UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark One)
[X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended March 31, 2015
Or
[ ] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from __________ to __________
Commission
file number: 000-19001
VAPOR
CORP.
(Exact
name of Registrant as specified in its charter)
Delaware |
|
84-1070932 |
(State
or other jurisdiction |
|
(I.R.S.
Employer |
of
incorporation or organization) |
|
Identification
No.) |
|
|
|
3001
Griffin Road |
|
|
Dania
Beach, FL |
|
33312 |
(Address
of principal executive offices) |
|
(Zip
Code) |
Registrant’s
telephone number, including area code: 888-766-5351
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.
[X] Yes [ ] No
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X] Yes [ ]
No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. 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 |
[X]
Smaller reporting company |
|
|
(Do not check if a smaller reporting company) |
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
As
of May 15, 2015, there were 33,635,758 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
TABLE
OF CONTENTS
PART
I
FINANCIAL
INFORMATION
Item
1. Financial Statements
VAPOR
CORP.
CONDENSED
CONSOLIDATED BALANCE SHEETS
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
CURRENT ASSETS: | |
| | | |
| | |
Cash | |
$ | 1,911,199 | | |
$ | 471,194 | |
Due from merchant credit card processor, net of reserve for chargebacks of $41,355 and $2,500, respectively | |
| 348,192 | | |
| 111,968 | |
Accounts receivable, net of allowance of $228,856 and $369,731, respectively | |
| 203,793 | | |
| 239,652 | |
Inventories | |
| 2,536,149 | | |
| 2,048,883 | |
Prepaid expenses and vendor deposits | |
| 527,207 | | |
| 664,103 | |
Loans receivable, net | |
| - | | |
| 467,095 | |
Deferred financing costs, net | |
| 87,292 | | |
| 122,209 | |
TOTAL CURRENT ASSETS | |
| 5,613,832 | | |
| 4,125,104 | |
| |
| | | |
| | |
Property and equipment, net of accumulated depreciation of $158,238 and $84,314, respectively | |
| 633,705 | | |
| 712,019 | |
Intangible assets, net of accumulated amortization of $22,177 and $0, respectively | |
| 2,058,423 | | |
| - | |
Goodwill | |
| 15,654,484 | | |
| - | |
Other assets | |
| 92,131 | | |
| 91,360 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 24,052,575 | | |
$ | 4,928,483 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Accounts payable | |
$ | 2,303,051 | | |
$ | 1,920,135 | |
Accrued expenses | |
| 1,419,241 | | |
| 975,112 | |
Senior convertible notes payable – related parties, net of debt discount of $781,250 and $1,093,750, respectively | |
| 468,750 | | |
| 156,250 | |
Convertible notes, net of debt discount of $49,421 and $0 , respectively | |
| 517,579 | | |
| - | |
Notes payable – related party | |
| 1,000,000 | | |
| - | |
Current portion of capital lease | |
| 52,015 | | |
| 52,015 | |
Term loan | |
| 523,727 | | |
| 750,000 | |
Customer deposits | |
| 50,744 | | |
| 140,626 | |
Income taxes payable | |
| 3,092 | | |
| 3,092 | |
Derivative liabilities | |
| 87,603 | | |
| - | |
TOTAL CURRENT
LIABILITIES | |
| 6,425,802 | | |
| 3,997,230 | |
| |
| | | |
| | |
Capital Lease, net of current portion | |
| 107,195 | | |
| 119,443 | |
TOTAL LIABILITIES | |
| 6,532,997 | | |
| 4,116,673 | |
| |
| | | |
| | |
COMMITMENTS
AND CONTINGENCIES
| |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS’ EQUITY: | |
| | | |
| | |
| |
| | | |
| | |
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued | |
| - | | |
| - | |
Common stock, $.001 par value, 50,000,000
shares authorized, 33,635,758 and 16,761,911 shares issued and outstanding, respectively | |
| 33,636 | | |
| 16,762 | |
Additional paid-in capital | |
| 36,699,041 | | |
| 16,026,951 | |
Accumulated deficit | |
| (19,213,099 | ) | |
| (15,231,903 | ) |
TOTAL STOCKHOLDERS’
EQUITY | |
| 17,519,578 | | |
| 811,810 | |
| |
| | | |
| | |
TOTAL LIABILITIES
AND STOCKHOLDERS’ EQUITY | |
$ | 24,052,575 | | |
$ | 4,928,483 | |
See
notes to unaudited condensed consolidated financial statements
VAPOR
CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| |
For The Three Months
Ended March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
SALES, NET | |
$ | 1,468,621 | | |
$ | 4,792,544 | |
Cost of goods sold | |
| 1,651,110 | | |
| 3,831,928 | |
GROSS
(LOSS) PROFIT
| |
| (182,489 | ) | |
| 960,616 | |
| |
| | | |
| | |
EXPENSES: | |
| | | |
| | |
Selling, general and administrative | |
| 3,243,189 | | |
| 2,769,726 | |
Advertising | |
| 105,177 | | |
| 367,615 | |
Total operating expenses | |
| 3,348,366 | | |
| 3,137,341 | |
Operating loss | |
| (3,530,855 | ) | |
| (2,176,725 | ) |
Other (expense) income: | |
| | | |
| | |
Amortization of deferred financing costs | |
| (34,917 | ) | |
| - | |
Change in fair value of derivative liabilities | |
| (37,965 | ) | |
| - | |
Interest expense | |
| (378,775 | ) | |
| (28,434 | ) |
Interest income | |
| 1,316 | | |
| - | |
Total other expense | |
| (450,341 | ) | |
| (28,434 | ) |
LOSS BEFORE INCOME TAX (BENEFIT) EXPENSE | |
| (3,981,196 | ) | |
| (2,205,159 | ) |
Income
tax benefit
| |
| - | | |
| 752,400 | |
NET LOSS | |
$ | (3,981,196 | ) | |
$ | (1,452,759 | ) |
| |
| | | |
| | |
LOSS PER COMMON
SHARE – BASIC AND DILUTED | |
$ | (0.18 | ) | |
$ | (0.09 | ) |
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING – BASIC AND DILUTED | |
| 22,474,273
| | |
| 16,267,750 | |
See
notes to unaudited condensed consolidated financial statements
VAPOR
CORP.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE THREE MONTHS ENDED MARCH 31, 2015
(UNAUDITED)
| |
Common Stock | | |
Additional
Paid-In | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
Balance – January 1, 2015 | |
| 16,761,911 | | |
$ | 16,762 | | |
$ | 16,026,951 | | |
$ | (15,231,903 | ) | |
$ | 811,810 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance of common stock in connection with the Merger (See Note 4) | |
| 13,591,533 | | |
| 13,592 | | |
| 17,014,807 | | |
| — | | |
| 17,028,399 | |
Issuance of common stock and warrants in connection with private placement | |
| 3,432,314 | | |
| 3,432 | | |
| 2,938,528 | | |
| — | | |
| 2,941,960 | |
Contribution of note and interest payable to Vaporin to capital in connection with the Merger | |
| — | | |
| — | | |
| 354,029 | | |
| — | | |
| 354,029 | |
Cancellation of common stock as a result
of early termination of consulting agreement | |
| (150,000
| ) | |
| (150
| ) | |
| 150 | | |
| — | | |
| — | |
Stock-based compensation expense | |
| — | | |
| — | | |
| 364,576 | | |
| — | | |
| 364,576 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (3,981,196 | ) | |
| (3,981,196 | ) |
Balance – March 31, 2015 | |
| 33,635,758
| | |
$ | 33,636
| | |
$ | 36,699,041 | | |
$ | (19,213,099 | ) | |
$ | 17,519,578 | |
See
notes to condensed consolidated financial statements
VAPOR
CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
For The Three Months
Ended March 31, | |
| |
2015 | | |
2014 | |
OPERATING ACTIVITIES: | |
| | | |
| | |
Net loss | |
$ | (3,981,196 | ) | |
$ | (1,452,759 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Change in allowances | |
| - | | |
| (86,314 | ) |
Depreciation and amortization | |
| 85,013 | | |
| 3,888 | |
Loss on disposal of assets | |
| 289,638 | | |
| - | |
Amortization of deferred debt discount | |
| 317,702 | | |
| - | |
Amortization of deferred financing cost | |
| 34,917 | | |
| - | |
Write-down of obsolete and slow moving inventory | |
| 70,657 | | |
| - | |
Stock-based compensation expense | |
| 364,576 | | |
| 610,414 | |
Deferred income tax benefit | |
| - | | |
| (754,249 | ) |
Change in fair value of derivative liabilities | |
| 37,965 | | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Due from merchant credit card processors | |
| (35,083 | ) | |
| 85,694 | |
Accounts receivable | |
| 117,115 | | |
| 22,443 | |
Inventories | |
| 423,635 | | |
| (924,169 | ) |
Prepaid expenses and vendor deposits | |
| 164,917 | | |
| (40,945 | ) |
Other assets | |
| (771 | ) | |
| (25,000 | ) |
Accounts payable | |
| (140,092 | ) | |
| 293,700 | |
Accrued expenses | |
| 191,384 | | |
| 131,280 | |
Customer deposits | |
| (89,882 | ) | |
| (27,396 | ) |
Income taxes | |
| - | | |
| (1,701 | ) |
NET CASH USED IN OPERATING ACTIVITIES | |
| (2,149,505 | ) | |
| (2,165,114 | ) |
| |
| | | |
| | |
INVESTING ACTIVITIES: | |
| | | |
| | |
Cash received in connection with the Merger | |
| 136,468 | | |
| - | |
Collection of loans receivable | |
| 467,095 | | |
| - | |
Purchases of property and equipment | |
| (67,492 | ) | |
| (4,795 | ) |
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES: | |
| 536,071 | | |
| (4,795 | ) |
| |
| | | |
| | |
FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds from private placement of common stock and warrants, net of offering costs | |
| 2,941,960 | | |
| (109,104 | ) |
Principal payments on term loan payable | |
| (226,273 | ) | |
| (181,731 | ) |
Principal payments of capital lease obligations | |
| (12,248 | ) | |
| - | |
Proceeds from loan payable to Vaporin, Inc. | |
| 350,000 | | |
| - | |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | |
| 3,043,439 | | |
| (290,835 | ) |
| |
| | | |
| | |
NET INCREASE (DECREASE) IN CASH
| |
| 1,440,005 | | |
| (2,460,744 | ) |
| |
| | | |
| | |
CASH — BEGINNING OF PERIOD | |
| 471,194 | | |
| 6,570,215 | |
| |
| | | |
| | |
CASH — END OF PERIOD | |
$ | 1,911,199 | | |
$ | 4,109,471 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |
| | | |
| | |
Cash paid for interest | |
$ | 30,351 | | |
$ | 29,077 | |
Cash paid for income taxes | |
$ | 2,791 | | |
$ | 3,550 | |
| |
| | | |
| | |
NON-CASH INVESTING AND FINANCING ACTIVITIES | |
| | | |
| | |
Purchase Price Allocation in connection with the Merger: | |
| | | |
| | |
Cash | |
$ | 136,468 | | |
| - | |
Accounts receivable | |
| 81,256 | | |
| - | |
Merchant credit card processor receivable | |
| 201,141 | | |
| - | |
Prepaid expense and other current assets | |
| 28,021 | | |
| - | |
Inventory | |
| 981,558 | | |
| - | |
Property and equipment | |
| 206,668 | | |
| - | |
Accounts payable and accrued expenses | |
| (779,782 | ) | |
| - | |
Derivative liabilities | |
| (49,638 | ) | |
| - | |
Notes payable, net of debt discount of 54,623 | |
| (512,377 | ) | |
| - | |
Notes payable – related party | |
| (1,000,000 | ) | |
| - | |
Net assets acquired | |
$ | (706,685 | ) | |
| | |
| |
| | | |
| | |
Consideration: | |
| | | |
| | |
Value of common stock issued | |
| 17,028,399 | | |
| - | |
Excess liabilities over assets assumed | |
| 706,685 | | |
| | |
Total consideration | |
$ | 17,735,084 | | |
| | |
| |
| | | |
| | |
Total excess consideration over net assets acquired | |
$ | 17,735,084 | | |
| | |
Amount allocated to goodwill | |
| 15,654,484 | | |
| - | |
Amount allocated to identifiable intangible assets | |
| 2,080,600 | | |
| - | |
Remaining unallocated consideration | |
$ | - | | |
| - | |
See
notes to unaudited condensed consolidated financial statements
VAPOR
CORP.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. ORGANIZATION, GOING CONCERN AND MANAGEMENT PLANS, AND BASIS OF PRESENTATION
Organization
Vapor
Corp. (the “Company” or “Vapor”) is the holding company for its wholly
owned subsidiaries The Vape Store, Inc. (“Vape Store”), Smoke Anywhere U.S.A., Inc. (“Smoke”), Emagine
the Vape Store, LLC (“Emagine”) and IVGI Acquisition, Inc. The company operates 10-Florida based vape stores and a
website where it sells vaporizers, liquids for vaporizers and electronic cigarettes. The Company designs, markets and distributes
vaporizers, e-liquids, electronic cigarettes and accessories under the Vaporin, emagine vapor™, Krave®, VaporX®,
Hookah Stix®, Fifty-One® (also known as Smoke 51) and Alternacig® EZ Smoker®, Green Puffer®, Americig®,
Vaporin, FumaréTM, and Smoke Star® brands. “Vaporizers”, “Electronic cigarettes” or “e-cigarettes,”
are battery-powered products that enable users to inhale nicotine vapor without smoke, tar, ash, or carbon monoxide.
Going
Concern and Management Plans
The
Company’s condensed consolidated financial statements for the quarter ended March 31, 2015 indicate there is substantial
doubt about its ability to continue as a going concern as the Company requires additional equity and/or debt financing to continue
its operations. The Company must ultimately generate sufficient cash flow to meet its obligations on a timely basis, attain profitability
in its business operations, and be able to fund its long term business development and growth plans. The Company’s business
will require significant amounts of capital to sustain operations and make the investments it needs to execute its longer-term
business plan. The Company’s liquidity and capital resources have decreased as a result of the $3.98 million net loss that
it incurred during the quarter ended March 31, 2015. At March 31, 2015, the Company’s accumulated deficit amounted to $19.21
million. At March 31, 2015, the Company had a working capital deficiency of $811,970 compared to a positive working capital of
$127,874 at December 31, 2014, a decrease of $939,844.
The
accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern
and realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and
liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The
Company’s existing liquidity is not sufficient to fund its operations, anticipated capital expenditures, working capital
deficiency and other financing requirements for the foreseeable future. The Company believes it will need to raise additional
debt or equity financing to maintain and expand the business. Any equity financing or the issuance of equity equivalents could
be dilutive to its shareholders. If either such additional capital is not available on terms acceptable to the Company or at all
then the Company may need to curtail its operations and/or take additional measures to conserve and manage its liquidity and capital
resources, any of which would have a material adverse effect on our business, results of operations and financial condition.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial
information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly,
these condensed consolidated financial statements do not include all of the information and footnotes required for audited annual
financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary
to make the condensed consolidated financial statements not misleading have been included. The condensed consolidated balance
sheet at December 31, 2014 has been derived from the Company’s audited consolidated financial statements as of that date.
These
unaudited condensed consolidated financial statements for the three months ended March 31, 2015 and 2014 should be read in conjunction
with the audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2014 included
in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on March 31, 2015. Operating results for
the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the full year ending
December 31, 2015.
Merger
with Vaporin, Inc.
As
fully-disclosed in Note 3 to these condensed consolidated financial statements, on December 17, 2014, the Company entered into
an Agreement and Plan of Merger (the “Merger Agreement”) with Vaporin, Inc., a Delaware corporation (“Vaporin”)
pursuant to which Vaporin was to merge with and into the Company with the Company being the surviving entity. On the same date,
the Company also entered into a joint venture with Vaporin (the “Joint Venture”) through the execution of an operating
agreement (the “Operating Agreement”) of Emagine, pursuant to which the Company and Vaporin were 50% members of Emagine.
On
March 4, 2015, the acquisition of Vaporin by the Company (the “Merger”) was completed pursuant to the terms of the
Merger Agreement. In connection with the Merger, Vape Store and Emagine became wholly-owned subsidiaries
of the Company.
Note 2. SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES
Principles
of consolidation
The
accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
All significant intercompany transactions and balances have been eliminated.
Use
of estimates in the preparation of the financial statements
The
preparation of condensed consolidated financial statements in conformity with 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 condensed consolidated financial statements, and the reported amounts of net revenue and expenses during the reporting periods.
Actual results could differ from those estimates. These estimates and assumptions include allowances, reserves and write-downs
of receivables and inventory, valuing equity securities and hybrid instruments, share-based payment arrangements, deferred taxes
and related valuation allowances, and the preliminary valuation of the net assets acquired in the Merger. Certain of our estimates
could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible
that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates.
The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and records adjustments
when necessary.
Revenue
recognition
The
Company recognizes revenue from product sales or services rendered when the following four revenue recognition criteria are met:
persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed
or determinable, and collectability is reasonably assured.
Product
sales and shipping revenues, net of promotional discounts, rebates, and return allowances, are recorded when the products are
shipped, title passes to customers and collection is reasonably assured. Retail sales to customers are made pursuant to a sales
contract that provides for transfer of both title and risk of loss upon the Company’s delivery to the carrier. Return allowances,
which reduce product revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded
net of sales and consumption taxes.
The
Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers,
such as percentage discounts off current purchases, inducement offers, such as offers for future discounts subject to a minimum
current purchase, and other similar offers. Current discount offers, when accepted by the Company’s customers, are treated
as a reduction to the purchase price of the related transaction, while inducement offers, when accepted by its customers, are
treated as a reduction to the purchase price of the related transaction based on estimated future redemption rates. Redemption
rates are estimated using the Company’s historical experience for similar inducement offers. The Company reports sales,
net of current discount offers and inducement offers on its condensed consolidated statements of operations.
Accounts
Receivable
Accounts
receivable, net is stated at the amount the Company expects to collect. The Company provides a provision for allowances that includes
returns, allowances and doubtful accounts equal to the estimated uncollectible amounts. The Company estimates its provision for
allowances based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably
possible that the Company’s estimate of the provision for allowances will change.
At
March 31, 2015 accounts receivable balances included a concentration from one customer of an amount
greater than 10% of the total net accounts receivable balance. The amount was $54,993. At December 31, 2014 accounts receivable
balances included concentrations from seven customers that had balances of an amount greater than 10%. The amounts ranged from
$27,729 to $177,200. As to revenues, no customers accounted for revenues in excess of 10% of the net sales for the three-month
periods ended March 31, 2015 and 2014.
Identifiable
Intangible Assets and Goodwill
Identifiable
intangible assets are recorded at cost, or when acquired as part of a business acquisition, at estimated fair value. Certain identifiable
intangible assets are amortized over 5 and 10 years. Similar to tangible personal property and equipment, the Company periodically
evaluates identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. No impairment existed at March 31, 2015.
Indefinite-lived
intangible assets, such as goodwill are not amortized. The Company tests the carrying amounts of goodwill for recoverability on
an annual basis at December 31st or when events or changes in circumstances indicate evidence of potential impairment exists,
using a fair value based test.
Inventories
Inventories
are stated at the lower of cost (determined by the first-in, first-out method) or market. If the cost of the inventories exceeds
their market value, provisions are recorded to write down excess inventory to its net realizable value. The Company’s inventories
consist primarily of merchandise available for resale.
Warranty
liability
The
Company’s limited lifetime warranty policy generally allows its end users and retailers to return defective purchased rechargeable
products in exchange for new products. The Company estimates a reserve for warranty liability and records that reserve amount
as a reduction of revenues and as an accrued expense on the accompanying condensed consolidated balance sheets. The warranty
claims and expense was not deemed material for the years ended December 31, 2014 and three months ended March 31, 2015.
Fair value measurements
The
Company applies the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements”
(“ASC 820”). The Company’s short term financial instruments include cash, due from merchant credit card processors,
accounts receivable, accounts payable and accrued expenses, each of which approximate their fair values based upon their short
term nature. The Company’s other financial instruments include notes payable obligations. The carrying value of these instruments
approximate fair value, as they bear terms and conditions comparable to market, for obligations with similar terms and maturities.
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may
be used to measure fair value: Level 1 – quoted prices in active markets for identical assets or liabilities; Level 2 –
quoted prices for similar assets and liabilities in active market or inputs that are observable; and Level 3 – inputs that
are unobservable.
Stock-Based
Compensation
The
Company accounts for stock-based compensation under ASC Topic No. 718, “Compensation-Stock Compensation” (“ASC
718”). These standards define a fair value based method of accounting for stock-based compensation. In accordance with ASC
718, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over
the vesting period. The value of the stock-based award is determined using the Black-Scholes-Merton valuation model, whereby compensation
cost is the fair value of the award as determined by the valuation model at the grant date or other measurement date. The resulting
amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which
is generally the vesting period. The Company considers many factors when estimating expected forfeitures, including types of awards,
employee class, and historical experience.
Derivative
Instruments
The
Company accounts for free-standing derivative instruments and hybrid instruments that contain embedded derivative features in
accordance with ASC Topic No. 815, “Derivative Instruments and Hedging Activities,” (“ASC 815”) as
well as related interpretations of this topic. In accordance with this topic, derivative instruments and hybrid instruments are
recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized
in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized
at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value
of derivative instruments and hybrid instruments based on available market data using appropriate valuation models, giving consideration
to all of the rights and obligations of each instrument.
The
Company estimates fair values of derivative instruments and hybrid instruments using various techniques (and combinations thereof)
that are considered to be consistent with the objective of measuring fair values. In selecting the appropriate technique, the
Company considers, among other factors, the nature of the instrument, the market risks that it embodies and the expected means
of settlement. For less complex instruments, such as free-standing warrants, the Company generally uses the Black-Scholes-Merton
valuation model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading
volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. Estimating fair values of
derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to,
change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based
techniques (such as the Black-Scholes-Merton valuation model) are highly volatile and sensitive to changes in the trading market
price of the Company’s common stock. Since derivative financial instruments are initially and subsequently carried at fair
values, the Company’s income (loss) going forward will reflect the volatility in these estimates and assumption changes.
Under ASC 815, increases in the trading price of the Company’s common stock and increases in fair value during a given financial
quarter result in the application of non-cash derivative expense. Conversely, decreases in the trading price of the Company’s
common stock and decreases in trading fair value during a given financial quarter result in the application of non-cash derivative
income.
Convertible
Debt Instruments
The
Company accounts for convertible debt instruments when the Company has determined that the embedded conversion options should
not be bifurcated from their host instruments in accordance with ASC 470-20 “Debt with Conversion and Other Options”.
The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in
debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the
note transaction and the effective conversion price embedded in the note. The Company amortizes the respective debt discount over
the term of the notes, using the straight-line method, which approximates the effective interest method. The Company records,
when necessary, induced conversion expense, at the time of conversion for the difference between the reduced conversion price
per share and the original conversion price per share.
Lease
Accounting
The
Company evaluates each lease for classification as either a capital lease or an operating lease. If substantially all of the benefits
and risks of ownership have been transferred to the Company as lessee, the Company records the lease as a capital lease at its
inception. The Company performs this evaluation at the inception of the lease and when a modification is made to a lease. If the
lease agreement calls for a scheduled rent increase during the lease term, the Company recognizes the lease expense on a straight-line
basis over the lease term. The Company determines the straight-line rent impact of an operating lease upon inception of the lease.
Note
3. MERGER WITH VAPORIN, INC.
Merger
with Vaporin, Inc.
On
December 17, 2014, the Company entered into the Merger Agreement with Vaporin pursuant to which Vaporin was to merge with and
into the Company with Vapor being the surviving and controlling entity (as a result of the current stockholders of the Company
maintaining more than 50% ownership in the Company’s outstanding shares of common stock and the current Vapor directors
comprising the majority of the board). The Merger closed on March 4, 2015 and the purchase price consideration paid by the Company
consisted of the following:
|
1. |
100%
of the issued and outstanding shares of Vaporin common stock (including shares of common
stock issued upon conversion of Vaporin preferred stock immediately prior to the consummation
of the merger in accordance with the Merger Agreement) were converted into, and became
13,591,533 shares of the Company’s common stock such that the former Vaporin stockholders
collectively hold approximately 45% of the issued and outstanding shares of the Company’s
common stock following consummation of the Merger. The aggregate value of these shares
issued was $14,949,328, or approximately $1.10 per share, and was based on the closing
price of the Company’s common stock on March 4, 2015.
|
|
|
|
|
2. |
100%
of the issued shares of Vaporin restricted stock units were converted into the right
to receive 1,890,237 shares of the Company’s common stock. The restricted stock
units became fully-vested in connection with the Merger and as a result, were included
as a part of the Company’s purchase price as no further services from the holders
is required to be provided to the Company. The 1,890,237 restricted stock units remain
outstanding as of March 31, 2015. The aggregate value of these shares issued was $2,079,071,
or approximately $1.10 per share, and was based on the closing price of the Company’s
common stock on March 4, 2015. Based on the terms of the Merger Agreement, the Company
has agreed to issue these in twelve equal monthly instalments, with the first delivery
date being the date of the closing of the Merger, however, all shares of common stock
to be delivered on March 15, 2016 to the extent they are not previously delivered.
|
The
Merger Agreement contained customary conditions that were satisfied prior to the closing of the merger, including the requirement
for the Company to receive gross proceeds from a $3.5 million equity offering (See Note 5).
Additionally, as required by the Merger
Agreement the Company received non-binding commitments from certain third parties for financing of up to $25 million to be used
for the construction of retail stores and which is contingent on the achievement of certain performance metrics by the Company.
The
fair value of the purchase consideration issued to the sellers of Vaporin was allocated to fair value of the net tangible assets
acquired, with the resulting excess allocated to separately identifiable intangibles, and the remainder recorded as goodwill. Goodwill
recognized from the transactions mainly represented the expected operational synergies upon acquisition of the combined entity
and intangibles not qualifying for separate recognition. Goodwill is not expected to be deductible for income tax purposes in
the tax jurisdiction of the acquired business. The purchase price allocation was based, in part, on management’s knowledge
of Vaporin’s business and the results of a preliminary third party appraisal commissioned by management. The fair value
was based on a preliminary valuation.
Purchase Consideration | |
| | |
Value of consideration paid: | |
$ | 17,735,084 | |
| |
| | |
Tangible assets acquired and liabilities assumed at fair value | |
| | |
Cash | |
$ | 136,468 | |
Due from merchant credit card processor | |
| 201,141 | |
Accounts receivable | |
| 81,256 | |
Inventories | |
| 981,558 | |
Property and Equipment | |
| 206,668 | |
Other Assets | |
| 28,021 | |
Notes payable, net of debt discount of $54,623 | |
| (512,377 | ) |
Notes payable – related party | |
| (1,000,000 | ) |
Accounts Payable and accrued expenses | |
| (775,753 | ) |
Derivative Liabilities | |
| (49,638 | ) |
Excess liabilities over assets assumed | |
$ | (706,685 | ) |
| |
| | |
Consideration: | |
| | |
Value of common stock issued | |
| 17,028,399 | |
Excess liabilities over assets assumed | |
| 706,685 | |
Total purchase price | |
$ | 17,735,084 | |
| |
| | |
Identifiable intangible assets | |
| | |
Trade names and technology | |
| 1,500,000 | |
Customer relationships | |
| 488,274 | |
Assembled workforce | |
| 92,326 | |
Total Identifiable Intangible Assets | |
| 2,080,600 | |
Goodwill | |
| 15,654,484 | |
Total allocation
to identifiable intangible assets and goodwill | |
$ | 17,735,084 | |
In
addition, in connection with the Merger, an aggregate $354,029 of a note and interest payable by the Company to Vaporin was forgiven.
In
connection with the Merger Agreement, the Company also issued 247,962 warrants to purchase the Company’s common stock to
certain warrant holders of Vaporin as replacement for warrants issued in connection with previous Vaporin note payable issuances.
In addition, the Company also issued 19,733 options to purchase common stock to certain holders of Vaporin as replacement for
options issued for services. The Company determined that based on the remaining term of the warrants and options as well as the
nature of the remaining services to be provided by the holders that the value of the warrants and options at the date of the Merger
was not material.
The
Company was unable to report the financial results of Vaporin for the period from the date the Merger closed on March 4, 2015
through March 31, 2015. The accounting and reporting operations of Vaporin were fully integrated into the Company at Merger and
it is impracticable to separate. The following presents the unaudited pro-forma combined results of operations of the Company
with Vaporin as if the acquisition occurred on January 1, 2014.
| |
For the three months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Revenues | |
$ | 2,584,884 | | |
$ | 4,975,337 | |
Net Loss | |
$ | (5,378,927 | ) | |
$ | (2,590,724 | ) |
Net Loss per share | |
$ | (0.17 | ) | |
$ | (0.08 | ) |
Weighted Average number of shares outstanding | |
| 31,260,183 | | |
| 30,766,022 | |
The
unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results of operations
are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2014
or to project potential operating results as of any future date or for any future periods.
In
connection with the acquisition of Vaporin, the Company acquired net deferred tax assets consisting of net operating loss carryforwards
offset by the difference between the book and tax basis of intangible assets acquired. At the acquisition date, this net deferred
tax asset has been completely offset by a valuation allowance.
The
Joint Venture
On
December 17, 2014, the Company and Vaporin agreed to enter into the Joint Venture through Emagine, a Delaware limited liability
company of which the Company and Vaporin are 50% members. The Operating Agreement provides that Vaporin will serve as the initial
manager of Emagine and will manage the day-to-day operations of Emagine, subject to certain customary limitations on managerial
actions that require the unanimous consent of the Company and Vaporin, including but not limited to making or guaranteeing loans,
distributing cash or other property to the members of Emagine, entering into affiliate transactions, amending or modifying limited
liability company organizational documents, and redeeming or repurchasing membership interests from any of the members. The results
of operations of Emagine from January 1, 2015 through the date of the Merger were not material.
In
connection with the completion of the Merger on March 4, 2015, Emagine became a wholly-owned subsidiary of the Company.
Note
4. Accrued Expenses
Accrued
expenses are comprised of the following:
| |
March
31, 2015 | | |
December
31, 2014 | |
| |
| | |
| |
Commissions
payable | |
$ | 179,000 | | |
$ | 179,000 | |
Retirement
plan contributions | |
| 101,000 | | |
| 80,000 | |
Accrued
severance | |
| 160,000 | | |
| 82,000 | |
Accrued
customer returns | |
| 648,000 | | |
| 360,000 | |
Other
accrued liabilities | |
| 331,241 | | |
| 274,112 | |
Total | |
$ | 1,419,241 | | |
$ | 975,112 | |
Note 5. Notes Payable and Receivable
$567,000
Convertible Notes Payable
Between
January 20, 2015 and January 23, 2015, Vaporin entered into a Securities Purchase Agreement with certain accredited investors
providing for the sale of $567,000 of Vaporin’s Convertible Notes (the “Vaporin Notes”) and calculated a debt
discount on the date of the Merger at $54,623. The Vaporin Notes accrue interest on the outstanding principal at an
annual rate of 10%. The principal and accrued interest on the Notes is due and payable between January 20, 2016 and January 23,
2016. The Notes are convertible into the Company common stock at the lower of (i) $1.08 or (ii) a 15% discount to a
20-trading day VWAP following the closing of the merger, which was calculated at $0.95. Investors were provided with standard
piggyback registration rights which were conditioned on the March 4, 2015 merger closing.
$350,000
Convertible Notes Payable
On
January 29, 2015, the Company issued a $350,000 convertible promissory note (the “Note”) to Vaporin in consideration
for a loan of $350,000 made by Vaporin to the Company. The Note accrued interest on the outstanding principal at an annual rate
of 12%. In connection with the completion of the Merger on March 4, 2015, the $350,000 Note along with accrued interest of $4,029
was extinguished.
$1,000,000
Notes Payable Related Party
On
December 8, 2014, Emagine entered into a Secured Line of Credit Agreement (the “Agreement”), effective as of December
1, 2014, with one affiliated shareholder of the Company and two unaffiliated investors (the “Lenders”). Under the
Agreement, the Lenders agreed to advance up to $3,000,000 in three equal tranches in exchange for secured promissory notes which
mature on March 31, 2016, bear interest at 12% per annum, and are secured by a first lien on the assets of Emagine. The Company
drew on a first tranche of funding under the Agreement was on December 1, 2014.
The
funds were used to purchase and/or open Vape Stores similar to those operated by the Company. In connection with the completion
of the Merger on March 4, 2015, Emagine became a wholly-owned subsidiary of the Company, and the debt was assumed by the Company.
$467,095
Notes Receivable
On
January 12, 2015, the Company entered into an agreement with International Vapor Group, Inc. (“IVG”) whereby the Company
agreed to reduce the $500,000 principal amount of the loan receivable by $50,000 if IVG were to remit payment of all principal
and interest accrued on the loan receivable within one day. The Company included the write-down of the loan receivable in selling,
general and administrative expenses on the consolidated statement of operations for the year ended December 31, 2014. On January
13, 2015, IVG paid the Company in full.
Note 6. STOCKHOLDERS’ EQUITY
Issuance
of Common Stock
On
February 3, 2014, the Company entered into a consulting agreement (the “Consulting Agreement”) with Knight Global
Services, LLC (“Knight Global”) pursuant to which the Company retained Knight Global to assist the Company with increasing
awareness of its electronic cigarette brands as well as assisting the Company to expand and diversify its relationships with large
retailers and national chains. Knight Global is a wholly owned subsidiary of Knight Global, LLC of which Ryan Kavanaugh is an
investor and principal. Effective March 5, 2014, the Board of Directors of the Company elected Mr. Kavanaugh as a member of the
Board of Directors in accordance with the Consulting Agreement. Knight Global serves as the family office for Mr. Kavanaugh.
Under
the terms of the Consulting Agreement, the Company issued to Mr. Kavanaugh 400,000 shares of its common stock, of which 50,000
shares vested immediately while the remaining 350,000 shares vest in installments of 50,000 shares per quarterly period beginning
on the 90th day following February 3, 2014 and each ensuing quarterly period thereafter so long as the Consulting Agreement has
not been terminated and during each quarterly period Knight Global has presented the Company with a minimum of six (6) bona fide
opportunities for activities specified in the Consulting Agreement that are intended to increase awareness of the Company’s
electronic cigarettes. In addition, during the term of the Consulting Agreement, which is 2 years, and during an 18-month post-termination
period, the Company has agreed to pay Knight Global commissions payable in cash equal to 6% of “net sales” (as defined
in the Consulting Agreement) of its products to retailers introduced by Knight Global and to retailers with which the Company
has existing relationships and with which Knight Global is able, based on its verifiable efforts, to increase net sales of the
Company’s products.
The
grant date fair value of the common shares issued on February 3, 2014 was $3,080,000 based on closing price per share of the Company’s
common stock, as reported on the OTC Bulletin Board, on February 3, 2014. On January 24, 2015, the Company and Knight Global mutually
agreed to terminate the Consulting Agreement as it was in the best interests of both parties to do so. As a result of such termination,
the Company issued 50,000 shares of its common stock to Knight Global pursuant to the early termination provisions of the Consulting
Agreement. The Company cancelled 150,000 shares that were not vested that had been previously issued to Mr. Kavanaugh. In addition,
on January 24, 2015, the Company received notice from Ryan Kavanaugh, a director of the Company that he had resigned from the
Company’s board of directors, effective immediately.
During
the three months ended March 31, 2015 and 2014, the Company recognized stock-based compensation expense, for the Consulting
Agreement, in the amount of $322,067 and $592,300, which is included as part of selling, general and administrative expense in
the accompanying condensed consolidated statements of operations.
Private
Placement of Common Stock
In connection
with the Merger, on March 3, 2015, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”)
with certain accredited investors providing for the sale of $3,500,960 in shares of the Company’s Common Stock, par value
$0.001 per share, at a price of $1.02 per share. The Company also issued Warrants to purchasers of the shares to acquire an aggregate
of 2,735,132 shares of the Company’s Common Stock with an exercise price of $1.28 per share. The shares and Warrants were
issued and sold through an exempt private securities offering to certain accredited investors. The Company incurred aggregate
offering costs of $559,000 in connection with the private placement, of which $350,000 was paid to Palladium Capital Advisors,
the Company’s placement agent.
Under the
Purchase Agreement, the Company made certain customary representations and warranties to the purchasers concerning the Company
and its operations. The Company has also agreed to register the Common Stock and the Warrants for resale pursuant to an effective
registration statement which must be filed within 45 days of March 3, 2015 and must be effective by the later of (i) the 90th
day following March 3, 2015 (if no SEC review) or (ii) the 120th day following March 3, 2015 (if subject to SEC
review). If the Form S-3 Registration Statement is not effective for resales for more than 10 consecutive days or more than 15
days in any 12 month period during the registration period (i.e., the earlier of the date on which the shares have been sold or
are eligible for sale under SEC Rule 144 without restriction), the Company is required to pay the investors (other than its participating
officers and directors) liquidated damages in cash equal to 1.5% of the aggregate purchase price paid by the investors for the
shares for every 30 days or portion thereof until the default is cured. Such cash payments could be as much as $52,500 for every
30 days. The initial Form S-3 was filed on April 17, 2015.
Warrants
A
summary of warrant activity for the three months ended March 31, 2015 is presented below:
| |
Number
of Warrants | | |
Weighted- Average Exercise Price | | |
Weighted- Average Contractual Term | | |
Aggregate Intrinsic Value | |
Outstanding at January 1, 2015 | |
| 1,216,091 | | |
$ | 2.01 | | |
| | | |
| | |
Warrants granted | |
| 2,993,815 | | |
| 1.64 | | |
| | | |
| | |
Warrants exercised | |
| — | | |
| — | | |
| | | |
| | |
Warrants forfeited or expired | |
| — | | |
| — | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Outstanding at March 31, 2015 | |
| 4,209,906 | | |
$ | 1.75 | | |
| 5.0 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable at March 31, 2015 | |
| 3,016,725 | | |
$ | 1.65 | | |
| 5.0 | | |
$ | - | |
Stock-based
Compensation
During
the three months ended March 31, 2015 and 2014, the Company recognized stock-based compensation expense in connection with the
amortization of stock option expense of $364,576 and $18,106, respectively, which is included as part of selling, general and
administrative expense in the accompanying condensed consolidated statements of operations. No employee stock options were granted
during the first quarter of 2015, with the exception of the 19,734 options granted in connection with the Merger, for which the
grant date fair value was determined to be immaterial.
Stock
option activity
Options
outstanding at March 31, 2015 under the various plans are as follows:
Plan | |
Total
Number of Options Outstanding
under Plans | |
Equity compensation plans not approved by security holders | |
| 900,000 | |
Equity Incentive Plan | |
| 342,834 | |
| |
| 1,242,834 | |
A
summary of activity under all option Plans at March 31, 2015 and changes during the three months ended March 31, 2015:
| |
Number of
Shares | | |
Weighted-
Average Exercise Price
| | |
Weighted-
Average Contractual Term | | |
Aggregate
Intrinsic
Value | |
Outstanding at January 1, 2015 | |
| 1,344,300 | | |
$ | 3.08 | | |
| 6.53 | | |
$ | - | |
Options granted | |
| 19,734 | | |
| 5.61 | | |
| - | | |
| - | |
Options exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Options forfeited or expired | |
| (121,200 | ) | |
| 7.32 | | |
| - | | |
| - | |
Outstanding at March 31, 2015 | |
| 1,242,834 | | |
$ | 2.71 | | |
| 6.17 | | |
$ | - | |
Exercisable at March 31, 2015 | |
| 1,049,233 | | |
$ | 2.26 | | |
| 6.52 | | |
$ | - | |
Options available for grant at March 31, 2015 | |
| 1,408,866 | | |
| | | |
| | | |
| | |
At
March 31, 2015 the amount of unamortized stock-based compensation expense on unvested stock options granted to employees and consultants
was $338,105 and will vest over 1.6 years.
Loss
per share
Basic
loss per share is computed by dividing the net loss available to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted loss per share is computed using the weighted average number of common shares and,
if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common
shares issuable upon the exercise of stock options (using the treasury stock method) and the conversion of the Company’s
convertible debt and warrants (using the if-converted method). Diluted loss per share excludes the shares issuable upon the exercise
of stock options from the calculation of net loss per share, as their effect is antidilutive. The following table summarizes the
Company’s securities that have been excluded from the calculation of basic and dilutive loss per share as there effect would
be anti-dilutive:
| |
March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Convertible debt | |
| 1,793,409 | | |
| - | |
Stock options | |
| 1,223,100 | | |
| 1,174,500 | |
Warrants | |
| 4,209,906 | | |
| 215,880 | |
Total | |
| 7,226,415 | | |
| 1,390,380 | |
Note
7. FAIR VALUE MEASUREMENTS
The fair
value framework under the Financial Accounting Standards Board’s guidance requires the categorization of assets and liabilities
into three levels based upon the assumptions used to measure the assets or liabilities. Level 1 provides the most reliable
measure of fair value, whereas Level 3, if applicable, would generally require significant management judgment. The
three levels for categorizing assets and liabilities under the fair value measurement requirements are as follows:
|
● |
Level 1: Fair value measurement
of the asset or liability using observable inputs such as quoted prices in active markets for identical assets or liabilities; |
|
|
|
|
● |
Level 2: Fair value measurement
of the asset or liability using inputs other than quoted prices that are observable for the applicable asset or liability, either
directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and
quoted prices for identical or similar assets or liabilities in markets that are not active; and |
|
|
|
|
● |
Level 3: Fair value measurement of the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding the applicable asset or liability. |
The
following table summarizes the liabilities measured at fair value on a recurring basis as of March 31, 2015:
| |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | |
LIABILITIES: | |
| | | |
| | | |
| | | |
| | |
Warrant
liability | |
| | | |
| | | |
$ | 87,603 | | |
$ | 87,603 | |
Total
derivative liabilities | |
$ | - | | |
$ | - | | |
$ | 87,603 | | |
$ | 87,603 | |
The
following table summarizes the liabilities measured at fair value on a recurring basis as of December 31, 2014:
| |
| Level
1 | | |
| Level
2 | | |
| Level
3 | | |
| Total | |
LIABILITIES: | |
| | | |
| | | |
| | | |
| | |
Warrant liability | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Total derivative liability | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Level
3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the
fair value of the liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s
accounting and finance department, who report to the Chief Financial Officer, determine its valuation policies and procedures.
The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are
the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer.
Level
3 Valuation Techniques
Level
3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that
the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within
Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
The
Company deems financial instruments which do not have fixed settlement provisions to be derivative instruments. The common stock
purchase warrants reissued by the Company in connection with the Merger do not have fixed settlement provisions because their
exercise prices may be lowered if the Company issues securities at lower prices in the future. In accordance with Accounting Standards
Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity, the fair value of these warrants is
classified as a liability on the Company’s Condensed Consolidated Balance Sheets because, according to the terms of the
warrants, a fundamental transaction could give rise to an obligation of the Company to pay cash to its warrant holders. Corresponding
changes in the fair value of the derivative liabilities are recognized in earnings on the Company’s Condensed Consolidated
Statement of Operations in each subsequent period.
The
Company’s warrant liabilities are carried at fair value and were classified as Level 3 in the fair value hierarchy due to
the use of significant unobservable inputs. Although the Company determined the warrants include an implied downside protection
feature, it performed a Monte-Carlo simulation and concluded that the value of the feature is de minimus and the use of the Black-Scholes
valuation model is considered to be a reasonable method to value the warrants.
The following table summarizes
the values of certain assumptions used by the Company’s custom model to estimate the fair value of the warrant liabilities
as of March 31, 2015:
| |
March
31, 2015 | |
| |
(Unaudited) | |
Stock
price | |
$ | 1.04 | |
Weighted average
strike price | |
$ | 0.24 | |
Remaining
contractual term (years) | |
| 3.70 | |
Volatility | |
| 124.0 | % |
Risk-free rate | |
| 1.37 | % |
Dividend
yield | |
| 0.0 | % |
The
following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are
measured at fair value on a recurring basis:
| |
For
the three
months ended
March 31, 2015 | |
Beginning balance | |
$ | — | |
Fair value of warrant liabilities reissued in connection with the Merger | |
| 49,638 | |
Change in fair value of derivative liabilities | |
| 37,965 | |
Ending balance | |
$ | 87,603 | |
Note
8. COMMITMENTS AND CONTINGENCIES
Lease
Commitments
The
Company leases its Florida office and warehouse facilities under a twenty-four month lease agreement with an initial term through
April 30, 2013 that the Company extended in March 2015 when it exercised the second of three successive one-year renewal options.
The lease provides for annual rental payments of $144,000 per annum (including 45 days of total rent abatement) during the initial
twenty-four month term and annual rental payments of $151,200, $158,760 and $174,636 during each of the three one-year renewal
options. In October 2013, the Company amended the master lease to include an additional approximately 2,200 square feet for an
additional annual rental payment of $18,000 subject to the same renewal options and other terms and conditions set forth in the
master lease. During the year ended December 31, 2014, the Company entered into nine (9) real estate leases for eight (8) new
retail kiosks and one (1) new retail store. The kiosks opened during the fourth quarter of 2014 and the store is scheduled to
open during 2015. The kiosks are located in malls in Florida, Maryland, New Jersey and Texas. The retail store is located in Ft.
Lauderdale, FL. Under these leases, the initial lease terms range from one to five years, the Company is required to pay base
and percentage rents and the Company is required to pay for common area and maintenance charges and utilities. In addition through
the merger which occurred on March 4, 2015 the Company acquired additional lease commitments which included one (1) Florida office
space and ten (10) new retail stores. Future minimum lease payments under non-cancelable operating that have initial or remaining
terms in excess of one year at March 31, 2015 are due as follows:
The
remaining minimum annual rents for the years ending December 31 are:
2015 | | |
$ | 630,256 | |
2016 | | |
| 539,990 | |
2017 | | |
| 429,628 | |
2018 | | |
| 201,853 | |
2019 | | |
| 153,386 | |
2020 | | |
| 18,961 | |
Total | | |
$ | 1,974,074 | |
Rent
expense for the three months ended March 31, 2015 and 2014 was $215,087 and $44,838, respectively, and is included in selling,
general and administrative expenses in the accompanying condensed consolidated statement of operations.
Resignation
of Chief Financial Officer
On March
27, 2015, Harlan Press notified the Company of his intention to resign from the Company, effective April 10, 2015. Mr. Press previously
served as Chief Financial Officer of the Company. In connection with the Company’s previously disclosed merger with Vaporin,
Inc. in March 2015, Mr. Press was appointed Vice-President of Finance of the Company. Mr. Press received severance compensation
and accrued vacation in accordance with his employment agreement in the total amount of $159,810, which is divided into equal
weekly payments that end on January 29, 2016 and has been included in accrued liabilities as of March 31, 2015.
Legal
Proceedings
From
time to time the Company may be involved in various claims and legal actions arising in the ordinary course of our business. There
were no pending material claims or legal matters as of the date of this report other than two of the three following matters.
On
June 22, 2012, Ruyan Investment (Holdings) Limited (“Ruyan”) filed a lawsuit against the Company alleging infringement
of U.S. Patent No. 8,156,944 (the ‘944 Patent). Ruyan also filed separate cases for patent infringement against nine other
defendants asserting infringement of the 944 Patent. Ruyan’s lawsuit against the Company known as Ruyan Investment (Holdings)
Limited vs. Vapor Corp. CV-12-5466 is pending in the United States District Court for the Central District of California. All
of these lawsuits have been consolidated for discovery and pre-trial purposes. The Company intends to vigorously defend against
this lawsuit.
On
February 25, 2013, Ruyan’s second patent infringement lawsuit against the Company as well as all of the other consolidated
lawsuits were stayed as a result of the Court granting a stay in one of the consolidated lawsuits. The Court granted the motion
to stay Ruyan’s separate lawsuits against the Company and the other defendants based on the filing of a request for inter
partes reexamination of the ‘944 Patent at the United States Patent and Trademark Office.
All
reexamination proceedings of the ‘944 Patent have been stayed by the United States Patent and Trademark Office Patent Trial
and Appeal Board pending its approval of one or more of them.
On
March 5, 2014, Fontem Ventures, B.V. and Fontem Holdings 1 B.V. (the successors to Ruyan) filed a complaint against the Company
alleging infringement of U.S. Patent No. 8,365,742, entitled “Aerosol Electronic Cigarette”, U.S. Patent No. 8,375,957,
entitled “Electronic Cigarette”, U.S. Patent No. 8,393,331, entitled “Aerosol Electronic Cigarette” and
U.S. Patent No. 8,490,628, entitled “Electronic Atomization Cigarette. On April 8, 2014, plaintiffs amended their complaint
to add U.S. Patent No. 8,689,805, entitled “Electronic Cigarette.” The products accused of infringement by the plaintiff
are various Krave, Fifty-one and Hookah Stix products and parts. Eight other companies were also sued in separate lawsuits alleging
infringement of one or more of the patents listed above. The Company filed its Answer and Counterclaims on May 1, 2014. The Company
intends to vigorously defend against this lawsuit.
On
October 21, 2014, Fontem Ventures B.V. and Fontem Holdings 1 B.V. filed a complaint against the Company in the U.S. District Court
for the Central District of California, captioned Fontem Ventures B.V., et al. v. Vapor Corp., No. 14-cv-8155. The complaint alleges
infringement of United States Patent No. 8,863,752, entitled “Electronic Cigarette”. The products accused of infringement
by plaintiffs are various Krave and Fifty-One products and parts On January 15, 2015, the Company filed its Answer and Counterclaims.
The Company will vigorously defend itself against such allegations.
On
December 2, 2014, Fontem Ventures B.V. and Fontem Holdings 1 B.V. filed a complaint against the Company in the U.S. District Court
for the Central District of California, captioned Fontem Ventures B.V., et al. v. Vapor Corp., No. 14-cv-09267. The Complaint
alleges infringement by the plaintiffs against the Company relating to various Krave, Vapor X and Fifty-One products
and parts. Fontem amended its compliant on December 16, 2014, to allege infringement of United States Patent No. 8,910,641, entitled
“Electronic Cigarette” against the same products. On January 15, 2015, the Company filed its Answer and Counterclaims.
The Company will vigorously defend itself against such allegations.
All
of the above referenced cases filed by Fontem have been consolidated and are currently scheduled for trial in November 2015. The
parties are currently in active fact discovery and claim construction.
Purchase
Commitments
At
March 31, 2015 and December 31, 2014, the Company has vendor deposits of $298,320 and $319,563, respectively, and vendor deposits
are included as a component of prepaid expenses and vendor deposits on the condensed consolidated balance sheets included herewith.
NOTE 9. SUBSEQUENT EVENTS
The
Company evaluates events that have occurred after the balance sheet date but before the condensed consolidated financial statements
are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would
have required adjustment or disclosure in the accompanying condensed consolidated financial statements, except for the following:
During
March and April 2015 the Company closed seven of their retail Kiosk locations. This comprised of three in Maryland, two in Texas
one in New Jersey and one in Florida. In addition, the Company decided not to proceed with opening the retail store located in
Ft, Lauderdale Florida. This was primarily due to the Company’s refocus of resources on management and expansion of the
acquired Vape Store brand retail locations. The Company is negotiating early terminations of the lease commitments.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Management’s
Discussion and Analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related
notes thereto included elsewhere in this quarterly report.
The following
discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and
related notes appearing elsewhere in this report on Form 10-Q. In addition to historical information, this discussion and analysis
contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those
set forth under “Risk Factors” in our Annual Report on Form 10-K, as filed with the United States Securities and Exchange
Commission, or the SEC, on March 31, 2015. The terms “Vapor Corp.,” “Vapor,” “we,” “us,”
“our,” and the “Company” refer to Vapor Corp. and its wholly-owned subsidiaries The Vape Store, Inc. (“Vape
Store”), Smoke Anywhere U.S.A., Inc. (“Smoke”) and ”), Emagine the Vape Store, LLC (“Emagine”)
and IVGI Acquisition, Inc.
Company
Overview
The
Company operates 10 Florida-based vape stores and a website where it sells vaporizers, liquids for vaporizers and e-cigarettes.
The company is focusing on expanding its Company-owned vape stores and beginning a franchise program. The Company also designs,
markets and distributes electronic cigarettes, vaporizers, e-liquids and accessories under the Krave®, VaporX®, Hookah
Stix®, Alternacig®, Fifty-One® (also known as Smoke 51), EZ Smoker®, Green Puffer®, Americig®, Vaporin,
FumaréTM, and Smoke Star® brands. “Electronic cigarettes” or “e-cigarettes,” are
battery-powered products that enable users to inhale nicotine vapor without fire, smoke, tar, ash, or carbon monoxide. We also
design and develop private label brands for our distribution customers. Third party manufacturers manufacture our products to
meet our design specifications. We market our products as alternatives to traditional tobacco cigarettes and cigars. In 2014,
as a response to market product demand changes, Vapor began to shift its primary focus from electronic cigarettes to vaporizers.
“Vaporizers” and “electronic cigarettes,” or “e-cigarettes,” are battery-powered products
that enable users to inhale nicotine vapor without smoke, tar, ash, or carbon monoxide.
We
offer our vaporizers and e-cigarettes and related products through our Vape Stores, customer direct phone center, online stores,
to retail channels through our direct sales force, and through third party wholesalers, retailers and value-added resellers. Retailers
of our products include small-box discount retailers, big-box retailers, gas stations, drug stores, convenience stores, tobacco
shops and kiosk locations in shopping malls throughout the United States. We previously offered our vaporizers and electronic
cigarettes and related products through our direct response television marketing efforts.
The
Company’s business strategy is currently focused on a multi-pronged approach to diversify our revenue streams to include
the Vape Store brick-and-mortar retail locations which Vaporin had successfully deployed. We are seeing that there is a large
consumer demand centered on the vaporizer products and the retention “atmosphere” created by the stores. We are also
expanding our web presence and customer direct phone center operations that work closely to drive consumer sales. Our distribution
sales continue to be a significant part of our operations and we anticipate regrowth as we have adjusted towards vaporizers in
addition to our e-cigarette brands.
Critical
Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations set forth below under the headings “Results
of Operations” and “Liquidity and Capital Resources” have been prepared in accordance with U.S. GAAP and should
be read in conjunction with our consolidated financial statements and notes thereto appearing in the Annual Report on Form 10-K
for the year ended December 31, 2014, filed by the Company with the SEC on March 31, 2015. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and
estimates, including identifiable intangible assets and goodwill, stock-based compensation, derivative liabilities and long-lived
assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. A more detailed discussion on the application of these and other accounting
policies can be found in Note 3 in the Notes to the Consolidated Financial Statements in the Annual Report on Form 10-K for the
year ended December 31, 2014, filed by the Company with the SEC on March 31, 2015. If the Company’s current business
strategy is not successful and the expected synergies resulting from the Company’s acquisition of Vaporin are not achieved,
the Company may be required to take a partial or full impairment charge against its goodwill or other long-lived assets which
arose from our recent merger transaction. Actual results may differ from these estimates under different assumptions and conditions.
While
all accounting policies impact the financial statements, certain policies may be viewed as critical. Critical accounting policies
are those that are both most important to the portrayal of financial condition and results of operations and that require management’s
most subjective or complex judgments and estimates. Our management believes the policies that fall within this category are the
policies on accounting for identifiable intangible assets and goodwill, stock-based compensation, derivative liabilities and long-lived
assets.
Results
of Operations for the Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014
Sales,
net for the three months ended March 31, 2015 and 2014 were $1,468,621 and $4,792,544, respectively, a decrease of $3,323,923
or approximately 69.4%. The decrease in sales is primarily attributable to decreased sales of our television direct marketing
campaign for our Alternacig® brand, a decrease in sales from our on-line stores, distributor inventory build leveling off
and continued pipeline load in the e-cigarette category in 2014, and the increasing prevalence of vaporizers, tanks and open system
vapor products that are marginalizing the e-cigarette category and increased returns of e-cigarette products. Sales were also
negatively impacted by new national competitors’ launches of their own branded products during 2014. Due to low conversion
rates of our Alternacig® and VaporX® branded direct marketing campaign, we limited the direct marketing campaign, resulting
in lower sales of direct marketing products. In addition, sales decreased due to certain wholesale and distribution customers
selling off their current inventory of electronic cigarette products so they can switch to e-vapor products. We anticipate that
the demand for e-vapor products will continue to increase, as users want products that have more advanced technology with higher
performance and longer battery life. As a result, we are in the process of altering our product mix to include more e-vapor products,
including premium USA made e-liquids.
Cost
of goods sold for the three months ended March 31, 2015 and 2014 were $1,651,110 and $3,831,928, respectively, a decrease of $2,180,818,
or approximately 56.9%. The decrease is primarily due to the decrease in sales. During the three months ended March 31, 2015,
as compared to the three months ended March 31, 2014, cost of goods sold was higher as a percentage of sales primarily due to
consignment inventory write off $70,657 and from customer returns of e-cigarettes that were resold below cost at liquidation prices.
Selling,
general and administrative expenses for the three months ended March 31, 2015 and 2014 were $3,243,189 and $2,769,726, respectively,
an increase of $473,463 or approximately 17.0%. Non-cash stock compensation expense was $364,576 and $610,414 for the three months
ended March 31, 2015 and 2014, respectively, a decrease of $245,838 relating to the cancellation of a consulting agreement
with a former director. Professional fees increased to $394,145 from $385,435 in the three months ended March 31, 2015 and
2014, respectively. In addition, depreciation and amortization expense increased to $85,013 from $3,888 in the three months ended
March 31, 2015 and 2014, respectively, an increase of $81,125 primarily due to the increase in depreciable assets as a result
of leasehold improvements and the purchase of kiosks. There was also a loss on the disposal of assets from the write off of kiosks
that were closed during March and April 2015 in the amount of $289,638 that was recorded at March 31, 2015. Payroll expenses during
the three months ended March 31, 2015 and 2014 were $1,242,981 and $822,695, respectively, an increase of $419,820 due primarily
to increased headcount for retail store employees and employees transitioned to the company post-merger.
Advertising
expense was approximately $105,177 and $367,615 for the three months ended March 31, 2015 and 2014, respectively, a decrease of
$262,438 or approximately 71.4%. The decrease was due to decreases in Internet advertising and television direct marketing campaign
for our Alternacig® brand, print advertising programs, and participation at trade shows and other advertising campaigns.
Interest
expense was approximately $378,775 and $28,434 for the three months ended March 31, 2015 and 2014, respectively. The interest
expense was attributable to the term loan, the $1,250,000 Senior Convertible note, the $567,000 convertible notes to various lenders
and other outstanding debts in 2015. The Company recorded an aggregate of $317,702 in non-cash interest expense which is included
in interest expense for the three months ended March 31, 2015.
Income
tax (benefit) expense for the three months ended March 31, 2015 and 2014 was $2,791 and ($752,400), respectively.
Net
(loss) income for the three months ended March 31, 2015 and 2014 was ($3,981,196) and ($1,452,759), respectively, as a result
of the items discussed above.
Liquidity
and Capital Resources
The
Company had net losses of approximately $3.98 million and $1.45 million for the three month periods ending March 31, 2015 and
2014, respectively, and has experienced cash outflows from operating activities. The Company also has an accumulated deficit of
$19.2 million as of March 31, 2015. The Company had $1.91 million of cash at March 31, 2015 and negative working capital of approximately
$812,000. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
Our
net cash used in operating activities was $2,149,505 and $2,165,114 for the three months ended March 31, 2015 and 2014, respectively,
a decrease of $15,609. Our net cash used in operating activities for the three months ended March 31, 2015 resulted from our net
loss of $3,981,196 offset by non-cash charges of $1,200,468 and changes in operating assets and liabilities of $631,223.
Our
net cash provided by (used in) investing activities was $536,071 and ($4,795) for the three months ended March 31, 2015 and 2014,
respectively. The increase of proceeds from investing activities of $540,866 over the three months ended March 31, 2015 and 2014
is primarily due to increases in cash collected from repayment of loans receivable’s and cash acquired from the March 4th
merger with Vaporin, partially offset with an increase in purchases of property and equipment.
Our
net cash provided by (used in) financing activities was $3,043,439 and ($290,835) for the three months ended March 31, 2015 and
2014, respectively. The increase in cash provided by financing activities over the three months ended March 31, 2015 and 2014
was primarily related to proceeds from the Securities Purchase Agreement (the “Purchase Agreement”), entered into
in connection with the Merger on March 3, 2015, with certain accredited investors providing for the sale of $3,500,960 in shares
of the Company’s Common Stock, par value $0.001 per share at a price of $1.02 per share, offset by offering costs of $559,000.
The increase was partially offset with payments to the term loan and capital lease obligations.
In
the ordinary course of our business, we enter into purchase orders for components and finished goods, which may or may not require
vendor deposits and may or may not be cancellable by either party. At March 31, 2015 and December 31, 2014, we had $298,320 and
$319,563 in vendor deposits, respectively, which are included in prepaid expenses and vendor deposits on the condensed consolidated
balance sheets included elsewhere in this report. At March 31, 2015 and December 31, 2014, we do not have any material financial
guarantees or other contractual commitments with these vendors that are reasonably likely to have an adverse effect on liquidity.
Our
existing liquidity is not sufficient to fund our operations, anticipated capital expenditures, working capital and other financing
requirements for the foreseeable future. Pending the completion of the public offering described below, we will need to raise
additional debt or equity financing to maintain and expand the business. To the extent we raise
additional capital by issuing equity securities, or in which equities are issued or obtaining borrowings convertible into
equity, ownership dilution to existing stockholders will result and future investors may be granted rights superior to those of
existing stockholders. This dilution is complicated by the covenants in the November 2014 and March 2015 financings which preclude
us from issuing equity below $2.00 per share given our recent stock price in the mid $0.60 range. We are negotiating to obtain
waivers of these covenants and expect that we will have to issue a material number of shares of common stock to do so; any waivers
will require majority or super majority consent. While the lead lender in each offering has orally agreed to execute a waiver
in return for equity, we cannot assure you that sufficient other similarly situated investors will do so.
To meet
our working capital needs, we are focusing on a short-term bridge loan and a large public offering. The Company has engaged an
investment bank in order to raise capital in a public offering in the near future. The Company is not aware of the timing or terms
of any such offerings that may be conducted or if such offerings will be successful. Any such public offering will be made pursuant
only by a prospectus filed with the Securities and Exchange Commission, and the disclosure hereunder does not constitute an offer
of any securities for sale. If we are unsuccessful in raising capital or any such capital is not available on terms acceptable
to us then we may need to curtail its operations and/or take additional measures to conserve and manage our liquidity and capital
resources, any of which would have a material adverse effect on our business, results of operations and financial condition.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements.
Seasonality
We do not
consider our business to be seasonal.
Cautionary
Note Regarding Forward-Looking Statements
This report
includes forward-looking statements including statements regarding liquidity, capital raise and cash flows.
The words
“believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,”
“should,” “plan,” “could,” “target,” “potential,” “is likely,”
“will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking
statements. We have based these forward-looking statements largely on our current expectations and projections about future events
and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial
needs.
The results
anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results
to differ from those in the forward-looking statements include raising capital, customer acceptance of our products, and proposed
federal and state regulation. We undertake no obligation to publicly update or revise any forward-looking statements, whether
as the result of new information, future events or otherwise.
Item 4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Our management,
with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as
of March 31, 2015. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of March 31, 2015.
Changes
in Internal Control Over Financial Reporting
During the
quarter ended March 31, 2015, there were no changes in our internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Securities Exchange Act Rules 13a-15 or 15d-15 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
PART
II
OTHER
INFORMATION
Item 1. Legal Proceedings.
Reference
is made to note 6 to the Company’s condensed consolidated financial statements included elsewhere in this report for the
information required by this Item.
Item
1A. Not required for smaller reporting companies.
Item 6. Exhibits.
Exhibit |
|
|
|
Incorporated by Reference |
|
Filed
or Furnished |
No. |
|
Exhibit Description |
|
Form |
|
Date |
|
Number |
|
Herewith |
10.1 |
|
Securities Purchase
Agreement, dated as of January 20, 2015 |
|
8-K |
|
1/26/15 |
|
10.1 |
|
|
10.2 |
|
Form of Note,
dated as of January 20, 2015 |
|
8-K |
|
1/26/15 |
|
10.2 |
|
|
10.3 |
|
Convertible Promissory
Note, dated January 29, 2015 |
|
8-K |
|
2/3/15 |
|
10.1 |
|
|
10.4 |
|
Form of Securities
Purchase Agreement, dated as of March 3, 2015 |
|
8-K |
|
3/5/15 |
|
10.1 |
|
|
10.5 |
|
Form of Common
Stock Purchase Warrant - included as Exhibit C to Exhibit 10.4 |
|
8-K |
|
3/5/15 |
|
10.1 |
|
|
31.1 |
|
Certification
of Principal Executive Officer (302) |
|
|
|
|
|
|
|
Filed |
31.2 |
|
Certification
of Principal Financial Officer (302) |
|
|
|
|
|
|
|
Filed |
32.1 |
|
Certification
of Principal Executive Officer (906) |
|
|
|
|
|
|
|
Furnished
* |
32.2 |
|
Certification
of Principal Financial Officer (906) |
|
|
|
|
|
|
|
Furnished* |
101.INS |
|
XBRL Instance
Document |
|
|
|
|
|
|
|
Filed |
101.SCH |
|
XBRL Taxonomy
Extension Schema Document |
|
|
|
|
|
|
|
Filed |
101.CAL |
|
XBRL Taxonomy
Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
Filed |
101.DEF |
|
XBRL Taxonomy
Extension Definition Linkbase Document |
|
|
|
|
|
|
|
Filed |
101.LAB |
|
XBRL Taxonomy
Extension Label Linkbase Document |
|
|
|
|
|
|
|
Filed |
101.PRE |
|
XBRL Taxonomy
Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
Filed |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
|
VAPOR
CORP. |
|
|
|
Date: May 15,
2015 |
By: |
/s/ Jeffrey
Holman |
|
|
Jeffrey Holman |
|
|
Chief Executive
Officer |
Date: May 15,
2015 |
|
|
|
By: |
/s/ James
Martin |
|
|
James Martin |
|
|
Chief Financial Officer |
Exhibit 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Jeffrey Holman, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 of Vapor Corp.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
4. |
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
5. |
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
Dated: May 15, 2015 |
By: |
/s/ Jeffrey Holman |
|
Name: |
Jeffrey Holman |
|
Title: |
Chief Executive Officer |
Exhibit 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
I, James Martin, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 of Vapor Corp.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
4. |
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
5. |
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
Dated: May 15, 2015 |
By: |
/s/ James Martin |
|
Name: |
James Martin |
|
Title: |
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
I, Jeffrey Holman, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report of Vapor Corp. on Form 10-Q for the quarterly period ended March 31, 2015 fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-Q fairly presents in all
material respects the financial condition and results of operations of Vapor Corp.
Dated: May 15, 2015 |
By: |
/s/ Jeffrey Holman |
|
Name: |
Jeffrey Holman |
|
Title: |
Chief Executive Officer |
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
I, James Martin, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report of Vapor Corp. on Form 10-Q for the quarterly period ended March 31, 2014 fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-Q fairly presents in all
material respects the financial condition and results of operations of Vapor Corp.
Dated: May 15, 2015 |
By: |
/s/ James Martin |
|
Name: |
James Martin |
|
Title: |
Chief Financial Officer |
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