affect our business.

The tobacco industry in general has historically been subject to frequent product liability claims. As a result, we may experience product liability claims from the marketing and sale of electronic cigarettes and defects in the products we distribute, including claims relating to exploding batteries or other product defects. Any product liability claim brought against us, with or without merit, could result in:

liabilities that substantially exceed our product liability insurance, which we would then be required to pay from other sources, if available;

an increase of our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, or at all;

damage to our reputation and the reputation of our products, resulting in lower sales;

regulatory investigations that could require costly recalls or product modifications;

litigation costs; and

the diversion of management’s attention from managing our business.

Any one or more of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

Our Convertible Note financing may result in significant dilution to existing stockholders and could cause us to incur significant financial penalties

On December 24, 2015, we entered into a Senior Secured Credit Facility Agreement with TCA Global Credit Master Fund, LP (“TCA”) and issued to TCA a Convertible Promissory Note in the principal amount of $750,000 (the “TCA Note”). The payment and performance of all our indebtedness and other obligations to TCA, including all borrowings under the loan agreement and related agreements, are secured by liens on substantially all of our assets pursuant to a Security Agreement.

Upon the occurrence and during the continuance of an event of default under the transaction documents, including as a result of our failure to meet our payment obligations or to satisfy our covenants under the transaction documents, TCA may terminate its commitments to us and declare all of our obligations to TCA to be immediately due and payable. In addition, upon the occurrence and during the continuance of an event of default under the transaction documents, TCA may also exercise all of its rights as a secured creditor and obtain our assets. If we lose all or a substantial portion of our assets, our shares will likely significantly decline in value or become worthless.

While the TCA Note is outstanding, but only upon the occurrence of (i) an event of default under the loan agreement with TCA or any related transaction document or (ii) our mutual agreement with TCA, TCA may convert, subject to certain beneficial ownership limitations, all or any portion of the outstanding principal, accrued and unpaid interest and any other sums due and payable under the Note or any other transaction document (such total amount, the “Conversion Amount”) into a number of shares of our common stock equal to: (i) the Conversion Amount divided by (ii) eighty-five percent (85%) of the lowest of the daily volume weighted average price of our common stock during the five business days immediately prior to the conversion date (the “Conversion Shares”). Upon liquidation by TCA of Conversion Shares, if TCA realizes a net amount from such liquidation equal to less than the Conversion Amount, we are obligated to issue to TCA additional shares of our common stock equal to: (a) the Conversion Amount minus the net realized amount, divided by (b) the average volume weighted average price of our common stock during the five business days immediately prior to the date upon which TCA requests additional shares. In the event we issue Conversion Shares to pay obligations under the TCA Note, our existing stockholders will likely be significantly diluted pursuant to the terms of the TCA Note and our shares may significantly decline in value or become worthless.

Similarly, in connection with the loan agreement with TCA, we agreed to pay to TCA a fee for advisory services provided to us prior to the entry into the loan agreement in the amount of $126,000 (the “Advisory Fee”). As partial payment of the Advisory Fee, we issued to TCA 3,810,000 shares of our common stock on December 24, 2015 (the “Advisory Fee Shares”). In the event that TCA receives net proceeds from the sale of such shares that are less than the Advisory Fee, TCA may require us to issue additional shares of common stock in an amount sufficient such that, when sold and the net proceeds from such sale are added to the net proceeds from the sale of any of the previously issued and sold Advisory Fee Shares, TCA shall have received total net funds equal to the Advisory Fee. Notwithstanding the foregoing, subject to certain conditions, we have the right to redeem the Advisory Fee Shares then in TCA’s possession for an amount payable in cash equal to the Advisory Fee, less any net cash proceeds received by TCA from previous sales of Advisory Fee Shares. In the event TCA has not realized net proceeds from the sale of Advisory Fee Shares equal to at least the Advisory Fee by the earlier to occur of: (i) December 24, 2016; (ii) the occurrence of an event of default under the transaction documents; or (iii) the Maturity Date, then at any time thereafter, TCA has the right to require us to redeem all of the Advisory Fee Shares then in TCA’s possession for cash equal to the Advisory Fee, less any cash proceeds received by TCA from any previous sales of Advisory Fee Shares. In the event TCA sells its Advisory Fee Shares in the market, our share price may significantly decline. In addition, in the event we issue additional Advisory Fee Shares to pay the Advisory Fee, our existing stockholders will likely be significantly diluted and our shares may significantly decline in value or become worthless.

In addition to our agreements with TCA, we are party to a Second Exchange Note with Iliad Research & Trading, L.P. pursuant to which we may be required to issue shares of our common stock upon conversion of such note. See Note 14 for a further discussion of the Second Exchange Note. As of October 10, 2016, the outstanding balance on the Second Exchange Note was $23,264. In the event we issue shares of our common stock to pay obligations under the Second Exchange Note, our existing stockholders will likely be significantly diluted and our shares may significantly decline in value.

Our lenders have rights that are senior to those of our common stockholders

Our ability to pay interest and principal on our indebtedness and to satisfy our other obligations will depend upon, among other things, our future financial and operating performance, which is affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital. We may be unable to effect any of these actions on satisfactory terms, or at all. In the event we issue common stock or other equity securities to satisfy our debt obligations, our existing stockholders may suffer significant dilution. Furthermore, any proceeds that we could realize from any financings or the disposition of assets may not be adequate to meet our debt service or other obligations then due, which would have an immediate material adverse effect on our business, results of operations and financial condition. In the event of our bankruptcy, dissolution or liquidation, the claims of our lenders (including TCA) must be satisfied before any distributions can be made on our common stock. As a result, our common stockholders would receive distributions only after priority distributions to our lenders are satisfied and may receive nothing in the event of our bankruptcy, dissolution or liquidation.

We operate a developing business, and it is difficult to accurately predict our future sales and appropriately budget expenses.

Because our business is evolving, including as a result of recent regulatory changes announced by the FDA, it is difficult to accurately predict our future sales and appropriately budget our expenses. Our operations will be subject to risks inherent in the establishment of a developing business, including, among other things, efficiently deploying our capital, developing our products, developing and implementing our marketing campaigns and strategies and developing brand awareness and acceptance of our products. Our ability to generate future sales will be dependent on a number of factors, many of which are beyond our control, including the pricing of competing products, overall demand for our products, changes in consumer preferences, market competition and government regulation. While we believe that we have the opportunity to be successful in the electronic cigarette industry, there can be no assurance that we will be successful in accomplishing our business initiatives, or that we will be able to achieve any significant levels of revenues or net income, from the sale of our products.

Our failure to compete effectively could have a material adverse effect on our business, results of operations and financial condition.

We face competition from direct and indirect competitors, including tobacco companies, other known and established or yet to be formed electronic cigarette companies, and pharmaceutical companies that market smoking cessation aids and alternative nicotine delivery products, each of whom pose a competitive threat to our current business and future prospects. We compete primarily on the basis of product quality, brand recognition, brand loyalty, service, marketing, advertising and price. There can be no assurance that we will be able to compete successfully against any of the aforementioned competitors and our inability to successfully compete against these or any of our competitors could have a material adverse effect our business, results of operations and financial condition.

Our products may become obsolete and unmarketable if we are unable to respond adequately to rapidly changing technology and customer demands.

Our industry is characterized by rapid changes in technology and customer demands. As a result, our products and services may quickly become obsolete and unmarketable. Our future success will depend on our ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, our products must remain competitive with those of other companies with substantially greater resources. We may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, we may not be able to adapt new or enhanced services to emerging industry standards, and our new products may not be favorably received. If we are unable to meet the changing demands of our customers, our business and financial condition will likely be materially adversely affected.

We must attract and maintain key personnel or our business could be materially adversely affected.

We must continue to attract and retain key personnel in order to successfully operate our business. We compete with other companies both within and outside the tobacco/ electronic cigarette industry to recruit and retain competent employees. If we cannot retain qualified employees to meet the needs of our anticipated growth, our business and financial condition could be materially adversely affected.

If we are not able to adequately protect our intellectual property, our financial performance may be adversely impacted.

Our commercial success may depend, in part, on obtaining and maintaining patent protection of our technologies and product candidates as well as successfully defending third-party challenges to such technologies and candidates. We may also rely on trade secrets to protect our technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we seek to protect trade secrets and confidential information, in part, through confidentiality agreements with our consultants and other advisors, they may unintentionally or willfully disclose our information to competitors. Enforcing a claim against a third party related to the illegal acquisition and use of trade secrets can be expensive and time consuming, and the outcome is often unpredictable. If we are not able to maintain patent or trade secret protection on our technologies and product candidates, then we may not be able to exclude competitors from developing or marketing competing products which could adversely impact our financial performance.

In addition to patents and trade secrets, we also consider our trademarks important in our ability to continue to develop and maintain the goodwill and recognition associated with our brands. If we are not able to maintain trademark protection on our brands, then our results of operations may be adversely effected.

Any litigation relating to the protection of our intellectual property could be time-consuming and costly.

If we are the subject of an intellectual property infringement claim, the cost of participating in any litigation could materially adversely affect our business.

If we fail to effectively manage our growth, our future business results could be harmed and our managerial and operational resources may be strained.

We anticipate that we will need to hire additional personnel as we grow, including staff to help source our products, manage operations, increase our sales and marketing efforts and perform finance and accounting functions. This growth is likely to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our potential business, or the failure to manage growth effectively, could have a materially adverse effect on our business and financial condition.

Limitations by states and cities on sales of electronic cigarettes and other regulatory restrictions may have a material adverse effect on our ability to sell our products in the United States and will cause us to incur additional compliance costs

Certain states and cities have enacted laws which preclude the use of electronic cigarettes where traditional tobacco-burning cigarettes cannot be used and others have adopted or proposed legislation that categorize electronic cigarettes as tobacco products, equivalent to their tobacco burning counterparts. If a significant number of jurisdictions enact prohibitive laws and regulations, electronic cigarettes may lose their appeal as an alternative to cigarettes, which may have the effect of reducing the demand for our products and as a result have a material adverse effect on our business, results of operations and financial condition. In addition, additional regulations will increase our regulatory compliance costs, which will adversely impact our results from operations and financial condition.

The use of electronic cigarettes may pose health risks as great as, or greater than, regular tobacco products.

The recent development of electronic cigarettes has not allowed the medical profession to sufficiently study the long-term health effects of electronic cigarette use.

Because electronic cigarettes were recently developed, the medical profession has not had a sufficient period of time to study the long-term health effects of electronic cigarette use and it is uncertain whether or not electronic cigarettes are safe for their intended use. If the medical profession were to determine conclusively that electronic cigarette usage poses long-term health risks, electronic cigarette usage could decline, which could have a material adverse effect on our business, results of operations and financial condition.

If we experience product recalls, we may incur significant and unexpected costs and our business reputation could be adversely affected.

We may be exposed to product recalls and adverse public relations if our products are alleged to cause illness or injury, or if we are alleged to have violated governmental regulations. A product recall could result in substantial and unexpected expenditures that could exceed our product recall insurance coverage limits and harm to our reputation, which could have a material adverse effect on our business, results of operations and financial condition. In addition, a product recall may require significant management time and attention and may adversely impact on the value of our brands. Product recalls may also lead to greater scrutiny by federal or state regulatory agencies and increased litigation, which could have a material adverse effect on our business, results of operations and financial condition.

We may face liability for improper marketing, medical claims and labeling.

As a distributor and marketer of a product that the FDA may assert is a smoking cessation device and or a tobacco product, the Company faces potential fines, sanctions, administrative actions, penalties, and other liability for: improper labeling, making improper claims, referencing or publishing to its websites, marketing materials, advertisements, testimonials or representations that certain of our products have the ability or potential to treat, cure or otherwise improve a medical condition, and or provide a healthier alternative to other more traditional tobacco products.

Moreover, if the FDA asserts we are a tobacco product, we may be required to follow federal and state tobacco labeling laws, and could face potential fines, sanctions, administrative actions, penalties and other liability, either civil and or criminal, for any violations thereof.

Any violation of law with respect to the Company’s marketing materials and or labeling could expose our company to liability including but not limited to fines, sanctions, administrative actions, penalties, civil actions and or criminal prosecution. Although our company maintains general liability insurance, our company’s insurance may not cover potential claims of this type or may not be adequate to indemnify our company for all liability that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our company’s business, results of operations and financial condition.

New products face intense media attention and public pressure.

E-Cigarettes are new to the marketplace and since their introduction certain members of the media, politicians, government regulators and advocate groups, including independent doctors have called for an outright ban of all electronic cigarettes, pending regulatory review and a demonstration of safety. A ban of this type would likely have the effect of terminating our United States’ sales and marketing efforts of certain products which we currently market or have plans to market in the future. Such a ban would also likely cause public confusion as to which products are the subject of the ban and which are not and would have a material adverse effect on our business, financial condition and performance.

Our products contain nicotine which is considered to be a highly addictive substance.

Certain of our products contain nicotine, a chemical found in cigarettes and other tobacco products which is considered to be highly addictive. The Family Smoking Prevention and Tobacco Control Act empowers the FDA to regulate the amount of nicotine found in tobacco products, but may not require the reduction of nicotine yields of a tobacco product to zero. Any FDA regulation may require us to reformulate, recall and or discontinue certain of the products we may sell from time to time, which may have a material adverse effect on our ability to market our products and have a material adverse effect on our business, financial condition, results of operations, cash flows and/or future prospects.

Our business may be affected if we are taxed like other tobacco products or if we are required to collect and remit sales tax on certain of our internet sales.

Presently our products are not taxed like cigarettes or other tobacco products, all of which have faced significant increases in the amount of taxes collected on the sale of their products. Should state and federal governments and or taxing authorities impose taxes similar to those levied against cigarettes and tobacco products on our products, it may have a material adverse effect on the demand for our products. Moreover we may be unable to establish the systems and processes needed to track and submit the taxes we collect through internet sales, which would limit our ability to market our products through our websites which would have a material adverse effect on our revenues, operation and financial condition.

States including New York, Hawaii, Rhode Island, Georgia and North Carolina have begun collecting taxes on Internet sales where companies have used independent contractors in such states to solicit sales from residents of those states. The requirement to collect, track and remit taxes based on independent affiliate sales may require us to increase our prices, which may affect demand for our products or conversely reduce our net profit margin; either of which could have a material adverse effect on our revenues, financial condition and operating results.

Our success is dependent upon our marketing efforts.

WeIf ~~have~~we ~~limited~~are ~~marketing~~unable ~~experience~~to ingenerate ~~marketing~~significant ~~electronic~~market ~~cigarettes~~awareness for our products and ~~limited~~our ~~financial~~brands, ~~personnel~~our ~~and~~operations ~~other~~may ~~resources~~not generate sufficient revenues for us to ~~undertake~~execute ~~extensive~~our ~~marketing~~business ~~activities~~plan. We Ifrely, wein ~~are~~part, ~~unable~~on tothe ~~generate~~efforts ~~significant~~of ~~market~~our ~~awareness~~independent ~~for~~sales distributors and outside broker/dealer network to augment our ~~products~~internal sales efforts and distribute our ~~brands,~~product ~~our~~to ~~operations~~wholesalers ~~may~~and ~~not~~or ~~generate~~retailers ~~sufficient~~to generate revenues. No single distributor currently accounts for usa tomaterial ~~execute~~percentage of our ~~business~~revenues ~~plan~~and we believe that should any of these relationships terminate we would be able to find suitable replacements.

We rely, in part, on the efforts of our independent sales distributors and outside broker/dealer network to augment our internal sales efforts and distribute our product to wholesalers and or retailers to generate revenues. No single distributor currently accounts for a material percentage of our revenues and we believe that should any of these relationships terminate we would be able to find suitable replacements. However any change in distributors or our ability to timely replace any given distributor could have a material adverse effect on our business, prospects, financial condition and results of operations.20

We depend on a small number of third party suppliers and manufacturers for critical raw materials, components and certain of our electronic cigarette products.

We depend on a small number of third-party suppliers and manufacturers for ~~critical~~ raw materials, components and certain of our electronic cigarette products. We depend on such suppliers to supply materials, components and products in a timely manner, in adequate quantities, consistent quality and at reasonable costs. An interruption in supply and or consistency of our products may harm our relationships and goodwill with customers, and have a materially adverse effect on our cash flow and our operations.

Although we believe that several alternative and redundant sources for our products are available, any failure to obtain the components, chemical constituents and manufacturing services necessary for the production of our products could have a material adverse effect on our business and prevent us from timely execution of our business plan and may result in additional expenditures of time and money in seeking viable new sources of supply and manufacturer alternatives.

Our financial results may vary significantly from period-to-period due to unpredictable sales cycles in certain of the markets into which we sell our products, and changes in the mix of products we sell during a period, which may lead to volatility in our stock price.

The size and timing of our potential revenue from sales to our customers is difficult to predict and is market-dependent. Our sales efforts will often require us to educate our customers about the use and benefits of our products, including their technical and performance characteristics. We intend to spend substantial amounts of time and money on our sales efforts and there is no assurance that these investments will produce any sales within expected time frames or at all. Given the potentially large size of purchase orders for our products, particularly by distributors who resell into retail channels, the loss of or delay in the signing of a customer order could significantly reduce our revenue in any period. Our revenues in each period may also vary significantly as a result of purchases, or lack thereof, by significant retail customers.

Our profitability from period-to-period may also vary significantly due to the mix of products that we may sell in different periods. Consequently, sales of individual products may not necessarily be consistent across periods, which could affect product mix and cause gross and operating profits to vary significantly. As a result of these factors, we believe that quarter-to-quarter comparisons of our operating results cannot necessarily be relied upon to be meaningful and that these comparisons cannot be relied upon as indicators of future performance.

Product exchanges, returns and warranty claims may adversely affect our business.

If we are unable to maintain an acceptable degree of quality control of our products, we will incur costs associated with the exchange and return of our products as well as servicing our customers for warranty claims. Any of the foregoing on a significant scale may have a material adverse effect on our business, results of operations and financial condition.

Adverse economic conditions may adversely affect the demand for our products.

Electronic cigarettes are new to market and may be regarded by users as a novelty item and expendable. When economic conditions are prosperous, discretionary spending typically increases; conversely, when economic conditions are unfavorable, discretionary spending often declines. Any significant decline in economic conditions that affects consumer spending could have a material adverse effect on our business, results of operations and financial condition.

Internet security poses a risk to our e-commerce sales.

At present, we generate revenues through the sale of our products through our websites. We manage our websites and e-commerce platform internally and as a result any compromise of our security or misappropriation of proprietary information could have a material adverse effect on our business, prospects, financial condition and results of operations. We rely on encryption and authentication technology licensed from other companies to provide the security and authentication necessary to effect secure Internet transmission of confidential information, such as credit and other proprietary information. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the technology used by us to protect client transaction data. Anyone who is able to circumvent our security measures could misappropriate proprietary information or cause material interruptions in our operations. We may be required to expend significant capital and other resources to protect against security breaches or to minimize problems caused by security breaches. To the extent that our activities or the activities of others involve the storage and transmission of proprietary information, security breaches could damage our reputation and expose us to a risk of loss or litigation, government sanction, and possible liability. Our failure to prevent these security breaches may further result in consumer distrust and may also adversely affect our business, results of operations and financial condition.

We may incur losses that are not adequately covered by insurance, which may harm our results of operations. In addition, our insurance costs may increase and we may not be able to obtain similar insurance coverage in the future.

Although we believe we maintain insurance that is customary and appropriate for our business and its size, each of our insurance policies is subject to certain exclusions. The lack of adequate insurance for certain types or levels of risk could expose us to significant losses in the event that a catastrophe occurred for which we are underinsured. In addition to the damage caused to our properties by a casualty loss, we may suffer business disruption as a result of the casualty event or be subject to claims by third parties that may be injured or harmed. While we carry general liability insurance and business interruption insurance, there can be no assurance that insurance will be available or adequate to cover all loss and damage to which our business or our assets might be subjected. In addition, certain casualty events, such as labor strikes, nuclear events, loss of income due to terrorism, deterioration or corrosion, insect or animal damage and pollution, may not be covered under our policies. Any losses we incur that are not adequately covered by insurance may decrease our future operating income, require us to fund replacements or repairs for destroyed property and reduce the funds available for payments of our obligations.

We renew our insurance policies on an annual basis. To the extent that the cost of insurance coverage increases, we may be required to reduce our policy limits or agree to exclusions from our coverage.

We are subject to litigation in the ordinary course of our business. An adverse determination with respect to any such disputed matter could result in substantial losses.

We are, from time to time, during the ordinary course of operating our businesses, subject to various litigation claims and legal disputes, including contract, lease, employment and regulatory claims as well as claims made by visitors to our retail locations. Certain litigation claims may not be covered entirely or at all by our insurance policies or our insurance carriers may seek to deny coverage. In addition, litigation claims can be expensive to defend and may divert our attention from the operations of our businesses. Further, litigation, even if without merit, can attract adverse media attention. As a result, litigation can have a material adverse effect on our businesses and, because we cannot predict the outcome of any action, it is possible that adverse judgments or settlements could significantly reduce our earnings or result in losses.

Risks Relating to Ownership of Our Securities

Our stock price may be volatile, which may result in losses to our shareholders.

The stock markets have experienced significant price and trading volume fluctuations, and the market prices of companies listed on the Over-the-counter Bulletin Board quotation system in which shares of our common stock are listed, have been volatile in the past and have experienced sharp share price and trading volume changes. The trading price of our common stock is likely to be volatile and could fluctuate widely in response to many factors, including the following, some of which are beyond our control:

variations in our operating results;

changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;

changes in regulations that are applicable to our industry;

changes in operating and stock price performance of other companies in our industry;

additions or departures of key personnel; and

future sales of our common stock, including common stock issued upon the conversion of existing indebtedness.

Domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may also adversely affect the price of our common stock.

Our common shares may become thinly traded and you may be unable to sell at or near ask prices, or at all.

We cannot predict the extent to which an active public market for trading our common stock will be sustained. Our common stock has historically been sporadically or “thinly-traded,” meaning that the number of persons interested in purchasing our common shares at or near bid prices at certain given time may be relatively small or non-existent.

This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community who generate or influence sales volume. Even if we came to the attention of such persons, those persons tend to be risk-averse and may be reluctant to follow, purchase, or recommend the purchase of shares of an unproven company such as ours until such time as we become more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained.

Our stock is a penny stock, which may subject our common stock to abuse.

Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.

Because our common stock is a “penny stock,” trading therein will be subject to regulatory restrictions.

Our common stock is currently, and in the near future will likely continue to be, considered a “penny stock.” The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure and other requirements may adversely affect the trading activity in the secondary market for our common stock.

We do not anticipate paying any cash dividends to our common shareholders.

We presently do not anticipate that we will pay any cash dividends on any of our common stock in the foreseeable future. If payment of dividends does occur at some point in the future, it would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any cash dividends will be within the discretion of our Board of Directors, but subject to the terms of restrictive covenants that may be present in our contractual arrangements. We presently intend to retain all earnings to implement our business plan; accordingly, we do not anticipate the declaration of any cash dividends in the foreseeable future.

Volatility in our common share price may subject us to securities litigation.

The market for our common stock is characterized by significant price volatility as compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management's attention and resources.

The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights of our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.

Our Articles of Incorporation include a specific provision to eliminate the liability of our directors and officers for monetary damages to our company and shareholders to the maximum extent provided for by Nevada law. We may also adopt contractual indemnification obligations under employment agreements that we may enter into with our officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and shareholders.

Our board of directors is authorized to issue additional shares of stock which could dilute existing shareholders.

We are currently authorized to issue up to 1,010,000,000 shares of common stock, of which 7290,~~455~~292,~~606~~443 shares are currently issued and outstanding and up to 10,000,000 shares of preferred stock, none of which are issued and outstanding. Additional shares of our common stock or preferred stock may be issued by our board of directors for such consideration as they may consider sufficient without seeking stockholder approval. The issuance of additional shares of common stock in the future will reduce the proportionate ownership and voting power of current stockholders and the issuance of preferred stock may also have a similar impact.

Provisions in our organizational documents and Nevada law will make it more difficult for someone to acquire control of us.

Our amended and restated articles of incorporation, amended and restated bylaws and Nevada law contain provisions that could discourage, delay or prevent a third party from acquiring our company, even if doing so may be beneficial to our stockholders. As an example, our restated articles of incorporation and amended and restated bylaws provide:

The ability to our board of directors to issue shares of our preferred stock in one or more series without further authorization of our stockholders;

A prohibition on stockholder action by written consent; and

A requirement that stockholders provide advance notice of any stockholder nominations of directors or any proposal of new business to be considered at any meeting of stockholders.

In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our ~~Common~~common ~~Stock~~stock.

The majority of our board does not consist of independent directors, which limits our ability to establish effective independent corporate governance procedures.

Our board is composed of ~~five~~four directors, none of whom are independent based on the NASDAQ listing rules. Without a majority of independent directors on our board, our ability to establish effective corporate governance procedures to oversee functions such as audit, compensation and corporate governance is limited. Furthermore, a majority of our directors are also executive officers of the Company. This structure gives our executive officers significant control over all corporate issues and decisions.

In the absence of a majority of independent directors, our executive officers, most of whom are also principal stockholders and directors, could establish policies and enter into transactions without independent review and approval. This could present the potential for a conflict of interest between us and our shareholders generally and the controlling officers, shareholders or directors. Although we anticipate seeking independent directors in the future, there can be no assurance as to whether or when we will be successful in appointing any new directors.

We are an “emerging growth company” under the JOBS Act of 2012, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act (which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30.

Because we have elected to use the extended transition period for complying with new or revised accounting standards for an “emerging growth company” our financial statements may not be comparable to companies that comply with public company effective dates.

We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.

If securities analysts do not publish research or reports about our company, or if they issue unfavorable commentary about us or our industry and markets or downgrade our common stock, the price of our common stock could decline.

The trading market for our common stock will depend in part on the research and reports that third-party securities analysts publish about our company and our industry and markets. One or more analysts could downgrade our common stock or issue other negative commentary about our company or our industry or markets. In addition, we may be unable or slow to attract sufficient research coverage. Alternatively, if one or more of these analysts cease coverage of our company, we could lose visibility in the market. As a result of one or more of these factors, the trading price and volume of our common stock could decline.

Our officers, directors and principal stockholders can exert significant influence over our business and may make decisions that are not in the best interests of all stockholders.

Our officers, directors and principal stockholders (greater than 5% stockholders) collectively own approximately 5242.43% of our issued and outstanding common stock. As a result of such ownership, these stockholders will be able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control. In particular, this concentration of ownership of our common stock could have the effect of delaying or preventing a change of control of our company or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of our company. This, in turn, could have a negative effect on the market price of our common stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of our common stock.

The requirements of being a public company, including compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, and the requirements of the Sarbanes-Oxley Act of 2002, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

As a public company, we need to comply with laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, related regulations of the SEC, and requirements of the principal trading market upon which our common stock may trade, with which we are not required to comply as a private company. As a result, we will incur significant legal, accounting and other expenses that a private company would not incur. Complying with these statutes, regulations and requirements will occupy a significant amount of the time of our board of directors and management, will require us to have additional finance and accounting staff, may make it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on the audit committee (upon its formation), and may make some activities more difficult, time consuming and costly. We will need to:

institute a more comprehensive compliance function;

maintain internal policies, such as those relating to disclosure controls and procedures and insider trading;

design, establish, evaluate and maintain a system of internal control over financial reporting in compliance with the requirements of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

prepare and distribute periodic reports in compliance with our obligations under the federal securities laws including the Securities Exchange Act of 1934, as amended (the “Exchange Act”);

involve and retain to a greater degree outside counsel and accountants in the above activities; and

establish an investor relations function.

If we are unable to accomplish these objectives in a timely and effective fashion for our business, our ability to comply with financial reporting requirements and other rules that apply to reporting companies could be impaired. If our finance and accounting personnel insufficiently support our business in fulfilling these public-company compliance obligations, or if we are unable to hire adequate finance and accounting personnel, we could face significant legal liability, which could have a material adverse effect on our financial condition and results of operations. Furthermore, if we identify any issues in complying with those requirements (for example, if our company or the independent registered public accountants identified a material weakness or significant deficiency in our company’s internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect our reputation or investor perceptions of our company.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our principal corporate office and warehouse is located at 1871 Tapo Street, Simi Valley CA 93063. Our corporate office is a leased facility comprised of approximately 5,000 square feet of office space, and is leased from a related party. We also operate ~~two~~one retail ~~locations~~location from a leased premises located at 665 E. Los Angeles Ave, Simi Valley, CA 93065 ~~and 9911 Topanga Canyon Blvd~~.~~, Chatsworth, CA 91311, respectively.~~ Our Simi Valley retail location measures approximately 1,600 square feet ~~and our Chatsworth store measures approximately 1,200 square feet~~. Our aggregate monthly rent for the above-described ~~three~~ properties as well as an 1,800 square ft. storage facility is approximately $1210,~~800~~556. 00 We believe our facilities are adequate to meet our current and near-term needs. Our telephone number is (805) 309-0530.

ITEM 3. LEGAL PROCEEDINGS

WeExcept as described below, we know of no material existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

On November 4, 2015, the Company filed a lawsuit in the Superior Court of California, County of Orange, Case Number 30-2015-00818492-CU-BC-CJC against Kevin Crump, an individual, Magnavape, Inc. and Magnavon, Inc. alleging breach of contract, fraud, negligent misrepresentation, intentional interference with economic advantage and negligent interference with economic advantage relating to the production by the defendants of the Company’s AR Mods. The lawsuit prayer is for $3,000,000. This amount includes general damages, lost profits and punitive damages against the defendants. A mandatory settlement conference is scheduled for February 24, 2017 and a jury trial is scheduled for March 27, 2017.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

Common Stock

Our common stock is currently quoted on the OTC Pink under the Symbol “VHUB”. Our common stock was originally listed for quotation on August 15, 2011 under the symbol “DOGI”.

The following table reflects the high and low bid information for our common stock and reflects inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions. On October 810, ~~2015~~2016, the closing sales price of our common stock as reported on the Over-The-Counter Bulletin Board was $0.040155 per share.

	High	Low
Year Ended June 30, 2014
Year Ended June 30, 2016
First Quarter (1)	-	-
First Quarter	0.048	0.02
Second Quarter (1)	-	-
Second Quarter	0.04	0.02
Third Quarter	10.25049	0.28018
Fourth Quarter	0.830301	0.160036
Year Ended June 30, 2015
First Quarter	0.16	0.01
Second Quarter	0.02	0.01
Third Quarter	0.05	0.01
Fourth Quarter	0.04	0.02

(1)

No trades during this period.

Stockholders of Record

As of ~~September~~October 2513, ~~2015~~2016, an aggregate of 7290,~~455~~292,~~606~~443 shares of our common stock were issued and outstanding and were owned by 6 stockholders of record. Island Stock Transfer Inc., Roosevelt Office Center, 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760 (Telephone: 727.289.0010) is the registrar and transfer agent for our common shares.

Dividends

We have not paid any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. We currently intend to retain all earnings, if and when generated, to finance our operations. The declaration of cash dividends in the future will be determined by our Board in its discretion based upon our earnings, financial condition, capital requirements, contractual obligations which may prohibit the payment of dividends, including our current or any future indebtedness, and other relevant factors, including restrictions imposed under Nevada statutes.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

WeDuring ~~did not sell any equity securities which were not registered under~~ the ~~Securities~~fiscal ~~Act during the~~ year ended June 30, ~~2015~~2016, ~~that~~we ~~were~~issued ~~not otherwise disclosed on our quarterly reports on Form 10-Q or our current reports on Form 8-K filed during~~ the ~~year~~following ~~ended~~equity ~~June 30, 2015.~~ securities:


Date of Issuance	Number of Shares of Common Stock	Recipient	Consideration
December 24, 2015	3,810,000	TCA Global Credit Master Fund, LP	Advisory services rendered.
February 16, 2016	918,386	Typenex Co-Investment, LLC	Conversion of debt into common stock.
March 15, 2016	918,386	Typenex Co-Investment, LLC	Conversion of debt into common stock.
April 15, 2016	3,160,556	Typenex Co-Investment, LLC	Conversion of debt into common stock.
May 15, 2016	5,597,441	Typenex Co-Investment, LLC	Conversion of debt into common stock.

In addition, on February 23, 2016, we issued a warrant exercisable on or before February 23, 2020 to purchase 100,000 shares of our common stock at an exercise price per share of $0.15 in connection with the termination of a profit sharing arrangement (see Note 3).

The above issuances were made in reliance upon the exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D thereunder for transactions not involving a public offering. Each investor represented that it is an “accredited investor” as defined in Regulation D.

Other than as described above, we did not sell any equity securities which were not registered under the Securities Act during the year ended June 30, 2016 that were not otherwise disclosed on our quarterly reports on Form 10-Q or our current reports on Form 8-K filed during the year ended June 30, 2016.

ITEM 6. SELECTED FINANCIAL DATA

As a “smaller reporting company”, we are not required to provide the information required by this Item.

ITEM 7. MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion summarizes the significant factors affecting the operating results, financial condition and liquidity and cash flows of our company for the ~~year~~fiscal years ended June 30, ~~2015~~2016 and ~~for the period from our inception (July 12, 2013) to~~ June 30, ~~2014~~2015. You should read this discussion together with the consolidated financial statements, related notes and other financial information included in this Annual Report. Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward looking statements that involve risks and uncertainties, including those discussed under Part I, Item 1A—”Risk Factors” and elsewhere in this Annual Report, and are based upon judgments concerning various factors that are beyond our control. These risks could cause our actual results to differ materially from any future performance suggested below.

~~General Overview~~ 30

On February 14, 2014, we entered into a Share Exchange Agreement with Vapor Hub Inc., a California corporation (“Vapor”), Delite Products, Inc., a California corporation (“Delite”) and the shareholders of both companies (the “Exchange Agreement”). Pursuant to the terms of Exchange Agreement, we agreed to acquire all 30,000 of the issued and outstanding shares of Vapor’s common stock, as well as all 30,000 of the issued and outstanding shares of Delite’s common stock in exchange for the issuance by our company of 38,000,001 shares of our common stock to the shareholders of both companies. On March 14, 2014, we completed the acquisition of Vapor and issued all of the 38,000,001 shares of our stock to the shareholders of Vapor, who are also the shareholders of Delite. On March 26, 2014, we completed the acquisition of Delite. As a result of the closing of the transactions contemplated by the Exchange Agreement, Vapor and Delite became our wholly owned subsidiaries and we now carry on the business of developing, producing, marketing and selling vaping devices and related accessories. The transaction with Vapor was accounted for as a reverse acquisition (recapitalization) where Vapor was deemed to be the accounting acquirer, and us the legal acquirer. The transaction with Delite was accounted for as a business acquisition and we assumed the assets and liabilities of Delite at historical basis as of March 26, 2014 and the activity of Delite was included from that date forward. Prior to our acquisition of Vapor, we existed as a “shell company” with nominal assets whose sole business was to identify, evaluate and investigate various companies to acquire or with which to merge. On May 18, 2015, Vapor and Delite were merged with and into the Company, ending the separate existences of Vapor and Delite. This had no impact on the historical consolidated financial statementsOverview

31We design, source, market and sell the next generation of smokeless electronic cigarettes which are popularly known as “vaping” devices. We provide a selection of premium vaping devices and related accessories which we design and source, including our popular “Limitless Mods” and “Limitless Atomizers”, and we also purchase vaping devices and related accessories from third parties for resale. We distribute our products nationally and internationally to wholesale customers and retail customers, including through our website www.vapor-hub.com. We also market and sell our products through a retail location located in southern California.

Upon our acquisition of Vapor, Robin Looban resigned as our sole director, president, secretary, treasurer, Chief Financial Officer and Chairman of the Board of Directors and management members from Vapor and Delite were appointed to serve as directors and officers of our company. To reflect our acquisition of Vapor, on March 14, 2014 we changed our corporate name from Doginn, Inc. to Vapor Hub International Inc., and our stock symbol from “DOGI” to “VHUB”. We also changed our fiscal year end from December 31 to June 30.

Going Concern

Our ~~capital~~consolidated ~~requirements~~financial ~~for~~statements have been presented on the ~~next~~basis ~~twelve~~that ~~months~~we will ~~not~~continue beas ~~able~~a togoing beconcern, ~~funded~~which contemplates the realization of assets and satisfaction of liabilities in ~~their~~the ~~entirety~~normal ~~from~~course ~~our~~of ~~operating~~business. Our cash ~~flows. As~~balance as of June 30, ~~2015,~~2016 wealong ~~had~~with aother ~~cash~~factors ~~balance~~including ofour ~~$351,081. We~~continuing ~~believe~~net itlosses ~~will~~and beworking ~~necessary~~capital todeficit raise ~~additional~~doubt ~~funds~~about toour ~~finance~~ability ~~our~~to ~~operations,~~continue ~~and~~as ~~intend~~a togoing doconcern. soThe ~~through~~accompanying ~~equity~~financial ~~financings,~~statements ~~debt~~do ~~financings,~~not orinclude ~~from~~any ~~other~~adjustments ~~sources. The~~to ~~extent~~reflect ofthe ~~our~~possible future ~~capital~~effects ~~requirements~~on ~~will~~the ~~depend~~recoverability onand ~~many~~classification ~~factors,~~of ~~including~~assets ~~results~~or ofthe ~~operations~~amounts and classification of liabilities that may result from the ~~growth~~possible ~~rate~~inability of ~~our~~the ~~business~~company to continue as a going concern.

~~Our~~We ~~consolidated~~continue ~~financial~~to ~~statements~~face ~~have~~liquidity ~~been~~and ~~presented~~capital onresources ~~the~~constraints. We ~~basis~~do ~~that~~not webelieve ~~will~~that ~~continue~~the asproceeds afrom ~~going~~our ~~concern,~~existing ~~which~~financing ~~contemplates~~facilities ~~the~~along ~~realization~~with ofour ~~assets~~operating ~~and~~cash ~~satisfaction~~flows ofwill ~~liabilities~~be insufficient ~~the~~to ~~normal~~meet ~~course~~our offinancing ~~business.~~needs ~~Our~~for ~~cash~~the ~~balance~~next astwelve ~~of June 30~~months, ~~2015~~and ~~along~~the ~~with~~extent ~~other~~of ~~factors including~~ our ~~loss~~future ~~from~~capital ~~operations~~requirements ~~raises~~will ~~doubt~~depend ~~about~~on ~~our~~many ~~ability~~factors, toincluding ~~continue~~results asof aoperations ~~going~~and ~~concern.~~the ~~The~~growth ~~accompanying~~rate ~~financial~~of ~~statements~~our dobusiness. Our ~~not~~near ~~include~~term ~~any~~objective ~~adjustments~~is to ~~reflect~~raise ~~the~~debt ~~possible~~or ~~future~~equity ~~effects~~capital on the ~~recoverability~~most ~~and~~favorable ~~classification~~terms ofavailable ~~assets~~to orus ~~the~~to ~~amounts~~refinance our existing indebtedness and ~~classification~~to offinance ~~liabilities~~our ~~that~~longer ~~may~~term ~~result~~growth. ~~from~~We ~~the~~are ~~possible~~also ~~inability~~continuing ofto ~~the~~pursue ~~company~~various means to ~~continue~~increase asrevenues, areduce ~~going~~operating ~~concern~~costs and improve cash flow.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. Please refer to Note 32 “~~BASIS OF PRESENTATION AND~~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for further discussion.

Recently Issued Accounting Pronouncements

In August ~~2014,~~2016 the FASB issued ~~Accounting Standards Update (~~ASU~~) No.~~ ~~2014~~2016-15, “Statement ~~Preparation~~ of ~~Financial~~Cash ~~Statements~~Flows ~~– Going Concern~~ (~~Subtopic~~Topic ~~205-40~~230),: ~~Disclosure~~Classification of ~~Uncertainties~~Certain ~~about~~Cash anReceipts ~~Entity’s Ability~~and toCash ~~Continue~~Payments” ~~as a Going Concern. Under generally accepted accounting principles~~ (~~GAAP),~~“ASU ~~continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent~~2016-15”). ~~Preparation~~ASU of2016-15 ~~financial~~will ~~statements~~make ~~under~~eight ~~this~~targeted ~~presumption~~changes ~~is commonly referred~~ to ashow ~~the~~cash ~~going~~receipts ~~concern~~and ~~basis~~cash ofpayments ~~accounting.~~are Ifpresented and ~~when~~classified anin ~~entity’s liquidation becomes imminent, financial statements should be prepared under~~ the ~~liquidation~~statement ~~basis~~ of ~~accounting~~cash inflows. ~~accordance~~ASU ~~with Subtopic 205~~2016-~~30,~~15 ~~Presentation~~is ofeffective ~~Financial~~for ~~Statements—Liquidation~~fiscal ~~Basis~~years ofbeginning ~~Accounting.~~after ~~Even~~December ~~when an entity’s liquidation is not imminent~~15, ~~there~~2017. ~~may~~The benew ~~conditions~~standard orwill ~~events~~require ~~that~~adoption ~~raise~~on ~~substantial doubt about the entity’s ability to continue as~~ a ~~going~~retrospective ~~concern.~~basis Inunless ~~those~~it ~~situations,~~is ~~financial~~impracticable ~~statements should continue~~ to ~~be prepared under the going concern basis of accounting~~apply, ~~but the amendments~~ in ~~the~~which ~~update~~case ~~should~~it would be ~~followed~~required to ~~determine~~apply ~~whether to disclose information about~~ the ~~relevant conditions and events. The~~ amendments inprospectively ~~this~~as ~~ASU~~of ~~are effective for~~ the ~~annual~~earliest ~~period~~date ~~ending after December 15, 2016, and for annual periods and interim periods thereafter~~practicable. ~~Early~~We ~~application~~are iscurrently ~~permitted.~~in ~~The Company will evaluate~~ the ~~going~~process ~~concern~~of ~~considerations~~evaluating ~~in this ASU, however, at~~ the ~~current~~impact ~~period,~~of ~~management~~adoption ~~does~~on ~~not~~our ~~believe that it has met conditions which would subject the company’s~~ consolidated financial statements ~~to additional disclosure~~.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. We are currently in the process of evaluating the impact of the adoption on our financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact of adopting this guidance.

In November 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred tax assets and liabilities on the balance sheet. Previous GAAP required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet. The amendment requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. We are currently evaluating the potential impact this standard will have on our financial statements and related disclosures.

In September 2015, the FASB issued ASU 2015-16, which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This ASU is effective for interim and annual reporting period beginning after December 15, 2016, including interim periods within those fiscal years, with the option to early adopt for financial statements that have not been issued. We are currently evaluating the potential impact this standard will have on our financial statements and related disclosures.

In July 2015, the FASB issued ASU 2015-11, which requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments apply to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU is effective for interim and annual reporting periods beginning after December 15, 2016, with the option to early adopt as of the beginning of an annual or interim period. We do not expect the adoption of this ASU to have a significant impact on our financial position, results of operations and cash flows.

In April 2015, the FASB issued ASU 2015-03, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. We do not expect the adoption of this ASU to have a significant impact on our financial position, results of operations and cash flows.

We have reviewed other recent accounting pronouncements issued prior to the date of issuance of our financial statements included in this report, and do not believe any of these pronouncements will have a material impact on our consolidated financial statements.

OnResult ~~April 7, 2015, the FASB issued ASU 2015-03 Interest – Imputations~~ of ~~Interest~~Operations ~~(Subtopic~~for ~~835-30):~~Year ~~Simplifying~~Ended ~~the~~June ~~Presentation of Debt Issuance Costs~~30, to2016 simplify presentation of debt issuance costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and ~~measurement~~June guidance for debt issuance costs are not affected by the amendments in this update. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 1530, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. We are evaluating the effect, if any, on its financial statements of the amendment.

Result of Operations for Year Ended June 30, 2015 and for the period from Inception (July 12, 2013) to June 30, 2014

The following table sets forth, for the periods indicated, consolidated statements of operations information:

	Year Ended June 30, 2015	From Inception (July 12, 2013) to June 30, 2014	Change (Dollars)		Change (Percentage)
	Year Ended June 30, 2016	Year Ended June 30, 2015	Change (Dollars)	Change (Percentage)
Revenue	$ 56,~~296~~497,~~342~~550	$ 15,~~202~~296,~~663~~342	$ 41,~~093~~201,~~679~~208	22.68	~~340.38~~
Cost of revenue	3,~~202~~551,~~067~~069	~~647~~3,~~287~~202,067	2349,~~554,780~~002	10.90	~~394.69~~
Gross Profit	2,~~094~~946,~~275~~481	~~555~~2,~~376~~094,275	1852,~~538,899~~206	40.69	~~277.09~~
General and administrative expenses	2,~~510~~715,~~360~~662	~~984~~2,~~776~~510,360	1205,~~525,584~~302	8.18	~~154.92~~
Net Loss from Operations	(416,085)	(429,400)	13,315		(3.10)
Net Profit (Loss) from Operations	230,819	(416,085)	646,904	155.47
Other income (expense)	(~~195~~864,~~512~~662)	12(195,~~873~~512)	(~~208~~669,~~385~~150)	(342.26).	~~(1618.78)~~
Net Loss	(~~613~~634,~~997~~643)	(~~423~~613,~~606~~997)	(~~190~~20,~~391~~646)	3.36	~~44.95~~

Revenues:

Revenues are comprised of gross sales less returns and discounts. In the year ended June 30, ~~2015~~2016, we generated revenues of $56,~~296~~497,~~342~~550 (net of returns and discounts of $~~133~~35,~~500~~917) and ~~from~~for the ~~period~~year ~~from~~ending ~~our inception on July 12, 2013 to~~ June 30, ~~2014~~2015, we generated revenues of $15,~~202~~296,~~663~~342 (net of returns and discounts of $23133,~~740~~500). The increase in revenues compared to the prior year period primarily results from growth of our wholesale distribution and direct distribution to retail store sales. We expect revenues derived from our wholesale distribution, direct distribution to retail stores and sales through our websites, which collectively account for approximately 9095% of our revenue, to increase as we increase our marketing initiatives. We ~~also~~anticipate that retail sales, which account for approximately 6.6% of our revenues, to remain flat or decline in subsequent periods. We expect our sales growth to be driven by sales of our ~~new~~ Limitless Mods, Limitless Atomizers and our Binary Premium e-Liquid line, which have been well received in the marketplace and collectively account for a majority of our sales. ~~We anticipate that retail sales will remain relatively flat in subsequent periods.~~

33In 2016, approximately 28% of our sales were to customers outside of the United States. We anticipate that our international sales will account for a greater portion of our revenues in fiscal year 2017 as we continue to increase our international marketing efforts, particularly in the United Kingdom and China.

Cost of Revenue:

Our cost of revenue primarily represents the cost of our outsourced manufacturing of our products and also the cost of purchasing products from third parties for resale. Generally, our cost of revenue is lower on products that we directly source and is higher when we purchase products for resale from third parties. Our cost of revenue for the year ended June 30, ~~2015~~2016 was $3,~~202~~551,~~067~~069 and for the ~~period~~year ~~from~~ending ~~our inception (July 12, 2013) to~~ June 30, ~~2014~~2015 was $~~647~~3,~~287~~202,067. The increase in cost of revenues during the year ended June 30, ~~2015~~2016 compared to the prior year ~~period~~ is primarily attributable to the period-over-period increase in our revenues. ~~In addition, for the year ended June 30, 2015, our directly sourced products comprised approximately 60% of our sales, which is approximately a 15% decrease from the previous fiscal year.~~

Gross Profit: Gross profit represents revenue less the cost of revenue. During the year ended June 30, ~~2015~~2016, our gross profit was $2,~~094~~946,~~275~~481 and for the ~~period~~year ~~from~~ended ~~our inception to~~ June 30, ~~2014~~2015 our gross profit was $~~555~~2,~~376~~094,275. The increase in gross profit during the year ended June 30, ~~2015~~2016 compared to the prior year ~~period~~ is primarily attributable to the period-over-period increase in our revenues. Our gross margin (which is gross profit as a percentage of revenue) for the year ended June 30, ~~2015~~2016 was 3945.53% compared to 4639.25 % for the prior year ~~period~~. The ~~decrease~~increase in our gross ~~profit~~margin during our year ended June 30, ~~2015~~2016 results primarily from ~~the~~our sale of a greater ~~percentage~~portion of ~~third~~higher ~~party~~margin products ~~in our fiscal year ended June 30, 2015 compared to the prior year period, as described in the previous paragraph~~. We expect our gross profit and profit margins to increase in subsequent periods as we sell more of our proprietary products, including, without limitation our Limitless Mods and Binary Premium e-Liquids and our newly launched Limitless Atomizer, which have higher margins than products we purchase for resale.

General and Administrative Expense: General and administrative expenses consist primarily of payroll and related costs, sales and marketing costs, infrastructure costs and costs associated with being a public reporting company. During the year ended June 30, 2015, we incurred general and administrative expenses of $2,510,360 and in the comparable prior year period ending June 30, 2014 we incurred general and administrative expenses of $984,776. The increase in general and administrative expense during the year ended June 30, 2015 compared to the prior year period is attributable to increased sales and marketing costs, the hiring of 10 additional employees and costs associated with being a public reporting company. Although our general and administrative expenses as a percentage of sales decreased to 47.4% for the year ended June 30, 2015 compared to 81.9% for the prior year period, we are continuing to evaluate our general and administrative expenses in an effort to reduce costs and improve our future profitability and cash flow. In October of 2015, we took steps to lower our general and administrative expenses by dismissing 4 full time and 2 part time employees.33

~~Other~~General ~~Income~~and Administrative Expense: General ~~Other~~and ~~Income~~administrative ~~(expense)~~expenses ~~for~~consist primarily of payroll and related costs, sales and marketing costs, infrastructure costs and costs associated with being a public reporting company. During the year ended June 30, ~~2015~~2016, ~~was~~we incurred general and administrative expenses of $~~195~~2,~~512~~715,662 and ~~primarily~~in ~~consists~~the ofcomparable ~~interest~~prior ~~expense~~year ending June 30, 2015 we incurred general and administrative expenses of $~~163~~2,~~016~~510,360. The ~~incurred~~increase in ~~connection~~general ~~with~~and ~~our~~administrative ~~credit~~expense ~~facilities~~during ~~and~~the anyear ~~increase~~ended inJune ~~derivative~~30, ~~liability~~2016 ofcompared ~~$19~~to the prior year period is attributable to increased sales and marketing costs,~~609~~ including costs associated with marketing our ~~credit~~brands ~~facility~~internationally, and costs associated with ~~Typenex~~being ~~Co-Investment,~~a ~~LLC~~public reporting company. ~~For~~ Although ~~the~~our ~~period~~general ~~from~~and ~~our~~administrative ~~inception~~expenses toincreased by 8.18% during the year ended June 30, ~~2014~~2016, weas ~~had~~a ~~other~~percentage ~~income~~ of ~~$12~~revenues,~~873~~ our general administrative expenses decreased from 47.4% to 41.6% in 2016 compared to the prior year period. We are continuing to evaluate our general and administrative expenses in an effort to reduce costs and improve our future profitability and cash flow.

~~Net~~Other ~~Loss~~Expense: ~~Net~~Other ~~loss~~Expense ~~was $613,997~~ for the year ended June 30, ~~2015~~2016 was $864,662 and primarily consists of interest expense of $~~423~~176,~~606~~560, ~~for~~finance ~~the~~fees ~~period~~of ~~from~~$103,695 incurred in connection with our ~~inception~~credit tofacilities, ~~June~~amortization 30of debt discount of $348,316 ~~2014. The~~and ~~increase~~loss on extinguishment of debt of $475,575 offset by a change in ~~net~~derivative ~~loss~~liability ~~from~~of ~~the~~$254,484 ~~prior~~associated ~~year~~with ~~period~~our ~~primarily~~credit ~~results~~facilities ~~from~~with ~~lower~~Typenex ~~gross~~Co-Investment, ~~margins~~LLC, ~~and~~Iliad ~~higher~~Research ~~general~~& Trading, L.P and ~~administrative~~TCA ~~expenses~~Global ~~and~~Credit ~~other~~Master ~~expenses~~Fund, LP. For the year ending June 30, 2015, we had Other Expense of $195,512 consisting primarily of interest expense of $163,016 and change in derivative liability of $19,609.

Net Loss: Net loss was $634,643 for the year ended June 30, 2016 and $613,997 for the year ending June 30, 2015, despite income from operations of $230,819 during the fiscal year ended June 30, 2016 as compared to a net loss from operations of $416,085 during the fiscal year ended June 30, 2015. The increase in net loss from the prior year period primarily results from increased general and administrative expenses and other expenses offset by increased revenue and gross profit.

Seasonality

Our operating results and operating cash flows ~~historically~~tend ~~have~~to ~~not~~be ~~been~~lower ~~subject~~in the three month period ending March 31, compared to ~~seasonal~~other ~~variations~~periods. Due to the post-holiday season, the industry as a whole tends to be slower in January and weFebruary, dowith ~~not~~a ~~anticipate~~moderate ~~this~~increase ~~changing~~in sales beginning in March.

Liquidity and Capital Resources

As of June 30, ~~2015~~2016, we had cash and cash equivalents of $~~351~~607,~~081~~960 and a working capital deficit of $~~539~~934,~~496~~884. On June 30, ~~2014~~2015, we had cash and cash equivalents of $~~307~~351,~~567~~081 and a working capital deficit of $~~520~~539,~~396~~496. ~~We depend on cash from financing activities to fund our operating and investing activities, and we expect this trend to continue as we continue to grow our operations.~~ A summary of our net working capital as of June 30, ~~2015~~2016 and ~~2014~~2015 and our cash flows for the year ended June 30, ~~2015~~2016 and ~~the period from our inception to~~ June 30, ~~2014~~2015 from our operating, investing and financing activities are summarized in the following tables:

Net Working Capital
		As of June 30, 2015	As of June 30, 2014
		As of June 30, 2016	As of June 30, 2015
Current Assets	$	~~794~~$ 1,~~377~~376,305	~~667~~794,~~973~~377
Current Liabilities		12,~~333~~311,~~873~~189	1,~~188~~333,~~369~~873
Net Working Capital (deficit)	$	$ (~~539~~934,~~496~~884)	(~~520~~539,~~396~~496)

Cash Flows
		Year Ended June 30, 2015		From Inception (July 12, 2013) to June 30, 2014
Net cash used in Operating Activities	$	(437,359)	$	(207,111)
Net cash used in Investing Activities		(39,890)		(130,684)
Net cash provided by Financing Activities		520,763		645,362
Increase (Decrease) in Cash during the Year		43,514		307,567
Cash, Beginning of Period		307,567		0
Cash, End of Year		351,081		307,567


Cash Flows	Year Ended	Year Ended
	June 30, 2016	June 30, 2015
Net cash provided (used) in Operating Activities	$ 138,176	$ (437,359)
Net cash used in Investing Activities	(5,734)	(39,890)
Net cash provided by Financing Activities	124,437	520,763
Increase (Decrease) in Cash during the Year	256,879	43,514
Cash, Beginning of Period	351,081	307,567
Cash, End of Year	607,960	351,081

Operating Activities

Net cash ~~used~~provided inby operating activities was $~~437~~138,~~359~~176 for the year ended June 30, ~~2015~~2016 compared to ~~$207,111~~net ~~for~~cash ~~the~~used ~~period~~by ~~from~~operating ~~our~~activities ~~inception~~of to$437,359 for the year June 30, ~~2014~~2015. For the year ended June 30, ~~2015~~2016, net operating cash ~~used~~provided inby operations primarily results from ~~our~~amortization ~~net~~of debt discount on convertible notes, amortization of debt discount on short term note, amortization of deferred finance costs, loss on extinguishment of old loans, ~~increases~~increased inaccounts ~~inventory~~payable and accrued expenses and a decrease in ~~deferred~~other ~~income~~prepaid expenses and other current assets offset by annet ~~increase~~loss from operations, change in ~~accounts~~derivative ~~payable~~liability and ~~accrued~~an ~~expenses~~increase in inventory. For the ~~period~~year ~~from~~ending ~~our inception to~~ June 30, ~~2014~~2015, net operating cash used in operations primarily results from our net loss, ~~costs~~increases ~~incurred~~in ~~to purchase~~ inventory and ~~prepaid~~a ~~expenses,~~decrease in deferred income offset by ~~increased~~an increase in accounts payable and ~~deferred~~accrued ~~income~~expenses.

Investing Activities

Net cash used in investing activities was $395,~~890~~734 for the year ended June 30, ~~2015~~2016 compared to $~~130~~39,~~684~~890 for the ~~period from our inception to June 30, 2014. For the~~ year ~~ended~~ending June 30, 2015, ~~net~~and ~~cash used in investing activities~~ consists of the purchase of equipment~~. For~~ ~~the period from our inception to June 30, 2014, net cash used~~ in ~~investing~~both ~~activities~~fiscal ~~consists of the purchase of equipment for approximately $118,522 and approximately $12,162 paid as a security deposit in relation to one of our leased properties~~years.

Financing Activities

Net cash provided by financing activities was $~~520~~124,~~763~~437 for the year ended June 30, ~~2015~~2016 and $~~645~~520,~~362~~763 for the ~~period~~year ~~from~~ending ~~our~~June ~~inception~~30, to2015. For the year ending June 30, ~~2014~~2016, net cash provided by financing activities includes proceeds from convertible promissory notes payable of $593,350 offset by payments on convertible notes payable of $531,359; proceeds from short term notes payable of $296,639 offset by payments for short term loans of $157,295; payments on financed insurance premiums of $73,750; payments on leased property loans and auto loans of $10,245, and net proceeds on affiliate loans of $7,097. For the year ended June 30, 2015, net cash provided by financing activities includes proceeds from convertible promissory notes payable of $272,008, proceeds from short term notes payable of $483,071, proceeds from affiliate loans of $80,543 offset by payments on affiliate loans of $85,608, payments on convertible notes payable of $70,313 and payments on short term notes payable of $152,291.

As of June 30, 2016, we had a balance of approximately $103,409 outstanding as related party loans from Kyle Winther, our CEO, Lori Winther, our CFO and Winther & Company (an entity owned by Lori Winther and her husband, Niels Winther, who is a director of the company). The outstanding balances are non-interest bearing and repayable upon demand.

For a description of our financing facilities, please see Notes 7 and 9.

For the period from our inception to June 30, 2014, net cash provided by financing activities includes proceeds of approximately $101,378 from affiliate loans and proceeds of $534,881 from the sale of convertible promissory notes.

As of June 30, 2015, we had a balance of approximately $96,312 outstanding as related party loans from Kyle Winther, our CEO, Lori Winther, our CFO and Winther & Company (an entity owned by Lori Winther and her husband, Niels Winther, who is a director of the company). The outstanding balances are non-interest bearing and repayable upon demand.

First Facility with Typenex Co-Investment, LLC

On November 4, 2014, we entered into a securities purchase agreement (the “Purchase Agreement”) with Typenex Co-Investment, LLC, a Utah limited liability company (the “Investor”), pursuant to which we concurrently issued to Investor a Secured Convertible Promissory Note in a principal amount of $1,687,500 (the “Company Note”). The principal amount includes an original issue discount of $80,000 plus an additional $7,500 to cover Investor's due diligence and legal fees in connection with the transaction. In consideration for the Company Note, Investor paid an aggregate purchase price of $1,600,000 (the “Purchase Price”), consisting of an initial cash purchase price of $200,000 and the issuance to us of ten promissory notes, the first two promissory notes in a principal amount of $100,000 and the remaining eight promissory notes in a principal amount of $150,000 (each an “Investor Note” and collectively, the “Investor Notes”). The Company Note and the Investor Notes each bear interest at the rate of 10% per annum and mature on April 4, 2019 and our obligations under the Company Note are secured by liens on the Investor Notes pursuant to the terms of a Security Agreement entered into by us in favor of the Investor. Subject to certain conditions, we may prepay the Company Note by making a payment equal to 125% of the then outstanding balance (including interest and other fees and amounts due). Each of the Investor Notes may be prepaid only upon the mutual agreement of the parties.

On January 16, 2015, upon the mutual agreement of the parties, Typenex paid to us the sum of $102,028 as a prepayment of all of its obligations owed to us under the first Investor Note in the original principal amount of $100,000 dated November 4, 2014, issued by Typenex in favor of the company.

Beginning on May 4, 2015, we are required to repay the outstanding balance on the Note in monthly installments of approximately $35,000 per month plus all unpaid interest and other costs, fees or charges under the Company Note. Payment may be made in cash or, subject to certain conditions, in shares of our common stock or any combination of cash and shares. If payments are made in shares, such installments or portions thereof are, subject to certain conditions, convertible into shares of our common stock at the lesser of (i) a conversion price of $0.10, subject to adjustment or (ii) a price that is equal to 70% of the average of the three lowest closing bid prices of our common stock in the twenty trading days immediately preceding such conversion, subject to a floor of $0.01. In addition, on the date that is twenty trading days from the date we deliver installment shares to Investor, there is a true-up where we are required to deliver additional shares if the installment conversion price as of the true-up date is less than the installment conversion price used to deliver the initial shares.

Beginning on May 4, 2015, all or any amount of a conversion eligible tranche (as described below) under the Company Note is convertible, at the option of the Investor, into shares of our common stock at a conversion price of $0.10 per share, subject to customary anti-dilution adjustments and other adjustments described in the Company Note (the “Conversion Price”). The Company Note is convertible into shares of our common stock by Investor in eleven tranches consisting of an initial tranche of $217,500 plus interest and other amounts due which may be converted into shares of our common stock at the Conversion Price at any time on or after May 4, 2015 and ten additional tranches (each a “Subsequent Tranche”), two of which are in the amount of $105,000 plus interest and other amounts due and eight of which are in the amount of $157,500 plus interest and other amounts due. Each Subsequent Tranche may not be converted into shares of our common stock unless the Investor has paid in full the Investor Note corresponding to such tranche, which payment requires our consent. On January 16, 2015, the Investor paid to the Company the sum of $102,028 as a prepayment of all of its obligations owed to the Company under the first Investor Note and consequently the first Subsequent Tranche of $105,000 plus interest and other amounts due may be converted into shares of the Company’s common stock at the Conversion Price at the option of the Investor at any time on or after May 4, 2015. Subject to certain conditions based on the trading volume and trading price of our common stock, we may also elect to convert the entire outstanding balance under the Company Note into shares of our common stock at the Conversion Price.

If we fail to repay the Company Note when due, or if we are otherwise in default under the Company Note, at the option of Investor a default interest rate of 22% per annum will apply on all conversion eligible portions of the Company Note while the default continues. In the event we are in default under the Company Note, the Investor also has the option to accelerate the note with the outstanding balance becoming immediately due and payable or increase the outstanding balance of the note by an amount of 5% or 15% depending on the particular default. In addition, if we fail to issue stock to the Investor within three trading days of receipt of a notice of conversion, we must pay a penalty equal to the greater of (i) $500 per day; or (ii) 2% of the product of (A) the number of shares to which Investor was entitled that were not issued on a timely basis; and (B) the closing sale price of the common stock on the trading day immediately preceding the last day for us to timely issue the shares.

The Company Note provides that the Investor maintains a right of offset that, under certain circumstances, permits the Investor to deduct amounts owed by us under the Company Note from amounts otherwise owed by Investor under the Investor Notes. In addition, we are permitted at any time to deduct and offset any amount owing by the Investor under the Investor Notes from any amount owed by us under the Company Note.

On June 30, 2015 pursuant to the terms of the Company Note, the Company elected to deduct and offset the principal amount of $1,300,000 and all accrued interest thereon owing by the Investor under the remaining nine Investor Notes from the amount owed by the Company under the Company Note, leaving an outstanding balance of approximately $252,000 under the Company Note as of June 30, 2015 and approximately $158,000 as of October 1, 2015.

The Company Note provides that Investor may not convert the Company Note in an amount which would cause Investor to own more than 4.99%, or if our market capitalization (as defined in the Company Note) is less than $10,000,000, more than 9.99%, of our outstanding common stock.

In connection with the first and second closings of the financing, we paid Pyrenees Investments $20,000 and $10,020, respectively, as a finder’s fee (equal to 10% of the gross proceeds).

The foregoing descriptions of the Purchase Agreement, the Company Note, the Investor Notes and the Security Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the documents, which are filed as exhibits to our Current Report on Form 8-K filed on November 10, 2014 with the Securities and Exchange Commission.

Second Facility with Typenex Co-Investment, LLC

On June 4, 2015, we entered into a Note Purchase Agreement (the “Purchase Agreement”) with Typenex Co-Investment, LLC, a Utah limited liability company, pursuant to which we concurrently issued to the investor an unsecured non-convertible Promissory Note in a principal amount of $245,000 (the “June Note”). The principal amount includes an original issue discount of $40,000 plus an additional $5,000 to cover the investor’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the transaction. In consideration for the June Note, the investor paid an aggregate cash purchase price of $200,000, computed as follows: $245,000 original principal balance, less the original issue discount of $40,000, and less the transaction costs. The June Note matures on December 4, 2015. We may prepay all or a portion of the amount owed earlier than it is due without penalty.

Interest does not accrue on the unpaid principal balance of the June Note unless an event of default occurs. Upon the occurrence of an event of default, the outstanding balance of the June Note will bear interest at the lesser of the rate of 18% per annum or the maximum rate permitted by applicable law. In addition, if an event of default occurs under the June Note, the investor may declare all unpaid principal, plus all accrued interest and other amounts due under the June Note to be immediately due and payable at an amount equal to 115% of the outstanding balance of the June Note as of the date of the applicable event of default, plus all interest, fees and charges that may accrue on such outstanding balance thereafter.

We paid MSC-BD, LLC $16,000 as a finder’s fee (equal to 8% of the net proceeds) in connection with financing from the investor.

Iliad Research and Trading Note

On August 12, 2015, we entered into a Note Purchase Agreement with Iliad Research and Trading, L.P., a Utah limited partnership (“Iliad”) and an affiliate of Typenex Co-Investment, LLC., pursuant to which we concurrently issued to Iliad a Promissory Note in a principal amount of $245,000 (the “August Note”). The principal amount includes an original issue discount of $40,000 plus an additional $5,000 to cover Iliad’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the transaction. In consideration for the August Note, Iliad paid an aggregate cash purchase price of $200,000, computed as follows: $245,000 original principal balance, less the original issue discount of $40,000, and less the transaction costs. The August Note matures on February 12, 2016. We may prepay all or a portion of the amount owed earlier than it is due without penalty and if we prepay $225,000 on or before November 9, 2015, the August Note will be deemed paid in full.

Interest does not accrue on the unpaid principal balance of the August Note unless an event of default occurs. Upon the occurrence of an event of default, the outstanding balance of the August Note will bear interest at the lesser of the rate of 18% per annum or the maximum rate permitted by applicable law. In addition, if an event of default occurs under the August Note, Iliad may declare all unpaid principal, plus all accrued interest and other amounts due under the August Note to be immediately due and payable at an amount equal to 115% of the outstanding balance of the August Note as of the date of the applicable event of default, plus all interest, fees and charges that may accrue on such outstanding balance thereafter.

Facilities with B of I Federal Bank

On January 2, 2015, we entered into a Business Loan and Security Agreement with B of I Federal Bank (the “Bank”). Pursuant to the agreement, we borrowed $200,000 USD from the Bank and received net proceeds of $195,000 USD after deducting an origination fee of $5,000 USD. The loan was payable in 147 payments of $1,728 due each business day beginning on and after January 5, 2015, with the initial total repayment amount (subject to certain exceptions) being equal to $254,000 USD.

On June 2, 2015, we entered into a new Business Loan and Security Agreement with BofI Federal Bank. Pursuant to the agreement, we borrowed $175,000 from the Bank and received net proceeds of $104,071 after deducting an origination fee of $1,875 and the repayment of $69,054 in full satisfaction of the Company’s remaining obligations under that certain Business Loan and Security Agreement entered into with the Bank on January 2, 2015. The new loan is payable in 126 payments of $1,708.33 due each business day beginning on June 3, 2015, with the total repayment amount (subject to certain exceptions) being equal to $215,249.58 (the “Total Repayment Amount”).

The new loan may be prepaid in whole by the Company at any time by paying the Bank an amount equal to the Total Repayment Amount (subject to certain fees) less (i) the amount of any loan payments made prior to such prepayment and (ii) the product of 0.25 and the aggregate amount of unpaid interest remaining on the loan as of the prepayment date.

The new loan is secured by all personal property of the Company and is also personally guaranteed by Lori Winther, our Chief Financial Officer and a director of the Company, Kyle Winther, our Chief Executive Officer and a director of the Company, and Gary Perlingos, our President and a director of the Company. If an event of default occurs under the agreement, all obligations owing by us to the Bank under the agreement will, at the Bank’s election, become immediately due and payable and the Bank may exercise its rights as a secured creditor.

The foregoing description of the Business Loan and Security Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the document, which is filed as Exhibit 10.1 to our Current Report on Form 8-K filed on June 8, 2015 with the Securities and Exchange Commission.

Conversion of Gotama Capital S.A. Debt into Common Stock

On June 30, 2015, we converted $614,340, representing the entire principal amount of each of the following promissory notes (collectively, the “Notes”) and all accrued interest thereon into an aggregate of 4,095,605 shares of our common stock, par value $0.001 per share (the “Conversion Shares”):

(i)

that certain convertible promissory note issued to Gotama Capital S.A. (“Gotama”) on March 14, 2014 in the principal amount of $185,000;

(ii)

that certain convertible promissory note issued to Gotama on April 10, 2014 in the principal amount of $200,000; and

(iii)

that certain convertible promissory note issued to Gotama on May 19, 2014 in the original principal amount of $175,000.

Pursuant to the terms of the Notes, at our election, the principal amount of each of the Notes and all accrued interest thereon was converted into Conversion Shares at a price of $0.15 per share.

Future Capital Requirements

Our capital requirements for the next twelve months will not be able to be funded in their entirety from our operating cash flows. We believe it will be necessary to raise additional funds to finance our operations, and intend to do so through equity financings, debt financings, or from other sources. The extent of our future capital requirements will depend on many factors, including results of operations and the growth rate of our business.

Although we intend to raise capital to finance our operations, there can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we may not be able to grow our operations as planned, may not be able to meet our other obligations as they become due and may ultimately be forced to restructure our operations.

If we are successfully able to raise capital, the issuance of additional equity securities by us could result in significant dilution in the equity interests of our current stockholders and if capital is raised through debt facilities, such facilities will increase our liabilities and future cash commitments, and may also impose restrictive covenants relating to the operation of our business.

We presently do not have any ~~finalized~~ arrangements for additional financing and will continue to evaluate various financing strategies to support our current operations and fund our future growth.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Contractual Obligations

As a “smaller reporting company”, we are not required to provide tabular disclosure obligations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company”, we are not required to provide the information required by this Item.

4036

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Financial Statements:	Page
Report of Independent Registered Public Accounting Firm	4238
Consolidated Balance Sheets at June 30, 2015 and 2014	43
Consolidated Balance Sheets at June 30, 2016 and 2015	40
Consolidated Statements of Operations for the Year Ended June 30, 2015 and the period from Inception (July 12, 2013) to June 30, 2014	44
Consolidated Statements of Operations for the Years Ended June 30, 2016 and 2015	41
Consolidated Statement of Stockholders’ Deficit for the Year Ended June 30, 2015 and the period from Inception (July 12, 2013) to June 30, 2014	45
Consolidated Statement of Stockholders’ Deficit for the Years Ended June 30, 2016 and 2015	42
Consolidated Statements of Cash Flows for the Year Ended June 30, 2015 and for the period from Inception (July 12, 2013) to June 30, 2014	46
Consolidated Statements of Cash Flows for the Years Ended June 30, 2016 and 2015	43
Notes to Consolidated Financial Statements	4744

4137

Hartley Moore Accountancy Corporation

19781 Sky Park Circle, Suite H

Irvine, CA 92614

Tel: (949) 438-4730

www.hmcpa.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of Vapor Hub International, Inc.

We have audited the accompanying consolidated balance sheet of Vapor Hub International, Inc. (the “Company”) as of June 30, 2016, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year ended June 30, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vapor Hub International, Inc. as of June 30, 2016, and the consolidated results of its operations and its cash flows for the year ended June 30, 2016, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has no revenues, a history of incurring net losses and net operating cash flow deficits and has limited cash. The Company may not have adequate readily available resources to fund operations through fiscal 2017. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ HALL & COMPANY

Irvine, California

October 13, 2016

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Vapor Hub International, Inc.

We have audited the accompanying consolidated balance sheets of Vapor Hub International, Inc. (the “Company”) as of June 30, 2015 ~~and 2014~~, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year ended June 30, 2015 ~~and the period from Inception (July 12, 2013) to June 30, 2014~~. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2015 ~~and 2014~~, and the results of its consolidated operations and its cash flows for the year ended June 30, 2015 ~~and the period from Inception (July 12, 2013) to June 30, 2014~~ in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 32 to the consolidated financial statements, the Company has incurred losses from operations. The Company requires additional funds to meet its working capital requirements. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 32. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Hartley Moore Accountancy Corporation ~~Irvine, California October 13, 2015~~

42Irvine, California

October 13, 2015

VAPOR HUB INTERNATIONAL INC. AND SUBSIDIARIES

~~Consolidated~~ Balance Sheets

	June 30, 2015	June 30, 2014
	June 30, 2016	June 30, 2015
Assets
Current assets
Cash	$ ~~351~~607,~~081~~960	$ ~~307~~351,~~567~~081
Account receivable	~~9,511~~880	-9,511
Inventory	~~323~~585,~~784~~489	~~196~~323,~~163~~784
Prepaid expenses and other current assets	6138,~~269~~254	~~152~~61,~~081~~269
Deferred finance costs	39133,~~258~~166	-39,258
Other current assets	910,~~474~~556	129,~~162~~474
Total current assets	~~794~~1,~~377~~376,305	~~667~~794,~~973~~377
Fixed assets, net	~~159~~134,~~546~~223	~~104~~159,~~731~~546
Long term assets	614,~~895~~341	-6,895
Total assets	$ ~~960~~1,~~818~~524,869	$ ~~772~~960,~~704~~818
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable and accrued expenses	$ ~~509~~828,~~618~~146	$ ~~213~~509,~~154~~618
Deferred income	8294,~~499~~754	~~307~~82,~~135~~499
Income taxes payable	-	6,702
Equipment leases payable	1,247	-
Convertible notes payable, net of unamortized debt discount	~~192~~448,~~091~~539	~~560~~192,~~000~~091
Notes payable, net of unamortized debt discount	~~384~~7,~~769~~211	-384,769
Loans from related parties	96103,~~312~~409	~~101~~96,~~378~~312
Derivative liabilities	68827,~~584~~883	-68,584
Total current liabilities	12,~~333~~311,~~873~~189	1,~~188~~333,~~369~~873
Long term liabilities
Equipment leases payable	~~5,440~~-	95,~~212~~440
Notes Payable	2923,~~189~~137	-29,189
Long term liabilities	3423,~~629~~137	934,~~212~~629
Total liabilities	12,~~368~~334,~~502~~326	1,~~197~~368,~~581~~502
Commitments and contingencies	-	-
Stockholders' deficit
Preferred stock, $0.001 par value, 10,000,000 authorized, 0 issued and outstanding as of June 30, 2015 and June 30, 2014	-	-
Preferred stock, $0.001 par value, 10,000,000 authorized, 0 issued and outstanding as of June 30, 2016 and 2015	-	-
Common stock, $0.001 par value, 1,010,000,000 and 140,000,000 shares authorized, 72,455,606 and 68,060,001 issued and outstanding as of June 30, 2015 and June 30, 2014, respectively (Note 4)	72,456	68,060
Common stock, $0.001 par value, 1,010,000,000 and 140,000,000 shares authorized, 86,860,375 and 72,455,606 issued and outstanding as of June 30, 2016 and 2015, respectively	86,860	72,456
Additional paid-in capital (1)	557,463	(69,331)
Additional paid-in capital	775,929	557,463
Accumulated deficit	(1,~~037~~672,~~603~~246)	(~~423~~1,~~606~~037,603)
Total stockholders' deficit	(~~407~~809,~~684~~457)	(~~424~~407,~~877~~684)
Total liabilities and stockholders' deficit	$ ~~960~~1,~~818~~524,869	$ ~~772~~960,~~704~~818

~~(1)~~The accompanying notes are an integral part of these financial statements

The capital accounts of the Company have been retroactively restated to reflect the equivalent number of common shares based on the exchange ratio of the exchange transaction as further discussed in Note 2.40

The accompanying notes are an integral part of these consolidated financial statements

VAPOR HUB INTERNATIONAL INC. AND SUBSIDIARIES

~~Consolidated~~ Statements of Operations

	Year Ended June 30, 2015	From Inception (July 12, 2013) to June 30, 2014
	Year Ended June 30, 2016	Year Ended June 30, 2015
Revenue	$ 56,~~296~~497,~~342~~550	$ 15,~~202~~296,~~663~~342
Cost of revenue	3,~~202~~551,~~067~~069	~~647~~3,~~287~~202,067
Gross profit	2,~~094~~946,~~275~~481	~~555~~2,~~376~~094,275
General and administrative expenses	2,510,360	984,776
Wages and Payroll Taxes	1,392,805	1,207,369
Net loss from operations	(416,085)	(429,400)
Other general and administrative expenses	1,322,857	1,302,991
General and administrative expenses	2,715,662	2,510,360
Net income (loss) from operations	230,819	(416,085)
Other income (expense)
Other income	-	23,839
Investor Settlement	(15,000)	-
Interest expense	(~~163~~176,~~016~~560)	(10163,~~966~~016)
Finance fees	(6103,~~762~~695)	-(6,762)
Interest expense- debt discount	(6348,~~125~~316)	-(6,125)
Change in derivative liability	(19,609)	-
Loss on extinguishment of debt	(475,575)	-
Other income (expense)	(195,512)	12,873
Change in derivative liability	254,484	(19,609)
Loss before taxes	(611,597)	(416,527)
Other income (expense)	(864,662)	(195,512)
Income tax provision	2,400	7,079
Loss before taxes	(633,843)	(611,597)
Net loss	$ (613,997)	$ (423,606)
Income tax provision	800	2,400
Net loss	$ (634,643)	$ (613,997)
Net loss per share:
Basic	$ (0.01)	$ (0.01)
Basic and diluted	$ (0.01)	$ (0.01)
Diluted	$ (0.01)	$ (0.01)
Weighted average shares outstanding:
Basic (1)	68,164,099	68,060,001
Basic and diluted	76,419,180	68,164,099
Diluted (1)	68,164,099	68,060,001

~~(1)~~The ~~capital~~accompanying ~~accounts~~notes ofare ~~the~~an ~~Company~~integral ~~have~~part ~~been retroactively restated to reflect the equivalent number~~ of ~~common~~these ~~shares~~financial ~~based on the exchange ratio of the exchange transaction in determining the basic and diluted weighted average shares.~~ statements

~~The accompanying notes are an integral part of these consolidated financial statements~~41

VAPOR HUB INTERNATIONAL INC. AND SUBSIDIARIES

~~Consolidated~~ Statement of Changes in Stockholders’ Deficit

~~From~~For ~~Inception~~the ~~(July~~year ~~12,~~ending ~~2013) to~~ June 30, 2016 and 2015

				Additional		Total
		Common Stock		Paid-In	Accumulated	Stockholders’
		Shares	Amount	Capital	Deficit	Deficit
Balance, July 12, 2013 (Inception) (1)		38,000,001	$ 38,000	$ (38,000)	$ -	$ -
Balance, July 1, 2014		68,060,001	$ 68,060	$ (69,331)	$ (423,606)	$ (427,877)
	Recapitalization adjustment	80,988,984	80,989	(82,260)	-	(1,271)
	Stock issued for services	300,000	300	5,700	-	6,000
	Cancelation of DogInn shares	(50,928,984)	(50,929)	50,929	-	-
	Stock options granted	-	-	10,850	-	10,850
	Net loss	-	-	-	(423,606)	(423,606)
	Gotama note conversion	4,095,605	4,096	610,244	-	614,340
Balance, June 30, 2014		68,060,001	68,060	(69,331)	(423,606)	(424,877)
	Net loss	-	-	-	(613,997)	(613,997)
Stock issued for services		300,000	300	5,700	-	6,000
Balance, June 30, 2015		72,455,606	72,456	557,463	(1,037,603)	(407,684)
Stock options granted		-	-	10,850	-	10,850
Stock issued for advisory fee		3,810,000	3,810	99,060	-	102,870
Gotama note conversion		4,095,605	4,096	610,244	-	614,340
Stock issued for Conversion of Debt		10,594,769	10,594	119,406	-	130,000
Net loss		-	-	-	(~~613~~634,~~997~~643)	(~~613~~634,~~997~~643)
Balance, June 30, 2015		7286,~~455~~860,~~606~~375	$ 7286,~~456~~860	$ ~~557~~775,~~463~~929	$ (1,~~037~~672,~~603~~246)	$ (~~407~~809,~~684~~457)

~~(1)~~The accompanying notes are an integral part of these financial statements

The accompanying notes are an integral part of these consolidated financial statements

VAPOR HUB INTERNATIONAL INC. AND SUBSIDIARIES

~~Consolidated~~ Statements of Cash Flows

	Year Ended June 30, 2015	From Inception (July 12, 2013) to June 30, 2014
	Year Ended June 30, 2016	Year Ended June 30, 2015
Operating Activities
Net loss	$ (~~613~~634,~~997~~643)	$ (~~423~~613,~~606~~997)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	2231,~~051~~057	722,~~443~~051
Amortization of debt discount on convertible note	3,226	-
Amortization of debt discount on convertible notes	348,316	3,226
Amortization of debt discount on short term note	~~5,902~~-	-5,902
Amortization of deferred finance costs	683,~~762~~380	-6,762
Amortization of derivative debt discount	~~6,125~~-	-6,125
Change in derivative liability	19,609	-
Loss on extinguishment of old loans	475,575	-
Non cash finance fees	11,875	-
Change in derivative liability	(254,484)	19,609
Non cash cost of revenue	-	48,786
Non cash finance fees	-	11,875
Non cash interest for conversion of notes payable	~~54,341~~-	-54,341
Share based compensation for services- common stock	~~6,000~~-	-6,000
Share based compensation - options	~~10,850~~-	-10,850
Changes in operating assets and liabilities:
Accounts receivable	(98,~~511)~~631	-(9,511)
Inventory	(~~127~~261,~~621~~705)	(~~196~~127,~~163~~621)
Prepaid expenses and other current assets	9654,~~638~~811	~~(152~~96,~~081)~~638
Security deposit	5(7,~~267~~446)	-5,267
Deferred income	~~(224~~12,~~636)~~255	~~307~~(224,~~135~~636)
Accounts payable and accrued expenses	~~289~~282,~~760~~430	~~201~~289,~~375~~760
Net cash used in operating activities	~~(437~~138,~~359)~~176	(~~207~~437,~~111~~359)
Investing Activities
Leasehold security deposit	-	(12,162)
Purchase of property and equipment	(5,734)	(39,890)
Purchase of property and equipment	(39,890)	(118,522)
Net cash used in investing activities	(5,734)	(39,890)
Net cash used in investing activities	(39,890)	(130,684)
Financing Activities
Payment on leased property loans	(34,~~772~~193)	-(3,772)
Proceeds from related party loans	80,543	101,378
Payments on financed insurance premiums	(73,750)
Payments on related party loans	(85,608)	-
Proceeds from related party loans	75,000	80,543
Net proceeds from convertible notes payable	272,008	534,881
Payments on related party loans	(67,903)	(85,608)
Payments on convertible notes payable	(70,313)	-
Net proceeds from convertible notes payable	593,350	272,008
Net proceeds from short term notes payable	483,071	-
Payments on convertible notes payable	(531,359)	(70,313)
Payments on short term notes payable	(152,291)	-
Net proceeds from short term notes payable	296,639	483,071
Payments on auto loan payable	(2,875)	-
Payments on short term notes payable	(157,295)	(152,291)
Stock issued upon reverse acquisition	-	9,103
Payments on auto loan payable	(6,052)	(2,875)
Net cash provided by financing activities	~~520~~124,~~763~~437	~~645~~520,~~362~~763
Net change in cash	43256,~~514~~879	~~307~~43,~~567~~514
Cash at beginning of period	~~307~~351,~~567~~081	-307,567
Cash at end of period	$ ~~351~~607,~~081~~960	$ ~~307~~351,~~567~~081
Supplemental disclosure of cash flow information:
Cash paid for:
Interest	$ ~~106~~161,~~738~~274	$ 1106,~~948~~738
Income taxes	$ ~~2,400~~800	$ -2,400
Non-cash transactions:
Insurance premium financing	$ 1332,~~001~~878	$ -13,001
Non cash assumption of vehicle note payable ($36,976 vehicle cost and $2,299 prepaid warranty)	$ ~~39,275~~-	$ -39,275
Common stock issued for convertible notes payable	$ ~~614~~130,~~340~~000	$ -614,340
Non cash repayment and borrowings of short term note payable	$ ~~69,054~~-	$ -69,054
Original issue discount on notes payable	$ 60,000	$ -
Non-cash additions to note payable	$ 831,256	$ -
Fixed assets under capital leases	$ -	$ 9,212
Debt extinguishment	$ 715,289	$ -
Inventories contributed by related party	$ -	$ 48,786
Original issue discount on notes payable	$ -	$ 60,000
Derivative liability	$ 48,975	$ -
Additional debt discount	$ 83,089	$ -
Advisory fee paid in common stock	$ 102,870	$ -
Derivative liability	$ 706,911	$ 48,975

The accompanying notes are an integral part of these ~~consolidated~~ financial statements

4643

VAPOR HUB INTERNATIONAL INC. AND SUBSIDIARIES

Notes to ~~Consolidated~~ Financial Statements

NOTE 1- INCORPORATION, NATURE OF OPERATIONS AND ACQUISITION

Vapor Hub International Inc. (formerly DogInn, Inc.) (hereinafter known as “the Company”) was incorporated in the State of Nevada on July 15, 2010. On February 14, 2014, the Company entered into a Share Exchange Agreement with Vapor Hub Inc., a California corporation (“Vapor”), Delite Products, Inc., a California corporation (“Delite”) and the shareholders of both companies (the “Exchange Agreement”). As ~~Pursuant~~a toresult ~~the terms~~ of ~~Exchange Agreement,~~ the ~~Company~~closing ~~agreed to acquire all 30,000~~ of the ~~issued~~transactions ~~and~~contemplated ~~outstanding~~by ~~shares~~the ofExchange ~~Vapor’s common stock~~Agreement, asVapor ~~well as all 30,000 of the issued~~ and ~~outstanding shares of~~ Delite’s ~~common~~became ~~stock in exchange for~~ the ~~issuance by the~~ Company’s ofwholly ~~38,000,001~~owned ~~shares~~subsidiaries of(which ~~common~~subsidiaries ~~stock~~were tosubsequently ~~the~~merged ~~shareholders~~into ~~of both companies. On March 14, 2014,~~ the Company ~~completed~~on ~~the~~May ~~acquisition of Vapor and issued all of the 38~~18,~~000,001~~ ~~shares of its stock to the shareholders of Vapor~~2015, ~~who~~ending ~~are also~~ the ~~shareholders~~separate ofexistences ~~Delite. On March 26, 2014, the Company completed the acquisition~~ of ~~Delite. As a result of the closing of the transactions contemplated by the Exchange Agreement,~~ Vapor and Delite.) ~~became the Company’s wholly owned subsidiaries~~ and the Company now carries on the business of developing, producing, marketing and selling the next generation of electronic cigarettes, known as vaping devices, and related accessories, including e-liquids, batteries and atomizers. The transaction with Vapor was accounted for as a reverse acquisition (recapitalization) whereby Vapor was deemed to be the accounting acquirer (see Note 2), and the Company the legal acquirer. Prior to the Company’s acquisition of Vapor, the Company existed as a “shell company” with nominal assets whose sole business was to identify, evaluate and investigate various companies to acquire or with which to merge. The transaction with Delite was accounted for as a business acquisition and the Company assumed the assets and liabilities of Delite as of March 26, 2014 and the activity of Delite was included from that date forward.

Upon the Company’s acquisition of Vapor, Robin Looban resigned as the Company’s sole director, president, secretary, treasurer, Chief Financial Officer and Chairman of the Board of Directors and management members from Vapor were appointed to serve as directors and officers of the Company. As a condition of the closing of the acquisition of Vapor, the Company cancelled 50,928,984 outstanding common shares and retired them in treasury.

Business Overview

Product Description

Vaping devices (as well as electronic cigarettes, also known as e-cigarettes) are battery-powered products that allow users to inhale water vapor instead of the smoke, ash, tar and carbon monoxide associated with traditional cigarettes. In contrast to e-cigarettes, vaping devices are often precision manufactured from metallic materials and do not look like traditional cigarettes. Vaping devices, as compared to e-cigarettes, also offer a unique user experience as a result of greater vapor production, enriched taste, and an ability to highly customize a device with different mechanical components and fashionable accessories, including different colors and finishes.

Sourcing

The Company uses third party contract manufacturers to produce and finish its ~~vaping~~mods ~~devices~~(“Mods”), including its Limitless Mechanical Mod, from facilities ~~primarily~~ located in both Southern California. and China. The Company’s ~~vaping devices (or~~ Mods), which are made from a metallic material such as steel, brass or copper, are custom machined to meet the Company’s design specifications. Once machined, unfinished products are delivered to the Company’s location in Simi Valley or to a third party service provider to be buffed, polished and to add various treatments and embellishments, such as paint and ~~dog tags~~engravings. Finished products are then held in inventory for distribution and sale. In the Company’s fiscal year ended June 30, 2015, the Company relied on one manufacturer to machine all of its Mods and in the fiscal year ended June 30, 2016, the Company relied on two. Although the Company has relied on ~~one~~a ~~manufacturer~~limited number of manufacturers to machine its Mods ~~during the Company’s last fiscal year~~, the Company believes manufacturing capacity is ~~readily~~ available to meet its current and planned needs. The Company does not currently have any long term agreements in place for the manufacture of its Mods.

47With respect to the Company’s custom designed atomizers which it markets and distributes globally, in the Company’s fiscal year ended June 30, 2016, the Company sourced these products from one manufacturer located in the United States. In the Company’s fiscal year ended June 30, 2015, the Company sourced its atomizers from two manufacturers located in the United States. The Company believes that suppliers for its atomizers are available to meet its current and planned needs.

~~With~~The ~~respect~~Company tosources ~~the~~its ~~Company’s~~proprietary ~~vaping~~E-liquids ~~accessories,~~(such ~~the~~as ~~Company~~our ~~purchases~~Binary ~~batteries~~Premium E-Liquid) from ~~suppliers~~an inISO ~~China~~Class ~~and~~7 ~~atomizers~~certified ~~from~~manufacturer ~~suppliers~~ in the ~~United States~~USA, ~~Austria,~~which ~~the~~helps ~~Philippines~~ensure their purity and ~~China~~quality. In ~~The~~addition ~~Company~~to ~~believes~~sourcing ~~that~~its ~~suppliers~~own ~~for~~e-liquids, ~~accessories~~the ~~are~~Company ~~readily~~also ~~available~~purchases toe-liquid ~~meet~~from ~~the~~other ~~Company’s~~reputable ~~current~~American ~~and~~suppliers ~~planned~~for ~~needs~~resale through its distribution channels.

The Company sources its proprietary E-liquids from an ISO Class 7 certified manufacturer in the USA, which helps ensure their purity and quality. In addition to sourcing its own e-liquids, the Company also purchases e-liquid from other reputable American suppliers for resale through its distribution channels. 44

~~Distribution~~Product ~~to Retail Stores~~Distribution

The Company markets and sells its vaping devices and related products to end customers through its websites www.vapor-hub.com and www.smokelessdelite.com, to retail stores through direct sales primarily in the United States but also internationally, and through third party wholesalers who then resell the Company’s products to retailers in their territory. Retailers of the Company’s products include vaping shops throughout the United States as well as convenience stores and several gas stations. Products distributed by the Company include vaping devices and related accessories purchased from third parties for resale as well as ~~the~~its ~~Company’s~~own vaping devices and related accessories, which ~~the~~it ~~Company~~ designs and sources, including ~~the~~its ~~Company’s~~ popular “ARLimitless Mechanical Mods”, ~~newly~~“Limitless ~~released~~Box Mod” and ~~popular~~ “Limitless ~~Mechanical Mods~~Atomizer”, as well as “Binary Premium e-Liquid”. ~~Prior to its acquisition by the Company on March 26, 2014, the Company’s distribution business was operated by Delite.~~

The Company markets and sells its vaping devices and related products to end customers through its website www.vapor-hub.com, to retail stores through direct sales both in the United States and internationally, and through third party wholesalers both in the United States and internationally who then resell the Company’s products to retailers in their territory. Retailers of the Company’s products include vaping shops throughout the United States and in approximately 23 other countries. The Company also distributes its products on a limited basis through convenience stores and gas stations. In 2016 and 2015, approximately 28% and 6%, respectively, of the Company’s sales were to customers outside of the United States. All such sales are denominated in United States Dollars, therefore, there are no foreign currency risks associated with international sales by the Company. All assets and liabilities are generated and located in the United States.

With respect to vaping devices and related products that the Company sells through third party wholesalers, the Company typically sells its products to these wholesalers for their re-sale on a non-exclusive basis and the Company also typically does not have long term contractual arrangements with any of its wholesalers.

Operation of Retail Stores

The Company ~~also~~ sells its products and those of third parties to end consumers directly through its ~~two~~ retail ~~locations~~location located in ~~Southern California. The Company’s first retail location in~~ Simi Valley, ~~CA was 725 square feet and was the first vapor lounge in Simi Valley~~California. Through ~~On April 1, 2015, the Company moved~~ its ~~Simi Valley~~ retail location ~~to a larger 1~~,~~500~~ ~~square foot facility. The Company’s second location is located in Chatsworth, CA and measures 1,200 square feet. Through its retail locations,~~ the Company sells and markets vaping devices as well as e-liquid, accessories, and supplies relating to vaping devices to both novice users as well as consumers who demand high end technical devices. October 15, 2015, the Company closed a second retail location that it previously operated in Chatsworth, California and the Company has no plans to open additional stores.

The Company opened its retail locations in order to create brand recognition for its products and also to enable the Company to gather information about user preferences in the rapidly evolving vaping industry. In By2016 ~~learning~~and ~~about user preferences~~2015, the Company’s ~~believes~~retail itsales isaccounted ~~better~~for ~~able~~approximately to6.6% ~~design~~ and ~~source~~10% ~~products~~of toits ~~meet market demand. Currently~~revenue, ~~the Company does not have any plans to open additional stores~~respectively.

NOTE 2 – ~~REVERSE~~SUMMARY ~~ACQUISITION~~OF SIGNIFICANT ACCOUNTING POLICIES

Since former Vapor security holders owned, after the acquisition, the majority of the Company’s shares of common stock, and as a result of certain other factors, including that all members of the Company’s executive management are from Vapor, Vapor is deemed to be the acquiring company for accounting purposes and the acquisition of Vapor was accounted for as a reverse acquisition and a recapitalization in accordance with generally accepted accounting principles in the United States (“US GAAP”). These audited consolidated financial statements reflect the historical results of Vapor prior to the exchange transaction and that of the combined company following the exchange transaction, and do not include the historical financial results of Vapor Hub International prior to the completion of the exchange transaction. Common stock and the corresponding capital amounts of the Company pre-exchange transaction have been retroactively restated as capital stock shares reflecting the exchange ratio in the exchange transaction.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of the consolidated financial statements.

48Basis of Presentation

~~Basis~~The financial statements, and the accompanying notes, are prepared in accordance with US GAAP and pursuant to the instructions to Form 10-K of ~~Presentation~~the –Securities ~~Consolidation~~and Exchange Commission. The Company’s fiscal year end is June 30.

The ~~accompanying consolidated financial statements include the accounts of the~~ Company ~~and~~operates ~~subsidiary. Intercompany accounts and transactions have been eliminated. The consolidated financial statements of the Company and the accompanying notes included~~ in ~~this~~one ~~Annual Report on Form 10-K are audited. In the opinion of management~~segment, ~~all~~in ~~adjustments~~accordance ~~necessary~~with ~~for~~accounting aguidance ~~fair~~Financial ~~presentation~~Accounting ofStandards ~~the~~Board ~~consolidated~~(“FASB”) ~~financial~~ASC ~~statements~~Topic ~~have been included. Such adjustments are of a normal~~280, ~~recurring~~Segment ~~nature~~Reporting. The ~~consolidated~~Company’s ~~financial~~Chief ~~statements,~~Executive ~~and~~Officer ~~the~~has ~~accompanying~~been ~~notes,~~identified ~~are~~as ~~prepared in accordance with US GAAP and pursuant to~~ the ~~instructions~~chief tooperating ~~Form~~decision ~~10-K~~maker ofas ~~the~~defined ~~Securities~~by ~~and~~FASB ~~Exchange~~ASC ~~Commission. The~~Topic ~~Company’s fiscal year end is June 30~~280.

The Company operates in one segment in accordance with accounting guidance Financial Accounting Standards Board (“FASB”) ASC Topic 280, Segment Reporting. The Company’s Chief Executive Officer has been identified as the chief operating decision maker as defined by FASB ASC Topic 280.45

Fiscal Year End

Following the exchange transaction, the Company elected to adopt the June 30 year end of Vapor, the accounting acquirer. As such, the Company has presented activity since the inception of Vapor (July 12, 2013) and has presented the activity of Delite since its acquisition on March 26, 2014.

Going Concern

The Company’s consolidated financial statements have been presented on the basis that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company’s cash balance as of June 30, ~~2015~~2016 along with its continued ~~loss~~net ~~from~~losses ~~operations~~ and ~~negative~~working ~~cash~~capital ~~flow~~deficit ~~from~~along ~~operations,~~with other factors raise substantial doubt about its ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

The Company continues to face liquidity and capital resources constraints ~~and~~despite generating $138,176 in cash from operations in the fiscal year ended June 30, 2016. The Company does not believe that the proceeds from its debt facilities (see Note 107 and Note 9) along with its operating cash flows will be sufficient to meet its financing needs for the next twelve months. The extent of the Company’s future capital requirements will depend on many factors, including the Company’s results from operations and the growth rate of the Company’s business. The Company’s near term objective is to raise debt or equity capital to fund its immediate cash needs and to finance its longer term growth on terms that are more favorable than the company’s existing credit facilities. The Company is also pursuing various means to increase revenues, reduce operating costs and to improve overall cash flow.

The Company presently does not have any arrangements for additional financing. However, the Company continues to evaluate various financing strategies to support its current operations and fund its future growth.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates significant estimates and assumptions related to its accounts receivable allowance, accounts payable, deferred income tax asset valuation allowances, fair value of derivative liability, fair value of stock and stock options, useful life of fixed assets, recoverability of long lived assets, inventory reserves, estimates of sales return and accrual for potential liabilities. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. At June 30, ~~2015~~2016, the Company had no cash equivalents.

Concentration of Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash. The Company places its cash with high quality banking institutions. The Company had $295,799 in excess of FDIC insured limits.

The Company relied on two and one manufacturer(s) to make all of the Company’s Mods during the ~~year~~years ended June 30, 2016 and 2015, respectively.

~~Stock-Based Compensation~~46

The Company accounts for employee and non-employee stock awards under ASC 718, Compensation – Stock Compensation, whereby equity instruments issued to employees for services are recorded based on the fair value of the instrument issued and those issued to nonemployees are recorded based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable.

Financial Instruments and Fair Value Measurement

Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1- applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2- applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3- applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments consist principally of cash, accounts payable and accrued liabilities, and amounts due to related parties, and derivative liabilities and convertible notes payable. Pursuant to ASC 820, the fair value of the Company’s cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. Pursuant to ASC 820, the fair value of the Company’s derivative liability is determined based on “Level 3” inputs, which consist of unobservable inputs. The Company believes that the recorded values of all of its other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

Revenue Recognition

The Company recognizes revenues when delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable.

For retail transactions, revenue is recognized at the point of sale. For wholesale and online transactions, revenue is recognized at the time goods are shipped.

Shipping and Handling

Payments by customers to the Company for shipping and handling costs are included in revenue on the statements of operations, while the Company’s expense is included in cost of goods sold. Shipping and handling for inventory is included as a component of inventory on the balance sheets, and in cost of revenues in the statements of operations when the product is sold.

Deferred Income

The Company accrues deferred income when customer payments are received, but product has not yet shipped. As of June 30, ~~2014~~2016 and 2015, the Company had recorded $~~307~~94,~~135~~754 and $82,499, respectively for deferred income as a result of prepayments for product made by customers. Those prepayments are recognized into revenue at the point those prepaid products have subsequently shipped. The Company recognized the $~~307~~82,~~135~~499 into revenue during the year ended June 30, ~~2015~~2016. The Company expects to recognize the $8294,~~499~~754 into revenue during the following fiscal year.

Inventories

Inventories consist primarily of vaping devices, electronic cigarettes, e-liquid and related supplies and accessories and are stated at the lower of cost (first-in, first-out) or market value.

Property and Equipment

Property and equipment consists of computer equipment, furniture, facility equipment, and leasehold improvements which are carried at historical cost and are depreciated over the estimated useful lives of the related assets. Estimated useful lives are from 3 to 10 years. ~~Much of the Company’s property and equipment was contributed by shareholders of the Company.~~ Expenditures for maintenance and repairs are charged against operations. The modified accelerated cost recovery system (straight line) is used for federal income tax purposes and also for financial reporting as the difference between the two does not appear to be material.

Impairment of Long-lived Assets and Goodwill

The Company evaluates goodwill for impairment annually in the fourth quarter, and whenever events or changes in circumstances indicate it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying amount. The goodwill impairment test consists of a two-step process, if necessary. The first step is to compare the fair value of a reporting unit to its carrying value, including goodwill. The Company typically uses discounted cash flow models to determine the fair value of a reporting unit. The assumptions used in these models are consistent with those the Company believes hypothetical marketplace participants would use. If the fair value of the reporting unit is less than its carrying value, the second step of the impairment test must be performed in order to determine the amount of impairment loss, if any. The second step compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds its implied fair value, an impairment charge is recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill.

The Company periodically evaluates whether the carrying value of property, equipment and intangible assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s carrying value over its fair value.

The Company’s impairment analyses require management to apply judgment in estimating future cash flows as well as asset fair values, including forecasting useful lives of the assets, assessing the probability of different outcomes, and selecting the discount rate that reflects the risk inherent in future cash flows. If the carrying value is not recoverable, the Company assess the fair value of long-lived assets using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third party comparable sales and discounted cash flow models. If actual results are not consistent with the Company’s assumptions and estimates, or the Company’s assumptions and estimates change due to new information, the Company may be exposed to an impairment charge in the future.

Advertising Expense

Advertising costs are expensed as incurred. Advertising expense for the ~~period~~year ~~from~~ended ~~inception (July 12, 2013) to~~ June 30, ~~2014~~2016 and ~~the year ended June 30,~~ 2015 ~~was~~were $59106,~~822~~734 and $140,771, respectively and are included in general and administrative expenses.

Debt

The Company issues debt that may have separate warrants, conversion features, or no equity-linked attributes.

Convertible debt – derivative treatment – When the Company issues debt with a conversion feature, the Company must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in stockholders’ equity in its statement of financial position.

If the conversion feature within convertible debt meets the requirements to be treated as a derivative, the Company estimates the fair value of the convertible debt derivative using Black-Scholes upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The convertible debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statement of operations. The debt discount is amortized through interest expense over the life of the debt.

Convertible debt – beneficial conversion feature – If the conversion feature is not treated as a derivative, the Company assess whether it is a beneficial conversion feature (“BCF’). A BCF exists if the conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible, and is recorded as additional paid in capital and as a debt discount in the balance sheet. The Company amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statement of operations. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the statement of operations.

If the conversion feature does not qualify for either the derivative treatment or as a BCF, the convertible debt is treated as traditional debt.

Accounting for Derivatives Liabilities

The Company evaluates contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity . The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date. See Note 108 for disclosure of derivatives and their valuation related to various convertible debt agreements.

Modification of Debt Instruments

Modifications or exchanges of debt, which are not considered a troubled debt restructuring, are considered extinguishments if the terms of the new debt and the original instrument are substantially different. The instruments are considered substantially different when the present value of the cash flows under the terms of the new debt instrument are at least 10% different from the present value of the remaining cash flows under the terms of the original instrument. The fair value of non-cash consideration associated with the new debt instrument, such as warrants, are included as a day one cash flow in the 10% cash flow test. If the original and new debt instruments are substantially different, the original debt is derecognized and the new debt is initially recorded at fair value, with the difference recognized as an extinguishment gain or loss.

Deferred Financing Costs, Net

Costs with respect to the issuance of common stock, warrants, stock options or debt instruments by the Company are initially deferred and ultimately offset against the proceeds from such equity transactions or amortized to interest expense over the term of any debt funding, if successful, or expensed if the proposed equity or debt transaction is unsuccessful.

51For the year ending June 30, 2016, the Company incurred $199,750 in costs in connection with the negotiation of a financing transaction with TCA Global Credit Master Fund, LP. The unamortized finance costs for the years ended June 30, 2016 and 2015 were $133,167 and $39,654 respectively.

Basic and Diluted Net Income per Share

The Company computes net income per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net income available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options, warrants or debentures. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of June 30, ~~2014~~2016 and 2015, there were no dilutive securities as the Company had incurred net losses.

Income Taxes

The Company accounts for income taxes under the provisions of ASC Topic 740-10, Income Taxes, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined and income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes determined on the differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. As of June 30, ~~2014~~2016 and 2015, the Company has federal and state net operating loss carry forwards of approximately $~~109~~746,000 and $463,000, respectively, which will begin to expire in 2030 unless utilized in earlier years.

When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position the Company takes has to have at least a “more likely than not” chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The term “more likely than not” means a likelihood of more than 50 percent. Otherwise, the Company may not recognize any of the potential tax benefit associated with the position. The Company recognizes a benefit for a tax position that meets the “more likely than not” criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts and may affect our results of operations, financial position and cash flows.

The Company reviews its filing positions for all open tax years in all U.S. federal and state jurisdictions where the Company is required to file. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The tax years subject to examination by major tax jurisdictions include the ~~2014~~2011 Fiscal Period and forward by the U.S. Internal Revenue Service, and the ~~2014~~2011 Fiscal Period and forward for various states.

Stock Based Compensation

Issuances of the Company’s common stock for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. However, situations may arise in which counter performance may be required over a period of time but the equity award granted to the party performing the service is fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in which vesting periods do not exist as the instrument is fully vested on the date of agreement, the Company determines such date to be the measurement date and will record the estimated fair market value of the instrument granted as a prepaid expense and amortize such amount to general and administrative expense in the accompanying statement of operations over the contract period. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.

For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, “Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” the Company performs an analysis of current market data and historical Company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, the Company uses these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in the Company’s consolidated statements of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on the Company’s financial statements. For the ~~period~~years ~~from~~ended ~~inception (July 12, 2013) to~~ June 30, ~~2014~~2016 and ~~the year ended June 30,~~ 2015, the Company had $0 and $10,850, respectively, of stock based compensation relating to employees.

Non-Cash Equity Transactions

Shares of equity instruments issued for non-cash consideration are recorded at the fair value of the consideration received based on the market value of services to be rendered, or at the value of the stock given, considered in reference to current market price.

Recent Accounting Pronouncements

OnIn August ~~27,~~2016 ~~2014,~~ the FASB issued ASU ~~2014~~2016-15, “Statement ~~Presentation~~ of ~~Financial~~Cash ~~Statements-Going~~Flows ~~Concern.~~(Topic ~~The~~230): ~~amendments~~Classification inof ~~this~~Certain ~~Update~~Cash ~~provide~~Receipts ~~guidance~~and inCash ~~GAAP~~Payments” ~~about~~(“ASU ~~management's~~2016-15”). ~~responsibility~~ASU to2016-15 ~~evaluate~~will ~~whether~~make ~~there~~eight istargeted ~~substantial~~changes ~~doubt~~to ~~about~~how ancash ~~entity's~~receipts ~~ability~~and tocash ~~continue~~payments asare apresented ~~going~~and ~~concern~~classified ~~and~~in tothe ~~provide~~statement ~~related~~of ~~footnote~~cash ~~disclosures~~flows. InASU ~~doing~~2016-15 ~~so,~~is ~~the~~effective ~~amendments~~for ~~should~~fiscal ~~reduce~~years ~~diversity~~beginning inafter ~~the~~December ~~timing~~15, ~~and~~2017. ~~content~~The ofnew ~~footnote~~standard ~~disclosures.~~will ~~The~~require ~~amendments~~adoption inon ~~this~~a ~~Update~~retrospective ~~are~~basis ~~effective~~unless ~~for~~it ~~the~~is ~~annual~~impracticable ~~period~~to ~~ending~~apply, ~~after~~in ~~December~~which ~~15,~~case ~~2016,~~it ~~and~~would ~~for~~be ~~annual~~required ~~periods~~to ~~and~~apply ~~interim~~the ~~periods~~amendments ~~thereafter.~~prospectively ~~Early~~as ~~application~~of isthe ~~permitted~~earliest date practicable. The Company is currently in the process of evaluating the ~~effect,~~impact ifof ~~any,~~adoption on its consolidated financial statements ~~of the amendment~~.

OnIn ~~April~~March 72016, ~~2015,~~ the FASB issued ASU ~~2015~~2016-0309, ~~Interest~~“Compensation –- ~~Imputations~~Stock ofCompensation ~~Interest~~ (~~Subtopic~~Topic ~~835-30~~718): ~~Simplifying~~Improvements ~~the Presentation of Debt Issuance Costs,~~ to ~~simplify~~Employee ~~presentation~~Share-Based ofPayment ~~debt issuance costs~~Accounting”. The amendments inare ~~this~~effective ~~update~~for ~~require~~public ~~that~~companies ~~debt~~for ~~issuance~~annual ~~costs~~periods ~~related~~beginning toafter aDecember ~~recognized~~15, ~~debt~~2016, ~~liability~~and beinterim ~~presented~~periods inwithin ~~the~~those ~~balance~~annual ~~sheet~~periods. asSeveral aaspects ~~direct~~of ~~deduction~~the ~~from~~accounting ~~the~~for ~~carrying~~share-based ~~amount~~payment ofaward ~~that~~transactions ~~debt~~are ~~liability~~simplified, ~~consistent~~including: ~~with~~(a) ~~debt~~income ~~discounts.~~tax ~~The~~consequences; ~~recognition~~(b) ~~and~~classification ~~measurement~~of ~~guidance~~awards ~~for~~as ~~debt~~either ~~issuance~~equity ~~costs~~or ~~are~~liabilities; ~~not~~and ~~affected~~(c) byclassification on the ~~amendments~~statement inof ~~this~~cash ~~update~~flows. The ~~amendments~~Company ~~in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption~~ is ~~permitted~~currently ~~for~~in ~~financial~~the ~~statements~~process ~~that~~of ~~have not been previously issued. The Company is~~ evaluating the ~~effect,~~impact ifof ~~any,~~the adoption on its ~~consolidated~~ financial statements ~~of the amendment~~.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of adopting this guidance.

In November 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred tax assets and liabilities on the balance sheet. Previous GAAP required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet. The amendment requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. The Company is currently evaluating the potential impact this standard will have on its financial statements and related disclosures.

In September 2015, the FASB issued ASU 2015-16, which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This ASU is effective for interim and annual reporting period beginning after December 15, 2016, including interim periods within those fiscal years, with the option to early adopt for financial statements that have not been issued. The Company is currently evaluating the potential impact this standard will have on its financial statements and related disclosures.

In July 2015, the FASB issued ASU 2015-11, which requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments apply to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU is effective for interim and annual reporting periods beginning after December 15, 2016, with the option to early adopt as of the beginning of an annual or interim period. The Company does not expect the adoption of this ASU to have a significant impact on its financial position, results of operations and cash flows.

In April 2015, the FASB issued ASU 2015-03, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The Company does not expect the adoption of this ASU to have a significant impact on its financial position, results of operations and cash flows.

The Company has reviewed other recent accounting pronouncements issued prior to the date of issuance of its financial statements included in this report, and does not believe any of these pronouncements will have a material impact on its consolidated financial statements.

NOTE 3 – CAPITAL STOCK

The Company is authorized to issue 1,010,000,000 shares of common stock and had 86,860,375 and 72,455,606 shares of common stock issued and outstanding as of June 30, 2016 and 2015, respectively. On February 2, 2015, the Board of Directors of the Company approved an Amended and Restated Articles of Incorporation of the Company (the “Amended and Restated Articles”) and the Amended and Restated Articles were filed by the Company with the Secretary of State of the State of Nevada on February 5, 2015. The Amended and Restated Articles increase the authorized number of shares of common stock, par value $0.001, of the Company from 140,000,000 shares to 1,010,000,000.

The Company is also authorized to issue 10,000,000 shares of preferred stock and had no shares of preferred stock issued and outstanding as of June 30, 2016. On February 2, 2015, the Company filed a Certificate of Withdrawal of Certificate of Designation (“Certificate of Withdrawal”) with the Secretary of State of the state of Nevada. The certificate withdraws the Certificate of Designation filed by the Company on January 9, 2014, which designated all of the Company’s preferred stock as “Series A Preferred Stock.” Following the filing of the Certificate of Withdrawal, the Company has 10,000,000 shares of undesignated preferred stock, par value $0.001, available for future designation by the Company’s Board of Directors.

On March 10, 2015 the Company entered into an independent contractor agreement with a service provider. Pursuant to the terms of the agreement, the Company agreed to grant the service provider 300,000 non-forfeitable, fully vested shares of its common stock, valued at $6,000 (based on the estimated fair market value of the shares on March 10, 2015, the date of grant) as partial consideration for the services provided to the Company pursuant to the terms of the agreement.

On June 30, 2015, the Company converted the Gotama Capital S.A. convertible promissory notes with an aggregate balance of $614,340 at a price of $0.15 per share, representing the entire principal amount and all accrued interest of the three convertible promissory notes issued to Gotama Capital S.A., into an aggregate of 4,095,605 shares of the Company’s common stock, par value $0.001 per share.

On December 25, 2015, the Company issued to TCA Global Credit Master Fund, LP 3,810,000 shares of its common stock as partial consideration for advisory services rendered to the Company (see Note 7).

During 2016, the Company issued to Typenex Co-Investment, LLC shares of its common stock as partial payment of the Company’s outstanding debt obligations to Typenex as follows (see Note 7):


Date of Issuance	Number of Shares of Common Stock	Conversion Price	Consideration
February 16, 2016	918,386	$0.016333	Conversion of $15,000.00 of debt.
March 15, 2016	918,386	$0.016333	Conversion of $15,000.00 of debt.
April 15, 2016	3,160,556	$0.015820	Conversion of $50,000.00 of debt.
May 15, 2016	5,597,441	$0.008754	Conversion of $49,000.00 of debt.

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurements of Inventory.” This ASU requires management to evaluate inventory at the lower of cost and net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Earlier application is permitted by all entities as of the beginning of an interim or annual reporting period. The Company is in the process of assessing the impact, if any, on its consolidated financial statements.

The Company has reviewed all other recent accounting pronouncements issued to date of the issuance of these consolidated financial statements, and does not believe any of those pronouncements will have a material impact on the Company’s consolidated financial statements.

NOTE 4 – CAPITAL STOCK

The Company is authorized to issue 1,010,000,000 shares of common stock and had 68,060,001 and 72,455,606 shares of common stock issued and outstanding as of June 30, 2014 and 2015, respectively. On February 2, 2015, the Board of Directors of the Company approved an Amended and Restated Articles of Incorporation of the Company (the “Amended and Restated Articles”) and the Amended and Restated Articles were filed by the Company with the Secretary of State of the State of Nevada on February 5, 2015. The Amended and Restated Articles increase the authorized number of shares of common stock, par value $0.001, of the Company from 140,000,000 shares to 1,010,000,000.

The Company is also authorized to issue 10,000,000 shares of preferred stock and had no shares of preferred stock issued and outstanding as of June 30, 2015. On February 2, 2015, the Company filed a Certificate of Withdrawal of Certificate of Designation (“Certificate of Withdrawal”) with the Secretary of State of the state of Nevada. The certificate withdraws the Certificate of Designation filed by the Company on January 9, 2014, which designated all of the Company’s preferred stock as “Series A Preferred Stock.” Following the filing of the Certificate of Withdrawal, the Company has 10,000,000 shares of undesignated preferred stock, par value $0.001, available for future designation by the Company’s Board of Directors.

On January 9, 2014, the Company authorized an increase of its share capital from 65,000,000 common shares to 140,000,000 common shares. Furthermore, the Company approved a forward stock split of its issued and outstanding common shares by way of a stock dividend, on a basis of 1:9, pursuant to which, the Company’s stockholders as at January 17, 2014 received eight (8) shares of common stock for each one (1) share of common stock currently held. The pay-out date as approved by the Company’s board of directors and Financial Industry Regulatory Authority was January 17, 2014. The effects of the forward split increased the Company’s issued and outstanding common shares from 8,998,776 common shares to 80,988,984 common shares on such date. The effects of the forward split have been applied on a retroactive basis.

On February 14, 2014, the Company entered into the Exchange Agreement whereby the Company acquired all of the issued and outstanding shares of Vapor and Delite in exchange for 38,000,001 common shares of the Company, which are the founders’ shares. The transaction was completed in two stages – with the acquisition of Vapor closing on March 14, 2014 and the acquisition of Delite closing on March 26, 2014. In connection with the acquisition of Vapor on March 14, 2014, the Company canceled 50,928,984 common shares and issued a convertible debenture of approximately $185,000 (see Note 10). Vapor was treated as the accounting acquirer and the equity accounts were retroactively recapitalized to the date of Vapor’s inception at July 12, 2013. In connection with this transaction the Company recorded the outstanding equity of the legal acquirer of 80,988,984 common shares and the concurrent cancelation of the 50,928,984 common shares.

Stock-Option Plans

On February 2, 2015, the ~~Board~~Company ofadopted ~~Directors~~its of2015 ~~the~~Omnibus ~~Company~~Incentive ~~and~~Plan ~~holders~~(the of“2015 55Plan”).8% The of2015 ~~the~~Plan ~~Company’s~~provides ~~outstanding~~for ~~common~~the grant of stock options (orboth 38incentive stock options and non-qualified stock options),~~000~~ restricted stock,~~001~~ ~~shares~~restricted ofstock 68units,~~060~~ stock appreciation rights,~~001~~ ~~issued~~performance-based awards, dividend equivalents, stock payments and ~~outstanding~~deferred ~~shares)~~stock ~~acting~~units byto ~~written~~eligible ~~consent~~participants. ~~approved~~Eligible ~~the~~participants ~~adoption~~include officers, employees, non-employee directors and certain consultants and advisers. The aggregate number of shares of the Company’s ~~2015~~common ~~Omnibus~~stock ~~Incentive~~authorized for issuance under the 2015 Plan (is 20,400,000, subject to adjustment as described in the “2015 Plan”. The outstanding options (each of which were granted on June 30, 2015) each have an exercise price of $0.0419 per share of Common Stock.

The 2015 Plan provides for the grant of stock options (both incentive stock options and non-qualified stock options), restricted stock, restricted stock units, stock appreciation rights, performance-based awards, dividend equivalents, stock payments and deferred stock units to eligible participants. Eligible participants include officers, employees, non-employee directors and certain consultants and advisers. The aggregate number of shares of the Company’s common stock authorized for issuance under the 2015 Plan is 20,400,000, subject to adjustment as described in the 2015 Plan. The outstanding options (each of which were granted on June 30, 2015) each have an exercise price of $0.0419 per share of Common Stock.

The Company estimates the fair value of each option on the grant date using the Black-Scholes model. The following assumptions were made in estimating the fair value:

	2015
Annual dividend yield	-
Expected life (years)	5
Risk-free interest rate	1.63%	%
Expected volatility	121.10%	%
Fair value of options granted	0.035

The expected volatility was estimated by calculating the standard deviation of daily price changes in the Company’s stock from the Company’s date of inception to the date of the grant and the five -year constant maturity treasury rate on the date of the grant was used for the risk free rate. Stock-based compensation expense is recognized over the employees’ or service provider’s requisite service period, generally the vesting period of the award. Stock-based compensation expense included in the accompanying statements of operations for the ~~period~~years ~~from~~ending ~~inception (July 12, 2013) to~~ June 30, ~~2014~~2016 and ~~for the year ended June 30,~~ 2015 iswas $0 and $10,850, respectively.

Stock option awards vested immediately on the date of grant, as a result there is no unrecognized compensation as of June 30, 2015.

A summary of stock option activity is as follows:

	Number of Shares		Weighted Average Exercise Price
Outstanding at June 30, 2014	-	$	-
Outstanding at July 1, 2014	-	$	-
Granted	310,000		0.0419
Exercised	-		-
Forfeited	-		-
Outstanding at June 30, 2015	310,000	$	0.0419
Granted	-		-
Exercised	-		-
Forfeited	-		-
Outstanding at June 30, 2016	310,000	$	0.0419

All the 310,000 options outstanding at June 30, 2016 and 2015 were fully vested on the grant date, have an exercise price of $0.0419, ~~weighted average contractual life of 10 years, weighted average exercise price of $0.0419,~~ a weighted average remaining life of 109 years, and an aggregate intrinsic value at $0.~~0419~~00 price per share at June 30, ~~2015~~2016.

Warrant Issuance

During the period from inception (July 12, 2013) to June 30, 2014, the Company received a fee of $30,000 in exchange for the right of an unaffiliated third party to share in 10% of the net profits derived from operations of the Chatsworth Vapor Hub lounge. The profit sharing arrangement was terminated on February 23, 2016 in exchange for the payment by the Company of $15,000 and the issuance by the Company of a warrant exercisable on or before February 23, 2020 to purchase 100,000 shares of the Company’s common stock at an exercise price per share of $0.15. The Company valued the warrant using the Black Scholes Option Pricing Model resulting in a de-minimis fair market value. The inputs used for the Black Scholes calculation were: stock price of $0.03, exercise price of $0.15, volatility of 218% and risk free interest rate of 0.23%. Prior to the termination of the profit sharing arrangement, no amounts had been earned and no obligations were due under the arrangement. There are no other warrants outstanding as of June 30, 2016.

NOTE 4 – INVENTORIES

As of June 30, 2016 and 2015, the Company had a balance of $585,489 and $323,784, respectively, as inventories which consist of vaping devices, electronic cigarettes, e-liquid, related supplies, and accessories. There was no reserve for inventory obsolescence as of either June 30, 2016 or 2015.

NOTE 5 – LEASE COMMITMENTS

The Company entered into a lease agreement with S. J. Real Estate Group, LLC to lease a retail space in Chatsworth, California, effective September 13, 2013. The lease term was for two years with a monthly lease payment of $2,214. Effective October 15, 2015, the Company and the landlord agreed to terminate the lease and the Company closed its retail store located at the location. The Company has no further obligation due under the lease agreement.

On February 28, 2015, the Company entered into a lease agreement with landlord Samantha Carrington to provide retail space for its Simi Valley retail location and on April 1, 2015, the Simi Valley retail location opened at the new premises. The lease term extends through March 31, 2017 with a monthly lease payment of $3,190. The Company has a remaining commitment under this lease as of June 30, 2016 of $28,710 and a security deposit of $6,380 was paid to the landlord in relation to this lease.

The Company entered into a lease agreement with S.B.P.W., LLC to lease warehouse and office space in Simi Valley, California effective August 5, 2013 which agreement was subsequently amended on February 20, 2014. The lease term extended through April 30, 2015 with a monthly lease payment of $2,035 which increased to $4,070 effective July 1, 2014. On September 1, 2015, the Company terminated this lease and surrendered its facility at 67 W Easy St., Unit 115, Simi Valley, CA 93065. The Company has no further obligation due under the lease agreement.

On September 1, 2015, the Company entered into a Commercial Lease Agreement with the Winther Family Trust, pursuant to which the Company leases property located at 1871 Tapo Street, Simi Valley, CA 93065 (the “Premises”), for a term of 60 months commencing on September 1, 2015. The Company will pay a base rent of $5,650 per month for the duration of the term and also made a security deposit in the same amount. The Premises is replacing the Company’s prior facility located at 67 W. Easy St., Unit 115, Simi Valley, CA 93065 and will serve as the Company’s primary office location. In addition to providing office space, the approximately 5,000 square foot facility will also be used for warehousing and shipping. The lessor of the Premises, the Winther Family Trust, is controlled by Niels Winther and Lori Winther. Both Niels Winther and Lori Winther are Directors of the Company, and Lori Winther also serves as the Company’s Chief Financial Officer and Secretary.

~~NOTE~~On 5September –15, ~~OFFICERS’~~2015, ~~LOANS~~the ~~PAYABLE~~Company entered into a lease agreement with Santa Susana Business Center, LLC to lease warehouse and office space at 4685 Runway Street, Unit D, Simi Valley, CA 93063. The lease term extends through September 30, 2017 with a monthly lease payment of $1,716 and increasing to $1,802 on October 1, 2016. The Company has a remaining commitment under this lease of $26,772 as of June 30, 2016 and a security deposit of $1,716 was paid to the landlord in relation to this lease.

AsRent ofexpense for the years ended June 30, ~~2014~~2016 and 2015, ~~the~~was ~~Company had a balance of~~ $~~101~~133,~~378~~664 and $9692,~~312~~185, respectively, outstanding as related party loans from Kyle Winther, the Company’s CEO, Lori Winther, the Company’s CFO and Winther & Company, CPAs (an entity owned by Lori Winther, and her husband, Niels Winther, CPA, who is a director of the Company), as well as Chase Bank Line of Credit (which was extended to the Company, though owed personally by Niels & Lori Winther). ~~The outstanding balances are unsecured, non-interest bearing and repayable upon demand.~~

NOTE 6 – ~~INVENTORIES~~RELATED PARTIES

As of June 30, ~~2014~~2016 and June 30, 2015, the Company had a balance of $~~196~~103,~~163~~409 and $~~323~~96,~~784~~312, respectively, outstanding as ~~inventories~~related ~~which~~party ~~consist~~loans offrom ~~vaping~~Kyle ~~devices~~Winther, ~~electronic~~the ~~cigarettes~~Company’s CEO, ~~e-liquid~~Lori Winther, ~~related~~the ~~supplies~~Company’s CFO and Winther & Company, CPAs (an entity owned by Lori Winther, and ~~accessories.~~her ~~There~~husband, Niels Winther, CPA, who is noa ~~reserve~~director ~~for~~of ~~inventory~~the ~~obsolescence~~Company), as well as Chase Bank Line of ~~June~~Credit 30(which was extended to the Company, ~~2014~~though owed personally by Niels and ~~2015~~Lori Winther). The outstanding balances are unsecured, non-interest bearing and repayable upon demand.

~~NOTE~~From 7time –to ~~LEASE~~time ~~COMMITMENTS~~the Company will engage the services of Winther & Co. an accounting firm owned by the husband of the Company’s CFO. Winther & Co. provides bookkeeping, accounting and tax services to the Company. For the years ended June 30, 2016 and 2015, the Company incurred approximately $56,180 and $82,000, respectively, in fees with Winther & Co. As of June 30, 2016 and June 30, 2015 the Company had Accounts Payable outstanding to related parties for accounting fees of $0 and $12,369, respectively.

~~The~~Reference ~~Company~~is ~~entered~~also ~~into~~made ~~a lease agreement with S. J. Real Estate Group, LLC~~ to ~~lease~~the aCommercial ~~retail~~Lease ~~space~~Agreement ~~in Chatsworth, California, effective September 13, 2013. The lease term is for two years~~ with athe ~~monthly~~Winther ~~lease~~Family ~~payment~~Trust ofdescribed ~~$2,214.~~in ~~The~~Note ~~Company has a remaining commitment under this lease of $4,428 through August 30, 2015~~5. ~~The Company extended this lease for an additional two years effective October 1, 2015.~~

~~The~~NOTE ~~Company~~7 ~~also~~– ~~had~~CONVERTIBLE aNOTES ~~month-to-month~~PAYABLE rental agreement with Madera Development for a retail space in Simi Valley for $825, which was terminated in April 2015. On February 28, 2015, the Company entered into a lease agreement with landlord Samantha Carrington to provide retail space for its Simi Valley retail location and on April 1, 2015, the Simi Valley retail location opened at the new premises. The lease term extends through March 31, 2017 with a monthly lease payment of $3,190. The Company has a commitment under this lease of $66,990 and a security deposit of $6,380 was paid to the landlord in relation to this lease.

The Company entered into a lease agreement with S.B.P.W., LLC to lease warehouse and office space in Simi Valley, California effective August 5, 2013 which agreement was subsequently amended on February 20, 2014. The lease term extended through April 30, 2015 with a monthly lease payment of $2,035 which increased to $4,070 effective July 1, 2014. The Company terminated this lease in September 2015 (See Note 16).


Note Holder	Balance June 30, 2015	Unamortized Original Derivative Discount	Unamortized Original Issue Discount	Balance of Debt Discount	Balance, net of Discount 6/30/2015
Typenex Co-Investment, LLC	$163,131	$ (27,718)	$ (14,594)	$ (42,313)	$ 120,818
Typenex Co-Investment, LLC	89,057	(15,132)	(2,652)	(17,784)	71,273
Total Convertible Notes Payable	$252,188	$ (42,850)	$ (17,246)	$ (60,097)	$ 192,091

Rent expense for the period from inception (July 12, 2013) to June 30, 2014 and for the year ended June 30, 2015 was $39,847 and $92,185, respectively.


Note Holder	Balance June 30, 2016	Unamortized Original Derivative Discount	Balance net of Derivative Discount 6/30/16
Note Holder	Balance June 30, 2016	Unamortized Original Derivative Discount	Balance net of Derivative Discount 6/30/16
Iliad Co Loan Payable	$ 272,250	$ -	$ 272,250
TCA Global Loan Payable	659,409	(483,120)	176,289
Total Convertible Notes Payable	$ 931,659	$ (483,120)	$ 448,539

NOTE 8– OTHER INCOME

The Company received a fee of $30,000 in exchange for the right of an unaffiliated third party to share in 10% of the net profits derived from operations of the Chatsworth Vapor Hub lounge. The Company recognized the $30,000 as other income for the period from inception (July 12, 2013) to June 30, 2014. At June 30, 2014 and 2015, no amounts have been earned and no obligation is due under this profit sharing agreement.

~~NOTE~~Description 9of –Outstanding ~~RELATED~~Convertible ~~PARTIES~~Note Obligations

~~The~~Iliad ~~Company~~Co-Investment entered into a Management Agreement with Kyle Winther and Gary “Jake” Perlingos who are each shareholders and officers of the Company related to operational supervision of the Vapor Hub Lounges in Simi Valley and Chatsworth. Each of them was to receive 2.5% each (for a total of 5%) of the monthly revenue generated from each respective lounge. The Agreement commenced September 1, 2013 and was scheduled to continue until terminated by agreement of the parties. Effective February 1, 2014, the parties agreed to terminate the Management Agreement. Prior to the termination of the agreement, each of Mr. Winther and Mr. Perlingos received approximately $6,400 pursuant to the terms of the Management Agreement. An additional Management Agreement was entered into between Delite and Vapor, which relates to the provision of administrative support to Vapor. Pursuant to the agreement, Delite received a fee of $10,000 per month from Vapor. The Agreement commenced October 1, 2013 and was scheduled to continue until terminated by agreement of the parties. Effective March 1, 2014, the parties agreed to terminate the Management Agreement. Note

~~Prior~~On August 12, 2015, the Company entered into a Note Purchase Agreement (the “Purchase Agreement”) with Iliad Research & Trading, L.P, a Utah limited liability partnership (“Iliad”), pursuant to which the ~~acquisition~~Company concurrently issued to the investor an unsecured non-convertible Promissory Note in a principal amount of ~~Delite~~$245,000 ~~Vapor~~(the ~~purchased~~“Original ~~substantially~~August ~~all~~Note”). The principal amount includes an original issue discount of ~~its~~$40,000 ~~inventory~~plus an additional $5,000 ~~which~~to iscover ~~sold~~the atinvestor’s ~~its~~legal ~~retail~~fees, ~~locations~~accounting costs, ~~from~~due ~~Delite~~diligence, monitoring and other transaction costs incurred in connection with the transaction. In Asconsideration for the Original August Note, the investor paid an aggregate cash purchase price of ~~March~~$200,000, 26computed as follows: $245,000 ~~2014~~original principal balance, ~~Delite~~less ~~became~~the aoriginal ~~wholly-owned~~issue ~~subsidiary~~discount of $40,000, and less the ~~Company~~transaction costs. The AsOriginal August Note was originally scheduled to mature on February 12, 2016 and the Company could prepay all or a ~~result~~portion of the ~~acquisition~~amount owed earlier than it is due without penalty. The original issue discount of $40,000 ~~all~~was ~~intercompany~~recorded ~~transactions~~as ~~subsequent~~debt discount and fully amortized to ~~March~~interest ~~26,~~expense ~~2014~~during ~~have~~the ~~been~~fiscal ~~eliminated~~year ended June 30, 2016.

~~From~~Interest ~~time~~did tonot ~~time~~accrue on the ~~Company~~unpaid ~~will~~principal ~~engage~~balance of the ~~services~~Original ofAugust ~~Winther~~Note &unless ~~Company~~ an ~~accounting~~event ~~firm~~of ~~owned~~default byoccurred. Upon the ~~husband~~occurrence of an event of default, the ~~Company’s~~outstanding ~~CFO.~~balance ~~Winther~~of &the ~~Company~~Original ~~provides~~August ~~bookkeeping,~~Note ~~accounting~~will ~~and~~bear ~~tax~~interest ~~services~~at tothe lesser of the ~~Company.~~rate ~~For~~of 18% per annum or the ~~period~~maximum ~~from~~rate ~~inception~~permitted ~~(July~~by 12applicable law. In addition, ~~2013)~~if toan ~~June~~event ~~30,~~of ~~2014~~default ~~and~~occurs ~~for~~under the ~~year~~Original ~~ended~~August ~~June 30~~Note, ~~2015~~ the ~~Company~~investor ~~incurred~~may ~~approximately~~declare ~~$18,000~~all ~~and~~unpaid ~~$82~~principal,~~000,~~ ~~respectively~~plus inall ~~fees~~accrued ~~with~~interest ~~Winther~~and &other ~~Co.~~amounts Asdue ofunder ~~June~~the ~~30,~~Original ~~2014~~August Note to be immediately due and ~~2015,~~payable ~~the~~at ~~Company~~an ~~had~~amount ~~Accounts~~equal ~~Payable~~to 115% of the outstanding tobalance ~~related~~of ~~parties~~the Original August Note as of ~~$232~~the ~~and~~date ~~$12~~of the applicable event of default,~~369~~ plus all interest, ~~respectively.~~fees and charges that may accrue on such outstanding balance thereafter.

~~NOTE~~On 10February –19, ~~CONVERTIBLE~~2016, ~~NOTES~~the ~~PAYABLE~~Company entered into an Amendment to Promissory Note with Iliad which extended the maturity date of the Original August Note to April 12, 2016 and increased the principal amount of the note by $2,500 as consideration for the extension. The Company evaluated the Amendment to Promissory Note under ASC 470-50-40 “Extinguishments of Debt” (“ASC 470”), noting it did not meet the criteria for substantial modification under ASC 470, and accordingly treated the amendment as a modification to the Original August Note, adding $2,500 to the balance and extending the due date under the modified terms.

Note Holder	Balance 6/30/2015	Unamortized Original Derivative Discount	Unamortized Original Issue Discount	Balance of Debt Discount	Balance, net of Discount 6/30/2015
Typenex Co-Investment, LLC	$163,131	$ (27,718)	$ (14,594)	$ (42,313)	$ 120,819
Typenex Co-Investment, LLC	89,056	(15,132)	(2,652)	(17,784)	71,273
Total Convertible Notes Payable	$252,188	$ (42,850)	$ (17,246)	$ (60,096)	$ 192,091

On May 12, 2016 but effective as of April 15, 2016, the Company entered into an Exchange Agreement with Iliad (the “Exchange Agreement”). Pursuant to the Exchange Agreement, the Company and Iliad exchanged the Original August Note for a new promissory note in the original principal amount of $272,250 (the “Exchange Note”), which balance includes an exchange fee of $24,750. The Company evaluated the Exchange Agreement under ASC 470-50-40 “Extinguishments of Debt” (“ASC 470”), noting it met the criteria for substantial modification under ASC 470, and accordingly treated the Exchange Agreement as an extinguishment of debt and recorded a loss of extinguishment of debt of $54,225. The related derivative liability was also extinguished (see Note 8 for further discussion). The Exchange Note was issued in substitution of and not in satisfaction of the Original August Note.

The Exchange Note provided that the Company was to make the following payments to Iliad: (a) a payment in shares of the Company’s common stock within three trading days of June 15, 2016 based on a note conversion amount of $50,000 and a conversion price that was equal to 70% of the average of the three lowest closing bid prices of the Company’s common stock in the twenty trading days immediately preceding such conversion (this payment of shares was not made by the Company as a result of a subsequent note amendment, see Note 14); and (b) a payment equal to the remaining aggregate outstanding balance of the Exchange Note on or before July 15, 2016, which payment must be made in cash. The Company identified an embedded derivative liability in the Exchange Note with an original estimated fair market value of $29,475 and recorded this as a derivative liability. See Note 8 for a discussion relating to the original derivative liability and re-measurement of such derivate liability and Note 14 for a discussion of a further modification to this facility.

As of June 30, 2016, the outstanding balance on the Exchange Note was $272,250.

~~Notes~~TCA ~~Issued~~Global toCredit ~~Gotama~~Master ~~Capital~~Fund, ~~S.A.~~LP Note December 2015

On ~~March~~December 1424, ~~2014~~2015, the Company ~~closed~~entered ~~the~~into ~~first of three tranches of~~ a ~~financing~~Senior ~~transaction~~Secured ~~pursuant~~Credit toFacility ~~the~~Agreement ~~terms of~~ (the ~~Exchange~~“Loan Agreement.”) At the closing, the Company issued a convertible promissory note in the principal amount of $185,000 to Gotama Capital S.A. in exchange for cash proceeds of $185,000. The note bears interest at a rate of 8% per annum, with ~~interest~~TCA ~~being~~Global ~~payable~~Credit onMaster ~~May 15th of each year that the note remains outstanding. The principal amount of the note is convertible at any time~~Fund, inLP ~~whole or in part, at the Company’s election or the election of the holder into shares of the Company’s common stock at a price equal to the greater of $0~~(“TCA”).15 At ~~or 90% of~~ the ~~average~~initial closing prices of the Company’s common stock for the ten trading days immediately preceding the applicable conversion date. Unless earlier converted or repaid, the principal amount of the note is due and payable on ~~March~~December 1424, ~~2017. On April 10~~2015, ~~2014,~~ the Company ~~closed~~issued ~~the second tranche of the financing contemplated pursuant~~ to ~~the~~TCA ~~terms of the Exchange Agreement. At the closing, the Company issued~~ a ~~convertible~~Convertible ~~promissory~~Promissory ~~note~~Note in the principal amount of $~~200~~750,000 to (the ~~same~~“TCA ~~investor in exchange for cash proceeds of $200,000~~Note”). The ~~note~~TCA ~~has~~Note ~~the same terms as the note described above, except that unless earlier converted or repaid, the principal amount of the note~~ is ~~due~~scheduled ~~and~~to ~~payable~~mature on ~~April~~June 1024, 2017. ~~On May 19, 2014,~~ (the ~~Company~~“Maturity ~~closed~~Date”). At ~~the~~any ~~third~~time ~~tranche~~prior ofto the ~~financing~~Maturity ~~contemplated~~Date ~~pursuant~~or to the ~~terms~~earlier termination of the ~~Exchange~~Loan Agreement~~. At the closing~~, the Company ~~issued~~can arequest ~~convertible~~up ~~promissory note in the principal amount of $175,000~~ to ~~the same investor in exchange for cash proceeds of~~ $~~149~~9,~~881 and $25~~250,000 of ~~expenses~~additional ~~paid~~loans, onwhich ~~behalf~~additional ofloans ~~the~~may ~~Company,~~be ~~which~~made in the ~~Company~~sole ~~immediately~~discretion ~~recorded~~of ~~as its own expense~~TCA. The ~~note~~Company ~~has~~may ~~the~~prepay ~~same~~borrowings ~~terms~~at asany ~~the notes described above~~time, ~~except~~in ~~that~~whole ~~unless~~or ~~earlier~~in ~~converted~~part, orwithout ~~repaid~~penalty. Upon origination, the ~~principal~~Company ~~amount~~recorded ofa ~~the~~debt ~~note~~discount isof ~~due~~$750,000 and ~~payable~~amortized ~~on May 19~~$266,880 ~~2017.~~during ~~The Company may prepay~~ the ~~principal~~year ~~amount~~ended ofJune ~~the notes at any time~~30, ~~in whole or in part~~2016, ~~without~~leaving ~~the~~an ~~prior~~unamortized ~~written~~balance ~~consent~~ of ~~the holder~~$483,120.

OnThe ~~June~~loan ~~30,~~will ~~2015,~~accrue interest on the unpaid principal balance at an annual rate of 18%. The Company ~~converted~~made interest only payments of $~~614~~11,~~340~~250 aton aeach ~~price~~of January 24, February 24 and March 24, 2016, and thereafter, will make payments of approximately $~~0.15~~56,208 of principal and interest per ~~share,~~month ~~representing~~until the ~~entire~~Maturity ~~principal~~Date. In ~~amount~~the ~~and~~event ~~all~~the ~~accrued~~Company ~~interest~~is ofin default under the ~~three~~loan ~~convertible~~agreement ~~promissory~~with ~~notes~~TCA ~~issued~~or toany ~~Gotama~~related ~~Capital~~transaction ~~S.A.~~document, ~~into~~including anas ~~aggregate~~a result of ~~4,095,605~~a ~~shares~~default ofin the Company’s ~~common~~payment ~~stock~~obligations, ~~par~~any ~~value~~amount ~~$0.001~~due ~~per~~to ~~share~~TCA (under the ~~“Conversion~~facility ~~Shares”)~~will, at TCA’s option, bear interest from the date due until such past due amount is paid in full at an annual rate of 22%. AsIn aaddition, ~~result~~upon the occurrence and during the continuance of an event of default under the ~~conversion~~transaction documents, TCA may terminate its commitments to the ~~three~~Company ~~notes~~and ~~issued~~declare all of the Company’s obligations to ~~Gotama~~TCA ~~Capital~~to ~~are~~be noimmediately ~~longer~~due ~~outstanding~~and payable.

While the Note is outstanding, but only upon the occurrence of (i) an event of default under the loan agreement with TCA or any related transaction document or (ii) the Company’s mutual agreement with TCA, TCA may convert, subject to certain beneficial ownership limitations, all or any portion of the outstanding principal, accrued and unpaid interest and any other sums due and payable under the Note or any other transaction document (such total amount, the “Conversion Amount”) into a number of shares of the Company’s common stock equal to: (i) the Conversion Amount divided by (ii) eighty-five percent (85%) of the lowest of the daily volume weighted average price of the Company’s common stock during the five business days immediately prior to the conversion date (the “Conversion Shares”). Upon liquidation by TCA of Conversion Shares, if TCA realizes a net amount from such liquidation equal to less than the Conversion Amount, the Company is obligated to issue to TCA additional shares of the Company’s common stock equal to: (a) the Conversion Amount minus the net realized amount, divided by (b) the average volume weighted average price of the Company’s common stock during the five business days immediately prior to the date upon which TCA requests additional shares. The Company accounted for the conversion feature as a derivate liability (see Note 8 for further discussion).

The payment and performance of all the Company’s indebtedness and other obligations to TCA, including all borrowings under the loan agreement and related agreements, are secured by liens on substantially all of the Company’s assets pursuant to a Security Agreement.

Of the proceeds received at the initial closing, approximately $106,000 was used to pay in full all indebtedness outstanding under the Company’s Business Loan and Security Agreement with B of I Federal Bank (the “Bank”), entered into on November 3, 2015. Upon repayment of the Company’s indebtedness under the Business Loan and Security Agreement, the Bank released its liens on the Company’s assets. After the payment of approximately $51,000 of fees and cash expenses to TCA in connection with the loan transaction, the Company received net proceeds of approximately $593,000. As of June 30, 2016 the outstanding balance of the TCA Note was $659,409.

~~Note~~In ~~Issued~~connection with the Loan Agreement, the Company agreed to ~~Typenex~~pay ~~Co-Investment~~to TCA a fee for advisory services provided to the Company prior to the entry into the Loan Agreement in the amount of $126,000 ~~LLC~~(the “Advisory Fee”). As partial payment of the Advisory Fee, the Company issued to TCA 3,810,000 shares of the Company’s common stock on December 24, 2015 (the “Advisory Fee Shares”), representing 4.99% of the Company’s issued and outstanding shares of common stock on such date. In the event that TCA receives net proceeds from the sale of such shares that are less than the Advisory Fee, TCA may require the Company to issue additional shares of common stock in an amount sufficient such that, when sold and the net proceeds from such sale are added to the net proceeds from the sale of any of the previously issued and sold Advisory Fee Shares, TCA shall have received total net funds equal to the Advisory Fee. Notwithstanding the foregoing, subject to certain conditions, the Company has the right to redeem the Advisory Fee Shares then in TCA’s possession for an amount payable in cash equal to the Advisory Fee, less any net cash proceeds received by TCA from previous sales of Advisory Fee Shares. In the event TCA has not realized net proceeds from the sale of Advisory Fee Shares equal to at least the Advisory Fee by the earlier to occur of: (i) December 24, 2016; (ii) the occurrence of an event of default under the transaction documents; or (iii) the Maturity Date, then at any time thereafter, TCA has the right to require the Company to redeem all of the Advisory Fee Shares then in TCA’s possession for cash equal to the Advisory Fee, less any cash proceeds received by TCA from any previous sales of Advisory Fee Shares. The Advisory Fee was recorded as a deferred finance fee of $126,000 and the Company amortized $42,000 during the year ended June 30, 2016, leaving an unamortized balance of $84,000. The Company determined that the Conversion feature of the TCA Note and the Advisory Fee meets the definition of an embedded derivative that should be separated and accounted for as a derivative liability. See Note 8 for a discussion relating to derivative liability.

OnDescription ~~November~~of 4,Terminated 2014, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Typenex Co-Investment, LLC, a Utah limited liability company (the “Investor”), pursuant to which the Company concurrently issued to Investor a Secured Convertible ~~Promissory~~ Note in a principal amount of $1,687,500 (the “Company Note”). The principal amount includes an original issue discount of $80,000 plus an additional $7,500 to cover Investor's due diligence and legal fees in connection with the transaction. In consideration for the Company Note, Investor issued a series of promissory notes aggregating to the sum of $1,600,000 (the “Purchase Price”), consisting of an initial cash disbursement of $200,000 and the issuance to the Company of ten promissory notes, the first two promissory notes in a principal amount of $100,000 each and the remaining eight promissory notes in a principal amount of $150,000 (each an “Investor Note” and collectively, the “Investor Notes”). The Company Note and the Investor Notes each bear interest at the rate of 10% per annum and mature on April 4, 2019 and the Company’s obligations under the Company Note are secured by liens on the Investor Notes pursuant to the terms of a Security Agreement entered into by the Company in favor of the Investor. Subject to certain conditions, the Company may prepay the Company Note by making a payment equal to 125% of the then outstanding balance (including interest and other fees and amounts due). Each of the Investor Notes may be prepaid (and the Company may receive additional funds under the facility in excess of the initial $200,000 cash proceeds) only upon the mutual agreement of the parties. Obligations

OnNotes ~~January~~Issued ~~16, 2015, upon the mutual agreement of the parties, the Investor paid~~ to ~~the~~Gotama ~~Company~~Capital the sum of $102,028 as a prepayment of all of its obligations owed to the Company under the first Investor Note in the original principal amount of $100,000 dated November 4, 2014, issued by the Investor in favor of the CompanyS.A.

~~The~~On March 14, 2014, the Company closed the first ~~two~~of three tranches ~~were~~of a financing transaction pursuant to the terms of the Exchange Agreement. At the closing, the Company issued ~~with~~a anconvertible ~~original~~promissory ~~issue~~note ~~discount~~in the principal amount of $20185,~~472~~000 to Gotama Capital S.A. in exchange for cash proceeds of $185,000. The note bore interest at a rate of ~~which~~8% per annum, with interest being payable on May 15th of each year that the note remained outstanding. The principal amount of the note was convertible at any time, in whole or in part, at the Company’s election or the election of the holder into shares of the Company’s common stock at a price equal to the greater of $30.15 or 90% of the average closing prices of the Company’s common stock for the ten trading days immediately preceding the applicable conversion date. Unless earlier converted or repaid,~~226~~ ~~has~~the ~~been~~principal ~~amortized~~amount of the note was due and payable on March 14, 2017. On April 10, 2014, the Company closed the second tranche of the financing contemplated pursuant to ~~interest~~the ~~expense~~terms of the Exchange Agreement. At the closing, the Company issued a convertible promissory note in the principal amount of $200,000 to the same investor in exchange for cash proceeds of $200,000. The note had the ~~twelve~~same ~~months~~terms ~~ended~~as ~~June~~the 30note described above, ~~2015~~except that unless earlier converted or repaid, ~~resulting~~the principal amount of the note was due and payable on April 10, 2017. On May 19, 2014, the Company closed the third tranche of the financing contemplated pursuant to the terms of the Exchange Agreement. At the closing, the Company issued a convertible promissory note in anthe ~~unamortized~~principal ~~balance~~amount of $17175,~~246~~000 to the same investor in exchange for cash proceeds of $149,881 and $25,000 of expenses paid on behalf of the Company, which the Company immediately recorded as its own expense. The note had the same terms as the notes described above, except that unless earlier converted or repaid, the principal amount of the note was due and payable on May 19, 2017.

~~The~~On June 30, 2015, the Company ~~recognized~~converted an$614,340 ~~additional~~at ~~debt~~a ~~discount~~price of $480.15 per share,~~975~~ onrepresenting the ~~first~~entire ~~two~~principal ~~tranches~~amount ~~for~~of ~~the~~$560,000 ~~original~~and ~~fair~~all ~~value~~accrued ~~recognition~~interest in the amount of $54,340 on the ~~derivative~~three ~~liability~~convertible ~~(discussed~~promissory ~~further~~notes ~~below),~~issued ofto ~~which~~Gotama $6Capital S.A.,~~125~~ ~~has~~into ~~been~~an ~~amortized~~aggregate toof ~~interest~~4,095,605 ~~expense~~shares ~~for~~of the ~~fiscal~~Company’s ~~year~~common ~~ended June 30~~stock, ~~2015,~~par ~~resulting~~value in$0.001 anper ~~unamortized~~share. As ~~balance~~a result of ~~$42~~the conversion,~~850.~~ the three notes issued to Gotama Capital are no longer outstanding.

Beginning on May 4, 2015, the Company is required to repay the outstanding balance on the Company Note in monthly installments of approximately $35,000 per month plus all unpaid interest and other costs, fees or charges under the Company Note. Payment may be made in cash or, subject to certain conditions, in shares of the Company’s common stock or any combination of cash and shares. If payments are made in shares (each, an “Installment Conversion”), such installments or portions thereof are, subject to certain conditions, convertible into shares of the Company’s common stock at the lesser of (i) a conversion price of $0.10, subject to adjustment or (ii) a price that is equal to 70% of the average of the three lowest closing bid prices of the Company’s common stock in the twenty trading days immediately preceding such conversion, subject to a floor of $0.01. In addition, on the date that is twenty trading days from the date the Company delivers installment shares to Investor, there is a true-up where the Company is required to deliver additional shares if the installment conversion price as of the true-up date is less than the installment conversion price used to deliver the initial shares.

~~Beginning on May 4, 2015, all or any amount of a conversion eligible tranche (as described below) under the Company~~ Note isIssued ~~convertible, at the option of the Investor (each, a “Lender Conversion”), into shares of the Company’s common stock at a conversion price of $0.10 per share, subject~~ to ~~customary~~Typenex ~~anti~~Co-dilution adjustments and other adjustments described in the Company Note (the “Conversion Price”). The Company Note is convertible into shares of the Company’s common stock by Investor in eleven tranches consisting of an initial tranche of $217Investment,~~500~~ ~~plus~~LLC interest and other amounts due which may be converted into shares of the Company’s common stock at the Conversion Price at any time on or after May 4, 2015 and ten additional tranches (each a “Subsequent Tranche”), two of which are in ~~the amount of $105~~November,~~000~~ plus interest and other amounts due and eight of which are in the amount of $157,500 plus interest and other amounts due. Each Subsequent Tranche may not be converted into shares of the Company’s common stock unless the Investor has paid in full the Investor Note corresponding to such tranche, which payment requires the Company’s consent. On January 16, 2015, the Investor paid to the Company the sum of $102,028 as a prepayment of all of its obligations owed to the Company under the first Investor Note and consequently the first Subsequent Tranche of $105,000 plus interest and other amounts due may be converted into shares of the Company’s common stock at the Conversion Price at the option of the Investor at any time on or after May 4, 2015. Subject to certain conditions based on the trading volume and trading price of the Company’s common stock, the Company may also elect to convert the entire outstanding balance under the Company Note into shares of the Company’s common stock at the Conversion Price. 2014

IfOn ~~the~~November ~~Company~~4, ~~fails~~2014, ~~to repay~~ the Company ~~Note~~entered ~~when~~into ~~due,~~a orsecurities ifpurchase agreement (the ~~Company~~“Purchase isAgreement”) ~~otherwise~~with inTypenex ~~default~~Co-Investment, ~~under the Company Note~~LLC, ~~at the option of Investor~~ a ~~default~~Utah ~~interest~~limited ~~rate~~liability ofcompany ~~22%~~(the ~~per~~“Investor”), ~~annum~~pursuant ~~will~~to ~~apply~~which ~~on all conversion eligible portions of~~ the Company ~~Note~~concurrently ~~while~~issued ~~the~~to ~~default~~Investor ~~continues.~~a InSecured ~~the~~Convertible ~~event~~Promissory ~~the~~Note ~~Company is~~ in ~~default~~a ~~under~~principal ~~the~~amount ~~Company~~of ~~Note~~$1,687,500 (the ~~Investor~~“November ~~also~~Note”). The ~~has the option to accelerate the note with the~~ outstanding balance ~~becoming immediately due and payable or increase the outstanding balance~~ of ~~the~~this note byas ~~an amount~~ of 5%June or30, ~~15%~~2016 ~~depending~~and on2015 ~~the~~was ~~particular~~$0 ~~default.~~and ~~In addition~~$252,188, ifrespectively. As ~~the~~of ~~Company~~June ~~fails~~30, to2015, ~~issue stock to~~ the ~~Investor~~unamortized ~~within~~debt ~~three~~discount ~~trading~~balance ~~days~~was ~~of receipt of a notice of conversion~~$60,096, the Company ~~must~~amortized ~~pay~~$7,337 aduring ~~penalty equal to~~ the ~~greater~~year ofended ~~(i)~~June ~~$500~~30, ~~per~~2016, ~~day;~~leaving oran ~~(ii)~~unamortized 2%debt ofdiscount ~~the product~~ of ~~(A)~~$52,759 ~~the number of shares to~~ which ~~Investor~~ was ~~entitled~~recorded ~~that~~to ~~were~~loss ~~not issued~~ on aextinguishment ~~timely~~of ~~basis;~~debt ~~and~~upon ~~(B)~~extinguishment ~~the closing sale price~~ of the ~~common~~November ~~stock on the trading day immediately preceding the last day for us to timely issue the shares~~Note.

~~The~~As ~~Company~~further ~~Note~~described ~~provides that the Investor maintains a right of offset that~~below, ~~under~~on ~~certain circumstances~~December18, ~~permits~~2015 the ~~Investor~~company toentered ~~deduct~~into ~~amounts~~a ~~owed by the Company under the Company~~ Note ~~from~~Settlement ~~amounts~~Agreement ~~otherwise~~relating ~~owed by Investor under the Investor Notes. In addition, the Company is permitted at any time~~ to ~~deduct and offset any amount owing by~~ the ~~Investor~~November ~~under the Investor Notes from any amount owed by the Company under the Company~~ Note. ~~Since the Company Note and the Investor Notes may be offset against each other, they are recorded on a net basis in the Consolidated Balance Sheet.~~

OnTypenex Co-Investment June ~~30,~~ 2015 ~~pursuant to the terms of the Company~~ Note, ~~the~~(See Company elected to deduct and offset the principal amount of $1,300,000 and all accrued interest thereon owing by the Investor under the remaining nine Investor Notes from the amount owed by the Company under the Company Note, ~~leaving an outstanding balance of $252,188 under the Company Note as of June 30, 2015 and total unamortized debt discount of $60,096.~~9)

~~The~~On June 4, 2015, the Company entered into a Note ~~provides~~Purchase ~~that~~Agreement ~~Investor~~(the ~~may~~“Purchase ~~not~~Agreement”) ~~convert~~with Typenex Co-Investment, LLC, a Utah limited liability company, pursuant to which the Company concurrently issued to the investor an unsecured non-convertible Promissory Note in ana principal amount ~~which~~of ~~would~~$245,000 ~~cause~~(the ~~Investor~~“June toNote”). In ~~own~~consideration ~~more~~for ~~than~~the ~~4.99%~~June Note, orthe ifinvestor paid an aggregate cash purchase price of $200,000, computed as follows: $245,000 original principal balance, less the ~~Company’s~~original ~~market~~issue ~~capitalization~~discount (of $40,000, and less the transaction costs. The June Note matured on December 4, 2015 and, as ~~defined~~further indescribed below, on December 18, 2015 the ~~Company~~company entered into a Note) isSettlement ~~less~~Agreement ~~than~~relating to the June Note. As of June 30, 2015 the outstanding balance on the June Note was $10245,000 and as of June 30,~~000~~ 2016, ~~more~~the ~~than~~outstanding 9balance on the June Note was $0.~~99%,~~ As of June 30, 2015, the unamortized debt discount balance was $34,098 and the Company’s ~~outstanding~~amortized ~~common~~$34,098 ~~stock~~during the year ended June 30, 2016, leaving an unamortized debt discount of $0.

~~The~~Note ~~Company~~Settlement ~~paid~~Agreement ~~Pyrenees~~relating ~~Investments $20,000 as a finder’s fee (equal~~ to ~~10% of~~ the ~~gross~~November ~~proceeds)~~Notes ~~in connection with the first closing, $10,020 in connection with the second closing,~~ and ~~$16,000 as discussed in Note 11. The total finder’s fee of $46,020 was capitalized as deferred issuance costs and amortized over~~ the ~~term of the respective notes. As of~~ June ~~30, 2015 unamortized deferred issuance costs were $39,258. Finance fees for the fiscal year ended June 30, 2015 were $6,762.~~ Note

On December 18, 2015, the Company and Typenex Co-Investment, LLC (the “Investor”) entered into a Note Settlement Agreement. The Note Settlement Agreement relates to the November Note and the June Note (collectively, the “Modified Notes”).

The Note Settlement Agreement restructured the payment provision of the notes, including the June Note which was due and payable in full on December 4, 2015. The Company was to have made $50,000 monthly payments beginning December 15, 2015 and the remaining outstanding balance was to have been paid on or before March 15, 2016. This payment schedule was amended on February 19, 2016 (see below for a description of the Amendment to Note Settlement Agreement).

As consideration for Investor’s agreement to enter into the Note Settlement Agreement, the Company agreed to increase the outstanding balance of each note by 15% (the “Restructure Effect”). Following the application of the Restructure Effect and including a $5,000 transaction expense fee, the outstanding balance of the November Note was $107,443 and the outstanding balance of the June Note was $281,750. The Company identified a derivative liability associated with the Note Settlement Agreement (See Note 8 below).

The Company evaluated the Note Settlement Agreement under ASC 470-50-40 “Extinguishments of Debt” (“ASC 470”). ASC 470 requires modifications to debt instruments to be evaluated to assess whether the modifications are considered “substantial modifications”. A substantial modification of terms shall be accounted for like an extinguishment. For extinguished debt, a difference between the re-acquisition price and the net carrying amount of the extinguished debt shall be recognized currently in income of the period of extinguishment as losses or gains. The Company noted the change in terms per the Note Settlement Agreement, met the criteria for substantial modification under ASC 470, and accordingly treated the modification as extinguishment of the original November Note and June Note, replaced by the new convertible note under the modified terms. The Company recorded a loss on extinguishment of debt of $427,848 (which includes the unamortized debt discount of $52,759 noted above) during the year ended June 30, 2016, including true-up shares of 3,432,068 accrued in the amount of approximately $36,000 in the accompanying balance sheet (See Note 14).

~~The~~Amendment ~~Company~~to ~~evaluated the Company~~ Note ~~under~~Settlement ~~the requirements of ASC 480 “Distinguishing Liabilities from Equity” and concluded that the note does not fall within the scope of ASC 480.~~ Agreement

~~The~~On ~~Company~~February ~~then~~19, ~~evaluated~~2016, the Company ~~Note~~entered ~~under~~into ~~the~~an ~~requirements~~Amendment ~~of ASC 815 “Derivatives and Hedging”. Due~~ to ~~the~~Note ~~existence~~Settlement ofAgreement (the anti-dilution provision which reduces the Lender Conversion Price in the event of subsequent dilutive issuances by the Company, the Company determined that the Lender Conversion feature does not meet the definition of “~~indexed~~Settlement toAgreement Amendment”) ~~the~~with ~~Company’s stock, and the scope exception to ASC 815’s derivative accounting provisions does not apply~~Investor. The ~~Company~~Settlement ~~also~~Agreement ~~determined~~Amendment ~~that~~relates ~~the~~to ~~Lender Conversion feature of~~ the ~~Company~~ Note ~~meets~~Settlement ~~the~~Agreement ~~definition of an embedded derivative that should be separated from~~ (the ~~Company~~“Original ~~Note~~Agreement”) ~~and~~entered ~~accounted~~into ~~for~~between ~~as a derivative liability. The Company recorded an original valuation of $48,975 for~~ the ~~derivative~~parties ~~liability.~~on AsDecember ~~of June 30~~18, 2015~~, the Company had a derivative liability of $68,584 and reflected a change in derivative liability of $19,609 for the twelve month period ended June 30, 2015~~.

The ~~Company~~Original ~~further~~Agreement, ~~concluded~~as ~~that~~amended ~~because~~by ofthe Settlement Agreement Amendment, restructures the ~~conversion~~payment ~~floor~~provision of ~~$0.01~~the onModified ~~Installment~~Notes. The ~~Conversions~~Settlement ~~and~~Agreement ~~because~~Amendment restructures the ~~Company~~payment ~~has~~provisions contained in the ~~right~~Original atAgreement ~~any~~and ~~time~~provides that the Company is to ~~offset~~make the following payments to Investor, ~~Notes~~in ~~from~~lieu of the ~~Company~~previously ~~Note~~agreed to $50,000 ~~the~~cash ~~following~~payments, ~~features~~notwithstanding the terms of the ~~Company~~Modified ~~Note~~Notes do(the ~~not~~“Restructure”): ~~meet~~(a) a cash payment in the ~~definition~~amount of an$35,000 ~~embedded~~payable ~~derivative~~upon ~~that~~execution ~~should~~of bethe ~~separated~~Settlement ~~from~~Agreement Amendment together with 918,386 shares of the Company’s ~~Note~~common ~~and~~stock ~~accounted~~(subject ~~for~~to adjustment as described in the Settlement Agreement Amendment) based on a ~~derivative~~note ~~liability:~~conversion ~~the~~amount ~~Installment~~of ~~Conversion~~$15,000 ~~feature~~and a conversion price of $0.016333, which shares are to be issued and delivered pursuant to the ~~Company~~terms ~~Note,~~of the ~~default~~Settlement Agreement Amendment and ~~remedy~~(b) ~~provisions~~a ofcash payment on or before March 15, 2016 in the ~~Company~~amount ~~Note~~of $35,000 together with shares of the Company’s ~~option~~common tostock ~~settle~~based on a ~~Lender~~note ~~Conversion~~conversion inamount ~~cash~~of in$15,000 ~~the~~and ~~event~~a ~~the~~conversion ~~Investor~~price ~~elects~~of to$0.016333, ~~convert~~which ~~subsequent~~918,386 shares were issued and delivered pursuant to the ~~occurrence~~terms of anthe ~~event~~Settlement ofAgreement ~~default~~Amendment; ~~under~~and ~~the~~(c) ~~Company~~a ~~Note~~payment ~~and~~equal to the ~~Company’s~~remaining ~~prepayment~~aggregate ~~option~~outstanding ~~under~~balance of the ~~Company~~Modified Notes on or before April 15, 2016, which payment must be made in cash (collectively, the “Note Payments”). This Settlement Agreement Amendment was further modified on May 12, 2016 as described below.

~~Derivative~~As ~~Liabilities~~consideration for Investor’s agreement to enter into the Settlement Agreement Amendment, the Company agreed to pay Investor a restructuring fee of $2,500.00.

The ~~convertible~~Company ~~notes~~evaluated ~~discussed~~the ~~above~~Settlement ~~contain~~Agreement ~~conversion~~Amendment ~~features~~under ~~that~~ASC ~~result~~470-50-40 in“Extinguishments anof ~~embedded~~Debt” ~~derivative~~(“ASC 470”). The Company ~~has~~noted ~~recorded~~ the ~~fair~~change ~~value~~in ofterms ~~each~~per ~~derivative~~the asSettlement ~~described~~Agreement ~~above~~Amendment asdid anot ~~current~~meet ~~liability in~~ the ~~consolidated~~criteria ~~balance~~for ~~sheet~~substantial asmodification ofunder ~~June~~ASC 30470, ~~2015.~~and ~~The~~accordingly ~~change~~treated inthe ~~fair~~amendment ~~value~~as ~~was~~a ~~recorded~~modification asto ~~other~~the ~~expense~~Note inSettlement ~~the~~Agreement, ~~consolidated~~adding ~~statement~~$2,500 ofto ~~operations~~the ~~for~~balance and extending the ~~year~~due ~~ended~~date ~~June~~under ~~30,~~the ~~2015~~modified terms.

InOn ~~arriving~~May at12, ~~fair-value~~2016 ~~estimates~~but effective as of April 15, 2016, the Company ~~utilizes~~entered ~~the~~into ~~most~~Amendment ~~observable~~#2 ~~inputs~~to ~~available~~Note ~~for~~Settlement Agreement (the ~~valuation~~“Second ~~technique~~Amendment”) ~~employed.~~with IfTypenex ~~a fair~~Co-~~value~~Investment, ~~measurement~~LLC ~~reflects~~(the ~~inputs~~“Investor”). The atSecond ~~multiple~~Amendment ~~levels~~relates ~~within~~to the ~~fair~~Note ~~value~~Settlement ~~hierarchy,~~Agreement ~~the~~entered ~~fair-value~~into ~~measurement~~between isthe ~~characterized~~parties ~~based~~on ~~upon~~December ~~the~~18, ~~lowest~~2015, ~~level~~as ~~input.~~previously ~~For~~amended ~~the~~on ~~Company~~February 19, ~~recurring~~2016 ~~fair-value~~(as ~~measurements~~previously ~~are~~amended, ~~performed for~~ the ~~derivative~~“Original ~~liability~~Agreement”).

The ~~derivative~~Original ~~liability~~Agreement, as amended by the Second Amendment, restructures the payment provision of the Modified Notes. The Second Amendment restructures the payment provisions contained in the Original Agreement and provides that the Company is ~~recognized~~to make the following payments to Investor notwithstanding the terms of the Modified Notes (the “Restructure”): (a) a cash payment in the ~~consolidated~~amount ~~balance~~of ~~sheet~~$35,000 atpayable ~~fair~~on ~~value~~or before April 15, 2016 together with 3,160,556 shares of the Company’s common stock (subject to adjustment as described in the Settlement Agreement Amendment) based on a note conversion amount of $50,000 and a conversion price of $0.015820, ~~Changes~~which shares are to be issued and delivered pursuant to the terms of the Settlement Agreement Amendment and (b) a cash payment on or before May 15, 2016 in the ~~fair~~amount ~~value~~of $35,000 together with shares of the ~~derivative~~Company’s ~~liability~~common ~~are~~stock ~~reported~~based on a note conversion amount of $50,000 and a conversion price to be determined in accordance with the ~~consolidated~~Notes, ~~statement~~which shares are to be issued and delivered pursuant to the terms of ~~operations~~the Settlement Agreement Amendment (see Note 3 for share issuance description); and (c) a payment equal to the remaining aggregate outstanding balance of the Notes on or before June 15, 2016, which payment must be made in cash (collectively, the “Note Payments”). The ~~Company~~Second ~~does~~Amendment ~~not~~also ~~have~~provides ~~any~~that ~~liabilities~~outstanding ~~that~~balance ~~reduce~~on ~~risk~~each ~~associated~~of ~~with~~the ~~hedging~~November ~~exposure~~Note and ~~has~~the June Note will bear interest at the rate of 10% per annum from the effective date of the amendment until such notes are repaid in full; previously, the June Note did not ~~designated~~accrue interest on the ~~derivative~~unpaid ~~liability~~principal asbalance aof ~~hedge~~the ~~instrument~~note unless an event of default occurred.

The Company did not have any derivatives valued using Level 1 and Level 2 inputs as of June 30, 2015. The Company categorized the derivative liability as Level 3 with a fair value of $68,584 as of June 30, 2015 using the Black-Scholes pricing model. The Company used the following input ranges: stock price $0.0099-$0.029; expected term 3.9-4.4 years; risk-free rate 0.26%-1.63%; and volatility 107.5%-245.7%. Unobservable inputs were the prevailing interest rates, the Company’s stock volatility and the expected term.

There have been no transfers between Level 1, Level 2, or Level 3 categories. Level 3 as of June 30, 2014 was $0; Level 3 additions for the twelve months ended June 30, 2015 were $48,975 for the initial recognition with $19,609 valuation adjustment at June 30, 2015 ; Level 3 at June 30, 2015 was $68,584.

~~NOTE~~As 11consideration ~~–NOTES~~for ~~PAYABLE~~Investor’s agreement to enter into the Second Amendment, the Company agreed to pay Investor a restructuring fee of $15,316. The Company evaluated the Second Amendment under ASC 470-50-40 “Extinguishments of Debt” (“ASC 470”), noting it did not meet the criteria for substantial modification under ASC 470, and accordingly treated the amendment as a modification to the Original Agreement.

Note Holder	Balance 6/30/2015	Unamortized Original Issue Discount	Balance, net of Discount 6/30/2015
Typenex Unsecured Short Term	$ 245,000	$ (34,098)	$ 210,902
B of I Bank	153,655	-	153,655
The Hartford	13,001	-	13,001
Bank of the West - short term portion	7,211	-	7,211
Total Short Term Notes Payable	$ 418,867	$ (34,098)	$ 384,769
Bank of the West - long term portion	$ 29,189	$ -	$ 29,189
Total Long Term Notes Payable	$ 29,189	$ -	$ 29,189

During the year ended June 30, 2016, the Company made principal payments of $277,009 and converted $130,000 of the Note Settlement into 10,594,769 shares. As of June 30, 2016, the outstanding balance under the November Note and June Note is $0. Upon the final payoff of the November Note and June Note, the Company recorded a gain on extinguishment of debt of $6,498 related to the re-measurement of the derivative liability.

~~Bank~~NOTE of8 ~~the~~–DERIVATIVE ~~West~~LIABILITIES

On December 29, 2014, Kyle Winther, the Company’s CEO, entered into a vehicle financing agreement with the Bank of the West. Pursuant to the agreement, the amount financed was $39,275, payable in 48 monthly payments plus accrued interest at a rate of 3.9%. In January 2015, the Company agreed to assume the payments on this loan and capitalized the vehicle (see Note 15). As of June 30, 2015 the outstanding balance was $36,400, with $7,211 and $29,189 classified as short term and long term, respectively.


Note name	June 30, 2015	Estimated Fair Value Upon Issuance	Change in Estimated Fair Value	Extinguishment of Debt	June 30, 2016
EMBEDDED CONVERSION FEATURE:
Chicago ventures	68,584		1,597	(70,181)*	-
Typenex		330,946	(324,448)	(6,498)	-
Iliad		29,475	82,465		111,940
TCA		706,911	(105,534)		601,376
TCA Advisory fee		23,130	91,440		114,570
Total	68,584	1,090,462	(254,481)	(76,679)	827,887

~~Facilities~~*this ~~with~~was Baccounted for as part of Ithe ~~Federal~~$427,848 ~~Bank~~loss described in Note 7.

OnThe ~~January~~Company 2,evaluated ~~2015,~~each of the ~~Company~~Typenex ~~entered~~November ~~into~~Note aand ~~Business~~June ~~Loan~~Note ~~and~~(see ~~Security~~Note ~~Agreement~~7), ~~with~~Iliad BCo-Investment ofNote I(see ~~Federal~~Note ~~Bank~~7), (the ~~“Bank”~~TCA Note (see Note 7)~~. Pursuant~~ toand the ~~agreement,~~terms of the ~~Company~~Advisory ~~borrowed~~Fee ~~$200,000~~payable ~~from~~to TCA (see Note 7) under the ~~Bank~~requirements of ASC 480 “Distinguishing Liabilities from Equity” and ~~received~~concluded ~~net~~that ~~proceeds~~none of ~~$195,000~~the ~~USD~~foregoing ~~after~~fall ~~deducting~~within anthe ~~origination~~scope ~~fee~~ of ~~$5,000~~ASC 480. The ~~loan~~Company ~~was~~then ~~payable~~evaluated ineach ~~147~~of ~~payments~~the ofIliad $1Co-Investment Note,~~728~~ ~~due~~the ~~each~~TCA ~~business~~Note ~~day~~and ~~beginning~~the onterms ~~and~~of ~~after~~the ~~January~~Advisory 5,Fee ~~2015,~~payable ~~with~~to TCA under the ~~initial~~requirements ~~total~~of ~~repayment~~ASC ~~amount~~815 ~~(subject~~“Derivatives toand ~~certain~~Hedging” ~~exceptions)~~and ~~being~~concluded ~~equal~~that toeach ~~$254,000~~the foregoing contain features that result in an embedded derivative.

OnThe ~~June 2, 2015, the~~ Company ~~entered~~has ~~into~~recorded ~~a new Business Loan and Security Agreement with~~ the ~~Bank. Pursuant~~fair tovalue ~~the agreement, the Company borrowed $175,000 from the Bank and received net proceeds~~ of ~~$104,071~~each ~~after~~derivative ~~deducting~~as ana ~~origination~~current ~~fee~~liability ofin ~~$1,875 and~~ the ~~repayment~~balance ofsheet ~~$69,054~~as ~~in full satisfaction~~ of ~~the~~June ~~Company’s remaining obligations under that certain Business Loan and Security Agreement entered into with the Bank on January 2~~30, ~~2015~~2016. The ~~new~~change ~~loan is payable~~ in ~~126~~fair ~~payments~~value ofwas ~~$1,708.33~~recorded ~~due~~as ~~each~~other ~~business~~expense ~~day~~in ~~beginning on June 3, 2015, with~~ the ~~total~~statement ~~repayment~~of ~~amount~~operations ~~(subject~~for ~~to certain exceptions) being equal to $215,249.58 (~~the ~~“Total~~year ~~Repayment~~ended ~~Amount”). As of~~ June 30, ~~2015 the outstanding balance was $153,655~~2016.

~~The~~In ~~new~~arriving ~~loan~~at ~~may~~fair-value beestimates, ~~prepaid~~the inCompany ~~whole~~utilizes by the ~~Company~~most atobservable ~~any~~inputs ~~time~~available byfor ~~paying~~ the ~~Bank~~valuation antechnique ~~amount~~employed. ~~equal~~If toa ~~the~~fair-value ~~Total~~measurement ~~Repayment~~reflects ~~Amount~~inputs ~~(subject~~at tomultiple ~~certain~~levels ~~fees)~~within ~~less (i)~~ the ~~amount~~fair ofvalue ~~any~~hierarchy, ~~loan~~the ~~payments~~fair-value ~~made~~measurement ~~prior~~is tocharacterized ~~such~~based ~~prepayment~~upon ~~and (ii)~~ the ~~product~~lowest oflevel 0input.25 ~~and~~For the ~~aggregate~~Company, ~~amount~~recurring offair-value ~~unpaid~~measurements ~~interest~~are ~~remaining~~performed onfor the ~~loan~~derivative ~~as of the prepayment date~~liability.

The ~~new~~derivative ~~loan~~liability is ~~secured~~recognized byin ~~all personal property of~~ the ~~Company~~balance ~~and~~sheet isat ~~also~~fair ~~personally~~value. ~~guaranteed~~Changes byin ~~Lori Winther,~~ the ~~Company’s~~fair ~~Chief~~value ~~Financial Officer and a director~~ of the ~~Company,~~derivative ~~Kyle~~liability ~~Winther,~~are ~~the~~reported ~~Company’s~~in ~~Chief Executive Officer and a director of~~ the ~~Company,~~statement ~~and Gary Perlingos, the Company’s President and a director~~ of ~~the Company~~operations. If anThe ~~event of default occurs under the agreement, all obligations owing by the~~ Company todoes ~~the~~not ~~Bank~~have ~~under~~any ~~the~~liabilities ~~agreement~~that ~~will,~~reduce atrisk ~~the~~associated ~~Bank’s~~with ~~election,~~hedging ~~become~~exposure ~~immediately due~~ and ~~payable~~has ~~and~~not designated the ~~Bank~~derivative ~~may~~liability ~~exercise its rights~~ as a ~~secured~~hedge ~~creditor~~instrument.

~~Typenex~~The CoCompany did not have any derivatives valued using Level 1 and Level 2 inputs as of June 30, 2016. The Company categorized the derivative liability as Level 3 with a fair value of $827,887 as of June 30, 2016 using the Black-~~Investment~~Scholes ~~Note~~pricing model. The Company used the following input ranges: stock price $0.006-$0.01; expected term 0.58-0.96 years; risk-free rate 0.36%-0.45%; and volatility 150%-156%. Unobservable inputs were the prevailing interest rates, the Company’s stock volatility and the expected term.

OnThere ~~June~~have 4,been ~~2015,~~no ~~the~~transfers ~~Company~~between ~~entered~~Level ~~into a Note Purchase Agreement (the “Purchase Agreement”) with Typenex Co-Investment~~1, ~~LLC,~~Level ~~a Utah limited liability company~~2, ~~pursuant~~or toLevel ~~which~~3 ~~the~~categories. ~~Company~~Level ~~concurrently~~3 ~~issued~~as ~~to the investor an unsecured non-convertible Promissory Note in a principal amount~~ of ~~$245,000 (the “~~June ~~Note”). The principal amount includes an original issue discount of $40~~30,~~000~~ ~~plus~~2015 anwas ~~additional~~ $568,~~000~~584; toLevel ~~cover~~3 ~~the~~additions ~~investor’s~~for ~~legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with~~ the ~~transaction.~~twelve ~~The~~months ~~original~~ended ~~issue discount was recorded as debt discount and amortized to interest expense over the life of the note. In consideration for the~~ June ~~Note~~30, ~~the~~2016 ~~investor~~were ~~paid an aggregate cash purchase price of~~ $~~200~~1,~~000~~090,464 ~~computed~~for ~~as follows: $245,000 original principal balance, less~~ the ~~original~~initial ~~issue~~recognition ~~discount~~with ofa $40(254,~~000,~~481) ~~and~~valuation ~~less~~adjustment ~~the~~and ~~transaction~~a ~~costs. The June Note matures on December 4~~$(76,679) ~~2015. The~~adjustment ~~Company~~related ~~may~~to ~~prepay~~extinguishment ~~all or a portion~~ of ~~the~~debt ~~amount~~at ~~owed~~June ~~earlier~~30, ~~than~~2016; itLevel is3 ~~due~~at ~~without penalty. As of~~ June 30, ~~2015~~2016 ~~the outstanding balance~~ was $~~245~~827,~~000~~887.

~~Interest~~NOTE ~~does~~9 ~~not~~–NOTES accrue on the unpaid principal balance of the June Note unless an event of default occurs. Upon the occurrence of an event of default, the outstanding balance of the June Note will bear interest at the lesser of the rate of 18% per annum or the maximum rate permitted by applicable law. In addition, if an event of default occurs under the June Note, the investor may declare all unpaid principal, plus all accrued interest and other amounts due under the June Note to be immediately due and payable at an amount equal to 115% of the outstanding balance of the June Note as of the date of the applicable event of default, plus all interest, fees and charges that may accrue on such outstanding balance thereafter. PAYABLE

The Company paid MSC-BD, LLC $16,000 as a finder’s fee (equal to 8% of the net proceeds) in connection with financing from the investor.


Note Holder	Balance 6/30/2015	Unamortized Original Issue Discount	Balance, net of Discount 6/30/2015
Typenex Unsecured Short Term (Note 7)	$ 245,000	$ (34,098)	$ 210,902
B of I Bank	153,655	-	153,655
The Hartford	13,001	-	13,001
Bank of the West - short term portion	7,211	-	7,211
Total Short Term Notes Payable	$ 418,867	$ (34,098)	$ 384,769

Bank of the West - long term portion	$ 29,189	$ -	$ 29,189
Total Long Term Notes Payable	$ 29,189	$ -	$ 29,189

Other short term facilities


Note Holder	Balance June 30, 2016	Unamortized Original Issue Discount	Balance, net of Discount June 30, 2016
Bank of the West - short term portion	$ 7,211	$ -	$ 7,211
Bank of the West - long term	23,137	-	23,137
	$ 30,348	$ -	$ 30,348

~~Effective~~Bank ~~May 29, 2015, the Company entered into an Agreement to finance its annual Workers Compensation insurance coverage. The insurance coverage is provided through The Hartford. The amount~~ of the policy is $18,871 with $18,871 being financed at 2.2% over 12 months with an initial payment of $4,425 and 10 monthly payments of $1,444. At June 30, 2015, the premium obligation due under the Agreement was $13,001.West

~~Effective~~On ~~July~~December 1029, 2014, Kyle Winther, the Company’s CEO, entered into ana ~~Agreement~~vehicle tofinancing ~~finance~~agreement ~~its~~with ~~annual~~the ~~General~~Bank ~~Liability~~of ~~insurance~~the ~~coverage~~West. ~~The~~Pursuant ~~insurance~~to ~~coverage~~the isagreement, ~~provided~~the ~~through~~amount ~~Lloyds~~financed was $39,275, payable in 48 monthly payments plus accrued interest at a rate of ~~London~~3.9%, ~~The~~with ~~amount~~monthly payments of ~~the~~$614 ~~policy~~and isa ~~$52~~maturity date of December 29,~~359~~ ~~with~~2018. In ~~$43~~January 2015,~~953~~ ~~being~~the ~~financed~~Company atagreed ~~11%~~to ~~over~~assume 10the ~~months~~payments ~~with~~on athis ~~monthly~~loan ~~payment~~and capitalized the vehicle. As of June 30, 2016 the outstanding balance was $430,~~619~~348, with $7,211 and $23,137 classified as short term and long term, respectively.~~93.~~ As Atof June 30, 2015, the ~~remaining~~outstanding ~~premium~~balance ~~obligation~~was ~~due~~$36,400, ~~under~~with ~~the~~$7,211 ~~Agreement~~and ~~was~~ $029,189 classified as short term and long term, respectively.

Effective August 22, 2014, the Company entered into an Agreement to finance its annual Director’s and Officer’s insurance coverage. The insurance coverage is provided through Lloyds of London. The amount of the policy is $129,062.50 with $112,500.00 being financed at 5.35% over 9 months with a monthly payment of $12,780.30. At June 30, 2015, the remaining premium obligation due under the Agreement was $0.

NOTE 12 – DELITE ACQUISITION

As described in Note 4, the Company acquired Delite as part of the transactions contemplated by the Exchange Agreement on March 26, 2014. This transaction was a share exchange and was treated as a business acquisition. The balance sheet of Delite has been consolidated with the Company as of June 30, 2014 and the activity subsequent to acquisition has been consolidated with the Company’s operations. As June 30, 2014, Delite had total assets of $120,992, total liabilities of $303,837 and total equity of $(182,845). Delite balances were carried over at historical cost.

~~Below~~Terminated isFacilities awith ~~summarized~~B ~~presentation~~ of ~~unaudited~~I ~~pro-form~~Federal ~~results of operations with Delite for the period from inception (July 12, 2013) to June 30, 2014:~~Bank

	Delite	Vapor	Company	Elimination	Pro-Forma
Revenue	$ 1,446,749	$ 513,811	$ -	$ (346,077)	$ 1,614,483
Cost of revenue	858,128	280,181	-	(280,181)	858,128
Gross profit	588,621	233,630	-	(65,895)	756,355
General and administrative expense	992,090	259,558	25,149	(65,895)	1,210,902
Other income	-	29,999	9,019	-	39,018
Income tax provision	1,963	6,702	-	-	8,665
Net loss	$ (405,432)	$ (2,631)	$ (16,130)	$ -	$ (424,194)

On January 2, 2015, the Company entered into a Business Loan and Security Agreement with B of I Federal Bank (the “Bank”). Pursuant to the agreement, the Company borrowed $200,000 from the Bank and received net proceeds of $195,000 USD after deducting an origination fee of $5,000. The loan was payable in 147 payments of $1,728 due each business day beginning on and after January 5, 2015, with the initial total repayment amount (subject to certain exceptions) being equal to $254,000.

~~NOTE~~On 13June –2, ~~INCOME~~2015, ~~TAX~~the Company entered into a new Business Loan and Security Agreement with the Bank. Pursuant to the agreement, the Company borrowed $175,000 from the Bank and received net proceeds of $104,071 after deducting an origination fee of $1,875 and the repayment of $69,054 in full satisfaction of the Company’s remaining obligations under that certain Business Loan and Security Agreement entered into with the Bank on January 2, 2015. The new loan was payable in 126 payments of $1,708 due each business day beginning on June 3, 2015, with the total repayment amount (subject to certain exceptions) being equal to $215,249 (the “Total Repayment Amount”). As of June 30, 2016 and 2015, the outstanding balance was $0 and $153,655, respectively.

~~The~~On ~~provision~~November ~~for~~3, ~~income~~2015, ~~taxes~~the ~~was~~Company ~~determined~~entered byinto ~~applying~~a ~~the~~new ~~statutory~~Business ~~federal~~Loan ~~income~~and ~~tax~~Security ~~rate~~Agreement with the Bank. Pursuant to the agreement, the Company borrowed $125,000 from the Bank and received net ~~income~~proceeds ~~before~~of ~~income~~$93,615 ~~taxes~~after deducting an origination fee of $3,023 and isthe asrepayment ~~follows~~of ~~for~~$28,361 in full satisfaction of the ~~period~~Company’s ~~from~~remaining ~~inception~~obligations ~~(July~~under 12that certain Business Loan and Security Agreement entered into with the Bank on June 2, ~~2013~~2015. The new loan was payable in 126 payments of $1,220 due each business day beginning on November 4, 2015, with the total repayment amount (subject to certain exceptions) being equal to ~~June~~$153,750. 30On December 24, ~~2014~~2015, ~~and~~the ~~for~~loan balance of $106,000 was paid off upon the ~~year~~closing ~~ended~~of ~~June~~the 30financing transaction with TCA Global Credit Master Fund, ~~2015:~~LP.

		2014		2015
Federal tax	$	3,751	$	-
State tax	$	3,328	$	2,400

Prior to their repayment, each of the facilities with the Bank were secured by all personal property of the Company and were also personally guaranteed by Lori Winther, Kyle Winther and Gary Perlingos.

The Company evaluated each of the agreements entered into on June 2, 2015 and November 3, 2015 under ASC 470-50-40 “Extinguishments of Debt” (“ASC 470”), and determined that neither agreement constituted a substantial modification under ASC 470, and accordingly treated the agreements as a modification to the original January 2, 2015 facility.

NOTE 10 – INCOME TAX

The provision for income taxes was determined by applying the statutory federal income tax rate to net income before income taxes and is as follows for the year ending June 30, 2015 and June 30, 2016:


		2016		2015
Federal tax	$	-	$	-
State tax	$	800	$	2,400

The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes were as follows:

	2014		2015
	2016		2015
Statutory federal income tax rate	(34)	%	(34)	%
State taxes, net of federal benefit	10( 4)	%	( 3)	%
Other	22( 1)	%	( 2)	%
	(2)	%	(39)	%
	(39)	%	(39)	%

NOTE 14 – LOSS PER COMMON SHARE

A summary of the net loss and shares used to compute net loss per share for the period from inception (July 12, 2013) to June 30, 2014 and for the year ended June 30, 2015 is as follows:

		2014		2015
Net loss for computation of basic and dilutive net (loss) per share	$	(423,606)	$	(613,997)
Basic and dilutive net (loss) per share	$	(0.01)	$	(0.01)
Basic and dilutive weighted average shares outstanding	$	68,060,001	$	68,164,099

NOTE 1511 – ~~PROPERTY~~LOSS ~~AND~~PER ~~EQUIPMENT~~COMMON SHARE

A summary of the net loss and shares used to compute net loss per share for the year ended June 30, 2016 and 2015 is as follows:


		2016	$	2015
Net loss for computation of basic and dilutive net (loss) per share	$	(634,643)	$	(613,997)
Basic and dilutive net (loss) per share	$	(0.01)	$	(0.01)
Basic and dilutive weighted average shares outstanding	$	76,419,180	$	68,164,099

NOTE 12 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:

		June 30, 2014		June 30, 2015
		June 30, 2016		June 30, 2015
Automobile	$	-36,976	$	36,976
Computer		1216,~~895~~756		16,756
Furniture and equipment		97112,~~300~~302		106,568
Leasehold improvements		1744,~~539~~300		44,300
Accumulated depreciation		(2376,~~003~~111)		(45,054)
Property and equipment, net	$	~~104~~134,~~731~~223	$	159,546

NOTE 1613 – ~~SUBSEQUENT EVENTS~~LITIGATION

~~Note~~On ~~Payable~~November 4, 2015, the Company filed a lawsuit in the Superior Court of California, County of Orange, Case Number 30-2015-00818492-CU-BC-CJC against Kevin Crump, an individual, Magnavape, Inc. and Magnavon, Inc. alleging breach of contract, fraud, negligent misrepresentation, intentional interference with economic advantage and negligent interference with economic advantage relating to the production by the defendants of the Company’s AR Mods. The lawsuit prayer is for $3,000,000. This amount includes general damages, lost profits and punitive damages against the defendants. A mandatory settlement conference is scheduled for February 24, 2017 and a jury trial is scheduled for March 27, 2017.

OnNOTE ~~August~~14 ~~12,~~– ~~2015,~~SUBSEQUENT the Company entered into a Note Purchase Agreement (the “Purchase Agreement”) with Iliad Research and Trading, L.P., a Utah limited partnership (the “Investor”), pursuant to which the Company concurrently issued to the Investor a Promissory Note in a principal amount of $245,000 (the “Note”). The principal amount includes an original issue discount of $40,000 plus an additional $5,000 to cover the Investor’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the transaction (the “Transaction Costs”). In consideration for the Note, the Investor paid an aggregate cash purchase price of $200,000, computed as follows: $245,000 original principal balance, less the original issue discount of $40,000, and less the Transaction Costs. The Note matures on February 12, 2016. The Company may prepay all or a portion of the amount owed earlier than it is due without penalty and if the Company prepays $225,000 on or before November 9, 2015, the Note will be deemed paid in full.EVENTS

~~Interest~~On ~~does~~July ~~not~~15, ~~accrue~~2016, on the ~~unpaid~~Company ~~principal~~entered ~~balance~~into ofa ~~the~~second ~~Note~~Exchange ~~unless~~Agreement ~~an event of default occurs. Upon~~ (the ~~occurrence~~“Second ofExchange anAgreement”) ~~event~~with ofIliad. Pursuant ~~default,~~to the ~~outstanding~~Second ~~balance~~Exchange ofAgreement, the ~~Note~~Company ~~will~~and ~~bear~~Iliad ~~interest~~exchanged at the ~~lesser~~Exchange ofNote ~~the~~for ~~rate~~a ofnew ~~18%~~promissory ~~per~~note ~~annum~~in or the ~~maximum~~original ~~rate~~principal ~~permitted~~amount ~~by applicable law. In addition, if an event~~ of ~~default occurs under the Note~~$81,631.88 (the ~~Investor~~“Second ~~may~~Exchange ~~declare all unpaid principal~~Note”), ~~plus~~which ~~all~~balance ~~accrued~~includes ~~interest and other amounts due under the Note to be immediately due and payable at~~ an ~~amount~~exchange ~~equal~~fee ~~to 115%~~ of ~~the~~$2,500. ~~outstanding~~The ~~balance~~Second ofExchange ~~the~~ Note aswas ofissued ~~the~~in ~~date~~substitution of ~~the applicable event of default, plus all interest, fees~~ and ~~charges~~not ~~that~~in ~~may~~satisfaction ~~accrue~~of onthe ~~such~~Exchange ~~outstanding balance thereafter~~Note.

~~Iliad~~The ~~Research~~Second ~~and~~Exchange ~~Trading,~~Agreement ~~L.P.~~and isrelated anSecond ~~affiliate~~Exchange ofNote ~~Typenex~~restructure ~~Co-Investment,~~the ~~LLC,~~payment aprovisions ~~Utah~~of ~~limited~~the ~~liability~~Exchange ~~company~~Note. The Second Exchange Note provides that the Company is ~~party~~to make to ~~debt~~Iliad ~~facilities~~a ~~with~~payment ~~Typenex~~equal ~~Co-Investment~~to the remaining aggregate outstanding balance of the Second Exchange Note on or before July 15, ~~LLC~~2017, which ~~were~~payment ~~entered~~must ~~into~~be made in cash. Interest accrues on ~~November~~the 4outstanding balance of the Second Exchange Note at a rate of 10% per annum; provided, ~~2014~~however ~~and~~that ~~June~~if 4the Company fails to repay the Second Exchange Note when due, ~~2015~~or if the Company is otherwise in default under the Second Exchange Note, ~~respectively~~at the option of Iliad a default interest rate of 18% per annum will apply. In the event the Company is in default under the Second Exchange Note, Iliad also has the option to accelerate the note with the outstanding balance becoming immediately due and payable at an amount equal to 115% of the outstanding balance of the Second Exchange Note as of the date the event of default occurred. The Second Exchange Note may be prepaid without penalty at any time.

Lease Commitments

On September 1, 2015, the Company entered into a Commercial Lease Agreement with the Winther Family Trust, pursuant to which the Company will lease the property located at 1871 Tapo Street, Simi Valley, CA 93065 (the “Premises”), for a term of 60 months commencing on September 1, 2015. The Company will pay a base rent of $5,650 per month for the duration of the term. The Premises is replacing the Company’s prior facility located at 67 W. Easy Street, Unit 115, Simi Valley, CA 93065 and will serve as the Company’s primary office location. In addition to providing office space, the approximately 5,000 square foot facility will also be used for warehousing and shipping.

The lessor of the Premises, the Winther Family Trust, is controlled by Niels Winther and Lori Winther. Both Niels Winther and Lori Winther are Directors of the Company, and Lori Winther also serves as the Company’s Chief Financial Officer and Secretary.

The Second Exchange Note provides that, until the Second Exchange Note has been paid in full, Iliad may convert all or part of the outstanding note balance (the “Conversion Amount”) into shares of common stock of the Company at the Conversion Price (as defined below). Notwithstanding the foregoing, the Company has the option to pay the Conversion Amount in cash in lieu of delivering shares of its common stock. As used, “Conversion Price” means a price per share equal to 70% of the average of the three lowest closing bid prices of the Company’s common stock in the twenty trading days immediately preceding the applicable conversion. The Second Exchange Note provides that the Company may not issue shares to Iliad under the Second Exchange Note if the issuance of such shares would cause Iliad to beneficially own more than 9.99% of the Company’s outstanding common stock.

As of October 10, 2016, the outstanding balance on the Second Exchange Note was $23,264.

Issuance of Common Stock

Subsequent to June 30, 2016, the Company issued to Typenex Co-Investment, LLC shares of its common stock as partial payment of the Company’s outstanding debt obligations to Typenex as follows (see Note 7):


Date of Issuance	Number of Shares of Common Stock	Conversion Price	Consideration
August 5, 2016	118,456	$0.014467	Issuance of true up shares in connection with debt conversion on March 15, 2016.
August 5, 2016	3,313,612	$0.007723	Issuance of true up shares in connection with debt conversion on April 15, 2016.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

As previously disclosed in our Current Report on Form 8-K filed on ~~April~~May 318, ~~2015~~2016, our Board approved the engagement of ~~Hartley~~Hall ~~Moore~~& ~~Accountancy~~Company, ~~Corporation~~Inc. as our independent registered public accounting firm effective ~~March~~May 3012, ~~2015~~2016. There were no disagreements or reportable events related to the change in accountants requiring disclosure under Item 304(b) of Regulation S-K.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, our management, with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal accounting officer and principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, ~~2015~~2016, the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were not effective to ensure that information that is required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our Company’s disclosure controls are not effective due to limited accounting and reporting personnel and a lack of expertise and segregation of duties due to limited financial resources and the size of ~~our~~the ~~company~~Company. We will need to adopt additional disclosure controls and procedures.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and our Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.

Internal control 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 our company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of management and directors of our company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our company’s assets that could have a material effect on the financial statements.

Our management believes that all internal control systems, no matter how well designed and operated, have inherent limitations, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurances with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal controls may vary over time. Our management believes that the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

A material weakness is a significant deficiency, or combination of significant deficiencies, that result in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

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Management has conducted, with the participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our internal control over financial reporting as of June 30, ~~2015~~2016 in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control — Integrated Framework. Based on this assessment, management concluded that as of June 30, ~~2015~~2016, our Company’s internal control over financial reporting was not effective primarily due to the limited size of our staff and budget.

The Company's management has identified material weaknesses in its internal control over financial reporting related to the following matters:

A lack of sufficient segregation of duties. Specifically, this material weakness is such that the design over these areas relies primarily on defective controls and could be strengthened by adding preventative controls to properly safeguard Company assets.

A lack of sufficient personnel in the accounting function due to the Company's limited resources with appropriate skills, training and experience to perform certain tasks as it relates to financial reporting.

A lack of formally documented policies and procedures, which provide for an ineffective control environment.

The Company's plan to remediate those material weaknesses is as follows:

To improve the effectiveness of the accounting group, the company uses the firm of Winther and Company CPA’s to augment existing resources, to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions. The Company also ~~recently~~ hired a full-time accounting manager to maintain the Company’s books and records under the supervision of the CFO. The Company plans to further mitigate its accounting deficiencies by hiring additional personnel in the accounting department once it generates significantly more revenue, or raises significant additional working capital.

The company is also in the process of adopting specific internal control mechanisms with its Board of Directors’ and executive officers’ collaboration to ensure effectiveness as the company grows. ~~The company is presently engaging an outside consultant to assist in adopting new measures to improve upon its internal controls.~~ Future controls, among other things, will include more checks and balances and communication strategies between the management and the Board of Directors to ensure efficient and effective oversight over company activities as well as more stringent accounting policies to track and update the company’s financial reporting.

This Annual Report does not include an attestation report from our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only the management’s report in this Annual Report.

Changes in Internal Control Over Financial Reporting

Other than as described above, there were no changes in our internal control over financial reporting during the year ended June 30, ~~2015~~2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The following table sets forth the names, positions and ages of our current executive officers and directors. All directors serve until the next annual meeting of stockholders or until their successors are elected and qualified. Officers are appointed by our board of directors and their terms of office are at the discretion of our board of directors.

Name	Age	Position~~(s)~~
Kyle Winther	3031	Chief Executive Officer and Director	~~Chief Executive Officer and Director~~
Lori Winther	5859	Chief Financial Officer, Treasurer, Secretary and Director	~~Chief Financial Officer, Treasurer, Secretary and Director~~
Gary Jacob Perlingos	3435	President, Chief Technology Officer and Director	~~President, Chief Technology Officer and Director~~
Niels Winther	5960	Chairman of the Board	~~Chairman of the Board~~
Justin Moreno	33		Chief Operating Officer, Director

Kyle Winther has served as a director of our company since March 14, 2014. Mr. Winther also became our Chief Executive Officer on March 14, 2014 and served in such capacity until the appointment of Andrew Birnbaum as Chief Executive Officer on March 24, 2014, at which point in time Mr. Winther became our Chief Operating Officer. Following Mr. Birnbaum’s resignation on July 8, 2014, Mr. Winther was re-appointed as our Chief Executive Officer and resigned from his position as our Chief Operating Officer in connection with the appointment of Justin Moreno to such position on August 8, 2014. Mr. Winther is a founding shareholder of Delite Products, Inc., formed in 2008, and Vapor Hub, Inc., formed in 2013, each of which were our wholly owned subsidiaries until their merger into Vapor Hub International Inc. on May 18, 2015, and served as President and Chief Executive Officer of each of these companies since their respective dates of formation. Since 2008, Mr. Winther has also been instrumental in the development of our products. Mr. Winther is a graduate of Cal State University-Northridge where he earned a B.S. in Business Administration/Marketing. We believe that Mr. Winther is qualified to sit on our board of directors due to his extensive experience in the vaping industry and because of his sales and marketing skills.

Lori Winther became our Chief Financial Officer, Treasurer and Secretary and was appointed as a director of the company on March 14, 2014. Ms. Winther is an original founder of each of our former subsidiaries, Vapor and Delite. Prior to founding our subsidiaries, Ms. Winther served as the office manager for the Certified Public Accounting firm – Winther and Company CPA’s, Inc., as well as its affiliate, Winthco Wealth Management, acting for both since 1989. Ms. Winther remains a Vice President of Winther and Company today. Ms. Winther’s seasoned experience contributes to the administrative stability and financial solvency of the company. Ms. Winther is a graduate of Moorpark Community College with a A.A. in Business Administration. We believe that Ms. Winther is qualified to sit on our board of directors due to her extensive administration and human resources experience and financial expertise.

Gary Jacob Perlingos became our President and Chief Technology Officer and was appointed as a director of the company on March 14, 2014. Mr. Perlingos joined our former subsidiary, Delite, in 2013. Mr. Perlingos has held a variety of positions within his career, including acting as a freelance designer and developer of websites for a period of twelve years, serving as Director of Design Development at Homebase Learning Institute, a start-up on-line education company from 2010 to 2012 and serving as Senior Web Developer, performing web integrations for 4-Over, Inc., one of the largest trade printers in the United States from 2012 to 2013. Prior to his position at Homebase Learning Institute, Mr. Perlingos was a partner at a boutique web design firm, Artifice Studios, from 2009 to 2012. Mr. Perlingos began his career in the mortgage industry where he worked in various operational capacities from 2000 to 2009. We believe that Mr. Perlingos is qualified to sit on our board of directors due to his entrepreneurial experience and his branding, marketing and operational expertise.

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Niels Winther, CPA was appointed as a director of the company on March 14, 2014. Mr. Winther has over three decades of experience in tax, financial, managerial, information and system consulting and currently directs and oversees Winther and Company CPA’s, Inc., a tax & accountancy and wealth management firm and Winthco Wealth Management in his capacity as President of each company. Mr. Winther attended Cal State University-Northridge - Accounting and University of La Verne – School of Law. We believe that Mr. Winther is qualified to serve on our Board of Directors because of his financial expertise acquired while operating his businesses.

Justin Moreno was appointed Chief Operating Office and a director of the company on August 8, 2014. Prior to his promotion, Mr. Moreno served as our National Sales Director since April of 2014. Mr. Moreno joined our team in March, 2014 after working with Southern Wine and Spirits as its lead sales manager in on premise alcohol and wine sales. In his capacity as sales manager, Mr. Moreno was responsible for maintaining high volume accounts with numerous quota items to sell each month. Mr. Moreno was also responsible for developing and maintaining relationships with customers and suppliers. Mr. Moreno worked with Southern Wine and Spirits for over 4 years. Mr. Moreno joined Southern Wine and Spirits after working as a store sales manager for Mountain View Goodyear Tire Company. At Mountain View Goodyear, Mr. Moreno was responsible for the growth of the company’s sales and marketing initiatives and also managing in excess of fifteen employees. Before Mr. Moreno began his sales management position with Mountain View Goodyear, Mr. Moreno served in the United States Marine Corp., serving three tours in Iraq as part of Operation Iraqi Freedom. Mr. Moreno was chosen to be a director of the Company for his expertise in sales and marketing.

A family relationship exists between Kyle Winther, Lori Winther, a director of the Company and the Company’s Chief Financial Officer and Secretary and Niels Winther, a director of the Company. Niels Winther and Lori Winther are married. Kyle Winther is the adult son of Niels and Lori Winther.

Director Independence

Our board of directors currently consists of ~~five~~four members –Kyle Winther, Lori Winther, Niels Winther, and Gary Jacob Perlingos ~~and Justin Moreno~~– with noone ~~vacancies~~vacancy. Because our common stock is not currently listed on the NASDAQ Stock Market or New York Stock Exchange, we are not subject to their respective rules requiring independent directors and we currently do not have any independent directors, as the term “independent director” is defined by NASDAQ Listing Rule 5605(a)(2) or New York Stock Exchange Rule 303A.02. We anticipate seeking independent directors in the future as we seek to establish effective corporate governance procedures to oversee our audit, compensation and nominating functions. However, there can be no assurance as to whether or when we will be successful in appointing any independent directors. Currently, our entire board of directors functions as our audit committee.

We have determined that Niels Winther qualifies as an audit committee “financial expert” within the meaning of the rules and regulations of the SEC and that each of our other board members are able to read and understand financial statements.

We do not have a nominating committee for persons to be proposed as directors for election to our board of directors. The duties and functions performed by such committee are performed by our board of directors. We do not have any restrictions on stockholder nominations under our articles of incorporation, however, our bylaws do contain advance notice requirements for stockholder nominations for directors. Other restrictions are those applicable generally under the Nevada Revised Statutes and the federal proxy rules. Currently, our entire board of directors decides on nominees, on the recommendation of one or more members of our board of directors. We are not a “listed issuer” under SEC rules and are therefore not required to have a nominating committee comprised of independent directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires that our executive officers and directors, and beneficial owners of more than 10% of a registered class of our equity securities, file initial reports of beneficial ownership and reports of changes in beneficial ownership with the SEC. Executive officers, directors and greater-than-10% stockholders are required by SEC regulations to furnish us with all Section 16(a) forms they file.

Based solely on our review of the copies of such reports received by us and written representations from certain reporting persons that they have complied with the relevant Section 16(a) filing requirements, ~~other than as follows~~ the Company is not aware of any instances of noncompliance with the Section 16(a) filing requirements by any executive officer, director and or beneficial owner of more than 10% of a registered class of the Company’s equity securities during the year ended June 30, ~~2015: one report on Form 3 was filed late by each of Lori Winther, Niels Winther, Kyler Winther, Gary Jacob Perlingos and Justin Moreno~~2016.

Indemnification

We are a Nevada corporation. The Nevada Revised Statutes and certain provisions of our articles of incorporation, as amended, and bylaws under certain circumstances provide for indemnification of our officers, directors and controlling persons against liabilities which they may incur in such capacities. A summary of the circumstances in which such indemnification is provided for is contained herein, but this description is qualified in its entirety by reference to our articles of incorporation and bylaws and to the statutory provisions.

In general, any officer, director, employee or agent may be indemnified against expenses, fines, settlements or judgments arising in connection with a legal proceeding to which such person is a party, if that person is not liable due to conduct that constituted a breach of his or her fiduciary duties and such breach involved intentional misconduct, fraud or a knowing violation of law, and that person’s actions were in good faith, were believed to be in our best interest, and were not unlawful. Indemnification may not be made for any claim as to which the person seeking indemnity has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals, to be liable to our company unless the court in which the action or suit was brought or another court of competent jurisdiction determines that in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as such court deems proper. Unless such person is successful upon the merits in such an action, indemnification may be awarded only after a determination by independent decision of our board of directors, by legal counsel, or by a vote of our stockholders, that the applicable standard of conduct was met by the person to be indemnified. Under our articles of incorporation, as amended, and bylaws, we will advance expenses incurred by officers, directors, employees or agents who are parties to or are threatened to made parties to any threatened, pending or completed action by reason of the fact that such person was serving in such capacity, prior to the disposition of such action and promptly following request therefor, upon receipt of an undertaking by or on behalf of such person to repay such advances if it should be determined ultimately that such person is not entitled to indemnification.

The circumstances under which indemnification is granted in connection with an action brought on our behalf is generally the same as those set forth above; however, with respect to such actions, indemnification is granted only with respect to expenses actually incurred in connection with the defense or settlement of the action. Indemnification may also be granted pursuant to the terms of agreements which may be entered in the future or pursuant to a vote of stockholders or directors. The Nevada Revised Statutes also grant us the power to purchase and maintain insurance which protects our officers and directors against any liabilities incurred in connection with their service in such a position, and we have obtained such a policy.

A stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification by us is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Code of Ethics

We have adopted a Code of Ethics applicable to all of our Board members and to all of our employees and executive officers, including our Chief Executive Officer and Chief Financial Officer. The Code of Ethics constitutes a “code of ethics” as defined by applicable SEC rules. Our Code of Ethics is filed as an exhibit to this Annual Report on Form 10-K and is posted on our Internet website located at www.vapor-hub.com in the section titled “Investors.” You may also request a copy of the Code of Ethics without charge by writing or calling us at:

Vapor Hub International Inc.

Attn: Investor Relations

1871 Tapo Street

Simi Valley, CA 93063

Tel.: (805) 309-0530

Any amendment or waiver of the Code of Ethics pertaining to a member of our Board or one of our executive officers will be disclosed on our website within four business days.

ITEM 11. EXECUTIVE COMPENSATION

The following table and related footnotes show the compensation paid to each person who served as our principal executive officer and to each of our other two most highly compensated executive officers during our fiscal year ended June 30, ~~2015~~2016, and information concerning all compensation paid for services rendered to us in all capacities for such fiscal year.

Name and Principal Position	Year	Salary ($)	Bonus ($)	Options ($)	All Other Compensation ($)	Total ($)
Kyle Winther,	~~2015~~2016	98100,000	-	-	2118,~~107~~188 (1)	~~119~~118,~~107~~188
CEO, Director	~~2014~~2015	3898,000	~~10,000~~-	-	2021,~~173~~107 (1)	68119,~~173~~107
Lori Winther,	~~2015~~2016	9880,000	-	-	1719,~~462~~636 (2)	~~115~~99,~~462~~636
CFO, Treasurer, Secretary, Director	~~2014~~2015	3898,000	~~10,000~~-	-	1917,~~890~~462 (2)	67115,~~890~~462
Gary Jacob Perlingos,	~~2015~~2016	98,000	-	-	~~16,947 (3)~~-	~~114~~98,~~947~~000
President, Chief Technology Officer, Director	~~2014~~2015	3898,000	~~10,000~~-	-	1916,~~048~~947 (3)	67114,~~048~~947
Andrew Birnbaum(4),	2015	4,524	-	-	16,000	20,524
Justin Moreno(4),	2016	130,100	-		14,055 (5)	144,155
Former CEO, Former Director	2014	72,619	-	-	3,000	75,619
Former Chief Operating Officer, Director	2015	130,000	-	2,100 (6)	-	132,100
Justin Moreno(5),	2015	130,000	-	2,100	-	132,100
Chief Operating Officer, Director	2014	-	-	-	-	-

(1)

For the fiscal year ended June 30, ~~2015~~2016, this amount consists of an automobile allowance ($613,~~444~~808), ~~company owned or leased property for personal use ($7,680),~~ and health benefits ($64,~~973~~380). For the ~~period~~fiscal ~~from~~year ~~inception~~ended ~~(July 12, 2013) to~~ June 30, ~~2014~~2015, this amount consists of an automobile allowance ($86,~~202~~444), company owned or leased property for personal use ($17,~~500~~680), and health benefits ($~~4,113) and management fees received from Vapor ($~~6,~~358~~973).

(2)

For the fiscal year ended June 30, ~~2015~~2016, this amount consists of an automobile allowance ($69,~~642~~168) and health benefits ($89,~~820~~168). For the ~~period~~fiscal ~~from~~year ~~inception~~ended ~~(July 12, 2013) to~~ June 30, ~~2014~~2015, this amount consists of an automobile allowance ($96,~~570~~642), ~~company owned or leased property for personal use ($1,500)~~ and health benefits ($8,820).

(3)

For the fiscal year ended June 30, 2015, this amount consists of health benefits ($16,947). ~~For the period from inception (July 12, 2013) to June 30, 2014, this amount consists of health benefits ($12,690) and management fees received from Vapor ($6,358).~~

(4)

~~Mr.~~On ~~Birnbaum~~August ~~became~~16, ~~our~~2016, ~~Chief~~we ~~Executive~~eliminated ~~Officer~~the ~~and~~position ~~a director~~ of ~~the~~Chief ~~company~~Operating onOfficer ~~March~~and ~~24,~~terminated ~~2014,~~Justin ~~and~~Moreno ~~resigned~~ from ~~his~~such ~~office and directorship on and effective July 8, 2014~~position. ~~Mr.~~ ~~Birnbaum~~On ~~received~~August ~~an automobile allowance of $3~~17,~~000~~ ~~in the period ended June 30~~2016, ~~2014. In 2015,~~ Mr. ~~Birnbaum~~Moreno ~~was~~resigned ~~paid $15,000 in connection with that certain Employee Separation and General Release Agreement with the Company dated October 8, 2014 which is further described below and also received $1,000~~ as ana ~~automobile~~director ~~allowance~~of in the ~~fiscal year ended June 30, 2015~~Company.

(5)

~~Mr.~~For ~~Moreno~~the ~~was~~fiscal ~~granted~~year anended ~~option to purchase 60,000 shares of our common stock at an exercise price per share of $0.0419 on~~ June 30, ~~2015. The option expires on June 30~~2016, ~~2025~~this ~~and~~amount ~~was~~consists ~~fully exercisable upon grant. The value~~ of ~~the~~health ~~option~~benefits ~~award in the above table represents the grant date fair value computed in accordance with FASB ASC Topic 718. For the assumptions used in the valuation~~($14, ~~please see Note 4 to our Consolidated Financial Statements~~055).

(6)

Mr. Moreno was granted an option to purchase 60,000 shares of our common stock at an exercise price per share of $0.0419 on June 30, 2015 which option was fully vested upon grant. Unless exercised on or prior to November 14, 2016, the option will expire. The value of the option award in the above table represents the grant date fair value computed in accordance with FASB ASC Topic 718. For the assumptions used in the valuation, please see Note 3 to our Consolidated Financial Statements.

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers. We did not grant bonuses to our executive officers in ~~2015~~2016 in an effort to preserve cash.

On February 2, 2015, ~~our~~we ~~Board~~adopted ~~of Directors and holders of 55.8% of~~ our ~~outstanding common stock (or 38,000,001 shares of 68,060,001 issued and outstanding shares) acting by written consent approved the adoption of our~~ 2015 Omnibus Incentive Plan (the “2015 Plan”). The 2015 Plan provides for the grant of stock options (both incentive stock options and non-qualified stock options), restricted stock, restricted stock units, stock appreciation rights, performance-based awards, dividend equivalents, stock payments and deferred stock units to eligible participants. Eligible participants include officers, employees, non-employee directors and certain consultants and advisers. The aggregate number of shares of the Company’s common stock authorized for issuance under the 2015 Plan is 20,400,000, subject to adjustment as described in the 2015 Plan. AsNone of ~~October~~our 1,executive ~~2015,~~officers ~~none~~other ofthan our ~~executive~~former ~~officers~~Chief ~~other~~Operating ~~than~~Officer, Justin Moreno, have received awards under our 2015 Stock Incentive Plan.

Employee Contracts

OnWe ~~March~~have ~~24,~~not ~~2014, we~~ entered into anany ~~Interim~~employment ~~Agreement~~agreements ~~for the Appointment of Chief Executive Officer~~ with ~~Andrew Birnbaum pursuant to which Mr. Birnbaum served as~~ our ~~Chief~~executive ~~Executive Officer and as a director of the company~~officers. The agreement was to remain effective until both parties executed a final agreement. On July 8, 2014, Mr. Birnbaum resigned from his position as Chief Executive Officer and as a director of the company.

Pursuant to the interim agreement, Mr. Birnbaum received a monthly salary of $20,000 and a monthly vehicle allowance of $1,000. The agreement also contemplated the issuance of 6,600,000 shares of common stock to Mr. Birnbaum, a bonus payment similar to any bonuses granted to other executives and a bonus of 15% of net profits received from certain internet related assets provided by Mr. Birnbaum to the company. No bonuses were earned by or paid to Mr. Birnbaum during his tenure with the company.

On October 8, 2014, but effective as of September 30, 2014, the Company and Mr. Birnbaum entered into an Employment Separation and General Release agreement (the “Release Agreement”) in connection with Mr. Birnbaum’s resignation from the Company on July 8, 2014. The Release Agreement has the effect of terminating, effective as of July 8, 2014, the Interim Agreement for the Appointment of the Chief Executive Officer entered into between the Company and Mr. Birnbaum on March 24, 2014.

The Release Agreement provides that all remaining rights and obligations of the Company and Mr. Birnbaum under the interim agreement are terminated as of July 8, 2014, including all rights of Mr. Birnbaum to receive 6,600,000 shares of the Company’s common stock.

Other than as described above, we have not entered into any employment agreements with our executive officers.

Outstanding Equity Awards at Fiscal Year-End

The following table provides information with respect to outstanding stock options and stock awards held by each of the named executive officers as of June 30, ~~2015~~2016.


		Option Awards
		Number of Securities underlying Unexercised Options		Option Exercise Price ($)	Option Expiration Date
Name	Grant Date	(#) Exercisable	(#) Unexercisable	Option Exercise Price ($)	Option Expiration Date
Justin Moreno	6/30/15	60,000⁽¹⁾	-	$0.0419	6/30/25

(1)

These options were fully exercisable upon grant and are not subject to vesting.

None of the executive officers listed above exercised options during the fiscal year ended June 30, 2015 or June 30, 2016.

Compensation of Directors

The following table presents information regarding compensation paid to our non-employee directors for our fiscal year ending June 30, ~~2015~~2016. We do not pay management directors for Board service in addition to their regular employee compensation.

Name	Fees earned or paid in cash($)	Option Awards ($)	All other compensation ($)		Total($)
Niels Winther	-	~~$7,000(1)~~-	-(21)		~~$7,000~~-

(1)

~~Mr.~~Niels Winther ~~was~~is ~~granted~~the ~~options~~President ~~to purchase 200,000 shares~~ of ~~our~~Winther ~~common~~& ~~stock~~Company, at an ~~exercise~~accountancy ~~price of $0~~corporation.~~0419 per share on June 30, 2015.~~ ~~The~~Winther ~~options~~& ~~expire~~Company onwas ~~June~~paid 30$56,180 ~~2025. The~~for ~~options~~services ~~were~~rendered ~~fully-exercisable upon grant and are not subject~~ to ~~vesting. The amount represents~~ the ~~grant~~company ~~date~~during ~~fair value of the award calculated in accordance with ASC Topic 718. See Note 4 to~~ our ~~consolidated~~fiscal ~~financial~~year ~~statements~~ended inJune ~~this~~30, ~~Form 10-K for details as to the assumptions used to determine the fair value of the awards~~2016.

~~(2)~~73

Niels Winther is the President of Winther & Company, an accountancy corporation. Winther & Company was paid $82,000 for services rendered to the company during our fiscal year ended June 30, 2015.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table presents information regarding the beneficial ownership of our common stock by:

each of the executive officers listed in the summary compensation table;

each of our directors;

all of our directors and executive officers as a group; and

each stockholder known to us to be the beneficial owner of more than 5% of our common stock.

74In general, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of such security, or the power to dispose or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which the person has the right to acquire beneficial ownership within 60 days, through the exercise of a warrant or stock option, conversion of a convertible security or otherwise. Unless otherwise indicated, each person in the table will have sole voting and investment power with respect to the shares shown. For purposes of this table, shares not outstanding which are subject to issuance on exercises of stock options or conversion of a note that are held by one or more person(s) are deemed to be outstanding for the purpose of computing the percentage(s) of outstanding shares beneficially owned by such person(s) but are not deemed to be outstanding for the purpose of computing the percentage for any other person. The table assumes a total of 90,292,443 shares of our common stock outstanding as of October 10, 2016. Unless otherwise indicated, the address of each of the executive officers and directors and greater than 5% stockholders named below is c/o Vapor Hub International Inc., 1871 Tapo Street, Simi Valley, CA 93063.

In general, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of such security, or the power to dispose or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which the person has the right to acquire beneficial ownership within 60 days, through the exercise of a warrant or stock option, conversion of a convertible security or otherwise. Unless otherwise indicated, each person in the table will have sole voting and investment power with respect to the shares shown. For purposes of this table, shares not outstanding which are subject to issuance on exercises of stock options or conversion of a note that are held by one or more person(s) are deemed to be outstanding for the purpose of computing the percentage(s) of outstanding shares beneficially owned by such person(s) but are not deemed to be outstanding for the purpose of computing the percentage for any other person. The table assumes a total of 72,455,606 shares of our common stock outstanding as of October 13, 2015. Unless otherwise indicated, the address of each of the executive officers and directors and greater than 5% stockholders named below is c/o Vapor Hub International Inc., 1871 Tapo Street, Simi Valley, CA 93063.


Name of Beneficial Owner	Number of Shares Beneficially Owned	Percentage of Shares Outstanding

Executive Officers and Directors:
Kyle Winther	12,666,667	14.0%
(Chief Executive Officer and Director)
Lori Winther	12,666,667	14.0%
(Chief Financial Officer, Treasurer, Secretary and Director)
Gary Jacob Perlingos	12,666,667	14.0%
(President, Chief Technology Officer and Director)
Justin Moreno ⁽¹⁾	60,000	*
(Former Chief Operating Officer, Former Director)
Niels Winther ⁽²⁾	200,000	*
(Chairman of the Board)
All directors and executive officers as a group (five persons) ⁽³⁾	38,260,001	42.3%
5% Stockholders
None

Name of Beneficial Owner	Number of Shares Beneficially Owned	Percentage of Shares Outstanding
Executive Officers and Directors:
Kyle Winther	12,666,667	17.5%
(Chief Executive Officer and Director)
Lori Winther	12,666,667	17.5%
(Chief Financial Officer, Treasurer, Secretary and Director)
Gary Jacob Perlingos	12,666,667	17.5%
(President, Chief Technology Officer and Director)
Justin Moreno (1)	60,000	*
(Chief Operating Officer, Director)
Niels Winther (2)	200,000	*
(Chairman of the Board)
Andrew Birnbaum	-	-
(former Director and former Chief Executive Officer)(3)
All directors and executive officers as a group (six persons) (4)	38,260,001	52.6%
5% Stockholders
None

*less than 1%

(1) Consists of options to purchase 60,000 shares of common stock.

(2) Consists of options to purchase 200,000 shares of common stock.

(3) ~~Mr.~~Consists ~~Birnbaum~~of ~~resigned~~options ~~from~~to ~~his~~purchase ~~position~~260,000 asshares ~~Chief~~of ~~Executive~~common ~~Officer~~stock and as38,000,001 ashares ~~Director~~ of ~~the~~common ~~company on July 8, 2014~~stock.

~~(4)Consists of options to purchase 260,000 shares of common stock and 38,000,001 shares of common stock.~~74

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth certain information regarding our equity compensation plans as of June 30, ~~2015~~2016.


Name	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants, and rights	Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders ⁽¹⁾	310,000	$0.0419	20,090,000
Equity compensation plans not approved by security holders	-	-	-


(1)	Consists of shares underlying our 2015 Omnibus Incentive Plan, of which an aggregate of 20,400,000 shares have been reserved for issuance. All outstanding awards under the 2015 Omnibus Incentive Plan consist of stock options.

Changes in Control

We are unaware of any contract or other arrangement, the operation of which may at a subsequent date result in a change of control of our company.

Other than the transactions described below, since ~~July~~June 1230, ~~2013~~2014, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party:

in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years; and

in which any director, executive officer, stockholders who beneficially owns more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest.

As of June 30, ~~2014~~2015 and ~~2015~~2016, the Company had a balance of $~~101~~96,~~378~~312 and $96103,~~312~~409, respectively, outstanding as related party loans from Kyle Winther, the Company’s CEO, Lori Winther, the Company’s CFO and Winther & Company, CPAs (an entity owned by Lori Winther, and her husband, Niels Winther, CPA, who is a director of the Company), as well a Chase Bank Line of Credit (which was extended to the Company, though owed personally by Niels & Lori Winther). The outstanding balances are unsecured, non-interest bearing and repayable upon demand. Each of Kyle Winther and Lori Winther also own inapproximately ~~excess of 5~~14% of our common stock.

76From time to time the Company will engage the services of Winther & Company, CPAs to provide bookkeeping, accounting and tax services to the Company. For the year ended June 30, 2016 the Company incurred approximately $56,180 in fees with Winther & Company. As of June 30, 2016 and 2015, the Company had Accounts Payable outstanding to Winther & Company of $0 and $232, respectively.

~~From~~On ~~time~~December to29, ~~time~~2014, ~~the~~Kyle ~~Company~~Winther ~~will~~entered ~~engage~~into a vehicle financing agreement with the ~~services~~Bank of ~~Winther~~the &West. ~~Company~~Pursuant to the agreement, ~~CPAs~~the toamount ~~provide~~financed ~~bookkeeping~~was $39,275, ~~accounting~~payable ~~and~~in ~~tax~~48 ~~services~~monthly topayments ~~the~~plus ~~Company.~~accrued ~~For~~interest ~~the~~at ~~year~~a ~~ended~~rate ~~June~~of ~~30,~~3.9%. In January 2015, the Company ~~incurred~~agreed ~~approximately~~to ~~$82,000~~assume inthe ~~fees~~payments ~~with~~on ~~Winther~~this &loan ~~Company~~and capitalized the vehicle (see Note 9). As of June 30, ~~2014~~2016 ~~and 2015~~ the ~~Company had Accounts Payable~~ outstanding tobalance ~~related~~was ~~parties of~~ $~~232 and $12~~30,~~369, respectively~~349.

The Company entered into a Management Agreement with Kyle Winther and Gary “Jake” Perlingos who are each greater than 5% shareholders, directors and officers of the Company related to operational supervision of the company’s retail stores in Simi Valley and Chatsworth, CA. Each of them was to receive 2.5% each (for a total of 5%) of the monthly revenue generated from each respective lounge. The Agreement commenced September 1, 2013 and was scheduled to continue until terminated by agreement of the parties. Effective February 1, 2014, the parties agreed to terminate the Management Agreement. Prior to the termination of the agreement, each of Mr. Winther and Mr. Perlingos received approximately $6,400 pursuant to the terms of the Management Agreement. An additional Management Agreement was entered into between Delite and Vapor, which relates to the provision of administrative support to Vapor. Pursuant to the agreement, Delite received a fee of $10,000 per month from Vapor. The Agreement commenced October 1, 2013 and was scheduled to continue until terminated by agreement of the parties. Effective March 1, 2014, the parties agreed to terminate the Management Agreement. 75

On December 29, 2014, Kyle Winther entered into a vehicle financing agreement with the Bank of the West. Pursuant to the agreement, the amount financed was $39,275, payable in 48 monthly payments plus accrued interest at a rate of 3.9%. In January 2015, the Company agreed to assume the payments on this loan and capitalized the vehicle (see Note 15). As of June 30, 2015 the outstanding balance was $36,400.

On January 2, 2015, the Company entered into a Business Loan and Security Agreement with B of I Federal Bank (the “Bank”). Pursuant to the agreement, the Company borrowed $200,000 from the Bank and received net proceeds of $195,000 USD after deducting an origination fee of $5,000. Prior to its repayment on June 2, 2015, this loan was secured by all personal property of the Company and was also personally guaranteed by Lori Winther, Kyle Winther and Gary Perlingos.

On June 2, 2015, the Company entered into a new Business Loan and Security Agreement with the Bank. Pursuant to the agreement, the Company borrowed $175,000 from the Bank and received net proceeds of $104,071 after deducting an origination fee of $1,875 and the repayment of $69,054 in full satisfaction of the Company’s remaining obligations under that certain Business Loan and Security Agreement entered into with the Bank on January 2, 2015. ~~The~~Prior ~~new~~to its repayment on November 3, 2015, the loan iswas secured by all personal property of the Company and iswas also personally guaranteed by Lori Winther, Kyle Winther and Gary Perlingos.

On November 3, 2015, the Company entered into a new Business Loan and Security Agreement with the Bank. Pursuant to the agreement, the Company borrowed $125,000 from the Bank and received net proceeds of $93,615.51 after the repayment of $31,384.19 in full satisfaction of the Company’s remaining obligations under that certain Business Loan and Security Agreement entered into with the Bank on June 2, 2015. Prior to its repayment on December 24, 2015, the loan was secured by all personal property of the Company and was also personally guaranteed by Lori Winther, Kyle Winther and Gary Perlingos.

Director Independence

We currently do not have any independent directors, as the term “independent” is defined by NASDAQ Listing Rule 5605(a)(2).

7776

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table presents the fees for professional audit services rendered by our principal accountants, ~~Anton~~Hall &and ~~Chia~~Company, ~~LLP~~Inc. and Hartley Moore Accountancy Corporation for the audit of our annual consolidated financial statements for the years ended June 30, ~~2015~~2016 and ~~for the period from inception (July 12, 2013) to~~ June 30, ~~2014. On March 30,~~ 2015, our Board of Directors approved the engagement of Hartley Moore Accountancy Corporation as our new independent registered public accounting firm and, also on March 30, 2015, Anton & Chia, LLP was dismissed as our independent registered public accounting firm. ~~All services reflected in the following fee table were pre-approved, respectively, in accordance with the policy of our board of directors.~~

	From Inception (July 12, 2013) to June 30 2014	For the Fiscal Year Ended June 30, 2015
Audit fees (1)	$85,694	$45,360
Audit-related fees	-	-
Tax fees	-	-
All other fees	-	-
Total	$85,684	$45,360

In connection with the reorganization of Hartley Moore Accountancy Corporation (the “Former Auditor”), its audit partners and staff joined Hall and Company, Inc. (“Hall”). Due to the reorganization of the firm, the Former Auditor resigned as our independent, effective May 12, 2016. The Former Auditor had served as our auditor since March 30, 2015. As a result of the reorganization, our Board of Directors approved the resignation of the Former Auditor effective May 12, 2016, and the engagement of Hall as our independent registered public accounting firm for the fiscal year ended June 30, 2016 effective May 12, 2016.

All services reflected in the following fee table were pre-approved, respectively, in accordance with the policy of our board of directors.



	For the Fiscal Year Ended June 30 2015	For the Fiscal Year Ended June 30, 2016

Audit fees ⁽¹⁾	$45,360	$54,171
Audit-related fees	-	-
Tax fees	-	-
All other fees	-	-
Total	$45,360	$54,171

NOTES:

⁽¹⁾ Audit fees consist of audit and review services, consents and review of documents filed with the SEC.

Our board of directors pre-approves all audit (including audit-related) and permitted non-audit services to be performed by our independent auditors. Our board will annually approve the scope and fee estimates for the year-end audit to be performed by our independent auditors for the fiscal year. With respect to other permitted services, our board pre-approves specific engagements, projects and categories of services on a fiscal year basis, subject to individual project and annual maximums. To date, we have not engaged our auditors to perform any non-audit related services.

7877

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this report


	1.	Financial Statements.

All financial statements are set forth under Item 8 of this report.


	2.	Financial Statement Schedules.

All financial statement schedules are omitted because the information is inapplicable or presented in the Notes to Financial Statements.


	3.	Exhibits. See Item 15(b) below.


	(b)	Exhibits. We have filed, or incorporated into this Form 10-K by reference, the exhibits listed on the accompanying Index to Exhibits immediately following the signature page of this Form 10-K.


	(c)	Financial Statement Schedule. See Item 15(a) above.

7978

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

	VAPOR HUB INTERNATIONAL INC.
	a Nevada Corporation
Date: October 13, 2015	/s/ LORI WINTHER
Date: October 13, 2016	/s/ LORI WINTHER
	By: Lori Winther
	Its: Chief Financial Officer
	(Principal Financial and Accounting Officer)

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lori Winther and Kyle Winther, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution for him, and in his name in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/S/ KYLE WINTHER Kyle Winther	Chief Executive Officer and Director (Principal Executive Officer)	October 13, ~~2015~~2016
/S/ LORI WINTHER Lori Winther	Chief Financial Officer, Treasurer, Secretary and Director (Principal Financial and Accounting Officer)	October 13, ~~2015~~2016
/S/ Gary Jacob Perlingos Gary Jacob Perlingos	President, Chief Technology Officer and Director	October 13, ~~2015~~2016
/S/ Justin Moreno Justin Moreno	Chief Operating Officer and Director	October 13, 2015
/S/ NIELS WINTHER Niels Winther	Chairman of the Board	October 13, 2016
/S/ NIELS WINTHER Niels Winther	Chairman of the Board	October 13, 2015

8079

INDEX TO EXHIBITS

Exhibit		Incorporated by Reference				Filed
Number	Exhibit Description	Form	File Number	Exhibit	Filing Date	Herewith
3.1	Certificate of withdrawal of Certificate of Designation	8-K	000-55363	3.1	2/6/2015
3.2	Amended and Articles of Incorporation of the Registrant	8-K	000-55363	3.2	2/6/2015
3.3	Amended and Restated Bylaws of the Registrant	8-K	000-55363	3.3	2/6/2015
3.4	Articles of Merger filed with an effective date of March 14, 2014 with the Nevada Secretary of State on February 14, 2014	8-K	000-55363	3.1	3/6/2014
10.1	Share Exchange Agreement among the Registrant, Delite Products, Inc., Vapor Hub, Inc., and the Shareholders of Delite and Vapor Hub, Inc., dated February 14, 2014.	8-K	333-173438	10.1	2/18/2014
10.2	Form of Subscription Agreement for Note Purchases on March 14, 2014, April 10, 2014 and May 19, 2014	10-Q	333-173438	10.2	5/15/2014
10.3	Lease Agreement dated August 5, 2013 by and Between the Registrant and S.B.P.W., LLC, as amended by Amendment No. 1 and Amendment No. 2.	10-K	333-173438	10.3	9/29/2014
10.4*	Interim Agreement for Employment of Chief Executive Officer dated March 24, 2014, by and among the Registrant, Andrew Birnbaum and SmartCloud Technologies, Inc.	10-K	333-173438	10.4	9/29/2014
10.4	Securities Purchase Agreement, dated as of November 4, 2014, by and between the Registrant and Typenex Co-Investment, LLC	8-K	333-173438	10.1	11/10/2014
10.5	~~Securities~~Secured ~~Purchase~~Convertible ~~Agreement~~Promissory Note, dated as of November 4, 2014, by ~~and between~~ the Registrant ~~and~~in favor of Typenex Co-Investment, LLC	8-K	333-173438	10.12	11/10/2014
10.6	~~Secured~~Investor ~~Convertible Promissory~~ Note, ~~dated~~#1 asissued ofto ~~November 4, 2014, by~~ the Registrant inon ~~favor~~November ~~of Typenex Co-Investment~~4, ~~LLC~~2014.	8-K	333-173438	10.23	11/10/2014
10.7	Investor Note #12 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.34	11/10/2014
10.8	Investor Note #23 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.45	11/10/2014
10.9	Investor Note #34 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.56	11/10/2014
10.10	Investor Note #45 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.67	11/10/2014
10.11	Investor Note #56 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.78	11/10/2014
10.12	Investor Note #6 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.8	11/10/2014


10.12	Investor Note #7 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.9	11/10/2014
10.13	Investor Note #8 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.1	11/10/2014
10.14	Investor Note #9 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.11	11/10/2014
10.15	Investor Note #10 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.12	11/10/2014
10.16	Security Agreement, dated as of November 4, 2014, by the Registrant in favor of Typenex Co-Investment, LLC	8-K	333-173438	10.13	11/10/2014
10.17	Business Loan and Security Agreement between B of I Federal Bank and the Registrant dated January 2, 2015.	10-Q	000-55363	10.14	2/17/2015
10.18*	Vapor Hub International Inc. 2015 Omnibus Incentive Plan.	8-K	000-55363	10.1	2/6/2015
10.19	Business Loan and Security Agreement, dated as of June 2, 2015, by and between the Company and BofI Federal Bank.	8-K	000-55363	10.1	6/8/2015
10.20	Note Purchase Agreement, dated as of June 4, 2015, by and between the Company and Typenex Co-Investment, LLC.	8-K	000-55363	10.2	6/8/2015
10.21	Form of Promissory Note issued to Typenex Co-Investment, LLC on June 4, 2015.	8-K	000-55363	10.3	6/8/2015
10.22	Note Purchase Agreement, dated as of August 12, 2015, by and between the Company and Iliad Research and Trading, L.P.	8-K	000-55363	10.1	8/18/2015
10.23	Promissory Note issued to Iliad Research and Trading, L.P. on August 12, 2015.	8-K	000-55363	10.2	8/18/2015
10.24	Triple Net Lease Agreement by and between the Winther Family Trust and the Registrant.	10-K	000-55363	10..25	10/13/2015
10.25	Note Settlement Agreement by and between Vapor Hub International Inc. and Typenex Co-Investment, LLC dated December 18, 2015.	8-K	000-55363	10.1	12/24/2015
10.26	B of I Business Loan and Security Agreement dated November 3, 2015	10-Q	000-55363	10.1	2/16/2016
10.27	Senior Secured Credit Facility Agreement dated December 24, 2015 by and between Vapor Hub International Inc. and TCA Global Credit Master Fund, LP.	8-K	000-55363	10.1	12/31/2015
10.28	Security Agreement dated December 24, 2015 by and between Vapor Hub International Inc. and TCA Global Credit Master Fund, LP.	8-K	000-55363	10.2	12/31/2015
10.29	Convertible Promissory Note dated December 24, 2015 issued by Vapor Hub International Inc. to TCA Global Credit Master Fund, LP.	8-K	000-55363	10.3	12/31/2015

10.13	Investor Note #7 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.9	11/10/2014
10.30	Amendment to Note Settlement Agreement dated February 19, 2016 by and between Vapor Hub International Inc. and Typenex Co-Investment, LLC.	8-K		000-55363		10.1	2/25/2016
10.14	Investor Note #8 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.1	11/10/2014
10.31	Amendment to Promissory Note dated February 19, 2016 by and between Vapor Hub International Inc. and Iliad Research and Trading, L.P.	8-K		000-55363		10.2	2/25/2016
10.15	Investor Note #9 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.11	11/10/2014
10.32	Amendment #2 to Note Settlement Agreement entered into on May 12, 2016 but effective as of April 15, 2016 by and between Vapor Hub International Inc. and Typenex Co-Investment, LLC.	8-K		000-55363		10.1	5/18/2016
10.16	Investor Note #10 issued to the Registrant on November 4, 2014.	8-K	333-173438	10.12	11/10/2014
10.33	Exchange Agreement entered into on May 12, 2016 but effective as of April 15, 2016 by and between Vapor Hub International Inc. and Iliad Research and Trading, L.P.	8-K		000-55363		10.2	5/18/2016
10.17	Security Agreement, dated as of November 4, 2014, by the Registrant in favor of Typenex Co-Investment, LLC	8-K	333-173438	10.13	11/10/2014
10.34	Form of Convertible Promissory Note issued by Vapor Hub International Inc. on April 15, 2016 in favor of Iliad Research and Trading, L.P.	8-K		000-55363		10.3	5/18/2016
10.18	Business Loan and Security Agreement between B of I Federal Bank and the Registrant dated January 2, 2015.	10-Q	000-55363	10.14	2/17/2015
10.35	Exchange Agreement entered into on July 15, 2016 by and between Vapor Hub International Inc. and Iliad Research and Trading, L.P.	8-K		000-55363		10.1	7/21/2016
10.19*	Vapor Hub International Inc. 2015 Omnibus Incentive Plan.	8-K	000-55363	10.1	2/6/2015
10.36	Form of Convertible Promissory Note issued by Vapor Hub International Inc. on August 12, 2016 in favor of Iliad Research and Trading, L.P.	8-K		000-55363		10.2	7/21/2016
10.20	Business Loan and Security Agreement, dated as of June 2, 2015, by and between the Company and BofI Federal Bank.	8-K	000-55363	10.1	6/8/2015
14.1	Vapor Hub International Inc. Code of Ethical Conduct.	10-K		333-173438		14.1	9/29/2014
10.21	Note Purchase Agreement, dated as of June 4, 2015, by and between the Company and Typenex Co-Investment, LLC.	8-K	000-55363	10.2	6/8/2015
21.1	Subsidiaries of Vapor Hub International Inc.							X
10.22	Form of Promissory Note issued to Typenex Co-Investment, LLC on June 4, 2015.	8-K	000-55363	10.3	6/8/2015
23.1	Consent of Hall and Company, Inc., Independent Registered Public Accounting Firm.							X
10.23	Note Purchase Agreement, dated as of August 12, 2015, by and between the Company and Iliad Research and Trading, L.P.	8-K	000-55363	10.1	8/18/2015
23.2	Consent of Hartley Moore Accounting Corporation, Independent Registered Public Accounting Firm.							X
10.24	Promissory Note issued to Iliad Research and Trading, L.P. on August 12, 2015.	8-K	000-55363	10.2	8/18/2015
24.1	Power of Attorney (included on the Signatures page of this Annual Report on Form 10-K).							X
10.25	Triple Net Lease Agreement by and between the Winther Family Trust and the Registrant.					X
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							X
10.26*	Employment Separation and General Release Agreement, dated as of October 8, 2014, with Andrew Birnbaum	10-Q	333-173438	10.1	11/14/2014
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.							X
14.1	Vapor Hub International Inc. Code of Ethical Conduct.	10-K	333-173438	14.1	9/29/2014
32.1	Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002							#
21.1	Subsidiaries of Vapor Hub International Inc.					X
23.1	Consent of Hartley Moore Accountancy Corporation, Independent Registered Public Accounting Firm.					X
24.1	Power of Attorney (included on the Signatures page of this Annual Report on Form 10-K).					X

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	X
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.	X
32.1	Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	#
101.INS	XBRL Instance Document	X
101.SCH	XBRL Taxonomy Extension Schema Document	X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	X

_________________________________________

Furnished herewith.

* Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report on Form 10-K

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