April 20, 2021
UNITED STATES
Amendment No. 1 to
UNDER THE SECURITIES ACT OF 1933
VAPOR CORP.
Delaware | ||||
(State or other jurisdiction of
| 2100 (Primary Standard Industrial Classification Code Number) | 84-1070932 (I.R.S. Employer Identification Number) |
3001 Griffin Road
Dania Beach, Florida 33312
(888) 766-5351
3800 North 28th Way
Vapor Corp.
3001 Griffin Road
Dania Beach, Florida 33312
(888) 766-5351
Martin, T. Schrier, Esq. Christopher J. Bellini, Esq. Cozen O’Connor 200 S. 30th Floor Miami, FL 33133 Tel: 305-704-5954 | ||
Barry I. Grossman, Esq. Sarah E. Williams, Esq. Matthew Bernstein, Esq. Ellenoff Grossman & | ||
1345 Avenue of the Americas New York, New York 10105 (212) 370-1300 |
Registration Statement is declared effective.
box.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
The information in this . Shares of unapplied subscription payment. Once made, all exercises of Subscription Rights are irrevocable. 2021. shares. your basic rights, your interest in our company will be diluted and your proportional interest in our company will decrease. offering. You should consult your tax advisor as to your particular tax consequences resulting from the offering. For a summary of certain U.S. federal income tax consequences of this offering, see “Material U.S. Federal Income Tax Considerations.” Years Ended December 31, Three Months Ended March 31, (unaudited) Working capital (deficit) the offering, please contact Broadridge Corporate Issuer Solutions, Inc. by telephone at (855) 793-5068 or by email at shareholder@broadridge.com. This prospectus also contains forward-looking statements and estimates that involve risks and uncertainties. Our dedicated retail stores. products. operations, or result in our insolvency. Except as Actual As Adjusted Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding. equity incentive plan. after the completion of the Rights Offering. As of _________ __, 2021, there were approximately _____ holders of record of common stock. The know the actual subscription price at the time of exercise of their Subscription Rights. Stockholders will be required to pay for the shares subscribed for at the Estimated Subscription Price as set forth in the prospectus. If, on the Expiration Date, the Actual Subscription Price is lower than the Estimated Subscription Price, any excess subscription amounts paid by a subscriber (the “Excess Subscription Amount”) will be put towards the purchase of additional shares in the rights offering. For more information, see “Questions and Answers About the Rights Offering” above. Name (a) Name and Principal Position (a) 85,615 Equity Incentive Plan Awards: Number of Securities Underlying Unexercised or Unearned Options (#) (d) 162,057 William Conway III (7) Nikhil Raman (9) 466,374 Subscription Rights, you will not be eligible to participate in the offering. However, we are not currently aware of any states or jurisdictions that would preclude participation in this offering. The outstanding shares of common stock are fully paid and non-assessable. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preference stock that we may designate and issue in the future. directors). Delaware Anti-Takeover Statute take stockholder actions. As directors. apply to payments of gross proceeds from the sale or other disposition of common stock on or after January 1, 2019. Because we may not know the extent to which a distribution is a dividend for U.S. federal income tax purposes at the time it is made, for purposes of these withholding rules we or the applicable withholding agent may treat the entire distribution as a dividend. Prospective investors should consult their tax advisors regarding the potential application of these withholding provisions. COMMITMENTS AND CONTINGENCIES GROSS (LOSS) PROFIT Income tax benefit 4,494,855 3,253,550 NET INCREASE (DECREASE) IN CASH Number of Warrants Weighted- Average Exercise Price Weighted- Average Contractual Term Aggregate Intrinsic Value 5.20 Common stock, $.001 par value, 50,000,000 shares authorized 3,352,382 and 3,242,906 shares issued and 3,352,382 and 3,242,906 shares outstanding, respectively 31,312 3,352 3,554,486 0.42 3,096,082 6.05 Distribution. Officers. Securities. Consolidated Financial Statement Schedules. Undertakings.— — Shares issuable upon exercise of Non-transferable Rights $100,000,000 $10,910 Total $100,000,000 $10,910 Securities and Exchange Commission, acting pursuant to saidsuch Section 8(a), may determine. preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we areis not soliciting an offer to buy these securities in any statejurisdiction where the offer or sale is not permitted.permittedPRELIMINARY PROSPECTUSSUBJECT TO COMPLETIONDATED JULY 10, 2015VAPOR CORP.
Up to 3,800,000 Units Consisting ofSeries A Convertible PreferredCommon Stock andSeries A Warrantsoffering by this prospectus up to 3,800,000 units, with each unit consisting of one-fourth of a share of our Series A Convertible Preferred Stock convertible into five sharesdistributing, at no charge, non-transferable Subscription Rights entitling holders of common stock and 10 Series A Warrants each exercisable intoas of the record date of 5:00 p.m. (Eastern time) on , 2021, one Subscription Right to purchase one share of common stock (the “Units”). The Units are being offered at a price of $[_____] per Unit. The Units, the Series A Convertible Preferred Stock and the Series A Warrants will not be certificated.Thefor every four shares of Series A Convertible Preferred Stock andcommon stock owned. The per share exercise price (the “Actual Subscription Price”) of the Series A WarrantsSubscription Right will automatically separate six months after the date of this prospectus. However, the shares of Series A Convertible Preferred Stock and the Series A Warrants will separate priorbe a 25% discount to the expirationvolume-weighted average of the six-month period if at any time after 30 days from the date of this prospectus either (i) the closing pricetrading prices (“VWAP”) of our common stock is greater than $[_____] per shareon the OTC Pink Sheets for 10the five consecutive trading days (a “Trading Separation Trigger”), (ii)ending on the Series A Warrants are exercised for cash (solely with respect to the Units that included the exercised Series A Warrants) (a “Cash Warrant Exercise Trigger”) or (iii) the Units are delisted (a “Delisting Trigger”) from the Nasdaq Capital Market for any reason (such earlierexpiration date the “Separation Trigger Date”). We refer to this separation prior to the six-month period as an Early Separation. The Units will become separable: (i) 15 days after the Trading Separation Trigger date or (ii) immediately after the Series A Warrants are exercised for cash (solely with respect to the Units that included the exercised Series A Warrants) or a Delisting Trigger. In the event of an Early Separation, the Preferred Stock will become convertible into common stock: (i) immediately upon the separation of the Unit if a Trading Separation Trigger or a Delisting Trigger occurs, or (ii) on the six month anniversaryoffering. If calculated as of the date of this prospectus, (unless an earlier Trading Separation Trigger or Delisting Trigger occurs)this subscription price would be $_____ (the “Estimated Subscription Price”).occurrencenumber of a Cash Warrant Exercise Trigger.Each one-fourth of a share of Series A Convertible Preferred Stock will be convertible at the option of the holder into five shares of common stock that would be received upon conversion in full of such preferred stock. The maximum aggregate amount of subscriptions that will be accepted by the separationCompany will be $100 million (“Maximum Offering Amount”).the Units , provided that upon a Cash Warrant Exercise Trigger the Series A Convertible Preferred Stock will not be convertible until six-months after the date of this prospectus (unless an Early Separation occurs due to a Trading Separation Trigger or Delisting Trigger). The Series A Warrants have an exercise price of $[_____]. The Series A Warrants will expireshares based on the fifth anniversarynumber of the date of this prospectus. This prospectus also covers the shares of common stock issuable from timeyou held as of the record date. If you exercise your basic right in full, you will also have the right, or over-subscription privilege, to time uponpurchase additional shares for which other rights holders do not subscribe. If you wish to exercise your over-subscription privilege, you may request to purchase any number of shares of common stock. These requests for the exercise of the Series A Warrants orover-subscription privilege, however, will be subject to a pro-rata reduction in the conversion ofevent that the Series A Convertible Preferred Stock. This prospectus also coversMaximum Offering Amount is reached, in which case you will only pay for the Unitsshares that you are able to purchase and underlying securities issuable upon exercise of the unit purchase option toa refund will be issued to you for the underwriters.listedtraded on the Nasdaq Capital MarketOTC Pink Sheets under the symbol “VPCO.“HCMC.” On July 9, 2015, theThe last reported salessale price of ourthe common stock on the Nasdaq Capital Market_______, 2021 was $1.39$[•] per share. On July 8, 2015, the Company effectuated a one-for-five reverse stock split of its common stock. There is no market for our Units. We have applied for the listing of the Units on the Nasdaq Capital Market under the trading symbol “VPCOU”. If this offering is completed, trading of the Units will not commence until the closing of the offering, which we expect to occur on [_____], 2015. We do not intend to list the Series A Convertible Preferred Stock or the Series A Warrants on the Nasdaq Capital Market, any other national securities exchange or any other nationally recognized trading system.Before investingUnits, preferred stock and warrants exercisable for common stock, you should carefully read the discussion ofsecurities involves risks. See “Risk Factors” beginning on page 5. Any investment in___ of this prospectus. We and our company is highly speculative and could result inboard of directors are not making any recommendation regarding the lossexercise of your entire investment. rights.Per Share Total(1) Estimated subscription price $ $ _____________ Dealer-manager fees and expenses(2) $ $ _____________ Proceeds to us, before expenses $ $ _____________ (1) Assumes sale of all offered shares. (2) Represents maximum amount payable. We have agreed to pay Maxim, as dealer-manager, a cash fee equal to 7.0% of the proceeds to us. determined ifpassed upon the accuracy or adequacy of this prospectus is truthful or complete.prospectus. Any representation to the contrary is a criminal offense.Per UnitTotalPublic offering priceUnderwriting commissions (1)Offering proceeds to us, before expenses(1)Does not include other compensation payable to Dawson James Securities, Inc., the representative of the underwriters. See “Underwriting.”The underwriters are selling the Unitsa “best efforts” basis. The underwriters are not required to sell any specific number or dollar amount of Units, but will use their best efforts to sell the securities offered. Because this is a best efforts offering, the underwriters do not have an obligation to purchase any securities, and, as a result, there is a possibility that we may not receive any proceeds from the offering.The underwriters expect to deliver the securities to investors upon payment approximately three business days following acceptance of an order.This offering shall terminate upon the earlier of [_____________]about , 2015 or the receipt of a notice of termination from the underwriters.Dawson James Securities, Inc.[_____], 2015.
2021.i Page 2 3 5 22 23 23 24 24 26 27 32 43 46 50 5154Shares Eligible for Future Sale59Underwriting60Legal Matters64Experts64Where you Can Find More Information64Index to Financial StatementsF-1anyyou with information different from, or in addition to, make any representations other than thosethat contained in this prospectus or inand any related free writing prospectus prepared by or on behalf of us or to which we have referred you.prospectus. We and Maxim take no responsibility for, and can provide no assuranceassurances as to the reliability of, any other information that others may give you. This prospectus is not an offer to you.sell, nor is it seeking an offer to buy, these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is only accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus orand any sale of our common stock.“Vapor”, the “Company,“HCMC,” “our company,” “we,” “our” “us” or “our”and similar terms refer to VaporHealthier Choices Management Corp., a Delaware corporation. When we refer to “Smoke Anywhere” we are referring to Smoke Anywhere USA, Inc., our wholly-owned subsidiary. When we refer to Vaporin, we are referring to Vaporin, Inc., a company we merged with in March 2015. All warrant, option, common stockcorporation, and per share of common stockits subsidiaries, unless the context otherwise requires.prospectus gives effect toprospectus. Because the 1-for-5 reverse split of our common stock effectuated on July 8, 2015.iiThe following information is only a summary, of the prospectus and it does not contain all of the information you should consider before investing in our securities. YouBefore making an investment decision, you should carefully read all of the entireinformation contained in this prospectus, carefully, including the risks described under “Risk Factors” section and our consolidated financial statements and the related notes relating to the financial statements,incorporated by reference from our 2020 Form 10-K, before making an investment decision.We operate nine Florida-based currently operates eight retail vape stores (and expects to open two more in the next three weeks)Southeast region of the United States, through which it offers e-liquids, vaporizers and are focusingrelated products. The Company also operates Ada’s Natural Market, a natural and organic grocery store, through its wholly owned subsidiary Healthy Choice Markets, Inc. and Paradise Health and Nutrition, stores that offer fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, health & beauty products and natural household items through its wholly owned subsidiary-Healthy Choice Markets 2, LLC. The Company also sells vitamins and supplements on expandingits website TheVitaminStore.com and on Amazon.com marketplace through its wholly-owned subsidiary Healthy U Wholesale, Inc.number of Company operated stores as well as launching a franchise program. Wemanages and intends to expand on its intellectual property portfolio. The Company also design, market, and distribute vaporizers, e-liquids, electronic cigarettes and accessoriesmarkets its Q-Cup™ technology under the emagine vaporTM, Krave®vape segment. This patented technology is based on a small, quartz cup called the Q-Cup™, Fifty-One® (also known as Smoke 51)which a customer can purchase already filled by a third party in some regions, or can partially fill themselves with either cannabis or CBD concentrate (approximately 50 mg), Vapor X®also purchased from a third party. The Q-Cup™ can then be inserted into the patented Q-Unit™, Hookah Stix®which heats the cup from the outside without coming in direct contact with the solid concentrate. This Q-Cup™ and Alternacig® brands. WeQ-Unit™ technology provides significantly more efficiency and an “on the go” solution for consumers who prefer to vape concentrates either medicinally or recreationally. The Q-Cup™ can 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,be used in other devices 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 , online, to retail channels through our direct sales force, and through third party wholesalers, retailers and value-added resellers. Retailersconvenient micro-dosing system.products include small-box discount retailers, big-box retailers, gas stations, drug stores, convenience stores,business, financial condition, results of operations and tobacco shops and kiosk locations in shopping malls throughoutother important information, please read our filings with the United States. Vapor leverages its ability to design, market and develop multiple vaporizer and e-cigarette brands and to bring those brands to market through its multiple distribution channels including the vape stores, online and through retail operations operated by third parties. 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.Our Corporate InformationThe Company was originally incorporated under the name Consolidated Mining International, Inc. in 1985. On November 5, 2009, the Company acquired Smoke Anywhere a distributor of electronic cigarettes, in a reverse triangular merger. On January 7, 2010, the Company changed its name to Vapor Corp. The Company reincorporated in the State of Delaware from the State of Nevada effective on December 31, 2013. On March 3, 2015, the Company merged with Vaporin and was the surviving and controlling entity.Our executive officesSEC that are located at 3001 Griffin Road, Dania Beach, Florida 33312, and our telephone number is (888) 766-5351. Our website is located at www.vapor-corp.com. The information contained on, or that can be accessed through, our website is not incorporated by reference in this prospectus, including our 2020 Form 10-K. For instructions on how to find copies of these documents, please read “Where You Can Find Additional Information.”• , 2021 , 2021 , 2021 Deadline for delivery of subscription certificates and payment of subscription prices , 2021 , 2021 Deadline for delivery of subscription certificates and payment of subscription prices pursuant to notices of guaranteed delivery , 2021 , 2021 consideredissued for shares of our common stock purchased in the rights offering.partportion, or none, of this prospectus.Price per Unit.$[____] per Unit.Securities we are offering; Separation of the UnitsUp to 3,800,000 Units. Each Unit consists of one-fourth of a share of Series A Convertible Preferred Stock, convertible into five shares of common stock and 10 Series A Warrants each exercisable for one share of common stock.The shares of Series A Convertible Preferred Stock and the Series A Warrants will automatically separate six months after the date of this prospectus. However, the shares of Series A Convertible Preferred Stock and the Series A Warrants will separate prior to the expiration of the six-month period if at any time after 30 days from the date of this prospectus there is an Early Separation. The Units will become separable: (i) 15 days after the Trading Separation Trigger date or (ii) immediately after a Cash Warrant Exercise Trigger (solely with respect to the Units that included the exercised Series A Warrants) or a Delisting Trigger. In the event of an Early Separation, the Preferred Stock will become convertible into common stock: (i) immediately upon a Trading Separation Trigger or a Delisting Trigger, or (ii) on the six month anniversary of the date of this prospectus if the separation occurs due to a Cash Warrant Exercise Trigger (unless an earlier Trading Separation Trigger or Delisting Trigger occurs ). We are also registering the shares of common stock issuable upon conversion of the Series A Convertible Preferred Stock and the exercise or exchange of the Series A Warrants.Series A Convertible Preferred Stock we are offeringEach one-fourth of a share of Series A Convertible Preferred Stock will be convertible into five shares of common stock upon the separation of the Units, provided that upon a Cash Warrant Exercise Trigger the Series A Convertible Preferred Stock will not be convertible until six-months after the date of this prospectus (unless an Early Separation occurs due to a Trading Separation Trigger or Delisting Trigger). For additional information, see “Description of Capital Stock—Preferred Stock Included in the Units Offered Hereby” on page 56 of this prospectus.Series A Warrants we are offeringEach Series A Warrant is exercisable for one share of common stock. The Series A Warrants have an exercise price of $[___] and are exercisable upon the separation of the Units ; provided they may be exercised for cash 30 days from the date of this prospectus, which will cause a Cash Warrant Exercise Trigger. The Series A Warrants will expire on the fifth anniversary of the date of this prospectus. For additional information, see “Description of Capital Stock—Warrants Included in the Units Offered Hereby” on page 56 of this prospectus.Best EffortsThe underwriters are selling the Units offered in this prospectus on a “best efforts” basis and are not required to sell any specific number or dollar amount of the Units offered by this prospectus, but will use their best efforts to sell the Units.Common stock outstanding before this offering7, 600,657 sharesCommon stock to be outstanding immediately after this offering7,600,657 , which assumes no conversion of the Series A Convertible Preferred Stock or exercise of the Series A Warrants.Use of proceedsAssuming we complete the maximum offering, we estimate that the net proceeds from this offering will be approximately $[_______] million, at a public offering price of $[_______] per Unit, after deducting the underwriting commissions and estimated offering expenses payable by us. Since this is a “best efforts” offering, there is no assurance that any Units will be sold, and therefore no assurance that there will be any proceeds. We intend to use the net proceeds from this offering as follows:(i)approximately $4.97 million to repay indebtedness;(ii)approximately $[_______] million to acquire and/or build vape stores;(iii)approximately $[_______] million in sales and marketing expenses; and(iv)the remaining proceeds, if any, will be used for general corporate purposes, including working capital. See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.Risk FactorsInvesting in our securities involves substantial risks. You should read the “Risk Factors” section starting on page 5 for a discussion of factors to consider carefully before deciding to invest in our securities.NasdaqCapital Market symbol for our common stockVPCOProposed Nasdaq Capital Market symbol for our UnitsWe intend to apply for listing of the Units on the Nasdaq Capital Market under the symbol “VPCOU”. No assurance can be given that such listing will be approved or that a trading market will develop.outstanding before and afterin the aggregate.set forthdealer-manager, and our other estimated offering expenses. We intend to use the net proceeds to facilitate the enforcement of our intellectual property rights through litigation and other methods, research and development of our intellectual property suite and products, to accelerate our growth efforts in the table above,health food, vitamin and vape sectors, to improve our overall liquidity, and for other general corporate purposes.based on 6,727,152cutback due to the offering being oversubscribed, is not valid or if this offering is not completed, will my subscription payment be refunded to me?outstanding as of March 31, 2015 and excludes as of that date:●up to 19,000,000 shares of common stock issuable upon the full conversion of the Series A Convertible Preferred Stock offered hereby and up to 38,000,000 shares of common stock upon the full exercise of the Series A Warrants assuming the warrants are exercised for cash (if the warrants are exercised on a cashless basis as described in “Description of Capital Stock – Warrant Included in the Units Offered Hereby” the number of shares of common stock issuable is indeterminate);●up to 950,000 shares of common stock issuable upon the full conversion of the Series A Convertible Preferred Stock offered hereby and up to 1,900,000 shares of common stock upon the full exercise of the Series A Warrants assuming the warrants are exercised for cash included in the unit purchase option to be issued to the representative of the underwriters in connection with this offering (if the warrants are exercised on a cashless basis as described in “Description of Capital Stock – Warrant Included in the Units Offered Hereby” the number of shares of common stock issuable is indeterminate);●248,567 shares of common stock issuable upon the exercise of outstanding stock options;●841,981 shares of common stock issuable upon the full exercise of previously issued warrantsthrough a nominee (including any mobile investment platform), it may take longer for you to receive your subscription price repayment because the subscription agent will return payments through your nominee. of common stock;●378,047 shares of common stock issuable upon the delivery of fully vested restricted stock units;●358,682 shares of our common stock underlying outstanding convertible notes; and●38,000,000 shares of common stock issuable upon exercise of the warrants issued to the public in connection with this offering.Unless otherwise indicated, all information in this prospectus:●assumes 7,600,657 shares of our common stock outstanding immediately prior to the closing of this offering;● assumes no exercise of the representative’s unit purchase option; and●assumes no exercise of any outstanding options or warrants to purchase common stock.SUMMARY FINANCIAL DATA9The summary financial data set forth belowbe readnot recognize income or loss in conjunctionconnection with our financial statements and the related notes, “Selected Financial Data” and “Management’s Discussion and Analysisreceipt or exercise of Financial Condition and Results of Operations” included elsewhererights in this prospectus.derivedhave agreed to pay Maxim certain fees for acting as dealer-manager and to reimburse it for certain expenses incurred in connection with this offering. Maxim is not underwriting, soliciting or placing any of the statementSubscription Rights or the shares of operations data for the fiscal years ended December 31, 2014 and 2013 and balance sheet data as of December 31, 2014 and 2013 from our audited consolidated financial statements appearing elsewherecommon stock being issued in this prospectus. We derivedoffering and is not making any recommendation with respect to such Subscription Rights (including with respect to the statementexercise or expiration of operations data forsuch Subscription Rights) or shares of common stock.three months ended March 31, 2015 and 2014 and balance sheet data as of March 31, 2015 from our unaudited condensed consolidated financial statements appearing elsewheresubscription certificate or any other subscription documents or submitting payment in this prospectus. 2014 2013 2015 2014 (unaudited) Statement of Operations Data: Sales, Net $ 15,279,859 $ 25,990,228 $ 1,468,621 $ 4,792,544 Cost of Goods Sold 14, 497 ,254 16,300,333 1,651,110 3,831,928 Gross (Loss) Profit 782,605 9,689,895 (182,489 ) 960,616 Operating expenses: Selling, general and administrative 11,126,759 6,464,969 3,243,189 2,769,726 Advertising 2,374,329 2,264,807 105,177 367,615 Total operating expenses 13,501,088 8,729,776 3,348,366 3,137,341 Operating (loss) income (12,718,483 ) 960,119 (3,530,855 ) (2,176,725 ) Other expense Induced conversion expense - (299,577 ) - - Amortization of deferred financing costs (17,458 ) - (34,917 ) - Change in fair value of derivative liabilities - - (37,965 ) - Interest expense (348,975 ) (383,981 ) (378,775 ) (28,434 ) Interest income - - 1,316 - Total other expenses (366,433 ) (683,558 ) (450,341 ) (28,434 ) (LOSS) INCOME BEFORE INCOME TAX (EXPENSE) BENEFIT (13,084,916 ) 276,561 (3,981,196 ) (2,205,159 ) Income tax (expense) benefit (767,333 ) 524,791 - 752,400 NET (LOSS) INCOME $ (13,852,249 ) $ 801,352 $ (3,981,196 ) $ (1,452,759 BASIC (LOSS) EARNINGS PER COMMON SHARE $ ( 4.22 ) $ 0.31 $ ( 0.89 ) $ ( 0.45 ) DILUTED (LOSS) EARNINGS PER COMMON SHARE $ ( 4.22 ) $ 0.30 $ ( 0.89 ) $ ( 0.45 ) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC 3,283,030 2,563,697 4,494,855 3,253,550 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – DILUTED 3,283,030 2,637,273 4,494,855 3,253,550 As of December 31, As of 2014 2013 March 31, 2015 Balance Sheet Data: Cash $ 471,194 $ 6,570,215 $ 1,911,199 127,874 11,657,615 (811,970 ) Intangibles assets, net of accumulated depreciation - - 2,058,423 Goodwill - - 15,654,484 Total assets 4,928,483 13,962,375 24,052,575 Senior convertible notes payable – related parties, net of debt discount 156,250 - 468,750 Convertible notes, net of debt discount - - 517,579 Notes payable – related party - - 1,000,000 Term Loan 750,000 478,847 523,727 Total stockholders’ equity $ 811,810 $ 11,751,584 $ 17,519,578 Before you invest in our securities, youYou should give careful consideration toconsider and read carefully all of the following risk factors, in addition to therisks and uncertainties described below, as well as other information includedcontained in this prospectus, including our financial statements and related notes, before deciding whethermaking an investment decision with respect to invest in our securities. The occurrence of any of the adverse developments described in the following risk factorsrisks or those incorporated by reference, or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely harmaffect our business, financial condition, results of operations or prospects.cash flows. In thatany such case, the trading price of our common stock, could decline, and you may lose all or part of your investment.ability to continueactual results could differ materially from those anticipated in the forward-looking statements as a going concern isresult of specific factors, including the risks and uncertainties described below and those incorporated by reference.doubt absent obtaining adequate new debtnumber of Subscription Rights are exercised and the exercising rights holders choose to sell some or equity financing, successfulall of the shares purchased directly, the resulting sales could depress the market price of common stock. We cannot assure you that the market price of common stock will not decline prior to the expiration of this offering or that, after shares of common stock are issued upon exercise of Subscription Rights, you will be able to sell shares of common stock purchased in the offering at a price greater than or equal to the effective price paid in the offering.generating sufficient revenuesell your Subscription Rights to anyone else. We therefore do not intend to list the Subscription Rights on any securities exchange or include them in any automated quotation system and there will be no market for the Subscription Rights.operations.Ourthis offering and may not use those net proceeds effectively.capital resourcesreduce our indebtedness, and for other general corporate purposes. We cannot specify with any certainty the particular uses of the net proceeds, if any, that we receive from this offering. Our management will have decreased significantlybroad discretion in the application of those additional net proceeds, and we may spend or invest those net proceeds in a way with which stockholders disagree. The failure by management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds in a manner that does not produce income or that loses value.netcommon stock has fluctuated over a wide range for a variety of reasons, including company-specific factors and industry-wide conditions and events. The price of the common stock that will prevail in the market after this Rights Offering may be higher or lower than the Actual Subscription Price depending on many factors, some of which are beyond our control and may not be directly related to our operating losses. Althoughperformance. Financings that may be available to us under current market conditions frequently involve sales at prices below the prices at which our common stock currently trades on the OTC Pink Sheets, as well as the issuance of warrants or convertible equity that require exercise or conversion prices that are calculated in the future at a discount to the then market price of our common stock.completedcannot assure you that, following the purchase of common stock in the rights offering, you will be able to sell your common stock at a Private Placementprice equal to or greater than the Actual Subscription Price, and received net proceedsyou may lose all or part of approximately $1.46 millionyour investment in our common stock. Until shares of common stock are delivered upon expiration of the Rights Offering, you will not be able to sell the shares of our common stock that you purchase in the Rights Offering. Shares of our common stock purchased in the rights offering will be issued as of June 22, 2015 and have taken other actions to manage our cash on hand and working capital and to increase cash flows from operating and financing activities, there is no assurance we will have sufficient liquidity and capital resources to fund our business. As of March 31, 2015, we had negative working capital of approximately $(811,970) compared to $127,874 at December 31, 2014, a decrease of approximately $940,000. Our consolidated financial statementssoon as practicable after the rights offering has expired, payment for the year ended December 31, 2014 indicate there is substantial doubt about our ability to continue as a going concern as we require additional equity and/or debt financing to continue our operations. Asshares subscribed for has cleared, and all prorating calculations and reductions contemplated by the terms of the rights offering have been effected. We will not pay you interest on funds delivered to the Subscription Agent pursuant to your exercise of Subscription Rights.believewill file a post-effective amendment to the registration statement in which this prospectus is included and offer subscribers the opportunity to cancel their subscriptions. In such event, we will issue subscription refunds to each stockholder subscribing to purchase shares in the rights offering and recirculate an amended prospectus after the post-effective amendment is declared effective with the Commission. If we extend the Expiration Date in connection with any post-effective amendment, we will allow holders of Subscription Rights a reasonable period of additional time to make new investment decisions on the basis of the new information set forth in the prospectus that will form a part of the post-effective amendment. In such event, we will issue a press release announcing the changes to the rights offering and the new Expiration Date. Even if an amendment does not rise to the level that is fundamental and would thus require us to offer to return your subscription payment, the amendment may nonetheless adversely affect your rights and any prospective return on your investment.enough cashreceived a book-entry representing those shares. Although we will endeavor to issue the appropriate book-entries as soon as practicable after completion of this offering, there may be some delay between the Expiration Date and the time that we issue the new book-entries. Until shares of common stock are delivered upon expiration of the Rights Offering, you will not be able to sell or transfer the common stock that you purchase in the Rights Offering. The price of our common stock as quoted on handthe OTC Pink Sheets may decrease in the time period between the Expiration Date when you purchase your shares and the date you access to such shares and may have the ability to sell them.operationscontemplated uses of the net proceeds of the rights offering and might need to look to other sources of funding for three months.The underwriters are offering the Units on a “best efforts” basis. The underwriters are not required to sell any specific number or dollar amount of Units, but will use their best efforts to sell the Units. As a “best efforts” offering, there can bethese contemplated uses. There is no assurance that these alternative sources will be available and at what cost.contemplated herebyneither we, nor the subscription agent will ultimatelyhave any obligation to you except to promptly return your subscription payments.consummatedrejected.resultnot be responsible if your broker, custodian or nominee (including any mobile investment platform) fails to ensure that all required forms and payments are actually received by the subscription agent in a timely manner.proceeds being madeobligation to us.correct such forms or payment. We have the sole discretion to determine whether a subscription exercise properly follows the subscription procedures.successclearing process may require five or more business days. If you choose to pay the subscription price, in whole or in part, by uncertified check and your check does not clear prior to the Expiration Date of this offering, you will not have satisfied the conditions to exercise your rights and you will not receive the shares you wish to purchase.finance operations overdevelop an active trading market for our securities could be harmed.next 12 months. If no Units are soldforeseeable future, and we may never pay dividends.this offering, or if we sell only a minimum numberthe foreseeable future. Our payment of Units yielding insufficient gross proceeds,any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including but not limited to, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be unablea party to successfully fundat the time. In addition, our operations, or executeability to pay dividends on our common stock may be limited by state law. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize certain returns on their investment.plan.days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This wouldprocedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.prospects,and B2C platforms like ours have seen elevated sales levels from consumer shifts to online purchasing, we can offer no assurance that the COVID-19 pandemic will not have an adverse effect in the future, particularly if the pandemic worsens or endures for an extended period of time.resultsliquidity. In addition, if the impact of the COVID-19 pandemic continues it may heighten the other risks that could affect our business.operations.As of March 31, 2015, we had an accumulated deficitoperations or liquidity.$19.2 million.$2.799 million and $3.722 million for the years ended December 31, 2019 and 2020. Our accumulated deficit isoperating losses are primarily due to, among other reasons, the establishment ofincreasing competition, in both our business infrastructurevape and operations, stock-based compensation expenses and increases in our marketing expenditures. Additionally, Vapor did not anticipate the shift from e-cigarettes which caused in part the large losses beginning in 2014. For the three months ended March 31, 2015 and 2014, we had net losses of $3,981,196 and $1,452,759, respectively. For the year ended December 31, 2014, we had a net loss of $13,852,249 compared to net income of $801,352 for the year ended December 31, 2013. Unless we raise at least $11 million in this offering, there is no assurance we will have sufficient liquidity and capital resources available to fund our business for the next 12 months. Ourgrocery businesses.losses we incurred during the year ended December 31, 2014.losses. We cannot assure you that we will be able to generate operating profits in the future on a sustainable basis or at all as we continue to expand our infrastructure, open additional retail stores, further develop our marketing efforts and otherwise implement our growth initiatives. WorkingFuture working capital limitations continue tocould impinge on our day-to-day operations, thus contributing to continued operating losses.Becausechanges in our industry, it is difficult to accurately predict our future sales and appropriately budget our expenses.We acquired Smoke Anywhere, a distributor of electronic cigarettes, in November 2009 and Vaporin in March 2015. Smoke Anywhere commenced its business in 2008 and Vaporin commenced its operations in 2013. Because our industry is still evolving, it is difficult to accurately predict our future sales and appropriately budget our expenses. Additionally, our operations will be subject to risks inherent in the establishment of a developing new business as well as a new business model of deploying new vape stores, including, among other things, efficiently deploying our capital, costs or difficulties relatinge-vapor products available for sale to the integrationpublic.merger with Vaporin, developing ourmanufacture and distribution of e-vapor products opening retail stores, developingwill impact availability. Any such regulations and implementing our marketing campaignsapproval process would make product development and strategies and developing brand awareness and acceptance of our products. Our ability to generate future sales will be dependent on a number of factors, many of which are beyond our control, includingmanufacture cost prohibitive for the pricing of competingCompany. A reduction in available e-vapor products overall demandwould diminish the need for our products, changes in consumer preferences, market competition and government regulation. Assuming we are successful in raising funds in this offering, we will expand our vape stores and marketing and advertising campaigns and operational expenditures in anticipation of future sales growth. If our sales do not increase as anticipated, we could incur significant losses due to our higher infrastructure expense levels if we are not able to decrease our advertising and operating expenses in a timely manner to offset any shortfall in future sales.The potential regulation of vaporizers and electronic cigarettes by the United States Food and Drug Administration may materially adversely affect our business.On April 24, 2014, the United States Food and Drug Administration, or the FDA,released proposed rules that would extend its regulatory authority to vaporizers, electronic cigarettes and certain other tobacco products under the Family Smoking Prevention and Tobacco Control Act of 2009, or the Tobacco Control Act. Our references to electronic cigarettes in these risk factors are intended to include vaporizers, unless otherwise clear from the context. We note that the proposed rules would require that electronic cigarette manufacturers (i) register with the FDA and report electronic cigarette product and ingredient listings; (ii) market new electronic cigarette products only after FDA review; (iii) only make direct and implied claims of reduced risk if the FDA confirms that scientific evidence supports the claim and that marketing the electronic cigarette product will benefit public health as a whole; (iv) not distribute free samples; (v) implement minimum age and identification restrictions to prevent sales to individuals under age 18; (vi) include a health warning; and (vii) not sell electronic cigarettes in vending machines, unless in a facility that never admits youth.More recently, on July 1, 2015, the FDA published a document entitled “Advanced Notice of Proposed Rulemaking,” or the Advance. Through the Advance, the FDA solicited public comments on whether it should issue rules with respect to nicotine exposure warning and child-resistant packaging for e-liquids containing nicotine. Following public comment, the FDA may issue proposed rules in furtherance of the purposes outlined in the Advance and ultimately pass the rules as proposed or in modified form.It is not known how long the regulatory process to finalize and implement any of these rules may take. Accordingly, although we cannot predict the content of any final rules from the proposed rules or the impact they may have, we believe that if the final rules enacted are materially more stringent then the proposed rules they could have a material adverse effect on our business, financial conditions and results of operations.For a description of risks related to other government regulations, please see “Risks Related to Government Regulation” in this Section.products or if we are required to collect and remit sales tax on certain of our Internet sales.We may be unable to establish the systems and processes needed to track and submit the excise and sales taxes we collect through Internet sales, which would limit our ability to market our products through our websites which would have a material adverse effect on our business, results of operations and financial condition. A number of states including New York, North Carolina, Texas and California have begun collecting sales taxes on Internet sales where companies have used independent contractors in those states to solicit sales from residents of that state. The requirement to collect, track and remit sales taxes based on independent affiliate sales may require us to increase our prices, which may affect demand for our products or conversely reduce our net profit margin, either of which would have a material adverse effect on our business, results of operations and financial condition.The market for electronic cigarettes is a niche market, subject to a great deal of uncertainty and is still evolving.Vaporizers and electronic cigarettes, having recently been introduced to market, are at an early stage of development, represent a niche market and are evolving rapidly and are characterized by an increasing number of market entrants. Our future sales and any future profits are substantially dependent upon the widespread acceptance and use of electronic cigarettes. Rapid growth in the use of, and interest in, electronic cigarettes is recent, and may not continue on a lasting basis. The demand and market acceptance for these products is subject to a high level of uncertainty. Therefore, we are subject to all of the business risks associated with a new enterprise in a niche market, including risks of unforeseen capital requirements, failure of widespread market acceptance of electronic cigarettes, in general or, specifically our products, failure to establish business relationships and competitive disadvantages as against larger and more established competitors.tobacco”,tobacco,” U.S. cigarette manufacturers of both conventional tobacco cigarettes and electronic cigarettes like Altria Group, Inc., Lorillard, Inc. and Reynolds American Inc. We compete against “big tobacco” which offers not only conventional tobacco cigarettes and electronic cigarettes but also smokeless tobacco products such as “snus” (a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff.snuff, and now so called “heat not burn” (HNB) products such as “IQOS”. Furthermore, we believe that “big tobacco” will devote more attention and resources to developing and offering electronic cigarettes (including vaporizers)vaporizers and HNB) as the market grows. Because of their well-established sales and distribution channels, marketing expertise and significant financial and marketing resources, “big tobacco” is better positioned than small competitors like us to capture a larger share of the electronic cigarette market. We also compete against numerous other smaller manufacturers or importers of cigarettes. There can be no assurance that we will be able to compete successfully against any of our competitors, some of whom have far greater resources, capital, experience, market penetration, sales and distribution channels than us. If our major competitors were, for example, to significantly increase the level of price discounts offered to consumers, we could respond by offering price discounts, which could have a materially adverse effect on our business, results of operations and financial condition. In September 2014, CVS, a leading national drug store chain ceased selling tobacco products. If other national drug store chains also decide to cease selling tobacco products, cigarette sales could decline further. While the sales of vaporizers have been increasing over the last several years, the vaporizer and electronic cigarettes market is only developing and is a fraction of the size of the conventional tobacco cigarette market. A continual decline in cigarette sales may adversely affect the growth of the vaporizer and electronic cigarette market, which could have a material adverse effect on our business, results of operations and financial condition.further intellectual property litigation, or if the present suit becomes actively litigated, we may incur substantial additional costs which will adversely affect our results of operations.●pending and future patent applications will result in issued patents;●patents we own or which are licensed by us will not be challenged by competitors;●the patents will be found to be valid or sufficiently broad to protect our technology or provide us with a competitive advantage; and●we will be successful in defending against current and future patent infringement claims asserted against our products as described in the next risk factor. In September 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law and includes a number of significant changes to U.S. patent law, including the transaction from a “first-to-invent’ system to a “first-to-file” system and changes to the way issued patents are challenged. These changes may favor larger and more established companies that have more resources than we do to devote to patent application filing and prosecution. The U.S. Patent and Trademark Office issued new Regulations effective March 16, 2013 to administer the Leahy-Smith Act. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will ultimately have on the cost of prosecuting our patent applications, our ability to obtain patents based on our discoveries and our ability to enforce or defend our issued patents. However, it is possible that in order to adequately protect our patents under the “first-to-file” system, we will have to allocate significant additional resources to the establishment and maintenance of a new patent application process designed to be more streamlined and competitive in the context of the new “first-to-file” system, which would divert valuable resources from other areas of our business. In addition to pursuing patents on our technology, we have taken steps to protect our intellectual property and proprietary technology by entering into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, and corporate partners. Such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure. Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate.third partythird-party asserts that we are infringing on its intellectual property, whether successful or not, it could subject us to costly and time-consuming litigation or require us to obtain expensive licenses, and our business may be adversely affected.filed patent applications, we do not own anyissued patents relating to our vaporizers and electronic cigarettes. Thepatents pending, the vaporizer and electronic cigarette industry is nascent and third parties may claim patent rights over one or more types of vaporizers and electronic cigarettes. For example, Ruyan Investment (Holdings) Limited, which we refer to as “Ruyan”, a Chinese company, has made certain public claims as to their ownership of patents relating to our products and has filed a number of separate lawsuits against us. We and Ruyan settled the first lawsuit, and another lawsuit has been stayed along with other patent infringement lawsuits filed by Ruyan against other defendants pending the results of an inter parties reexamination requested by one of the defendants in the other lawsuits. Additionally, in 2014, Ruyan filed three separate lawsuits against the Company alleging that we infringed on their patents. These three complaints were consolidated and the trial is currently scheduled for November 2015. For a description of Ruyan’s lawsuits against us, please see the section titled “Legal Proceedings” contained in this prospectus. We currently purchase our products from Chinese manufacturers other than Ruyan.Ruyan’s lawsuits as well as any other thirdThird party lawsuits alleging our infringement of patents, trade secrets or other intellectual property rights could cause us to do one or more of the following:●stop selling products or using technology that contains the allegedly infringing intellectual property;●incur significant legal expenses;●cause our management to divert substantial time to our defenses;●pay substantial damages to the party whose intellectual property rights we may be found to be infringing;●indemnify distributors and customers;●redesign those products that contain the allegedly infringing intellectual property; or●attempt to obtain a license to the relevant intellectual property from third parties, which may not be available to us on reasonable terms or at all.If vaporizers continue to face intense media attention and public pressure, our operations may be adversely affected.22Since the introduction of electronic cigarettes and vaporizers, certain members of the media, politicians, government regulators and advocate groups, including independent medical physicians, have called for an outright ban of all electronic cigarettes and vaporizers, pending regulatory review and a demonstration of safety. A partial or outright ban would have a material adverse effect on our business, results of operations and financial condition and we may have to shut down our operations in the locations implemented any such ban.If we fail to retain our key personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.Our future depends, in part, on our ability to attract and retain key personnel and the continued contributions of our executive officers, each of whom may be difficult to replace. In particular, Jeffrey Holman, our Chief Executive Officer, Gregory Brauser, our President, and James Martin, our Chief Financial Officer, are important to the management of our business and operations and the development of our strategic direction. The loss of the services of any of these officers and the process to replace any key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.cigarettes.cigarettes or vaporizers. Any product liability claim brought against us, with or without merit, could result in:●liabilities that substantially exceed our product liability insurance, which we would then be required to pay from other sources, if available;●an increase of our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, or at all;●damage to our reputation and the reputation of our products, resulting in lower sales;●regulatory investigations that could require costly recalls or product modifications;●litigation costs; and●the diversion of management’s attention from managing our business.If we experience a high amount of product exchanges, returns and warranty claims, our business will be adversely affected.If we are unable to maintain an acceptable degree of quality control of our products, we will incur costs associated with the exchange and return of our products as well as servicing our customers for warranty claims. In addition, customers may require us to take back unsold products which we may be unable to resell. Any of the foregoing on a significant scale may have a material adverse effect on our business, results of operations and financial condition.Generating foreign sales will result in additional costs and expenses and may expose us to a variety of risks.Generating sales of our products foreign jurisdictions will require us to incur additional costs and expenses. Furthermore, our entry into foreign jurisdictions may expose us to various risks, which differ in each jurisdiction, and any of such risks may have a material adverse effect on our business, financial condition and results of operations. Such risks include the degree of competition, fluctuations in currency exchange rates, difficulty and costs relating to compliance with different commercial, legal, regulatory and tax regimes and political and economic instability.● create greater awareness of our products and stores;●identify the most effective and efficient level of spending in each market and specific media vehicle;●determine the appropriate creative message and media mix for advertising, marketing, and promotional expenditures; and● effectively manage marketing costs (including creative and media).If we cannot manage our vape stores as we grow, we may incur substantial operating losses and adversely affect our financial condition.Our business model is focusing on expanding the number of vape stores beyond the 10 we presently operate. As we expand the number of vape stores and their location, it will be more difficult to manage them and our promotional costs will increase. None of our senior managers has experience in operating a significant number of retail stores in different locations. If we expand our vape stores beyond our capabilities, we may be materially and adversely affected.We rely on the efforts of third party agents to generate sales of our products, and loss of any such agents may be time consuming to replace.We rely on the efforts of independent distributors to purchase and distribute our products to wholesalers and retailers. No single distributor currently accounts for a material percentage of our sales and we believe that should any of these relationships terminate we would be able to find suitable replacements and do so on a timely basis. However, any loss of distributors or our ability to timely replace any given distributor could have a material adverse effect on our business, financial condition and results of operations.We rely, in part, on the efforts of independent salespersons who sell our products to distributors and major retailers and Internet sales affiliates to generate sales of products. No single independent salesperson or Internet affiliate currently accounts for a material percentage of our sales and we believe that should any of these relationships terminate we would be able to find suitable replacements and do so on a timely basis. However, any loss of independent sales persons or Internet sales affiliates or our ability to timely replace any one of them could have a material adverse effect on our business, financial condition and results of operations.We may not be able to establish sustainable relationships with large retailers or national chains.We believe the best way to develop brand and product recognition and increase sales volume is to establish relationships with large retailers and national chains. We currently have established relationships with several large retailers and national chains and in connection therewith we have agreed to pay such retailers and chains fees, known as “slotting fees”, to carry and offer our products for sale based on the number of stores our products will be carried in. These existing relationships are “at-will” meaning that either party may terminate the relationship for any reason or no reason at all. We may not be able to sustain these relationships or establish other relationships with large retailers or national chains or, even if we do so, sustain such other relationships. Our inability to develop and sustain relationships with large retailers and national chains will impede our ability to develop brand and product recognition and increase sales volume and, ultimately, require us to pursue and rely on local and more fragmented sales channels, which will have a material adverse effect on our business, results of operations and financial condition. , whether attributable to regulatory constraints or requirements, a lack of financial resources or our failure to respond in a timely and/or effective manner to new technologies, customer preferences, changing market conditions or new developments in our industry. Any of the failures to adapt for the reasons cited herein or otherwise could make our products obsolete and would have a material adverse effect on our business, financial condition and results of operations.third partythird-party manufacturers produce unacceptable or defective products or do not provide products in a timely manner, our business will be adversely affected.We expect that new products and/or brands we develop will expose us to risks that may be difficult to identify until such products and/or brands are commercially available.24We are currently developing, and in the future will continue to develop, new products and brands, the risks of which will be difficult to ascertain until these products and/or brands are commercially available. For example, we are developing new formulations, packaging and distribution channels. Any negative events or results that may arise as we develop new products or brands may adversely affect our business, financial condition and results of operations.If we are unable to manage our anticipated future growth, our business and results of operations could suffer materially.Our business has grown rapidly during our limited operating history. Our future operating results depend to a large extent on our ability to successfully manage our anticipated growth. To manage our anticipated growth, including that arising from our recent merger with Vaporin, we believe we must effectively, among other things:●hire, train, and manage additional employees;●expand our marketing and distribution capabilities;●increase our product development activities;●add additional qualified finance and accounting personnel; and●implement and improve our administrative, financial and operational systems, procedures and controls.We are increasing our investment in marketing and distribution channels and other functions to grow our business. We are likely to incur the costs associated with these increased investments earlier than some of the anticipated benefits and the return on these investments, if any, may be lower, may develop more slowly than we expect or may not materialize.If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities or develop new products, and we may fail to satisfy product requirements, maintain product quality, execute our business plan or respond to competitive pressures, any of which could have a material adverse effect on our business, results of operations and financial condition.We face competition from foreign importers who do not comply with government regulation which may result in the loss of customers and result in adverse affect to our results of operations.We face competition from foreign sellers of electronic cigarettes and vaporizers that may illegally ship their products into the United States for direct delivery to customers. These market participants will not have the added cost and expense of complying with U.S. regulations and taxes and as a result will be able to offer their product at a more competitive price than us and potentially capture market share. Moreover, should we be unable to sell certain of our products during any regulatory approval process we have no assurances that we will be able to recapture those customers that we lost to our foreign domiciled competitors during any “blackout” periods, during which we are not permitted to sell our products. This competitive disadvantage may have a material adverse effect on our business, results of operations and our financial condition.Information technology system failures or interruptions or breaches of our network security may interrupt our operations, subject us to increased operating costs and expose us to litigation.At present we generate a portion of our sales through e-commerce sales on our websites. We manage our websites and e-commerce platform internally and as a result any compromise of our security or misappropriation of proprietary information could have a material adverse effect on our business, financial condition and results of operations. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure Internet transmission of confidential information, such as credit and other proprietary information. Despite our implementation of security measures, all of our technology systems are vulnerable to damage, disability or failures due to hacking or physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. If our technology systems were to fail, and we were unable to recover in a timely way, we could experience an interruption in our operations. Furthermore, if unauthorized access to or use of our systems were to occur, data related to our proprietary information and personal information of customers could be compromised. The occurrence of any of these incidents could have a material adverse effect on our business, financial condition and results of operations. To the extent that some of our reporting systems require or rely on manual processes, it could increase the risk of a breach. We may be required to expend significant capital and other resources to protect against security breaches or to minimize problems caused by security breaches. To the extent that our activities or the activities of others involve the storage and transmission of proprietary information, security breaches could damage our reputation and expose us to a risk of loss and/or litigation. Our security measures may not prevent security breaches. Our failure to prevent these security breaches may result in consumer distrust, expose us to litigation either of which would adversely affect our business, results of operations and financial condition. For example, in recent years, states and many local and municipal governments and agencies, as well as private businesses, have adopted legislation, regulations or policies which prohibit, restrict, or discourage smoking; smoking in public buildings and facilities, stores, restaurants and bars; and smoking on airline flights and in the workplace. At present, it is not clear if electronic cigarettes, which omit no smoke or noxious odors, are subject to such restrictions. Furthermore, some states and localities prohibit and others are prohibiting the sales of electronic cigarettes and vaporizers to minors. Other similar laws and regulations are currently under consideration and may be enacted by state and local governments in the future. If electronic cigarettes and vaporizers are subject to restrictions on smoking in public and other places, our business, operating results and financial condition could be materially and adversely affected. New legislation or regulations may result in increased costs directly for our compliance or indirectly to the extent such requirements increase the prices of goods and services because of increased costs or reduced availability. We cannot predict whether such legislative or regulatory initiatives will result in significant changes to existing laws and regulations and/or whether any changes in such laws or regulations will have a material adverse effect on our business, and localities, results of operations or financial condition.Restrictions on the public use of vaporizers and electronic cigarettes may reduce the attractiveness and demand for our products.Certain states, cities, businesses, providers of transportation and public venues in the U.S. have already banned the use of vaporizers and electronic cigarettes, while others are considering banning their use. If the use of vaporizers and electronic cigarettes are banned anywhere the use of traditional tobacco burning cigarettes is banned, our products may lose their appeal as an alternative to traditional tobacco burning cigarettes, which may reduce the demand for our products and, thus, have a material adverse effect on our business, results of operations and financial condition.On February 15, 2010, in response to a civil investigative demand from the Office of the Attorney General of the State of Maine, we voluntarily executed an assurance of discontinuance with the State of Maine, which prohibits us from selling electronic cigarettes in the State of Maine until such time as we obtain a retail tobacco license in the state. While suspending sales to residents of Maine is not material to our operations, other electronic cigarette companies have entered into similar agreements with other states, such as the State of Oregon. The FDA has issued an import alert which has limited our ability to import certain of our products.As a result of FDA import alert 66-41 (which allows the detention of unapproved drugs promoted in the U.S.), the U.S. Customs has from time to time temporarily and in some instances indefinitely detained products sent to us by our Chinese suppliers. If the FDA modifies the import alert from its current form which allows U.S. Customs discretion to release our products to us, to a mandatory and definitive hold we will no longer be able to ensure a supply of saleable product, which will have a material adverse effect on our business, results of operations and financial condition. We believe this FDA import alert will become less relevant to us as and when the FDA regulates electronic cigarettes and vaporizers under the Tobacco Control Act.affecteffect on our business.At present, neither thenorand the Federal Cigarette Labeling and Advertising Act (which governs how cigarettes can be advertised and marketed) apply to vaporizers and/or electronic cigarettes. The application of either or both of theseThese federal laws to either vaporizers and/or electronic cigarettes could result in additional expenses, could prohibit us from selling products through the Internet and require us to change our advertising and labeling and method of marketing our products, any of which would have a material adverse effect on our business, results of operations and financial condition.We have been named as defendants in litigation brought under California Proposition 65 which, if resolved adversely to us, could have a material adverse impact on our financial condition.On June 22, 2015, the Center for Environment Health, as plaintiff, filed suit against a number of defendants including us, our wholly-owned subsidiary, the Vape Store, Inc., Vaporin and another wholly-owned subsidiary, Vaporin Florida, Inc. The lawsuit was filed in the Superior Court of the State of California, County of Alameda. The suit seeks relief under California Proposition 65 which makes it unlawful for businesses to knowingly and intentionally expose individuals in California to chemicals known to cause birth defects or other harm without providing clear and reasonable warnings. All of the defendants are alleged to have sold products containing significant quantities of nicotine in violation of Proposition 65. The plaintiff is seeking a civil penalty against these defendants in the amount of $2,500 per day for each violation of Proposition 65, together with attorneys’ fees and costs.The Company and its subsidiaries are in the process of hiring counsel and intend to defend the allegations. We believe that all of the e-liquid products derived from nicotine sold by Vapor Corp. have always contained an appropriate warning. We are gathering information on sales by Vaporin and its former subsidiaries. We cannot assure you that we will prevail in this litigation. If the case is resolved adversely to us and we are the subject of substantial civil penalties, it could have a material adverse impact on our financial condition. Even if the litigation is dismissed or ultimately resolved in our favor, the cost of litigating could be substantial and adversely affect our financial condition.●the levying of substantial and increasing tax and duty charges;●restrictions or bans on advertising, marketing and sponsorship;●the display of larger health warnings, graphic health warnings and other labeling requirements;●restrictions on packaging design, including the use of colors and generic packaging;●restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines;●requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels;●requirements regarding testing, disclosure and use of tobacco product ingredients;●increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors;●elimination of duty free allowances for travelers; and●encouraging litigation against tobacco companies.initiatesinitiatives enacted under the FCTC, our business, results of operations and financial condition could be materially and adversely affected.SecuritiesThe marketgrowth largely depends on our ability to increase sales in our existing natural grocery stores and successfully open and operate new stores on a profitable basis. Our comparable store sales growth could be lower than our historical average for various reasons, including the opening of new competing stores that cannibalize sales in existing stores, increased competition, general economic conditions, regulatory changes, price changes as a result of competitive factors and product pricing and availability.common stock has beennew stores and to effectively promote and market our new stores. If we are ineffective in performing these activities, our efforts to open and operate new stores may be unsuccessful or unprofitable, which could materially and adversely affect our operations, financial performance and future growth.o anticipate, identify and react to natural and organic grocery and dietary supplement trends and changing consumer preferences in a timely manner; o translate market trends into appropriate, saleable product and service offerings in our stores before our competitors; and o develop and maintain vendor relationships that provide us access to the newest merchandise, and dairy products that satisfy upgraded standards, on reasonable terms. be volatile.The market pricefluctuate in the future. A variety of other factors affect our common stock has been volatile,comparable store sales and fluctuates widely in price in response to various factors, whichquarterly financial performance, including:o changes in our merchandising strategy or product mix; o performance of our newer and remodeled stores; o the effectiveness of our inventory management; o the timing and concentration of new store openings, and the related additional human resource requirements and pre-opening and other start-up costs; o the cannibalization of existing store sales by new store openings; o levels of pre-opening expenses associated with new stores; o timing and effectiveness of our marketing activities; o seasonal fluctuations due to weather conditions and extreme weather-related disruptions; o actions by our existing or new competitors, including pricing changes; o regulatory changes affecting availability and marketability of products; o supply shortages; and o general United States economic conditions and, in particular, the retail sales environment. beyond our control. The price of our common stock is not necessarily indicative of our operating performancethe results to be expected for any other year or long-term business prospects.quarter, and comparable store sales of any particular future period may decrease. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performanceevent of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock. Factors such as the following could cause the market price of our common stock to fluctuate substantially:●our quarterly operating and financial results;●government regulation of our industry;●the introduction of new products by our competitors;●conditions in the electronic cigarette and tobacco industries;●developments concerning proprietary rights; or●litigation or public concern about the safety of our products.The stock market in general experiences from time to time extreme price and volume fluctuations. Periodic and/or continuous market fluctuations could result in extreme volatility ina decrease, the price of our common stock would likely decline.cause a declineresult in the valuecertain products being deemed inadequate for import.common stock. Price volatility may be worse if the trading volume of our common stock is low.The volatilitystores creates exposure to local economies, regional downturns or severe weather or catastrophic occurrences.our common stock price may subject us to securities litigation.The market for our common stock is characterized by significant price volatility when compared to seasoned issuers,Florida in Ft. Myers, Palm Bay and Melbourne and we expect new stores to also be located in Florida. As a result, our business is currently more susceptible to regional conditions than the operations of more geographically diversified competitors, and we are vulnerable to economic downturns in those regions. Any unforeseen events or circumstances that negatively affect these areas could materially adversely affect our share price will continuerevenues and profitability. These factors include, among other things, changes in demographics, population, competition, consumer preferences, new or revised laws or regulations, fires, floods or other natural disasters in these regions.be more volatile thantheir origin, ingredients or health benefits, including, by way of example, the use of the term “natural.” Although the FDA and USDA each has issued statements regarding the appropriate use of the word “natural,” there is no single, United States government regulated definition of the term “natural” for use in the food industry. The resulting uncertainty has led to consumer confusion, distrust and legal challenges. Plaintiffs have commenced legal actions against a seasoned issuernumber of food companies that market “natural” products, asserting false, misleading and deceptive advertising and labeling claims, including claims related to genetically modified ingredients. In limited circumstances, the FDA has taken regulatory action against products labeled “natural” but that nonetheless contain synthetic ingredients or components. Should we become subject to similar claims, consumers may avoid purchasing products from us or seek alternatives, even if the basis for the indefinite future. Inclaim is unfounded. Adverse publicity about these matters may discourage consumers from buying our products. The cost of defending against any such claims could be significant. Any loss of confidence on the past, plaintiffs have often initiated securities class action litigation against a company following periodspart of volatilityconsumers in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities to us and could divert our management’s attention and resources from managing our operations and business.Future salestruthfulness of our common stocklabeling or ingredient claims would be difficult and costly to overcome and may depresssignificantly reduce our stock price.As of July 9, 2015, we had approximately 7.6 million shares of our common stock outstanding and restricted stock units, and warrants, and options that are exercisable into approximately 2 million shares of our common stock. Approximately 7.3 million of our outstanding shares are eligible for resale without restrictions. If any significant numberbrand value. Any of these shares are sold, such sales could have a depressive effect on the market price of our stock. The remaining shares are eligible, and some of the shares underlying the restricted stock units, and warrants and options upon issuance, will be eligible to be offered from time to time in the public market pursuant to registration statements we have filed and Rule 144 of the Securities Act of 1933, which we refer to as the “Securities Act”, and any such sale of these shares may have a depressive effect as well. We are unable to predict the effect, if any, that the sale of shares, or the availability of shares for future sale, will have on the market price of the shares prevailing from time to time. Sales of substantial amounts of shares in the public market, or the perception that such sales could occur, could depress prevailing market prices for the shares. Such sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price, which we deem appropriate.If our stock price materially declines, the Series A Warrant holders will have the right to a large number of shares of common stock upon cashless exercise which may result in significant dilution.The Series A Warrants contained in the Units have a feature which is designed to compensate the Series A Warrant holders regardless if the price of our common stock rises or falls. Similar to a typical warrant, the holder benefits when the price of the underlying common stock rises; however, even if our common stock falls below the exercise price, the Series A Warrant holders are provided with value. If our common stock price materially falls following the separation of the Units, unless we elect to pay the Series A Holder a cash payment equal to the Black Scholes Value (see page 57), we may be obligated to issue a large number of shares to holders who cashlessly exercise their Series A Warrants even though the exercise price is more than current fair market value of our common stock. This in turn may materially dilute existing shareholders. The potential for such dilutive exercise of the Series A Warrants may depress the price of common stock regardless of our business performance, and could encourage short selling by market participants, especially if the trading price of our common stock begins to decrease.If our common stock continues to trade at prices below $1.00, we may not be able to maintain our Nasdaq listing.On May 19, 2015, Nasdaq notified us that based on the failure to meet a $1 minimum bid price for 30 consecutive business days, we no longer meet the continued listing requirements. Accordingly, we have until November 16, 2015 to have our closing bid price be at least $1 for a minimum of 10 consecutive business days. On July 7, 2015, we filed an amendment to our Certificate of Incorporation to effectuate a one-for-five reverse stock split , effective July 8, 2015. Nasdaq will require us to meet the minimum bid price for at least 10 business days prior to November 16th. However, if our common stock is delisted from Nasdaq, trading in our common stock could be conducted on the OTCQB or in what is commonly referred to as the “pink sheets.” If this occurs, a shareholder will find it more difficult to dispose of our common stock or to obtain accurate quotations as to the price of our common stock. Lack of any active trading market would have an adverse effect on a shareholder’s ability to liquidate an investment in our common stock easily and quickly at a price acceptable to the shareholder. It might also contribute to volatility in the market price of our common stock andevents could adversely affect our ability to raise additional equity or debt financing on acceptable terms or at all.If Nasdaq were to delistreputation and brand and decrease our common stock from its exchange, your ability to make transactions in our common stock would be limited and may subject us to additional trading restrictions.Should we fail to satisfy the continued listing requirements of Nasdaq, such as the minimum closing bid price requirement, our common stock may be delisted from Nasdaq. If Nasdaq delists our common stock, it is probable it will delist our Units (assuming that when our listing application is submitted to Nasdaq, such listing application is accepted), which will cause the Units to separate. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.If the Nasdaq Capital Market does not maintain the listing of our securities for trading on its exchange, we could face significant material adverse consequences, including:●a limited availability of market quotations for our securities;●reduced liquidity with respect to our securities;●our shares of common stock will be a “penny stock”, which will require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;●a limited amount of news and analyst coverage for our company; and●decreased ability to issue additional securities or obtain additional financing in the future.Therefore, it may be difficult for investor to sell any shares if they desire or need to sell them.If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results. As a result, we could become subject to sanctions or investigations by regulatory authorities and/or stockholder litigation, which could harm our business and have an adverse effect on our stock price.As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC, including periodic reports, disclosures and more complex accounting rules. As directed by Section 404 of Sarbanes-Oxley, the SEC adopted rules requiring public companies to include a report of management on a company’s internal control over financial reporting in their Annual Report on Form 10-K. Based on current rules, we are required to report under Section 404(a) of Sarbanes-Oxley regarding the effectiveness of our internal control over financial reporting. If we determine that we have material weaknesses, it may be necessary to make restatements of our consolidated financial statements and investors will not be able to rely on the completeness and accuracy of the financial information contained in our filings with the SEC and this could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities or stockholder litigation.Risks Related to the MergerIf we are unable to successfully integrate Vaporin, our future results of operations and financial condition may be materially and adversely affected.We face a number of risks from our recently completed merger with Vaporin. The success of the merger will depend, in large part, on Vapor’s ability to realize the anticipated benefits from combining the businesses of Vapor and Vaporin by reducing duplicative costs and maintaining customer relationships and not losing sales. To realize the anticipated benefits of the merger, we must successfully integrate the businesses of Vapor and Vaporin and integrate their management teams and employees. This integration will be complex and time-consuming.Potential difficulties we may encounter include, among others:●unanticipated issues in integrating logistics, information, communications and other systems;●integrating personnel from the two companies while maintaining focus on providing a consistent, high quality level of service;●integrating the systems in a seamless manner that minimizes any adverse impact on, suppliers, customers, employees and others;●performance shortfalls as a result of the diversion of management’s attention from day-to-day operations caused by activities surrounding the completion of the merger and integration of the companies’ operations;●potential unknown liabilities, liabilities that are significantly larger than anticipated, unforeseen expenses or delays associated with the merger and the integration process;●unanticipated changes in applicable laws and regulations;●dealing with different corporate cultures; and●complexities associated with managing the larger, combined business.Some of these factors are outside of our control.Vapor has not completed a merger or acquisition comparable in size or scope to the Vaporin merger. Our failure to successfully integrate the operations of Vapor and Vaporin or otherwise to realize any of the anticipated benefits of the merger could cause an interruption of, or a loss of momentum in, the activities of Vapor and could adversely affect its results of operations. The integration process maybe more difficult, costly or time-consuming than anticipated, which could cause Vapor’s stock price to decline.If we are unable to retain Vaporin’s key employees, our results of operations may be adversely affected.The merger involves the integration of two companies that have previously operated independently. The difficulties of combining the operations of the two companies include integrating personnel with diverse business backgrounds, combining different corporate cultures and retaining key employees. However, Vapor may not be successful in retaining those employees who have not agreed to work for Vapor for the time period necessary to successfully integrate Vaporin’s operations with those of Vapor. The loss of Vaporin employees could have an adverse effect on the business and results of operation of Vapor following the merger.Because Vaporin had no working capital and our expenses are higher following the merger, our future results of operations may be adversely affected.At the time we completed the merger, Vaporin had no working capital and material liabilities. Following the merger, our expenses are higher as a result of the new Vaporin employees who joined Vapor. If our cash resources are inadequate to pay expenses as they become due in the normal course of operations, our ability to continue operating as a going concern could be jeopardized. Furthermore, if we are not able to substantially increase our revenues following the merger, we may report increased operating losses,sales, which would have a material adverse effect on our common stock price.Asbusiness, financial condition and results of operations.merger,specialty retail products that we have recordedsell in our stores are not generally available through other retail distribution channels such as drug stores, conventional grocery stores or mass merchandisers. In the future, our suppliers could decide to distribute such products through other retail distribution channels, allowing more of our competitors to offer these products, and adversely affecting the desirability of these products to our core customers, which could negatively impact our revenues.significant amountwidespread regional, national or global health epidemic. A widespread health epidemic may cause customers to avoid public gathering places such as our stores or otherwise change their shopping behaviors. Additionally, a widespread health epidemic could adversely impact our business by disrupting production and delivery of goodwill onproducts to our balance sheet,stores and by impacting our ability to appropriately staff our stores.significant future impairment chargescancelled sales, a loss of loyalty to our stores and negativelyexcess inventory.Vapor’s futureour flexibility to run our business competitively, and could otherwise have a material adverse effect on our business, financial condition and results of operationsoperations.stock price.Applicable acquisition accounting rules requiremay cause unexpected side effects, illness, injury or death that could result in their discontinuance or expose us to the extent that the purchase price paid by Vaporlawsuits, any of which could result in unexpected costs and damage to our reputation.merger exceedssafety and quality of products we sell. There is substantial governmental scrutiny of and public awareness regarding food safety. We believe that many customers hold us to a higher quality standard than other retailers. Many of our products are vitamins, herbs and other ingredients that are classified as foods or dietary supplements and are not subject to pre-market regulatory approval in the net fair valueUnited States. Our products could contain contaminated substances, and some of our products contain ingredients that do not have long histories of human consumption. Previously unknown adverse reactions resulting from human consumption of these ingredients could occur. Unexpected side effects, illness, injury or death caused by our products could result in the discontinuance of sales of our products or prevent us from achieving market acceptance of the Vaporin tangibleaffected products. Such side effects, illnesses, injuries and intangible assets and liabilities, Vapor will record such assets as goodwill on its consolidated balance sheet. Goodwilldeath could also expose us to product liability or negligence lawsuits. Any claims brought against us may exceed our existing or future insurance policy coverage or limits. Any judgment against us that is not amortized, but is tested for impairment at least annually. In testing goodwill for impairment, Vapor’s management willin excess of our policy limits would have to be required to analyze its future estimated operating results andpaid from our cash flows. If the future operating results and cash flows of Vapor do not improve in comparison to its performance in 2014, Vapor may incur significant impairment charges in the future. Any impairment charges will directly be treated as an expense and negatively affect Vapor’s future financial results. Announcement of such impairment charges may also significantlyreserves, which would reduce the price of Vapor’s common stock.Other Risks Related to this OfferingOur management team will have immediate and broad discretion over the use of the net proceeds from this offering andour capital resources. Further, we may use the net proceeds in ways with which you disagree.The net proceeds from this offering will be immediately available to our management to use at their discretion. We currently intend to use the net proceeds from this offering for acquiring and/or developing new vape stores , marketing and, general corporate purposes and working capital. See “Use of Proceeds.” You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as partsufficient capital resources to pay a judgment in which case our creditors could levy against our assets. The real or perceived sale of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that thecontaminated or harmful products would cause negative publicity regarding our company, brand or products, including negative publicity in social media, which could in turn harm our reputation and net proceeds will be invested in a way that does not yield a favorable, or any, return for us or our shareholders. The failure of our management to use such funds effectivelysales and could have a material adverse effect on our business, prospects, financial condition and results of operation.You will experience immediate30substantial dilutionprofitability.this offering and may experience additional dilutionsuch developments through reduced gross margins or a decline in the future.You will incur immediatenumber and substantial dilutionaverage size of customer transactions. The cost of construction materials we use to build and remodel our stores is also subject to significant price volatility based on market and economic conditions. Higher construction material prices would increase the capital expenditures needed to construct a new store or remodel an existing store and, as a result, could increase the rent payable by the Company under its leases.this offering. After giving effectoperations.sale by usoperations of up to 19,000,000 shares of common stock containedcompanies operating in certain other industries. Consequently, we have been, are, and may in the Units (upon conversionfuture become a party to individual personal injury, product liability and other legal actions in the ordinary course of our business. While these actions are generally routine in nature, incidental to the operation of our business and immaterial in scope, the outcome of litigation is difficult to assess or quantify. Additionally, we could be exposed to industry-wide or class-action claims arising from the products we carry or industry-specific business practices. Further, we have been, are and may in the future become subject to claims for discrimination, harassment, wages and hours and other federal or state employment matters. While we maintain insurance, such coverage may not be adequate or may not cover a specific legal claim. Moreover, the cost to defend against litigation may be significant. As a result, litigation could have a material adverse effect on our business, financial position and results of operations.Series A Preferred Stock), at a public offering priceSecurities Act of $[_______] per Unit and after deducting discounts and estimated offering expenses payable by us, investors in this offering can expect an immediate dilution of $[______] per share, at1933 or the public offering price, assuming no exerciseSecurities Act, Section 21E of the warrants contained inSecurities Exchange Act of 1934 or the Units or issued toExchange Act, and the underwriter. To the extent these warrantsPrivate Securities Litigation Reform Act of 1995. Forward-looking statements are ultimately exercised for common stock, you will sustain future dilution.Holders ofthose that reflect our Series A Convertible Preferred Stock and Series A Warrants will have no rights as common shareholders until such holders convert their preferred stock or exercise their warrants and acquire our common stock.Until holders of our Series A Convertible Preferred Stock or Series A warrants acquire shares of our common stock upon conversion of the preferred stock or exercise of the warrants, holders of preferred stock and warrants will have no rightscurrent views with respect to the shares of our common stock underlying such preferred stockfuture events and warrants. Upon conversion of the preferred stock or exercise of the warrants, the holders will be entitled to exercise the rights of a common shareholder only as to matters for which the record date occurs after the conversion or exercise date.There is no public market for the Series A Convertible Preferred Stock or the Series A Warrants to purchase common stock in this offering.There is no public trading market for the Series A Convertible Preferred Stock or the Series A Warrants being offered in this offering,financial performance, and we do not expect a market to develop. In addition, we do not intend to apply for listing of the Series A Convertible Preferred Stock or the Series A Warrants on any securities exchange. Unit holders who exercise their warrants for cash (and receives common stock) prior to the six-month separation date will be required to hold the Series A Preferred Stock until the six month period expires, an earlier Trading Separation Trigger or a Delisting Trigger. Without an active market, the liquidity of the Series A Convertible Preferred Stock and the Series A Warrants will be extremely limited.CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTSThis prospectus includes forward-looking statements including market opportunities for our products, intended listing of the Units on Nasdaq, anticipated expansion of vape stores , liquidity and capital expenditures. Allall statements other than statements of historical factsfact are statements that are, or could be, deemed forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “believe,” “expect,” “seek,” “anticipate,” “intend,” “estimate,” “plan,” “target,” “project,” “forecast,” “envision” or the negative of these terms, and other similar phrases. All statements contained in this prospectus including statementsand any prospectus supplement regarding our future financial position, liquidity, business strategysales, costs, earnings, losses, cash flows, other measures of results of operations, capital expenditures or debt levels and plans, and objectives, of management for future operations,outlook, targets, guidance or goals are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect”similar expressions, as they relateinvolve risks and uncertainties. Our forward-looking statements are based on the information currently available to us are intended to identifyand speak only as of the date on the cover of this prospectus, the date of any prospectus supplement, or, in the case of forward-looking statements. We have basedstatements incorporated by reference, the date of the filing that includes the statement. Although we believe that the expectations reflected in these forward-looking statements largely on our current expectations and projections aboutare reasonable, these statements relate to future events or our future operational or financial performance, and financial trends that we believe may affect our financial condition, results of operations, business strategyinvolve known and financial needs. These forward-looking statements are subject to a number ofunknown risks, uncertainties and assumptions described in in the section titled “Risk Factors” and elsewhere in this prospectus.Other sections of this prospectus may include additionalother factors which could adversely affect our business and financial performance. Moreover, our business is competitive and our business model is expected to change. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any risk factor, or combination of risk factors,that may cause our actual results, performance or achievements to differbe materially different from those contained in any future results, performance or achievements expressed or implied by these forward-looking statements. otherwise required by applicable laws,law, we undertakeassume no obligation, and disclaim any obligation, to publicly update or revise any forward-looking statements or the risk factors described in this prospectus, whether as a result of new information, future events changed circumstances or any other reason after the date of this prospectus.PRIVATE PLACEMENTOn June 25, 2015, the Company closed on a Securities Purchase Agreement, dated as of June 22, 2015, with certain purchasers pursuant to which the Company sold, at a 5% original issue discount, a total of $1,750,000 convertible debentures, which we refer to as the “Debentures”. Net proceeds to the Company from sale of the Debentures, after payment of commissions and legal fees of the lead investor, were $1,466,250. otherwise.placement agent for this June 2015 offering elected to use $47,500 of the commissions payable to it and acquire a $50,000 Debenture; the placement agent also received a warrant to purchase 70,000 shares of our common stock at $2.525 per share over a five-year period beginning on December 24, 2015. The Debentures mature December 22, 2015, and accrue interest at 10% per year. Amounts of principal and accrued interest under the Debentures are convertible into common stock of the Company at a price per share of $2.50. Principal and accrued interest on the Debentures are payable in three approximately equal installments on September 22, 2015, October 22, 2015 and December 22, 2015, at the election of the holders of the Debentures, (i) in cash for an additional 25% premium, or (ii) in common stock of the Company at a price per share of $2.50. As lead investor under the Securities Purchase Agreement, Redwood Management, LLC received a right of first refusal to purchase up to 100% of the securities offered by the Company in future private placement offerings through December 22, 2015. The Company’s obligations under the Debentures can be accelerated in the event the Company undergoes a change in control and other customary events of default. In the event of default and acceleration of the Company’s obligations, the Company would be required to pay 130% of amounts of principal and interest then outstanding under the Debentures. The Company’s obligations under the Debentures are secured under a Security Agreement, under which Redwood Management, LLC acts as Collateral Agent, by a second lien on substantially all of the Company’s assets, including all of the Company’s interests in its consolidated subsidiaries.In November 2014 and March 2015, the Company had engaged in two private placements each of which precluded the Company from using capital or otherwise issuing shares of common stock or common stock equivalents below $10.00 and $5.10, respectively. In order to raise further capital in the June 25 private placement, the Company was required to enter into agreements with prior investors modifying these covenants. In consideration for modifying these covenants, the Company issued these prior investors, 647,901 shares of common stock and 595,685 five-year warrants exercisable at $2.525 per share beginning December 20, 2015. Additionally, the Company agreed to issue additional shares of common stock to these investors ranging from 27,959 total shares if effective price per share of common stockforward-looking statements contained in this offering (or a future offering) is $2.65 up to 2,328,598 shares if the effective price per share of common stock is $1.05 per share. Assuming the effective price per share of this offering was the closing price on the date prior to the date of this prospectus we would be obligated to issue approximately 1.4 million shares of common stock to these investors. Any of these future issuances are subject to approval of our shareholdersset forth principally in order to comply with Nasdaq rules.Assuming the maximum offering is completed, the net proceeds from our issuance“Risk Factors” above, and sale of 3,800,000 Units in this offering will be approximately $[________] million, based on a public offering price of $[________] per Unit, after deducting underwriting commissions and estimated offering expenses payable by us. There can be no assurance that all of the Units or any of the Units will be sold, and therefore there is no assurance that any net proceeds will be received by the Company.Assuming that we receive net proceeds of at least $11 million, we expect the net proceeds from this offering will allow us to fund our operations for up to 12 months following the closing of the offering. We intend to use the net proceeds from this offering as follows:(1)to repay $4.97 million of indebtedness;(2)the acquisition and/or development of vape stores;(3)marketing; and(4)the remaining proceeds, if any, will be used for general corporate purposes, including working capital.This expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including industry and general economic conditions and future revenues. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering. Furthermore, we anticipate that we will need to secure additional funding before we reach profitability.We will be applying for the listing of the Units on the Nasdaq Capital Market under the symbol “VPCOU”. No assurance can be given that such listing will be approved or that a trading market will develop.Our shares of common stock are currently quoted on the Nasdaq Capital Market under the symbol “VPCO”. The following table sets forth the high and low prices of our common stock, as reported by the Nasdaq Capital Market, for the periods indicated (as adjusted for the one-for-five reverse split effectuated on July 9, 2015):Year Quarter Ended Stock Price High Low ($) ($) 2015 March 31 7.80 5.00 2014 December 31 14.05 5.10 September 30 25.45 6.65 June 30 33.75 19.50 March 31 45.25 28.15 2013 December 31 49.00 20.00 September 30 29.25 19.00 June 30 33.00 9.75 As of July 9, 2015, there were approximately 1,370 record shareholders. As of July 9, 2015, the closing price of our common stock was $1.39 per share.We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividends will be at the discretion of our Board of Directors, which we refer to as the “Board”, and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our Board deems relevant. Our future ability to pay cash dividends on our stock may also be limited by the terms of any future debt or preferred securities or future credit facility. Additionally,dividends under the Delaware General Corporation Law, may only be paid from our net profits or surplus neither of which we currently have.The following table sets forth our cash and cash equivalents and our capitalization as of March 31, 2015:● on an actual basis; and●on an adjusted basis, based upon an assumed offering price of $[_____] per Unit, to give effect to the sale of the Units being offered hereunder, after deducting the estimated underwriting fees and commissions and estimated offering expenses payable by us.Based on the assumed offering price of $[____] per Unit, we allocated all of the consideration to common stock and additional paid-in capital. You should read this table in conjunction with “Use of Proceeds” above as well as our “Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations,” “Business” and other sections in our 2020 Form 10-K. In addition, there may be events in the future that we are not able to predict accurately or control which may cause actual results to differ materially from expectations expressed or implied by forward-looking statements. Please consider our forward-looking statements in light of these risks as you read this prospectus and any prospectus supplement.related notes appearing elsewherethereto incorporated by reference in this prospectus. March 31, 2015 (2) (2) Shareholders’ Equity: $ - $ Common stock, $0.001 par value, 150 ,000,000 shares authorized, 6,727,152 shares issued and outstanding (1) 6,727 Additional paid-in capital 36, 725,950 Accumulated deficit (19,213,099 ) Total stockholders’ equity $ 17,519,578 $ Total capitalization $ 24,052,575 $ (1)As of July 8, 2015, the Company filed an amendment to its Certificate of Incorporation to increase its authorized capital to 150 million shares of common stock and effectuate a one-for-five reverse stock split.Actual Pro Forma (in thousands) $ (2)The Adjusted amounts give effect to the sale of the Units being sold in this offering. The table above excludes, as of March 31, 2015:●a total of 248,567 shares of common stock issuable upon the exercise of outstanding stock options; ●a total of 378,047of common stock issuable upon the delivery of fully vested restricted stock units;authorized and 5,000 shares issued and outstanding ●a total of 841,981 shares of common stock issuable upon the exercise of warrants; ●total of 358,682 shares of common stock issuable upon the conversion of outstanding convertible notes; ●up to 19,000,000 shares of common stock issuable upon the full conversion of the Series A Convertible Preferred Stock offered hereby and up to 38,000,000 shares of common stock upon the full exercise of the Series A Warrants assuming the warrants are exercised for cash (if the warrants are exercised on a cashless basis as described in “Description of Capital Stock – Warrant Included in the Units Offered Hereby” the number of shares of common stock issuable is indeterminate); and ●up to 950,000 shares of common stock issuable upon the full conversion of the Series A Convertible Preferred Stock offered hereby and up to 1,900,000 shares of common stock upon the full exercise of the Series A Warrants assuming the warrants are exercised for cash included in the unit purchase option to be issued to the representative of the underwriters in connection with this offering (if the warrants are exercised on a cashless basis as described in “Description of Capital Stock – Warrant Included in the Units Offered Hereby” the number of shares of common stock issuable is indeterminate).You should read this
The table together with “Management’s Discussionabove excludes:Analysisother equity awards; andFinancial Condition and Results of Operations” andcommon stock reserved for issuance under our financial statements and the related notes appearing elsewhere in this prospectus.our common stock on March 31, 2015 was approximately $(193,329),$____ million, or approximately $(0. 029 )$___ per outstanding share based on 6,727,152 shares of our common stock. We calculate net tangible book value per share by calculating the difference between the total assets less intangible assets and total liabilities, and dividing the result by the number of shares of common stock outstandingoutstanding. Pro forma as of March 31, 2015. Netadjusted net tangible book value per share represents the amount of our total tangible assets, less our total liabilities, divided by the total number of shares of our common stock outstanding. Dilution in net tangible book value per share to new investors represents the difference between the amount per share paid by purchasers for Units in this offering and thepro forma net tangible book value per share of our common stock immediately afterwards.sale of 3,800,000 Units by us at a public offering price of $[ _______ ] per Unit (with each Unit containing one-fourth of a share of Series A Convertible Preferred Stock convertible into five shares of common stock and 10 Series A Warrants each exercisable for one share of common stock ), less the underwriting commissions and our estimated offering expenses,Rights Offering, our pro forma as adjusted net tangible book value at March 31, 2015as of _____________, 2021, would be $ [____]have been approximately $_____ million or $ [____]$_____ per share. This amount represents an immediate dilution of approximately $____ per share to existing stockholders, and an immediate increase in the as adjusted net tangible book value of $ [____] per share to existing shareholders and an immediate dilution of $[____]approximately $_____ per share to new investors purchasing shares at an assumed public offeringof our common stock in the Rights Offering.____]●] per share.following table illustratesactual number of stockholders is greater than this dilutionnumber of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees (including any mobile investment platform). a per share basis:Public offering price per Unit$Conversion price per share of Series A Convertible Preferred Stock contained in a Unit$Net tangible book value per share as of March 31, 2015$(0.0 29)Increase in net tangible book value per share attributable to new investors in this offering$Pro forma net tangible book value per share as of March 31, 2015, after giving effect to this offeringDilution per share to new investors in this offeringThe foregoing illustration does not reflect potential dilution from the conversion of our outstanding convertible preferred stock or the exercise of outstanding stock options or warrants.The above table is based on 6,727,152 shares outstanding as of March 31, 2015 and excludes, as of that date:●248,567 shares of common stock issuable upon the exercise of options with an average exercise price of approximately $30.85 per share;●378,047 shares underlying restricted stock units; and●841,981 shares of common stock issuable upon the exercise of warrants with an average exercise price of $ 8 .75 per share.To the extent that any of these securities are exercised, there will be further dilution to new investors.The following table shows on an adjusted basis at March 31, 2015, assuming [_______] shares of our common stock outstanding after giving effectand do not plan to pay cash dividends in the foreseeable future. High Low Year Ended December 31, 2019: 0.0001 0.0001 $ 0.0001 $ 0.0001 $ 0.0001 $ 0.0001 $ 0.0001 $ 0.0001 Year Ended December 31, 2020: $ 0.0001 $ 0.0001 $ 0.0001 $ 0.0001 $ 0.0001 $ 0.0001 $ 0.0001 $ 0.0001 Year Ending December 31, 2021: $ 0.00495 $ 0.0001 $ 0.0016 $ 0.0010 sale of allboard, as well as subsequent analyses of the Unitsboard, the board believes that this offering is in the best interests of our company and stockholders. Our board is not, however, making any recommendation regarding your exercise of the Subscription Rights.offering: Shares Purchased Total Consideration Average Price
Per Share Number Percent Amount Percent Existing shareholders % $ $ % $ New investors participating in this offering % $ $ $ Total 100 % $ $ 100 % $ The table above doesoffering, broker-dealers, trust companies, banks or others whose shares are held of record by Cede & Co. or by any other depository or nominee will be deemed to be the holders of the Subscription Rights that are issued to Cede & Co. or the other depository or nominee on their behalf. Any fractional Subscription Rights will be rounded up to one Subscription Right.include:●248,567 shares of common stock issuable upon the exercise of outstanding options to purchase common stock as of March 31, 2015 under our equity compensation plans, at a weighted-average exercise price of $30.85 per share;●841,981 shares of common stock issuable upon the exercise of outstanding warrants with an average exercise price of $ 8 .75 per share ;●up to 19,000,000 shares of common stock issuable upon the full conversion of the Series A Convertible Preferred Stock offered hereby and up to 38,000,000 shares of common stock upon the full exercise of the Series A Warrants assuming the warrants are exercised for cash (if the warrants are exercised on a cashless basis as described in “Description of Capital Stock – Warrant Included in the Units Offered Hereby” the number of shares of common stock issuable is indeterminate); and●up to 950,000 shares of common stock issuable upon the full conversion of the Series A Convertible Preferred Stock offered hereby and up to 1,900,000 shares of common stock upon the full exercise of the Series A Warrants assuming the warrants are exercised for cash included in the unit purchase option to be issued to the representative of the underwriters in connection with this offering (if the warrants are exercised on a cashless basis as described in “Description of Capital Stock – Warrant Included in the Units Offered Hereby” the number of shares of common stock issuable is indeterminate).these outstanding options or warrants (and warrants issued subsequentyour aggregate subscription payment for the actual number of unsubscribed shares available to March 31, 2015) are exercised thereyou pursuant to the over-subscription privilege is less than the amount you actually paid in connection with the exercise of the over-subscription privilege, you will be further dilutionallocated only the number of unsubscribed shares available to you, and any excess subscription payment will be promptly returned to you, without interest or deduction, after the new investors.In addition, we may chooseexpiration of this offering.raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Topurchase the extent that additional capital is raised throughnumber of shares issuable upon the saleexercise of equity or convertible debt securities,your over-subscription privilege in full at the issuanceexpiration of these securities may result in further dilution to our shareholders.
this offering.26MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSYou should read the following discussion and analysis of our financial condition and results of operations and our financial statements and the related notes appearing elsewhere in this prospectus. 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 discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus.Company OverviewThe Company operates nine Florida-based vape stores (and expects to open two more in the next three weeks) and online where it sells vaporizers, liquids for vaporizers and e-cigarettes. The Company is focusing on expandingCompany-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®, Vapor X ®, Hookah Stix®, Alternacig®, Fifty-One® (also known as Smoke 51), EZSMOKER ®, 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 , online , 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 EstimatesThe 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 contained herein. 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 to the consolidated financial statements contained herein. 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 mayrights will be required to take a partialrepresent to us in its subscription certificate that, together with any of its affiliates or full impairment charge against its goodwill or other long-lived assets which arose fromassociates, it will not beneficially own more than % of 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.27Warrant Derivative LiabilityThe Series A Warrants contain a cashless exercise provision using a predetermined Black Scholes Value. See page 58 below for a further description. Such provision, if exercised by the holder, would require the Company to settle these warrants, at its option (subject to certain conditions), either by a cash payment or the granting of a variable number ofoutstanding shares of common stock. This provision results in the potential for the Company to either have to net cash settle the warrant or potentially issue an indeterminate numberstock (calculated immediately upon closing of shares. Accordingly, the warrants are accounted for as a derivative liability and are recorded at fair value at inception and subject to re-measurement on each balance sheet date, with any change in fair value recognized as a component of other income (expense) in the statements of operations. The fair value of these warrants will be based on, amongst various factors, at the valuation measurement date of which the estimated market value of the underlying common stock is one of them. Therefore, normally any increase in our stock price will result in an increase of our warrant liability resulting in a non-cash expense and, conversely, normally any decrease in our stock price will result in a decrease of our warrant liability resulting in a non-cash gain.Results of Operations for the Three Months Ended March 31, 2015 Compared to the Three Months Ended March 31, 2014Sales, 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 Vapor X ® 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 vaporizer 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 vaporizer 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 of $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,this offering) as a result of the items discussed above.Resultsexercise of Operationsrights. Any rights holder found to be in violation of such representation will have granted to us in the subscription certificate, with respect to any such excess shares, (1) an irrevocable proxy and (2) a right for a limited period of time to repurchase such excess shares at the Year Ended December 31, 2014 Comparedlesser of the subscription price and market price, as set forth in more detail in the subscription certificate.Year Ended December 31, 2013Net sales forextent it determines that doing so is in the year ended December 31, 2014 and 2013 were $15,279,860 and $25,990,227, respectively, a decrease of $10,710,367 or approximately 41.2%. The decrease in sales is primarily attributable to decreased salesbest interest of our television direct marketing campaign for our Alternacig® brand,stockholders.decrease in salespress release or such other means of our on-line stores and distributor inventory buildup in the e-cigarette category that existed in 2013 and continued during 2014. This is a resultannouncement as we deem appropriate.increasing prevalenceSubscription Pricevaporizers, tanks and open system vapor products that are dramatically marginalizingdirectors considering, among other things, input from its dealer-manager for this offering. In approving the e-cigarette category and increased our customer returnssubscription price, the board of e-cigarette products. We have increased our purchases of vaporizers, tanks and open system vapor products as we shift our inventory mix to align with products in high customer demand. Sales were also negatively impacted by new national competitors’ launches of their own branded products duringdirectors considered, among other things, the second quarter of 2014. Due to low conversion rates of our Alternacig® and Vapor X ® branded direct marketing campaign, we limited following factors: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. During the second half of 2014 we introduced several new e-vapor products under the Vapor X brand, including premium USA manufactured e-liquids. 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. During the fourth quarter of 2014 we opened eight new emagine vaporTM retail kiosks to expand our distribution channels for vaporizer and e-cigarette products. In 2015, we have closed eight of our nine retail kiosks. In addition we are altering our product mix to include more e-vapor products e-liquids and vaporizer accessories and transitioning our customer base to these favorable demand products.Cost of goods sold for the year ended December 31, 2014 and 2013 was $14,497,254 and $16,300,333, respectively, a decrease of $1,803,077, or approximately 11.1%. The decrease is primarily due to the overall decrease in sales, offset by write downs of $1,834,619 for obsolete and slow moving inventory that primarily consisted of e-cigarettes. As customers complete the migration to vaporizers, tanks and open vaporizer systems, our sales incentives should decrease.Our gross margins decreased to 5.1% from 37.3% primarily due to write downs of $1,834,619 for obsolete and slow moving inventory, increase in sales returns, discounts, incentives and allowances that primarily resulted from the customer demand shift from e-cigarettes to e-vapor products.Selling, general and administrative expenses for the year ended December 31, 2014 and 2013 were $11,126,759 and $6,464,969, respectively, an increase of $4,661,790 or approximately 72.1%. The increase is primarily attributable to increases in non-cash stock compensation expense of $1,631,340 primarily attributable to the consulting agreement with Knight Global Services, professional fees of $3,281,388 due to implementing the corporate actions we agreed to take in connection with the private placementmarket price of common stock we completed in October 2013, including registeringprior to public announcement of the shares for resale with subscription price;SEC, reincorporating infact that the State of Delaware from Subscription Rights will be non-transferable;State of Nevada, effecting the 1-for-5 reverse stock splitliquidity of our common stockstock;uplistingexpenses of this offering relative to other alternatives for raising capital, including fees payable to Maxim, and our ability to access capital through such alternatives;Nasdaq Capital Market, costsrange of $576,138 incurreddiscounts to market value represented by the subscription prices in connection with other rights offerings;initiationsize of this offering; and terminationpreviously contemplated acquisition of International Vapor Group,securities market.’s online, wholesale, the subscription agent and retail operations, consultinginformation agent, will receive for its administrative, processing, invoicing and recruiting fees of $882,590other services a fee estimated to be approximately $ , plus reimbursement for all out-of-pocket expenses related to the developmentoffering.emagine vaporTM retail kiosk and store distribution channel, and costs incurred in connection with the merger of Vaporin, Inc. We also incurred additional filing and listing fees related to our uplistingsubscription price, must be sent to the Nasdaq Capital Market, business insurance due to the increases in coverage limits and increases in travel due to increased presence at trade shows and conferences, netsubscription agent for all whole numbers of decreased personnel costs attributable to decreased payroll net of the accrued severance related to the resignation of our former Chief Executive Officer, merchant card processing fees due to lower transaction volumes.Advertising expenseshares subscribed for the years ended December 31, 2014 and 2013 was $2,374,329 and $2,264,807, respectively, an increase of $109,522 or 4.8%. As a percentage of sales advertising expense increased to 15.5% for the year ended December 31, 2014 from 8.7% for the year ended December 31, 2013. During the year ended December 31, 2014, we decreased our Internet advertising and television direct marketing campaign for our Alternacig brand, increased our print advertising programs, participation at trade shows, initiated several new marketing campaigns in which we sponsored several music concerts and we continued various other advertising campaigns.Other expense for the years ended December 31, 2014 and 2013 was $366,433 and $683,558, respectively, a decrease of $317,125. Included in other expense is interest expense which was $348,975 and $383,981, for the years ended December 31, 2014 and 2013 respectively, a decrease of $35,006 or 9.1%. The decrease was attributable to lower amounts of outstanding debt throughout 2014 compared to 2013. In addition, the Company incurred an induced conversion expense during the year ended December 31, 2013 of $299,577 related to the reduction in the conversion price for the $350,000 Senior Convertible Notes and $75,000 Senior Convertible Notes in order to induce the holders to convert the notes. Such inducement did not reoccur in 2014.Income tax expense (benefit) for the years ended December 31, 2014 and 2013 was $767,333 and $(524,791), respectively, an increase of $1,292,124 or 246.2%. The Company determined, based on the weight of the available evidence, that a valuation allowance of $5,695,446 (or 100% of the Company’s net deferred tax assets) is required at December 31, 2014, which is the cause of the significant increase in income tax expense compared to the year ended December 31, 2013. At December 31, 2013, the Company had determined that a valuation allowance against its net deferred tax assets was not necessary and recorded an income tax benefit.Net (loss) income for the years ended December 31, 2014 and 2013 was $(13,852,249) and $801,352, respectively, a decrease of $14,653,601 as a result of the items discussed above.Liquidity and Capital ResourcesThe 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 2015 Vaporin merger, 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, entered into in connection with the March 2015 Vaporin merger, with certain accredited investors providing for the sale of $3,500,960 in shares of the Company’s common stock 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.Our net cash used in operating activities was $6,291,027 and $4,120,152 for the years ended December 31, 2014 and 2013, respectively, an increase of $2,170,875. Our net cash used in operating activities for the year ended December 31, 2014 resulted primarily from our net losses, purchases of new inventories to meet future customer demand, and changes in accounts receivable, prepaid expenses, accounts payable, accrued expenses and due from merchant credit card processor, which are attributable to our efforts to accommodate anticipated future sales growth.Our net cash used in investing activities was $1,987,505 and $14,779 for the years ended December 31, 2014 and 2013, respectively. Our net cash used in investing activities for the year ended December 31, 2014 resulted primarily from entering into loans receivable with International Vapor Group, Inc. and Vaporin and for purchases of property and equipment utilized in connection with the opening of eight retail kiosks.Our net cash provided by financing activities was $2,269,481 and $10,528,738 for the years ended December 31, 2014 and 2013, respectively, a decrease of $8,259,256. These financing activities relate to the Company’s sale of $1,250,000 Senior Convertible Notes entered into in November 2014, $1,000,000 Loan Payable to Related Party entered into in December 2014, and the $1,000,000 Term Loan entered into in September 2014 and proceeds fromthrough the exercise of stock options neta basic right and the over-subscription privilege by one of principal repayments under the $750,000methods described below. We will accept only properly completed and $1,000,000 Term Loans and principle repaymentsduly executed subscription certificates actually received at any of capital lease obligations.In the ordinary course of our business, we enter into purchase orders for components and finished goods, which mayaddresses listed below, at 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 depositsprior to 5:00 p.m. (Eastern time) on the condensed consolidated balance sheets included elsewhere in this prospectus . 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. AsExpiration Date of June 22, 2015, we sold, at a 5% original issue discount, a total of $1,750,000 of Debentures and received net proceeds of approximately $1,466,000. The Debentures mature on December 22, 2015, and accrue interest at 10% per year. See the section titled “Private Placement” above. Subsequent to the Debenture offering, we still do not have sufficient working capital to sustain our current operations for 12 months and are relying upon this offering or another material financing.31We operate nine Florida-based vape stores (and expect to open two more inby the next three weeks) and are focusing on expanding the numberclose of Company operated stores as well as launching a franchise program. We design, market, and distribute vaporizers, e-liquids, electronic cigarettes and accessories under the emagine vaporTM, Krave®, Fifty-One® (also known as Smoke 51), Vapor X ®, Hookah Stix® and Alternacig® brands. 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.The Company’s business strategy is currently focused on the vape store concept which Vaporin had successfully deployed. We are seeing that there issecond business day after the Expiration Date of the offering following timely receipt of a large consumer demand centerednotice of guaranteed delivery. See “Payment for Securities” below. In this prospectus, close of business means 5:00 p.m. (Eastern Time) on the vaporizer products and the “atmosphere” created by the stores. Vapor leverages its ability to design, market and develop multiple vaporizer and e-cigarette brands and to bring those brands to market through its multiple distribution channels including the vape stores, online and through retail operations operated by their parties.Vaporizers and Electronic Cigarettes“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. Electronic cigarettes look like traditional cigarettes and, regardless of their construction are comprised of three functional components:●a mouthpiece, which is a small plastic cartridge that contains a liquid nicotine solution;Address/NumberBy Notice of Guaranteed Delivery: ●the heating element that vaporizes the liquid nicotine so that it can be inhaled; and●the electronics, which include: a lithium-ion battery,airflow sensor, a microchip controller and an LED, which illuminates to indicate use.When a user draws air through the electronic cigarette and/or vaporizer, the air flow is detected by a sensor, which activates a heating element that vaporizes the solution stored in the mouthpiece/cartridge, the solution is then vaporized and it is this vapor that is inhaled by the user. The cartridge contains either a nicotine solution or a nicotine free solution, either of which may be flavored.Our Vaporizers and Electronic CigarettesVaporizers feature a tank or chamber, a heating element and a battery. The vaporizer user fills the tank with e-liquid or the chamber with dry herb or leaf. The vaporizer battery can be recharged and the tank and chamber can be refilled.We also offer disposable electronic cigarettes in multiple sizes, puff counts, styles, flavors and nicotine strengths; rechargeable electronic cigarettes that use replaceable cartridges (also known as “atomizers or cartomizers”), and rechargeable vaporizers for use with either electronic cigarette solution (“e-liquid”) or dry herbs or leaf. Disposable electronic cigarettes feature a one-piece construction that houses all the components and is utilized until the nicotine or nicotine free solution is depleted. Rechargeable electronic cigarettes feature a rechargeable battery and replaceable cartridge (also known as an “atomizer or cartomizer”). The atomizers or cartomizers are changed when the solution is depleted from use.Our BrandsWe sell our vaporizers, electronic cigarettes and e-liquids under several different brands, including emagine vaporTM, Krave®, Fifty-One® (also known as Smoke 51), Vapor X ®, Stix® and Alternacig® brands. We also design and develop private label brands for our distribution customers. Our in-house engineering and graphic design team’s work to provide aesthetically pleasing, technologically advanced affordable vaporizers and e-cigarette options. We are in the process of preparing to commercialize additional brands which we intend to market to new customers and demographics.Our Improvements and Product DevelopmentWe have developed and trademarked or are preparing to commercialize additional products. We include product development expenses as part of our operating expenses. We currently own no patents which are material to our business. We have a number of patent applications pending in the United States including those described below. There is no assurance that we will be awarded patents for of any of these pending patent applications.Flavor ProfilesWe are developing new flavor profiles that are distinct to our brands. We believe that as the vaporizer and electronic cigarette industry matures, users of vaporizers and electronic cigarettes will develop, if they have not already, preferences for the product based not only on their quality, ability to successfully deliver nicotine, battery capacity, and smoke volume they generate, but on taste and flavor, like smokers do with their preferred brand of conventional tobacco cigarettes.Soft Tip FiltersWe have a patent pending for a soft-tip electronic cigarette filter, which more closely resembles the tactile experience of a conventional tobacco cigarette in a user’s mouth. To date electronic cigarettes have been made of metal and hard plastic and do not offer users the same malleable feel as the cellulose filters of conventional tobacco cigarettes.Electronic Cigarette Air Flow Sensor PatentWe have a patent pending on a new configuration for the airflow sensors currently used in electronic cigarettes. The new configuration will allow the battery to be sealed to enhance the reliability and performance of the electronic cigarette. There is no assurance that we will be awarded a patent for this configuration.Vaporizer Biometric Fingerprint Lock Sensor PatentWe have a patent pending for a biometric fingerprint lock sensor that can be used in vaporizers. The biometric fingerprint lock sensor will allow the owner of the vaporizer to keep the device locked and turned off unless the authorized user unlocks the device via fingerprint scan, protecting the device from use by another individual. This technology may be used to protect against minors being able to turn on the device and will also deem the devices unusable in the event the device is lost or stolen. There is no assurance that we will be awarded a patent for this technology.Our Kits and AccessoriesOur vaporizer and electronic cigarettes are available in kits that contain everything a user needs to begin enjoying their “vaping” experience. In addition to kits we sell replacement parts including batteries, refill cartridges or cartomizers that contain the liquid solution, atomizers, tanks and e-liquids. Our refill cartridges and e-liquids are available in various assorted flavors and nicotine levels (including 0.0% nicotine). In addition to our electronic cigarette and vaporizer products we sell an assortment of accessories, including various types of chargers (including USB chargers), carrying cases and lanyards.The Market for Vaporizers and Electronic CigarettesWe market our vaporizers and electronic cigarettes as an alternative to traditional tobacco cigarettes and cigars. We offer our products in multiple nicotine strengths, flavors and puff counts. Because vaporizers and electronic cigarettes offer a “smoking” experience without the burning of tobacco leaf, vaporizers and electronic cigarettes offer users the ability to satisfy their nicotine cravings without smoke, tar, ash or carbon monoxide. In many cases vaporizers and electronic cigarettes may be used where tobacco-burning cigarettes may not. Vaporizers and electronic cigarettes may be used in some instances where for regulatory or safety reasons tobacco burning cigarettes may not be used. However, certain states, cities, businesses, providers of transportation and public venues in the U.S. have already banned the use of vaporizers and electronic cigarettes, while others are considering banning the use of vaporizers and electronic cigarettes. We cannot provide any assurances that the use of vaporizers and electronic cigarettes will be permitted in places where traditional tobacco burning cigarette use is banned. See the Risk Factor on page 16.According to the U.S. Centers for Disease Control and Prevention, in 2012, an estimated 42.1 million people, or 17.4% of adults, in the United States smoke cigarettes. In 2011, about 21% of adults who smoke traditional tobacco cigarettes had used electronic cigarettes, up from about 10% in 2010, according to the U.S. Centers for Disease Control and Prevention. Annual sales of electronic cigarettes in the United States were estimated to increase to $1.7 billion in 2014 from $1 billion in 2013. Annual sales of traditional tobacco cigarettes, according to industry estimates, were $80 billion in 2012.AdvertisingCurrently, we advertise our products primarily on the Internet, through trade magazine ads and through point of sale materials and displays at retail locations. We also attempt to build brand awareness through innovative social media marketing activities, price promotions, in-store and on-premise promotions, slotting fees (i.e., fees payable based on the number of stores at which our products are carried and sold), public relations and trade show participation. Our advertising expense as a percentage of sales for the year ended December 31, 2014 and 2013 has been approximately 15.5% and 8.8%, respectively; for the three months ended March 31, 2015, this decreased to 7.2%. Assuming we are successful in this offering, we intend to continue to strategically expand our advertising activities in 2015 and also increase our public relations campaigns to gain editorial coverage for our brands. Some of our competitors promote their brands through print media and television commercials, and through celebrity endorsements, and have substantial resources to devote to such efforts. We believe that our and our competitors’ efforts have helped increase our sales, our product acceptance and general industry awareness.Distribution and SalesWe offer our vaporizers and electronic cigarettes and related products through our vape stores , our websites, a retail kiosk, 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.Vapor sells directly to consumers through nine company owned retail vape stores . Vapor acquired eight of these retail vape stores in the March 2015 merger with Vaporin. The Company expects to open two additional stores in the next three weeks. Our management believes that consumers are shifting towards vape shops for an enhanced experience. This enhanced experienced is derived from the greater variety of products at the stores, the knowledgeable staff and the social atmosphere. Vapor anticipates a significant portion of future revenue will come from the retail stores.We also offer our products online through our websites includingwww.vapor-corp.com. The contents of this website are not incorporated by reference into this prospectus. Our strategy is to increase our online sales by expanding our presence through additional Vapor websites and enhancing the overall online experience for consumers.When first introduced to the U.S. market, electronic cigarettes were predominantly sold online. In the past year brick and mortar sales of electronic cigarettes and vaporizers have eclipsed the on-line sales volumes in the U.S. market. Tobacco products, most notably cigarettes are currently sold in approximately 400,000 retail locations. We believe that future growth of vaporizers and electronic cigarettes is dependent on either higher volume, lower margin sales channels, like the broad based distribution network through which cigarettes are sold or through Company- owned stores. Thus, we are focusing on growing our retail distribution reach by opening retail stores and entering into distribution agreements with large and established value added resellers. We currently have established relationships with several large retailers and national chains and in connection therewith we have agreed to pay slotting fees based on the number of stores our products will be carried in. These existing relationships are “at-will” meaning that either party may terminate the relationship for any reason or no reason at all. We believe that these higher volume lower margin opportunities are critical towards broadening the reach and appeal of vaporizers and electronic cigarettes and we believe that as vaporizers and electronic cigarettes become more widely known and available, the market for our products will grow. In 2015, we have closed eight of our nine kiosks and are focusing on acquiring and developing the vape stores in Florida. In addition, we are in the process of launching a franchise program, although we cannot assure you this program will be successful.Distribution of our Products in CanadaUnder our private label production and supply agreement with Spike Marks Inc./Casa Cubana, or “Spikes”, we agreed to produce and supply Spikes with such quantities of our electronic cigarettes bearing their trademark and other brand attributes for resale within Canada. For the years ended December 31, 2014 and 2013, we had sales for distribution in Canada of $2,912,525 and $3,847,310, respectively. The last sales order received from Spikes was in February 2015. In April 2015, we received a notice from Spikes that we had breached the agreement and a subsequent notice of termination. Although we refute Spike’s allegations and believe we are owed money by them, there is no assurance that we will not be required to pay them money nor recover any of the amounts we believe we are due in accordance with the agreement. We are currently selling our products to another distributor in Canada under an oral agreement.Business StrategyWe believe and are seeing in our current stores that there is a large consumer demand centered on the vaporizer products and the “atmosphere” created by the vape stores . Additionally, our business strategy leverages our ability to design market and develop multiple vaporizer and e-cigarette brands and to bring those brands to market through our multiple distribution channels.We believe we were among the first distributors of vaporizers and electronic cigarettes in the U.S. Thus, we believe that our reputation and our experience in the electronic cigarette industry, both from a development, customer service and production perspective give us an advantage in attracting customers, specifically re-sellers who require ongoing support, reliable and consistent supply chains and mechanisms in place for supporting broad based distributors and big box retailers.Moreover, we believe that our history with our suppliers, including the volume of products we source, gives us an advantage over other market participants as it relates to favorable pricing, priority as to inventory supply and delivery and first access to new products, including first access to next generation electronic cigarette products and technology.Our goal is to achieve a position of sustainable leadership in the vaporizer industry. Our strategy consists of the following key elements:●continue to expand the footprint of the vape stores ;●develop new brands and engineer product offerings;●continue to shift our product focus from e-cigarettes to vaporizers;●seek potential franchisees for the vape stores ;●invest in and leverage our new and existing brands through marketing and advertising;●increase our presence in national and regional retailers;●expand our brand awareness and online web presence;●introduce our products to the consumer through increased infomercial broadcasts;●develop continuity programs for our end user customers;●expanding into new potential markets;●scale our distribution through strategic resale partnerships; and●align our product offerings and cost with market demand.36CompetitionCompetition in the electronic cigarette industry, including the vaporizer and e-liquid segments, is intense. We compete with other sellers of electronic cigarettes, most notably Lorillard, Inc., Altria Group, Inc. and Reynolds American, Inc., which are big tobacco companies that have electronic cigarette business segments. The nature of our competitors is varied as the market is highly fragmented and the barriers to entry into the business are low. Our direct competitors sell products that are substantially similar to ours and through the same channels through which we sell our electronic cigarette products. We compete with these direct competitors for sales through distributors, wholesalers and retailers, including but not limited to national chain stores, tobacco shops, gas stations, travel stores, shopping mall kiosks, in addition to direct to public sales through the Internet, mail order and telesales.As a general matter, we have access to market and sell the similar vaporizers and electronic cigarettes as our competitors and we sell our products at substantially similar prices as our competitors; accordingly, the key competitive factors for our success is the quality of service we offer our customers, the scope and effectiveness of our marketing efforts, including media advertising campaigns and, increasingly, the ability to identify and develop new sources of customers.Part of our business strategy focuses on the establishment of contractual relationships with distributors. We are aware that e-cigarette competitors in the industry are also seeking to enter into such contractual relationships. In many cases, competitors for such contracts may have greater management, human, and financial resources than we do for entering into such contracts and for attracting distributor relationships. Furthermore, certain of our electronic cigarette and vaporizer competitors may have better control of their supply and distribution, be better established, larger and better financed than our Company.As discussed above, we compete against “big tobacco”, U.S. cigarette manufacturers of both conventional tobacco cigarettes and electronic cigarettes like Altria Group, Inc., Lorillard, Inc. and Reynolds American, Inc. We compete against “big tobacco” who offers not only conventional tobacco cigarettes and electronic cigarettes but also smokeless tobacco products such as “snus” (a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff. “Big tobacco” has nearly limitless resources, global distribution networks in place and a customer base that is fiercely loyal to their brands. Furthermore, we believe that “big tobacco” will devote more attention and resources to developing and offering electronic cigarettes as the market for electronic cigarettes grows. Because of their well-established sales and distribution channels, marketing expertise and significant resources, “big tobacco” is better positioned than small competitors like us to capture a larger share of the electronic cigarette market.ManufacturingWe have no manufacturing capabilities and do not intend to develop any manufacturing capabilities. Third party manufacturers manufacture our products to meet our design specifications. We depend on third party manufacturers for our vaporizers, electronic cigarettes and accessories. Our customers associate certain characteristics of our products including the weight, feel, draw, unique flavor, packaging and other attributes of our products to the brands we market, distribute and sell. Any interruption in supply and or consistency of our products may harm our relationships and reputation with customers, and have a material adverse effect on our business, results of operations and financial condition. In order to minimize the risk of supply interruption, we currently utilize several third party manufacturers to manufacture our products to our specifications.We currently utilize approximately 13 different manufacturers, all of which are based in China. We contract with our manufacturers on a purchase order basis. We do not have any output or requirements contracts with any of our manufacturers. Our manufacturers provide us with finished products, which we hold in inventory for distribution, sale and use. Certain Chinese factories and the products they export have recently been the source of safety concerns and recalls, which is generally attributed to lax regulatory, quality control and safety standards. Should Chinese factories continue to draw public criticism for exporting unsafe products, whether those products relate to our products or not, we may be adversely affected by the stigma associated with Chinese production, which could have a material adverse effect on our business, results of operations and financial condition.Although we believe that several alternative sources for our products are available, any failure to obtain the components, chemical constituents and manufacturing services necessary for the production of our products would have a material adverse effect on our business, results of operations and financial condition.Source and Availability of Raw MaterialsWe believe that an adequate supply of product and raw materials will be available to us as needed and from multiple sources and suppliers.Intellectual PropertyWe have developed and trademarked or are preparing to commercialize additional products. We include product development expenses as part of our operating expenses. We currently own no patents which are material to our business. We have a number of patent applications pending in the United States including those described below. There is no assurance that we will be awarded patents for of any of these pending patent applications.Soft Tip FiltersWe have a patent pending for a soft-tip electronic cigarette filter, which more closely resembles the tactile experience of a conventional tobacco cigarette in a user’s mouth. To date electronic cigarettes have been made of metal and hard plastic and do not offer users the same malleable feel as the cellulose filters of conventional tobacco cigarettes.Electronic Cigarette Air Flow Sensor PatentWe have a patent pending on a new configuration for the air flow sensors currently used in electronic cigarettes. The new configuration will allow the battery to be sealed to enhance the reliability and performance of the electronic cigarette.Vaporizer Biometric Fingerprint Lock Sensor PatentWe have a patent pending for a biometric fingerprint lock sensor that can be used in vaporizers. The biometric fingerprint lock sensor will allow the owner of the vaporizer to keep the device locked and turned off unless the authorized user unlocks the device via fingerprint scan, protecting the device from use by another individual. This technology may be used to protect against minors being able to turn on the device and will also deem the devices unusable in the event the device is lost or stolen.TrademarksWe own trademarks on certain of our brands, including: Fifty-One®, Krave®, Vapor X®, Alternacig®, EZSMOKER®, Green Puffer®, Americig®, Hookah Stix®and Smoke Star® brands. We have also filed additional trademarks, which have yet to be awarded.Patent LitigationWe are a defendant in a certain patent lawsuit described in the section titled“Legal Proceedings” in this prospectus.Such patent lawsuit as well as any other third party lawsuits alleging our infringement of patents, trade secrets or other intellectual property rights could force us to do one or more of the following:●stop selling products or using technology that contains the allegedly infringing intellectual property;●incur significant legal expenses;●pay substantial damages to the party whose intellectual property rights we may be found to be infringing;●redesign those products that contain the allegedly infringing intellectual property; or●attempt to obtain a license to the relevant intellectual property from third parties,Eligible Guarantor Institution, which may not be availableinclude a commercial bank or trust company, a member firm of a domestic stock exchange or a savings bank or credit union, to notify us on reasonable terms or at all.Third party lawsuits alleging our infringement of patents, trade secrets or other intellectual property rights could have a material adverse effect on our business, results of operations and financial condition.We may be required to obtain licenses to patents or proprietary rights of others. We cannot assure you that any licenses required under any such patents or proprietary rights would be made available on terms acceptable to us or at all. If we do not obtain such licenses, we could encounter delays in product market introductions while we attempt to design around such patents, or could find that the development, manufacture, or sale of products requiring such licenses could be foreclosed. Litigation may be necessary to defend against claims of infringement asserted against us by others, or assert claims of infringement to enforce patents issued to us or exclusively licensed to us, to protect trade secrets or know-how possessed by us, or to determine the scope and validity of the proprietary rights of others. In addition, we may become involved in oppositions in foreign jurisdictions, reexaminations declared by the United States Patent and Trademark Office, or interference proceedings declared by the United States Patent and Trademark Office to determine the priority of inventions with respect to our patent applications or those of our licensors. Litigation, opposition, reexamination or interference proceedings could result in substantial costs to and diversion of effort by us, and may have a material adverse impact on us. In addition, we cannot assure you that our efforts to maintain or defend our patents will be successful.Government RegulationSince a 2010 U.S. Court of Appeals decision, the FDA is permitted to regulate electronic cigarettes as “tobacco products” under the Family Smoking Prevention and the Tobacco Control Act. Under this decision, the FDA is not permitted to regulate electronic cigarettes as “drugs” or “devices” or a “combination product” under the Federal Food, Drug and Cosmetic Act unless they are marketed for therapeutic purposes. This is contrary to anti-smoking devices like nicotine patches, which undergo more extensive FDA regulation. Because Vapor does not market Vapor’s electronic cigarettes for therapeutic purposes, Vapor’s electronic cigarettes are subject to being classified as “tobacco products” under the Tobacco Control Act. The Tobacco Control Act grants the FDA broad authority over the manufacture, sale, marketing and packaging of tobacco products, although the FDA is prohibited from issuing regulations banning all cigarettes or all smokeless tobacco products, or requiring the reduction of nicotine yields of a tobacco product to zero.On April 24, 2014, the FDA released proposed rules that would extend its regulatory authority to electronic cigarettes and certain other tobacco products under the Tobacco Control Act. The proposed rules would require that electronic cigarette manufacturers (i) register with the FDA and report electronic cigarette product and ingredient listings; (ii) market new electronic cigarette products only after FDA review; (iii) only make direct and implied claims of reduced risk if the FDA confirms that scientific evidence supports the claim and that marketing the electronic cigarette product will benefit public health as a whole; (iv) not distribute free samples; (v) implement minimum age and identification restrictions to prevent sales to individuals under age 18; (vi) include a health warning; and (vii) not sell electronic cigarettes in vending machines, unless in a facility that never admits youth. The proposed rules were subject to a 75-day public comment period, following which the FDA will finalize the proposed rules. It is not known how long this regulatory process to finalize and implement the rules may take. Accordingly, Vapor cannot predict the content of any final rules from the proposed rules or the impact they may have. See the risk factor on page 6 which also discusses possible additional FDA rulemaking.In this regard, total compliance and related costs are not possible to predict and depend substantially on the future requirements imposed by the FDA under the Tobacco Control Act. Costs, however, could be substantial and could have a material adverse effect on Vapor’s business, results of operations and financial condition. In addition, failure to comply with the Tobacco Control Act and with FDA regulatory requirements could result in significant financial penalties and could have a material adverse effect on Vapor’s business, financial condition and results of operations and ability to market and sell Vapor’s products. At present, it is difficult to predict whether the Tobacco Control Act will impact Vapor to a greater degree than competitors in the industry, thus affecting Vapor’s competitive position.State and local governments currently legislate and regulate tobacco products, including what is considered a tobacco product, how tobacco taxes are calculated and collected, to whom and by whom tobacco products can be sold and where tobacco products may or may not be smoked. State and local regulation of the e-cigarette market and the usage of e-cigarettes is beginning to accelerate.As local regulations expand, vaporizers and electronic cigarettes may lose their appeal as an alternative to cigarettes, which may have the effect of reducing the demand for Vapor’s products and as a result have a material adverse effect on Vapor’s business, results of operations and financial condition.At present, neither the Prevent All Cigarette Trafficking Act (which prohibits the use of the U.S. Postal Service to mail most tobacco products, which would require individuals and businesses that make interstate sales of cigarettes or smokeless tobacco to comply with state tax laws) nor the Federal Cigarette Labeling and Advertising Act (which governs how cigarettes can be advertised and marketed) apply to electronic cigarettes. The application of either or both of these federal laws to vaporizers and electronic cigarettes would have a material adverse effect on Vapor’s business, results of operations and financial condition.On July 1, 2015, the FDA published a document entitled “Advanced notice of proposed rulemaking” or the Advance. Through the Advance, the FDA solicited public comments on whether it should issue rules with respect to nicotine exposure warning and child-resistant packaging for e-liquids containing nicotine. Following public comment, the FDA may issue proposed rules in furtherance of the purposes outlined in the Advance and ultimately pass the rules as proposed or in modified form. We cannot predict whether if rules are passed it will have a material adverse effect on our future results of operations and financial conditions.Vapor expects that the tobacco industry will experience significant regulatory developments over the next few years, driven principally by the World Health Organization’s FCTC. The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. Regulatory initiatives that have been proposed, introduced or enacted include:●of your intent to exercise the levying of substantial and increasing tax and duty charges;●restrictions or bans on advertising, marketing and sponsorship;●the display of larger health warnings, graphic health warnings and other labelling requirements;●restrictions on packaging design, including the use of colors and generic packaging;●restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines;●requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels;●requirements regarding testing, disclosure and use of tobacco product ingredients;●increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors;●elimination of duty free allowances for travelers; and●encouraging litigation against tobacco companies.If Vaporizers, electronic cigarettes, or e-liquids, are subject to one or more significant regulatory initiates enacted under the FCTC, Vapor’s business, results of operations and financial condition could be materially and adversely affected.EmployeesAs of June 29 , 2015, we had 93 full-time employees and three part-time employees, none of which are represented by a collective bargaining agreement. We believe that our employee relations are good.Legal ProceedingsOn June 22, 2012, Ruyan filed a lawsuit against the Company alleging infringement of U.S. Patent No. 8,156,944, entitled “Aerosol Electronic Cigarette” (the “944 Patent”). Ruyan also filed separate cases for patent infringement against nine other defendants also asserting infringement of the ’944 Patent. Ruyan’s lawsuit against the Company captioned as Ruyan Investment (Holdings) Limited v. Vapor Corp., No. 12-cv-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. On February 25, 2013, Ruyan’s 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 lawsuit against the Company and the other defendants based on the filing of a request for inter partes reexamination of the ’944 Patent at the U.S. Patent and Trademark Office. As a result of the stay, all of the consolidated lawsuits involving the ’944 Patent were stayed until the reexamination is completed. As a condition to granting the stay of all the lawsuits, the Court required any other defendant who desires to seek reexamination of the ’944 Patent and potentially seek another stay (or an extension of the existing stay) based on any such reexamination to seek such reexamination no later than July 1, 2013. Two other defendants sought reexamination of the ’944 Patent before expiration of such Court-imposed deadline of July 1, 2013. All reexamination proceedings of the ’944 Patent were stayed by the United States Patent and Trademark Office Patent Trial and Appeal Board pending its approval of one or more of them. On December 24, 2014, the Patent Trial and Appeal Board issued its ruling that all of the challenged claims in the reexamination proceedings of the ’944 patent were invalid except for one claim. To the extent this claim is asserted against the Company, the Company will vigorously defend itself against such allegations. Currently, the case remains stayed.On March 5, 2014, Fontem Ventures, B.V. and Fontem Holdings 1 B.V. (the successors to Ruyan) 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-1650. The complaint alleges infringement of U.S. Patent No. 8,365,742, entitled “Aerosol Electronic Cigarette”, U.S. Patent No. 8,375,957, entitled “Electronic Cigarette” (the “957 Patent”), U.S. Patent No. 8,393,331, entitled “Aerosol Electronic Cigarette” (the “331 Patent”) and U.S. Patent No. 8,490,628, entitled “Electronic Atomization Cigarette” (the “628 Patent”). On April 8, 2014, plaintiffs amended their complaint to add U.S. Patent No. 8,689,805, entitled “Electronic Cigarette” (the “805 Patent”). The products accused of infringement by plaintiffs are various Krave, Fifty-One and Hookah Stix products and parts. Nine 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 and believes the claims are without merit. Other defendants have filed petitions for inter partes review of the ’742, ’957, ’331, ’628 and ’805 Patents at the U.S. Patent and Trademark Office. The U.S. Patent and Trademark Office has already instituted the majority of the petitions, with decisions on whether to institute additional petitions expected soon.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” and U.S. Patent No. 8,893,726, entitled “Electronic Cigarette”. The products accused of infringement by plaintiffs are various Krave, Fifty-One, Vapor X and Hookah Stix 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 of United States Patent No. 8,899,239, entitled “Electronic Cigarette”. The products accused of infringement by plaintiffs are various Krave, Vapor X, Hookah Stix and Fifty-One products and parts. Fontem amended its complaint 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 in 2014 have been consolidated and are currently scheduled for trial in November 2015.On June 22, 2015, the Center for Environment Health, as plaintiff, filed suit against a number of defendants including Vapor Corp., its wholly-owned subsidiary, the Vape Store, Inc., Vaporin and another wholly-owned subsidiary, Vaporin Florida, Inc. The lawsuit was filed in the Superior Court of the State of California, County of Alameda. The suit seeks relief under California Proposition 65 which makes it unlawful for businesses to knowingly and intentionally expose individuals in California to chemicals known to cause birth defects or other harm without providing clear and reasonable warnings. All of the defendants are alleged to have sold products containing significant quantities of nicotine in violation of Proposition 65. The plaintiff is seeking a civil penalty against these defendants in the amount of $2,500 per day for each violation of Proposition 65, together with attorneys’ fees and costs. The Company and its subsidiaries are in the process of hiring counsel and intend to defend the allegations. The Company believes that all of the products sold by Vapor Corp. have always contained an appropriate warning. The Vape Store, Inc., operates vape stores located only in the State of Florida and has not, to the best of its knowledge, sold any products into the State of California.PropertiesWe lease approximately 13,323 square feet of office and warehouse facilities located at 3001 and 3091 Griffin Road, Dania Beach Florida, under a 24 month lease agreement terminating in March 2016. In October 2013, we amended this lease to include an additional approximately 2,200 square feet.The Company has leases on 1 1 vape stores and one kiosk. In April 2015, the Company shut down seven of the eight kiosks that it opened in the fourth quarter of 2014 and is negotiating terminations of these leases. Under these leases, the initial lease terms range from one to five years.Additionally, we have one lease for a warehouse all located in Cape Coral, Florida.The following table represents our Board:NameAgePositionJeffrey Holman46Chairman of the BoardGregory Brauser30DirectorWilliam Conway III31DirectorDaniel MacLachlan36DirectorNikhil Raman31DirectorBoard of Director BiographiesJeffrey Holman has been our Chairman of the Board and Chief Executive Officer since April 2014. From February 2013 until March 4, 2015, Mr. Holman serviced as our President. Mr. Holman has been a member of our Board since May 2013 and has served as a member of the Board of Directors of our subsidiary Smoke Anywhere since its inception on March 24, 2008. Since 1998, Mr. Holman has been the President of Jeffrey E. Holman & Associates, P.A., a South Florida based law firm. He has also been a Partner in Holman, Cohen & Valencia since 2000. Mr. Holman was selected as a director for his business and legal experience. In addition, as the founder of Smoke Anywhere, Mr. Holman possesses an in-depth understanding of the challenges, risks and characteristics unique to our industry.Gregory Brauser has served as a director since March 4, 2015. Prior to that, Mr. Brauser served as Chief Operating Officer of Vaporin beginning in January 2014. Mr. Brauser founded Direct Source China in 2009, a sourcing company headquartered in Shanghai, China, that assists mid-size U.S. businesses with their direct manufacturing overseas. Since 2010, Mr. Brauser has served as Vice Chairman and director of Dog-E-Glow, Inc., a manufacturer and distributer of LED lighted dog collars and leashes, which he formed. Mr. Brauser was appointed as a Vaporin designee in connection with the merger with Vaporin, Inc.William Conway III has been a director since June 2015. Since 2008, Mr. Conway has served in management positions with City Furniture, with the latest being Director of Operations and Customer Service. Mr. Conway was appointed as a director for his business and operating expertise.Daniel MacLachlan has been a director since April 18, 2015. Mr. MacLachlan served as the Chief Financial Officer of The Best One, Inc., from October 2014 through early February 2015, facilitating its merger with IDI, Inc. (FKA, Tiger Media, Inc.) (NYSE MKT: IDI). Mr. MacLachlan served as Director of Finance and Chief Financial Officer for TransUnion Risk and Alternative Data Solutions, Inc., after it acquired substantially all the assets of TLO, LLC (“TLO”), a leading provider of data fusion technology-driven investigative products and solutions, in December 2013. Mr. MacLachlan was Chief Financial Officer of TLO since its inception in 2009. Mr. MacLachlan was appointed a director for his financial and accounting expertise.Nikhil Raman was appointed as a director on July 7, 2015. Since November 6, 2014, Mr. Raman has been the Chief Executive Officer of usell.com, Inc. (OTCQB: USEL), a technology based company focused on creating an online marketplace for used cell phones. Mr. Raman has served as a director of usell.com since April 24, 2012. From January 27, 2012 until November 6, 2014, Mr. Raman served as the Chief Operating Officer of usell.com. After graduating from Harvard Business School, Mr. Raman founded and served as Manager of Ft. Knox Recycling, LLC doing business as EcoSquid. Mr. Raman also served as Chief Executive Officer of EcoSquid from its founding through its acquisition by usell.com in April 2012. From 2008 until 2010, Mr. Raman attended Harvard Business School. Mr. Raman was appointed as a director for his management and operations expertise.Executive OfficersNameAgePositionJeffrey Holman46Chief Executive OfficerGregory Brauser30PresidentJames Martin48Chief Financial OfficerChristopher Santi43Chief Operating OfficerExecutive Officer BiographiesSee above for Mr. Jeffrey Holman’s and Mr. Gregory Brauser’s biographies.James Martin has served as Chief Financial Officer since March 4, 2015. Prior to that, Mr. Martin served as Chief Financial Officer of Vaporin, Inc. beginning in April 2014. Prior to his appointment as Chief Financial Officer of Vaporin, Mr. Martin was Chief Financial Officer of Non-Invasive Monitoring Systems, Inc., or “NIMS”, a publicly held medical device company since January 2011. Mr. Martin previously had served as Chief Financial Officer of SafeStitch Medical, Inc., a publicly-held medical device company from January 2011 through October 2013. From January 2011 through December 2011 Mr. Martin also served as Vice President of Finance of Aero Pharmaceuticals, Inc., a privately held pharmaceutical distributor that voluntarily dissolved in December 2011. From July 2010 through January 2011, Mr. Martin served as Controller of each of NIMS, SafeStitch and Aero. Also from May 2008 through July 2010, Mr. Martin served as Controller of AAR Aircraft Services-Miami, a subsidiary of AAR Corp, an aerospace and defense company in which he was responsible for all financial reporting and inventory logistics.Christopher Santi has been our Chief Operating Officer since December 12, 2012. Prior to that Mr. Santi served as Director of Operations of Vapor beginning in October 2011. Mr. Santi served as the National Sales Manager of Collages.net from November 2007 to October 2011.There are no family relationships among our directors and executive officers.Corporate GovernanceBoard ResponsibilitiesThe Board oversees, counsels, and directs management in the long-term interest of Vapor and its shareholders. The Board’s responsibilities include establishing broad corporate policies and reviewing the overall performance of Vapor. The Board is not, however, involved in the operating details on a day-to-day basis.Board Committees and ChartersThe Board and its Committees meet throughout the year and act by written consent from time-to-time as appropriate. The Board delegates various responsibilities and authority to different Board Committees. Committees regularly report on their activities and actions to the Board.The Board currently has and appoints the members of: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Each of these committees have a written charter which can be found on our corporate website atir.vapor-corp.com/committee-charters.The following table identifies the independent and non-independent current Board and committee members:NameIndependentAuditCompensationNominatingandCorporateGovernanceJeffrey HolmanGregory BrauserWilliam Conway IIIxxxxDaniel MacLachlanxxxxNikhil RamanxxxxDirector IndependenceOur Board has determined that William Conway III, Nikhil Raman and Daniel MacLachlan are independent in accordance with standards under the Nasdaq Listing Rules. Our Board determined that as a result of being executive officers, Messrs. Jeffrey Holman and Gregory Brauser were not independent under the Nasdaq Listing Rules. Our Board has also determined that William Conway III, Nikhil Raman and Daniel MacLachlan are independent under the Nasdaq Listing Rules independence standards for Audit Committee members.Committees of the BoardAudit CommitteeThe Audit Committee, which currently consists of William Conway III, Nikhil Raman and Daniel MacLachlan, reviews Vapor’s financial reporting process on behalf of the Board and administers our engagement of the independent registered public accounting firm.The Audit Committee approves all audit and non-audit services, and reviews the independence of our independent registered public accounting firm.Audit Committee Financial ExpertOur Board has determined that Daniel MacLachlan and Nikhil Raman both qualified as Audit Committee Financial Experts , as that term is defined by the rules of the SEC and in compliance with the Sarbanes-Oxley Act of 2002.Compensation CommitteeThe function of the Compensation Committee is to determine the compensation of our executive officers. The Compensation Committee has the power to set performance targets for determining periodic bonuses payable to executive officers and may review and make recommendations with respect to shareholder proposals related to compensation matters. Additionally, the Compensation Committee is responsible for administering Vapor’s equity compensation plans including the Plan.The members of the Compensation Committee are all independent directors within the meaning of applicable Nasdaq Listing Rules and all of the members are “non-employee directors” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, or the Exchange Act.Nominating and Corporate Governance CommitteeThe responsibilities of the Nominating and Corporate Governance Committee include the identification of individuals qualified to become Board members, the selection of nominees to stand for election as directors, the oversight of the selection and composition of committees of the Board, establish procedures for the nomination process including procedures and the oversight of the evaluations of the Board and management. The Nominating and Corporate Governance Committee has not established a policy with regard to the consideration of any candidates recommended by shareholders since no shareholders have made any recommendations. If we receive any shareholder recommended nominations, the Nominating Committee will carefully review the recommendation(s) and consider such recommendation(s) in good faith.EXECUTIVE AND DIRECTOR COMPENSATIONNon-employee directors are paid a monthly fee of $1,000 per month and $1,000 for each meeting attended. Because we do not pay any compensation to employee directors, Messrs. Holman and Frija are omitted from the following table.Fiscal 2014 Director Compensation Fees
Earned or
Paid in Cash
($)(b) Option
Awards
($)(d)(1) All Other
Compensation
($)(g) Total
($)(j) Robert J Barrett III (2) 27,000 388,800 0 415,800 Angela Courtin 21,000 388,800 0 409,800 Frank E. Jaumot (3) 27,000 388,800 0 415,800 Ryan Kavanaugh (2) 13,000 498,000 1,540,000 (4) 2,051,000 (1)This represents the fair value of the award as of the grant date in accordance with FASB ASC Topic 718. These amounts represent awards that are paid in shares of common stock or options to purchase shares of our common stock and do not reflect the actual amounts that may be realized by the directors. In April 2014, these directors were granted 12 ,000 stock options exercisable at $32.40 and vesting in three equal annual increments beginning April 25, 2015.Subscription Rights. (2)By Mail:Messrs. Barrett and Kavanaugh and Ms. Courtin resigned prior to the date of this prospectus. (3)By Hand or Overnight Courier:Did not standfor re-election in connection with the 2015 Annual Meeting.(4)Represents 40 ,000 shares of common stock issued in connection with consulting services. See footnote (1) above.Summary Compensation Table36The following table sets forth information regarding the compensation for services performed during fiscal years 2014 and 2013, awardedpaid to or earned by our Named Executive Officers, which include all Chief Executive Officers serving during fiscal 2014 and (iii) our twoan address other most highly compensated executive officers, as determined by reference to total compensation for fiscal year 2014, who were serving as executive officers at the end of fiscal year 2014. Year
(b) Salary
($)(c) Bonus
($)(d)(1) All Other
Compensation
($)(i) Total
($)(j) Jeffrey Holman(2) 2014 182,000 0 0 182,000 Chief Executive Officer 2013 169,400 20,000 0 189,400 Kevin Frija(2) 2014 53,203 0 (3) 138, 818 Former Chief Executive Officer 2013 150,404 20,000 0 170,404 Harlan Press 2014 188,339 0 0 188,389 Former Chief Financial Officer 2013 179,939 20,000 10,442 (4) 210,381 Christopher Santi 2014 162,246 0 0 162,246 Chief Operating Officer 2013 156,231 20,000 0 176,231 (1)Represent cash bonuses for 2013 which were paid on February 28, 2014.(2)In April 2014, Mr. Holman replaced Mr. Frija as Chief Executive Officer.(3)Represents severance payments.(4) Represents a cash payment for unused accrued vacation for 2013 that was paid on November 15, 2013.Named Executive Officer Employment AgreementsThe chart below summarizes the terms and conditions of employment agreements with our Named Executive Officers.Executive (1)TermBase SalaryJeffrey HolmanFebruary 11, 2013 through December 31, 2015 which shall automatically be renewed unless either party is given six months’ notice of non-renewal$182,000Christopher Santi (2)December 12, 2012 through December 11, 2015 which shall automatically be renewed unless either party is given six months’ notice of non-renewal$156,000 in first year, increasing to $162,000 in second year and $170,000 thereafter. Currently, $170,000(1)Mr. Harlan Press, a Named Executive Officer, resigned effective April 10, 2015. He will receive nine-months’ severance and accrued vacation in the amount of approximately $159,000.(2)In accordance with his Employment Agreement, Mr. Santi received a 10-year option to purchase up to 4,000 shares of the Company’s common stock at an exercise price of $6.25 , vesting monthly at the rate of approximately 111 per month.The Compensation Committee will have the discretion to award eachthan one of the Named Executive Officers a bonus based upon job performanceaddresses listed above may not constitute valid delivery and, accordingly, may be rejected by us.any other factors determined byrequests for assistance concerning the Compensation Committee.Termination ProvisionsThe table below describes the severance payments that our Named Executive Officers are entitled to in connection with a terminationmethod of their employment upon death, disability, dismissal without cause, Change of Controlsubscribing for shares or for Good Reason. Alladditional copies of the termination provisions are intendedthis prospectus or subscription certificates or notices of guaranteed delivery may be directed to comply with Section 409A of the Internal Revenue Code of 1986 and the Regulations thereunder.HolmanPressSantiDeath or Total DisabilityAny amounts due at time of terminationAny amounts due at time of terminationAny amounts due at time of terminationDismissal Without Cause or Termination by ExecutiveBroadridge Corporate Issuer Solutions, Inc., by telephone at (855) 793-5068 or by email at shareholder@broadridge.com. Good Reason or upon a Change of Control (1)Three months of Base Salary for each year of service, up to 18 months maximumThree months of Base Salary for each year of service, up to 18 months maximumTwo months of Base Salary for each year of service, up to 12 months maximum(1)Good Reason is generally (with certain exceptions) defined as (i) a relocation of principal place of employment outside a stated area, (ii) a material reduction in Base Salary, (iii) the diminution of the Named Executive Officers’ duties, or (iv) any other action or inaction that constitutes a material failure by Vapor to fulfill its obligations under the Employment Agreements. All of these events are subject to a 30-day cure period.(2)Change of Control is generally defined as (i) a sale of substantially all of the Company, (ii) any “person” (as such term is defined under the Exchange Act) becomes the beneficial owners of over 50% of the Company’s voting power, (iii) a change in the majority of the composition of the Board or (iv) a transaction that results in over 50% of the Company’s voting power ceasing to hold a majority of the voting power post-transaction.Risk Assessment Regarding Compensation Policies and Practices as they Relate to Risk ManagementOur compensation program for employees does not create incentives for excessive risk taking by our employees or involve risks that are reasonably likely to have a material adverse effect on us. Our compensation has the following risk-limiting characteristics:●Our base pay programs consist of competitive salary rates that represent a reasonable portion of total compensation and provide a reliable level of income on a regular basis, which decreases incentive on the part of our executives to take unnecessary or imprudent risks;●A portion of executive incentive compensation opportunity is tied to long-term incentive compensation that emphasizes sustained performance over time. This reduces any incentive to take risks that might increase short-term compensation at the expense of longer term company results;●Awards are not tied to formulas that could focus executives on specific short-term outcomes;●Equity awards may be recovered by us should a restatement of earnings occur upon which incentive compensation awards were based, or in the event of other wrongdoing by the recipient; and●Equity awards, generally, have multi-year vesting which aligns the long-term interests of our executives with those of our shareholders and, again, discourages the taking of short-term risk at the expense of long-term performance.Outstanding Equity AwardsListed below is information with respect to unexercised options,this offering.that hasfor the account of others, should notify the respective beneficial owners of the shares as soon as possible to ascertain the beneficial owners’ intentions and to obtain instructions with respect to the Subscription Rights. If the beneficial owner so instructs, the nominee should complete the subscription certificate and submit it to the subscription agent with the proper payment as described under “Payment for Securities” below.vested and equity incentive awards for each Named Executive Officerproperly submitted or the acceptance of which would, in the opinion of our counsel, be unlawful.December 31, 2014:Outstanding Equity Awards At Fiscal Year-EndName
(a) Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable (b) Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c) Option
Exercise
Price
($)
(e) Option
Expiration
Date
(f) Jeffrey Holman 24,000 0 (1) 11 .25 10/1/15 Kevin Frija 36,000 0 (1) 11 .25 10/1/15 Harlan Press 7,556 445 (2) 5 .00 2/28/22 Christopher Santi 4,000 2,000 (3) 5.75 3/29/22 2,778 1,223 (4) 6 .25 12/11/22 (1)This option is fully vested.(2)These unvested options, at December 31, 2014, were fully vested as of the date of this prospectus.(3)Of the unvested options, ½ vested on March 30, 2015 and ½ will vest on March 30, 2016.(4)The unvested options vested, or will vest,any defect or irregularity in 11 equal monthly increments beginning January 11, 2015.CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONSIn connection with the issuancesubmission of $300,000 18% senior convertible notes, which we refersubscription certificates or incur any liability for failure to asgive such notification.“$300,000 Senior Convertible Notes”, in 2012subscription certificate or have instructed your nominee of your subscription request, you are not allowed to Kevin Frija, Vapor’s then Chief Executive Officer, Harlan Press, Vapor’s then Chief Financial Officer,revoke or change the exercise or request a refund of monies paid. All exercises of Subscription Rights are irrevocable, even if you learn information about us that you consider to be unfavorable. You should not exercise your Subscription Rights unless you are certain that you wish to purchase shares at the Estimated Subscription Price.Doron Ziv, a greater than 10% shareholder of Vapor, Vapor paid $48,674 of interest to these noteholders in 2013 until these notes were converted in full intoare non-transferable. The Subscription Rights will not be listed for trading or any securities exchange or trading system. The shares of the Company’s common stock on October 29, 2013.included in shares will be transferable following their issuance.Company did not pay any principal onSubscription Agent will hold these Subscription Rights Certificates for their account. To exercise Subscription Rights, our foreign stockholders must notify the $300,000 Senior Convertible Notes in 2013Subscription Agent prior to or in connection with their conversion.In connection with5:00 p.m., Eastern Time, on ______, the issuancethird business day prior to the Expiration Date, of your exercise of Subscription Rights and provide evidence satisfactory to us, such as a $500,000 24% senior note, which we refer to aslegal opinion from local counsel, that the “Senior Note”, in 2012 to Ralph Frija,exercise of such Subscription Rights does not violate the fatherlaws of the Company’s then Chief Executive Officer, Vapor paid approximately $106,800 of interest to this noteholderjurisdiction in 2013 until it was convertedwhich such stockholder resides and provide payment by a U.S. bank in full into sharesU.S. dollars before the expiration of the Company’s common stock on October 29, 2013. The Senior Note wasrights offering. If no notice is received by such time or the evidence presented is not convertible until Vapor and Ralph Frija amendedsatisfactory to us, the NoteSubscription Rights represented thereby will expire.provide for (i) cash principal and interest payments on a weekly basis, (ii) an extended maturity date for paymentissue to April 22, 2016 and (iii) to make the Senior Note convertible into shares of Vapor’s common stock at a conversion price of $12.85 per share. The Company paid principal of $70,513 on the Senior Note in 2013 prior to its conversion.On July 9, 2013, the Company entered into Securities Purchase Agreements with, among others, Ralph Frija, and Philip Holman, the father of Jeffrey Holman, Vapor’s then President, pursuant to which (x) Mr. Frija purchased a senior convertible note from Vapor in the principal amount of $200,000 and warrants to purchase 1,927 shares of the Company’s common stock at $28.55 per share and (y) Mr. Holman purchased a senior convertible note from Vapor in the principal amount of $100,000 and warrants to purchase 192 shares of the Company’s common stock with an exercise price of $28.55 per share. These senior convertible notes paid interest at 18% per annum, a maturity date of July 8, 2016, and were convertible into shares of the Company’s common stock at $28.55 per share. The Company paid interest of $16,126 to these noteholders during 2013 until they were converted extinguished on October 29, 2013. The Company did not pay any principal on these senior convertible notes prior to or in connection with their conversion.On October 29, 2013, Kevin Frija, our then Chief Executive Officer, Jeffrey Holman, our then President and current Chairman of the Board and Chief Executive Officer, Harlan Press, our former Chief Financial Officer, Doron Ziv, a former director, and Isaac Galazan, a former director of Smoke Anywhere, purchased 4 ,000, 8 ,000, 4 ,000, 4 ,000 and 3,433you shares of our common stock respectively,acquired pursuant to the rights offering if, in our opinion, you are required to obtain prior clearance or approval from any state or federal regulatory authorities to own or control such shares and if, at $ 15 .00 per sharethe time the rights offering expires, you have not obtained such clearance or approval.(1) (2) private placementparticipating rights holder must be in U.S. dollars by money order or check or bank draft drawn on terms identicala bank or branch located in the United States and payable to the order of “Broadridge Corporate Issuer Solutions, Inc., as Subscription Agent for Healthier Choices Management Corp.” Payment also may be made by wire transfer to the account maintained by Broadridge Corporate Issuer Solutions, Inc., as subscription agent, for purposes of accepting subscriptions in this offering at , ABA # , Account # , with reference to the rights holder’s name. The subscription agent will deposit all funds received by it prior to the final payment date into a segregated account pending pro-ration and distribution of the shares.investors.In March 2014, Mr. Kavanaugh, a former director, was elected to our Boardparticipating rights holders in accordance with a Consulting Agreement between the Companyover‑subscription privilege; (ii) apply any payment actually received by it from the participating rights holder toward the purchase of the greatest whole number of shares that could be acquired by such participating rights holder upon exercise of the basic right and/or the over-subscription privilege; and/or (iii) exercise any and Knight Global Services, LLC (“Knight Global”), of which Mr. Kavanaugh was the principal, pursuantall other rights or remedies to which Knight Global was retainedit may be entitled, including the right to assistset off against payments actually received by it with respect to such subscribed for shares.Company with increasing awarenesstimeliness, validity, form and eligibility of its electronic cigarette brandsany exercise of Subscription Rights will be determined by us, whose determinations will be final and binding. We may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as wellwe may determine, or reject the purported exercise of any right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as assisting the Companywe determine. The subscription agent will not be under any duty to expand and diversify its relationships with large retailers and national chains. Ingive notification of any defect or irregularity in connection with the Consulting Agreement, Mr. Kavanaugh was issued 40 ,000submission of subscription certificates or incur any liability for failure to give such notification.of common stock. The Consulting Agreement with Knight Global has been terminated.On September 23, 2014, the Company and Smoke entered intoin a $1,000,000 term loan (the “Term Loan”) with Entrepreneur Growth Capital, LLC (the “Lender”) and the Lender was issued a secured promissory note (the “Secured Note”). The Secured Note bears interest at 14% per annum and is secured by a security interest in substantially allsegregated account pending completion of the Company’s assets. The principal amount of the Term Loan is payable in 12 successive monthly installments of $83,333 with the last payment due in September 2015. As of the date of this prospectus, the Company had $211,268 of borrowings outstanding under the Term Loan. In connection with the Term Loan, Jeffrey Holman, the Company’s Chief Executive Officer and Harlan Press, the Company’s former Chief Financial Officer have personally guaranteed performance of certain of the Company’s obligations under the Term Loan.As of June 22, 2015, Mr. Michael Brauser, the father of our President, loaned the Company $380,000, through a company he jointly manages, on identical terms as other investors in therights offering. The Debentures: (i) mature December 22, 2015, (ii) accruesubscription agent will hold this money in escrow until the rights offering is completed or is terminated. If the rights offering is terminated for any reason, all subscription payments received by the subscription agent will be returned, without interest at 10% per year, (iii)or penalty, as soon as practicable.convertible into common stock at $2.50 per share and (iv) are securedheld of record by a second lienCede & Co. or by any other depository or nominee on substantially all of the Company’s assets. The principal and accrued interest on the Debentures are payable in three approximately equal installments on September 22, 2015, October 22, 2015 and December 22, 2015, at the election of the holders of the Debentures, (i) in cash for an additional 25% premium,their behalf or (ii) in common stock at $2.50 per share.In November 2014 and March 2015, the Company had engaged in two private placements each of which precluded the Company from using capital or otherwise issuingtheir broker-dealers’ behalf will have any shares of common stock comprising shares that they acquire credited to the account of Cede & Co. or the other depository or nominee. With respect to all other stockholders, certificates for all common stock equivalents below $10.00 and $5.10, respectively. In orderacquired will be mailed after payment for all the shares subscribed for has cleared, which may take up to raise further capital in15 business days from the June 2015 private placement, the Company was required to enter into agreements with prior investors (including Mr. Michael Brauser and Alpha Capital Anstalt, a 5% holder) modifying these covenants. In connection with these modifications, Mr. Brauser received 62,582 of common stock and 73,689 warrants, a company which Mr. Brauser jointly manages received 5,570 shares and 6,558 warrants and another Alpha Capital Anstalt, which acted as the lead investor in the November 2014 and March 2015 private placements, received 262,954Expiration Date. If you purchase shares of common stock and 142,420 warrants. Seethrough the section titled “Private Placement” on page 23.The following table sets forth certain information regardingrights offering, we will issue those shares to you in book-entry, or uncertificated, form as soon as practicable after the beneficial ownershipcompletion of the rights offering. Stock certificates will not be issued for shares of our common stock purchased in the rights offering.July 8 , 2015, on an actual basis and as adjusted to reflect the sale of our common stock offered by this prospectus, by:●our Named Executive Officers ;●each of our directors;●all of our current directors and executive officers as a group; and●each shareholder known by us to own beneficially more than five percent of our common stock.Except as indicated in footnotes2021, after giving effect to this table,offering (assuming that it is fully subscribed), we believe that the shareholders named in this tablewould have sole voting and investment power with respect to allapproximately shares of common stock shownoutstanding, representing an increase in outstanding shares of approximately %. If you fully exercise the basic rights that we distribute to you, your proportional interest in our company will remain the same. If you do not exercise any Subscription Rights, or you exercise less than all of your basic rights, your interest in our company will be diluted, as you will own a smaller proportional interest in our company compared to your interest prior to this offering.beneficially ownedissued in this offering and does not make any recommendation with respect to such Subscription Rights (including with respect to the exercise or expiration of such Subscription Rights) or shares. We have agreed to pay the dealer-manager certain fees and to reimburse the dealer-manager for certain expenses in connection with this offering. See “Plan of Distribution.”them, based onthe subscription agent, the information providedagent, and Maxim acting as dealer-manager for this offering. You are responsible for paying any commissions, fees, taxes or other expenses incurred in connection with the exercise of your Subscription Rights.usdo so, nor are we distributing or accepting any offers to purchase any shares of common stock from rights holders who are residents of those states or other jurisdictions or who are otherwise prohibited by such shareholders. Unlessfederal or state laws or regulations to accept or exercise the Subscription Rights. We may delay the commencement of this offering in those states or other jurisdictions, or change the terms of the offering, in whole or in part, in order to comply with the securities laws or other legal requirements of those states or other jurisdictions. Subject to state securities laws and regulations, we also have the discretion to delay allocation and distribution of any shares you may elect to purchase by exercise of your Subscription Rights in order to comply with state securities laws. We may decline to make modifications to the terms of this offering requested by those states or other jurisdictions, in which case, if you are a resident in those states or jurisdictions or if you are otherwise indicated,prohibited by federal or state laws or regulations from accepting or exercising the address for each director and executive officer listed is: c/o Vapor Corp., 3001 Griffin Road, Dania Beach, Florida 33312. Number of Common Share Equivalents Percentage of Common Share Equivalents Beneficially Owned Name of Beneficial Owner Beneficially Owned (1) Before Offering After Offering Named Executive Officers and Directors: Jeffrey Holman (2) 256,222 3.4% 3.4% Kevin Frija (3) 266,672 3.6% 3.6% Harlan Press (4) 31,400 * * Christopher Santi (5) 6,556 * * Gregory Brauser (6) 2.2% 2.2% 0 0% 0% Daniel MacLachlan ( 8 ) 0 0 % 0% 0 0% 0% All Executive Officers and Directors as a Group( 7 Persons) ( 10 ) 6.2% 6.2% Other Five Percent Shareholder : Alpha Capital Anstalt ( 11 ) 468,174 6.3% 6.3% *Represents less than 1% of the outstanding shares of common stock(1)Applicable percentages are based on 7,600,657 shares outstanding as of July 9 , 2015, adjusted as required by rules of the SEC. The percentage of beneficial ownership after the completion of this offering is also based on 7,600,657 shares of common stock outstanding immediately after the closing of this offering. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock underlying options, warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within 60 days are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person.(2)Jeffrey Holman: A director and executive officer. Includes 24 ,000 vested options.(3)Kevin Frija: Former chief executive officer. Because Mr. Frija served as a Chief Executive Officer during fiscal 2014, he is a Named Executive Officer under the SEC’s rules and regulations. Includes 36 ,000 vested options and 895 shares underlying warrants.(4)Harlan Press: A former executive officer. Includes 8 ,000 vested options and 620 shares underlying warrants.(5)Christopher Santi:An executive officer. Represents vested options.(6)Gregory Brauser: A director and executive officer.(7)William Conway III:A director.(8)Daniel MacLachlan: A director.(9)Nikhil Raman: A director.( 10 )Total D&O: Includes securities beneficially owned by executives who are not a Named Executive Officer.( 11 )Alpha Capital Anstalt: Does not include additional shares underlying warrants and convertible notes that cannot be exercised within 60 days due to a 4.99% blocker. Address is Lettstrasse 32, P.O. Box 1212, FL 9490, Vaduz Furstentum Liechtenstein c/o LH Financial Services Corp., 510 Madison Avenue, Ste. 1400, New York, New York 10022.to issue 150 ,000,000capital stock consists of 750,000,000,000 shares of common stock, par value $0.001$0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.001 per share. Common StockWe are authorizedshare, the rights and preferences of which may be established from time to issue 150 ,000,000time by our board of directors. As of ___________, 2021, _______________ shares of common stock par value $0.001 per share. The holderswere outstanding and were held by approximately _____ holders. With respect to preferred stock, ____ shares of Series D Preferred Stock were issued and outstanding as of _______________, 2021.areis entitled to one vote per share on all matters submitted torequiring a vote of shareholders, includingstockholders and, subject to the electionrights of directors. Therethe holders of any outstanding shares of preference stock, each stockholder is no cumulative votingentitled to receive any dividends, in cash, stock, or otherwise, as our board of directors may declare. Delaware law prohibits the payment of dividends or the repurchase of our shares if we are insolvent or unable to pay our debts as they become due in the electionusual course of directors.business, or if we would become so as a result of the dividend or repurchase. In the event of our liquidation, dissolution or dissolution,winding up, either voluntarily or involuntarily, subject to the rights of the holders of any outstanding shares of preference stock, holders of common stock are entitled to share ratablypro-rata in all of our remaining assets remainingavailable for distribution after paymentproviding for claims of liabilities andcreditors as required by the liquidation preferences of any outstanding shares of preferred stock. DGCL.and have no right to convert their common stock into anyor other securitiesSubscription Rights, and there are no redemption or sinking fund provisions applicable to ourthe common stock.any dividends that may be declared byvote in the Board outelection of funds legally available for payment of dividends subject to the prior rights of holders of preferred stock and any contractual restrictions we have against the payment of dividends on common stock. For so long as our Senior Convertible Notes, due November 14, 2015, remain outstanding, we are prohibited from paying cash dividends on our common stock and other equity securities without the approval of holders of at least 51% in principal amount of the then outstanding notes.noonly Series D convertible preferred stock issued and outstanding. The issuance of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change of control or other corporate action. We have no current plan to issue any additional shares of preferred stock, except pursuant to this prospectus. For a descriptionstock.how issuance of our preferred stock could affect the rights of our shareholders, see “Certain Provisions of Delaware Law and of Our Charter and Bylaws - Issuance of “Blank Check” Preferred Stock,” below.WarrantsAs of the date of this prospectus, warrants for the issuance of 1,331,305 shares of our common stock were outstanding, exercisable at a weighted average exercise price of $6.46 per share, exercisable through various dates expiring through December 20 20 .Description of Securities We Are OfferingUnitsWe are offering Units, consisting of one-fourth of a share ofdesignated as Series A ConvertibleD Preferred Stock and ten Series A Warrants. Each one-fourth share of Series A Convertible Preferred Stock will be convertible into five shares of common stock as described in the following section. Each Series A Warrant is exercisable for one share of common stock at an initial exercise price of $[_______] per share. The Series A Warrants are exercisable upon separation of the Units, provided that upon a Cash Warrant Exercise Trigger the Series A Convertible Preferred Stock will not be convertible until six-months after the date of this prospectus (unless an Early Separation occurs due to a Trading Separation Trigger or Delisting Trigger). The Series A Warrants will expire on the fifth anniversary of the date of this prospectus. This prospectus also covers the securities issuable upon exercise of the unit purchase option to be issued to the underwriters.Preferred Stock Included in the Units Offered HerebyIn connection with this offering, we will issue as part of the Units shares of Series A Convertible Preferred Stock pursuant to a Certificate of Designation approved by our Board. Each one-fourth share of Series A Convertible Preferred Stock will separate from the warrants5,000 and be convertible into five shares of common stock upon the separation of the Units, provided that upon a Cash Warrant Exercise Trigger the Series A Convertible Preferred Stock will not be convertible until six-months after the date of this prospectus (unless an Early Separation occurs due to a Trading Separation Trigger or Delisting Trigger). The shares of Series A Convertible Preferred Stock and the Series A Warrants will automatically separate six months after the date of this prospectus. However, the shares of Series A Convertible Preferred Stock and the Series A Warrants will separate prior to the expiration of the six-month period at any time after 30 days from the date of this prospectus if (i) there is a Trading Separation Trigger, (ii) there is a Cash Warrant Exercise Trigger, which means the Series A Warrants are exercised for cash (in which case the separation will occur solely with respect to the Units that included the exercised Series A Warrants) or (iii) there is a Delisting Trigger. The Units will become separable: (i) 15 days after the Trading Separation Trigger date, (ii) immediately after the Cash Warrant Exercise Trigger (solely with respect to the Units that included the exercised Series A Warrants) or (iii) immediately upon a Delisting Trigger. In the event of a Trading Separation Trigger or a Delisting Trigger, the Preferred Stock will be convertible into common stock immediately upon Early Separation. In the event of a Cash Warrant Exercise Trigger, the Preferred Stock will not be convertible until six-months after the date of this prospectus (unless an Early Separation occurs due to a Trading Separation Trigger or Delisting Trigger).The Series A Convertible Preferred Stock will not be convertible by the holder of such preferred stock to the extent (and only to the extent) that the holder or any of its Affiliates would beneficially own in excess of 4.99% of the common stock of the Company. For purposes of the limitation described in this paragraph, beneficial ownership and all determinations and calculations are determined in accordance with Section 13(d) of the Exchange Act and the rule and regulations promulgated thereunder.Pursuant to the Certificate of Designation for the Series A Convertible Preferred Stock, if the Company or any of its subsidiaries enter into a “Fundamental Transaction”, each share of Series A Convertible Preferred Stock shall be automatically converted into shares of common stock of the Company, subject to the beneficial ownership limitation discussed in the previous paragraph. A “Fundamental Transaction” includes, but is not limited to, (1) a consolidation, merger stock or share purchase or other business combination in which the shareholders of the Company immediately prior to such consolidation or merger hold less than 50% of the outstanding voting stock after such consolidation or merger, (2) sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its respective properties or assets, or (3) allowing any person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding voting stock of the Company, or any person or group becomes a beneficial owner of 50% of the aggregate ordinary voting power represented by the issued and outstanding voting stock of the corporation.The Series A ConvertibleD Preferred Stock has a stated value equal to $1,000. Except as set forth below or as otherwise required by law, the Series D Preferred Stock have no voting rights, except that the holdersrights. However, as long as any shares of 100% of the Series A ConvertibleD Preferred Stock will be able to effect or validate any amendment, alteration or repeal of any ofare outstanding, the provisions of the Certificate of Designation that materially and adversely affects the powers, preferences or special rights of the Series A Convertible Preferred Stock, whether by merger or consolidation or otherwise;provided,however, that in the event of an amendment to the terms of the Series A Convertible Preferred Stock, including by merger or consolidation, so long as the Series A Convertible Preferred Stock remains outstanding with the terms thereof materially unchanged, or the Series A Convertible Preferred Stock is converted into, preference securities of the surviving entity, or its ultimate parent, with such powers, preferences or special rights, taken as a whole, not materially less favorable to the holders of the Series A Convertible Preferred Stock than the powers, preferences or special rights of the Series A Convertible Preferred Stock, taken as a whole, the occurrence of such event will not be deemed to materially and adversely affect such powers, preferences or special rights of the Series A Convertible Preferred Stock, and in such case such holdersCompany shall not, have any voting rights with respect towithout the occurrence of such events. An amendment to the terms of the Series A Convertible Preferred Stock only requires theaffirmative vote of the holders of a majority of the then outstanding shares of the Series A ConvertibleD Stock, (a) alter or change adversely the powers, preferences or rights given to the Series D Preferred Stock.WithStock or alter or amend the Certificate of Designation, (b) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series D Stock, (c) increase the number of authorized shares of Series D Stock, or (d) enter into any agreement with respect to paymentany of dividends and distribution of assets uponthe foregoing. Upon any liquidation, or dissolution or winding upwinding-up of the Company, whether voluntary or involuntary that is not a Fundamental Transaction (as defined in the Certificate of Designation of the Series AD Preferred Stock), the holders of Series D Preferred Stock shall rankbe entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to $1,000 per share of Series D Preferred Stock. The conversion price for the common stockSeries D Preferred Stock shall initially equal $0.0024. Going forward, the conversion price will be lesser of $0.0024 and either (1) 85% of the Company. No sinking fund has been established for the retirement or redemptionaverage of the Convertible Preferred Stock. As such,volume weighted average price (VWAP) during the 10 trading days immediately following the effective date and public announcement of the next reverse stock split of HCMC and (2) 80% of the lowest daily VWAP during the 5 trading days immediately preceding the date the conversion shares are either registered for resale or may be sold pursuant to Rule 144. The rights of the Series A ConvertibleD Preferred Stock is not subject to any restriction on the repurchase or redemption of shares by the Company due to an arrearage in the payment of dividends or sinking fund installments.The Series A Convertible Preferred Stock also has no liquidation rights or preemption rights, and there are no special classifications of our Board related to the Series A Convertible Preferred Stock.Warrants Included in the Units Offered HerebyIn connection with this offering, we will issue as part of the Units shares of Series A Warrants to purchase shares of our common stock. The Series A Warrants will separate from the preferred stock and be exercisable upon the separation of the Units , provided that the Series A Warrants may be exercised for cash at any time after 30 days from the date of this prospectus, which exercise shall cause a Cash Warrant Exercise Trigger. The Series A Warrants will terminate on the fifth anniversary of the date of this prospectus and have an exercise price of $[_______] per share. The exercise price and number of shares of common stock issuable upon exercise is subject to appropriate adjustmentinclude certain protections in the event of stock dividends, stock splits, reorganizations or similar events affectingdilutive equity issuances.common stockCertificate of Incorporation and Bylaws and the exercise price.There is no established public trading market. The ability to authorize undesignated preferred stock makes it possible for our Series A Warrants,board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our company. These and we do not expectother provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.market to develop. We do not intend to apply to list Series A Warrants onspecial meeting of stockholders may be called only by our board of directors, the chairman of our board of directors, any securities exchange. Without an active market, the liquidityof our officers, or any stockholder holding at least fifteen percent (15%) of the Series A Warrants will be limited.Cashless Exercise Provision. Holders may exercise Series A Warrants by paying the exercise price in cash or, in lieu of paymentvoting power of the exercise price in cashcapital stock issued and outstanding and entitled to vote.electing to receiveor at the direction of our board of directors or a cash payment from us (subject to certain conditions not being met by the Company) equal to the Black Scholes Value (as defined below)committee of the numberboard of sharesdirectors.holder elects to exercise, which we refer to as the Black Scholes Payment; provided, that we have discretion as to whether to deliver the Black Scholes Payment or, subject to meeting certain conditions, to deliver a number of sharesability of our common stock determined accordingstockholders to act by written consent may lengthen the following formula, referredamount of time required to as the Cashless Exercise.Total Shares = (A x B) / CWhere:●Total Shares is the number of shares of common stock to be issued upon a Cashless Exercise●A is the total number of shares with respect to which the Series A Warrant is then being exercised.●B is the Black Scholes Value (as defined below).●C is the closing bid price of our common stock as of two trading days prior to the time of such exercise.defined in the Series A Warrants, “Black Scholes Value” means the Black Scholes value of an option for one sharea result, a holder controlling a majority of our commoncapital stock at the datewould not be able to amend our bylaws or remove directors without holding a meeting of the applicable Black Scholes Payment or Cashless Exercise, as such Black Scholes value is determined, calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the closing bid price of the Common Stock as of the date of this prospectus, (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of the Series A Warrant as of the applicable Black Scholes Payment or Cashless Exercise, (iii) a strike price equal to the exercise price in effect at the time of the applicable Black Scholes Payment or Cashless Exercise, (iv) an expected volatility equal to 135% and (v) a remaining term of such option equal to five years (regardless of the actual remaining term of the Series A Warrant).The shares of common stock issuable on exercise or exchange of the Series A Warrants will be duly and validly authorized and will be, when issued, delivered and paid forour stockholders called in accordance with our bylaws.Series A Warrants, issuedabove provisions of our certificate of incorporation and fully paid and non-assessable. We will authorize and reservebylaws requires approval by holders of at least that numbertwo-thirds of shares of commonour outstanding capital stock equalentitled to the number of shares of common stock issuable upon exercise or exchange of all outstanding Series A Warrants.The Series A Warrants will not be exercisable or exchangeable by the holder of such warrants to the extent (and only to the extent) that the holder or any of its Affiliates would beneficially own in excess of 4.99% of the common stock of the Company. For purposes of the limitation described in this paragraph, beneficial ownership and all determinations and calculations are determined in accordance with Section 13(d) of the Exchange Act and the rule and regulations promulgated thereunder.If, at any time a Series A Warrant is outstanding, we consummate any fundamental transaction, as describedvote generally in the Series A Warrants and generally including any consolidation or merger into another corporation, or the saleelection of all or substantially all of our assets, or other transaction in which our common stock is converted into or exchanged for other securities or other consideration, the holder of any Series A Warrants will thereafter receive, the securities or other consideration to which a holder of the number of shares of common stock then deliverable upon the exercise or exchange of such Series A Warrants would have been entitled upon such consolidation or merger or other transaction. Notwithstanding the foregoing, in connection with a fundamental transaction, at the request of a holder of Series A Warrants we will be required to purchase the Series A Warrant from the holder by paying to the holder cash in an amount equal to the Black Scholes Value of the Series A Warrant, as described in such Series A Warrant.The Series A Warrants will be issued in book-entry form under a warrant agent agreement between Equity Stock Transfer as warrant agent, and us, and shall initially be represented by one or more book-entry certificates deposited with Equity Stock Transfer.THE HOLDER OF A WARRANT WILL NOT POSSESS ANY RIGHTS AS A SHAREHOLDER UNDER THAT WARRANT UNTIL THE HOLDER EXERCISES THE WARRANT.Representative’s Unit Purchase Option43We agreed to issue to the representative of the underwriters’ in this offering a Unit Purchase Option to purchase a number of our Units equal to an aggregate of 5% of the Units sold in this offering. The representative’s Unit Purchase Option will have an exercise price equal to 125% of the public offering price of the Units set forth on the cover of this prospectus (or $[_______] per Unit) and may be exercised on a cashless basis. The representative’s Unit Purchase Option is not redeemable by us. This prospectus also covers the sale of the representative’s Unit Purchase Option and the Units, Series A Convertible Preferred Stock and Series A Warrants issuable upon the exercise of the representative’s Unit Purchase Option, as well as the common stock underlying Series A Convertible Preferred Stock and Series A Warrants. The material terms and provisions of the representative’s Unit Purchase Option are described under the heading “Underwriting—Representative’s Unit Purchase Option”.Law. Subject to exceptions,Law regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging, under certain circumstances, in a “business combination”business combination with an “interested stockholder”interested stockholder for a period of three years fromfollowing the date of the transaction in which the person became an interested stockholder unlessunless:attained this status with the approvalowned at least 85% of the Boardvoting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, but not for determining the outstanding voting stock owned by the interested stockholder, (i) shares owned by persons who are directors and also officers, and (ii) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or unlessexchange offer; orinby the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66-2/3% of the outstanding voting stock which is not owned by the interested stockholder.prescribed manner. A “business combination”business combination includes mergers,a merger, asset sales andor stock sale, or other transactionstransaction resulting in a financial benefit to the interested stockholder. Subject to exceptions, an “interested stockholder”An interested stockholder is a person who, together with affiliates and associates, owns 15% or within three years did own,more of a corporation’s outstanding voting stock or is an affiliate or associate of a corporation and was the owner of 15% or more of the corporation’s outstanding voting stock. This statute could prohibit or delaystock within three years prior to the accomplishmentdetermination of mergers or other takeover or change in control attemptsinterested stockholder status.usthe receipt and accordingly,exercise (or expiration) of the Subscription Rights acquired through this offering, the ownership and disposition of shares of common stock received upon exercise of the Subscription Rights, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service, or IRS, in each case in effect as of the date hereof. These authorities may discourage attemptschange or be subject to acquire us.differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a holder of the Subscription Rights or shares of common stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the receipt of Subscription Rights acquired through this offering by persons holding shares of common stock or, the exercise (or expiration) of the Subscription Rights.Certificatecapital stock constitutes “qualified small business stock” within the meaning of IncorporationSection 1202 of the Code; Bylawsmake it more difficultbe, that, for U.S. federal income tax purposes, is:acquireU.S. federal income tax regardless of its source; orus. These provisions could deprive shareholdersone or more United States persons (within the meaning of Section 7701(a)(30) of the opportunityCode), or (2) has made a valid election under applicable Treasury Regulations to realizecontinue to be treated as a premiumUnited States person.owned by thempreviously sold and may adversely affect the prevailing market pricesubscription right, (2) the impact of oursuch allocation on the amount and timing of gain or loss recognized with respect to the shares of common stock previously sold, and (3) the impact of such allocation on the tax basis of the shares of common stock acquired upon exercise of the subscription right. If a U.S. holder exercises a subscription right received in this offering after disposing of shares of common stock with respect to which the subscription right is received, the U.S. holder should consult its tax advisor.These provisionsA U.S. holder’s adjusted tax basis in common stock generally will equal its initial tax basis in common stock reduced by the amount of any cash distributions treated as a return of capital as described above. Such capital gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period for common stock exceeded one year at the time of disposition). Long-term capital gains recognized by certain non-corporate U.S. holders, including individuals, generally are intended to:●enhance the likelihood of continuity and stability in the composition of the Board and in the policies formulated by the Board;●discourage transactions that may involve an actual or threatened change in control of us;●discourage tactics that may be used in proxy fights;●encourage persons seeking to acquire control of us to consult first with our Board to negotiate the terms of any●proposed business combination or offer; and●reduce our vulnerability to an unsolicited proposal for a takeover that does not contemplate the acquisition of all of our outstanding shares or that is otherwise unfair to our shareholders.
subject to reduced rates of taxation. The deductibility of capital losses is subject to limitations.58Shareholder ActionWritten Consent. Our Bylaws providethe IRS that such U.S. holder previously failed to properly report payments of interest or dividends; oraction byan exemption from backup withholding and the procedures for obtaining such an exemption.shareholders withoutcurrent or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a meetingreturn of capital and first be applied against and reduce a non-U.S. holder’s adjusted tax basis in its common stock, as the case may be, but not below zero. Any excess will be treated as capital gain and will be treated as described below in the section relating to the sale or disposition of common stock. Because we may not know the extent to which a distribution is a dividend for U.S. federal income tax purposes at the time it is made, for purposes of the withholding rules discussed below we or the applicable withholding agent may treat the entire distribution as a dividend.written consentnon-U.S. holder’s conduct of shareholders holdinga trade or business within the number of shares necessaryUnited States will be subject to approve such action if it were takenU.S. federal withholding tax at a meetingrate of shareholders.Special Shareholder Meetings.Under our Bylaws, the Chairperson of our Board, our Chief Executive Officer and a majority30% of the numbergross amount of total authorized directors (without regardthe dividends (or such lower rate specified by an applicable income tax treaty).vacancies)a reduction in or an exemption from withholding on dividends as a result of either (1) an applicable income tax treaty or (2) the non-U.S. holder holding common stock in connection with the conduct of a trade or business within the United States and dividends being effectively connected with that trade or business. To claim such a reduction in or exemption from withholding, the non-U.S. holder must provide the applicable withholding agent with a properly executed (1) IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) claiming an exemption from or reduction of the withholding tax under the benefit of an income tax treaty between the United States and the country in which the non-U.S. holder resides or is established, or (2) IRS Form W-8ECI stating that the dividends are not subject to withholding tax because they are effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States, as may callbe applicable. These certifications must be provided to the applicable withholding agent prior to the payment of dividends and must be updated periodically. Non-U.S. holders that do not timely provide the applicable withholding agent with the required certification, but that qualify for a special meetingreduced rate under an applicable income tax treaty, may obtain a refund of shareholders.any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.special meetingnon-U.S. holder that is a corporation may be calledsubject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on its effectively connected earnings and profits for the shareholderstaxable year that are attributable to such dividends, as adjusted for certain items. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.Companydisposition and certain other requirements are met; orleast one-fourth of all shares entitledthe regular graduated rates. A Non-U.S. holder that is a corporation also may be subject to votea branch profits tax at a meetingrate of shareholders. Our Bylaws establish that no business30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.transacted atoffset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a special meeting otherwise than as specifiedresident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.notice of meeting provided in advance to shareholders, which must be delivered to shareholders between 10future.60 days priorBackup Withholdingspecial meeting.Any aspectdiscussion below on foreign accounts, a non-U.S. holder will not be subject to backup withholding with respect to distributions on common stock we make to the non-U.S. holder, provided the applicable withholding agent does not have actual knowledge or reason to know such non-U.S. holder is a United States person and such non-U.S. holder certifies its non-U.S. status, such as by providing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or other applicable certification. Information returns generally will be filed with the IRS, however, in connection with any distributions (including deemed distributions) made on common stock to the non-U.S. holder, regardless of whether any tax was actually withheld. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the foregoing, alonecountry in which the non-U.S. holder resides or together, could delayis established.prevent unsolicited takeovers and changes in control or changes in our management.Transfer Agent, Registrar, Warrant Agent and Preferred Stock AgentWe have appointed Equity Stock Transfer, as our transfer and warrant agent. Their contact information is: 237 West 37th Street, Suite 601, New York, New York 10018, phone number (917) 746-4595, facsimile (347) 584-3644.Stock Market ListingOurother taxable disposition of common stock tradeswithin the United States, and information reporting may (although backup withholding generally will not) apply to the proceeds of a sale or other taxable disposition of common stock outside the United States conducted through certain U.S.-related financial intermediaries, in each case, unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder on IRS Form W‑8BEN or W-8BEN-E, or other applicable form (and the Nasdaq Capital Marketpayor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person) or such owner otherwise establishes an exemption. Proceeds of a disposition of common stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.symbol “VPCO”. We have appliedbackup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to list the UnitsIRS.the Nasdaq Capital MarketPayments Made to Foreign Accountssymbol “VPCOU”. No assurance canForeign Account Tax Compliance Act, or FATCA, on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be givenimposed on dividends (including deemed dividends) or gross proceeds from the sale or other disposition of common stock paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States-owned foreign entities” (each as defined in the Code), annually report certain information about such listingaccounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.be approved.substantial amountsthe registration statement of which this prospectus form is a part, we will distribute the Subscription Rights, Rights Certificates and copies of this prospectus to the holders of our common stock and Series D Preferred Stock on the Record Date. Subscription Rights holders who wish to exercise their Subscription Rights and purchase our common stock must complete the Subscription Rights Certificate and return it with payment for the shares to the Subscription Agent at the following address:public market, ordealer-manager agreement, including the anticipationreceipt by the dealer-manager of these sales, could materiallyan opinion of our counsel. The dealer-manager and adversely affect market prices prevailingtheir affiliates may provide to us from time to time in the future in the ordinary course of their business certain financial advisory, investment banking and could impair our abilityother services for which they will be entitled to raise capital through salesreceive fees.equity or equity-related securities.A certainotherwise dispose of any common shares or other securities convertible into or exercisable or exchangeable for common shares for a period of 90 days after the expiration of this rights offering.will notbeneficially owned as of ______, 2021, by (i) those persons known by us to be available for sale in the public market for a periodowners of 120 days after completion of this offering due to contractual and legal restrictions on resale described below. Nevertheless, sales of a substantial number of sharesmore than 5% of our common stock, in the public market after such restrictions lapse, or the perception that those sales may occur, could materially(ii) each director, (iii) our Named Executive Officers and adversely affect the prevailing market price(iv) all of our common stock.59Conversionexecutive officers and Exercise RestrictionsEach one-fourth sharedirectors of Series A Convertible Preferred Stock will be convertible at the option of the holder into five shares of our common stock upon the separation of the Units, provided that uponas a Cash Warrant Exercise Trigger the Series A Convertible Preferred Stock will not be convertible until six-months after the date of this prospectus (unless an Early Separation occurs due to a Trading Separation Trigger or Delisting Trigger). Accordingly, the shares of our common stock issuable upon the conversion of the Series A Convertible Preferred Stock will not be available for sale in the open market until the earlier of (i) six months after the date of this prospectus, or (ii) 15 days after a Trading Separation Trigger or (iii) immediately upon a Delisting Trigger.Each Series A Warrant is exercisable for one share of common stock. The Series A Warrants are exercisable upon separation of the Units, provided that the Series A Warrants may be exercised for cash at any time after 30 days from the date of this prospectus, which exercise shall cause a Cash Warrant Exercise Trigger.group. Unless there is a Trading Separation Trigger or a Delisting Trigger, the Series A Warrants are not exercisable until the earlier of (i) six months after the date of this prospectus, or (ii) if exercised for cash. The Series A Convertible Preferred Stock and the Series A Warrants will not be convertible, or exercisable or exchangeable, as the case may be, by the holder of such securities to the extent (and only to the extent) that the holder or any of its Affiliates would beneficially own in excess of 4. 99 % of the common stock of the Company. For purposes of the limitation described in this paragraph, beneficial ownership and all determinations and calculations are determined in accordance with Section 13(d) of the Exchange Act and the rule and regulations promulgated thereunder.We have entered into an underwriting agreement with Dawson James Securities, Inc., as representative of the underwriter(s), with respect to the Units subject to this offering. Subject to certain conditions, we have agreed to sell, and the underwriter(s) have/has severally agreed to offer and sell on a best efforts basis, the number of Units provided below.UnderwritersNumber ofUnitsDawson James Securities, Inc.TotalThis offering is being completed on a “best efforts” basis and the underwriters have no obligation to buy any Units from us or to arrange for the purchase or sale of any specific number or dollar amount of Units. The obligations of the underwriters may be terminated upon the occurrence of certain eventsotherwise specified in the underwriting agreement. Furthermore, pursuantnotes to this table, the underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.Commissions and ExpensesThe underwriters have advised us that they propose to offer the Units to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $[_______] per Unit. The commission or reallowance to dealers may be changed by the underwriters. No such change shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The underwriters have informed us that they do not intend to confirm sales to any accounts over which they exercise discretionary authority.The following table shows the underwriting commissions payable to the underwriters by us in connection with this offering.Title of Class PerUnitPublic offering priceBeneficial Owner Underwriting commissions Proceeds, before expenses, to usWe estimate that expenses payable by us in connection with this offering, other than the underwriting commissions referred to above, will be approximately $[_______]. We have advanced the underwriters $25,000 against “blue sky” expenses to be incurred in the offering. Any portion of the advance payment will be returned to us in the event the foregoing expenses actually incurred are less than such advance.Underwriters’ Unit Purchase OptionWe have also agreed to issue to the representative of the underwriters’ a Unit Purchase Option to purchase a number of our Units equal to an aggregate of 5% of the Units sold in this offering. The representative’s Unit Purchase Option will have an exercise price equal to 125% of the public offering price of the Units set forth on the cover of this prospectus (or $[_______] per Unit) and may be exercised on a cashless basis. The representative’s Unit Purchase Option is not redeemable by us. This prospectus also covers the sale of the representative’s Unit Purchase Option and the shares of Series A Convertible Preferred Stock and Series A Warrants issuable upon the exercise of the representative’s Unit Purchase Option, as well as the shares underlying such Series A Convertible Preferred Stock and Series A Warrants. The representative’s Unit Purchase Option and the underlying securities have been deemed compensation by FINRA, and are therefore subject to FINRA Rule 5110(g)(1). In accordance with FINRA Rule 5110(g)(1), neither the representative’s Unit Purchase Option nor any securities issued upon exercise of the representative’s Unit Purchase Option may be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of such securities by any person for a period of 180 days immediately following the date of effectiveness or commencement of sales of the offering pursuant to which the representative’s Unit Purchase Option are being issued, except the transfer of any security:●by operation of law or by reason of reorganization of our company;●to any FINRA member firm participating in this offeringDirectors and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction described above for the remainder of the time period;●if the aggregate amount of our securities held by either an underwriter or a related person do not exceed 1% of the securities being offered;●that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund; or●the exercise or conversion of any security, if all securities received remain subject to the lock-up restriction set forth above for the remainder of the time period.In addition, in accordance with FINRA Rule 5110(f)(2)(G), the representative’s Unit Purchase Option may not contain certain anti-dilution terms.IndemnificationWe have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or the Securities Act, and liabilities arising from breaches of representations and warranties contained in the underwriting agreement, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.Lock-Up AgreementsWe and each of our directors and executive officers have agreed that, without the prior written consent of Dawson James Securities, Inc. on behalf of the underwriters, we and they will not, subject to limited exceptions, during the period ending 120 days after the date of this prospectus, subject to extension in specified circumstances:●offer, pledge, sell or contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock whether such transaction is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise;●enter into any swap option, future, forward, or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock or any securities convertible into or exchangeable or exercisable for shares of our common stock, whether such transaction is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise;●make any demand for or exercise any right with respect to the registration of any shares of our common stock or any securities convertible into or exchangeable or exercisable for shares of our common stock; or●publicly announce an intention to do any of the foregoing.Price Stabilization, Short Positions and Penalty BidsIn connection with the offering, the underwriters may engage in stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act:●Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.●Syndicate covering transactions involve purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of securities to close out the short position, the underwriters will consider, among other things, the price of securities available for purchase in the open market. A naked short position, the position can only be closed out by buying securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the securities in the open market after pricing that could adversely affect investors who purchase in the offering.These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our Units or preventing or retarding a decline in the market price of our Units. As a result, the price of our Units may be higher than the price that might otherwise exist in the open market. Neither we nor the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Units. In addition, neither we nor the underwriters make any representations that the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.Electronic DistributionThis prospectus in electronic format may be made available on websites or through other online services maintained by one or more of the underwriters, or by their affiliates. Other than this prospectus in electronic format, the information on any underwriter’s website and any information contained in any other website maintained by an underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.OtherFrom time to time, certain of the underwriters and/or their affiliates have provided, and may in the future provide, various investment banking and other financial services for us for which services they have received and, may in the future receive, customary fees. Except for services provided in connection with this offering, no underwriter has provided any investment banking or other financial services during the 180-day period preceding the date of this prospectus and we do not expect to retain any underwriter to perform any investment banking or other financial services for at least 90 days after the date of this prospectus.NASDAQ ListingWe have applied for listing of the Units on the Nasdaq Capital Market under the trading symbol “VPCOU”.Offer Restrictions Outside of the United StatesOther than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.The validity of the issuance of the securities offered by us in this offering will be passed upon for us by Nason Yeager Gerson White & Lioce, P.A., West Palm Beach, Florida. Schiff Hardin LLP, Washington, DC, is acting as counsel for the underwriters in connection with certain legal matters in connection with this offering.The audited financial statements of Vapor as of and for the years ended December 31, 2014 and 2013 included in this prospectus have been so included in reliance on the report, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern, of Marcum LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.The audited financial statements of Vaporin as of and for the years ended December 31, 2014 and 2013 included in this prospectus have been so included in reliance on the report, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern, of RBSM, LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.WHERE YOU CAN FIND MORE INFORMATIONWe have filed with the Securities and Exchange Commission, which we refer to as the “SEC”, a registration statement on Form S-1 under the Securities Act with respect to the securities offered by this prospectus. This prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. For further information pertaining to us and our securities, reference is made to the registration statement and the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents or provisions of any documents referred to in this prospectus are not necessarily complete, and in each instance where a copy of the document has been filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matters involved.You may read and copy all or any portion of the registration statement without charge at the public reference room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of the registration statement may be obtained from the SEC at prescribed rates from the public reference room of the SEC at such address. You may obtain information regarding the operation of the public reference room by calling 1-800-SEC-0330. In addition, registration statements and certain other filings made with the SEC electronically are publicly available through the SEC’s website at http://www.sec.gov. The registration statement, including all exhibits and amendments to the registration statement, has been filed electronically with the SEC. You may also read all or any portion of the registration statement on our website atwww.vapor-corp.com.We are subject to the information and periodic reporting requirements of the Exchange Act and, accordingly, are required to file annual reports containing financial statements audited by an independent public accounting firm, quarterly reports containing unaudited financial data, current reports, proxy statements and other information with the SEC. You will be able to inspect and copy such periodic reports, proxy statements and other information at the SEC’s public reference room, the website of the SEC referred to above, and our website referred to above.Index to Consolidated Financial StatementsCONDENSED 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 STOCKHOLDERS’ EQUITY: Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued - - Common stock, $.001 par value, 50,000,000 shares authorized, 6,727,152 and 3,352,382 shares issued and outstanding, respectively 6,727 3,352 Additional paid-in capital 36,725,950 16,040,361 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 statementsCONDENSED 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 (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 ) - 752,400 NET LOSS $ (3,981,196 ) $ (1,452,759 ) LOSS PER COMMON SHARE – BASIC AND DILUTED $ (0. 89 ) $ (0. 45 ) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC AND DILUTED See notes to unaudited condensed consolidated financial statementsCONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITYFOR THE THREE MONTHS ENDED MARCH 31, 2015(UNAUDITED) Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance – January 1, 2015 3,352,382 $ 3,352 $ 16,040,361 $ (15,231,903 ) $ 811,810 Issuance of common stock in connection with the Merger (See Note 4) 2,718,307 2,718 17,025,681 — 17,028,399 Issuance of common stock and warrants in connection with private placement 686,463 687 2,941,273 — 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 ( 30,000 ) ( 30 ) 30 — — Stock-based compensation expense — — 364,576 — 364,576 Net loss — — — (3,981,196 ) (3,981,196 ) Balance – March 31, 2015 6,727,152 $ 6,727 $ 36,725,950 $ (19,213,099 ) $ 17,519,578 See notes to condensed consolidated financial statementsF-4CONDENSED 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 ) 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 statementsF-5NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)Note 1.ORGANIZATION, GOING CONCERN AND MANAGEMENT PLANS, AND BASIS OF PRESENTATIONOrganizationVapor 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 PlansThe 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 PresentationThe 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 elsewhere herein this filing. 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 POLICIESPrinciples of consolidationThe 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 statementsThe 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 recognitionThe 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 ReceivableAccounts 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 fromone 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 GoodwillIdentifiable 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.InventoriesInventories 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 liabilityThe 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 measurementsThe 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 CompensationThe 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 InstrumentsThe 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 InstrumentsThe 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 AccountingThe 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 2,718,307 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 $5.50 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 378,047 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 378,047 restricted stock units remain outstanding as of March 31, 2015. The aggregate value of these shares issued was $2,079,071, or approximately $5.50 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 installments, 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 49,592 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 3,947 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. 86 ) $ (0. 42 ) Weighted Average number of shares outstanding 6,252,037 6,153,204 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 VentureOn 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 ExpensesAccrued 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 PayableBetween 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) $ 5.40 or (ii) a 15% discount to a 20-trading day VWAP following the closing of the merger, which was calculated at $ 4.75 . Investors were provided with standard piggyback registration rights which were conditioned on the March 4, 2015 merger closing.$350,000 Convertible Notes PayableOn 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 PartyOn 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 ReceivableOn 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’ EQUITYIssuance of Common StockOn 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 80 ,000 shares of its common stock, of which 10 ,000 shares vested immediately while the remaining 70 ,000 shares vest in installments of 10 ,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 10 ,000 shares of its common stock to Knight Global pursuant to the early termination provisions of the Consulting Agreement. The Company cancelled 30 ,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 StockIn 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 $ 5.10 per share. The Company also issued Warrants to purchasers of the shares to acquire an aggregate of 547,026 shares of the Company’s Common Stock with an exercise price of $ 6.40 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 90thday 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.F-14WarrantsA summary of warrant activity for the three months ended March 31, 2015 is presented below: Outstanding at January 1, 2015 243,218 $ 10.05 Warrants granted 598,763 8.20 Warrants exercised — — Warrants forfeited or expired — — Outstanding at March 31, 2015 841,981 $ 8.75 5.0 $ - Exercisable at March 31, 2015 603,345 $ 8.25 5.0 $ - Stock-based CompensationDuring 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 activityOptions outstanding at March 31, 2015 under the various plans are as follows:PlanTotalNumber of OptionsOutstandingunder PlansEquity compensation plans not approved by security holders180,000Equity Incentive Plan68,567248,567A 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 268,860 $ 15.4 6.53 $ - Options granted 3,947 28.05 - - Options exercised - - - - Options forfeited or expired ( 24,240 ) 36.60 - - Outstanding at March 31, 2015 248,567 $ 13.55 6.17 $ - Exercisable at March 31, 2015 209,847 $ 11.30 6.52 $ - Options available for grant at March 31, 2015 281,773 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 shareBasic 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 their effect would be anti-dilutive: March 31, 2015 2014 Convertible debt 358,862 - Stock options 244,620 234,900 Warrants 841,981 43,176 Total 1,445,463 278,076 Note 7. FAIR VALUE MEASUREMENTSThe 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 1Level 2Level 3TotalLIABILITIES:Executive Officers: Common Stock Common Stock Common Stock Common Stock Common Stock All directors and officers as a group (5 persons) (7) Warrant liability$-5% Stockholders: $- $-None $-Total derivative liability$- $-Total: $- $- Level 3 liabilitiesBeneficial Ownership. Applicable percentages are valued using unobservable inputs tobased on _________________ shares of common stock outstanding as of _________, 2021. Beneficial ownership is determined under the valuation methodology that are significant to the measurementrules of the fair valueSEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options, warrants, convertible notes and preferred stock currently exercisable or convertible or exercisable or convertible within 60 days are deemed outstanding for computing the percentage of the liabilities. For fair value measurements categorized within Level 3person holding such securities but are not deemed outstanding for computing the percentage 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.any other person. The development and determinationtable includes shares 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 TechniquesLevel 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, purchaseoptions, 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 $ Weighted average strike price $ 1.20 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 CONTINGENCIESLease CommitmentsThe 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 initialpreferred stock exercisable 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 OfficerOn 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 ProceedingsFrom 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.On June 22, 2015, the Center for Environment Health, as plaintiff, filed suit against a number of defendants including Vapor Corp., its wholly-owned subsidiary, the Vape Store, Inc., Vaporin and another wholly-owned subsidiary, Vaporin Florida, Inc. The lawsuit was filed in the Superior Court of the State of California, County of Alameda. The suit seeks relief under California Proposition 65 which makes it unlawful for businesses to knowingly and intentionally expose individuals in California to chemicals known to cause birth defects or other harm without providing clear and reasonable warnings. All of the defendants are alleged to have sold products containing significant quantities of nicotine in violation of Proposition 65. The plaintiff is seeking a civil penalty against these defendants in the amount of $2,500 per day for each violation of Proposition 65, together with attorneys’ fees and costs. The Company and its subsidiaries are in the process of hiring counsel and intend to defend the allegations. The Company believes that all of the products sold by Vapor Corp. have always contained an appropriate warning. The Vape Store, Inc., operates vape stores located only in the State of Florida and has not, to the best of its knowledge, sold any products into the State of California.Purchase CommitmentsAt 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 EVENTSThe 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.Effective as of May 7, 2015, the Company entered an Engagement Agreement with Dawson James Securities (“Dawson”). In accordance with the Engagement Agreement, Dawson has agreed to act as the lead or managing underwriter on a best-efforts basis in connection with a proposed offering of approximately $24 million of the Company’s equity securities. The Engagement Agreement provides for an underwriting discount of 8% and a $25,000 advance fee which has been paid to Dawson. The actual size of the offering and the offering price will be subject to negotiation and the Company can provide no assurance that any such offering will be successful.On May 19, 2015, the Company received a deficiency letter from the Nasdaq Listing Qualifications department (the “Staff”) notifying the Company that for the last 30 consecutive business days the Company’s common stock had closed below the minimum $1.00 per share bid price requirement for continued inclusion on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided an initial period of 180 calendar days, or until November 16, 2015, to regain compliance with the bid price requirement. If, at any time before November 16, 2015, the closing bid price for the Company’s common stock is $1.00 or more for a minimum of 10 consecutive business days, the Staff will provide written notification to the Company that it has regained compliance with the bid price requirement. If the Company does not regain compliance with the bid price requirement by November 16, 2015, the Company may be eligible for an additional 180 calendar day compliance period provided that it meets the continued listing requirement for the market value of publicly held shares and all other initial listing standards, with the exception of the bid price requirement, and provides the Staff with written notice of its intention to cure the deficiency. If the Company does not regain compliance by November 16, 2015 or the termination of any subsequent compliance period, if applicable, the Staff will provide written notification to the Company that its common stock may be delisted. In anticipation of receiving the Staff’s notice, on May 12, 2015, the Company filed a preliminary proxy statement on Schedule 14A with the Securities and Exchange Commission, followed by a definitive proxy statement filed May 22, 2015, in connection with the Company’s 2015 Annual Meeting of shareholders that included a proposal to approve an amendment to the Company’s Certificate of Incorporation to effect a reverse stock split. The Company’s Annual Meeting is scheduled for July 7, 2015. There can be no assurance that the Company’s shareholders will approve the amendment, or that a reverse stock split will prevent the Company’s stock price from falling below the bid price requirement in the future.On June 25, 2015, the Company closed on a Securities Purchase Agreement, dated as of June 22, 2015, with certain purchasers pursuant to which the Company sold, at a 5% original issue discount, a total of $1,750,000 convertible debentures (the “Debentures”). Net proceeds to the Company from sale of the Debentures, after payment of commissions and legal fees of the lead investor, were $1,466,250. The Debentures mature December 22, 2015, and accrue interest at 10% per year. Amounts of principal and accrued interest under the Debentures are convertible into common stock of the Company at a price per share of $2.50. Principal and accrued interest on the Debentures are payable in three approximately equal installments on September 22, 2015, October 22, 2015 and December 22, 2015, at the election of the holders of the Debentures, (i) in cash for an additional 25% premium,vested or (ii) in common stock of the Company at a price per share of $2.50. As lead investor under the Securities Purchase Agreement, Redwood Management, LLC received a right of first refusal to purchase up to 100% of the securities offered by the Company in future private placement offerings through December 22, 2015.The Company’s obligations under the Debentures can be acceleratedvesting within 60 days. Unless otherwise indicated in the event the Company undergoes a change in control and other customary events of default. In the event of default and acceleration of the Company’s obligations, the Company would be requiredfootnotes to pay 130% of amounts of principal and interest then outstanding under the Debentures. The Company’s obligations under the Debentures are secured under a Security Agreement, under which Redwood Management, LLC acts as Collateral Agent, by a second lien on substantially all of the Company’s assets, including all of the Company’s interests in its consolidated subsidiaries.For acting as placement agent in the offering of the Debentures, the Company paid Chardan Capital Management, LLC (the “Placement Agent”) a fee equal to 10% of the gross proceeds from the sale of the Debentures, and issued the Placement Agent 70,000 five-year warrants exercisable at $2.50 per share. In addition, the Company agreed to reduce the exercise price of 143,072 warrants held by the Placement Agent to $2.50 from their original exercise prices ranging from $2.01 to $2.41.On June 19, 2015, the Company entered into agreements (the “Waivers”), with certain investors in each of its private placement offerings under the Securities Purchase Agreement dated March 3, 2015 (the “2015 Agreement”) and the Securities Purchase Agreement dated November 14, 2014 (the “2014 Agreement,” and with the 2015 Agreement, the “Agreements”). Under the terms of the Waivers, the signatories thereto (the “Prior Investors”) agreed to amend the Agreements and waive or modify certain terms thereunder, including certain price protection provisions and participation rights in subsequent securities offerings. In exchange, the Company agreed to issue the Prior Investors a total of 647,901 shares of common stock (including 142,000 shares issued to the lead investor underthis table, we believe that each of the Agreements in its capacity as lead investor) and 595,685 five-year warrants exercisable at $2.525 per share. In the event that, prior to November 14, 2015, the Company issues shares of common stock, or securities convertible into common stock, at an effective price per share of less than $2.70, the Prior Investors will be entitled to the issuance of additional shares (the “Additional Shares”), the exact amount of which will depend on the effective price per share of such subsequent issuance, but which will not exceed a total of 2,328,598 shares. The Company will not issue any shares of common stock requiring shareholder approval under the Rules of the Nasdaq Stock Market without receipt of such approval. The Company will not issue any of the Additional Shares unless the 647,901 shares of common stock, the shares issuable upon conversion of the Debentures and the Additional Shares are either within the 19.9% Nasdaq limitation or the issuance is approved by shareholders. The Company agreed to file a registration statement with the Securities and Exchange Commission registering the shares and warrant shares issued to the Prior Investors under the Waivers.On June 16, 2015, the Company issued a total of 292,191 shares of common stock upon the vesting of restricted stock units assumed by the Company in connection with its merger with Vaporin, Inc. effective March 4, 2015. Recipients of the shares issued upon vesting of the restricted stock units included Gregory Brauser, the Company’s president and a member of the board of directors. On May 27, 2015, the Company issued a total of 27,500 shares of common stock to consultants of the Company for consulting services.On July 7, 2015, the Company filed an amendment to its Certificate of Incorporation to effectuate a one-for-five reverse stock split to its common stock and to increase its authorized common stock to 150,000,000 shares. The amendments were effective on July 8, 2015 at 11:59 pm. All warrant, option, common stock shares and per share information included herein gives effect to the 1 for 5 reverse split of the Company’s common stock effectuated on July 8, 2015.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Audit Committee of theBoard of Directors and Stockholdersof Vapor Corp.We have audited the accompanying consolidated balance sheets of Vapor Corp. (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriatestockholders named in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amountstable has sole voting and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vapor Corp. as of December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 2, the Company has incurred net losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty./s/ Marcum LLPMarcum LLPNew York, NYMarch 31, 2015 , except for Note 14, as to which the date is July 10, 2015F-21CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2014 2013 ASSETS CURRENT ASSETS: Cash $ 471,194 $ 6,570,215 Due from merchant credit card processors, net of reserve for charge-backs of $2,500 and $2,500, respectively 111,968 205,974 Accounts receivable, net of allowance of $369,731 and $256,833, respectively 239,652 1,802,781 Inventories 2,048,883 3,321,898 Prepaid expenses and vendor deposits 664,103 1,201,040 Loans receivable, net 467,095 - Deferred financing costs, net 122,209 - Deferred tax asset, net - 766,498 TOTAL CURRENT ASSETS 4,125,104 13,868,406 Property and equipment, net of accumulated depreciation of $84,314 and $27,879, respectively 712,019 28,685 Other assets 91,360 65,284 TOTAL ASSETS $ 4,928,483 $ 13,962,375 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 1,920,135 $ 1,123,508 Accrued expenses 975,112 420,363 Senior convertible notes payable – related parties, net of debt discount of $1,093,750 and $0, respectively 156,250 - Current portion of capital lease 52,015 - Term loan 750,000 478,847 Customer deposits 140,626 182,266 Income taxes payable 3,092 5,807 TOTAL CURRENT LIABILITIES 3,997,230 2,210,791 Capital lease, net of current portion 119,443 - TOTAL LIABILITIES 4,116,673 2,210,791 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY: Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued or outstanding - - 3,352 3,243 Additional paid-in capital 16,040,361 13,127,995 Accumulated deficit (15,231,903 ) (1,379,654 ) TOTAL STOCKHOLDERS’ EQUITY 811,810 11,751,584 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 4,928,483 $ 13,962,375 See notes to consolidated financial statementsF-22CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2014 2013 SALES NET $ 15,279,859 $ 25,990,228 Cost of goods sold 14,497,254 16,300,333 Gross Profit 782,605 9,689,895 EXPENSES: Selling, general and administrative 11,126,759 6,464,969 Advertising 2,374,329 2,264,807 Total operating expenses 13,501,088 8,729,776 Operating (loss) income (12,718,483 ) 960,119 Other expense: Induced conversion expense - 299,577 Amortization of deferred financing costs 17,458 - Interest expense 348,975 383,981 Total other expenses 366,433 683,558 (LOSS) INCOME BEFORE INCOME TAX (EXPENSE) BENEFIT (13,084,916 ) 276,561 Income tax (expense) benefit (767,333 ) 524,791 NET (LOSS) INCOME $ (13,852,249 ) $ 801,352 BASIC (LOSS) EARNINGS PER COMMON SHARE $ ( 4.22 ) $ 0. 31 DILUTED (LOSS) EARNINGS PER COMMON SHARE $ ( 4.22 ) $ 0. 30 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC 3,283,030 2,563,697 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – DILUTED 3,283,030 2,637,273 See notes to consolidated financial statementsF-23CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYFOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 Additional Common Stock Paid-In Accumulated Shares Amount Capital Deficit Total Balance – January 1, 2013 2,407,633 $ 2,407 $ 1,695,155 $ (2,181,006 ) $ (483,444 ) Issuance of common stock for services 4,000 4 86 ,996 — 87,000 Issuance of common stock in connection with exercise of stock options 8,660 9 70 ,291 — 70,300 Discount on convertible notes to related parties — — 98,970 — 98,970 Stock-based compensation expense — — 48,239 — 48,239 Issuance of common stock for cash, net of offering costs 666,668 667 9,124,436 — 9,125,103 Issuance of common stock upon conversion of debt 155,945 156 1, 704,331 — 1,704,487 Induced conversion expense — — 299,577 — 299,577 Net income — — — 801,352 801,352 Balance – December 31, 2013 3,242,906 3,243 13,127,995 (1,379,654 ) 11,751,584 Offering costs incurred in 2014 pertaining to December 2013 offering — — (109,104 ) — (109,104 ) Issuance of common stock for services 80,000 80 1,602,853 — 1,602,933 Issuance of common stock in connection with exercise of stock options 1,000 1 4,999 — 5,000 Issuance of common stock in connection with cashless exercise of warrants 28,477 28 ( 28 ) — — Discount on senior convertible notes — — 1,250,000 — 1,250,000 Stock-based compensation expense — — 163,646 — 163,646 Net loss — — — (13,852,249 ) (13,852,249 ) Balance – December 31, 2014 3,352,382 $ 3,352 $ 16,040,361 $ (15,231,903 ) $ 811,810 See notes to consolidated financial statementsCONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 2013 OPERATING ACTIVITIES: Net (loss) income $ (13,852,249 ) $ 801,352 Adjustments to reconcile net (loss) income to net cash used in operating activities: Provision for doubtful accounts 112,898 183,333 Depreciation 56,435 11,284 Amortization of deferred debt discount 156,250 102,500 Amortization of deferred financing costs 17,458 - Induced conversion expense - 299,577 Write down of loan receivable to realizable value 50,000 - Write down of obsolete and slow moving inventory 1,834,619 - Stock-based compensation 1,766,579 135,239 Utilization of net operating loss carryforward - (346,783 ) Deferred tax 766,498 (197,585 ) Changes in operating assets and liabilities: Due from merchant credit card processors 94,006 838,002 Accounts receivable 1,450,231 (1,250,034 ) Prepaid expenses and vendor deposits 536,937 (735,180 ) Inventories (561,604 ) (1,651,891 ) Other assets (26,076 ) (53,284 ) Accounts payable 796,627 (2,085,087 ) Accrued expenses 554,749 70,212 Customer deposits (41,640 ) (295,429 ) Income taxes (2,715 ) 53,622 NET CASH USED IN OPERATING ACTIVITIES (6,290,997 ) (4,120,152 ) INVESTING ACTIVITIES: Loans receivable (517,095 ) - Purchases of property and equipment (560,410 ) (14,779 ) NET CASH USED IN INVESTING ACTIVITIES (1,077,505 ) (14,779 ) FINANCING ACTIVITIES Proceeds from sale of common stock, net of offering costs (109,104 ) 9,125,103 Proceeds from senior convertible notes payable to related parties 1,250,000 425,000 Proceeds from senior convertible notes payable - 500,000 Deferred financing costs (139,667 ) - Principal repayments of senior note payable to stockholder - (70,513 ) Proceeds from term loans payable 1,000,000 750,000 Principal repayments of term loans payable (728,847 ) (271,153 ) Principal repayments of capital lease obligations (7,901 ) - Proceeds from factoring facility - 407,888 Principal repayments of factoring facility - (407,888 ) Proceeds from exercise of stock options 5,000 70,300 NET CASH PROVIDED BY FINANCING ACTIVITIES 1,269,481 10,528,737 INCREASE (DECREASE) IN CASH (6,009,021 ) 6,393,806 CASH — BEGINNING OF YEAR 6,570,215 176,409 CASH — END OF YEAR $ 471,194 $ 6,570,215 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for interest $ 103,068 $ 297,508 Cash paid for income taxes $ 3,550 $ 13,770 Noncash financing activities: Issuance of common stock in connection with conversion of notes payable $ - $ 1,704,487 Cashless exercise of common stock purchase warrants $ 143 $ - Recognition of deferred debt discount on convertible notes payable $ 1,250,000 $ 98,970 Purchase of equipment through capital lease obligation $ 179,359 $ - See notes to consolidated financial statementsF-25NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1. ORGANIZATION, BASIS OF PRESENTATION AND RECENT DEVELOPMENTSOrganizationVapor Corp. (the “Company”) is the holding company for its wholly owned subsidiaries Smoke Anywhere U.S.A., Inc. (“Smoke”) and IVGI Acquisition, Inc. The Company designs, markets and distributes vaporizers, e-liquids, electronic cigarettes and accessories under the emagine vapor™, Krave®, VaporX®, Hookah Stix®, Fifty-One®(also known as Smoke 51) and Alternacig® 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.The Company was originally incorporated as Consolidated Mining International, Inc. in 1985 as a Nevada corporation, and the Company changed its name in 1987 to Miller Diversified Corporation whereupon the Company operated in the commercial cattle feeding business until October 31, 2003 when the Company sold substantially all of its assets and became a discontinued operation. On November 5, 2009, the Company acquired Smoke Anywhere USA, Inc., a distributor of electronic cigarettes, in a reverse triangular merger. As a result of the merger, Smoke Anywhere USA, Inc. became the sole operating business. On January 7, 2010, the Company changed its name to Vapor Corp. The Company reincorporated to the State of Delaware from the State of Nevada effective on December 31, 2013.Basis of Presentation and Reverse Stock SplitThe accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).Effective on December 27, 2013, the Company effected a reverse stock split of its common stock at a ratio of 1-for-5. No fractional shares of common stock were issued, and no cash or other consideration were paid as a result of the reverse stock split. Instead, the Company issued one whole share of post-reverse stock split common stock in lieu of each fractional share of common stock. As a result of the reverse stock split, the Company’s share capital was reduced to 51,000,000 shares from 251,000,000 shares, of which 50,000,000 shares are common stock and 1,000,000 shares are “blank check” preferred stock.All references in these notes and in the related consolidated financial statements to number of shares, price per share and weighted average number of shares outstanding of common stock prior to the reverse stock split (including the share capital decrease) have been adjusted to reflect the reverse stock split (including the share capital decrease) on a retroactive basis, unless otherwise noted.Merger with Vaporin, Inc.As fully-disclosed in Note 4 to these 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 the Vape Store, LLC, a Delaware limited liability company (“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, Emagine became a wholly-owned subsidiary of the Company.Note 2. GOING CONCERN AND MANAGEMENT PLANSThe Company’s financial statements for the year ended December 31, 2014 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 met 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 net loss of $13,852,249 that it incurred during the year ended December 31, 2014. At December 31, 2014, the Company’s accumulated deficit amounted to $15,231,903. At December 31, 2014, the Company had working capital of $127,874 compared to $11,657,615 at December 31, 2013, a decrease of $11,529,741. As described in Note 13 (Subsequent Events), on March 3, 2015, the Company and institutional and individual accredited investors entered in a securities purchase agreement pursuant to which the Company issued and sold, in a $3.5 million private placement ($2.9 million in net proceeds), 686,463 shares of common stock and warrants to purchase up to 547,026 shares of the Company’s common stock. The Company will use the net proceeds from the private placement for working capital. In addition, the Merger with Vaporin also provides an additional financing transaction to occur subsequent to the closing of the Merger for up to $25 million in exchange for common stock and warrants of the Company subject to the Company complying with certain financial covenants and performance-based metrics still to be negotiated.The accompanying 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 and other financing requirements for the foreseeable future. We believe we will need to raise additional debt or equity financing to maintain and expand the business. Any equity financing or the issuance of equity equivalents including convertible debt could be dilutive to our 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.Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of consolidationThe accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, Smoke Anywhere USA, Inc., and its 50% joint venture interest in Emagine the Vape Store, LLC. All significant intercompany transactions and balances were eliminated.Use of estimates in the preparation of financial statementsThe preparation of 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 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 subsequent to December 31, 2014 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 recognitionThe 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 consolidated statements of operations.Shipping and Handling CostsThe Company policy is to provide free standard shipping and handling for most orders shipped during the year. Shipping and handling costs incurred are recognized in selling, general and administrative expenses. Such amounts aggregated $661,583 and $658,586 for the years ended December 31, 2014 and 2013 respectively.In certain circumstances, shipping and handling costs are charged to the customer and recognized in sales, net. The amounts recognized for the years ended December 31, 2014 and 2013 were $71,225 and $129,761, respectively.Cash and Cash EquivalentsThe Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. For financial statement purposes, investments in money market funds are considered a cash equivalent and are included in cash and cash equivalents. The Company maintains its cash and cash equivalents at high credit quality federally insured financial institutions, with balances, at times, in excess of the Federal Deposit Insurance Corporation’s insurance coverage limit of $250,000 per federally insured financial institution. Management believes that the financial institutions that hold the Company’s deposits are financially sound and, therefore, pose a minimum credit risk. The Company has not experienced any losses in such accounts. At December 31, 2014 and 2013, the Company did not hold cash equivalents.Accounts ReceivableAccounts 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.Due From Merchant Credit Card ProcessorDue from merchant credit card processor represents monies held by the Company’s credit card processors. The funds are being held by the merchant credit card processors pending satisfaction of their hold requirements and expiration of charge backs/refunds from customers.InventoriesInventories 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.Property and equipmentProperty and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the expected useful life of the respective asset, after the asset is placed in service. The Company generally uses the following depreciable lives for its major classifications of property and equipment:DescriptionUseful LivesWarehouse fixtures2 yearsWarehouse equipment5 yearsFurniture and fixtures5 yearsComputer hardware3 yearsImpairment of Long-Lived AssetsThe Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In connection with this review, the Company also reevaluates the depreciable lives for these assets. The Company assesses recoverability by determining whether the net book value of the related asset will be recovered through the projected undiscounted future cash flows of the asset. If the Company determines that the carrying value of the asset may not be recoverable, it measures any impairment based on the projected future discounted cash flows as compared to the asset’s carrying value. Through December 31, 2014, the Company has not recorded any impairment charges on its long-lived assets.AdvertisingThe Company expenses advertising cost as incurred.Warranty liabilityThe 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 consolidated balance sheets. The warranty claims and expense was not deemed material for the years ended December 31, 2014 and 2013.Income taxesThe Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740.”) Under this method, income tax expense is recognized as the amount of: (i) taxes payable or refundable for the current year and (ii) future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of available evidence it is more likely than not that some portion or all of the deferred tax assets will not be realized.Product DevelopmentThe Company includes product development expenses relating to the commercialization of new products which are expensed as incurred as part of operating expenses. Product development expenses for the years ended December 31, 2014 and 2013 were approximately $312,000 and $174,000, respectively.Fair value measurementsThe Company applies the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” (“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 CompensationThe Company accounts for stock-based compensation under ASC 718, “Compensation-Stock Compensation” (“ASC 718”). These standards define a fair value based method of accounting for stock-based compensation. In accordance with ASC Topic 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 InstrumentsThe Company accounts for free-standing derivative instruments and hybrid instruments that contain embedded derivative features in accordance with ASC Topic No. 815, “Accounting for 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 InstrumentsThe 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 AccountingThe 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.Recent Accounting PronouncementsThe Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company is currently evaluating the potential impact, if any, the adoption of this standard will have on the Company’s consolidated financial position and results of operations.The FASB has issued ASU No. 2014-15,Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The guidance, which is effective for annual reporting periods ending after December 15, 2016, extends the responsibility for performing the going-concern assessment to management and contains guidance on how to perform a going-concern assessment and when going-concern disclosures would be required under U.S. GAAP. The Company has elected to early adopt the provisions of ASU 2014-15 in connection with the issuance of these consolidated financial statements. Information regarding the substantial doubt relating to the Company’s ability to continue as a going concern has been disclosed in Note 2.Note 4. 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 entity. The Merger closed on March 4, 2015 whereby 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 2,718,307 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 options and warrants to acquire Vaporin common stock that were issued and outstanding as of the effective time of the Merger, as well as 182 ,000 restricted stock units which were exchangeable for Vaporin common stock, were assumed by the Company in the merger and the number of shares issued under such securities were adjusted to give effect to the Per Share Merger Consideration (as defined in the Merger Agreement).Pursuant to the terms of the Merger Agreement, the Company completed actions to cause its board of directors immediately following the consummation of the merger to be comprised of (x) three directors chosen by the Company’s Board of Directors (at least two of whom shall be independent for purposes of the Nasdaq listing rules) and (y) two directors chosen by the Vaporin Board or Directors (at least one of whom shall be independent for purposes of the Nasdaq listing rules), each to serve for a term expiring on the earlier of his or her death, resignation, removal or the Company’s next annual meeting of stockholders and, despite the expiration of his or her term, until his or her successor has been elected and qualified or there is a decrease in the size of the Company’s Board of Directors. If at any time prior to the effective time of the merger, any such board designee becomes unable or unwilling to serve as a director of the Company following consummation of the merger, then the party that designated such individual shall designate another individual to serve in such individual’s place.The Merger Agreement contained customary representations and warranties of the Company and Vaporin relating to their respective businesses. The Company and Vaporin have agreed to use commercially reasonable efforts to preserve intact its business organization and that of its significant subsidiaries, as well as maintain its rights, franchises and existing relations with customers, suppliers and employees. The Merger Agreement also contains covenants by each party to furnish current information to the other party.The Company has also agreed that, for a period of six years following the closing date of the merger, it will indemnify, defend and hold harmless each officer and director of Vaporin and its subsidiaries against losses arising from such person’s status as an officer or director of Vaporin or any of its subsidiaries prior to the effective time of the merger. The Company has also agreed to cover such directors and officers with its existing directors’ and officers’ insurance policy or obtain a six-year “tail” policy, in each case with coverages not less advantageous as Vaporin’s existing policy, provided, however, that the Company will not be required to pay more than 200% of Vaporin’s current premium for such insurance.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 disclosed in Note 13. Additionally, the Company must have received 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 Company has not completed its evaluation of the purchase price allocation as it is currently conducting a thorough analysis to identify the intangible assets acquired, including whether or not any goodwill is to be recorded, in the Merger and determine the proper allocation of the fair value of such assets with the assistance of a third-party appraiser.The following table presents the unaudited pro-forma financial results, as if the acquisition of Vaporin had been completed as of January 1, 2013 and 2014: For the Years Ended
December 31, 2014 2013 Revenues $ 20,253,052 $ 28,259,309 Net (loss) income $ (19,595,702 ) $ 415,316 Loss per share - basic and diluted $ ( 2.95 ) $ 0. 05 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, 2013 or to project potential operating results as of any future date or for any future periods.The Joint VentureOn 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 purpose of the Joint Venture was to obtain and build-out retail stores for the sale of the Company and Vaporin’s products under the “Emagine Vapor” name or “The Vape Store, Inc.” name or other brands of the respective parties. The parties originally planned to finance the retail stores through third party loan financing secured by a blanket lien on the assets of Emagine. In connection with the Joint Venture, Emagine entered into a Secured Line of Credit Agreement, pursuant to which certain third parties have agreed to provide debt financing of up to $3 million to Emagine to finance the Joint Venture. The Company has accounted for the joint venture under the equity method of accounting for investments. For the year ended December 31, 2014, the operations of the joint-venture were immaterial.In connection with the completion of the Merger on March 4, 2015, Emagine became a wholly-owned subsidiary of the Company.Note 5. PROPERTY AND EQUIPMENTProperty and equipment consists of the following: December 31, 2014 2013 Computer hardware $ 389,373 $ 12,471 Furniture and fixtures 347,612 19,821 Warehouse fixtures 7,564 7,564 Warehouse equipment 16,708 16,708 Leasehold improvements 35,076 - 796,333 56,564 Less: accumulated depreciation and amortization (84,314 ) (27,879 ) $ 712,019 $ 28,685 During the year ended December 31, 2014 and 2013, the Company incurred $56,435 and $11,284, respectively, of depreciation expense.Note 6. NOTES PAYABLE$1,250,000 Senior Convertible Notes Payable to Related PartiesOn November 14, 2014, the Company entered into securities purchase agreements with certain accredited investors who are also stockholders of Vaporin providing for the sale of $1,250,000 in aggregate principal amount of the Company’s senior convertible notes (the “$1,250,000 Senior Convertible Notes”) and common stock purchase warrants to purchase up to an aggregate of 227,273 shares of the Company’s common stock, $0.001 par value per share with an exercise price of $ 10 .00 per share. The $1,250,000 Senior Convertible Notes accrue interest on the outstanding principal at an annual rate of 7% per annum. The principal and accrued interest on the Notes are due and payable on November 14, 2015, the maturity date of the Notes. The terms of the $1,250,000 Senior Convertible Notes included customary anti-dilution protection and also included “piggy-back” registration rightsinvestment power with respect to the shares of common stock underlyingindicated as beneficially owned by them. The table does not include unvested options that do not vest within 60 days of the $1,250,000 Senior Convertible Notesdate listed above in this footnote.warrants. Chief Executive Officer. Includes 39,000,000,000 vested options and 10,587,500,000 shares of unvested restricted Common Stock. This restricted stock vests in 1,512,500,000 increments on the last day of each calendar quarter commencing June 30, 2021.Notes provide thatoffered securities are or may be filed as exhibits to the Company may prepayregistration statement or documents incorporated by reference in the outstanding principal amountregistration statement. Statements in this prospectus or any prospectus supplement about these documents are summaries and each statement is qualified in all respects by reference to the document to which it refers. You should refer to the actual documents for a more complete description of the Notes,relevant matters. You may inspect a copy of the registration statement through the SEC’s website, as provided above.wholethis prospectus or in part,a previously filed document incorporated by payingreference will be deemed to be modified or superseded for purposes of this prospectus to the holders thereof an amountextent that a statement contained in cash equalthis prospectus modifies or replaces that statement:• 115%the filings listed above, any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the principal amount to be redeemed, together with accrued but unpaid interest thereon and any and all other sums due, accruedSecurities Exchange Act of 1934, as amended, or payable to such holders throughthe Exchange Act, after (i) the date of such redemption payment. In connection withthis registration statement and prior to effectiveness of this registration statement and (ii) the date of this prospectus and before the completion of the securities purchase agreement for the $1,250,000 Senior Convertible Notes, the Company incurred financing costs of $139,667, which are being amortized on a straight-line basis, which approximates the interest rate method, over the one-year maturity periodoffering of the $1,250,000 Senior Convertible Notes. The Company incurred $17,458securities included in amortization expense of the deferred financing costs during the year ended December 31, 2014.The Notes are convertible into shares of the Company’s Common Stock at any time, in whole or in part, at the option of the holder thereof at a conversion price of $ 5.50 per share (the “Conversion Price”). The Conversion Price is subject to customary adjustment upon the occurrence of certain events, including but not limited to stock dividends, stock splits, subsequent rights offerings of the Company, pro rata distributions of the Company, and in connection with a “Fundamental Transaction” (as such term is defined in the securities purchase agreement, which includes, without limitation, mergers, consolidations, a sale of all or substantially all of the assets of the Company, transactions effecting a change in control of the Company and other similar transactions).In connection with the sale and issuance of the $1,250,000 Senior Convertible Notes, the Company also issued warrants to acquire an aggregate of 227,273 shares of the Company’s common stock. The Warrants are exercisable after 180 days from the date of issuance, or May 14, 2015, until the fifth anniversary of such date of issuance at an exercise price of $ 10 .00 per share (subject to certain customary adjustments upon the occurrence of certain events, including but not limited to stock dividends, stock splits, subsequent rights offerings of the Company, pro rata distributions of the Company, and in connection with a Fundamental Transaction. Palladium Capital Advisors, LLC acted as the exclusive placement agent for the $1,250,000 Senior Convertible Notes and, as compensation therefor, the Company paid Palladium Capital Advisors, LLC a placement agent fee of $62,500, included as part of financing fees described above, and issued to them a common stock warrant to purchase up to 11,364 shares of our common stock at an initial exercise price of $ 10 .00 per share. The warrant is immediately exercisable and expires on November 14, 2019. The exercise price and number of shares of common stock issuable under the warrant are subject to customary anti-dilutive adjustments for stock splits, stock dividends, recapitalizations and similar transactions. At any time the warrant may be exercised by means of a “cashless exercise” and the Companythis prospectus, however, we will not receiveincorporate by reference any proceeds at such time.On the date of the issuance of the $1,250,000 Senior Convertible Notes, the Company recorded a debt discount of $1,250,000, of which $701,250 was allocated on a relative fair value basis to the warrants issued and the remaining $548,750 was allocated on a relative fair value basis to the conversion feature embedded within the $1,250,000 Senior Convertible Notes. The debt discount will be amortized using the effective interest method over the life of the $1,250,000 Senior Convertible Note, as applicable,document or until such time that the $1,250,000 Senior Convertible Notes are converted, in full or in part, into shares of common stock of the Company with any unamortized debt discount continuing to be amortized in the event of any partial conversionportions thereof and any unamortized debt discount being expensed at such time of full conversion thereof. During the year ended December 31, 2014, the Company recorded an aggregate $156,250 in non-cash interest expense related to the amortization of the debt discount, which is included in interest expense in the accompanying consolidated statement of operations.$300,000 Senior Convertible Notes Payable to Related PartiesOn June 19, 2012, the Company entered into securities purchase agreements with Kevin Frija, its former Chief Executive Officer, Harlan Press, its former Chief Financial Officer, and Doron Ziv, a then greater than 10% stockholder of the Company, pursuant to which Messrs. Frija, Press and Ziv purchased from the Company (i) $300,000 aggregate principal amount of the Company’s senior convertible notes (the “$300,000 Senior Convertible Notes”) and (ii) common stock purchase warrants to purchase up to an aggregate of 1,861 shares of the Company’s common stock.The Company incurred interest expense of $48,674 during 2013 on the $300,000 Senior Convertible Notes until they were converted in full into 56,338 shares of the Company’s common stock and fully extinguished in conjunction with completion of the Private Placement (as defined in Note 9), on October 29, 2013.$50,000 Senior Convertible Notes Payable to Related PartiesOn September 28, 2012, the Company entered into a securities purchase agreement with Kevin Frija, its former Chief Executive Officer, pursuant to which Mr. Frija purchased from the Company (i) a $50,000 principal amount senior convertible note of the Company (the “$50,000 Senior Convertible Note”) and (ii) common stock purchase warrants to purchase up to an aggregate of 275 shares of the Company’s common stock.The Company incurred interest expense of $8,113 during 2013 on the $50,000 Senior Convertible Notes until they were converted in full into 8,333 shares of the Company’s common stock and fully extinguished in conjunction with completion of the Private Placement (as defined in Note 9), on October 29, 2013. During the year ended December 31, 2013, the Company recorded $3,530 in amortization expense related to the debt discount, which is included in interest expense in the accompanying consolidated statements of operations.$350,000 Senior Convertible Notes Payable to Related PartiesOn July 9, 2013, the Company entered into securities purchase agreements with Ralph Frija, the father of the Company’s former Chief Executive Officer Kevin Frija and a less than 5% stockholder of the Company, Philip Holman, the father of the Company’s Chief Executive Officer Jeffrey Holman and a less than 5% stockholder of the Company, and Angela Vaccaro, the Company’s Controller, pursuant to which Messrs. Frija and Holman and Ms. Vaccaro (each, a “Purchaser”) purchased from the Company (i) $350,000 aggregate principal amount of the Company’s senior convertible notes (the “$350,000 Senior Convertible Notes”) and (ii) common stock purchase warrants to purchase up to an aggregate of 675 shares of the Company’s common stock (the “Warrants”) allocable among such Purchasers as follows:● Ralph Frija purchased a Convertible Note in the principal amount of $200,000 and a Warrant to purchase up to 385 shares of the Company’s common stock (which number of shares represents the quotient obtained by dividing (x) $10,000 (5% of the $200,000 principal amount of the Convertible Note) by (y) $5.19 (the 30-day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, preceding July 9, 2013));●Philip Holman purchased a Convertible Note in the principal amount of $100,000 and a Warrant to purchase up to 964 shares of the Company’s common stock (which number of shares represents the quotient obtained by dividing (x) $5,000 (5% of the $100,000 principal amount of the Convertible Note) by (y) $5.19 (the 30-day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, preceding July 9, 2013)); and●Ms. Vaccaro purchased a Convertible Note in the principal amount of $50,000 and a Warrant to purchase up to 482 shares of the Company’s common stock (which number of shares represents the quotient obtained by dividing (x) $2,500 (5% of the $50,000 principal amount of the Convertible Note) by (y) $ 25.95 (the 30-day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, preceding July 9, 2013)).The Convertible Notes issued on July 9, 2013 bear interest at 18% per annum, provide for cash interest payments on a monthly basis, mature on July 8, 2016, are redeemable at the option of the holders at any time after July 8, 2014, subject to certain limitations, are convertible into shares of the Company’s common stock at the option of the holders at an initial conversion price of $ 28.55 per share (which represents 110% of the 30-day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, preceding July, 9, 2013) subject to certain anti-dilution protection and are senior unsecured obligations of the Company.The Company incurred interest expense of $16,126 during 2013 on the $350,000 Senior Convertible Notes. In conjunction with completion of the Private Placement (as defined in Note 9), on October 29, 2013, the conversion price was reduced to $ 15 .00 per share inducing the holders of $350,000 Senior Convertible Notes to fully convert all of these senior convertible notes into 23,334 shares of our common stock, whereupon all of these senior convertible notes were fully extinguished and cease to be outstanding. During the year ended December 31, 2013, the Company recorded $246,375 in induced conversion expense related to the reduction in the conversion price for the $350,000 Senior Convertible Notes. The induced conversion expense is included in other expense in the accompanying consolidated statements of operations.The Company recorded $4,550 as debt discount on the principal amount of the $350,000 Senior Convertible Notes issued on July 9, 2013 due to the valuation of the Warrants issued in conjunction therewith. Additionally, as a result of issuing the Warrants with the $350,000 Senior Convertible Notes, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $3,937, at the time of issuance provided to the holders of the Notes. The debt discounts applicable to the $350,000 Senior Convertible Notes was amortized, using the straight-line method, over the life of the $350,000 Senior Convertible Notes, until October 29, 2013 when the $350,000 Senior Convertible Notes were converted in full into shares of common stock of the Company. The remaining unamortized debt discounts was expensed at the time of the conversion. During the year ended December 31, 2013, the Company recorded $4,550 and $3,937 in amortization expense related to the debt discounts and the beneficial conversion option, respectively. The amortization expense related to the debt discounts and the beneficial conversion option is included in interest expense in the accompanying consolidated statements of operations.The Warrants issued on July 9, 2013 are exercisable at initial exercise prices of $ 28.55 per share (which represents 110% of the 30-day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, preceding July 9, 2013) subject to certain anti-dilution protection and may be exercised at the option of the holders for cash or on a cashless basis until July 8, 2018.$75,000 Senior Convertible Notes Payable to Related PartiesOn July 11, 2013, the Company and Ms. Vaccaro entered into another Securities Purchase Agreement pursuant to which she purchased (i) a Convertible Note in the principal amount of $75,000 (the “$75,000 Senior Convertible Note”) and (ii) a Warrant to purchase up to 144 shares of the Company’s common stock (which number of shares represents the quotient obtained by dividing (x) $3,750 (5% of the $75,000 principal amount of the Convertible Note) by (y) $ 26.135 (the 30-day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, preceding July 11, 2013)).The Convertible Note issued on July 11, 2013 is the same as the Convertible Notes issued on July 9, 2013 except that it matures on July 10, 2016, it is redeemable on July 10, 2014 and its initial conversion price is $ 28.75 per share. The Warrant issued on July 11, 2013 is the same as the Warrants issued on July 9, 2013 except that its initial exercise price is $ 28 .75 per share and it is exercisable until July 10, 2018.The Company incurred interest expense of $3,957 during 2013 on the $75,000 Senior Convertible Notes. In conjunction with completion of the Private Placement (as defined in Note 9), on October 29, 2013, the conversion price was reduced to $ 15 .00 per share inducing the holder of the $75,000 Senior Convertible Note to fully convert all of these senior convertible notes into 5,000 shares of our common stock, whereupon all of these senior convertible notes were fully extinguished and cease to be outstanding. During the year ended December 31, 2013, the Company recorded $53,202 in induced conversion expense related to the reduction in the conversion price for the $75,000 Senior Convertible Note. The induced conversion expense is included in other expense in the accompanying consolidated statements of operations.The Company recorded $825 as debt discount on the principal amount of the $75,000 Senior Convertible Note issued on July 11, 2013 due to the valuation of the Warrant issued in conjunction therewith. The debt discount applicable to the $75,000 Senior Convertible Note was amortized, using the straight-line method, over the life of the $75,000 Senior Convertible Note, until October 29, 2013 when the $75,000 Senior Convertible Note was converted in full into shares of common stock of the Company. The remaining unamortized debt discounts was expensed at the time of the conversion. During the year ended December 31, 2013, the Company recorded $825 in amortization expense related to the debt discount, and is included in interest expense in the accompanying consolidated statements of operations.The $300,000 Senior Convertible Notes, as amended, the $50,000 Senior Convertible Note, as amended, the $350,000 Senior Convertible Notes, and the $75,000 Senior Convertible Note did not restrict the Company’s ability to incur future indebtedness.$500,000 Senior Convertible Note Payable to StockholderOn July 9, 2012, the Company borrowed $500,000 from Ralph Frija, the father of the Company’s former Chief Executive Officer Kevin Frija and a less than 5% stockholder of the Company, pursuant to a senior note (the “Senior Note”). The Senior Note, as amended (as described below), bears interest at 24% per annum, provides for cash principal and interest payments on a monthly basis, is a senior unsecured obligation of the Company, matures on April 22, 2016, is convertible into shares of the Company’s common stock at the option of the holder at an initial conversion price of $ 12.885 per share (which represents 110% of the 30-day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, preceding April 30, 2013) subject to certain anti-dilution protection and is a senior unsecured obligation of the Company.Initially, this Senior Note provided for only cash interest payments on a monthly basis, matured at the discretion of the Company on the earlier of (x) the date on which the Company consummated a single or series of related financings from which it received net proceeds in excess of 125% of the initial principal amount of the Senior Note or (y) January 8, 2013 and was not convertible at the option of the holder into shares of the Company’s common stock. On November 13, 2012, the Company and the above named holder of the $500,000 Senior Note amended the Note to extend its maturity date for payment from January 8, 2013 to January 8, 2014. On April 30, 2013, the Company and the above named holder of the Senior Note further amended the Note to provide for cash principal and interest payments on a weekly basis, extend the maturity date for payment to April 22, 2016 and make the Note convertible into shares of the Company’s common stock at the option of the holder at an initial conversion price of $ 12.885 per share (which represents 110% of the 30-day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, preceding April 30, 2013) subject to certain anti-dilution protection.The Company incurred interest expense of $93,267 during 2013 on the $50,000 Senior Convertible Notes until they were converted in full into 33,332 shares of the Company’s common stock and fully extinguished in conjunction with completion of the Private Placement (as defined in Note 9), on October 29, 2013.$500,000 Senior Convertible Note PayableOn January 29, 2013, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with Robert John Sali, pursuant to which Mr. Sali purchased from the Company (i) a $500,000 principal amount senior convertible note of the Company (the “2013 Convertible Note”) and (ii) common stock purchase warrants to purchase up to an aggregate of 1,628 shares of the Company’s common stock (the “Warrant”) (which number of shares represents the quotient obtained by dividing (x) $25,000 (5% of the $500,000 principal amount of the 2013 Convertible Note) by (y) $ 15.35 (the 30-day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, preceding January 29, 2013)). The Company generated aggregate proceeds of $500,000 from the sale of these securities pursuant to the Securities Purchase Agreement.The 2013 Convertible Note bears interest at 18% per annum, provides for cash interest payments on a monthly basis, matures on January 28, 2016, is redeemable at the option of the holder at any time after January 28, 2014 subject to certain limitations, is convertible into shares of the Company’s common stock at the option of the holder at an initial conversion price of $ 16.888 per share (which represents 110% of the 30-day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, preceding January 29, 2013) subject to certain anti-dilution protection and is a senior unsecured obligation of the Company. The 2013 Convertible Note does not restrict the Company’s ability to incur future indebtedness.The Company incurred interest expense of $66,329 during 2013 on the $50,000 Senior Convertible Notes until they were converted in full into 148,039 shares of the Company’s common stock and fully extinguished in conjunction with completion of the Private Placement (as defined in Note 9), on October 29, 2013.The Warrant is exercisable at initial exercise price of $ 16.888 per share (which represents 110% of the 30-day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, preceding January 29, 2013) subject to certain anti-dilution protection and may be exercised at the option of the holder for cash or on a cashless basis until January 28, 2018.The Company recorded $10,131 as debt discount on the principal amount of the 2013 Senior Convertible Note issued on January 29, 2013 due to the valuation of the Warrant issued in conjunction therewith. Additionally, as a result of issuing the Warrant with the 2013 Senior Convertible Note, a beneficial conversion option was recorded as a debt discount reflecting the incremental conversion option intrinsic value benefit of $79,527, at the time of issuance provided to the holder of the Note. The debt discounts applicable to the 2013 Convertible Note was amortized, using the straight-line method, over the life of the 2013 Convertible Note, until October 29, 2013 when the 2013 Convertible Note was converted in full into shares of common stock of the Company. The remaining unamortized debt discounts was expensed at the time of the conversion. During the year ended December 31, 2013, the Company recorded $10,131 and $79,527 in amortization expense related to the debt discounts and the beneficial conversion option, respectively. The amortization expense related to the debt discounts and the beneficial conversion option is included in interest expense in the accompanying consolidated statements of operations.Note 7. FACTORING FACILITY AND TERM LOAN PAYABLEFactoring FacilityOn August 8, 2013, the Company and Smoke entered into an accounts receivable factoring facility (the “Factoring Facility”) with Entrepreneur Growth Capital, LLC (the “Lender”) pursuant to an Invoice Purchase and Sale Agreement, dated August 8, 2013, by and among them (the “Factoring Agreement”).The Factoring Facility has an initial term of one year and automatically renews from month to month thereafter subject to the Company terminating it earlier upon at least 15 business days’ advance written notice provided that all obligations are paid (including a termination fee, if applicable, as specified in the Factoring Agreement). The Factoring Facility is secured by a security interest in substantially all of the Company’s assets. Under the terms of the Factoring Agreement, the Lender may, at its sole discretion, purchase certain of the Company’s eligible accounts receivable. Upon any acquisition of an account receivable, the Lender will advance to the Company up to 50% of the face amount of the account receivable. Each account receivable purchased by the Lender will be subject to a factoring fee of 1% of the gross face amount of such purchased account for each 30 day period (or part thereof) the purchased account remains unpaid. The Lender will generally have full recourse against the Company in the event of nonpayment of any such purchased account.The Factoring Agreement contains covenants and provisions relating to events of default that are customary for agreements of this type. The failure to satisfy covenants under the Factoring Agreement or the occurrence of other specified events that constitute an event of default could result in the termination of the Factoring Facility and/or the acceleration of the repayment obligations of the Company.During the year ended December 31, 2013 gross borrowings under the Factoring Facility were $407,888, all of which were repaid as of September 30, 2013. There were no borrowings during the year ended December 31, 2014.2013 Term LoanOn August 16, 2013, the Company and Smoke entered into a $750,000 term loan (the “2013 Term Loan”) with the Lender pursuant to a Credit Card Receivables Advance Agreement, dated August 16, 2013, by and among them (the “Term Agreement”).The Term Loan matured on August 15, 2014, was payable from the Company’s and Smoke’s merchant credit card receivables at the annual rate of 16% subject to the Lender retaining a daily fixed amount of $3,346 from the daily collection of the merchant credit card receivables and is secured by a security interest in substantially all of the Company’s assets. The Company used the proceeds of the Term Loan for general working capital purposes.At December 31, 2013 the Company had $478,847 of borrowings outstanding under the 2013 Term Loan. During the year ended December 31, 2014 and 2013, the Company recorded $76,617 and $44,769, respectively, in interest expense for the 2013 Term Loan and this amount is included in interest expense in the accompanying consolidated statements of operations. The 2013 Term Loan was repaid in full during the year ended December 31, 2014.2014 Term LoanOn September 23, 2014, the Company and Smoke entered into a $1,000,000 term loan (the “2014 Term Loan”) with the Lender pursuant to a secured promissory note entered into by the Company and Smoke in favor of the Lender (the “Secured Note”). Under the Secured Note, the 2014 Term Loan bears interest at 14% per annum and is secured by a security interest in substantially all of the Company’s assets. Under the Secured Note, the principal amount of the 2014 Term Loan is payable in twelve (12) successive monthly installments of $83,333 with the last payment due in September 2015. Interest on the 2014 Term Loan is payable in arrears. The Company used the proceeds of the 2014 Term Loan for general working capital purposes.The Term Agreement contains covenants that are customary for agreements of this type. The failure to satisfy covenants under the Term Agreement or the occurrence of other specified events that constitute an event of default could result in the termination of the Term Agreement (as well as the Factoring Agreement) and/or the acceleration of the repayment of the Term Loan and the other obligations of the Company (including the Factoring Facility). The Term Agreement contains provisions relating to events of default that are customary for agreements of this type.At December 31, 2014, the Company had $750,000 of borrowings outstanding under the 2014 Term Loan. During the year ended December 31, 2014, the Company recorded $24,086 in interest expense for the 2014 Term Loan and this amount is included in interest expense in the accompanying consolidated statements of operations.The Company’s Chief Executive Officer and Former Chief Financial Officer have personally guaranteed performance of certain of the Company’s obligations under the Factoring Agreement and the Term Agreement. In consideration of the Company’s Former Chief Financial Officer providing the personal guarantee, the Company has agreed to amend his employment agreement as described in Note 9.Note 8. CAPITAL LEASE OBLIGATIONSOn October 1, 2014, the Company entered into a capital lease obligation in connection with the acquisition of equipment for its retail locations in the principal amount of $179,359. Annual interest on the capital lease obligation is 15.8% and borrowings are to be repaid over 36 months maturing on October 17, 2017. During the year ended December 31, 2014, the Company incurred interest expense associated with the capital lease obligation of $4,679. Depreciation expense incurred during the year ended December 31, 2014 for equipment held under capital lease obligations was $9,964. The net book value of equipment held under capital lease obligations at December 31, 2014 is $169,395.Future minimum lease payments under non-cancelable capital leases that have initial or remaining terms in excess of one year at December 31, 2014 are due as follows: Capital
Lease 2015 $ 75,485 2016 75,485 2017 62,904 Total 213,874 Amounts representing interest payments (42,416 ) Present value of future minimum payments 171,458 Current portion of capital lease obligations (52,015 ) Capital lease obligations, long term $ 119,443 Note 9. STOCKHOLDERS’ EQUITYPreferred StockThe Company’s amended and restated articles of incorporation authorizes the Company’s Board of Directors to issue up to 1,000,000 shares of “blank check” preferred stock, having a $0.001 par value, in one or more series without stockholder approval. Each such series of preferred stock may have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as determined by the Company’s Board of Directors. At December 31, 2014 and 2013, no shares of preferred stock were issued or outstanding.Common StockThe Company’s amended and restated articles of incorporation authorizes the Company’s Board of Directors to issue up to 50,000,000 shares of common stock having a par value of $0.001 per share. Each share entitles the holder to one vote.Common Stock Issued for ServicesOn March 15 and June 15, 2013, the Company issued a total of 4,000 shares of common stock, pursuant to a consultancy agreement dated March 4, 2013. The Company terminated this consultancy agreement effective June 2013. Prior to termination of the agreement, the Company had agreed to issue on a quarterly basis common stock as compensation for services provided thereunder. The Company determined that the fair value of the common stock issued was more readily determinable than the fair value of the services provided. Accordingly, the Company recorded the fair market value of the stock as compensation expense. The Company valued the shares issued on March 15 and June 15, 2013 shares at $29,500 and $57,500, respectively, based on closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, on March 15 and June 15, 2013, respectively. During the year ended December 31, 2013, the Company recognized stock-based compensation expense in the amount of $87,000, which is included as part of selling, general and administrative expense in the accompanying consolidated statements of operations.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. Mr. Kavanaugh is the Founder and Chief Executive Officer of Relativity, a next-generation media company engaged in multiple aspects of entertainment, including film production; financing and distribution; television; sports management; music publishing; and digital media.Under the terms of the Consulting Agreement, the Company has issued to Mr. Kavanaugh 80 ,000 shares of its common stock, of which 10 ,000 shares vested immediately upon execution of the Consulting Agreement, 10 ,000 shares vested on May 3, 2014, 10 ,000 shares vested on August 3, 2014, 10 ,000 shares vested on November 3, 2014 and 10 ,000 shares will vest in installments of 10 ,000 shares each quarterly period beginning on the 90th day following November 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. No commissions were paid under the consulting agreement during the year ended December 31, 2014.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. During the year ended December 31, 2014, the Company recognized stock-based compensation expense relating to the Consulting Agreement, in the amount of $1,602,933, which is included as part of selling, general and administrative expense in the accompanying consolidated statements of operations.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 10 ,000 shares of its common stock to Knight Global pursuant to the early termination provisions of the Consulting Agreement. The Company will incur $322,067 in connection with this final issuance during the first quarter of 2015. 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.Private Placement of Common StockOn October 22, 2013, the Company entered into a purchase agreement (the “Purchase Agreement”) with various institutional and individual accredited investors and certain of its officers and directors to raise gross proceeds of $10 million in a private placement of 666,668 shares of its common stock at a per share price of $ 15 .00 (the “Private Placement”). On October 29, 2013, the Company completed the Private Placement. The Company received net proceeds from the Private Placement of approximately $9.0 million, after paying placement agent fees and estimated offering expenses, which the Company used to fund its growth initiatives and for working capital purposes. Of the approximate $1 million in offering costs, approximately $110,000 were incurred during the year ended December 31, 2014.Pursuant to the Purchase Agreement, concomitantly with completion of the Private Placement, the Company entered into a registration rights agreement with the investors (other than its participating officers and directors), pursuant to which the Company fileddeemed “filed” with the SEC, an initial registration statementor any information furnished pursuant to register for resale the 643,234 sharesItems 2.02 or 7.01 of the Company’s common stock purchasedForm 8-K or related exhibits furnished pursuant to Item 9.01 of Current Reports on Form 8-K.the investors (other than the Company’s participating officers and directors). The initial registration statement was declared effective by the SECreference into this prospectus are also available on January 27, 2014. On March 5, 2014, the Company filed a post-effective amendment to the initial registration statement. The post-effective amendment to the initial registration statement was declared effective by the SEC on March 11, 2014. On June 20, 2014, the Company filed a second post-effective amendment to the initial registration statement. The second post-effective amendment to the initial registration statement was declared effective by the SEC on June 27, 2014. If the second post-effective amendment to the initial registration statement after being declared effective by the SEC is not effective for resales for more than 20 consecutive days or more than 45 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 the Company’s 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. These cash payments could be as much as $81,489 for every 30 days.Under the terms of the Purchase Agreement, the Company:●Amended its existing equity incentive plan on November 20, 2013 to reduce the number of shares of its common stock reserved and available for issuance under the plan to 360,000 from 1,600,000 .●Effectuated a reverse stock split of its common stockour corporate website at a ratio of 1-for-5, which became effective in the marketplace at the opening of business December 27, 2013 (as disclosed in Note 1 above).●Reincorporated to the State of Delaware effective on December 31, 2013 (as disclosed in Note 1).●Reconstituted its board of directors effective April 25, 2014 so that the board of directors consists of five members, a majority of whom each qualify as an “independent director” as defined in NASDAQ Marketplace Rule 5605(a)(2) and the related NASDAQ interpretative guidance; and●Listed its common stock on The NASDAQ Capital Market effective May 30, 2014.In conjunction with completion of the Private Placement, on October 29, 2013, the holders of the Company’s approximately $1.7 million of outstanding senior convertible notes, some of whom were officers and directors of the Company, converted in full all of these senior convertible notes into approximately 780,000 shares of the Company’s common stock, whereupon all of these senior convertible notes were fully extinguished and cease to be outstanding. See Note 6.All of the warrants issued in conjunction with the convertible notes described in Note 6 and the Private Placement were evaluated in accordance with ASC 815 and were determined to be equity instruments. The Company estimated the fair value of these Warrants using the Black-Scholes-Merton valuation model. The significant assumptions which the Company used to measure their respective fair values included stock prices ranging from $ 5 .00 to $ 17 .50 per share, expected terms of 5 years, volatility ranging from 30.3% to 51.4%, risk free interest rates ranging from 0.71% to 0.90%, and a dividend yield of 0.0%.Warrantshttps://healthiercmc.comA summary of warrant activity for the years ended December 31, 2014 and 2013 is presented below: Number of
Warrants Weighted-
Average
Exercise Price Weighted-
Average
Contractual
Term Aggregate
Intrinsic
Value Outstanding at January 1, 2013 2,135 $ 5.40 Warrants granted 41,041 16.70 Warrants exercised — — Warrants forfeited or expired — — Outstanding at December 31, 2013 43,176 $ 16.15 Warrants granted 238,636 10.00 Warrants exercised ( 38,594 ) 16.50 Warrants forfeited or expired — — Outstanding at December 31, 2014 243,218 $ 10.05 5.0 $ — Exercisable at December 31, 2014 43,124 $ 16.15 5.0 $ — During the year ended December 31, 2014, 192,970 warrants were exercised in a cashless manner into 28,477 shares of common stock.Equity Incentive PlanThere are 360,000 shares of common stock reserved for issuance under the Company’s Equity Incentive Plan (after giving effect to the reduction of the number of shares reserved and available for issuance thereunder and the 1-for-5 reverse stock split, each as implemented in accordance with the Purchase Agreement governing the Private Placement), which was duly adopted by the stockholders on November 24, 2009. The Plan provides for the granting of incentive stock options to employees, the granting of non-qualified stock options to employees, non-employee directors and consultants, and the granting of restricted stock to employees, non-employee directors and consultants in connection with their retention and/or continued employment by the Company. Options issued under the Plan generally have a ten-year term and generally become exercisable over a four-year period. Shares subject to awards that expire unexercised or are forfeited or terminatedheading “Investors/SEC Filings.” Upon request, we will again become available for issuance under the Plan. No participant in the Equity Incentive Plan can receive option grants and/or restricted shares for more than 20% of the total shares subject to the Plan.Stock-Based CompensationOn March 6, 2014, the Board granted to Ryan Kavanaugh a non-qualified Director’s stock option award under the Company’s Equity Incentive Plan to purchase up to 12,000 shares of the Company’s common stock at an exercise price per share equal to $ 41.50 (the closing share price of the Company’s common stock as reported on the OTC Bulletin Board at the close of trading on the grant date). On April 25, 2014, the Board grantedprovide to each person, including any beneficial owner, to whom this prospectus is delivered, a copy of the three (3) other New Directors a non-qualified stock option award under the Company’s Equity Incentive Plan to purchase up to 12 ,000 shares of the Company’s common stock at an exercise price per share equal to $ 32.40 (the closing share price of the Company’s common stock as reported on the OTC Bulletin Board at the close of trading on the grant date). Each of the New Director’s stock options expire on the fifth anniversary of the grant date, vest in equal annual installments over a three-year period from the grant date subject to he/she serving as a member of the Board on each such vesting date and is to be evidenced by a non-qualified stock option agreement customarily utilized under the Equity Incentive Plan. The weighted average grant date fair value of the March 6 and April 25, 2014 awards were $149,160 and $315,720, respectively.In addition, during the year ended December 31, 2014, the Company issued non-qualified stock option awards under the Company’s Equity Incentive Plan to purchase up to 2,400 shares of the Company’s common stock at an exercise price equal to $8.30 (the closing share price of the Company’s common stock as reported on the OTC Bulletin Board at the close of trading on the grant date). The options vest in 3 annual installments and had an aggregate grant date fair value of $29,832.During the year ended December 31, 2013, the Company issued non-qualified stock option awards under the Company’s Equity Incentive Plan to purchase up to 2 ,000 shares of the Company’s common stock at an exercise price equal to $ 21.75 (the closing share price of the Company’s common stock as reported on the OTC Bulletin Board at the close of trading on the grant date) that vest in 3 annual installments and had an aggregate grant date fair value of $25,900 and up to 31,200 shares of the Company’s common stock at an exercise price equal to $ 21.75 (the closing share price of the Company’s common stock as reported on the OTC Bulletin Board at the close of trading on the grant date) that vest in 4 annual installments and had an aggregate grant date fair value of $80,808.The fair value of employee stock options was estimated using the following weighted-average assumptions: For the Years Ended December 31, 2014 2013 Expected term 5 - 7 years 6.3 - 10 years Risk Free interest rate 1.57% - 1.72 % 2.62 % Dividend yield 0.0 % 0.0 % Volatility 27% - 31 % 46.3 % Stock option activityOptions outstanding at December 31, 2014 under the various plans are as follows (in thousands):PlanTotalNumber ofOptionsOutstandingin PlansEquity compensation plans not approved by security holders180Equity Incentive Plan89269A summary of activity under all option Plans for the years ended December 31, 2014 and 2013 is presented below (in thousands, except per share data): Number of
Shares Weighted-
Average
Exercise Price Weighted-
Average
Contractual Term Aggregate
Intrinsic
Value Outstanding at January 1, 2013 226 $ 10.30 Options granted 8 21.75 Options exercised ( 8 ) 7.85 Options forfeited or expired ( 2 ) 6.35 Outstanding at December 31, 2013 224 10.85 Options granted 50 35 .00 Options exercised ( 1 ) 5 .00 Options forfeited or expired ( 4 ) 7.35 Outstanding at December 31, 2014 269 $ 15.40 6.53 $ - Exercisable at December 31, 2014 203 $ 10.85 6.45 $ - Options available for grants at December 31, 2014 260 For the years ended December 31, 2014 and 2013, the Company’s estimated forfeiture rate utilized ranged from 0.01% to 0.02%.During the years ended December 31, 2014 and 2013, the Company recognized stock-based compensation expense, for the vesting of stock options, of $163,646 and $48,239, respectively. Stock-based compensation expense is included as part of selling, general and administrative expense in the accompanying consolidated statements of operations.As of December 31, 2014, 1,012,745 common stock options that were granted had vested and 66,311 common stock options were unvested. At December 31, 2014 and 2013, the amount of unamortized stock-based compensation expense on unvested stock options granted to employees and consultants was and $476,828 and $150,037, respectively. The unamortized amounts will be amortized over the remaining vesting period through September 30, 2016.The Company accounts for share-based awards exchanged for employee services at the estimated grant date fair value of the award. Compensation expense includes the impact of an estimate for forfeitures for all stock options. The Company estimated the fair value of employee stock options using the Black-Scholes-Merton option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service periods of the respective awards. The expected term of such stock options represents the average period the stock options are expected to remain outstanding and is based on the expected term calculated using the approach prescribed by SAB 107 for “plain vanilla” options. Through September 30, 2014, the expected stock price volatility for the Company’s stock options was determined by using an average of the historical volatilities of the Company and industry peers. Beginning in the fourth quarter of 2014, the Company began estimating its expected volatility using the weekly trading prices of its own common stock as the Company felt this was a more appropriate measure. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts.(Loss) Earnings Per ShareThe Company utilizes ASC 260, “Earnings per Share,” (“ASC 260”) to calculate earnings or loss per share. Basic earnings or loss per share is computed by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings or 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, convertible notes and common stock purchase warrants from the calculation of net loss per share, as their effect is antidilutive.The following table reconciles the numerator and denominator for the calculation: For the years ended
December 31, 2014 2013 Net (loss) income - basic $ (13,852,249 ) $ 801,352 Denominator – basic: Weighted average number of common shares outstanding 3,283,030 2,563,697 Basic (loss) earnings per common share $ ( 4.22 ) $ 0. 31 Net (loss) earnings – diluted $ (13,852,249 ) $ 801,352 Denominator – diluted: Basic weighted average number of common shares outstanding 3,283,030 2,563,697 Weighted average effect of dilutive securities: Common share equivalents of outstanding stock options - 69,886 Common share equivalents of convertible debt - - Common share equivalents of outstanding warrants - 3,690 Diluted weighted average number of common shares outstanding 3,283,030 2,637,273 Diluted (loss) earnings per common share $ ( 4.22 ) $ 0. 30 Securities excluded from the weighted outstanding calculation because their inclusion would have been antidilutive: Convertible debt 227,273 — Stock options 268,860 1,287 Warrants 243,218 818 F-46Note 10. INCOME TAXESThe income tax provision (benefit) consists of the following: For the Years ended
December 31, 2014 2013 Current: Federal $ - $ 337,016 State and local - 29,344 Utilization of net operating loss carryforward - (346,783 ) - 19,577 Deferred: Federal (4,337,272 ) 202,531 State and local (463,060 ) 34,178 (4,800,332 ) 236,709 Change in valuation allowance 5,567,665 (781,077 ) 767,333 (544,368 ) Income tax provision (benefit) $ 767,333 $ (524,791 ) The following is a reconciliation of the expected tax expense (benefit) on the U.S. statutory rate to the actual tax expense (benefit) reflected in the accompanying statement of operations: For the Years Ended
December 31, 2014 2013 U.S. federal statutory rate (34.00 )% 34.00 % State and local taxes, net of federal benefit (2.98 )% 3.63 % Amortization of debt discount — 13.95 % Debt conversion inducement — 40.76 % Net operating loss tax adjustment — (9.65 )% Other permanent differences 0.29 % 3.00 % Alternative minimum tax — 6.97 % Change in valuation allowance 42.55 % (282.42 )% Income tax provision (benefit) 5.86 % (189.76 )% As of December 31, 2014 and 2013, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following: Years Ended December 31, 2014 2013 Current deferred tax assets: Net operating loss carryforwards $ 4,556,515 $ 169,404 Stock-based compensation expense 507,864 442,813 Alternative minimum tax credit carryforwards 15,336 19,283 Reserves and allowances 263,609 97,587 Inventory 269,865 59,320 Accrued expenses and deferred income 53,442 8,824 Severance 27,555 — Charitable contributions 1,260 1,317 Total current deferred tax assets 5,695,446 798,548 Current deferred tax liabilities: Section 481 (a) adjustment — (24,450 ) Property and equipment — (7,600 ) Total current deferred tax liabilities — (32,050 ) Net current deferred tax assets 5,695,446 766,498 Valuation allowance (5,695,446 ) — Net deferred tax assets $ — $ 766,498 In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portionany or all of the deferred tax assetsreports or documents that have been incorporated by reference into this prospectus. If you would like a copy of any of these documents, at no cost, please call us at (305) 600-5004 or through an e-mail request to offeringinfo@hcmc1.com. We will be realized. The ultimate realizationprovide, without charge, to each person, including any beneficial owner, to whom a copy of deferred tax assetsthis prospectus is dependentdelivered, upon the generationsuch person’s written or oral request, a copy of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable incomeany and tax planning strategies in making this assessment. After consideration of all of the positive and negative evidence available, management has determined that a valuation allowance of $5,695,446 and $0 are required at December 31, 2014 and 2013, respectively, to reduce the deferred tax assets to amounts that are more likely than not to be realized. Should the factors underlying management’s analysis change, future valuation adjustmentsinformation incorporated by reference in this prospectus. Exhibits to the Company’s net deferred tax assets may be necessary.At December 31, 2014 the Company had U.S. federal and state net operating loss carryforwards (“NOLS”) of $12,214,479 and $12,812,444, respectively. At December 31, 2013 the Company had U.S. federal and state NOLS of $251,269 and $1,526,482, respectively. These NOLs expire beginning in 2032. Utilization of our NOLS may be subject to an annual limitation under section 382 and similar state provisions of the Internal Revenue Code due to changes of ownership that may have occurred or that could occur in the future, as defined under the regulations.As required by the provisions of ASC 740, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of NOL or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.If applicable, interest costs and penalties related to unrecognized tax benefits are required to be calculated and would be classified as interest and penalties in general and administrative expense in the statement of operations. As of December 31, 2014 and 2013, no liability for unrecognized tax benefit was required to be reported. No interest or penalties were recorded during the years ended December 31, 2014 and 2013. The Company does not expect any significant changes in its unrecognized tax benefits in the next year. The Company files U.S. federal and Florida, Maryland, Texas, New Jersey and Wisconsin state income tax returns. As of December 31, 2014, the Company’s U.S. and state tax returns remain subject to examination by tax authorities beginning with the tax year ended December 31, 2011.Note 11. COMMITMENTS AND CONTINGENCIESEmployment AgreementsOn February 19, 2013, the Company entered into an employment agreement with Mr. Jeffrey Holman pursuant to which Mr. Holman will be employed as President of the Company for a term that shall begin on February 19, 2013, and, unless sooner terminated as provided therein, shall end on December 31, 2015; provided that such term of employment shall automatically extend for successive one-year periods unless either party gives at least six months’ advance written notice of its intention not to extend the term of employment. Mr. Holman will receive a base salary of $182,000 for the first two years of the employment agreement. Mr. Holman shall be eligible to participate in the Company’s annual performance based bonus program, as the same may be established from time to time by the Company’s Board of Directors in consultation with Mr. Holman for executive officers of the Company.Resignation of Chief Executive Officer and Appointment of New Chief Executive OfficerEffective April 25, 2014, Kevin Frija resigned as the Company’s Chief Executive Officer and the Company’s Board of Directors appointed the Company’s President and incumbent member of the Board, Jeffrey Holman, as the Company’s new Chief Executive Officer. In connection with Mr. Frija’s resignation as Chief Executive Officer, the Board approved severance payments to Mr. Frija in an aggregate amount equal to one year of base salary at the rate of $159,000 per annum payable in installments in accordance with the Company’s normal payroll schedule conditioned upon his execution and delivery of a general release to the Company, which has become irrevocable in accordance with its terms and applicable law, and his compliance with the non-solicitation, confidentiality and non-competition covenants of his Employment Agreement dated February 27, 2012 with the Company until April 24, 2015 in certain respects and indefinitely in other respects. During the year ended December 31, 2014 the Company accrued severance expense in the amount of $167,003, which is included as part of the selling, general and administrative expenses in accompanying consolidated statements of operations in connection with Mr. Frija’s resignation. During the year ended December 31, 2014 $89,925 was paid and $77,028 is included in accrued expenses in accompanying consolidated balance sheets.Termination of Asset Purchase Agreement With International Vapor Group, Inc.On May 14, 2014, the Company and the Company’s wholly-owned subsidiary IVGI Acquisition, Inc., a Delaware corporation (the “Buyer”) entered into the Asset Purchase Agreement with International Vapor Group, Inc. (“IVG”) pursuant to which the Company was to purchase the business of IVG by acquiring substantially all of the assets and assuming certain of the liabilities of IVG in an asset purchase transaction. On July 25, 2014, the Company, the Buyer and the Owners David Epstein, David Herrera and Nicolas Molina, in their capacities as the representatives of the Sellers and Owners, entered into a First Amendment to Asset Purchase Agreement (the “First Amendment”). In connection with the First Amendment, the Company entered into a Secured Promissory Note whereby it loaned IVG $500,000 for working capital purposes. The secured promissory note accrued interest at a rate of 8% per year and was due at the earlier of (a) six months after the date of the termination of the Asset Purchase Agreement or the date the asset purchase closed. During the year ended December 31, 2014, the Company recognized interest income of $17,095 relating to this loan receivable.On August 26, 2014, the Company, the Buyer, and the Sellers and David Epstein, David Herrera and Nicolas Molina, in their capacities as the representatives of the Sellers and the owners of International Vapor Group, Inc., entered into a Termination Letter, pursuant to which the parties mutually terminated their previously announced Asset Purchase Agreement entered into on May 14, 2014 and amended on July 25, 2014. The Company and the Sellers mutually terminated the Asset Purchase Agreement because the parties could not agree upon certain operational and financial matters pertaining to the post-closing integration of the Sellers’ business operations. There are no current disputes or disagreements between the Company and the Sellers and neither party is liable for any breakup fees or reimbursement of costs to the other party as a result of the termination of the Asset Purchase Agreement.On January 12, 2015, the Company entered into an agreement with IVG whereby the Company agreed to reduce the 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.Lease CommitmentsThe 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 2014 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.Future minimum lease payments under non-cancelable operating that have initial or remaining terms in excess of one year at December 31, 2014 are due as follows: Operating
Leases 2015 $ 572,798 2016 307,488 2017 300,279 2018 253,841 2019 203,964 Total $ 1,638,370 Rent expense for the years ended December 31, 2014 and 2013 was $307,110 and $162,498, respectively.Legal ProceedingsFrom time to time the Company may be involved in various claims and legal actions arising in the ordinary course of our business.On May 15, 2011, the Company became aware that Ruyan Investment (Holdings) Limited (“Ruyan”) had named the Company, along with three other sellers of electronic cigarettes in a lawsuit filed in the U.S. District Court for the Central District of California alleging infringement of U.S. Patent No. 7,832,410, entitled “Electronic Atomization Cigarette” against the Company’s Fifty-One Trio products. In that lawsuit, which was initially filed on January 12, 2011, Ruyan was unsuccessful in bringing suit against the Company due to procedural rules of the court. Subsequent thereto, on July 29, 2011, Ruyan filed a new lawsuit in which it named the Company, along with seven other sellers of electronic cigarettes, alleging infringement of the same patent. On March 1, 2013, the Company and Ruyan settled this multi-defendant federal patent infringement lawsuit as to them pursuant to a settlement agreement by and between them. Under the terms of the settlement agreement:●The Company acknowledged the validity of Ruyan’s U.S. Patent No. 7,832,410 for “Electronic Atomization Cigarette” (the “410 Patent”), which had been the subject of Ruyan’s patent infringement claim against the Company;●The Company paid Ruyan a lump sum payment of $12,000 for the Company’s previous sales of electronic cigarettes based on the 410 Patent; and●On March 1, 2013, in conjunction with releasing one another (including their respective predecessors, successors, officers, directors and employees, among others) from claims related to the 410 Patent, the Company and Ruyan filed a Stipulated Judgment and Permanent Injunction with the above Court dismissing with prejudice all claims which have been or could have been asserted by them in the lawsuit.On June 22, 2012, Ruyan filed a second lawsuit against the Company alleging infringement of U.S. Patent No. 8,156,944, entitled “Aerosol Electronic Cigarette” (the “944 Patent”). Ruyan also filed separate cases for patent infringement against nine other defendants asserting infringement of the ‘944 Patent. Ruyan’s second lawsuit against the Company known as Ruyan Investment (Holdings) Limited v. Vapor Corp., No. 12-cv-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 U.S. Patent and Trademark Office. As a result of the stay, all of the consolidated lawsuits involving the 944 Patent have been stayed until the reexamination is completed. As a condition to granting the stay of all the lawsuits, the Court required any other defendant who desires to seek reexamination of the 944 Patent and potentially seek another stay (or an extension of the existing stay) based on any such reexamination to seek such reexamination no later than July 1, 2013. Two other defendants sought reexamination of the 944 Patent before expiration of such Court-imposed deadline of July 1, 2013. 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 December 24, 2014, the Patent Trial and Appeal Board issued its ruling that all of the challenged claims in the reexamination proceedings of the ‘944 patent were invalid except for one claim. To the extent claim 11 is asserted against the Company, the Company will vigorously defend itself against such allegations. Currently, the case remains stayed.On March 5, 2014, Fontem Ventures, B.V. and Fontem Holdings 1 B.V. (the successors to Ruyan) 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-1650. The complaint alleges infringement of U.S. Patent No. 8,365,742, entitled “Aerosol Electronic Cigarette”, U.S. Patent No. 8,375,957, entitled “Electronic Cigarette” (the “957 Patent”), U.S. Patent No. 8,393,331, entitled “Aerosol Electronic Cigarette” (the “331 Patent”) and U.S. Patent No. 8,490,628, entitled “Electronic Atomization Cigarette” (the “628 Patent”). On April 8, 2014, plaintiffs amended their complaint to add U.S. Patent No. 8,689,805, entitled “Electronic Cigarette” (the “805 Patent”). The products accused of infringement by plaintiffs are various Krave, Fifty-One and Hookah Stix products and parts. Nine 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 and believes the claims are without merit. Other defendants have filed petitions for inter partes reexamination of the 331, 628 and 805 Patents at the U.S. Patent and Trademark Office, which petitions are pending.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 Compliant alleges infringement by plaintiffs are 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 trail in November 2014. The parties are currently in active fact discovery and claim construction. Purchase CommitmentsAt December 31, 2014 and 2013, the Company has vendor deposits of $319,563 and $782,363, respectively, and vendor deposits are included as a component of prepaid expenses and vendor deposits on the consolidated balance sheets included herewith.Note 12. CONCENTRATION OF CREDIT RISKAt 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. At December 31 2013, accounts receivable balances included a concentration from one customer in the amount of $268,768, which was an amount greater than 10% of the total net accounts receivable balance.Beginning the first quarter of 2012, the Company began selling electronic cigarettes in the country of Canada exclusively through a Canadian distributor. For the years ended December 31, 2014 and 2013, the Company had sales in excess of 10% to this Canadian distributor of $2,912,525 and $3,847,310, respectively. For the year ended December 31, 2014 one other customer accounted for sales in excess of 10% with sales of $1,536,050. No other customer accounted for sales of 10% for the year ended December 31, 2013.Note 13. SUBSEQUENT EVENTSThe Company evaluates events that have occurred after the balance sheet date but before the 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 consolidated financial statements other disclosed.The merger closed on March 4, 2015. Prior to the closing of the Merger, Vapor and Vaporin entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) with certain accredited investors providing for the sale of $350,000 of Vaporin’s Convertible Notes (the “Notes”). On January 29, 2015, the Company issued the notes. The Note accrues interest on the outstanding principal at an annual rate of 12%. The principal and accrued interest on the Note is due and payable on January 29, 2016 (the “Maturity Date”) The Notefilings will not be convertible until such time as the Nasdaq Stock Market (“Nasdaq”) approves the listing of the sharessent, however, unless those exhibits have specifically been incorporated by reference in this prospectus or any accompanying prospectus supplement.be issued upon conversion of the Note. In no event will the number of shares of the Company’s common stock issuable upon conversion of the Note exceed 19.99% of the Company’s issued and outstanding common stock, regardless of the conversion price.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 Up to Shares $3,500,960 in shares of the Company’s Common Stock par value $0.001 per share at a price of $ 5.10 per share. The Company also issued Warrants to purchasers of the shares to acquire an aggregate of 547,026 shares of the Company’s Common Stock with an exercise price of $ 6.40 per share. The shares and Warrants were issued and sold through an exempt private securities offering to certain accredited investors.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), we are required to pay the investors (other than our 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.Note 14. REVERSE STOCK SPLITOn July 7, 2015, the Company filed an amendment to its Certificate of Incorporation to effectuate a one-for-five reverse stock split to its common stock and to increase its authorized common stock to 150,000,000 shares. The amendments were effective on July 8, 2015 at 11:59 pm. All warrant, option, common stock shares and per share information included herein gives effect to the 1 for 5 reverse split of the Company’s common stock effectuated on July 8, 2015.
Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders ofVaporin Inc.We have audited the accompanying balance sheet of Vaporin Inc. as of December 31, 2014 and the related statement of operations, stockholders’ deficit, and cash flows for the year ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vaporin, Inc. as of December 31, 2014 and the results of its operations, stockholders’ deficit, and cash flows for the year then ended in conformity accounting principles generally accepted in the United States of America.The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered losses from operations, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty./s/ RBSM LLPLas Vegas NevadaMay 12, 2015PROSPECTUS New York, NY, Washington DC, San Francisco, CA, Athens, Greece, Beijing, China, and Mumbai, IndiaMember of Antea Alliance with affiliated offices worldwideVAPORIN, Inc.(FORMERLY VALOR GOLD CORP.)CONSOLIDATED BALANCE SHEETS December 31, 2014 December 31, 2013 ASSETS CURRENT ASSETS Cash and cash equivalents $ 865,737 $ 25,221 Due from merchant credit card processor, net of reserve 160,216 – Accounts receivable – trade net Allowance for uncollectable accounts 88,614 16,587 Prepaid expenses and other current assets 42,996 32,522 Inventory 1,173,124 316,195 Total Current Assets 2,330,687 390,525 FIXED ASSETS Property and equipment, net 160,620 8,395 OTHER ASSETS Intangible assets, net 1,472 12,276 Goodwill 3,732,268 – Total Other Assets 3,894,360 12,276 TOTAL ASSETS $ 6,225,047 $ 411,196 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 824,104 $ 31,312 Accrued interest – related party – 804 Notes payable – 75,000 Notes payable – related party 1,000,000 260,899 Derivative liabilities 43,944 – Total Current Liabilities 1,868,048 368,015 STOCKHOLDERS’ EQUITY Preferred Stock, $.0001 par value per share, 50,000,000 shares authorized, as of December 31, 2014 and December 31, 2013, respectively. Preferred Stock Series A, $0.0001 par value per share, 100,000 shares authorized and 0 shares issued and outstanding, as of December 31, 2014 and December 31, 2013, respectively. – – Preferred Stock Series B, $0.0001 par value per share, 5,000,000 shares authorized, 100,000 and 0 shares issued and outstanding, as of December 31, 2014 and December 31, 2013, respectively. 10 – Preferred Stock Series C, $0.0001 par value per share, 100,000 shares authorized 1,550 and 0 shares issued and outstanding, as December 31, 2014 and December 31, 2013, respectively. – – Preferred Stock Series E, $0.0001 par value per share, 2 shares authorized
0 shares issued and outstanding, as of December 31, 2014 and December 31, 2013. – – Common Stock, $0.0001 par value per share, 200,000,000 shares authorized, 4,893,254 and 700,000 shares issued and outstanding, as of December 31, 2014 and December 31, 2013, respectively. 489 70 Additional paid-in capital 10,864,408 349,930 Accumulated deficit (6,502,903 ) (306,819 ) Total Vaporin Stockholders’ Equity 4,362,004 43,181 Non-Controlling Interest in Subsidiary (5,005 ) – Total Stockholders’ Equity 4,356,999 – TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 6,225,047 $ 411,196 The accompanying notes are an integral part of these consolidated financial statements.VAPORIN, Inc.(FORMERLY VALOR GOLD CORP.)CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended
December 31, 2014 2013 Revenues $ 3,281,838 $ 23,268 Cost of sales 1,790,098 10,851 Gross margin 1,491,740 12,417 Costs and expenses Promotional and marketing 983,507 57,189 General and administrative 6,131,510 238,999 Depreciation and amortization 19,987 6,082 Professional fees 315,086 15,779 Total operating costs and expenses 7,450,090 318,049 Operating loss (5,958,350 ) (305,632 ) Other income and (expense) Derivative expense (86,484 ) – Change in fair value of derivatives 251,625 (219 ) Interest expense – related party (407,890 ) (804 ) Total other income and expense (242,749 ) (1,023 ) Loss before provision for income tax (6,201,099 ) (306,655 ) Provision for income tax – – Net loss $ (6,201,099 ) $ (306,655 ) Loss attributable to common stockholders and loss per common share: Net loss (6,196,084 ) (306,655 ) Non-Controlling interest 5,015 – Net loss (6,201,099 ) (306,655 ) Weighted average shares outstanding, basic and diluted 3,554,486 700,000 Net loss per basic and diluted share $ (1.74 ) $ (0.44 ) The accompanying notes are an integral part of these consolidated financial statements.F-55
Dealer-ManagerVAPORIN, INC.(FORMERLY VALOR GOLD CORP.)CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITYFOR THE YEARS ENDED DECEMBER 31, 2014 AND DECEMBER 31, 2013 Preferred Stock Additional Non- Series A Series B Series C Series E Common Stock Paid in Accumulated Controlling Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Interest Total Balance at December 31, 2013 – – – – – – – – 700,000 70 $ 349,930 $ (306,819 ) – $ 43,181 Recapitalization of the company 60,000 6 – – 2,000 – – – 1,883,250 188 66,026 – – 66,220 Issuance of common stock – private placement – – 100,000 10 – – – – 820,993 82 4,357,378 4,357,470 Shares issued for services – – – – – – – – 363,250 36 1,294,459 – – 1,294,495 Shares issued for the conversion of debt – – – – – – – – 44,333 5 321,395 – – 321,400 Series E issued in connection with an acquisition – – – – – – 2 – – – 3,142,854 – – 3,142,854 Conversion of Series E into common shares – – – – – – (2 ) – 571,428 57 (57 ) – – Reclassification of derivative liability to equity – – – – – – – – – – 90,064 – – 90,064 Stock based compensation in connection with restricted stock grants – – – – – – – – – – 1,239,130 – – 1,239,130 Stock based compensation in connection with stock option grants – – – – – – – – – – 3,284 – – 3,284 Shares issued for conversion of preferred stock (60,000 ) (6 ) – – (450 ) – – – 510,000 51 (45 ) – – – Non-Controlling interest in subsidiary – – – – – – – – (10 ) – 10 – Net loss – – – – – – – – – – – (6,196,084 ) (5015 ) (6,201,099 ) Balance at December 31, 2014 – $ – 100,000 10 1,550 – – – 4,893,254 $ 489 $ 10,864,408 (6,502,903 ) (5,005 ) $ 4,356,999 See accompanying notes to consolidated financial statements.VAPORIN, Inc.(FORMERLY VALOR GOLD CORP.)CONSOLIDATED STATEMENTS OF CASH FLOWS Twelve Months Ended
December 31, 2014 2013 OPERATING ACTIVITIES Net loss $ (6,201,099 ) $ (306,655 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 19,987 6,082 Amortization of debt discount 253,844 – Derivative expense 86,484 – Change in fair value of derivative liabilities (251,625 ) – Interest expense in connection with the grant of warrants 78,869 – Interest expense in connection with conversion of debt 26,400 – Stock based compensation 2,536,909 – Changes in operating assets and liabilities Due from merchant credit card processor (160,216 ) – Trade and related party receivable (72,027 ) (16,587 ) Inventory (517,908 ) (316,195 ) Other current assets (3,877 ) (32,522 ) Accounts payable and accrued liabilities 746,312 Accrued Interest – Related party – 804 NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (3,457,947 ) (633,761 ) INVESTING ACTIVITIES Acquisition of business, net of cash acquired (798,000 ) – (Increase) decrease in intangible assets – (17,678 ) (Increase) decrease in fixed assets (61,007 ) (9,075 ) NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (859,007 ) (26,753 ) FINANCING ACTIVITIES Payment of notes payable (100,000 ) – Proceeds received from issuance of note payable – 75,000 Proceeds received from issuance of note payable - related party 1,000,000 610,735 Proceeds received from issuance of note prior to recapitalization 100,000 – Issuance of common stock, net of issuance costs 3,857,470 – Issuance of preferred stock 500,000 – NET CASH PROVIDED BY FINANCING ACTIVITIES 5,157,470 685,735 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 840,516 25,221 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,221 – CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 865,737 $ 25,221 Supplemental disclosures: Non cash activities: Reclassification of derivative liability to equity 90,064 – Note payable converted to common stock 295,000 – Note payable – related party exchanged to preferred stock pursuant to the Share Exchange 285,710 – Issuance of note payable in connection with the acquisition
of business 200,000 – Purchase of inventory and other assets upon acquisition of
business 345,618 – Purchase of property and equipment upon acquisition of
business 100,401 – Assumption of liabilities upon acquisition of business 37,433 – Preferred Series A shares issued for conversion of debt – 350,000 The accompanying notes are an integral part of these consolidated financial statementsNOTE 1 – NATURE OF OPERATIONSVaporin, Inc. (the “Company”)(formerly Valor Gold Corp.), was incorporated under the laws of the State of Delaware in June 2009. In January 2014, the Company entered into a Share Exchange Agreement (the “Share Exchange”) with Vaporin Florida, Inc., a privately-held Florida corporation (“Vaporin Florida”). Pursuant to the Exchange Agreement, all of the issued and outstanding common stock of Vaporin Florida was exchanged for an aggregate of 35 million shares of the Company’s common stock. The Share Exchange was accounted for as a reverse acquisition and re-capitalization, whereas Vaporin Florida is deemed the accounting acquirer and Vaporin, Inc. the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in the Company’s financial statements are those of Vaporin Florida, and the Company’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of Vaporin Florida effective January 24, 2014. The Company is a distributor and marketer of vaporizers, e-liquids and related products.Effective August 29, 2014 (the “Closing”), the Company , Vaporin Acquisitions, Inc., a Florida corporation and wholly-owned subsidiary of the Company (the “Merger Sub”), The Vape Store, Inc., a Florida corporation (“Vape Store”), and Steve and Christy Cantrell, holders of all outstanding Vape Store shares (the “Cantrells”) entered into and closed an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, Vape Store merged with and into Merger Sub (the “Merger”), with Merger Sub continuing as the surviving corporation and a wholly-owned subsidiary of the Company (see Note 7).On September 8, 2014, the Company filed an amendment to its Certificate of Incorporation with the Secretary of State of Delaware effecting a 1-for-50 reverse stock split of the Company’s common stock (the “Reverse Split”). As a result of the Reverse Split, every 50 shares of the Company’s common stock were combined into one share of common stock. All shares and per share values for all periods presented in the accompanying consolidated financial statements are retroactively restated for the effect of the reverse stock split (see Note 10).On November 6, 2014, the Company executed a binding Term Sheet to merge with and into Vapor Corp., a NASDAQ listed issuer. Shareholders of the Company will receive 45% of the combined company as merger consideration. On December 17, 2014, Vaporin, Inc. (“Vaporin”) and Vapor Corp. (“Vapor”) entered into an Agreement and Plan of Merger (the “Vapor Merger Agreement”) providing for the acquisition of Vaporin by Vapor. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Vaporin will be merged with and into Vapor (the “Vapor Merger”). Following the Merger, current shareholders of Vaporin common and preferred stock will own 45% of the outstanding shares of common stock of the combined company. On the same date, Vapor also entered into a joint venture with Vaporin (the “Joint Venture”) through the execution of an operating agreement (the “Operating Agreement”) of Emagine the Vape Store, LLC, a Delaware limited liability company (“Emagine”), pursuant to which the Registrant and Vaporin are 50% members of Emagine.On March 4, 2015, the acquisition of Vaporin by Vapor (the “Vapor Merger”) was completed pursuant to the terms of the Merger Agreement. In connection with the Merger, Emagine became a wholly-owned subsidiary of the Vapor.NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation and Principles of ConsolidationThe consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and present the consolidated financial statements of the Company and its wholly-owned subsidiary. In the preparation of consolidated financial statements of the Company, all intercompany transactions and balances were eliminated.Use of EstimatesThe preparation of the 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 financial statements. Actual results could differ from those estimates.Risks and UncertaintiesThe Company operates in an industry that is subject to rapid change and intense competition. The Company’s operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure.Cash and cash equivalentsThe Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At December 31, 2014 and December 31, 2013, the Company had no cash equivalents.Accounts receivableThe Company accounts receivable, represents our estimate of the amount that ultimately will be realized in cash. The Company reviews the adequacy and adjusts its allowance for doubtful accounts on an ongoing basis, using historical payment trends and the age of the receivables and knowledge of its individual customers. However, if the financial condition of our customers were to deteriorate, additional allowances may be required. While estimates are involved, bad debts historically have not been a significant factor given the diversity of its customer base and well established historical payment patterns. As of December 31, 2014 and December 31, 2013, the Company recorded allowance for uncollectable accounts of $61,000 and $0 respectively.InventoryInventories are stated at the lower of cost or market value. We regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand, production availability and/or our ability to sell the product(s) concerned. Demand for our products can fluctuate significantly. Factors that could affect demand for our products include unanticipated changes in consumer preferences, general market and economic conditions or other factors that may result in cancellations of advance orders or reductions in the rate of reorders placed by customers and/or continued weakening of economic conditions. Additionally, our estimates of future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory. Product-related inventories are primarily maintained using the average cost method.Fixed AssetsProperty and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:Equipment3-5 yearsFurniture7 yearsThe Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets.Intangible assetsASC 350 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of ASC 350. This standard also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. The Company did not record any impairment charges on its intangible assets during the twelve months ended December 31, 2014 and 2013.The Company’s intangible assets consist of the costs of building company’s website. Amortization will be recorded over the estimated useful life of the assets using the straight-line method for financial statement purposes.Website Development CostsCosts incurred in the planning stage of a website are expensed, while costs incurred in the development stage are capitalized and amortized over the estimated useful life of the asset.Revenue recognitionThe Company recognizes ecommerce revenues and the related cost of goods sold at the time the products are delivered to customers. Revenue generated through the Company’s brick and mortar locations is recognized at the point of sale. Discounts provided to customers are accounted for as a reduction of sales. The Company records a reserve for estimated product returns in each reporting period. Shipping and handling fees charged to the customer are recognized as revenue at the time the products are delivered to the customer. Revenues are presented net of any taxes collected from customers and remitted to governmental authorities.Cost of salesCost of goods sold includes cost of goods, occupancy expenses and shipping costs. Cost of goods consists of cost of merchandise, inbound freight expenses, freight-to-store expenses and other inventory related costs such as shrinkage, damages and replacements. Occupancy expenses consist of rent, depreciation and other occupancy costs, including common area maintenance, property taxes and utilities. Shipping costs consist of third party delivery services and shipping materials.Shipping and HandlingProduct sold to customers is shipped from our warehouse. Any freight billed to customers is offset against shipping costs and included in cost of goods sold.Income taxesThe Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”) Income Taxes. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.Fair Value of Financial InstrumentsWe hold certain financial assets, which are required to be measured at fair value on a recurring basis in accordance with the Statement of Financial Accounting Standard No. 157, “Fair Value Measurements” (“ASC Topic 820-10”). ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Level 1 instruments include cash, account receivable, prepaid expenses, inventory and account payable and accrued liabilities. The carrying values are assumed to approximate the fair value due to the short term nature of the instrument. The carrying amount of the notes payable at December 31, 2014 approximate their respective fair value based on the Company’s incremental borrowing rate.The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3) from January 1, 2014 to December 31, 2014: Conversion feature derivative liability Warrant liability Balance at January 1, 2014 $ 41,881 $ – Recognition of derivative liability 72,064 271,688 Reclassification of derivative liability to equity (90,064 ) – Change in fair value included in earnings (23,881 ) (227,742 ) Balance at December 31, 2014 $ - $ 43,944 The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:●Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access. We believe our carrying value of level 1 instruments approximate their fair value at December 30, 2014.●Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.●Level 3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We consider depleting assets, asset retirement obligations and net profit interest liability to be Level 3. We determine the fair value of Level 3 assets and liabilities utilizing various inputs, including NYMEX price quotations and contract terms.AdvertisingThe Company expenses advertising costs as incurred. The Company’s advertising expenses totaled $983,507 and $0 during the twelve months ended December 31, 2014 and 2013.Earnings (Loss) Per ShareNet earnings (loss) per share is computed by dividing net income (loss) less preferred dividends for the period by the weighted average number of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) less preferred dividends for the period by the weighted average number of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.For the year ended December 31, 2014, diluted net loss per share did not include the effect of a total of 1,680,374 shares of stock represented by 11,000 shares of common stock issuable upon the exercise of outstanding stock options, 119,374 shares of common stock issuable upon the exercise of outstanding warrants, and 1,650,000 shares of common stock issuable on the conversion of the preferred stock as their effect would be anti-dilutive.WarrantyA return program for defective goods is offered to all of the Company’s online customers. Customers are allowed to return defective goods within a specified period of time (90 days), after shipment. The Company records a liability for its defective goods allowance program at the time of sale for the estimated costs that may be incurred. The liability for defective goods is included in warranty provisions on the Consolidated Balance Sheets.Changes in the Company’s obligations for return and allowance programs are presented in the following table: Year Ended December 31, 2014 December 31, 2013 Estimated return and allowance liabilities at beginning of period $ 0 $ 0 Costs accrued for new estimated returns and allowances $ 4,500 $ 0 Return and allowance obligations honored (0 ) (0 ) Estimated return and allowance liabilities at end of period $ 4,500 $ 0 Concentration of Business and Credit RiskThe Company has no significant off-balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. The Company’s financial instruments that are exposed to concentration of credit risks consist primarily of cash. The Company maintains its cash in bank accounts which, may at times, exceed federally-insured limits. We review a customer’s credit history before extending credit.The following table shows significant concentrations in our revenues and accounts receivable for the periods indicated. Percentage of Revenue during the Percentage of Accounts Receivable period ended, period ended, December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013 Customer A 17 % 51 % 26 % 71 % Customer B 5 % 14 % 18 % 0 % Recent accounting pronouncementsAccounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.Year-endThe Company has adopted December 31 as its fiscal year end.
2021F-62NOTE 3 – GOING CONCERNThe accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Since its inception, the Company has been engaged substantially in financing activities and developing its business plan and marketing. As a result, the Company incurred accumulated net losses during the year ended December 31, 2014 of $6,201,099. In addition to raising capital from the sale of equity, the Company’s development activities since inception have been financially sustained through capital contributions from note holders.The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock or through debt financing and, ultimately, the achievement of significant operating revenues. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.NOTE 4 – INVENTORYInventories consist of the following: December 31, 2014 December 31, 2013 Finished goods $ 1,173,124 $ 316,195 NOTE 5 – PROPERTY & EQUIPMENTThe following is a summary of property and equipment: December 31, 2014 December 31, 2013 Leasehold Improvements $ 47,443 – Computer Equipment 8,413 $ 8,413 Furniture, Fixtures and Equipment 114,627 662 Less: accumulated depreciation (9,863 ) (680 ) $ 160,620 $ 8,395 Depreciation for the twelve months ended December 31, 2014 and 2013 was $9,183 and $680, respectively.NOTE 6 – INTANGIBLE ASSETSIntangible assets consist of the following: December 31, 2014 December 31, 2013 Website, capitalized $ 17,678 $ 17,678 Less: accumulated amortization (16,206 ) (5,402 ) $ 1,472 $ 12,276 Amortization for the twelve months ended December 31, 2014 and 2013 was $10,804 and $5,402 respectively.F-63NOTE 7 – ACQUISITIONEffective August 29, 2014 (the “Closing”), the Company, Vaporin Acquisitions, Inc., a Florida corporation and wholly-owned subsidiary of the Company (the “Merger Sub”), The Vape Store, Inc., a Florida corporation (“Vape Store”), and Steve and Christy Cantrell, holders of all outstanding Vape Store shares (the “Cantrells”) entered into and closed an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, Vape Store merged with and into Merger Sub (the “Merger”), with Merger Sub continuing as the surviving corporation and a wholly-owned subsidiary of the Company.In connection with the Merger Agreement, the Company paid the Cantrells $800,000 at the Closing and agreed to pay the Cantrells an additional $200,000 within 30 days of the Closing. In addition, the Company issued the Cantrells two shares of the Company’s newly created Series E Convertible Preferred Stock. On September 8, 2014, the Company’s Series E shares were converted to 571,428 shares of the Company’s common stock 10% of the shares of common stock will remain in escrow until completion of an audit of Vape Store’s balance sheet as of Closing. Additionally, the Company agreed to assume certain liabilities and business obligations of Vape Store, with respect to which the Company will indemnify the Cantrells. The Company valued these common shares at the fair market value on the date of grant at $5.50 per share or $3,142,854 based on a recent sale of common stock in a private placement. The total purchase price aggregated to $4,142,854. The transaction resulted in a business combination and caused Vape Store to become a wholly-owned subsidiary of the Company.Pursuant to the Merger Agreement, the Company has an irrevocable option to repurchase from the Cantrells up to a total of 280,000 shares of the Company’s common stock at a price of $5.00 per share during the first 12 months following the Closing and at a price of $7.50 per share during the second 12 months following the Closing.In connection with the Merger, the Company entered into an employment agreement, dated as of August 29, 2014 (the “Employment Agreement”) with Steve Cantrell. Under the terms of the Employment Agreement, Mr. Cantrell will serve as Vice President of the Company and receive an annual salary of $200,000. The Employment Agreement has an initial term of two years and is automatically renewable for successive one-year terms unless either party opts not to renew. In the event of termination by the Company other than for Cause or Abandonment, or in the event of termination by Mr. Cantrell for Good Reason (as capitalized terms are defined in the Employment Agreement), Mr. Cantrell will be entitled to severance in an amount equal to $400,000 less all salary previously received under the Employment Agreement. In accordance with the Employment Agreement, on September 5, 2014 the Company appointed Mr. Cantrell to serve as Vice President and as a Director of the Company.The Company accounted for the acquisition utilizing the purchase method of accounting in accordance with ASC 805 “Business Combinations”. The Company is the acquirer for accounting purposes and Vape Store is the acquired company. Accordingly, the Company applied push–down accounting and adjusted to fair value all of the assets and liabilities directly on the financial statements of the subsidiary. The net purchase price paid by the Company was allocated to assets acquired and liabilities assumed on the records of the Company as follows:Current assets (including cash of $2,000) $ 341,021 Other Assets 6,597 Property and equipment 100,401 Goodwill 3,732,268 Liabilities assumed (37,433 ) Net purchase price $ 4,142,854 The following table summarizes the unaudited pro forma consolidated results of operations as though the Company and Vape Store acquisition had occurred on January 1, 2014: For the twelve months Ended December 31, 2014 As Reported Pro Forma Net Revenues $ 3,281,838 $ 5,056,029 Loss from operations (5,958,350 ) (5,348,336 ) Net Loss (6,201,099 ) (5,534,088 ) Loss per common share: Basic $ (1.74 ) $ (1.56 ) Diluted $ (1.74 ) $ (1.56 ) The unaudited pro forma consolidated income statements are for informational purposes only and should not be considered indicative of actual results that would have been achieved if the Company and Vape Store acquisition had been completed at the beginning of 2014, or results that may be obtained in any future period.NOTE 8 – MERGER WITH VAPOR CORP.On December 17, 2014, Vaporin, Inc. (“Vaporin”) and Vapor Corp. (“Vapor”) entered into an Agreement and Plan of Merger (the “Vapor Merger Agreement”) providing for the acquisition of Vaporin by Vapor. The Vapor Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Vapor Merger Agreement, Vaporin will be merged with and into Vapor (the “Vapor Merger”).The merger closed on March 4, 2015 whereby 100% of the issued and outstanding shares of Vaporin common stock (including shares of common stock issued upon conversion of Vaporin preferred stick immediately prior to the consummation of the merger agreement in accordance with the Vapor Merger Agreement) were converted into, and became 13,591,533 shares of Vapor common stock such that the former Vaporin stockholders collectively hold approximately 45% of the issued and outstanding shares of Vapor’s common stock following the consummation of the merger.The options and warrants to acquire Vaporin common stock that are issued and outstanding as of the effective time of the Merger, as well as 910,000 restricted stock units which are exchangeable for Vaporin common stock, will be assumed by Vapor in the Merger and the number of shares issuable under such securities shall be adjusted to give effect to the Per Share Merger Consideration (as defined in the Merger Agreement).The Merger Agreement contained customary representations and warranties of the Company and Vapor relating to their respective businesses. The Company and Vapor have agreed to use commercially reasonable efforts to preserve intact its business organization and that of its significant subsidiaries, as well as maintain its rights, franchises and existing relations with customers, suppliers and employees. The Merger Agreement also contains covenants by each party to furnish current information to the other party.The Merger Agreement contained customary conditions that were satisfied prior to the closing of the merger, including the requirement for the Vapor to receive gross proceeds from a $3.5 million equity offering disclosed in Note 13. Additionally, the Vapor must have received 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.NOTE 9 – NOTES PAYABLEConvertible notes payableOn January 24, 2014, following the closing of the Share Exchange, the Company assumed convertible notes payable for a total of $350,000. On January 24, 2014, the debt discount on the convertible notes has a remaining balance of $253,844. These convertible notes payable consisted of the following:$75,000 10% secured convertible promissory note due in June 2014 with a 5-year warrant to purchase 75,000 shares of the Company’s common stock at an exercise price of $10 per share for gross proceeds to the Company of $75,000. The note was convertible into shares of the Company’s common stock at an initial conversion price of $10 per share. In September 2014, the Company issued 11,000 shares of common stock for the conversion of principal debt of $75,000 including accrued interest of $7,500. The warrants have an exercise price of $0.50 per share, as a result of being reduced from $10 per share pursuant to full-ratchet anti-dilution protection. The Company accounted for the reduction of the conversion price from $10 to a lower price per share and such conversion under ASC 470-20-40 “Debt with Conversion and Other Options” and accordingly recorded an additional interest expense of $9,900 which is equal to the fair value of shares issued in excess of the fair value issuable pursuant to the original conversion terms.$175,000 10% secured convertible promissory notes due in August 2014 with a 5-year warrant to purchase 30,000 shares of the Company’s common stock at an exercise price of $0.50 per share for gross proceeds to the Company of $175,000. The notes are convertible into shares of the Company’s common stock at an initial conversion price of $10 per share. In February 2014, the Company paid back the principal plus accrued interest owed to one of the investors for a sum total of $52,433. In September 2014, the Company issued 18,333 shares of common stock for the conversion of principal debt of $125,000 including accrued interest of $12,500. The warrants have an exercise price of $0.50 per share, as a result of being reduced from $10 per share pursuant to full-ratchet anti-dilution protection. The Company accounted for the reduction of the conversion price from $10 to a lower price per share and such conversion under ASC 470-20-40 “Debt with Conversion and Other Options” and accordingly recorded an additional interest expense of $16,500 which is equal to the fair value of shares issued in excess of the fair value issuable pursuant to the original conversion terms.$100,000 of its 10% convertible promissory notes due in January 2015 with warrants to purchase up to an aggregate of 20,000 shares of the Company’s common stock at an exercise price of $5.00 per share for gross proceeds to the Company of $100,000. The notes are convertible into shares of the Company’s common stock at an initial conversion price of $5.00 per share, subject to adjustment. On January 22, 2014, prior to the closing of the Share Exchange, the Company issued 10,000 shares of the Company’s common stock in connection with the conversion of $50,000 of the notes at a conversion price of $5.00 per share. The warrants have an initial exercise price of $5.00 per share.In accordance with ASC 470-20-25, the convertible notes were considered to have an embedded beneficial conversion feature because the effective conversion price was less than the fair value of the Company’s common stock. These convertible notes were fully convertible at the issuance date thus the value of the beneficial conversion and the warrants were treated as a discount on the convertible notes to be amortized over the term of the convertible notes. The fair value of this warrant was estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions: expected dividend yield of 0%; expected volatility ranging from 120% to 131%; risk-free interest rate ranging from 1.39% to 1.73% and an expected holding period of five years. During the nine months ended December 31, 2014, amortization of debt discount amounted to $253,844 and was included in interest expense.On January 14, 2014, prior to the closing of the Share Exchange, the Company granted warrants to purchase up to an aggregate of 12,500 shares of the Company’s common stock at an exercise price of $0.50 (collectively the “Additional Warrants”) to a certain note holder in connection with a note that is due in August 2014. The Company issued the Additional Warrants in connection with certain protection clause contained in the note holder’s respective securities purchase agreements as a result of the Company’s subsequent issuance in January 2014 of its warrants related to a convertible note payable at a per share price lower than the per share price paid by the note holder. The fair value of this warrant was estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions: expected dividend yield of 0%; expected volatility of 131%; risk-free interest rate of 1.65% and an expected holding period of five years. During the year ended December 31, 2014, the Company recognized an interest expense of $78,869 and a corresponding derivative liability in connection with the Additional Warrants.The initial conversion price of the notes above and initial exercise prices of warrants issued above are subject to full-ratchet anti-dilution protection. In accordance with ASC Topic 815 “Derivatives and Hedging”, these convertible notes include a down-round provision under which the conversion price and exercise price could be affected by future equity offerings (see Note 7). Instruments with down-round protection are not considered indexed to a company’s own stock under ASC Topic 815, because neither the occurrence of a sale of common stock by the company at market nor the issuance of another equity-linked instrument with a lower strike price is an input to the fair value of a fixed-for-fixed option on equity shares.Notes payableOn December 19, 2013, the Company issued a six month 10% note payable of $50,000. The note was scheduled to mature on June 18, 2014. In April 2014, the Company paid off the note including interest in the amount of $51,762.On December 19, 2013, the Company issued a six month 10% note payable of $25,000. The note was scheduled to mature on June 18, 2014. In February 2014, the Company issued 5,000 shares of the Company’s common stock in connection with the full conversion of this note.Notes payable – related partyIn connection with the Merger Agreement, the Company agreed to pay the Cantrells $200,000 within 30 days of the Closing. The Company subsequently paid the $200,000 in October 2014.At the closing of the Share Exchange, $285,710 in principal amount plus accrued interest of the notes were cancelled in exchange for the issuance of an aggregate of 100,000 shares of Series C Preferred Stock of the Company.On December 8, 2014, Emagine the Vape Stores, LLC, a Delaware limited liability company (“Emagine”) managed by Vaporin, Inc., a Delaware corporation (the “Company”), 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 first tranche of funding under the Agreement was provided on December 1, 2014.The funds will be used to purchase and/or open Vape Stores similar to those operated by the Company. In connection with the completion of the Vapor Merger on March 4, 2015, Emagine became a wholly-owned subsidiary of Vapor.NOTE 10 – DERIVATIVE LIABILITIESIn connection with the issuance of the 10% convertible notes (see Note 9), the Company determined that the terms of the convertible notes include a down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company. Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives and Hedging - Contracts in an Entity’s Own Stock”, the convertible instrument was accounted for as a derivative liability at the date of issuance and adjusted to fair value through earnings at each reporting date. The Company has recognized a derivative liability of $43,944 and $0 at December 31, 2014 and December 31, 2013, respectively. The gain resulting from the decrease in fair value of this convertible instrument was $251,625 for year ended December 31, 2014. The derivative expense was $86,484, for year ended December 31, 2014. The Company reclassified $90,064 to paid-in capital due to the payment of convertible notes during the twelve months ended December 31, 2014.The Company used the following assumptions for determining the fair value of the convertible instruments under the Black-Scholes option pricing model:December 31, 2014Dividend rate0%Term (in years)0.33 - 5 YearsVolatility126% - 131%Risk-free interest rate0.05% - 1.73%
PART IIF-67NOTE 11 – STOCKHOLDERS’ EQUITYThe Company is authorized to issue up to 200,000,000 shares of common stock, par value $0.0001 per share, and 50,000,000 shares of blank check preferred stock, par value $0.0001 per share.On September 8, 2014, the Company filed an amendment to its Certificate of Incorporation with the Secretary of State of Delaware effecting the Reverse Split (the “Reverse Split”). As a result of the Reverse Split, every 50 shares of the Company’s common stock were combined into one share of common stock. Immediately after the September 8, 2014 effective date, the Company had approximately 3,826,493 shares of common stock outstanding. The authorized number of shares of the Company’s common stock and the par value remained the same. The Reverse Split did not affect the number of shares of preferred stock and certain derivative securities outstanding; however it did affect the number of shares issuable to holders upon conversion or exercise of such securities. All share and per share values for all periods presented in the accompanying consolidated financial statements are retroactively restated for the effect of the reverse stock split.On May 30, 2014, the Board of Directors of the Company approved an amendment (the “Amendment”) to the 2014 Equity Incentive Plan (the “Plan”) which provides for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units (“RSUs”) and stock appreciation rights to employees, consultants, officers and directors of the Company in order to help the Company attract, retain and incentivize qualified individuals that will contribute to the Company’s success. The Amendment increased the maximum number of shares of the Company’s common stock that may be issued under the Plan from a total of 500,000 shares to a total of 1,000,000 shares.Series A Preferred StockOn April 8, 2014, the holders of all shares of the Company’s Series A Preferred Stock converted the shares of Series A Preferred Stock into a total of 60,000 shares of common stock. At December 31, 2014, the Company did not have any shares of Series A Preferred Stock outstanding.Series B Preferred StockThe Company has outstanding 100,000 shares of Series B Preferred Stock. Each share has a liquidation preference equal to $0.0001 per share. Shares of Series B Preferred Stock are convertible at any time on a share-for-share basis, subject to a limitation that the holder shall not at any time be a beneficial owner of more than 9.99% of the Company’s common stock outstanding at such time. The Series B votes on an as-converted basis, subject to this limitation. Holders of Series B have no dividend preference.Series C Preferred StockThe Company has outstanding 1,550 shares of Series C Preferred Stock. Each share has a liquidation preference equal to $0.0001 per share. Shares of Series C Preferred Stock are convertible at any time on a 1 share of Series C Preferred Stock-for-1,000 shares of common stock basis, subject to a limitation that the holder shall not at any time be a beneficial owner of more than 9.99% of the Company’s common stock outstanding at such time. The Series C votes on an as-converted basis, subject to this limitation. Holders of Series C have no dividend preference.Series E Preferred StockOn September 2, 2014, the Company filed a Certificate of Designation creating the Series E Convertible Preferred Stock of the Company. The Series E shares: (i) automatically convert into shares of the Company’s common stock at a rate of 285,714.29 shares of common stock for each share of Series E at such time that the Company has sufficient authorized capital, (ii) are entitled to vote on all matters submitted to shareholders of the Company on an as-converted basis and (iii) have a nominal liquidation preference. The Series E converted into common stock on September 8, 2014.F-68(A)Share ExchangeIn January 2014, the Company entered into the Share Exchange with Vaporin Florida. Pursuant to the Exchange Agreement, all of the issued and outstanding common stock of Vaporin Florida was exchanged for an aggregate of 700,000 shares of the Company’s common stock. Additionally, the holders of all of Vaporin Florida’s issued and outstanding Series A Preferred Stock and the holders of outstanding notes of Vaporin Florida in the aggregate principal amount of $285,710 (the “Vaporin Florida Notes”) exchanged all of the outstanding shares of Vaporin Florida’s Series A Preferred Stock and converted the Vaporin Florida Notes into an aggregate of 2,000 shares of the Company’s Series C Preferred Stock. This transaction was accounted for as a reverse recapitalization of Vaporin Florida whereby Vaporin Florida is considered the acquirer for accounting purposes. The Company is deemed to have issued 1,883,250 shares of common stock and 60,000 shares of Series A Preferred Stock which represents the outstanding common and preferred stock of the Company just prior to the closing of the transaction.(B)Private PlacementIn January 2014, the Company entered into stock purchase agreements with accredited investors pursuant to which they purchased 115,000 shares of common stock and 100,000 shares of Series B Preferred Stock at a price of $5.00 per share for net proceeds of $1,043,500. The Company paid placement agent fees of $31,500 in connection with the sale of common and preferred stock.On April 1, 2014, the Company closed on a private placement of 503,993 shares of the Company’s common stock to accredited investors at a price per share of $5.00. Subsequent closings took place on April 7, 2014 and May 6, 2014. The offering generated gross proceeds to the Company of $2,529,965. As compensation, the acting placement agent for the offering received a commission of 10% of the gross proceeds from the shares it sold and a number of five-year warrants equal to 10% of the shares it sold. To date, the Company has paid the placement agent $144,997 and issued the placement agent 28,999 five-year warrants exercisable at $5.00 per share. The net proceeds to the Company, after deducting placement agent fees, legal fees, filing fees and escrow expenses, were $2,290,768.On August 29, 2014, the Company raised $880,000 in gross proceeds from the sale of 160,000 shares of common stock at a price of $5.50 per share in a private placement offering to four accredited investors. The Company has paid legal fees and escrow expenses related to the private placement of approximately $58,000 which resulted to a net proceeds to the Company of approximately $822,000.On September 29, 2014, the Company raised $220,000 in gross proceeds from the sale of 40,000 shares of common stock at a price of $5.50 per share in a private placement offering to four accredited investors. The Company has paid legal fees, filing fees and escrow expenses related to the private placement of approximately $18,700 which resulted to a net proceeds to the Company of approximately $201,000.The securities were not registered under the Securities Act and were issued and sold in reliance upon the exemption from registration contained in Section 4(a)(2) of the Act and Rule 506(b) promulgated thereunder.(C)Common stock for servicesIn March 2014, the Company issued an aggregate of 51,000 shares of the Company’s common stock to two consultants for consulting services rendered. The Company valued these common shares at the fair market value on the date of grant at approximately $5.00 per share or $255,000 based on the sale of commons stock in a private placement at $5.00 per common share. In connection with the issuance of these common shares, the Company recorded stock based consulting for the year ended December 31, 2014 of $255,000.Between April 2014 and May 2014, the Company issued an aggregate of 102,000 shares of the Company’s common stock to various consultants for consulting and accounting service rendered. The Company valued these common shares at the fair market value on the date of grant at approximately $5.00 per share or $510,000 based on the sale of commons stock in a private placement at $5.00 per common share. In connection with the issuance of these common shares, the Company recorded stock based consulting for the year ended December 31, 2014 of $510,000.On May 30, 2014, the Board of Directors approved the grant under the Plan of 400,000 restricted stock units (“RSU”) to Marlin Capital Investments, LLC, a consultant to the Company, 200,000 RSU’s to Greg Brauser, the Company’s Chief Operating Officer, and 200,000 RSU’s to Scott Frohman, the Company’s Chief Executive Officer and Director. All the RSU’s will vest quarterly in approximately equal installments over a three-year period from the date of issuance or upon a “change in control” as defined in the Plan, subject to the consultant’s or individual’s continued service to the Company on each applicable vesting date, with delivery of shares taking place on the third anniversary of the date of issuance. In connection with the grant of these RSU’s, the Company recorded stock based compensation and consulting in the year ended December 31, 2014 of $1,239,129.Between July 2014 and August 2014, the Company issued an aggregate of 34,250 shares of the Company’s common stock to various consultants for consulting service rendered. In connection with the issuance of these common shares, the Company recorded stock based consulting for twelve year ended December 31, 2014 of $124,375.In July 2014, the Company entered into a one-year employment agreement for a Vice President of Internet Marketing. The Company granted the executive 10,000 restricted shares of common stock and 5,000 stock options exercisable at $4.15 vesting quarterly over a three-year period. The Company valued these common shares at the fair market value on the date of grant at $5.00 per share or a total of $50,000 based on the quoted trading price on the grant date. In connection with the issuance of these common shares, the Company recorded stock based compensation for the year ended December 31, 2014 of $50,000. The 5,000 stock options were valued on the grant date at approximately $17,650 or $3.53 per option using a Black-Scholes option pricing model with the following assumptions: stock price of approximately $4.15 per share, volatility of 127%, expected term of 5 years, and a risk free interest rate of 1.70%.Between October 2014 and December 2014, the Company issued an aggregate of 196,000 shares of the Company’s common stock to various consultants for consulting service rendered. In connection with the issuance of these common shares, the Company recorded stock based consulting for year ended December 31, 2014 of $355,120.(D) Stock OptionsA summary of the stock options for the twelve months ending December 31, 2014 and for the year ending December 31, 2013 and changes during the period are presented below: Number of
Options Weighted
Average Exercise
Price Weighted
Average
Remaining
Contractual Life
(Years) Recapitalization on January 24, 2014 6,000 20.00 8.69 Granted 5,000 4.15 5.00 Exercised - - - Forfeited - - - Cancelled - - - Balance outstanding at December 31, 2014 11,000 $ 12.80 6.29 Options exercisable at December 31, 2014 4,917 $ 19.00 Options expected to vest 4,583 Weighted average fair value of options granted during the twelve months ended December 31, 2014 $ 3.53 Stock options outstanding at December 31, 2014 as disclosed in the above table have no intrinsic value at the end of the period. For the twelve months ended December 31, 2014, total stock-based compensation related to the options was $3,284. The value of stock based compensation expense not yet recognized pertaining to unvested options and stock grants was approximately $2,047,883 at December 31, 2014.(E) Stock WarrantsA summary of the status of the Company’s outstanding stock warrants for the twelve months ending December 31, 2014 and for the year ending December 31, 2013 and changes during the period then ended is as follows: Number
of
Warrants Weighted
Average
Exercise
Price Weighted
Average
Remaining Contractual
Life
(Years) Recapitalization on January 24, 2014 90,375 14.00 4.32 Granted 28,999 5.00 5.00 Cancelled - - - Forfeited - - - Exercised - - - Balance at December 31, 2014 119,374 $ 12.00 3.60 Warrants exercisable at December 31, 2014 119,374 $ 12.00 3.60 Weighted average fair value of warrants granted during the twelve months ended December 31, 2014 $ 5.00 NOTE 12 – RELATED PARTY TRANSACTIONSThe Company purchases most of its products from Direct Source China, LLC. , an entity controlled by Gregory Brauser, our Chief Operating Officer. This entity purchases the products directly from the manufacturers in China and charges the Company an 8% premium. The Company paid Direct Source net of all credits approximately $509,000 for products for the twelve months ended December 31, 2014.Note Payable – Related Party – See Note 9During the year ended December 31, 2014, the Company paid total of $24,500 in consulting fees to related parties.The Company purchases most of its products from Direct Source China, LLC. , an entity controlled by Gregory Brauser, our Chief Operating Officer. This entity purchases the products directly from the manufacturers in China and charges the Company an 8% premium. The Company paid Direct Source net of all credits approximately $509,000 for products for the twelve months ended December 31, 2014.NOTE 13 – SUBSEQUENT EVENTSOn January 20, 2015, Vaporin, Inc. (the “Company”) and Vapor Corp. (“Vapor”) entered into a Securities Purchase Agreement with certain accredited investors providing for the sale of $350,000 of the Company’s Convertible Notes (the “Notes”). The 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 on January 20, 2016. Assuming the merger between the Company and Vapor (“Merger”) closes, the Notes will be convertible into Vapor 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 (subject to a maximum issuance of 525,000 shares). If the Merger does not close, the Notes will not be convertible into either the Company’s or Vapor’s stock. Investors were provided with standard piggyback registration rights which are conditioned on the Merger closing.On January 29, 2015, Vaporin, Inc. (the “Company”) was issued a $350,000 note by Vapor Corp. (“Borrower”) in consideration for a loan of $350,000. The note accrues interest on the outstanding principal at an annual rate of 12%. The principal and accrued interest on the note is due and payable on January 29, 2016 (the “Maturity Date”). If the merger between the Company and the Borrower (“Merger”) does not close by May 31, 2015 (the “End Date”), the Maturity Date will accelerate and become due June 1, 2015. Additionally, if the Merger does not close by the End Date or in the event of a default by the Borrower, the note will be convertible into the Borrower’s common stock at 85% of the Borrower’s closing price on May 29, 2015. If the merger closes prior to the End Date, the note shall not be convertible. The note shall not be convertible until such time as the Nasdaq Stock Market (“Nasdaq”) approves the issuance of the shares underlying the note.On March 4, 2015, the acquisition of Vaporin by Vapor (the “Vapor Merger”) was completed pursuant to the terms of the Merger Agreement. In connection with the Merger, Emagine became a wholly-owned subsidiary of the Vapor. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATIONBackground of the MergerVapor completed its acquisition of Vaporin, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated December 17, 2014, by and between the Vapor and Vaporin. In accordance with the Merger Agreement, the Company acquired Vaporin through the merger of Vaporin with and into Vapor with Vapor being the surviving entity and maintaining control (as a result of the current stockholders of Vapor 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”). The assets and liabilities and the historical operations that are reflected in the Company’s financial statements filed with the SEC are those of Vapor, and Vaporin’s assets, liabilities and results of operations are consolidated with the assets, liabilities and results of operations of Vapor effective March 4, 2015.Basis of PresentationThe accompanying Unaudited Pro Forma Condensed Combined Balance Sheet, or the pro forma balance sheet, as of December 31, 2014 and the Unaudited Pro Forma Condensed Combined Statement of Operations, or the pro forma statements of operations, for the year ended December 31, 2014 combine the historical financial information of Vaporin and Vapor and are adjusted on a pro forma basis to give effect to the Merger as described in the notes to the unaudited pro forma condensed combined financial statements. The pro forma balance sheet reflects the Merger, which was completed on March 4, 2015, as if it had been consummated on December 31, 2014, and the pro forma statement of operations for the year ended December 31, 2014 reflects the Merger as if it had been consummated on January 1, 2014. The pro forma financial statements have been derived from and should be read in conjunction with the historical consolidated financial statements of each of Vaporin and Vapor, which are included herein.The following unaudited pro forma condensed combined financial statements give effect to the merger under the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Topic 805, Business Combinations (“ASC 805”). The pro forma financial statements are provided for illustrative purposes only and are not intended to represent, and are not necessarily indicative of, what the operating results or financial position of the Company would have been had the Merger been completed on the dates indicated, nor are they necessarily indicative of the Company’s future operating results or financial position. The pro forma financial statements do not reflect the impacts of any potential operational efficiencies, asset dispositions, cost savings or economies of scale that the Company may achieve with respect to the combined operations. Additionally, the pro forma statements of operations do not include non-recurring charges or credits which result directly from the transactions. Differences between estimates used in the purchase price allocation included here within this unaudited pro forma financial information and the final purchase price allocation amounts will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial statements.The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the Merger, (2) factually supportable, and (3) expected to have a continuing impact on the combined results of Vapor and Vaporin. These unaudited pro forma condensed combined financial statements do not give effect to anticipated synergies, integration costs or nonrecurring transaction costs which result directly from the merger. The unaudited pro forma condensed combined financial statements also do not contemplate any additional debt that Vapor may elect to incur in the future, which could result in interest expense that is different from what is reflected in these unaudited pro forma condensed combined financial statements. Further, because the tax rate used for these unaudited pro forma condensed combined financial statements is an estimated statutory tax rate, it will likely vary from the actual effective rate in periods subsequent to completion of the transactions, and no adjustment has been made to the unaudited pro forma condensed combined financial information as it relates to limitations on the ability to utilize deferred tax assets, such as those related to net operating losses and tax credit carryforwards, as a result of the transaction.The unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial statements, the audited historical consolidated financial statements and accompanying notes of Vapor and Vaporin.VAPOR CORP, INC.UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETDecember 31, 2014 Historical Historical Pro Forma Pro Forma Vapor Corp. Vaporin, Inc. Adjustments Combined CURRENT ASSETS: Cash $ 471,194 $ 865,737 2,941,960 (b) 4,278,891 Due from merchant credit card processor, net 111,968 160,216 - 272,184 Accounts receivable, net 239,652 88,614 - 328,266 Inventory 2,048,883 1,173,124 - 3,222,007 Prepaid expenses and vendor deposits 664,103 42,996 - 707,099 Loan receivable, net 467,095 - - 467,095 Deferred financing costs, net 122,209 - - 122,209 TOTAL CURRENT ASSETS 4,125,104 2,330,687 2,941,960 9,397,751 Property and equipment, net 712,019 160,620 - $ 872,639 Intangible assets - - 2,080,600 (a) $ 2,080,600 Goodwill - 3,732,268 12,296,819 (a) $ 16,029,087 Other assets 91,360 1,472 - $ 92,832 TOTAL ASSETS $ 4,928,483 $ 6,225,047 $ 17,319,379 $ 28,472,909 CURRENT LIABILITIES: Accounts payable and accrued expenses $ 2,895,247 $ 824,104 $ - $ 3,719,351 Current portion of capital lease 52,015 52,015 Derivative liabilities - 43,944 - 43,944 Senior convertible notes payable – related parties, net of debt discount of $1,093,750 156,250 - 156,250 Term loan 750,000 - - 750,000 Customer deposits 140,626 - - 140,626 Income taxes payable 3,092 - - 3,092 TOTAL CURRENT LIABILITIES 3,997,230 868,048 - 4,865,278 Capital lease, net of current portion 119,443 - - 119,443 Loan payable - related party - 1,000,000 - 1,000,000 TOTAL LONG-TERM DEBT 119,443 1,000,000 - 1,119,443 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY Preferred stock - - - - Series B preferred stock - 10 (10 (c) - Common stock 489 3,307 (c,d) 7,148 Additional paid-in capital 16,040,361 10,864,408 11,367,174 (c,d) 38,271,943 Accumulated deficit (15,231,903 ) (6,502,903 ) 5,943,903 (b,c) (15,790,903 TOTAL STOCKHOLDERS’ EQUITY 811,810 4,362,004 17,314,374 22,488,188 Non-Controlling Interest in Subsidiary - (5,005 ) 5,005 (c) - TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 4,928,483 $ 6,225,047 $ 17,319,379 $ 28,472,909 See accompanying notes to the pro forma condensed combined financial statements.VAPOR CORP, INC.UNAUDITED PRO FORMA CONDENSED COMBINEDSTATEMENT OF OPERATIONSFor the year ended December 31, 2014 Pro Forma Vaporin Audited Audited 12/31/2014 12/31/2014 Historical Pro Forma Vapor
Corp. Vaporin,
Inc. Vape
Store Pro Forma
Adjustment Vaporin
(e) Pro Forma
Adjustments Pro Forma
Combined Revenue $ 15,279,859 $ 3,281,838 $ 1,774,191 $ - $5,056,029 $ - $ 20,335,888 Cost of goods sold 14,497,254 1,790,098 315,958 - 2,106,056 - 16,603,310 Gross Profit 782,605 1,491,740 1,458,233 - 2,949,973 - 3,732,578 Operating expenses Selling, general and administrative 11,126,759 6,466,583 842,830 - 7,309,413 266,120 (f) 18,702,291 Advertising 2,374,329 983,507 28,409 - 1,011,916 - 3,386,245 Total operating expenses 13,501,088 7,450,090 871,239 - 8,321,329 266,120 22,088,537 Operating income (loss) (12,718,483 ) (5,958,350 ) 586,995 - (5,371,355) (266,120 ) (18,355,958 ) Other expenses/income Derivative expense - 86,484 - - 86,484 - 86,484 Change in fair value of derivatives - (251,625 ) - - (251,625) - (251,625 ) Amortization of deferred financing cost 17,458 - - - - - 17,458 Interest expenses 348,975 407,890 - - 407,890 - 756,865 Total other expenses 366,433 242,749 - - 242,749 - 609,182 Net income (loss) before income taxes (13,084,916 ) (6,201,099 ) 586,995 - (5,614,104) (266,120 ) (18,965,140 ) Income tax (expense) benefit (767,333 ) - - - - - (767,333 ) Net income (loss) (13,852,249 ) $ (6,201,099 ) 586,995 $ - (5,614,104) (266,120 ) (19,732,473 ) Net loss per common share - basic and diluted (4.22 ) $ (1.74 ) - - (2.95 ) Weighted average common shares outstanding - basic and diluted 3,283,030 3,404,773 (g) 6,687,803 See accompanying notes to the pro forma condensed combined financial statements.F-741. Description of TransactionMerger with Vaporin, Inc.On December 17, 2014, Vapor Corp, Inc. (the “Company”) entered into the Merger Agreement with Vaporin, Inc. (“Vaporin”) pursuant to which Vaporin was to merge with and into the Company with Vapor being the surviving and controlling entity. 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 2,718,310 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.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. 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. 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. In addition, in connection with the Merger, an aggregate $354,029 of a note and interest payable by the Company to Vaporin was forgiven.Vaporin, Inc. merger with The Vape Store, Inc.On August 29, 2014, Vaporin, Vaporin Acquisitions, Inc., Vaporin Acquisitions, Inc., a Florida corporation and wholly-owned subsidiary of Vaporin (the “Merger Sub”), The Vape Store, Inc., a Florida corporation (“Vape Store”), and Steve and Christy Cantrell, holders of all outstanding Vape Store shares entered into and closed an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, Vape Store merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation and a wholly-owned subsidiary of the Vaporin.The pro forma statement of operations for Vaporin was prepared as if the merger of The Vape Store, Inc. had occurred on January 1, 2014.2. Purchase Consideration and Preliminary Purchase Price AllocationAssuming the merger was completed on December 31, 2014, each share of Vaporin’s common stock and each share of Vaporin’s preferred stock outstanding immediately prior to closing would have been exchanged for approximately .42 shares of Vapor common stock. An estimate of the merger consideration paid to Vaporin stockholders assuming the merger was completed on December 31, 2014 is presented below:Vaporin common shares outstanding 4,893,254 Restricted stock units 910,000 Issuable common shares upon conversion: Series B preferred stock 100,000 Series C preferred stock 1,550,000 Total Vaporin common and preferred shares eligible for exchange 7,453,254 Exchange ratio Vapor common shares to be issued Vapor price per common share at December 31, 2014 $ Fair value of total consideration transferred $ 18,732,947 The fair value of the purchase consideration issued to the sellers of Vaporin was based on a preliminary valuation analysis and 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.Purchase Consideration Value of consideration paid: $ 18,732,947 Tangible assets acquired and liabilities assumed at fair value Cash $ 865,737 Due from merchant credit card processor 160,216 Accounts receivable 88,614 Inventories 1,173,124 Property and Equipment 160,620 Other Assets 42,996 Notes payable – related party (1,000,000 ) Accounts Payable and accrued expenses (824,103 ) Derivative Liabilities (43,944 ) Net tangible assets acquired $ 623,260 Consideration: Value of common stock issued 18,732,947 Net tangible assets acquired 623,260 Excess purchase price over net tangible assets acquired $ 18,109,687 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 16,029,087 Total allocation to identifiable intangible assets and goodwill $ 18,109,687 As of December 31, 2014, Vaporin’s consolidated balance sheet included goodwill of $3,732,286 resulting from the acquisition of Vape Store. Such amount was not considered as a component of the net tangible assets acquired of Vaporin for purposes of the allocation of the purchase by Vapor and was based on its preliminary valuation.3. Pro Forma AdjustmentsPro forma adjustments reflect those matters that are direct result of the Merger Agreement with Vaporin, which are factually supportable and, for pro forma adjustments to the unaudited pro forma statements of operations, are expected to have continuing impact. The pro forma adjustments are based on preliminary estimates that may change as additional information is obtained.Unaudited Pro Forma Condensed Combined Balance Sheeta)To adjust the amount of goodwill to $15,983,039 as a result of the merger and to record identifiable intangible assets of $1,500,000 of trade names and technology, $488,274 of customer relationships and $92,326 for assembled workforce based on a preliminary valuation analysis.b)Represents (a) cash received by Vapor of $3.5 million in exchange for 686,463 shares of common stock in connection with the required financing transaction per the terms of the merger offset by (b) $559,000 of estimated costs incurred by Vapor in connection with the acquisition of Vaporin and assumes such expenses were incurred on December 31, 2014 in connection with the closing of the merger.c)Reflects an adjustment to remove the historical equity balances of Vaporin and account for the $3.5 million required financing as disclosed in “b” above.d)Reflects the issuance of 2,718,310 shares of $0.001 par value Vapor common stock as merger consideration. Such number of shares issued was calculated based on the number of outstanding shares of Vapor common stock. The value of the consideration transferred was based on the closing stock price of the Vapor common stock at December 31, 2014.Unaudited Pro Forma Condensed Combined Statements of Operationse)As discussed above, Vaporin completed its acquisition of Vape Store on August 29, 2014. For purposes of this pro forma, Vaporin has included adjustments to reflect the results of operations of Vape Store as of the acquisition had occurred on January 1, 2014. The pro forma adjustments represent the combined results of Vaporin and The Vape Store for the respective period presented.f)Reflects the incremental depreciation and amortization expense based on the preliminary fair values of the tangible and identifiable intangible assets acquired as follows: Pro Forma Amortization Intangible
Assets Estimated Useful
Lives (years) For the
Year Ended
December 31, 2014 Trade Names and Technology $ 1,500,000 10 $ 150,000 Customer Relationships 488,274 5 $ 97,655 Assembled Workforce 92,326 5 18,465 $ 2,080,600 $ 266,120 g)Reflects the issuance of (a) 2,718,310 shares of $0.001 par value Vapor common stock as merger consideration, as described in the Basis of the Pro Forma Presentation note above (b) 1,890,237 shares of common stock to be issued by Vapor in connection with restricted stock units as part of the merger consideration and (c) the 3,462,314 shares of common stock to be issued by Vapor in connection with the $3.5 million financing.PART II—INFORMATION NOT REQUIRED IN THE PROSPECTUSDistributionallthe expenses other than the underwriting commissions, payable by the registrantus in connection with the saleoffering of the common stock being registered.securities described in this registration statement. All the amounts shown are estimates, except for the SEC registration fee and the FINRA filing fee. We will bear all expenses shown below.Amountto be paid$ 8,819.50FINRA filing fee $11,885NASDAQ listing fees $5,000Blue sky qualification $10,000*Transferregistrar feesexpenses $5,000** * $30,000*Legal $120,000Printing and engraving expenses $5,000Miscellaneous $9,295.50Total $205,000Officers145(a)145 of the Delaware General Corporation Law, Registrant has broad powers to indemnify its directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the “DGCL”“Securities Act”), which Vapor is subject to, provides. Registrant’s Bylaws (the “Bylaws”) provide that a corporation mayRegistrant shall indemnify any person who wasits directors and officers if such officer or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted (i) in good faith, and(ii) in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation,Registrant, and (iii) with respect to any criminal action or proceeding, had no reasonable cause to believe the person’ssuch conduct was unlawful. Section 145(b) of the DGCL providesRegistrant believes that a corporation may indemnify any person who was or is a party or is threatenedindemnification under its Bylaws covers at least negligence and gross negligence, and requires Registrant to be made a party to any threatened, pending or completed action or suit by oradvance litigation expenses in the rightcase of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, truststockholder derivative actions or other enterpriseactions, against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 145(a) and (b) of the DGCL, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.II-1Any indemnification under Section 145(a) and (b) of the DGCL (unless ordered by a court) shall be made by Vapor only as authorized in the specific case upon a determination that indemnification of the present or director, officer, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in Section 145(a) and (b). Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (4) by the shareholders. Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officerthe directors and officers to repay such amountadvances if it shallis ultimately be determined that such personthe director is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid uponindemnification. The Bylaws further provide that rights conferred under such terms and conditions, if any, as the corporation deems appropriate. The indemnification and advancement of expenses provided by, or granted pursuant to, Section 145Bylaws shall not be deemed to be exclusive of any other rights to which those seeking indemnificationright such persons may have or advancement of expenses may be entitledacquire under any bylaw, agreement, vote of shareholdersstockholders or disinterested directors, or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.Section 145 of the DGCL also empowers a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145.Article 10 of the Vapor’sotherwise.and Article 7(the “Certificate of Vapor’s Bylaws provideIncorporation”) provides that, pursuant to Delaware law, none of its directors officers, employees and agents shall be indemnifiedliable for monetary damages for breach of his or her fiduciary duty of care to Registrant and its stockholders to the fullest extent permitted by the DGCL.Vapor carriesDelaware General Corporation Law as it presently exists or may hereafter be amended from time to time. This provision in the Certificate of Incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to Registrant for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are in willful or negligent violation of applicable Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. The Certificate of Incorporation further provides that Registrant shall indemnify its directors and officers liability coverages designed to insure its officers and directors and those of its subsidiaries against certain liabilities incurred by them in the performance of their duties, and also providing for reimbursement in certain cases to Vapor and its subsidiaries for sums paid to directors and officers as indemnification for similar liability. Vapor has entered into Indemnification Agreements with its executive officers and directors providing for advancement of expenses and indemnification to the fullest extent permissiblepermitted by law and requires Registrant to advance litigation expenses in the case of stockholder derivative actions or other actions, against an undertaking by the director to repay such advances if it is ultimately determined that the director is not entitled to indemnification. The Certificate of Incorporation also provides that rights conferred under DGCL.Insofar as indemnificationsuch Certificate of Incorporation shall not be deemed to be exclusive of any other right such persons may have or acquire under any statute, the Certificate of Incorporation, the Bylaws, agreement, vote of stockholders or disinterested directors, or otherwise.liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuantdirectors that, subject to certain limitations, terms and conditions, will insure them against losses arising from wrongful acts (as defined by the policy) in their capacity as directors or officers.foregoing provisions, or otherwise, Vapor has been advised thatindemnification provided for in the opinionCertificate of the CommissionIncorporation and Bylaws. These agreements, among other things, indemnify Registrant’s directors and certain of its officers for certain expenses (including attorney’s fees), judgments, fines and settlement amounts incurred by such indemnification is against public policy as expressedperson in any action or proceeding, including any action by or in the Securities Act and is, therefore, unenforceable.
right of Registrant, on account of services as a director or officer of Registrant or as a director or officer of any subsidiary of Registrant, or as a director or officer of any other company or enterprise that the person provides services to at the request of Registrant.II-2SecuritiesJune 25, 2015,August 13, 2018, the Compensation Committee of the Board of Directors of the Company closedapproved a modification of share-based payment awards to Jeffrey Holman, the Chief Executive Officer, Christopher Santi, the President and Chief Operating Officer of the Company. As part of the share modification, Mr. Holman and Mr. Santi were granted 11 billion and 8 billion shares of restricted common stock, respectively, on the condition that the same number of shares from their options to purchase the Company’s common stock are forfeited. dated as of June 22, 2015, with certain purchasers pursuant to which the Company sold at a 5% original issue discount, a totaland issued 5,000 shares of $1,750,000 convertible debenturesits Series D Convertible Preferred Stock (the “Debentures”“Preferred Stock”). Net proceeds to the Company from saleinstitutional investors for $1,000 per share or an aggregate subscription of the Debentures, after payment of commissions and legal fees of the lead investor, were $1,466,250.$5,000,000. The Debentures mature December 22, 2015, and accrue interest at 10% per year. Amounts of principal and accrued interest under the Debentures arePreferred Stock is currently convertible into common stock of the Company at a price per share of $2.50. Principal and accrued interest on the Debentures are payable in three approximately equal installments on September 22, 2015, October 22, 2015 and December 22, 2015, at the election of the holders of the Debentures, (i) in cash for an additional 25% premium, or (ii) in common stock of the Company at a price per share of $2.50. As lead investor under the Securities Purchase Agreement, Redwood Management, LLC received a right of first refusal to purchase up to 100% of the securities offered by the Company in future private placement offerings through December 22, 2015.The Company’s obligations under the Debentures can be accelerated in the event the Company undergoes a change in control and other customary events of default. In the event of default and acceleration2,083,333,333 shares of the Company’s obligations, the Company would be requiredCommon Stock at a conversion price of $0.0024 per share, with such conversion price subject to pay 130% of amounts of principal and interest then outstanding under the Debentures. The Company’s obligations under the Debentures are secured under a Security Agreement, under which Redwood Management, LLC actsadjustment as Collateral Agent, by a second lien on substantially all of the Company’s assets, including all of the Company’s interests in its consolidated subsidiaries.For acting as placement agentdescribed in the offeringCertificate of the Debentures, the Company paid Chardan Capital Management, LLC (the “Placement Agent”) a fee equal to 10% of the gross proceeds from the sale of the Debentures,Designation.issued the Placement Agent 70,000 five-year warrants exercisable at $2.50 per share. In addition, the Company agreed to reduce the exercise price of 28,614 warrants held by the Placement Agent to $2.50 from their original exercise prices ranging from $10.05 to $12.05.On June 19, 2015, the Company entered into agreements (the “Waivers”), with certain investors in each of its private placement offerings under the Securities Purchase Agreement dated March 3, 2015 (the “2015 Agreement”) and the Securities Purchase Agreement dated November 14, 2014 (the “2014 Agreement,” and with the 2015 Agreement, the “Agreements”). Under the terms of the Waivers, the signatories thereto (the “Prior Investors”) agreed to amend the Agreements and waive or modify certain terms thereunder, including certain price protection provisions and participation rights in subsequent securities offerings. In exchange, the Company agreed to issue the Prior Investors a total of 647,901 shares of common stock (including 142,000 shares issued to the lead investor under each of the Agreements in its capacity as lead investor) and 595,685 five-year warrants exercisable at $2.525 per share. In the event that, prior to November 14, 2015, the Company issues shares of common stock, or securities convertible into common stock, at an effective price per share of less than $2.70, the Prior Investors will be entitled to the issuance of additional shares (the “Additional Shares”), the exact amount of which will depend on the effective price per share of such subsequent issuance, but which will not exceed a total of 2,328,598 shares. The Company will not issue any shares of common stock requiring shareholder approval under the Rules of the Nasdaq Stock Market without receipt of such approval. The Company will not issue any of the Additional Shares unless the 647,901 shares of common stock, the shares issuable upon conversion of the Debentures and the Additional Shares are either within the 19.9% Nasdaq limitation or the issuance is approved by shareholders. The Company agreed to file a registration statement with the Securities and Exchange Commission registering the shares and warrant shares issued to the Prior Investors under the Waivers.On June 16, 2015, the Company issued a total of 292,191 shares of common stock upon the vesting of restricted stock units assumed by the Company in connection with its merger with Vaporin, Inc. effective March 4, 2015. Recipients of the shares issued upon vesting of the restricted stock units included Gregory Brauser, the Company’s President and a member of the Board. On May 27, 2015, the Company issued a total of 27,500 shares of common stock to consultants of the Company for consulting services.The shares and warrants issued under the Waivers, the shares issued upon vesting of the restricted stock units, and the shares issued to consultants, were issued without registration under the Securities Act of 1933 in reliance upon the exemption provided in Section 4(a)(2).Exhibit Incorporated by Reference Filed or Furnished No. Exhibit Description Form Date Number Herewith 8-K 5/23/16 2.1 8-K 8/3/16 1.1 8-K 11/21/18 2.1 8-K 12/26/18 2.2 10-Q 11/16/15 3.1 8-K 3/03/17 3.1 S-1 7/10/15 3.2 S-4 12/11/15 3.2 8-K 2/2/16 3.1 8-K 3/9/16 3.1 8-K 6/1/16 3.1 8-K 8/5/16 3.1 S-1 7/10/15 3.4 8-A12B 7/27/15 3.5 8-K 8/21/18 3.1 8-K 9/25/20 3.1 8-K 2/8/21 3.1 8-K 12/31/13 3.4 S-1 6/01/15 10.28 8-K 1/7/19 10.1 8-K 1/7/19 10.2 S-8 2/8/17 4.2 8-K 8/20/18 10.4 8-K 3/5/21 10.1 10-K 3/8/21 10.12 10-K 3/8/21 10.13 10-K 3/8/21 10.14 10-K 3/8/21 10.5 8-K 8/20/18 10.2 8-K 8/20/18 10.3 8-K 3/29/2021 8-K 2/8/21 X X # Previously filed. * To be filed by amendment. + Indicates management contract or compensatory plan. Item 16.II-4Exhibits and(a)ExhibitsSee the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.(b)Financial Statement Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.Undertakings(1) (i) tosectionSection 10(a)(3) of the Securities Act of 1933;Act;(ii) tothethis registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high endand of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20%20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and(iii) tothethis registration statement or any material change to such information in thethis registration statement.statement;(2) of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.(3) II-3(4) (i) (ii) (5) the undersigned undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:(i) Any(ii) Any(iii) The(iv) AnyInsofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 14 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.The undersigned registrant hereby undertakes that:(b) (1)(c) (d) (i) (1)(I) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.effective; and(ii) (2)II-4In accordance withDania Beach,Hollywood, State of Florida, on July 10, 2015.April 19, 2021.VaporHealthier Choices Management Corp. By: By:/s/ Jeffrey HolmanIn accordance withon the dates indicated.appoints Jeffrey E. Holman, and Christopher Santi, or any of them, as their respective true and lawful attorney, with full power to sign for such person and in such person’s name and capacity indicated below, and with full power of substitution, any and all amendments, including post-effective amendments, to this registration statement, hereby ratifying and confirming such person’s signature as it may be signed by said attorney to any and all amendments.Title
Jeffrey E. HolmanPrincipalJuly 10 , 2015April 19, 2021Jeffrey HolmanJames MartinJohn Ollet
John Ollet(Principal(Principal Financial Officer and Principal Accounting Officer) andJuly 10 , 2015April 19, 2021James Martin
Christopher SantiChief Accounting Officer (Principal Accounting Officer)April 19, 2021
Clifford FriedmanApril 19, 2021 Gregory BrauserAnthony Panariello
Anthony PanarielloDirectorJuly 10 , 2015Gregory Brauser/s/ William Conway IIIDirectorJuly 10 , 2015William Conway III/s/ Daniel MacLachlanDirectorJuly 10 , 2015Daniel MacLachlan/s/ Nikhil RamanDirectorJuly 10 , 2015Nikhil RamanApril 19, 2021 II-5EXHIBIT INDEXExhibitNumberDescription of Exhibit1.1 *Form of Underwriting Agreement2.1Smoke Anywhere USA, Inc. Acquisition Agreement and Plan of Merger dated as of September 1, 2009 (1)2.2††Vaporin, Inc. Agreement and Plan of Merger, dated as of December 17, 2014 (19)3.1Certificate of Incorporation (3)3.2*Certificate of Amendment to the Certificate of Incorporation3.3Bylaws (3)3.4*Certificate of Designation for Series A Convertible Preferred Stock4.1Specimen Common Stock Certificate (3)4.2 *Form of Series A Warrant to be issued in connection with this Offering4.3*Form of Unit Purchase Option to be issued in connection with this Offering4. 4 **Form of Unit Certificate5.1 *Opinion Regarding Legality10.1†2009 Equity Incentive Plan (2)10.2Lease Agreement dated March 21, 2011 - 3001 Griffin Partners, LLC (5)10.3†Kevin Frija Employment Agreement, dated February 27, 2012 (6)10.4†Harlan Press Employment Agreement, dated February 27, 2012 (6)10.5†Christopher Santi Employment Agreement, dated December 12, 2012 (7)10.6†Jeffrey Holman Employment Agreement, dated February 19, 2013 (8)10.7Spike Marks Inc./Casa CubanaPrivate Label Production and Supply Agreement (9)10.8Form of Warrant, dated as of June 19, 2012 (10)10.9Entrepreneur Growth Capital, LLC Invoice Purchase and Sale Agreement made as of August 8, 2013 (11)10.10†Form of Letter Amendment to Harlan Press Employment Agreement (11)10.11Entrepreneur Growth Capital, LLC Credit Card Receivables Advance Agreement dated as of August 16, 2013 (12)II-6
II-810.12Entrepreneur Growth Capital LLC Secured Promissory Note dated September 23, 2014 (13)10.13Purchase Agreement, dated as of October 22, 2013 (4)10.14Registration Rights Agreement, dated as of October 29, 2013 (4)10.15Form of Warrant issued to Roth Capital Partners, LLC (16) 10.16Securities Purchase Agreement, dated as of November 14, 2014 (18)10. 17Form of Convertible Note Due November 14, 2015 (18)10. 18Form of Warrant, dated as of November 14, 2014 (18)10. 19 †Form of 2009 Equity Incentive Plan Stock Option Agreement (14)10. 20 †Form of Non-Equity Incentive Plan Stock Option Agreement (14)10. 21 †Amendment to 2009 Equity Incentive Plan (15)10. 22Knight Global Services Consulting Agreement dated as of February 3, 2014 (17)10. 23Operating Agreement of Emagine the Vape Store, LLC (19)10. 24Convertible Promissory Note, dated January 29, 2015 (20)10. 25Securities Purchase Agreement, dated as of January 20, 2015 (21)10. 26Form of Note, dated as of January 20, 2015 (21)10. 27Ω†2015 Equity Incentive Plan10. 28Securities Purchase Agreement, dated as of March 3, 2015 (22)10. 29Form of Warrant, dated as of March 3, 2015 (22)10.30Form of Waiver Agreement relating to November 14, 2014 Securities Purchase Agreement (23)10.31Form of Waiver Agreement relating to March 3, 2015 Securities Purchase Agreement (23)10.32Form of Warrant, dated as of June 19, 2015 (23)10.33Form of Registration Rights Agreement, dated as of June 16, 2015 (23)10.34Form of Securities Purchase Agreement, dated as of June 22, 2015 (23)10.35Form of Senior Secured Convertible Debenture, due December 22, 2015 (23)10.36Form of Security Agreement dated as of June 22, 2015 (23)21. 1ΩSubsidiaries23.1*Consent of Marcum LLP23.2*Consent of RBSM LLP23. 3Consent of Nason, Yeager, Gerson, White & Lioce, P.A. (contained in Exhibit 5.1)101.INS*XBRL Instance Document^101.SCH*XBRL Taxonomy Extension Schema Document^101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document^101.LAB*XBRL Taxonomy Extension Label Linkbase Document^101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document^101.DEF*XBRL Taxonomy Definition Linkbase Document^* Filed herewith.^ XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 , is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.Ω Previously filed.II-7† Represents management contract or compensatory plan.†† A schedule to the agreement has been omitted pursuant to Item 601(b)(2) of Regulation S-K; a copy of the schedule will be furnished supplementary to the SEC upon request.(1)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 11, 2009, as filed with the Securities and Exchange Commission (“SEC”) on November 13, 2009.(2)Incorporated by reference to the Registrant’s Definitive Information Statement on Schedule 14C dated November 24, 2009, as filed with the SEC on December 10, 2009.(3)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 31, 2013, as filed with the SEC on December 31, 2013.(4)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 22, 2013, as filed with the SEC on October 23, 2013.(5)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 21, 2011, as filed with the SEC on April 7, 2011.(6)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated February 27, 2012, as filed with the SEC on February 28, 2012.(7)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 12, 2012, as filed with the SEC on December 13, 2012.II-8(8)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated February 19, 2013, as filed with the SEC on February 26, 2013.(9)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 6, 2011, as filed with the SEC on April 25, 2012.(10)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated June 19, 2012, as filed with the SEC on June 22, 2012.(11)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 8, 2013, as filed with the SEC on August 13, 2013.(12)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 16, 2013, as filed with the SEC on August 19, 2013.(13)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 16, 2013, as filed with the SEC on September 23, 2014.(14)Incorporated by reference to the Registrant’s Form S-8 Registration Statement (No. 333-188888), as filed with the SEC on May 28, 2013.(15)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 20, 2013, as filed with the SEC on November 20, 2013.(16)Incorporated by reference to the Registrant’s Form S-1 Registration Statement (No. 333-192391), as filed with the SEC on November 18, 2013 and declared effective on January 27, 2014.(17)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated February 3, 2014, as filed with the SEC on February 6, 2014.(18)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated November 14, 2014, as filed with the SEC on November 17, 2014(19)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 17, 2014, as filed with the SEC on December 18, 2014.(20)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 29, 2015, as filed with the SEC on February 3, 2015.(21)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 20, 2015, as filed with the SEC on January 26, 2015.(22)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated March 3, 2015, as filed with the SEC on March 5, 2015.(23)Incorporated by reference to the Registrant’s Current Report on Form 8-K dated June 19, 2015, as filed with the SEC on June 25, 2015.II-9