Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 30, 2013 | Oct. 21, 2013 | |
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | FALSE | |
Document Period End Date | 30-Sep-13 | |
Entity Registrant Name | VAPOR CORP. | |
Entity Central Index Key | 844856 | |
Current Fiscal Year End Date | -19 | |
Document Fiscal Year Focus | 2013 | |
Document Fiscal Period Focus | Q3 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 60,372,344 |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
CURRENT ASSETS: | ||
Cash | $303,097 | $176,409 |
Due from merchant credit card processor, net of reserve for chargebacks of $2,500 and $15,000, respectively | 206,565 | 1,031,476 |
Accounts receivable, net of allowance of $115,000 and $61,000, respectively | 1,613,118 | 748,580 |
Inventories | 3,015,714 | 1,670,007 |
Prepaid expenses | 897,950 | 465,860 |
Income tax receivable | 47,815 | |
Deferred tax asset, net | 222,130 | 222,130 |
TOTAL CURRENT ASSETS | 6,258,574 | 4,362,277 |
Property and equipment, net of accumulated depreciation of $24,711 and $16,595, respectively | 25,131 | 25,190 |
Other assets | 55,474 | 12,000 |
TOTAL ASSETS | 6,339,179 | 4,399,467 |
CURRENT LIABILITIES: | ||
Accounts payable | 2,616,535 | 3,208,595 |
Accrued expenses | 525,543 | 350,151 |
Term loan payable | 660,539 | |
Senior convertible note payable, net of debt discount of $69,734 and $0, respectively | 430,266 | |
Senior convertible notes payable to related parties, net of debt discount of $8,536 and $0, respectively | 416,464 | |
Current portion of senior convertible note payable to stockholder | 166,667 | |
Customer deposits | 785,137 | 477,695 |
Income taxes payable | 13,770 | |
TOTAL CURRENT LIABILITIES | 5,614,921 | 4,036,441 |
LONG-TERM DEBT: | ||
Senior convertible notes payable to related parties, net of debt discount of $2,462 and $3,530, respectively | 347,538 | 346,470 |
Senior convertible note payable to stockholder | 262,820 | |
Senior note payable to stockholder | 500,000 | |
TOTAL LONG-TERM DEBT | 610,358 | 846,470 |
TOTAL LIABILITIES | 6,225,279 | 4,882,911 |
COMMITMENTS AND CONTINGENCIES (Note 7) | ||
STOCKHOLDERS' EQUITY (DEFICIENCY): | ||
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued | ||
Common stock, $.001 par value, 250,000,000 shares authorized, 60,372,344 and 60,185,344 shares issued and outstanding, respectively | 60,372 | 60,185 |
Additional paid-in capital | 1,884,813 | 1,637,377 |
Accumulated deficit | -1,831,285 | -2,181,006 |
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) | 113,900 | -483,444 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) | $6,339,179 | $4,399,467 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Due from merchant credit card processor, reserve for chargebacks | $2,500 | $15,000 |
Accounts receivable, allowance for doubtful accounts | 115,000 | 61,000 |
Property and equipment, accumulated depreciation | 24,711 | 16,595 |
Preferred stock, par value | $0.00 | $0.00 |
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | 0 | 0 |
Common stock, par value | $0.00 | $0.00 |
Common stock, shares authorized | 250,000,000 | 250,000,000 |
Common stock, shares issued | 60,372,344 | 60,185,344 |
Common stock, shares outstanding | 60,372,344 | 60,185,344 |
Senior Convertible Note Payable [Member] | ||
Debt discount, current portion | 69,734 | 0 |
Senior Convertible Notes Payable to Related Parties[Member] | ||
Debt discount, current portion | 8,536 | 0 |
Long Term Debt Instrument Unamortized Discount | $2,462 | $3,530 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract] | ||||
SALES, NET | $6,411,605 | $3,855,568 | $18,958,196 | $16,844,097 |
Cost of goods sold | 3,916,281 | 2,504,019 | 11,346,696 | 10,703,606 |
GROSS PROFIT | 2,495,324 | 1,351,549 | 7,611,500 | 6,140,491 |
EXPENSES: | ||||
Selling, general and administrative | 1,683,787 | 1,762,902 | 4,843,242 | 5,073,162 |
Advertising | 418,253 | 840,733 | 2,153,491 | 2,854,003 |
Total operating expenses | 2,102,040 | 2,603,635 | 6,996,733 | 7,927,165 |
Operating income (loss) | 393,284 | -1,252,086 | 614,767 | -1,786,674 |
Other expense: | ||||
Interest expense | 107,867 | 41,243 | 251,276 | 43,072 |
Total other expense | 107,867 | 41,243 | 251,276 | 43,072 |
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) | 285,417 | -1,293,329 | 363,491 | -1,829,746 |
Income tax expense (benefit) | 4,590 | -474,319 | 13,770 | -634,285 |
NET INCOME (LOSS) | $280,827 | ($819,010) | $349,721 | ($1,195,461) |
BASIC NET INCOME (LOSS) PER COMMON SHARE | $0 | ($0.01) | $0.01 | ($0.02) |
DILUTED NET INCOME (LOSS) PER COMMON SHARE | $0 | ($0.01) | $0.01 | ($0.02) |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC | 60,372,344 | 60,185,344 | 60,278,828 | 60,185,344 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED | 62,429,724 | 60,185,344 | 61,829,701 | 60,185,344 |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 9 Months Ended | |
Sep. 30, 2013 | Sep. 30, 2012 | |
OPERATING ACTIVITIES: | ||
Net income (loss) | $349,721 | ($1,195,461) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||
Provision for allowances | 41,500 | 5,468 |
Depreciation | 8,116 | 8,490 |
Amortization of debt discount | 21,768 | 385 |
Stock-based compensation expense | 118,203 | 32,604 |
Deferred tax asset | 11,177 | |
Changes in operating assets and liabilities: | ||
Due from merchant credit card processors | 837,411 | -459,674 |
Accounts receivable | -918,538 | 157,112 |
Inventories | -1,345,707 | 315,585 |
Prepaid expenses | -432,090 | -79,481 |
Other assets | -43,474 | -25,000 |
Accounts payable | -592,060 | 1,588,140 |
Accrued expenses | 175,392 | -61,641 |
Customer deposits | 307,442 | -451,067 |
Income taxes | 61,585 | -1,030,785 |
NET CASH USED IN OPERATING ACTIVITIES | -1,410,731 | -1,184,148 |
INVESTING ACTIVITIES: | ||
Purchases of property and equipment | -8,057 | -9,319 |
NET CASH USED IN INVESTING ACTIVITIES | -8,057 | -9,319 |
FINANCING ACTIVITIES | ||
Proceeds from issuance of senior convertible note payable to related parties | 425,000 | 350,000 |
Proceeds from issuance of senior convertible note payable to stockholder | 500,000 | |
Proceeds from borrowings under term loan payable, net of repayments | 660,539 | |
Proceeds from the issuance of (principle repayments of) senior note payable to stockholder | -70,513 | 500,000 |
Proceeds from exercise of stock options | 30,450 | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 1,545,476 | 850,000 |
INCREASE (DECREASE) IN CASH | 126,688 | -343,467 |
CASH - BEGINNING OF PERIOD | 176,409 | 356,485 |
CASH - END OF PERIOD | 303,097 | 13,018 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||
Cash paid for interest | 217,185 | 88,880 |
Cash paid for income taxes | $381,814 |
ORGANIZATION_AND_BASIS_OF_PRES
ORGANIZATION AND BASIS OF PRESENTATION | 9 Months Ended |
Sep. 30, 2013 | |
ORGANIZATION AND BASIS OF PRESENTATION [Abstract] | |
ORGANIZATION AND BASIS OF PRESENTATION | Note 1. ORGANIZATION AND BASIS OF PRESENTATION |
Business description | |
Vapor Corp. (the "Company") is the holding company for its wholly owned subsidiary Smoke Anywhere U.S.A., Inc. ("Smoke "). The Company designs, markets and distributes electronic cigarettes and accessories under the Fifty-One® (also known as Smoke 51), Krave®, VaporX®, Alternacig®, EZ Smoker®, Green Puffer®, Americig®, FumaréTM, Hookah Stix® and Smoke Star® brands. "Electronic cigarettes" or "e-cigarettes", designed to look like traditional cigarettes, are battery-powered products that enable users to inhale nicotine vapor without smoke, tar, ash or carbon monoxide. | |
Basis of presentation | |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("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, 2012 has been derived from the Company's audited consolidated financial statements as of that date. | |
These unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2013 and 2012 should be read in conjunction with the audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2012 included in the Company's Annual Report on Form 10-K for such year as filed with the SEC on March 29, 2013. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013. |
SUMMARY_OF_CERTAIN_SIGNIFICANT
SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2013 | |
SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |
SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES | Note 2. SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES |
Principles of consolidation | |
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany transactions and balances have been eliminated. | |
Use of estimates in the preparation of the financial statements | |
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, 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 valuing equity securities, derivative instruments, hybrid instruments, share based payment arrangements, deferred tax and valuation allowances. Certain of our estimates could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and records adjustments when necessary. | |
Revenue recognition | |
The Company recognizes revenue from product sales or services rendered when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured. | |
Product sales and shipping revenues, net of promotional discounts, rebates, and return allowances are recorded when the products are shipped, title passes to customers and collection is reasonably assured. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon the Company's delivery to the carrier. Return allowances, which reduce product revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales and consumption taxes. | |
The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases, inducement offers, such as offers for future discounts subject to a minimum current purchase, and other similar offers. Current discount offers, when accepted by the Company's customers, are treated as a reduction to the purchase price of the related transaction, while inducement offers, when accepted by its customers, are treated as a reduction to the purchase price of the related transaction based on estimated future redemption rates. Redemption rates are estimated using the Company's historical experience for similar inducement offers. The Company reports sales, net of current discount offers and inducement offers, on its condensed consolidated statements of operations. | |
Accounts Receivable | |
Accounts receivable, net are 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 September 30, 2013 and December 31, 2012 accounts receivable balances included a concentration from one customer of an amount greater than 10% of the total net accounts receivable balance ($321,075 and $172,210 from Customer A, respectively). As to revenues, one customer accounted for sales in excess of 10% of the net sales for the three-month period ended September 30, 2013 ($1,190,414 to Customer A) and for the three and nine-month periods ended September 30, 2012 ($635,535 and $4,093,086, respectively, to Customer B). No customers accounted for revenues in excess of 10% of the net sales for the nine-month period ended September 30, 2013. | |
Inventories | |
Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. If the cost of the inventories exceeds their market value, provisions are recorded to write down excess inventory to its net realizable value. The Company's inventories consist primarily of merchandise available for resale. | |
Property and Equipment | |
Property 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. Depreciation expense for the three months ended September 30, 2013 and 2012 was $2,419 and $2,962, respectively. Depreciation expense for the nine months ended September 30, 2013 and 2012 was $8,116 and $8,490, respectively. Depreciation expense is included in selling, general and administrative expense on the condensed consolidated statements of operations. | |
Income Taxes | |
The provision (benefit) for income taxes is based on income (loss) before income tax expense (benefit) reported for financial statement purposes after adjustments for transactions that do not have tax consequences. Deferred tax assets and liabilities are realized according to the estimated future tax consequences attributable to differences between the carrying value of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates as of the date of the condensed consolidated balance sheets. The effect of a change in tax rates on deferred tax assets and liabilities is reflected in the period that includes the statutory enactment date. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation 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 income and tax planning strategies in making this assessment. After consideration of all of the information available, management has determined that a valuation allowance of $619,209 and $781,077 at September 30, 2013 and December 31, 2012, respectively, is necessary to reduce the deferred tax assets for the amounts that will likely not be realized. Should the factors underlying management's analysis change, future valuation adjustments to the Company's net deferred tax assets may be necessary. | |
The Company recognizes a liability for uncertain tax positions. An uncertain tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law and which is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. | |
In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter. Income tax expense (benefit) for the three months ended September 30, 2013 and 2012 was $4,590 and ($474,319), respectively. Income tax expense (benefit) for the nine months ended September 30, 2013 and 2012 was $13,770 and ($634,285), respectively. The effective tax rate for the three and nine months ended September 30, 2013 differs from the U.S. federal statutory rate of 35% primarily due to utilization of net operating losses and certain permanent differences between tax reporting purposes and financial reporting purposes. The effective tax rate for the three and nine months ended September 30, 2012 differs from the U.S. federal statutory rate of 35% primarily due to the under accrual of state income taxes from prior years and certain permanent differences between tax reporting purposes and financial reporting purposes. The Company files U.S. and state income tax returns in jurisdictions with various statutes of limitations. At September 30, 2013 the Company had federal and state net operating losses of $36,653 and $1,368,809, respectively. These net operating losses expire in 2032. Utilization of the Company's net operating losses may be subject to annual limitation due to ownership change limitations that may have occurred or that could occur in the future with respect to the stock ownership of the Company, as required by section 382 of the Internal Revenue Service Code of 1986, as amended, as well as similar state provisions. These ownership changes may limit the amount of net operating losses that can be utilized annually to offset future taxable income and tax respectively. | |
Fair value measurements | |
The Company adopted the provisions of Accounting Standards Codification ("ASC") Topic No. 820, "Fair Value Measurements and Disclosures," ("ASC 820") which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements. | |
The Company's short term financial instruments include cash, due from merchant credit card processors, accounts receivable, accounts payable and accrued expenses, each of which approximate their fair values based upon their short term nature. The Company's other financial instruments include notes payable obligations. The carrying value of these instruments approximate fair value, as they bear terms and conditions comparable to market, for obligations with similar terms and maturities. | |
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1 - quoted prices in active markets for identical assets or liabilities; Level 2 - quoted prices for similar assets and liabilities in active market or inputs that are observable; and Level 3 - inputs that are unobservable. | |
Stock-Based Compensation | |
The Company accounts for stock-based compensation under ASC Topic No. 718, "Compensation-Stock Compensation" ("ASC 718"). These standards define a fair value based method of accounting for stock-based compensation. In accordance with ASC 718, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes-Merton valuation model, whereby compensation cost is the fair value of the award as determined by the valuation model at the grant date or other measurement date. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. | |
Derivative Instruments | |
The Company accounts for free-standing derivative instruments and hybrid instruments that contain embedded derivative features in accordance with ASC Topic No. 815, "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 fair value during a given financial quarter result in the application of non-cash derivative income. | |
Convertible Debt Instruments | |
The Company accounts for convertible debt instruments when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments in accordance with ASC 470-20 "Debt with Conversion and Other Options". The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company amortizes the respective debt discount over the term of the notes, using the straight-line method, which approximates the effective interest method. | |
Recent Accounting Pronouncements | |
The Financial Accounting Standards Board, the Emerging Issues Task Force and the SEC have issued certain accounting standards, updates and regulations as of September 30, 2013 that will become effective in subsequent periods; however, management of the Company does not believe that any of those standards, updates or regulations would have significantly affected the Company's financial accounting measures or disclosures had they been in effect during the three months ended September 30, 2013 or 2012, and it does not believe that any of them will have a significant impact on the Company's condensed consolidated financial statements at the time they become effective. |
FACTORING_FACILITY_AND_TERM_LO
FACTORING FACILITY AND TERM LOAN PAYABLE | 9 Months Ended |
Sep. 30, 2013 | |
FACTORING FACILITY AND TERM LOAN PAYABLE [Abstract] | |
FACTORING FACILITY AND TERM LOAN PAYABLE | Note 3. FACTORING FACILITY AND TERM LOAN PAYABLE |
Factoring Facility | |
On August 8, 2013, the Company and Smoke entered into a spot 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 three and nine months ended September 30, 2013 gross borrowings under the Factoring Facility were $407,888, all of which were repaid as of September 30, 2013. At September 30, 2013 the Company had no borrowings outstanding under the Factoring Facility. | |
Term Loan | |
On August 16, 2013, the Company and Smoke entered into a $750,000 term loan (the "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 matures on August 15, 2014 (or earlier generally upon termination of the Factoring Agreement), is payable from the Company's and Smoke's current and future merchant credit card receivables at the annual rate of 16% subject to the Lender retaining a daily fixed amount of $3,346.15 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. | |
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 September 30, 2013 the Company had $660,539 of borrowings outstanding under the Term Loan. | |
Each of the Company's Chief Executive Officer and 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 Chief Financial Officer providing such foregoing personal guarantee, the Company has agreed to amend his employment agreement as described in Note 7. |
SENIOR_CONVERTIBLE_NOTES
SENIOR CONVERTIBLE NOTES | 9 Months Ended | ||||
Sep. 30, 2013 | |||||
SENIOR CONVERTIBLE NOTES [Abstract] | |||||
SENIOR CONVERTIBLE NOTES | Note 4. SENIOR CONVERTIBLE NOTES | ||||
Senior Convertible Notes Payable to Related Parties | |||||
On June 19, 2012, the Company entered into securities purchase agreements with Kevin Frija, its Chief Executive Officer, Harlan Press, its Chief Financial Officer, and Doron Ziv, a 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 46,512 shares of the Company's common stock. | |||||
The $300,000 Senior Convertible Notes, as amended (as described below), bear interest at 18% per annum, provide for cash interest payments on a monthly basis, mature on June 18, 2015 and are convertible into shares of the Company's common stock at the option of the holders at an initial conversion price of $0.213 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 June 19, 2012) subject to certain anti-dilution protection and are senior unsecured obligations of the Company. | |||||
Initially, these $300,000 Senior Convertible Notes were redeemable at the option of the holders at any time after June 18, 2013 subject to certain limitations. On November 13, 2012, the Company and the above named holders of the $300,000 Senior Convertible Notes amended the Notes to extend their redemption provisions at the option of the | |||||
holders from any time after June 18, 2013 to any time after June 18, 2014. On April 30, 2013, the Company and the above named holders of the $300,000 Senior Convertible Notes further amended the Notes to eliminate their redemption provisions effective March 31, 2013. All other terms of the Senior Convertible Notes remained in effect. | |||||
On September 28, 2012, the Company entered into a securities purchase agreement with Kevin Frija, its 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 6,868 shares of the Company's common stock. | |||||
The $50,000 Senior Convertible Note, as amended (as described below), bears interest at 18% per annum, provides for cash interest payments on a monthly basis, matures on September 28, 2015 and is convertible into shares of the Company's common stock at the option of the holder at an initial conversion price of $0.24 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 September 27, 2012) subject to certain anti-dilution protection and is a senior unsecured obligation of the Company. | |||||
Initially, this $50,000 Senior Convertible Note was redeemable at the option of the holder at any time after September 27, 2013 subject to certain limitations. On November 13, 2012, the Company and the above named holder of the $50,000 Senior Convertible Note amended the Note to extend its redemption provision at the option of the holder from any time after September 27, 2013 to any time after September 27, 2014. On April 30, 2013, the Company and the above named holder of the $50,000 Senior Convertible Note further amended the Note to eliminate its redemption provision effective March 31, 2013. All other terms of the Senior Convertible Note remained in effect. | |||||
The Company recorded $3,902 as debt discount on the principal amount of the $300,000 Senior Convertible Notes issued on June 19, 2012 and $368 as debt discount on the principal amount of the $50,000 Senior Convertible Note issued on September 28, 2012 due to the valuation of the common stock purchase warrants issued in conjunction therewith. The debt discount applicable to each of the $300,000 Senior Convertible Notes and the $50,000 Senior Convertible Note will be amortized, using the straight-line method, over the life of the $300,000 Senior Convertible Notes and $50,000 Senior Convertible Note, as applicable, or until such time that the $300,000 Senior Convertible Notes or the $50,000 Senior Convertible Note, as applicable, is 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 conversion thereof and any unamortized debt discount being expensed at such time of full conversion thereof. The $300,000 Senior Convertible Notes and the $50,000 Senior Convertible Note are presented on a combined basis net of their respective debt discounts. During the three and nine months ended September 30, 2013, the Company recorded $356 and $1,068, respectively, in amortization expense related to the debt discount, which is included on a combined basis in interest expense in the accompanying condensed consolidated statements of operations. | |||||
On July 9, 2013, the Company entered into securities purchase agreements with Ralph Frija, the father of the Company's Chief Executive Officer Kevin Frija and a less than 5% stockholder of the Company, Philip Holman, the father of the Company's President 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 and (ii) common stock purchase warrants to purchase up to an aggregate of 16,857 shares of the Company's common stock (the "$350,000 Senior Convertible Note") 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 9,633 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) $1.0381 (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 4,816 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) $1.0381 (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 2,408 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) $1.0381 (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 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 common stock purchase 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 are being amortized, using the straight-line method, over the life of the $350,000 Senior Convertible Notes or until such time that the $350,000 Senior Convertible Notes are converted, in full or in part, into shares of common stock of the Company with any unamortized debt discounts continuing to be amortized in the event of any partial conversion thereof and any unamortized debt discount being expensed at such time of full conversion thereof. During the three months ended September 30, 2013, the Company recorded $379 and $328 in amortization expense related to the debt discounts and the beneficial conversion option, respectively. During the nine months ended September 30, 2013, the Company recorded $379 and $328 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 condensed consolidated statements of operations. | |||||
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 $1.1419 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 Warrants issued on July 9, 2013 are exercisable at initial exercise prices of $1.1419 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. | |||||
On 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 and (ii) a Warrant to purchase up to 3,587 shares of the Company's common stock (the "$75,000 Senior Convertible Note") (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) $1.0454 (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 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 common stock purchase warrants issued in conjunction therewith. The debt discount applicable to the $75,000 Senior Convertible Note will be amortized, using the straight-line method, over the life of the $75,000 Senior Convertible Note or until such time that the $75,000 Senior Convertible Note is 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 conversion thereof and any unamortized debt discount being expensed at such time of full conversion thereof. The $75,000 Senior Convertible Note is presented on a combined basis net of its debt discount. During the three and nine months ended September 30, 2013, the Company recorded $69 and $69, respectively, in amortization expense related to the debt discount, which is included on a combined basis in interest expense in the accompanying condensed consolidated statements of operations. | |||||
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 $1.1499 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 $1.1499 per share and it is exercisable until July 10, 2018. | |||||
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 do not restrict the Company's ability to incur future indebtedness. | |||||
The Company used all of the proceeds from the sales of these securities for working capital purposes. | |||||
Senior Convertible Note Payable to Stockholder | |||||
On July 9, 2012, the Company borrowed $500,000 from Ralph Frija, the father of the Company's Chief Executive Officer Kevin Frija and a less than 5% stockholder of the Company, pursuant to a senior note (the "Senior Note"). The Company used all of the proceeds from the sale of this Senior Note for working capital purposes. | |||||
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 $0.5154 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 $0.5154 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. All other terms of the Senior Note remained in effect. The aggregate maturities of the Senior Note are as follows: | |||||
Period ending September 30 | Amount | ||||
2014 | $ | 166,667 | |||
2015 | 166,667 | ||||
2016 | 96,153 | ||||
429,487 | |||||
Less: current portion | (166,667 | ) | |||
Long Term | $ | 262,820 | |||
The Senior Note, as amended, does not restrict the Company's ability to incur future indebtedness. | |||||
Senior Convertible Note Payable | |||||
On 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 40,710 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) $0.6141 (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 Company used such proceeds for working capital purposes. | |||||
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 $0.6755 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 Warrant is exercisable at initial exercise price of $0.6755 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 $500,000 2013 Senior Convertible Note issued on January 29, 2013 due to the valuation of the common stock purchase warrants 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 Senior Convertible Note are being amortized, using the straight-line method, over the life of the 2013 Senior Convertible Note or until such time that the 2013 Senior Convertible Note is 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 conversion thereof and any unamortized debt discount being expensed at such time of full conversion thereof. During the three months ended September 30, 2013, the Company recorded $845 and $6,627 in amortization expense related to the debt discount and the beneficial conversion option, respectively. During the nine months ended September 30, 2013, the Company recorded $2,252 and $17,672 in amortization expense related to the debt discount and the beneficial conversion option, respectively. The amortization expense related to the debt discount and the beneficial conversion option is included in interest expense in the accompanying condensed consolidated statements of operations. | |||||
All of the Warrants issued in conjunction with the convertible notes described above 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 $0.20 to $0.70 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% |
STOCKHOLDERS_DEFICIENCY
STOCKHOLDERS' DEFICIENCY | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
STOCKHOLDERS' DEFICIENCY [Abstract] | |||||||||||||||||
STOCKHOLDERS' DEFICIENCY | Note 5. STOCKHOLDERS' DEFICIENCY | ||||||||||||||||
Issuance of Common Stock | |||||||||||||||||
On March 15 and June 15, 2013, the Company issued a total of 100,000 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 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 three and nine months ended September 30, 2013, the Company recognized an expense in the amount of $52,583 and $87,000, respectively, which is included in stock-based compensation expense as part of selling, general and administrative expense in the accompanying condensed consolidated statements of operations. | |||||||||||||||||
Stock-based Compensation | |||||||||||||||||
During the three months ended September 30, 2013 and 2012, the Company recognized stock-based compensation expense of $9,827 and $12,188, respectively. During the nine months ended September 30, 2013 and 2012, the Company recognized stock-based compensation expense of $31,203 and $32,604, respectively. Stock-based compensation expense is included as part of selling, general and administrative expense in the accompanying condensed consolidated statements of operations. The amounts relate to the granting of options to employees and consultants to purchase 243,000 shares of the Company's common stock with an exercise price of $0.375 per share in January 2010 which vest in 4 equal annual installments valued at $46,899; the granting of options to the Company's Chief Financial Officer to purchase 200,000 shares of the Company's common stock with an exercise price of $0.20 per share in February 2012 which vest in 36 monthly installments valued at $20,000; the granting of options to employees and consultants to purchase 228,000 shares of the Company's common stock with an exercise price of $0.23 per share in March 2012 which vest in 4 equal annual installments valued at $25,992; the granting of options to an employee who has since become the Company's Chief Operating Officer to purchase 100,000 shares of the Company's common stock with an exercise price of $0.23 per share in March 2012 which vest in 4 equal annual installments valued at $11,400; the granting of options to consultants to purchase 150,000 shares of the Company's common stock with an exercise price of $0.20 per share in September 2012 which vest in 4 equal annual installments valued at $17,850; and the granting of options to the Company's Chief Operating Officer to purchase 100,000 shares of the Company's common stock with an exercise price of $0.25 per share in December 2012 which vest in 36 monthly installments valued at $14,800. | |||||||||||||||||
As of September 30, 2013, 4,921,056 outstanding common stock options were vested and 599,944 outstanding common stock options were unvested. At September 30, 2013 the amount of unamortized stock-based compensation expense on unvested stock options granted to employees and consultants was $60,365. | |||||||||||||||||
The fair value of employee stock options was estimated using the following weighted-average assumptions: | |||||||||||||||||
For Nine Months Ended September 30, 2012 | |||||||||||||||||
Expected term | 6.3 - 10 years | ||||||||||||||||
Risk Free interest rate | 1.39% - 1.61% | ||||||||||||||||
Dividend yield | 0.00% | ||||||||||||||||
Volatility | 48% - 52% | ||||||||||||||||
Stock option activity | |||||||||||||||||
Options outstanding at September 30, 2013 under the various plans are as follows (in thousands): | |||||||||||||||||
Plan | Total | ||||||||||||||||
Number of | |||||||||||||||||
Options | |||||||||||||||||
Outstanding | |||||||||||||||||
under Plans | |||||||||||||||||
Equity compensation plans not approved by security holders | 4,500 | ||||||||||||||||
Equity Incentive Plan | 1,021 | ||||||||||||||||
5,521 | |||||||||||||||||
A summary of activity under all option Plans at September 30, 2013 and changes during the nine months ended September 30, 2013 (in thousands, except per share data): | |||||||||||||||||
Number of | Weighted- | Weighted- | Aggregate | ||||||||||||||
Shares | Average | Average | Intrinsic | ||||||||||||||
Exercise Price | Contractual Term | Value | |||||||||||||||
Outstanding at January 1, 2013 | 5,662 | $ | 0.412 | 6.94 | $ | 611 | |||||||||||
Options granted | - | - | - | - | |||||||||||||
Options exercised | 87 | 0.35 | 10 | 27 | |||||||||||||
Options forfeited or expired | 54 | 0.254 | 10 | 39 | |||||||||||||
Outstanding at September 30, 2013 | 5,521 | $ | 0.414 | 6.87 | $ | 1,909 | |||||||||||
Exercisable at September 30, 2013 | 4,921 | $ | 0.435 | 6.34 | $ | 1,597 | |||||||||||
Options available for grant at September 30, 2013 | 38,892 | ||||||||||||||||
Net income (loss) per share | |||||||||||||||||
Basic earnings and loss per share are 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 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 nine months ended | For the three months ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Net income (loss) - basic | $ | 349,721 | $ | (1,195,461 | ) | $ | 280,827 | $ | (819,010 | ) | |||||||
Denominator - basic: | |||||||||||||||||
Weighted average number of common shares outstanding | 60,278,828 | 60,185,344 | 60,372,344 | 60,185,344 | |||||||||||||
Basic earnings (loss) per common share | $ | 0.01 | $ | (0.02 | ) | $ | 0 | $ | (0.01 | ) | |||||||
Net income (loss) - diluted | $ | 349,721 | $ | (1,195,461 | ) | $ | 280,827 | $ | (819,010 | ) | |||||||
Denominator - diluted: | |||||||||||||||||
Weighted average number of common shares outstanding | 60,278,828 | 60,185,344 | 60,372,344 | 60,185,344 | |||||||||||||
Weighted average effect of dilutive securities: | |||||||||||||||||
Common share equivalents of outstanding stock options | 1,508,369 | - | 2,001,402 | - | |||||||||||||
Common share equivalents of outstanding warrants | 42,504 | - | 55,979 | - | |||||||||||||
Weighted average number of common shares outstanding | 61,829,701 | 60,185,344 | 62,429,724 | 60,185,344 | |||||||||||||
Diluted earnings (loss) per common share | $ | 0.01 | $ | (0.02 | ) | $ | 0 | $ | (0.01 | ) | |||||||
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive: | |||||||||||||||||
Convertible debt | 3,561,988 | 1,616,784 | 3,561,988 | 1,616,784 | |||||||||||||
Stock options | - | 5,874,000 | - | 5,874,000 | |||||||||||||
Warrants | 20,444 | 53,380 | 20,444 | 53,380 |
RELATED_PARTY_TRANSACTIONS
RELATED PARTY TRANSACTIONS | 9 Months Ended |
Sep. 30, 2013 | |
RELATED PARTY TRANSACTIONS [Abstract] | |
RELATED PARTY TRANSACTIONS | Note 6. RELATED PARTY TRANSACTIONS |
As described in Note 4 (Senior Convertible Notes), on June 19, 2012, the Company entered into securities purchase agreements with Kevin Frija, its Chief Executive Officer, Harlan Press, its Chief Financial Officer, and Doron Ziv, a greater than 10% stockholder of the Company, pursuant to which Messrs. Frija, Press and Ziv (each, a "Purchaser") purchased from the Company (i) the $300,000 Senior Convertible Notes (as since amended as described in Note 4 above) and (ii) common stock purchase warrants to purchase up to an aggregate of 46,512 shares of the Company's common stock (the "June Warrants"). | |
Each Purchaser purchased one of the $300,000 Senior Convertible Notes in the principal amount of $100,000 and a June Warrant to purchase up to 15,504 shares of the Company's common stock (which number of shares represents the quotient obtained by dividing (x) $3,000 (3% of the $100,000 principal amount of such Senior Convertible Note) by (y) $0.1935 (the 30-day weighted average closing price per share of the Company's common stock, as reported on the OTC Bulletin Board, preceding June 19, 2012)). | |
The June Warrants are exercisable at initial exercise price of $0.213 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 June 19, 2012) subject to certain anti-dilution protection and may be exercised at the option of the holders for cash or on a cashless basis until June 18, 2017. | |
In addition, as described in Note 4 (Senior Convertible Notes), on September 28, 2012, the Company entered into a securities purchase agreement with Kevin Frija, its Chief Executive Officer, pursuant to which Mr. Frija purchased from the Company (i) the $50,000 Senior Convertible Notes (as since amended as described in Note 4 above) and (ii) common stock purchase warrants to purchase up to an aggregate of 6,868 shares of the Company's common stock (the "September Warrants") (which number of shares represents the quotient obtained by dividing (x) $3,000 (3% of the $50,000 principal amount of the $50,000 Senior Convertible Note) by (y) $0.2184 (the 30-day weighted average closing price per share of the Company's common stock, as reported on the OTC Bulletin Board, preceding September 27, 2012)). | |
The September Warrants are exercisable at initial exercise price of $0.24 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 September 27, 2012) subject to certain anti-dilution protection and may be exercised at the option of the holders for cash or on a cashless basis until September 27, 2017. | |
As described in Note 4 (Senior Convertible Notes), on July 9, 2012, the Company borrowed $500,000 from Ralph Frija, the father of the Company's Chief Executive Officer Kevin Frija and a less than 5% stockholder of the Company, pursuant to the Senior Note (as since amended as described in Note 4 above). As further described in Note 4, on July 9, 2013, the Company borrowed $200,000 from Ralph Frija, the father of the Company's Chief Executive Officer Kevin Frija and a less than 5% stockholder of the Company, and the Company borrowed $100,000 from Philip Holman, the father of the Company's President Jeffrey Homan and a less than 5% stockholder of the Company, pursuant to the $350,000 Senior Notes. |
COMMITMENTS_AND_CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 9 Months Ended | ||||
Sep. 30, 2013 | |||||
COMMITMENTS AND CONTINGENCIES [Abstract] | |||||
COMMITMENTS AND CONTINGENCIES | Note 7. COMMITMENTS AND CONTINGENCIES | ||||
Lease Commitments | |||||
In March 2011, the Company entered into an operating lease for its new Florida office and warehouse facilities, which expires on April 30, 2013, which provides for minimum annual rentals of approximately $144,000, and provides, subject to the Company's exercise, three successive one-year renewal options. In March 2013, the Company exercised the first one-year renewal option thereby extending the term through April 30, 2014 at an annual rental payment of $151,200. | |||||
The remaining minimum annual rents for the years ending December 31 are: | |||||
2013 | $ | 37,800 | |||
2014 | 50,400 | ||||
Total | $ | 88,200 | |||
Rent expense for the three months ended September 30, 2013 and 2012 was $40,068 and $38,160, respectively. Rent expense for the nine months ended September 30, 2013 and 2012 was $117,660 and $114,480, respectively. Rent expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. | |||||
Employment Agreements | |||||
On October 1, 2009, the Company entered into an employment agreement with Kevin Frija to serve as its Chief Executive Officer and Director. The agreement provided for the payment of $72,000 in annual base salary, a one-time bonus of $48,000 payable ratably over a twelve (12) month period and an award to purchase up to 900,000 shares of the Company's common stock which vested monthly on a pro-rata basis over twelve (12) months, and are exercisable at $0.45 per share. The agreement expired on September 10, 2010 and the Company has continued to employ Mr. Frija as its Chief Executive Officer on an at-will basis. Mr. Frija also served as the Company's Chief Financial Officer from October 1, 2009 until February 29, 2012. Effective February 29, 2012, Mr. Frija resigned as the Company's Chief Financial Officer as a result of the Company's appointment of Harlan Press as the Company's Chief Financial Officer as described below. | |||||
On February 27, 2012, the Company entered into a new employment agreement with Mr. Frija pursuant to which Mr. Frija will continue being employed as Chief Executive Officer and also be employed as President of the Company for a term that shall begin on January 1, 2012, and, unless sooner terminated as provided therein, shall end on December 31, 2014; 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. Frija will receive a base salary of $144,000, increasing to $150,000 and $159,000, respectively, for the second and third years of the Agreement. The Company has agreed to pay Mr. Frija a one-time cash retention bonus in the amount of $10,500 on or before June 30, 2012. Mr. Frija 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. Frija for executive officers of the Company. In addition, the Company may terminate Mr. Frija's employment at any time, with or without cause (as defined in the employment agreement), and Mr. Frija may terminate his employment with the Company without or for good reason (as defined in the employment agreement), provided that termination by either party is subject to advance written notice and, in most instances, the satisfaction of other conditions. Under the employment agreement, in the event Mr. Frija's employment is terminated by the Company without cause or by Mr. Frija for good reason, Mr. Frija will be entitled to receive severance benefits equal to three months of his base salary for each year of service. Mr. Frija's employment agreement also contains term and post-termination non-solicitation, confidentiality and non-competition covenants. | |||||
As noted above, effective February 29, 2012, Mr. Harlan Press was appointed as Chief Financial Officer of the Company in connection with his entry into an employment agreement with the Company, the terms and conditions of which are summarized below. | |||||
On February 27, 2012, the Company entered into the aforesaid employment agreement with Mr. Press pursuant to which Mr. Press will be employed as Chief Financial Officer of the Company for a term that shall begin on February 29, 2012, and, unless sooner terminated as provided therein, shall end on February 28, 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. Press will receive a base salary of $175,000, increasing to $181,000 and $190,000, respectively, for the second and third years of the employment agreement. Mr. Press 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. Press for executive officers of the Company. | |||||
In addition, the Company may terminate Mr. Press' employment at any time, with or without cause (as defined in the employment agreement), and Mr. Press may terminate his employment with the Company without or for good reason (as defined in the employment agreement), provided that termination by either party is subject to advance written notice and, in most instances, the satisfaction of other conditions. Under the employment agreement, in the event Mr. | |||||
Press' employment is terminated by the Company without cause or by Mr. Press for good reason, Mr. Press will be entitled to receive severance benefits equal to three months of his base salary for each year of service. In addition, Mr. Press will receive a 10-year option to purchase 200,000 shares of the Company's common stock at an exercise price of $0.20, vesting monthly at the rate of approximately 5,556 per month. Mr. Press' employment agreement also contains term and post-termination non-solicitation, confidentiality and non-competition covenants. | |||||
In consideration of Mr. Press personally guaranteeing certain of the Company's obligations under the Factoring Agreement, the Company has agreed to amend Mr. Press's employment agreement dated February 27, 2012 effective as of the date of the Factoring Agreement as follows: (i) the initial term of employment (through February 28, 2015) shall automatically renew for successive one-year periods so long as Mr. Press's personal guarantee of the Factoring Agreement remains in full force and effect (provided that the initial term or any renewal term may be terminated (a) upon Mr. Press's death or (b) by the Company for cause (as defined in the employment agreement) or (c) by Mr. Press either (x) for good reason (as defined in the employment agreement) or (y) without good reason), (ii) if Mr. Press's personal guarantee of the Factoring Agreement is enforced against him then all of his stock options to the extent then unvested shall automatically vest in full on the date of such enforcement, (iii) the Company may not terminate Mr. Press's employment for disability or without cause so long as his personal guarantee of the Factoring Agreement remains in full force and effect and (iv) the Company shall indemnify Mr. Press against all losses, claims, expenses and other liabilities of any nature arising out of or relating to enforcement of his personal guarantee of the Factoring Agreement, and such indemnification shall survive until such time Mr. Press has been permanently and unconditionally released from his personal guarantee of the Factoring Agreement. | |||||
On December 12, 2012, the Company entered into an employment agreement with Christopher Santi to serve as its Chief Operating Officer pursuant to which Mr. Santi will be employed as Chief Operating Officer of the Company for a term that shall begin on December 12, 2012, and, unless sooner terminated as provided therein, shall end on December 11, 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. Santi will receive a base salary of $156,000, increasing to $162,000 and $170,000, respectively, for the second and third years of the employment agreement. Mr. Santi 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. Santi for executive officers of the Company. | |||||
In addition, the Company may terminate Mr. Santi's employment at any time, with or without cause (as defined in the employment agreement), and Mr. Santi may terminate his employment with the Company without or for good reason (as defined in the employment agreement), provided that termination by either party is subject to advance written notice and, in most instances, the satisfaction of other conditions. Under the employment agreement, in the event Mr. Santi's employment is terminated by the Company without cause or by Mr. Santi for good reason, Mr. Santi will be entitled to receive severance benefits equal to two months of his base salary for each year of service. In addition, Mr. Santi will receive a 10-year option to purchase up to 100,000 shares of the Company's common stock at an exercise price of $0.25, vesting monthly at the rate of 2,777.8 per month. Mr. Santi' employment agreement also contains term and post-termination non-solicitation, confidentiality and non-competition covenants. | |||||
Effective February 19, 2013, as a result of the Company's appointment of Jeffrey Holman as the Company's President, Mr. Frija resigned the position of President and Mr. Frija will continue in his role as Chief Executive Officer of Company under the terms of his February 27, 2012 employment Agreement. | |||||
On February 19, 2013, the Company entered into an employment agreement with Mr. 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. | |||||
In addition, the Company may terminate Mr. Holman's employment at any time, with or without cause (as defined in the employment agreement), and Mr. Holman may terminate his employment with the Company without or for good reason (as defined in the employment agreement), provided that termination by either party is subject to advance written notice and, in most instances, the satisfaction of other conditions. Under the employment agreement, in the event Mr. Holman's employment is terminated by the Company without cause or by Mr. Holman for good reason, Mr. Holman will be entitled to receive severance benefits equal to three months of his base salary for each year of service. Mr. Holman' employment agreement also contains term and post-termination non-solicitation, confidentiality and non-competition covenants. | |||||
Legal Proceedings | |||||
From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of its business. There were no pending material claims or legal matters as of September 30, 2013 other than the following matters. | |||||
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 alleging patent infringement under federal law. 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 patent infringement under federal law. The lawsuit is Ruyan Investment (Holdings) Limited vs. Vapor Corp. et. al.2:11 CV-06268- GAF-FFM and is pending in the United States District Court for the Central District of California. On September 23, 2011, the Company filed an answer and counterclaims against Ruyan in the lawsuit. A joint scheduling conference among the parties occurred on January 9, 2012. On February 6, 2012, the Court sent out its final Scheduling Order and established a trial date of June 25, 2013. On February 27, 2012, Ruyan served its Infringement Contentions against the Company claiming that the Company's Fifty-One Trio model of electronic cigarette infringes their 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 patent infringement under federal law by the Company of a certain patent issued to Ruyan by the United States Patent Office on April 17, 2012. Ruyan has filed separate cases of patent infringement against 10 different defendants, including the Company, asserting that each defendant has infringed United States Patent No. 8,156,944. (the "944 Patent"). Ruyan's second 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 federal 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 because one of the defendants has filed a request for inter partes reexamination of the 944 Patent. The purpose of the reexamination of the 944 Patent is to reevaluate its patentability. | |||||
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 has 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. |
SUBSEQUENT_EVENTS
SUBSEQUENT EVENTS | 9 Months Ended |
Sep. 30, 2013 | |
SUBSEQUENT EVENTS [Abstract] | |
SUBSEQUENT EVENTS | NOTE 8. SUBSEQUENT EVENTS |
The Company evaluates events that have occurred after the balance sheet date but before the condensed consolidated financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements. |
SUMMARY_OF_CERTAIN_SIGNIFICANT1
SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES (Policy) | 9 Months Ended |
Sep. 30, 2013 | |
SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |
Principles of consolidation | Principles of consolidation |
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany transactions and balances have been eliminated. | |
Use of estimates in the preparation of the financial statements | Use of estimates in the preparation of the financial statements |
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, 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 valuing equity securities, derivative instruments, hybrid instruments, share based payment arrangements, deferred tax and valuation allowances. Certain of our estimates could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and records adjustments when necessary. | |
Revenue recognition | Revenue recognition |
The Company recognizes revenue from product sales or services rendered when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured. | |
Product sales and shipping revenues, net of promotional discounts, rebates, and return allowances are recorded when the products are shipped, title passes to customers and collection is reasonably assured. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon the Company's delivery to the carrier. Return allowances, which reduce product revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales and consumption taxes. | |
The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases, inducement offers, such as offers for future discounts subject to a minimum current purchase, and other similar offers. Current discount offers, when accepted by the Company's customers, are treated as a reduction to the purchase price of the related transaction, while inducement offers, when accepted by its customers, are treated as a reduction to the purchase price of the related transaction based on estimated future redemption rates. Redemption rates are estimated using the Company's historical experience for similar inducement offers. The Company reports sales, net of current discount offers and inducement offers, on its condensed consolidated statements of operations. | |
Accounts Receivable | Accounts Receivable |
Accounts receivable, net are 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 September 30, 2013 and December 31, 2012 accounts receivable balances included a concentration from one customer of an amount greater than 10% of the total net accounts receivable balance ($321,075 and $172,210 from Customer A, respectively). As to revenues, one customer accounted for sales in excess of 10% of the net sales for the three-month period ended September 30, 2013 ($1,190,414 to Customer A) and for the three and nine-month periods ended September 30, 2012 ($635,535 and $4,093,086, respectively, to Customer B). No customers accounted for revenues in excess of 10% of the net sales for the nine-month period ended September 30, 2013. | |
Inventories | Inventories |
Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. If the cost of the inventories exceeds their market value, provisions are recorded to write down excess inventory to its net realizable value. The Company's inventories consist primarily of merchandise available for resale. | |
Property and Equipment | Property and Equipment |
Property 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. Depreciation expense for the three months ended September 30, 2013 and 2012 was $2,419 and $2,962, respectively. Depreciation expense for the nine months ended September 30, 2013 and 2012 was $8,116 and $8,490, respectively. Depreciation expense is included in selling, general and administrative expense on the condensed consolidated statements of operations. | |
Income Taxes | Income Taxes |
The provision (benefit) for income taxes is based on income (loss) before income tax expense (benefit) reported for financial statement purposes after adjustments for transactions that do not have tax consequences. Deferred tax assets and liabilities are realized according to the estimated future tax consequences attributable to differences between the carrying value of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates as of the date of the condensed consolidated balance sheets. The effect of a change in tax rates on deferred tax assets and liabilities is reflected in the period that includes the statutory enactment date. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation 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 income and tax planning strategies in making this assessment. After consideration of all of the information available, management has determined that a valuation allowance of $619,209 and $781,077 at September 30, 2013 and December 31, 2012, respectively, is necessary to reduce the deferred tax assets for the amounts that will likely not be realized. Should the factors underlying management's analysis change, future valuation adjustments to the Company's net deferred tax assets may be necessary. | |
The Company recognizes a liability for uncertain tax positions. An uncertain tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law and which is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. | |
In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter. Income tax expense (benefit) for the three months ended September 30, 2013 and 2012 was $4,590 and ($474,319), respectively. Income tax expense (benefit) for the nine months ended September 30, 2013 and 2012 was $13,770 and ($634,285), respectively. The effective tax rate for the three and nine months ended September 30, 2013 differs from the U.S. federal statutory rate of 35% primarily due to utilization of net operating losses and certain permanent differences between tax reporting purposes and financial reporting purposes. The effective tax rate for the three and nine months ended September 30, 2012 differs from the U.S. federal statutory rate of 35% primarily due to the under accrual of state income taxes from prior years and certain permanent differences between tax reporting purposes and financial reporting purposes. The Company files U.S. and state income tax returns in jurisdictions with various statutes of limitations. At September 30, 2013 the Company had federal and state net operating losses of $36,653 and $1,368,809, respectively. These net operating losses expire in 2032. Utilization of the Company's net operating losses may be subject to annual limitation due to ownership change limitations that may have occurred or that could occur in the future with respect to the stock ownership of the Company, as required by section 382 of the Internal Revenue Service Code of 1986, as amended, as well as similar state provisions. These ownership changes may limit the amount of net operating losses that can be utilized annually to offset future taxable income and tax respectively. | |
Fair value measurements | Fair value measurements |
The Company adopted the provisions of Accounting Standards Codification ("ASC") Topic No. 820, "Fair Value Measurements and Disclosures," ("ASC 820") which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements. | |
The Company's short term financial instruments include cash, due from merchant credit card processors, accounts receivable, accounts payable and accrued expenses, each of which approximate their fair values based upon their short term nature. The Company's other financial instruments include notes payable obligations. The carrying value of these instruments approximate fair value, as they bear terms and conditions comparable to market, for obligations with similar terms and maturities. | |
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1 - quoted prices in active markets for identical assets or liabilities; Level 2 - quoted prices for similar assets and liabilities in active market or inputs that are observable; and Level 3 - inputs that are unobservable. | |
Stock-Based Compensation | Stock-Based Compensation |
The Company accounts for stock-based compensation under ASC Topic No. 718, "Compensation-Stock Compensation" ("ASC 718"). These standards define a fair value based method of accounting for stock-based compensation. In accordance with ASC 718, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes-Merton valuation model, whereby compensation cost is the fair value of the award as determined by the valuation model at the grant date or other measurement date. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience. | |
Derivative Instruments | Derivative Instruments |
The Company accounts for free-standing derivative instruments and hybrid instruments that contain embedded derivative features in accordance with ASC Topic No. 815, "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 fair value during a given financial quarter result in the application of non-cash derivative income. | |
Convertible Debt Instruments | Convertible Debt Instruments |
The Company accounts for convertible debt instruments when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments in accordance with ASC 470-20 "Debt with Conversion and Other Options". The Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company amortizes the respective debt discount over the term of the notes, using the straight-line method, which approximates the effective interest method. | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements |
The Financial Accounting Standards Board, the Emerging Issues Task Force and the SEC have issued certain accounting standards, updates and regulations as of September 30, 2013 that will become effective in subsequent periods; however, management of the Company does not believe that any of those standards, updates or regulations would have significantly affected the Company's financial accounting measures or disclosures had they been in effect during the three months ended September 30, 2013 or 2012, and it does not believe that any of them will have a significant impact on the Company's condensed consolidated financial statements at the time they become effective. |
SENIOR_CONVERTIBLE_NOTES_Table
SENIOR CONVERTIBLE NOTES (Tables) | 9 Months Ended | ||||
Sep. 30, 2013 | |||||
SENIOR CONVERTIBLE NOTES [Abstract] | |||||
Schedule of Maturities of Long-Term Debt | All other terms of the Senior Note remained in effect. The aggregate maturities of the Senior Note are as follows: | ||||
Period ending September 30 | Amount | ||||
2014 | $ | 166,667 | |||
2015 | 166,667 | ||||
2016 | 96,153 | ||||
429,487 | |||||
Less: current portion | (166,667 | ) | |||
Long Term | $ | 262,820 | |||
STOCKHOLDERS_DEFICIENCY_Tables
STOCKHOLDERS' DEFICIENCY (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2013 | |||||||||||||||||
STOCKHOLDERS' DEFICIENCY [Abstract] | |||||||||||||||||
Schedule of Weighted-Average Assumptions Used to Value Employee Stock Options | The fair value of employee stock options was estimated using the following weighted-average assumptions: | ||||||||||||||||
For Nine Months Ended September 30, 2012 | |||||||||||||||||
Expected term | 6.3 - 10 years | ||||||||||||||||
Risk Free interest rate | 1.39% - 1.61% | ||||||||||||||||
Dividend yield | 0.00% | ||||||||||||||||
Volatility | 48% - 52% | ||||||||||||||||
Schedule of Options Outstanding | Options outstanding at September 30, 2013 under the various plans are as follows (in thousands): | ||||||||||||||||
Plan | Total | ||||||||||||||||
Number of | |||||||||||||||||
Options | |||||||||||||||||
Outstanding | |||||||||||||||||
under Plans | |||||||||||||||||
Equity compensation plans not approved by security holders | 4,500 | ||||||||||||||||
Equity Incentive Plan | 1,021 | ||||||||||||||||
5,521 | |||||||||||||||||
Schedule of Stock Options Activity | A summary of activity under all option Plans at September 30, 2013 and changes during the nine months ended September 30, 2013 (in thousands, except per share data): | ||||||||||||||||
Number of | Weighted- | Weighted- | Aggregate | ||||||||||||||
Shares | Average | Average | Intrinsic | ||||||||||||||
Exercise Price | Contractual Term | Value | |||||||||||||||
Outstanding at January 1, 2013 | 5,662 | $ | 0.412 | 6.94 | $ | 611 | |||||||||||
Options granted | - | - | - | - | |||||||||||||
Options exercised | 87 | 0.35 | 10 | 27 | |||||||||||||
Options forfeited or expired | 54 | 0.254 | 10 | 39 | |||||||||||||
Outstanding at September 30, 2013 | 5,521 | $ | 0.414 | 6.87 | $ | 1,909 | |||||||||||
Exercisable at September 30, 2013 | 4,921 | $ | 0.435 | 6.34 | $ | 1,597 | |||||||||||
Options available for grant at September 30, 2013 | 38,892 | ||||||||||||||||
Schedule of Reconcilation of Numerator and Denominator of Basic and Diluted Earnings per Share | The following table reconciles the numerator and denominator for the calculation: | ||||||||||||||||
For the nine months ended | For the three months ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||
Net income (loss) - basic | $ | 349,721 | $ | (1,195,461 | ) | $ | 280,827 | $ | (819,010 | ) | |||||||
Denominator - basic: | |||||||||||||||||
Weighted average number of common shares outstanding | 60,278,828 | 60,185,344 | 60,372,344 | 60,185,344 | |||||||||||||
Basic earnings (loss) per common share | $ | 0.01 | $ | (0.02 | ) | $ | 0 | $ | (0.01 | ) | |||||||
Net income (loss) - diluted | $ | 349,721 | $ | (1,195,461 | ) | $ | 280,827 | $ | (819,010 | ) | |||||||
Denominator - diluted: | |||||||||||||||||
Weighted average number of common shares outstanding | 60,278,828 | 60,185,344 | 60,372,344 | 60,185,344 | |||||||||||||
Weighted average effect of dilutive securities: | |||||||||||||||||
Common share equivalents of outstanding stock options | 1,508,369 | - | 2,001,402 | - | |||||||||||||
Common share equivalents of outstanding warrants | 42,504 | - | 55,979 | - | |||||||||||||
Weighted average number of common shares outstanding | 61,829,701 | 60,185,344 | 62,429,724 | 60,185,344 | |||||||||||||
Diluted earnings (loss) per common share | $ | 0.01 | $ | (0.02 | ) | $ | 0 | $ | (0.01 | ) | |||||||
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive: | |||||||||||||||||
Convertible debt | 3,561,988 | 1,616,784 | 3,561,988 | 1,616,784 | |||||||||||||
Stock options | - | 5,874,000 | - | 5,874,000 | |||||||||||||
Warrants | 20,444 | 53,380 | 20,444 | 53,380 |
COMMITMENTS_AND_CONTINGENCIES_
COMMITMENTS AND CONTINGENCIES (Tables) | 9 Months Ended | ||||
Sep. 30, 2013 | |||||
COMMITMENTS AND CONTINGENCIES [Abstract] | |||||
Schedule Of Future Minimum Rental Payments | The remaining minimum annual rents for the years ending December 31 are: | ||||
2013 | $ | 37,800 | |||
2014 | 50,400 | ||||
Total | $ | 88,200 | |||
SUMMARY_OF_CERTAIN_SIGNIFICANT2
SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | Dec. 31, 2012 | |
Revenue, Major Customer [Line Items] | |||||
Accounts receivable | $1,613,118 | $1,613,118 | $748,580 | ||
Revenues | 6,411,605 | 3,855,568 | 18,958,196 | 16,844,097 | |
Depreciation expense | 2,419 | 2,962 | 8,116 | 8,490 | |
Valuation allowance | 619,209 | 619,209 | 781,077 | ||
Income tax (benefit) expense | 4,590 | -474,319 | 13,770 | -634,285 | |
U.S. federal statutory rate | 35.00% | ||||
Federal net operating losses | 36,653 | 36,653 | |||
State net operating losses | 1,368,809 | 1,368,809 | |||
Net operating loss carryforward expiration date | 31-Dec-32 | ||||
Customer A [Member] | |||||
Revenue, Major Customer [Line Items] | |||||
Accounts receivable | 321,075 | 321,075 | 172,210 | ||
Revenues | 1,190,414 | ||||
Customer B [Member] | |||||
Revenue, Major Customer [Line Items] | |||||
Revenues | $635,535 | $4,093,086 |
FACTORING_FACILITY_AND_TERM_LO1
FACTORING FACILITY AND TERM LOAN PAYABLE (Details) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 | Sep. 30, 2013 | Sep. 30, 2013 | Aug. 08, 2013 | Aug. 16, 2013 | Sep. 30, 2013 |
Factoring Facility [Member] | Factoring Facility [Member] | Factoring Facility [Member] | Term Loan [Member] | Term Loan [Member] | |||
Debt Instrument [Line Items] | |||||||
Advance percentage | 50.00% | ||||||
Factoring fee, percentage | 1.00% | ||||||
Gross borrowings | $407,888 | $407,888 | |||||
Repayments | 407,888 | 407,888 | |||||
Debt instrument, face amount | 750,000 | ||||||
Maturity date | 15-Aug-14 | ||||||
Annual rate | 16.00% | ||||||
Daily fixed amount, retainage from collection of receivables | 3,346.15 | ||||||
Term loan payable | $660,539 | $660,539 |
SENIOR_CONVERTIBLE_NOTES_Narra
SENIOR CONVERTIBLE NOTES (Narrative) (Details) (USD $) | 9 Months Ended | 0 Months Ended | 1 Months Ended | 0 Months Ended | 1 Months Ended | 0 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 0 Months Ended | 3 Months Ended | 9 Months Ended | 0 Months Ended | 1 Months Ended | 3 Months Ended | 9 Months Ended | 1 Months Ended | ||||||||
Sep. 30, 2013 | Sep. 30, 2012 | Nov. 13, 2012 | Jun. 19, 2012 | Nov. 13, 2012 | Sep. 28, 2012 | Jul. 09, 2013 | Sep. 30, 2013 | Sep. 30, 2013 | Jul. 09, 2013 | Jul. 09, 2013 | Jul. 09, 2013 | Sep. 30, 2013 | Sep. 30, 2013 | Jul. 11, 2013 | Sep. 30, 2013 | Sep. 30, 2013 | Nov. 13, 2012 | Jul. 09, 2012 | Apr. 30, 2013 | Jan. 29, 2013 | Sep. 30, 2013 | Sep. 30, 2013 | Jan. 29, 2013 | Jan. 29, 2013 | Jan. 29, 2013 | |
Senior Convertible Note One [Member] | Senior Convertible Note One [Member] | Senior Convertible Note Two [Member] | Senior Convertible Note Two [Member] | Senior Convertible Note Three [Member] | Senior Convertible Note Three [Member] | Senior Convertible Note Three [Member] | Senior Convertible Note Three [Member] | Senior Convertible Note Three [Member] | Senior Convertible Note Three [Member] | Senior Convertible Note Four [Member] | Senior Convertible Note Four [Member] | Senior Convertible Note Four [Member] | Senior Convertible Notes [Member] | Senior Convertible Notes [Member] | Notes Payable to Shareholder [Member] | Notes Payable to Shareholder [Member] | Notes Payable to Shareholder [Member] | Senior Convertible Note Payable [Member] | Senior Convertible Note Payable [Member] | Senior Convertible Note Payable [Member] | Senior Convertible Note Payable [Member] | Senior Convertible Note Payable [Member] | Senior Convertible Note Payable [Member] | |||
Rate | Rate | Rate | Ralph Frija [Member] | Philip Holman [Member] | Angela Vaccaro [Member] | Angela Vaccaro [Member] | Rate | Rate | Warrant [Member] | Warrant [Member] | Warrant [Member] | |||||||||||||||
Rate | Minimum [Member] | Maximum [Member] | ||||||||||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||||||||||||
Debt instrument, face amount | $300,000 | $50,000 | $350,000 | $200,000 | $100,000 | $50,000 | $75,000 | $500,000 | $500,000 | |||||||||||||||||
Number of shares called by warrants | 46,512 | 6,868 | 16,857 | 9,633 | 4,816 | 2,408 | 3,587 | 40,710 | ||||||||||||||||||
Percentage of principal, value | 3,000 | 10,000 | 5,000 | 2,500 | 3,750 | 25,000 | ||||||||||||||||||||
Calculation percent | 3.00% | 5.00% | 5.00% | 5.00% | 5.00% | 5.00% | ||||||||||||||||||||
Weighted average closing price per share | $0.22 | $1.04 | $1.04 | $1.04 | $1.05 | $0.61 | ||||||||||||||||||||
Proceeds from issuance of senior convertible note payable to stockholder | 500,000 | |||||||||||||||||||||||||
Annual rate | 18.00% | 18.00% | 18.00% | 18.00% | 24.00% | 18.00% | ||||||||||||||||||||
Maturity date, maximum | 18-Jun-15 | 28-Sep-15 | 8-Jul-16 | 10-Jul-16 | 28-Jan-16 | |||||||||||||||||||||
Maturity date, minimum | 18-Jun-14 | 18-Jun-13 | 27-Sep-14 | 27-Sep-13 | 8-Jul-14 | 10-Jul-14 | 28-Jan-14 | |||||||||||||||||||
Maturity date | 8-Jan-14 | 8-Jan-13 | 22-Apr-16 | |||||||||||||||||||||||
Conversion price | $0.21 | $0.24 | $1.14 | $1.15 | $0.52 | $0.68 | ||||||||||||||||||||
Exercise price | $1.14 | $1.15 | $0.68 | |||||||||||||||||||||||
Weighted average closing price per share, percentage | 110.00% | 110.00% | 110.00% | 110.00% | 110.00% | 110.00% | ||||||||||||||||||||
Weighted average closing price per share, measurement period | 30 days | 30 days | 30 days | 30 days | 30 days | 30 days | 30 days | 30 days | 30 days | |||||||||||||||||
Expiration date of warrants | 18-Jun-17 | 27-Sep-17 | 8-Jul-18 | 10-Jul-18 | 28-Jan-18 | |||||||||||||||||||||
Debt discount | 3,902 | 368 | 4,550 | 825 | 10,131 | |||||||||||||||||||||
Incremental conversion option intrinsic value benefit | 3,937 | 79,527 | ||||||||||||||||||||||||
Amortization of debt discount | 21,768 | 385 | 379 | 379 | 69 | 69 | 356 | 1,068 | 845 | 2,252 | ||||||||||||||||
Amortization of beneficial conversion option | $328 | $328 | $6,627 | $17,672 | ||||||||||||||||||||||
Stock price | $0.20 | $0.70 | ||||||||||||||||||||||||
Expected term | 5 years | |||||||||||||||||||||||||
Volatility rate | 30.30% | 51.40% | ||||||||||||||||||||||||
Risk-free interest rate | 0.71% | 0.90% | ||||||||||||||||||||||||
Dividend yield | 0.00% |
SENIOR_CONVERTIBLE_NOTES_Sched
SENIOR CONVERTIBLE NOTES (Schedule of Senior Note Maturities) (Details) (USD $) | Sep. 30, 2013 | Dec. 31, 2012 |
Debt Instrument [Line Items] | ||
Less: current portion | ($166,667) | |
Long Term | 262,820 | |
Notes Payable to Shareholder [Member] | ||
Debt Instrument [Line Items] | ||
2014 | 166,667 | |
2015 | 166,667 | |
2016 | 96,153 | |
Senior convertible note payable to stockholder | 429,487 | |
Less: current portion | -166,667 | |
Long Term | $262,820 |
STOCKHOLDERS_DEFICIENCY_Narrat
STOCKHOLDERS' DEFICIENCY (Narrative) (Details) (USD $) | 0 Months Ended | 3 Months Ended | 9 Months Ended | 1 Months Ended | ||||||||
Jun. 15, 2013 | Mar. 15, 2013 | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | Jan. 31, 2010 | Feb. 29, 2012 | Mar. 31, 2012 | Mar. 31, 2012 | Sep. 30, 2012 | Dec. 31, 2012 | |
Employees and Consultants [Member] | Chief Financial Officer [Member] | Employees And Consultants Second Issuance [Member] | Employee who has since become the Company's Chief Operating Officer [Member] | Consultants [Member] | Chief Operating Officer [Member] | |||||||
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items] | ||||||||||||
Consultancy agreement, shares issued | 100,000 | |||||||||||
Consultancy agreement, value of shares issued | $57,500 | $29,500 | ||||||||||
Consultancy agreement, expense | 52,583 | 87,000 | ||||||||||
Stock-based compensation expense | 9,827 | 12,188 | 31,203 | 32,604 | ||||||||
Options granted | 243,000 | 200,000 | 228,000 | 100,000 | 150,000 | 100,000 | ||||||
Exercise price | $0.38 | $0.20 | $0.23 | $0.23 | $0.20 | $0.25 | ||||||
Vesting installments | 4 | 36 | 4 | 4 | 4 | 36 | ||||||
Options granted, value | 46,899 | 20,000 | 25,992 | 11,400 | 17,850 | 14,800 | ||||||
Options vested | 4,921,056 | 4,921,056 | ||||||||||
Options unvested | 599,944 | 599,944 | ||||||||||
Unamortized stock-based compensation expense | $60,365 | $60,365 |
STOCKHOLDERS_DEFICIENCY_Schedu
STOCKHOLDERS' DEFICIENCY (Schedule of Weighted-Average Assumptions Used to Value Employee Stock Options) (Details) | 9 Months Ended |
Sep. 30, 2013 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Risk Free interest rate, minimum | 1.39% |
Risk Free interest rate, maximum | 1.61% |
Dividend yield | 0.00% |
Volatility, minimum | 48.00% |
Volatility, maximum | 52.00% |
Minimum [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected term | 6 years 3 months 18 days |
Maximum [Member] | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected term | 10 years |
STOCKHOLDERS_DEFICIENCY_Schedu1
STOCKHOLDERS' DEFICIENCY (Schedule of Options Outstanding) (Details) | Sep. 30, 2013 | Dec. 31, 2012 |
In Thousands, unless otherwise specified | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Total Number of Options Outstanding in Plans | 5,521 | 5,662 |
Equity compensation plans not approved by security holders [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Total Number of Options Outstanding in Plans | 4,500 | |
Equity Incentive Plan [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Total Number of Options Outstanding in Plans | 1,021 |
STOCKHOLDERS_DEFICIENCY_Schedu2
STOCKHOLDERS' DEFICIENCY (Schedule of Stock Option Activity) (Details) (USD $) | 9 Months Ended | 12 Months Ended |
In Thousands, except Per Share data, unless otherwise specified | Sep. 30, 2013 | Dec. 31, 2012 |
Number of Shares | ||
Outstanding at January 1, 2013 | 5,662 | |
Options granted | ||
Options exercised | 87 | |
Options forfeited or expired | 54 | |
Outstanding at September 30, 2013 | 5,521 | 5,662 |
Exercisable at September 30, 2013 | 4,921 | |
Options available for grant at September 30, 2013 | 38,892 | |
Weighted-Average Exercise Price | ||
Outstanding at January 1, 2013 | $0.41 | |
Options granted | ||
Options exercised | $0.35 | |
Options forfeited or expired | $0.25 | |
Outstanding at September 30, 2013 | $0.41 | $0.41 |
Options available for grant at September 30, 2013 | $0.44 | |
Weighted-Average Contractual Term | ||
Outstanding | 6 years 10 months 13 days | 6 years 11 months 9 days |
Options granted | ||
Options exercised | 10 years | |
Options forfeited or expired | 10 years | |
Exercisable at September 30, 2013 | 6 years 4 months 2 days | |
Aggregate Intrinsic Value | ||
Outstanding at January 1, 2013 | $611 | |
Options granted | ||
Options exercised | 27 | |
Options forfeited or expired | 39 | |
Outstanding at September 30, 2013 | 1,909 | 611 |
Exercisable at September 30, 2013 | $1,597 |
STOCKHOLDERS_DEFICIENCY_Net_in
STOCKHOLDERS' DEFICIENCY (Net income (loss) per share) (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Net income (loss) - basic | $280,827 | ($819,010) | $349,721 | ($1,195,461) |
Weighted average number of common shares outstanding | 60,372,344 | 60,185,344 | 60,278,828 | 60,185,344 |
Basic earnings (loss) per common share | $0 | ($0.01) | $0.01 | ($0.02) |
Net income (loss) - diluted | $280,827 | ($819,010) | $349,721 | ($1,195,461) |
Weighted average number of common stock outstanding - diluted | 62,429,724 | 60,185,344 | 61,829,701 | 60,185,344 |
Diluted earnings (loss) per common share | $0 | ($0.01) | $0.01 | ($0.02) |
Convertible debt [Member] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive: | 3,561,988 | 1,616,784 | 3,561,988 | 1,616,784 |
Stock options [Member] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Weighted average number of common stock outstanding - diluted | 2,001,402 | 1,508,369 | ||
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive: | 5,874,000 | 5,874,000 | ||
Warrants [Member] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Weighted average number of common stock outstanding - diluted | 55,979 | 42,504 | ||
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive: | 20,444 | 53,380 | 20,444 | 53,380 |
RELATED_PARTY_TRANSACTIONS_Nar
RELATED PARTY TRANSACTIONS (Narrative) (Details) (USD $) | 1 Months Ended | 0 Months Ended | |||||||
Jun. 19, 2012 | Sep. 28, 2012 | Jul. 09, 2012 | Jul. 09, 2013 | Jun. 19, 2012 | Jun. 19, 2012 | Jun. 19, 2012 | Jul. 09, 2013 | Jul. 09, 2013 | |
Senior Convertible Note One [Member] | Senior Convertible Note Two [Member] | Notes Payable to Shareholder [Member] | Senior Convertible Note Three [Member] | Chief Executive Officer [Member] | Shareholder [Member] | Chief Financial Officer [Member] | Ralph Frija [Member] | Philip Holman [Member] | |
Senior Convertible Note One [Member] | Senior Convertible Note One [Member] | Senior Convertible Note One [Member] | Senior Convertible Note Three [Member] | Senior Convertible Note Three [Member] | |||||
Related Party Transaction [Line Items] | |||||||||
Debt instrument, face amount | $300,000 | $50,000 | $500,000 | $350,000 | $100,000 | $100,000 | $100,000 | $200,000 | $100,000 |
Number of shares called by warrants | 46,512 | 6,868 | 16,857 | 15,504 | 15,504 | 15,504 | |||
Percentage of principal, value | $3,000 | $3,000 | $3,000 | $3,000 | |||||
Calculation percent | 3.00% | 3.00% | 3.00% | 3.00% | |||||
Weighted average closing price per share | $0.22 | $0.19 | $0.19 | $0.19 | |||||
Conversion price | $0.21 | $0.24 | $0.52 | $1.14 | |||||
Weighted average closing price per share, percentage | 110.00% | 110.00% | 110.00% | 110.00% | |||||
Weighted average closing price per share, measurement period | 30 days | 30 days | 30 days | 30 days | 30 days | 30 days | 30 days | ||
Expiration date of warrants | 18-Jun-17 | 27-Sep-17 | 8-Jul-18 |
COMMITMENTS_AND_CONTINGENCIES_1
COMMITMENTS AND CONTINGENCIES (Lease Commitments) (Details) (USD $) | 1 Months Ended | 3 Months Ended | 9 Months Ended | |||
Mar. 31, 2013 | Mar. 31, 2011 | Sep. 30, 2013 | Sep. 30, 2012 | Sep. 30, 2013 | Sep. 30, 2012 | |
COMMITMENTS AND CONTINGENCIES [Abstract] | ||||||
Minimum annual rentals | $151,200 | $144,000 | ||||
Number of one-year renewal options | 3 | |||||
2013 | 37,800 | 37,800 | ||||
2014 | 50,400 | 50,400 | ||||
Total | 88,200 | 88,200 | ||||
Rent expense | $40,068 | $38,160 | $117,660 | $114,480 |
COMMITMENTS_AND_CONTINGENCIES_2
COMMITMENTS AND CONTINGENCIES (Employment Agreements and Legal Proceedings) (Details) (USD $) | 1 Months Ended | 1 Months Ended | 1 Months Ended | ||||||
Mar. 31, 2013 | Oct. 31, 2009 | Feb. 27, 2012 | Oct. 01, 2009 | Feb. 29, 2012 | Feb. 27, 2012 | Dec. 31, 2012 | Dec. 12, 2012 | Feb. 19, 2013 | |
Chief Executive Officer [Member] | Chief Executive Officer [Member] | Chief Executive Officer [Member] | Chief Financial Officer [Member] | Chief Financial Officer [Member] | Chief Operating Officer [Member] | Chief Operating Officer [Member] | President [Member] | ||
Employment Agreements [Line Items] | |||||||||
Annual base salary | $144,000 | $72,000 | $175,000 | $156,000 | $182,000 | ||||
One-time bonus payable | 10,500 | 48,000 | |||||||
Bonus payable period | 12 months | ||||||||
Shares available under the award | 900,000 | 200,000 | 100,000 | ||||||
Vesting period | 12 months | 10 years | 10 years | ||||||
Exercise price per share | $0.45 | $0.20 | $0.25 | ||||||
Written notice requisite period | 6 months | ||||||||
Salary increase, second year | 150,000 | 181,000 | 162,000 | ||||||
Salary increase, third year | 159,000 | 190,000 | 170,000 | ||||||
Monthly Vesting Rate | 5,556 | 2,777.80 | |||||||
Damages paid, value | $12,000 |