þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 84-1070932 | |||
(State or other jurisdiction | (I.R.S. Employer Identification No.) | |||
of incorporation or organization) | ||||
3001 Griffin Road | ||||
Dania Beach, FL | 33312 | |||
(Address of principal executive offices) | (Zip Code) |
o Large accelerated filer | o Accelerated filer | o Non-accelerated filer (Do not check if a smaller reporting company) | þ Smaller reporting company |
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Exhibit 31.1 | ||
Exhibit 31.2 | ||
Exhibit 32.1 | ||
Exhibit 32.2 |
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September 30, 2014 | December 31, 2013 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 1,672,664 | $ | 6,570,215 | ||||
Due from merchant credit card processor, net of reserve for chargebacks of $2,500 and $2,500, respectively | 115,894 | 205,974 | ||||||
Accounts receivable, net of allowance of $125,917 and $256,833, respectively | 824,459 | 1,802,781 | ||||||
Inventories | 4,135,522 | 3,321,898 | ||||||
Prepaid expenses and vendor deposits | 1,332,110 | 1,201,040 | ||||||
Loan receivable | 512,207 | - | ||||||
Deferred tax asset, net | - | 766,498 | ||||||
TOTAL CURRENT ASSETS | 8,592,856 | 13,868,406 | ||||||
Property and equipment, net of accumulated depreciation of $43,042 and $27,879, respectively | 114,593 | 28,685 | ||||||
Other assets | 374,565 | 65,284 | ||||||
TOTAL ASSETS | $ | 9,082,014 | $ | 13,962,375 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 1,809,577 | $ | 1,123,508 | ||||
Accrued expenses | 333,860 | 420,363 | ||||||
Term loan | 1,000,000 | 478,847 | ||||||
Customer deposits | 255,200 | 182,266 | ||||||
Income taxes payable | 3,092 | 5,807 | ||||||
TOTAL CURRENT LIABILITIES | 3,401,729 | 2,210,791 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued | - | - | ||||||
Common stock, $.001 par value, 50,000,000 shares authorized, 16,759,411 and 16,214,528 shares issued and 16,509,411 and 16,214,528 outstanding, respectively | 16,759 | 16,214 | ||||||
Additional paid-in capital | 14,383,218 | 13,115,024 | ||||||
Accumulated deficit | (8,719,692 | ) | (1,379,654 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 5,680,285 | 11,751,584 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 9,082,014 | $ | 13,962,375 |
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For The Nine Months Ended September 30, | For The Three Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
SALES, NET | $ | 13,547,792 | $ | 18,958,196 | $ | 2,673,926 | $ | 6,411,605 | ||||||||
Cost of goods sold | 10,400,944 | 11,346,696 | 2,026,422 | 3,916,281 | ||||||||||||
GROSS PROFIT | 3,146,848 | 7,611,500 | 647,504 | 2,495,324 | ||||||||||||
EXPENSES: | ||||||||||||||||
Selling, general and administrative | 7,838,380 | 4,843,242 | 2,626,638 | 1,683,787 | ||||||||||||
Advertising | 1,815,450 | 2,153,491 | 671,817 | 418,253 | ||||||||||||
Total operating expenses | 9,653,830 | 6,996,733 | 3,298,455 | 2,102,040 | ||||||||||||
Operating (loss) income | (6,506,982 | ) | 614,767 | (2,650,951 | ) | 393,284 | ||||||||||
Other expense: | ||||||||||||||||
Interest expense | 65,723 | 251,276 | 8,107 | 107,867 | ||||||||||||
Total other expense | 65,723 | 251,276 | 8,107 | 107,867 | ||||||||||||
(LOSS) INCOME BEFORE INCOME TAX EXPENSE | (6,572,705 | ) | 363,491 | (2,659,058 | ) | 285,417 | ||||||||||
Income tax expense | 767,333 | 13,770 | 2,177,057 | 4,590 | ||||||||||||
NET (LOSS) INCOME | $ | (7,340,038 | ) | $ | 349,721 | $ | (4,836,115 | ) | $ | 280,827 | ||||||
(LOSS) EARNINGS PER SHARE-BASIC and DILUTED | $ | (0.45 | ) | $ | 0.03 | $ | (0.29 | ) | $ | 0.02 | ||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC | 16,372,260 | 12,055,766 | 16,489,058 | 12,074,469 | ||||||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-DILUTED | 16,372,260 | 12,365,940 | 16,489,058 | 12,485,945 |
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For The Nine months Ended September 30, | ||||||||
2014 | 2013 | |||||||
OPERATING ACTIVITIES: | ||||||||
Net (loss) income | $ | (7,340,038 | ) | $ | 349,721 | |||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
Change in allowances | (130,916 | ) | 41,500 | |||||
Depreciation | 15,163 | 8.116 | ||||||
Amortization of debt discount | - | 21,768 | ||||||
Stock-based compensation expense | 1,375,343 | 118,203 | ||||||
Deferred income tax expense | 766,498 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Due from merchant credit card processors | 90,080 | 837,411 | ||||||
Accounts receivable | 1,109,238 | (918,538 | ) | |||||
Inventories | (813,624 | ) | (1,345,707 | ) | ||||
Prepaid expenses and vendor deposits | (131,070 | ) | (432,090 | ) | ||||
Other assets | (309,281 | ) | (43,474 | ) | ||||
Accounts payable | 686,069 | (592,060 | ) | |||||
Accrued expenses | (86,503 | ) | 175,392 | |||||
Customer deposits | 72,934 | 307,442 | ||||||
Income taxes | (2,715 | ) | 61,585 | |||||
NET CASH USED IN OPERATING ACTIVITIES | (4,698,822 | ) | (1,410,731 | ) | ||||
INVESTING ACTIVITIES: | ||||||||
Loan receivable | (512,207 | ) | - | |||||
Purchases of property and equipment | (101,071 | ) | (8,057 | ) | ||||
NET CASH USED IN INVESTING ACTIVITIES: | (613,278 | ) | (8,057 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Offering costs | (109,104 | ) | - | |||||
Proceeds from issuance of senior convertible notes payable to related parties | - | 425,000 | ||||||
Proceeds from issuance of senior convertible note payable to stockholder | - | 500,000 | ||||||
Principal repayments of senior note payable to stockholder | - | (70,513 | ) | |||||
Proceeds from borrowings under 2014 term loan, | 1,000,000 | - | ||||||
Proceeds (repayments) under borrowings under 2013 term loan | (478,847 | ) | 660,539 | |||||
Proceeds from exercise of stock options | 2,500 | 30,450 | ||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 414,549 | 1,545,476 | ||||||
(DECREASE) INCREASE IN CASH | (4,897,551 | ) | 126,688 | |||||
CASH — BEGINNING OF PERIOD | 6,570,215 | 176,409 | ||||||
CASH — END OF PERIOD | $ | 1,672,664 | $ | 303,097 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash paid for interest | $ | 76,615 | $ | 217,185 | ||||
Cash paid for income taxes | $ | 3,550 | $ | - | ||||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Cashless exercise of common stock purchase warrants | $ | 142 | $ | - |
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Note 1. | ORGANIZATION, BASIS OF PRESENTATION, AND RECENT DEVELOPMENTS |
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Note 2. | LIQUIDITY AND FINANCIAL CONDITION |
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Note 3. | SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES |
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Note 4. | TERMINATION OF ASSET PURCHASE AGREEMENT WITH INTERNATIONAL VAPOR GROUP, INC. |
On May 14, 2014, the Company entered into the Asset Purchase Agreement with IVG pursuant to which the Company was to purchase the business of IVG by acquiring substantially all of the assets and assuming certain of the liabilities of IVG in an asset purchase transaction. On July 25, 2014, the Company, the Buyer and the Owners David Epstein, David Herrera and Nicolas Molina, in their capacities as the representatives of the Sellers and Owners, entered into a First Amendment to Asset Purchase Agreement (the “First Amendment”).
On August 26, 2014, the Company, the Buyer, and the Sellers and David Epstein, David Herrera and Nicolas Molina, in their capacities as the representatives of the Sellers and the owners of International Vapor Group, Inc., entered into the Termination Letter, pursuant to which the parties mutually terminated their previously announced Asset Purchase Agreement entered into on May 14, 2014 and amended on July 25, 2014.
Note 5. | FACTORING FACILITY AND TERM LOAN PAYABLE |
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Note 6. | STOCKHOLDERS’ EQUITY |
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● | Amended its existing equity incentive plan on November 20, 2013 to reduce the number of shares of its common stock reserved and available for issuance under the plan to 1.8 million from 8 million. | |
● | Effectuated a reverse stock split of its common stock at a ratio of 1-for-5, which became effective in the marketplace at the opening of business December 27, 2013 (as described in Note 1 above). | |
● | Reincorporated to the State of Delaware effective on December 31, 2013. | |
● | Reconstituted its board of directors effective April 25, 2014 so that the board of directors consists of five members, a majority of whom each qualify as an “independent director” as defined in NASDAQ Marketplace Rule 5605(a)(2) and the related NASDAQ interpretative guidance; and | |
● | Listed its common stock on The NASDAQ Capital Market effective May 30, 2014. | |
Number of Warrants | Weighted- Average Exercise Price | Weighted- Average Contractual Term | Aggregate Intrinsic Value | |||||||||||||
Outstanding at January 1, 2014 | 215,880 | $ | 3.23 | — | $ | — | ||||||||||
Warrants granted | — | — | — | — | ||||||||||||
Warrants exercised | (192,970 | ) | 3.30 | — | — | |||||||||||
Warrants forfeited or expired | — | — | — | — | ||||||||||||
Outstanding at September 30, 2014 | 22,910 | $ | 2.63 | 5.0 | $ | 53,090 | ||||||||||
Exercisable at September 30, 2014 | 22,910 | $ | 2.63 | 5.0 | $ | 53,090 |
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For Nine months Ended September 30, 2014 | ||||
Expected term | 5 - 7 years | |||
Risk Free interest rate | 1.57% - 1.72% | |||
Dividend yield | 0.0% | |||
Volatility | 27% - 31% |
Plan | Total Number of Options Outstanding under Plans | |||
Equity compensation plans not approved by security holders | 900 | |||
Equity Incentive Plan | 453 | |||
1,353 |
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Number of Shares | Weighted- Average Exercise Price | Weighted- Average Contractual Term | Aggregate Intrinsic Value | |||||||||||||
Outstanding at January 1, 2014 | 1,119 | $ | 2.17 | 6.89 | $ | 7,815 | ||||||||||
Options granted | 252 | 7.00 | 5.24 | - | ||||||||||||
Options exercised | 2 | 1.00 | - | - | ||||||||||||
Options forfeited or expired | 16 | 1.47 | 10.00 | - | ||||||||||||
Outstanding at September 30, 2014 | 1,353 | $ | 3.08 | 6.54 | $ | - | ||||||||||
Exercisable at September 30, 2014 | 1,004 | $ | 2.15 | 6.41 | $ | - | ||||||||||
Options available for grant at September 30, 2014 | 1,301 |
For the nine months ended September 30, | For the three months ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net (loss) income - basic | $ | (7,340,038 | ) | $ | 349,721 | $ | (4,836,115 | ) | $ | 280,827 | ||||||
Denominator – basic: | ||||||||||||||||
Weighted average number of common shares outstanding | 16,372,260 | 12,055,766 | 16,489,058 | 12,074,469 | ||||||||||||
Basic (loss) earnings per common share | $ | (0.45 | ) | $ | 0.03 | $ | (0.29 | ) | $ | 0.02 | ||||||
Net (loss) income - diluted | $ | (7,340,038 | ) | $ | 349,721 | $ | (4,836,115 | ) | $ | 280,827 | ||||||
Denominator – diluted: | ||||||||||||||||
Weighted average number of common shares outstanding | 16,372,260 | 12,055,766 | 16,489,058 | 12,074,469 | ||||||||||||
Weighted average effect of dilutive securities: | ||||||||||||||||
Common share equivalents of outstanding stock options | - | 301,674 | - | 400,280 | ||||||||||||
Common share equivalents of outstanding warrants | - | 8,501 | - | 11,196 | ||||||||||||
Weighted average number of common shares outstanding | 16,372,260 | 12,365,940 | 16,489,058 | 12,485,945 | ||||||||||||
Diluted (loss) earnings per common share | $ | (0.45 | ) | $ | 0.03 | $ | (0.29 | ) | $ | 0.02 | ||||||
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive: | ||||||||||||||||
Convertible debt | - | 712,398 | - | 712,398 | ||||||||||||
Stock options | 1,352,800 | - | 1,352,800 | - | ||||||||||||
Warrants | 22,910 | 4,089 | 22,910 | 4,089 | ||||||||||||
Restricted common stock | 250,000 | - | 250,000 | - |
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Note 7. | COMMITMENTS AND CONTINGENCIES |
2014 | $ | 134,953 | ||
2015 | 572,798 | |||
2016 | 307,488 | |||
2017 | 300,279 | |||
2018 | 253,841 | |||
Thereafter | 203,964 | |||
Total | $ | 1,773,323 |
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● | 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. |
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NOTE 8. | SUBSEQUENT EVENTS |
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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Controls and Procedures. |
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Item 1. |
Item 6. |
Exhibit No. | Description | |
2.1 | Termination Letter dated August 26, , 2014 by and among Vapor Corp., IVGI Acquisition, Inc., | |
International Vapor Group, Inc. and Nicolas Molina, David Epstein and David Herrera (1) | ||
10.1 | Secured Promissory Note dated September 23, 2014 entered into by Vapor Corp. and Smoke | |
Anywhere USA, Inc. in favor of Entrepreneur Growth Capital LLC (2) | ||
31.1* | Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer. | |
31.2* | Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer. | |
32.1 ** | Section 1350 Certifications of Chief Executive Officer. | |
32.2 ** | Section 1350 Certifications of Chief Financial Officer. | |
101.INS * | XBRL Instance Document | |
101.DEF * | XBRLDefinition Linkbase Document | |
101.CAL * | XBRL Extension Calculation Linkbase Document | |
101.LAB * | XBRL Extension Label Linkbase Document | |
101. PRE * | XBRL Presentation Linkbase Document | |
101. SCH * | XBRL Extension Schema Document |
* | Filed herewith. | |
** | Furnished herewith (not filed). | |
(1) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 26, 2014, as filed with the SEC on August 27, 2014. | |
(2) | Incorporated by reference to the Registrant’s Current Report on Form 8-K dated September 23, 2014, as filed with the SEC on September 23, 2014. |
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VAPOR CORP. | |||
Date: November 14, 2014 | By: /s/ Jeffrey Holman | ||
Jeffrey Holman | |||
Chief Executive Officer |
Date: November 14, 2014 | |||
By: /s/ Harlan Press | |||
Harlan Press | |||
Chief Financial Officer |
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