Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 30, 2014 | Nov. 14, 2014 | |
Document and Entity Information [Abstract] | ' | ' |
Entity Registrant Name | 'VAPOR CORP. | ' |
Entity Central Index Key | '0000844856 | ' |
Trading Symbol | 'vpco | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 16,561,911 |
Document Type | '10-Q | ' |
Document Period End Date | 30-Sep-14 | ' |
Amendment Flag | 'false | ' |
Document Fiscal Year Focus | '2014 | ' |
Document Fiscal Period Focus | 'Q3 | ' |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
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 |
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 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Balance Sheets [Abstract] | ' | ' |
Due from merchant credit card processor, reserve for chargebacks | $2,500 | $2,500 |
Accounts receivable, allowance for doubtful accounts | 125,917 | 256,833 |
Property and equipment, accumulated depreciation | $43,042 | $27,879 |
Preferred stock, par value (in dollars per share) | $0.00 | $0.00 |
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | ' | ' |
Common stock, par value (in dollars per share) | $0.00 | $0.00 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 16,759,411 | 16,214,528 |
Common stock, shares outstanding | 16,509,411 | 16,214,528 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Statements of Operations [Abstract] | ' | ' | ' | ' |
SALES, NET | $2,673,926 | $6,411,605 | $13,547,792 | $18,958,196 |
Cost of goods sold | 2,026,422 | 3,916,281 | 10,400,944 | 11,346,696 |
GROSS PROFIT | 647,504 | 2,495,324 | 3,146,848 | 7,611,500 |
EXPENSES: | ' | ' | ' | ' |
Selling, general and administrative | 2,626,638 | 1,683,787 | 7,838,380 | 4,843,242 |
Advertising | 671,817 | 418,253 | 1,815,450 | 2,153,491 |
Total operating expenses | 3,298,455 | 2,102,040 | 9,653,830 | 6,996,733 |
Operating (loss) income | -2,650,951 | 393,284 | -6,506,982 | 614,767 |
Other expense: | ' | ' | ' | ' |
Interest expense | 8,107 | 107,867 | 65,723 | 251,276 |
Total other expense | 8,107 | 107,867 | 65,723 | 251,276 |
(LOSS) INCOME BEFORE INCOME TAX EXPENSE | -2,659,058 | 285,417 | -6,572,705 | 363,491 |
Income tax expense | 2,177,057 | 4,590 | 767,333 | 13,770 |
NET (LOSS) INCOME | ($4,836,115) | $280,827 | ($7,340,038) | $349,721 |
(LOSS) EARNINGS PER SHARE-BASIC and DILUTED (in dollars per share) | ($0.29) | $0.02 | ($0.45) | $0.03 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-BASIC (in shares) | 16,489,058 | 12,074,469 | 16,372,260 | 12,055,766 |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-DILUTED (in shares) | 16,489,058 | 12,485,945 | 16,372,260 | 12,365,940 |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 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 | ' |
ORGANIZATION_BASIS_OF_PRESENTA
ORGANIZATION, BASIS OF PRESENTATION, AND RECENT DEVELOPMENTS | 9 Months Ended | |
Sep. 30, 2014 | ||
Organization and Basis of Presentation [Abstract] | ' | |
ORGANIZATION, BASIS OF PRESENTATION, AND RECENT DEVELOPMENTS | ' | |
Note 1. | ORGANIZATION, BASIS OF PRESENTATION, AND RECENT DEVELOPMENTS | |
Organization | ||
Vapor Corp. (the “Company”) is the holding company for its wholly owned subsidiaries Smoke Anywhere U.S.A., Inc. (“Smoke”) and IVGI Acquisition, Inc. The Company designs, markets and distributes electronic cigarettes, vaporizers, e-liquids and accessories under the Krave®, VaporX®, Hookah Stix®, Alternacig®, emagine vaporTM, Fifty-One® (also known as Smoke 51) and EZ Smoker® 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. | ||
Reverse Stock Split | ||
Effective on December 27, 2013, the Company effected a reverse stock split of its common stock at a ratio of 1-for-5. As a result of the reverse stock split, the Company’s share capital was reduced to 51,000,000 shares from 251,000,000 shares, of which 50,000,000 shares are common stock and 1,000,000 shares are “blank check” preferred stock. All references in these notes and in the related condensed consolidated financial statements to number of shares, price per share and weighted average number of shares outstanding of common stock prior to the reverse stock split (including the share capital decrease) have been adjusted to reflect the reverse stock split (including the share capital decrease) on a retroactive basis, unless otherwise noted. | ||
Resignation of Chief Executive Officer and Appointment of New Chief Executive Officer | ||
Effective April 25, 2014, Kevin Frija resigned as the Company’s Chief Executive Officer and the Company’s Board of Directors appointed the Company’s President and incumbent member of the Board, Jeffrey Holman, as the Company’s new Chief Executive Officer. In connection with Mr. Frija’s resignation as Chief Executive Officer, the Board approved severance payments to Mr. Frija in an aggregate amount equal to one year of base salary at the rate of $159,000 per annum payable in installments in accordance with the Company’s normal payroll schedule conditioned upon his execution and delivery of a general release to the Company, which has become irrevocable in accordance with its terms and applicable law, and his compliance with the non-solicitation, confidentiality and non-competition covenants of his Employment Agreement dated February 27, 2012 with the Company until April 24, 2015 in certain respects and indefinitely in other respects. During the nine months ended September 30, 2014 the Company accrued severance expense in the amount of $167,003, which is included as part of the selling, general and administrative expenses in accompanying condensed consolidated statements of operations in connection with Mr. Frija’s resignation. | ||
Termination of Asset Purchase Agreement | ||
On August 26, 2014, the Company and the Company’s newly formed wholly-owned subsidiary IVGI Acquisition, Inc., a Delaware corporation (the “Buyer”), and International Vapor Group, Inc., a Delaware corporation on behalf of itself and certain of its subsidiaries (“IVG” and together with such of its subsidiaries, the “Sellers”), and David Epstein, David Herrera and Nicolas Molina, in their capacities as the representatives of the Sellers and the owners of International Vapor Group, Inc., entered into a letter of termination (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 (the “Asset Purchase Agreement”). See Note 4. | ||
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, 2013 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, 2014 and 2013 should be read in conjunction with the audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on February 26, 2014. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014. |
LIQUIDITY_AND_FINANCIAL_CONDIT
LIQUIDITY AND FINANCIAL CONDITION | 9 Months Ended | |
Sep. 30, 2014 | ||
Liquidity And Financial Condition [Abstract] | ' | |
LIQUIDITY AND FINANCIAL CONDITION | ' | |
Note 2. | LIQUIDITY AND FINANCIAL CONDITION | |
The Company’s liquidity and capital resources have decreased as a result of the net operating loss of $7,340,038 that it incurred during the nine months ended September 30, 2014. At September 30, 2014 the Company’s accumulated deficit amounted to $8,719,692. At September 30, 2014, the Company had working capital of $5,191,127 compared to $11,657,615 at December 31, 2013, a decrease of $6,466,488. As described in Note 8 (Subsequent Events), on November 14, 2014, the Company and institutional and individual accredited investors (the “Investors”) entered in a securities purchase agreement for the first financing transaction contemplated by Company’s proposed merger transaction with Vaporin, Inc. (“Vaporin”) pursuant to which the Company issued and sold in a private placement $1.25 million principal amount of senior convertible notes (the “Convertible Notes”) and warrants to purchase up to 1,136,364 shares of the Company’s common stock (the “Warrants”). In addition, the proposed merger transaction with Vaporin, also provides for two additional financing transactions with the Investors, the first to occur at the closing of the proposed merger for $3.5 million of common stock and warrants of the Company and the second to occur subsequent to the closing of the proposed merger for up to $25 million of common stock and warrants of the Company subject to the Company complying with financial covenants and performance-based metrics still to be negotiated between the Company and the Investors. The Company will use the net proceeds from the sale of the Convertible Notes for working capital. | ||
Although the Company can provide no assurances, it believes its cash on hand, anticipated cash flow from operations, net proceeds from the sale of the Convertible Notes and Warrants and the anticipated repayment of the secured term loan by IVG will provide sufficient liquidity and capital resources to fund its business for at least the next twelve months. In the event the Company continues to experience liquidity and capital resources constraints, either before the proposed merger with Vaporin, is completed or in the event such proposed merger is not completed, or because of continuing operating losses from its existing business, or the Company’s new retail kiosks and stores do not perform as anticipated, or greater than anticipated sales growth, or greater than anticipated capital needs to expand its new retail kiosk and store operations or otherwise or any combination of the foregoing, the Company may need to raise additional capital in the form of equity and/or debt financing. . If either such additional capital is not available on terms acceptable to the Company or at all or the proposed merger with Vaporin, is not completed then the Company may need to curtail its operations and/or take additional measures to conserve and manage its liquidity and capital resources, any of which would have a material adverse effect on our business, results of operations and financial condition. |
SUMMARY_OF_CERTAIN_SIGNIFICANT
SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended | |
Sep. 30, 2014 | ||
Summary of Certain Significant Accounting Policies [Abstract] | ' | |
SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES | ' | |
Note 3. | SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES | |
Principles of consolidation | ||
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. | ||
Use of estimates in the preparation of the financial statements | ||
The preparation of 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 allowances, reserves and write-downs of receivables and inventory, valuing equity securities, stock-based payment arrangements, deferred taxes and valuation allowances. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company’s industry, and general economic conditions. It is possible that these external factors could have an effect on the Company’s management’s estimates that could cause actual results to differ from management’s 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. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon the Company’s delivery to the carrier. Return allowances, which reduce product revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales and consumption taxes. | ||
The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases, inducement offers, such as offers for future discounts subject to a minimum current purchase, and other similar offers. Current discount offers, when accepted by the Company’s customers, are treated as a reduction to the purchase price of the related transaction, while inducement offers, when accepted by its customers, are treated as a reduction to the purchase price of the related transaction based on estimated future redemption rates. Redemption rates are estimated using the Company’s historical experience for similar inducement offers. The Company reports sales net of current discount offers and inducement offers on its condensed consolidated statements of operations. | ||
Accounts Receivable | ||
Accounts receivable, net is stated at the amount the Company expects to collect. The Company provides a provision for allowances that includes returns, allowances and doubtful accounts equal to the estimated uncollectible amounts. The Company estimates its provision for allowances based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the provision for allowances will change. | ||
At September 30, 2014 accounts receivable balances included a concentration from three customers of an amount greater than 10% of the total net accounts receivable balance ($154,071 from Customer A, $128,615 from Customer B and $88,812 from Customer C.) At December 31, 2013 accounts receivable balances included a concentration from one customer of an amount greater than 10% of the total net accounts receivable balance ($286,768 from Customer D). As to revenues in fiscal 2014, one customer accounted for sales in excess of 10% of the net sales for the three months ended September 30, 2014 ($732,225 from Customer A) and two customers accounted for sales in excess of 10% of the net sales for the nine months ended September 30, 2014 ($2,187,797 from Customer A, and $1,506,880 from Customer E.) As to revenues in fiscal 2013, one customer accounted for sales in excess of 10% of the net sales for the three-month period ended September 30, 2013 ($1,190,413 to Customer D). 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. | ||
Income Taxes | ||
The provision for income taxes is based on (loss) income before income tax expense 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 $2,177,057 and $0 is required at September 30, 2014 and December 31, 2013, respectively, 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. As a result of continued operating losses and cash used in operations, the Company determined during the third quarter of 2014 that a valuation allowance against its deferred tax assets was necessary in order to reduce the deferred tax assets to an amount that will be more likely than not be realized. Income tax expense for the three months ended September 30, 2014 and 2013 was $2,177,057 and $4,590, respectively. Income tax expense for the nine months ended September 30, 2014 and 2013 was $767,333 and $13,770, respectively. The effective tax rate for the three and nine months ended September 30, 2014 differs from the U.S. federal statutory rate of 34% primarily due to the recording of a valuation allowance to reduce the value of the deferred tax assets for the amounts that will likely not be realized 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, 2014 the Company had federal and state net operating losses of $6,297,383 and $4,083,170, respectively. These net operating losses expire at various times through 2034. 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 applies the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” (“ASC 820”). The Company’s short term financial instruments include cash, due from merchant credit card processors, accounts receivable, accounts payable and accrued expenses, each of which approximate their fair values based upon their short term nature. The Company’s other financial instruments include notes payable obligations. The carrying value of these instruments approximate fair value, as they bear terms and conditions comparable to market, for obligations with similar terms and maturities. | ||
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1 – quoted prices in active markets for identical assets or liabilities; Level 2 – quoted prices for similar assets and liabilities in active market or inputs that are observable; and Level 3 – inputs that are unobservable. | ||
Stock-Based 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. | ||
Recent Accounting Pronouncements | ||
The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. . The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations. | ||
The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company is currently evaluating the potential impact, if any, the adoption of this standard will have on the Company’s condensed consolidated financial position and results of operations. | ||
The FASB has issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The guidance, which is effective for annual reporting periods ending after December 15, 2016, extends the responsibility for performing the going-concern assessment to management and contains guidance on how to perform a going-concern assessment and when going-concern disclosures would be required under U.S. GAAP. The Company has elected to early adopt the provisions of ASU 2014-15 in connection with the issuance of these unaudited condensed consolidated financial statements. Information regarding the Company’s liquidity and financial condition has been disclosed in Note 2. | ||
The FASB, the Emerging Issues Task Force and the SEC have issued other accounting standards, updates and regulations as of September 30, 2014 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 and nine months ended September 30, 2014 or 2013, and it does not believe that any of them will have a significant impact on the Company’s condensed consolidated financial position and results of operations at the time they become effective. |
TERMINATION_OF_ASSET_PURCHASE_
TERMINATION OF ASSET PURCHASE AGREEMENT WITH INTERNATIONAL VAPOR GROUP, INC. | 9 Months Ended | |
Sep. 30, 2014 | ||
Termination Asset Purchase Agreement With International Vapor Group Inc [Abstract] | ' | |
TERMINATION OF ASSET PURCHASE AGREEMENT WITH INTERNATIONAL VAPOR GROUP, INC. | ' | |
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. | ||
The Company and the Sellers mutually terminated the Asset Purchase Agreement because the parties could not agree upon certain operational and financial matters pertaining to the post-closing integration of the Sellers’ business operations. | ||
There are no current disputes or disagreements between the Company and the Sellers and neither party is liable for any breakup fees or reimbursement of costs to the other party as a result of the termination of the Asset Purchase Agreement. | ||
The Termination Letter also provides, among other matters, that the secured promissory note dated July 28, 2014 made by IVG in favor of the Company in the principal amount of $500,000 and the guaranty thereof by Messrs. Molina, Epstein and Herrera will continue in full force and effect notwithstanding the termination of the Asset Purchase Agreement. The secured promissory note is due and payable in full on February 28, 2015, bears interest at 8% per annum and is secured by a security interest in certain assets of IVG. At September 30, 2014 the balance of the loan receivable including accrued and unpaid interest was $512,207. | ||
Notwithstanding termination of the Asset Purchase Agreement, the Company has entered into nine (9) of the ten (10) real estate leases for new retail kiosks and stores that it assumed from the Sellers under the Asset Purchase Agreement. See Note 6. |
FACTORING_FACILITY_AND_TERM_LO
FACTORING FACILITY AND TERM LOAN PAYABL | 9 Months Ended | |
Sep. 30, 2014 | ||
Factoring Facility and Term Loan Payable [Abstract] | ' | |
FACTORING FACILITY AND TERM LOAN PAYABLE | ' | |
Note 5. | FACTORING FACILITY AND TERM LOAN PAYABLE | |
Factoring Facility | ||
On August 8, 2013, the Company and Smoke entered into an accounts receivable factoring facility (the “Factoring Facility”) with Entrepreneur Growth Capital, LLC (the “Lender”) pursuant to an Invoice Purchase and Sale Agreement, dated August 8, 2013, by and among them (the “Factoring Agreement”). During the three and nine months ended September 30, 2014, the Company did not borrow under the Factoring Facility. At September 30, 2014 and December 31, 2013 the Company had no borrowings outstanding under the Factoring Facility. | ||
2013 Term Loan | ||
On August 16, 2013, the Company and Smoke entered into a $750,000 term loan (the “2013 Term Loan”) with the Lender pursuant to a Credit Card Receivables Advance Agreement, dated August 16, 2013, by and among them (the “2013 Term Agreement”). The 2013 Term Loan matured on August 15, 2014 (or earlier generally upon termination of the Factoring Agreement), was 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 from the daily collection of the merchant credit card receivables and was secured by a security interest in substantially all of the Company’s assets. The Company used the proceeds of the 2013 Term Loan for general working capital purposes. | ||
At September 30, 2014 and December 31, 2013 the Company had $0 and $478,847 of borrowings outstanding under the 2013 $750,000 Term Loan, respectively. During the three and nine months ended September 30, 2014, the Company recorded $17,540 and $76,617, respectively, in interest expense for the 2013 Term Loan and this amount is included in interest expense in the accompanying condensed consolidated statements of operations. During the three and nine months ended September 30, 2013, the Company recorded $14,308 and $14,308, respectively in interest expense for the 2013 Term Loan and this amount is included in interest expense in the accompanying condensed consolidated statements of operations. The 2013 Term was terminated on September 23, 2014 and replaced by the 2014 $1 Million Term Loan described below. | ||
2014 Term Loan | ||
On September 23, 2014, the Company and Smoke entered into a $1,000,000 term loan (the “2014 Term Loan”) with the Lender pursuant to a secured promissory note entered into by the Company and Smoke in favor of the Lender (the “Secured Note”). Under the Secured Note, the 2014 Term Loan bears interest at 14% per annum and is secured by a security interest in substantially all of the Company’s assets. Under the Secured Note, the principal amount of the 2014 Term Loan is payable in twelve (12) successive monthly installments of $83,333.33 with the last payment due in September 2015. Interest on the 2014 Term Loan is payable in arrears. The Company will use the proceeds of the 2014 Term Loan for general working capital purposes. | ||
During the three and nine months ended September 30, 2014, the Company recorded $3,111 and $3,111, respectively, in interest expense for the 2014 Term Loan and this amount is included in interest expense in the accompanying condensed consolidated statements of operations. | ||
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 Secured Note and the Factoring Agreement. |
STOCKHOLDERS_EQUITY
STOCKHOLDERS' EQUITY | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Stockholders' Equity [Abstract] | ' | ||||||||||||||||
STOCKHOLDERS' EQUITY | ' | ||||||||||||||||
Note 6. | STOCKHOLDERS’ EQUITY | ||||||||||||||||
Issuance of Common Stock | |||||||||||||||||
On February 3, 2014, the Company entered into a consulting agreement (the “Consulting Agreement”) with Knight Global Services, LLC (“Knight Global”) pursuant to which the Company retained Knight Global to assist the Company with increasing awareness of its electronic cigarette brands as well as assisting the Company to expand and diversify its relationships with large retailers and national chains. Knight Global is a wholly owned subsidiary of Knight Global, LLC of which Ryan Kavanaugh is an investor and principal. Effective March 5, 2014, the Board of Directors of the Company elected Mr. Kavanaugh as a member of the Board of Directors in accordance with the Consulting Agreement. Knight Global serves as the family office for Mr. Kavanaugh. Mr. Kavanaugh is the Founder and Chief Executive Officer of Relativity, a next-generation media company engaged in multiple aspects of entertainment, including film production; financing and distribution; television; sports management; music publishing; and digital media. | |||||||||||||||||
Under the terms of the Consulting Agreement, the Company has issued to Mr. Kavanaugh 400,000 shares of its common stock, of which 50,000 shares vested immediately upon execution of the Consulting Agreement, 50,000 shares vested on May 3, 2014, 50,000 shares vested on August 3, 2014 and the remaining 250,000 shares will vest in installments of 50,000 shares each quarterly period beginning on the 90th day following August 3, 2014 and each ensuing quarterly period thereafter so long as the Consulting Agreement has not been terminated and during each quarterly period Knight Global has presented the Company with a minimum of six (6) bona fide opportunities for activities specified in the Consulting Agreement that are intended to increase awareness of the Company’s electronic cigarettes. In addition, during the term of the Consulting Agreement, which is 2 years, and during an 18-month post-termination period, the Company has agreed to pay Knight Global commissions payable in cash equal to 6% of “net sales” (as defined in the Consulting Agreement) of its products to retailers introduced by Knight Global and to retailers with which the Company has existing relationships and with which Knight Global is able, based on its verifiable efforts, to increase net sales of the Company’s products. | |||||||||||||||||
The grant date fair value of the common shares issued on February 3, 2014 was $3,080,000 based on closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, on February 3, 2014. The Company has determined that the achievement of the performance conditions defined in the Consulting Agreement is probable and as a result, during the three and nine months ended September 30, 2014, the Company recognized stock-based compensation expense relating to the Consulting Agreement, in the amount of $336,875 and $1,266,057, respectively, which is included as part of selling, general and administrative expense in the accompanying condensed consolidated statements of operations. | |||||||||||||||||
The Consulting Agreement is terminable by the Company between 181 days and 364 days after February 3, 2014 if Knight Global is not performing the consulting services in accordance with the terms of the Consulting Agreement subject to the Company providing Knight Global with written notice of non-performance and Knight Global having a 30-day cure period to cure such non-performance. In the event of such termination, in addition to delivering previously vested shares and commission payments due and owing Knight Global, 50,000 of the unvested shares subject to quarterly vesting as described above shall automatically vest and be delivered by the Company to Mr. Kavanaugh and Knight Global shall be entitled to commission payments during the 18-month post-termination period. | |||||||||||||||||
The Consulting Agreement is terminable by Knight Global, at any time, and the Company, after the termination period described in the preceding paragraph, for a material uncured breach of the Consulting Agreement, provided that the terminating party has provided the other party with written notice of material breach and a 30-day cure period (or longer under certain circumstances if the breach is not curable within such 30-day period and such party has initiated curative action within such 30-day period and thereafter diligently and continuously pursues such curative action until the breach has been cured). A breach by either party is not deemed to be material unless it causes economic harm to the other party. If the terminating party desires to terminate the Consulting Agreement after the notice and cure period on the basis that the other party has not cured the breach then the terminating party, within 30 days following expiration of the cure period, is required to initiate arbitration in the Delaware Court of Chancery to determine whether the other party has materially breached the Consulting Agreement. | |||||||||||||||||
Private Placement of Common Stock | |||||||||||||||||
On October 22, 2013, the Company entered into a purchase agreement (the “Purchase Agreement”) with various institutional and individual accredited investors and certain of its officers and directors to raise gross proceeds of $10 million in a private placement of 3,333,338 shares of its common stock at a per share price of $3.00 (the “Private Placement”). On October 29, 2013, the Company completed the Private Placement. The Company received net proceeds from the Private Placement of approximately $9.1 million, after paying placement agent fees and estimated offering expenses, which the Company will use to fund its growth initiatives and for working capital purposes. | |||||||||||||||||
Pursuant to the Purchase Agreement, concomitantly with completion of the Private Placement, the Company entered into a registration rights agreement with the investors (other than its participating officers and directors), pursuant to which the Company filed with the SEC an initial registration statement to register for resale the 3,216,171 shares of the Company’s common stock purchased by the investors (other than the Company’s participating officers and directors). The initial registration statement was declared effective by the SEC on January 27, 2014. On March 5, 2014, the Company filed a post-effective amendment to the initial registration statement. The post-effective amendment to the initial registration statement was declared effective by the SEC on March 11, 2014. On June 20, 2014, the Company filed a second post-effective amendment to the initial registration statement. The second post-effective amendment to the initial registration statement was declared effective by the SEC on June 27, 2014. If the second post-effective amendment to the initial registration statement after being declared effective by the SEC is not effective for resales for more than 20 consecutive days or more than 45 days in any 12 month period during the registration period (i.e., the earlier of the date on which the shares have been sold or are eligible for sale under SEC Rule 144 without restriction), the Company is required to pay the investors (other than the Company’s participating officers and directors) liquidated damages in cash equal to 1.5% of the aggregate purchase price paid by the investors (other than the Company’s participating officers and directors) for the shares for every 30 days or portion thereof until the default is cured. These cash payments could be as much as $81,489 for every 30 days. | |||||||||||||||||
Under the terms of the Purchase Agreement, the Company: | |||||||||||||||||
● | Amended its existing equity incentive plan on November 20, 2013 to reduce the number of shares of its common stock reserved and available for issuance under the plan to 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. | ||||||||||||||||
Warrants | |||||||||||||||||
A summary of warrant activity for the nine months ended September 30, 2014 is presented below: | |||||||||||||||||
Number of | Weighted- | Weighted- | Aggregate | ||||||||||||||
Warrants | Average | Average | Intrinsic | ||||||||||||||
Exercise Price | Contractual Term | Value | |||||||||||||||
Outstanding at January 1, 2014 | 215,880 | $ | 3.23 | — | $ | — | |||||||||||
Warrants granted | — | — | — | — | |||||||||||||
Warrants exercised | (192,970 | ) | 3.3 | — | — | ||||||||||||
Warrants forfeited or expired | — | — | — | — | |||||||||||||
Outstanding at September 30, 2014 | 22,910 | $ | 2.63 | 5 | $ | 53,090 | |||||||||||
Exercisable at September 30, 2014 | 22,910 | $ | 2.63 | 5 | $ | 53,090 | |||||||||||
On May 8, 2014, 192,970 warrants were exercised on a cashless basis into 142,383 shares of common stock. | |||||||||||||||||
Stock-based Compensation | |||||||||||||||||
On March 6, 2014, the Board granted to Ryan Kavanaugh a non-qualified Director’s stock option award under the Company’s Equity Incentive Plan to purchase up to 60,000 shares of the Company’s common stock at an exercise price per share equal to $8.30 (the closing share price of the Company’s common stock as reported on the OTC Bulletin Board at the close of trading on the grant date). On April 25, 2014, the Board granted to each of the three (3) other New Directors a non-qualified stock option award under the Company’s Equity Incentive Plan to purchase up to 60,000 shares of the Company’s common stock at an exercise price per share equal to $6.48 (the closing share price of the Company’s common stock as reported on the OTC Bulletin Board at the close of trading on the grant date). Each of the New Director’s stock options expire on the fifth anniversary of the grant date, vest in equal annual installments over a three-year period from the grant date subject to he/she serving as a member of the Board on each such vesting date and is to be evidenced by a non-qualified stock option agreement customarily utilized under the Equity Incentive Plan. The weighted average grant date fair value of the March 6 and April 25, 2014 awards were $149,160 and $315,720, respectively. | |||||||||||||||||
In addition, during the nine months ended September 30, 2014, the Company issued non-qualified stock option awards under the Company’s Equity Incentive Plan to purchase up to 12,000 shares of the Company’s common stock at an exercise price equal to $8.30 (the closing share price of the Company’s common stock as reported on the OTC Bulletin Board at the close of trading on the grant date). The options vest in 3 annual installments and had an aggregate grant date fair value of $29,832. | |||||||||||||||||
The fair value of employee stock options was estimated using the following weighted-average assumptions: | |||||||||||||||||
For Nine months Ended | |||||||||||||||||
30-Sep-14 | |||||||||||||||||
Expected term | 5 - 7 years | ||||||||||||||||
Risk Free interest rate | 1.57% - 1.72% | ||||||||||||||||
Dividend yield | 0.00% | ||||||||||||||||
Volatility | 27% - 31% | ||||||||||||||||
No employee stock options were granted during the first nine months of 2013. | |||||||||||||||||
Stock option activity | |||||||||||||||||
Options outstanding at September 30, 2014 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 | 900 | ||||||||||||||||
Equity Incentive Plan | 453 | ||||||||||||||||
1,353 | |||||||||||||||||
A summary of activity under all option Plans at September 30, 2014 and changes during the nine months ended September 30, 2014 (in thousands, except per share data): | |||||||||||||||||
Number of | Weighted- | Weighted- | Aggregate | ||||||||||||||
Shares | Average | Average | Intrinsic | ||||||||||||||
Exercise Price | Contractual Term | Value | |||||||||||||||
Outstanding at January 1, 2014 | 1,119 | $ | 2.17 | 6.89 | $ | 7,815 | |||||||||||
Options granted | 252 | 7 | 5.24 | - | |||||||||||||
Options exercised | 2 | 1 | - | - | |||||||||||||
Options forfeited or expired | 16 | 1.47 | 10 | - | |||||||||||||
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 | ||||||||||||||||
During the three months ended September 30, 2014 and 2013, the Company recognized stock-based compensation expense in connection with the amortization of stock options expense of $54,360 and $9,827, respectively. During the nine months ended September 30, 2014 and 2013, the Company recognized stock-based compensation expense in connection with the amortization of stock option expense of $109,286 and $31,203, respectively. Stock-based compensation expense is included as part of selling, general and administrative expense in the accompanying condensed consolidated statements of operations. | |||||||||||||||||
At September 30, 2014 the amount of unamortized stock-based compensation expense on unvested stock options granted to employees, directors and consultants was $531,616 and will be amortized over 3.0 years. | |||||||||||||||||
(Loss) earnings 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 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, | ||||||||||||||||
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 | - | |||||||||||||
COMMITMENTS_AND_CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 9 Months Ended | ||||
Sep. 30, 2014 | |||||
Commitments and Contingencies [Abstract] | ' | ||||
COMMITMENTS AND CONTINGENCIES | ' | ||||
Note 7. | COMMITMENTS AND CONTINGENCIES | ||||
Lease Commitments | |||||
The Company leases its Florida office and warehouse facilities under a twenty-four month lease agreement with an initial term through April 30, 2013 that the Company extended in March 2013 and 2014 when it exercised the first and second of three successive one-year renewal options. The lease provides for annual rental payments of $144,000 per annum (including 45 days of total rent abatement) during the initial twenty-four month term and annual rental payments of $151,200, $158,760 and $174,636 during each of the three one-year renewal options. In October 2013, the Company amended the master lease to include an additional approximately 2,200 square feet for an additional annual rental payment of $18,000 subject to the same renewal options and other terms and conditions set forth in the master lease. | |||||
During the three months ended September 30, 2014, the Company entered into nine (9) real estate leases for eight (8) new retail kiosks and one (1) new retail store that it assumed from the Sellers under the Asset Purchase Agreement that the Company and the Sellers mutually terminated on August 26, 2014 pursuant to the Termination Letter. See Note 4. The kiosks and store are scheduled to open during the fourth quarter of 2014. The kiosks are located in malls in Florida, Maryland, New Jersey and Texas. The retail store is located in Ft. Lauderdale, FL. Under these leases, the initial lease terms range from one to five years, the Company is required to pay base and percentage rents and the Company is required to pay for common area and maintenance charges and utilities. | |||||
The remaining minimum annual rents for the years ending December 31 are: | |||||
2014 | $ | 134,953 | |||
2015 | 572,798 | ||||
2016 | 307,488 | ||||
2017 | 300,279 | ||||
2018 | 253,841 | ||||
Thereafter | 203,964 | ||||
Total | $ | 1,773,323 | |||
Rent expense for the three months ended September 30, 2014 and 2013 was $46,841 and $40,068, respectively. Rent expense for the nine months ended September 30, 2014 and 2013 was $137,853 and $117,660, respectively. Rent expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations. | |||||
Legal Proceedings | |||||
From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of our business. There were no pending material claims or legal matters as of the date of this report other than two of the three following matters. | |||||
On May 15, 2011, the Company became aware that Ruyan Investment (Holdings) Limited (“Ruyan”) had named the Company, along with three other sellers of electronic cigarettes in a lawsuit filed in the U.S. District Court for the Central District of California alleging infringement of U.S. Patent No. 7,832,410, entitled “Electronic Atomization Cigarette” against the Company’s Fifty-One Trio products. In that lawsuit, which was initially filed on January 12, 2011, Ruyan was unsuccessful in bringing suit against the Company due to procedural rules of the court. Subsequent thereto, on July 29, 2011, Ruyan filed a new lawsuit in which it named the Company, along with seven other sellers of electronic cigarettes, alleging infringement of the same patent. On March 1, 2013, the Company and Ruyan settled this multi-defendant federal patent infringement lawsuit as to them pursuant to a settlement agreement by and between them. Under the terms of the settlement agreement: | |||||
● | The Company acknowledged the validity of Ruyan’s U.S. Patent No. 7,832,410 for “Electronic Atomization Cigarette” (the “410 Patent”), which had been the subject of Ruyan’s patent infringement claim against the Company; | ||||
● | The Company paid Ruyan a lump sum payment of $12,000 for the Company’s previous sales of electronic cigarettes based on the 410 Patent; and | ||||
● | On March 1, 2013, in conjunction with releasing one another (including their respective predecessors, successors, officers, directors and employees, among others) from claims related to the 410 Patent, the Company and Ruyan filed a Stipulated Judgment and Permanent Injunction with the above Court dismissing with prejudice all claims which have been or could have been asserted by them in the lawsuit. | ||||
On June 22, 2012, Ruyan filed a second lawsuit against the Company alleging infringement of U.S. Patent No. 8,156,944, entitled “Aerosol Electronic Cigarette” (the “944 Patent”). Ruyan also filed separate cases for patent infringement against nine other defendants asserting infringement of the ‘944 Patent. Ruyan’s second lawsuit against the Company known as Ruyan Investment (Holdings) Limited v. Vapor Corp., No. 12-cv-5466, is pending in the United States District Court for the Central District of California. All of these lawsuits have been consolidated for discovery and pre-trial purposes. The Company intends to vigorously defend against this lawsuit. | |||||
On February 25, 2013, Ruyan’s second patent infringement lawsuit against the Company as well as all of the other consolidated lawsuits were stayed as a result of the Court granting a stay in one of the consolidated lawsuits. The Court granted the motion to stay Ruyan’s separate lawsuits against the Company and the other defendants based on the filing of a request for inter partes reexamination of the 944 Patent at the U.S. Patent and Trademark Office. | |||||
As a result of the stay, all of the consolidated lawsuits involving the 944 Patent have been stayed until the reexamination is completed. As a condition to granting the stay of all the lawsuits, the Court required any other defendant who desires to seek reexamination of the 944 Patent and potentially seek another stay (or an extension of the existing stay) based on any such reexamination to seek such reexamination no later than July 1, 2013. Two other defendants sought reexamination of the 944 Patent before expiration of such Court-imposed deadline of July 1, 2013. All reexamination proceedings of the 944 Patent have been stayed by the United States Patent and Trademark Office Patent Trial and Appeal Board pending its approval of one or more of them. | |||||
On March 5, 2014, Fontem Ventures, B.V. and Fontem Holdings 1 B.V. (the successors to Ruyan) filed a complaint against the Company in the U.S. District Court for the Central District of California, captioned Fontem Ventures B.V., et al. v. Vapor Corp., No. 14-cv-1650. The complaint alleges infringement of U.S. Patent No. 8,365,742, entitled “Aerosol Electronic Cigarette”, U.S. Patent No. 8,375,957, entitled “Electronic Cigarette” (the “957 Patent”), U.S. Patent No. 8,393,331, entitled “Aerosol Electronic Cigarette” (the “331 Patent”) and U.S. Patent No. 8,490,628, entitled “Electronic Atomization Cigarette” (the “628 Patent”). On April 8, 2014, plaintiffs amended their complaint to add U.S. Patent No. 8,689,805, entitled “Electronic Cigarette” (the “805 Patent”). The products accused of infringement by plaintiffs are various Krave, Fifty-One and Hookah Stix products and parts. Nine other companies were also sued in separate lawsuits alleging infringement of one or more of the patents listed above. The Company filed its Answer and Counterclaims on May 1, 2014 and believes the claims are without merit. Other defendants have filed petitions for inter partes reexamination of the 331, 628 and 805 Patents at the U.S. Patent and Trademark Office, which petitions are pending. | |||||
On October 21, 2014, Fontem Ventures B.V. and Fontem Holdings 1 B.V. filed a complaint against the Company in the U.S. District Court for the Central District of California, captioned Fontem Ventures B.V., et al. v. Vapor Corp., No. 14-cv-8155. The complaint alleges infringement of U.S. Patent No. United States Patent No. 8,863,752, entitled “Electronic Cigarette”. The products accused of infringement by plaintiffs are various Krave and Fifty-One products and parts. The Company has not yet been served with the complaint. | |||||
Related Party Transactions | |||||
During the three and nine months ended September 30, 2013, the Company paid aggregate interest of $35,553 and $94,491, respectively to Ralph Frija, the father of the Company’s former Chief Executive Officer Kevin Frija and a less than 5% stockholder, pursuant to a previously outstanding senior note. | |||||
During the three and nine months ended September 30, 2013, the Company paid aggregate interest of $6,805 and $20,194, respectively to Kevin Frija, a greater than 5% stockholder, pursuant to a previously outstanding senior convertible note. | |||||
During the three and nine months ended September 30, 2013, the Company paid interest of $4,537 and $13,463, respectively, to Doron Ziv, a greater than 5% stockholder, and to Harlan Press, the Company’s Chief Financial Officer, pursuant to previously outstanding senior convertible notes. No interest was paid during the three and nine months ended September 30, 2014 to these related parties. | |||||
During the three and nine months ended September 30, 2013, the Company paid aggregate interest of $4,142 and $4,142, respectively to Philip Holman, the father of the Company’s Chief Executive Officer Jeffrey Holman and a less than 5% stockholder, pursuant to a previously outstanding senior convertible note. | |||||
Purchase Commitments | |||||
At September 30, 2014 and December 31, 2013, the Company has vendor deposits of $600,902 and $782,363, respectively, and vendor deposits are included as a component of prepaid expenses and vendor deposits on the condensed consolidated balance sheets included herewith. |
SUBSEQUENT_EVENTS
SUBSEQUENT EVENTS | 9 Months Ended | ||
Sep. 30, 2014 | |||
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 accompanying condensed consolidated financial statements other than those set forth below. | |||
Subsequent to September 30, 2014 but before these condensed consolidated financial statements were issued, an additional 50,000 shares of common stock vested in connection with the Consulting Agreement with Knight Global, a related party. | |||
On November 6, 2014, the Company entered into a binding term sheet (the “Term Sheet”) related to a proposed merger with Vaporin, Inc., a Delaware corporation (“Vaporin”, and together with the Company, the “Parties”) and financing transaction with certain other third parties. | |||
By signing the Term Sheet, the Parties have agreed to negotiate in good faith and to execute a definitive agreement as soon as possible, but in any event prior to December 21, 2014, and to otherwise use best efforts to consummate the transactions contemplated by the Term Sheet on an expedited basis. Pursuant to the terms of the Term Sheet, the merger agreement will provide for the acquisition of Vaporin by the Company through a statutory merger with the Company being the surviving corporation upon consummation of the merger. | |||
As consideration for the merger, the Term Sheet provides that the stockholders of Vaporin would be entitled to receive the number of shares of the Company’s common stock such that the former Vaporin stockholders would collectively own 45.0% of the issued and outstanding shares of common stock of the combined company following consummation of the merger, subject to any adjustments to the exchange ratio which would be necessary to permit the respective financial advisers of both the Company and Vaporin to make the determination that the merger consideration is fair from a financial perspective. The Term Sheet provides that the shares of the Company’s common stock to be issued in upon consummation of the proposed merger will be registered on a Form S-4 registration statement (the “Registration Statement”) to be filed with the U.S. Securities and Exchange Commission (the “SEC”). The Term Sheet also prohibits both the Company and Vaporin from entering into discussions or negotiations of any kind (written or oral) with any other entity or person, perform any actions of any kind that are inconsistent in any way with the matters discussed in the Term Sheet, or entertain, solicit, or consider any offers, terms, conditions, or provisions from any other entity or person regarding any transaction involving a sale of all or substantially all of the assets of the Company or Vaporin, as applicable, a merger, consolidation, or recapitalization of the Company or Vaporin, as applicable, or any similar transaction until March 31, 2015, subject to certain exceptions. | |||
In addition to the proposed merger, the Term Sheet also provides the material terms for a series of financing transactions. The first financing, which was completed on November 14, 2014 and is described in Note 2 above, involved the sale of the Convertible Notes and Warrants to the Investors from which the Company realized gross proceeds of $1.25 million and warrants to purchase up to 1,136,364 shares of the Company’s common stock. The Convertible Notes bear interest at 7% per annum payable monthly in shares of the Company’s common stock or cash at the option of the Company, are convertible into shares of the Company’s common stock at $1.10 per share (subject to structural anti-dilution protection for stock splits, stock dividends, combinations or similar events) and mature on November 13, 2015 (unless earlier converted or redeemed). The Warrants are exercisable for a period of five (5) years at $2.00 per share (subject to structural anti-dilution protection for stock splits, stock dividends, combinations or similar events). Palladium Capital Advisors LLC served as placement agent in this first financing for which it received a fee equal to 5% of the gross proceeds of the sale of the Convertible Notes and will also receive a warrant, on terms equivalent to the Warrants, to purchase shares of the Company’s common stock equal to 5% of the shares sold or issuable upon conversion of the Convertible Notes. | |||
The Investors are shareholders of Vaporin. Pursuant to the Term Sheet, a second equity financing of $3.5 million in common stock and warrants is expected to close contingent on the closing of the merger with Vaporin. The Term Sheet also contemplates that the Company may receive up to a total of $25.0 million in additional equity investments subject to financial covenants and performance-based metrics still to be negotiated and documented in the final definitive agreements. | |||
The Parties are currently in the process of negotiating definitive agreements, which are subject to approval of each of the Company’s and Vaporin’s board of directors. The Term Sheet further provides that the merger agreement and financings will include certain customary conditions to closing, including that the consummation of the transactions contemplated by the merger agreement to be entered into shall be subject to, among other things, (i) the receipt by each of the Company and Vaporin of an independent fairness issued by a separate independent investment bank which provides a favorable opinion regarding the financial terms and conditions of the proposed merger; (ii) satisfactory completion of due diligence by each of the Company and Vaporin; (iii) the Registration Statement being declared effective by the SEC and no stop orders from any regulatory authority being in place; (iv) the receipt of approval by the stockholders of the Company and Vaporin to the merger and merger agreement; and (v) the receipt by both Parties of all required regulatory approvals, including from The NASDAQ Stock Market. |
SUMMARY_OF_CERTAIN_SIGNIFICANT1
SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2014 | |
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 subsidiaries. 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 allowances, reserves and write-downs of receivables and inventory, valuing equity securities, stock-based payment arrangements, deferred taxes and valuation allowances. Certain of the Company’s estimates could be affected by external conditions, including those unique to the Company’s industry, and general economic conditions. It is possible that these external factors could have an effect on the Company’s management’s estimates that could cause actual results to differ from management’s 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. 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 is stated at the amount the Company expects to collect. The Company provides a provision for allowances that includes returns, allowances and doubtful accounts equal to the estimated uncollectible amounts. The Company estimates its provision for allowances based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the provision for allowances will change. | |
At September 30, 2014 accounts receivable balances included a concentration from three customers of an amount greater than 10% of the total net accounts receivable balance ($154,071 from Customer A, $128,615 from Customer B and $88,812 from Customer C.) At December 31, 2013 accounts receivable balances included a concentration from one customer of an amount greater than 10% of the total net accounts receivable balance ($286,768 from Customer D). As to revenues in fiscal 2014, one customer accounted for sales in excess of 10% of the net sales for the three months ended September 30, 2014 ($732,225 from Customer A) and two customers accounted for sales in excess of 10% of the net sales for the nine months ended September 30, 2014 ($2,187,797 from Customer A, and $1,506,880 from Customer E.) As to revenues in fiscal 2013, one customer accounted for sales in excess of 10% of the net sales for the three-month period ended September 30, 2013 ($1,190,413 to Customer D). 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. | |
Income Taxes | ' |
Income Taxes | |
The provision for income taxes is based on (loss) income before income tax expense 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 $2,177,057 and $0 is required at September 30, 2014 and December 31, 2013, respectively, 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. As a result of continued operating losses and cash used in operations, the Company determined during the third quarter of 2014 that a valuation allowance against its deferred tax assets was necessary in order to reduce the deferred tax assets to an amount that will be more likely than not be realized. Income tax expense for the three months ended September 30, 2014 and 2013 was $2,177,057 and $4,590, respectively. Income tax expense for the nine months ended September 30, 2014 and 2013 was $767,333 and $13,770, respectively. The effective tax rate for the three and nine months ended September 30, 2014 differs from the U.S. federal statutory rate of 34% primarily due to the recording of a valuation allowance to reduce the value of the deferred tax assets for the amounts that will likely not be realized 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, 2014 the Company had federal and state net operating losses of $6,297,383 and $4,083,170, respectively. These net operating losses expire at various times through 2034. 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 applies the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” (“ASC 820”). The Company’s short term financial instruments include cash, due from merchant credit card processors, accounts receivable, accounts payable and accrued expenses, each of which approximate their fair values based upon their short term nature. The Company’s other financial instruments include notes payable obligations. The carrying value of these instruments approximate fair value, as they bear terms and conditions comparable to market, for obligations with similar terms and maturities. | |
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1 – quoted prices in active markets for identical assets or liabilities; Level 2 – quoted prices for similar assets and liabilities in active market or inputs that are observable; and Level 3 – inputs that are unobservable. | |
Stock-Based 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. | |
Recent Accounting Pronouncements | ' |
Recent Accounting Pronouncements | |
The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. . The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial position and results of operations. | |
The FASB has issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company is currently evaluating the potential impact, if any, the adoption of this standard will have on the Company’s condensed consolidated financial position and results of operations. | |
The FASB has issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The guidance, which is effective for annual reporting periods ending after December 15, 2016, extends the responsibility for performing the going-concern assessment to management and contains guidance on how to perform a going-concern assessment and when going-concern disclosures would be required under U.S. GAAP. The Company has elected to early adopt the provisions of ASU 2014-15 in connection with the issuance of these unaudited condensed consolidated financial statements. Information regarding the Company’s liquidity and financial condition has been disclosed in Note 2. | |
The FASB, the Emerging Issues Task Force and the SEC have issued other accounting standards, updates and regulations as of September 30, 2014 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 and nine months ended September 30, 2014 or 2013, and it does not believe that any of them will have a significant impact on the Company’s condensed consolidated financial position and results of operations at the time they become effective. | |
STOCKHOLDERS_EQUITY_Tables
STOCKHOLDERS' EQUITY (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
Stockholders' Equity [Abstract] | ' | ||||||||||||||||
Schedule of warrant activity | ' | ||||||||||||||||
Number of | Weighted- | Weighted- | Aggregate | ||||||||||||||
Warrants | Average | Average | Intrinsic | ||||||||||||||
Exercise Price | Contractual Term | Value | |||||||||||||||
Outstanding at January 1, 2014 | 215,880 | $ | 3.23 | — | $ | — | |||||||||||
Warrants granted | — | — | — | — | |||||||||||||
Warrants exercised | (192,970 | ) | 3.3 | — | — | ||||||||||||
Warrants forfeited or expired | — | — | — | — | |||||||||||||
Outstanding at September 30, 2014 | 22,910 | $ | 2.63 | 5 | $ | 53,090 | |||||||||||
Exercisable at September 30, 2014 | 22,910 | $ | 2.63 | 5 | $ | 53,090 | |||||||||||
Schedule of weighted-average assumptions used to value employee stock options | ' | ||||||||||||||||
For Nine months Ended | |||||||||||||||||
30-Sep-14 | |||||||||||||||||
Expected term | 5 - 7 years | ||||||||||||||||
Risk Free interest rate | 1.57% - 1.72% | ||||||||||||||||
Dividend yield | 0.00% | ||||||||||||||||
Volatility | 27% - 31% | ||||||||||||||||
Schedule of options outstanding | ' | ||||||||||||||||
Plan | Total | ||||||||||||||||
Number of | |||||||||||||||||
Options | |||||||||||||||||
Outstanding | |||||||||||||||||
under Plans | |||||||||||||||||
Equity compensation plans not approved by security holders | 900 | ||||||||||||||||
Equity Incentive Plan | 453 | ||||||||||||||||
1,353 | |||||||||||||||||
Schedule of stock options activity | ' | ||||||||||||||||
Number of | Weighted- | Weighted- | Aggregate | ||||||||||||||
Shares | Average | Average | Intrinsic | ||||||||||||||
Exercise Price | Contractual Term | Value | |||||||||||||||
Outstanding at January 1, 2014 | 1,119 | $ | 2.17 | 6.89 | $ | 7,815 | |||||||||||
Options granted | 252 | 7 | 5.24 | - | |||||||||||||
Options exercised | 2 | 1 | - | - | |||||||||||||
Options forfeited or expired | 16 | 1.47 | 10 | - | |||||||||||||
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 | ||||||||||||||||
Schedule of reconciliation of numerator and denominator of basic and diluted earnings per share | ' | ||||||||||||||||
For the nine months ended | For the three months ended | ||||||||||||||||
September 30, | 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 | - |
COMMITMENTS_AND_CONTINGENCIES_
COMMITMENTS AND CONTINGENCIES (Tables) | 9 Months Ended | ||||
Sep. 30, 2014 | |||||
Commitments and Contingencies [Abstract] | ' | ||||
Schedule of future minimum rental payments | ' | ||||
2014 | $ | 134,953 | |||
2015 | 572,798 | ||||
2016 | 307,488 | ||||
2017 | 300,279 | ||||
2018 | 253,841 | ||||
Thereafter | 203,964 | ||||
Total | $ | 1,773,323 |
ORGANIZATION_BASIS_OF_PRESENTA1
ORGANIZATION, BASIS OF PRESENTATION, AND RECENT DEVELOPMENTS (Detail Textuals) | 0 Months Ended | |||
Dec. 27, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Dec. 26, 2013 | |
Organization and Basis of Presentation [Abstract] | ' | ' | ' | ' |
Reverse stock split ratio | '1-for-5 | ' | ' | ' |
Share capital, shares authorized | 51,000,000 | ' | ' | 251,000,000 |
Common stock, shares authorized | 50,000,000 | 50,000,000 | 50,000,000 | ' |
Blank check preferred stock | 1,000,000 | 1,000,000 | 1,000,000 | ' |
ORGANIZATION_BASIS_OF_PRESENTA2
ORGANIZATION, BASIS OF PRESENTATION, AND RECENT DEVELOPMENTS (Detail Textuals 1) (USD $) | 9 Months Ended |
Sep. 30, 2014 | |
Organization Basis Of Presentation And Recent Developments [Line Items] | ' |
Accrued severance expense included in the selling, general and administrative expenses | $167,003 |
Kevin Frija | ' |
Organization Basis Of Presentation And Recent Developments [Line Items] | ' |
Base salary per annum | $159,000 |
LIQUIDITY_AND_FINANCIAL_CONDIT1
LIQUIDITY AND FINANCIAL CONDITION (Detail Textuals) (USD $) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | |
Liquidity And Financial Condition [Abstract] | ' | ' | ' | ' | ' |
Net operating loss | ($4,836,115) | $280,827 | ($7,340,038) | $349,721 | ' |
Accumulated deficit | -8,719,692 | ' | -8,719,692 | ' | -1,379,654 |
Working capital | 5,191,127 | ' | 5,191,127 | ' | 11,657,615 |
Decrease in working capital | $6,466,488 | ' | $6,466,488 | ' | ' |
LIQUIDITY_AND_FINANCIAL_CONDIT2
LIQUIDITY AND FINANCIAL CONDITION (Detail Textuals 1) (USD $) | 8-May-14 | Nov. 14, 2014 | Nov. 06, 2014 | Nov. 06, 2014 |
In Millions, except Share data, unless otherwise specified | Subsequent Event | Subsequent Event | Subsequent Event | |
Vaporin, Inc. | Vaporin, Inc. | Vaporin, Inc. | ||
Securities purchase agreement | Securities purchase agreement | Securities purchase agreement | ||
Investor | Investor | Investor | ||
First Financing Transactions | Second Financing Transactions | Third Financing Transactions | ||
Private Placement | Private Placement | Private Placement | ||
Senior secured convertible notes | Senior secured convertible notes | Senior secured convertible notes | ||
Liquidity And Financial Condition [Line Items] | ' | ' | ' | ' |
Number of common stock called by warrants | 142,383 | 1,136,364 | ' | ' |
Closing amount of common stock and warrants for proposed merger | ' | ' | $3.50 | $25 |
Gross proceeds from sale of convertible debt and warrants | ' | $1.25 | ' | ' |
SUMMARY_OF_CERTAIN_SIGNIFICANT2
SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES (Detail Textuals) (USD $) | 3 Months Ended | 9 Months Ended | 9 Months Ended | 12 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | |||||||||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Sep. 30, 2014 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | |
Customer Concentration Risk | Customer Concentration Risk | Customer Concentration Risk | Customer Concentration Risk | Customer Concentration Risk | Customer Concentration Risk | Customer Concentration Risk | Customer Concentration Risk | Customer Concentration Risk | Customer Concentration Risk | Customer Concentration Risk | Customer Concentration Risk | Customer Concentration Risk | Customer Concentration Risk | ||||||
Accounts Receivable | Accounts Receivable | Accounts Receivable | Accounts Receivable | Accounts Receivable | Accounts Receivable | Net sales | Net sales | Net sales | Net sales | Net sales | Net sales | Net sales | Net sales | ||||||
Customer | Customer | Customer A | Customer B | Customer C | Customer D | Customer | Customer | Customer | Customer A | Customer A | Customer D | Customer E | |||||||
Concentration Risk [Line Items] | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Number of customers | ' | ' | ' | ' | ' | 3 | 1 | ' | ' | ' | ' | 1 | 1 | 2 | ' | ' | ' | ' | ' |
Accounts receivable | $824,459 | ' | $824,459 | ' | $1,802,781 | ' | ' | $154,071 | $128,615 | $88,812 | $286,768 | ' | ' | ' | ' | ' | ' | ' | ' |
Revenues net sales | $2,673,926 | $6,411,605 | $13,547,792 | $18,958,196 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | $732,225 | $2,187,797 | $1,190,413 | $1,506,880 |
Concentration risk, benchmark description | ' | ' | ' | ' | ' | 'greater than 10% of the total net accounts receivable balance | 'greater than 10% of the total net accounts receivable balance | ' | ' | ' | ' | 'excess of 10% of the net sales | 'excess of 10% of the net sales | 'excess of 10% of the net sales | 'No customers accounted for revenues in excess of 10% of the net sales | ' | ' | ' | ' |
SUMMARY_OF_CERTAIN_SIGNIFICANT3
SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES (Detail Textuals 1) (USD $) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | |
Summary of Certain Significant Accounting Policies [Abstract] | ' | ' | ' | ' | ' |
Valuation allowance required to reduce the deferred tax assets | $2,177,057 | ' | $2,177,057 | ' | $0 |
Income tax (benefit) expense | 2,177,057 | 4,590 | 767,333 | 13,770 | ' |
U.S. federal statutory rate | 34.00% | ' | 34.00% | ' | ' |
Federal net operating losses | 6,297,383 | ' | 6,297,383 | ' | ' |
State net operating losses | $4,083,170 | ' | $4,083,170 | ' | ' |
Net operating loss carryforward expiration date | ' | ' | 31-Dec-32 | ' | ' |
TERMINATION_OF_ASSET_PURCHASE_1
TERMINATION OF ASSET PURCHASE AGREEMENT WITH INTERNATIONAL VAPOR GROUP, INC. (Detail Textuals) (USD $) | Sep. 30, 2014 | 14-May-14 | Jul. 28, 2014 |
Lease | Lease | Asset Purchase Agreement | |
International Vapor Group, Inc. | |||
Secured Debt | |||
Asset Purchase Agreement [Line Items] | ' | ' | ' |
Number of real estate leases for new retail stores | 9 | 10 | ' |
Aggregate principal amount | ' | ' | $500,000 |
Interest rate | ' | ' | 8.00% |
Balance of loan receivable including accrued and unpaid interest | $512,207 | ' | ' |
FACTORING_FACILITY_AND_TERM_LO1
FACTORING FACILITY AND TERM LOAN PAYABL (Detail Textuals) (USD $) | 3 Months Ended | 9 Months Ended | 0 Months Ended | 3 Months Ended | 9 Months Ended | 1 Months Ended | 3 Months Ended | 9 Months Ended | ||||||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | Aug. 16, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | Sep. 23, 2014 | Sep. 30, 2014 | Sep. 30, 2014 | |
2013 Term Loan | 2013 Term Loan | 2013 Term Loan | 2013 Term Loan | 2013 Term Loan | 2013 Term Loan | 2014 Term Loan | 2014 Term Loan | 2014 Term Loan | ||||||
Installment | ||||||||||||||
Debt Instrument [Line Items] | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Debt instrument, face amount | ' | ' | ' | ' | ' | $750,000 | ' | ' | ' | ' | ' | $1,000,000 | ' | ' |
Maturity date | ' | ' | ' | ' | ' | 15-Aug-14 | ' | ' | ' | ' | ' | ' | ' | ' |
Interest rate | ' | ' | ' | ' | ' | 16.00% | ' | ' | ' | ' | ' | 14.00% | ' | ' |
Daily fixed amount, retainage from collection of receivables | ' | ' | ' | ' | ' | 3,346 | ' | ' | ' | ' | ' | ' | ' | ' |
Term loan | 1,000,000 | ' | 1,000,000 | ' | 478,847 | ' | 0 | ' | 0 | ' | 478,847 | ' | ' | ' |
Interest expense | 8,107 | 107,867 | 65,723 | 251,276 | ' | ' | 17,540 | 14,308 | 76,617 | 14,308 | ' | ' | 3,111 | 3,111 |
Number of monthly installments | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | 12 | ' | ' |
Amount of monthly payment due in September 2015 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | $83,333.33 | ' | ' |
STOCKHOLDERS_EQUITY_Details
STOCKHOLDERS' EQUITY (Details) (USD $) | 0 Months Ended | 9 Months Ended |
8-May-14 | Sep. 30, 2014 | |
Warrants | ||
Number of Warrants | ' | ' |
Outstanding at January 1, 2014 | ' | 215,880 |
Warrants granted | ' | ' |
Warrants exercised | -192,970 | -192,970 |
Warrants forfeited and expired | ' | ' |
Outstanding at September 30, 2014 | ' | 22,910 |
Exercisable at September 30, 2014 | ' | 22,910 |
Weighted-Average Exercise Price | ' | ' |
Outstanding at January 1, 2014 | ' | $3.23 |
Warrants granted | ' | ' |
Warrants exercised | ' | $3.30 |
Warrants forfeited or expired | ' | ' |
Outstanding at September 30, 2014 | ' | $2.63 |
Exercisable at September 30, 2014 | ' | $2.63 |
Weighted-Average Contractual Term | ' | ' |
Outstanding at September 30, 2014 | ' | '5 years |
Exercisable at September 30, 2014 | ' | '5 years |
Aggregate Intrinsic Value | ' | ' |
Outstanding at September 30, 2014 | ' | $53,090 |
Exercisable at September 30, 2014 | ' | $53,090 |
STOCKHOLDERS_EQUITY_Details_1
STOCKHOLDERS' EQUITY (Details 1) (Employee stock options) | 9 Months Ended |
Sep. 30, 2014 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' |
Dividend yield | 0.00% |
Minimum | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' |
Expected term | '5 years |
Risk Free interest rate | 1.57% |
Volatility | 27.00% |
Maximum | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' |
Expected term | '7 years |
Risk Free interest rate | 1.72% |
Volatility | 31.00% |
STOCKHOLDERS_EQUITY_Details_2
STOCKHOLDERS' EQUITY (Details 2) | Sep. 30, 2014 | Dec. 31, 2013 |
In Thousands, unless otherwise specified | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' | ' |
Total Number of Options Outstanding under Plans | 1,353 | 1,119 |
Equity compensation plans not approved by security holders | ' | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' | ' |
Total Number of Options Outstanding under Plans | 900 | ' |
Equity Incentive Plan | ' | ' |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' | ' |
Total Number of Options Outstanding under Plans | 453 | ' |
STOCKHOLDERS_EQUITY_Details_3
STOCKHOLDERS' EQUITY (Details 3) (USD $) | 9 Months Ended | 12 Months Ended |
In Thousands, except Per Share data, unless otherwise specified | Sep. 30, 2014 | Dec. 31, 2013 |
Number of Shares | ' | ' |
Outstanding at January 1, 2014 | 1,119 | ' |
Options granted | 252 | ' |
Options exercised | 2 | ' |
Options forfeited or expired | 16 | ' |
Outstanding at September 30, 2014 | 1,353 | 1,119 |
Exercisable at September 30, 2014 | 1,004 | ' |
Options available for grant at June 30, 2014 | 1,301 | ' |
Weighted-Average Exercise Price | ' | ' |
Outstanding at January 1, 2014 | $2.17 | ' |
Options granted | $7 | ' |
Options exercised | $1 | ' |
Options forfeited or expired | $1.47 | ' |
Outstanding at September 30, 2014 | $3.08 | $2.17 |
Exercisable at September 30, 2014 | $2.15 | ' |
Weighted-Average Contractual Term | ' | ' |
Outstanding | '6 years 6 months 15 days | '6 years 10 months 21 days |
Options granted | '5 years 2 months 27 days | ' |
Options forfeited or expired | '10 years | ' |
Exercisable at September 30, 2014 | '6 years 4 months 28 days | ' |
Aggregate Intrinsic Value | ' | ' |
Outstanding at January 1, 2014 | $7,815 | ' |
Options granted | ' | ' |
Options exercised | ' | ' |
Options forfeited or expired | ' | ' |
Outstanding at September 30, 2014 | ' | 7,815 |
Exercisable at September 30, 2014 | ' | ' |
STOCKHOLDERS_EQUITY_Details_4
STOCKHOLDERS' EQUITY (Details 4) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ' | ' | ' | ' |
Net (loss) income - basic | ($4,836,115) | $280,827 | ($7,340,038) | $349,721 |
Denominator - basic: | ' | ' | ' | ' |
Weighted average number of common shares outstanding | 16,489,058 | 12,074,469 | 16,372,260 | 12,055,766 |
Basic (loss) earnings per common share (in dollars per share) | ($0.29) | $0.02 | ($0.45) | $0.03 |
Net (loss) income - diluted | ($4,836,115) | $280,827 | ($7,340,038) | $349,721 |
Denominator - diluted: | ' | ' | ' | ' |
Weighted average number of common shares outstanding | 16,489,058 | 12,074,469 | 16,372,260 | 12,055,766 |
Weighted average effect of dilutive securities: | ' | ' | ' | ' |
Common share equivalents of outstanding stock options | ' | 400,280 | ' | 301,674 |
Common share equivalents of outstanding warrants | ' | 11,196 | ' | 8,501 |
Weighted average number of common shares outstanding | 16,489,058 | 12,485,945 | 16,372,260 | 12,365,940 |
Diluted (loss) earnings per common share (in dollars per share) | ($0.29) | $0.02 | ($0.45) | $0.03 |
Convertible debt | ' | ' | ' | ' |
Weighted average effect of dilutive securities: | ' | ' | ' | ' |
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive: | ' | 712,398 | ' | 712,398 |
Stock options | ' | ' | ' | ' |
Weighted average effect of dilutive securities: | ' | ' | ' | ' |
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive: | 1,352,800 | ' | 1,352,800 | ' |
Warrants | ' | ' | ' | ' |
Weighted average effect of dilutive securities: | ' | ' | ' | ' |
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive: | 22,910 | 4,089 | 22,910 | 4,089 |
Restricted common stock | ' | ' | ' | ' |
Weighted average effect of dilutive securities: | ' | ' | ' | ' |
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive: | 250,000 | ' | 250,000 | ' |
STOCKHOLDERS_EQUITY_Issuance_o
STOCKHOLDERS' EQUITY - Issuance of Common Stock (Detail Textuals) (USD $) | 0 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 0 Months Ended | ||||
Feb. 03, 2014 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2014 | Aug. 03, 2014 | 3-May-14 | Feb. 03, 2014 | |
Consulting Agreement | Consulting Agreement | Consulting Agreement | Consulting Agreement | Consulting Agreement | ||||||
Mr. Kavanaugh | Mr. Kavanaugh | Mr. Kavanaugh | ||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Stock issued for services | ' | ' | ' | ' | ' | ' | ' | ' | ' | 400,000 |
Shares of common stock, Vested | ' | ' | ' | ' | ' | ' | 50,000 | 50,000 | 50,000 | 50,000 |
Shares of common stock vested in installments | ' | ' | ' | ' | ' | ' | ' | ' | ' | 250,000 |
Number of shares in each installment | ' | ' | ' | ' | ' | ' | ' | ' | ' | 50,000 |
Consulting agreement description | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Knight Global has presented the Company with a minimum of six (6) bona fide opportunities for activities specified in the Consulting Agreement that are intended to increase awareness of the Company’s electronic cigarettes. In addition, during the term of the Consulting Agreement, which is 2 years, and during an 18-month post-termination period, the Company has agreed to pay Knight Global commissions payable in cash equal to 6% of “net sales” (as defined in the Consulting Agreement) of its products to retailers introduced by Knight Global and to retailers with which the Company has existing relationships and with which Knight Global is able, based on its verifiable efforts, to increase net sales of the Company’s products. | ||||||||||
Grant date fair value of the common shares | $3,080,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Stock-based compensation expense | ' | $54,360 | $9,827 | $109,286 | $31,203 | $336,875 | $1,266,057 | ' | ' | ' |
Consulting Agreement Termination Description | ' | ' | ' | ' | ' | ' | 'The Consulting Agreement is terminable by the Company between 181 days and 364 days after February 3, 2014 if Knight Global is not performing the consulting services in accordance with the terms of the Consulting Agreement subject to the Company providing Knight Global with written notice of non-performance and Knight Global having a 30-day cure period to cure such non-performance. | ' | ' | ' |
Commission description | ' | ' | ' | ' | ' | ' | 'Knight Global shall be entitled to commission payments during the 18-month post-termination period. | ' | ' | ' |
STOCKHOLDERS_EQUITY_Private_Pl
STOCKHOLDERS' EQUITY - Private Placement of Common Stock (Detail Textuals 1) (USD $) | 0 Months Ended | 1 Months Ended | 9 Months Ended | |||
In Millions, except Share data, unless otherwise specified | Dec. 27, 2013 | Oct. 22, 2013 | Oct. 29, 2013 | Sep. 30, 2014 | Nov. 20, 2013 | Nov. 20, 2013 |
Purchase Agreement | Purchase Agreement | Purchase Agreement | Purchase Agreement | Purchase Agreement | ||
Private Placement | Private Placement | Private Placement | Private Placement | Private Placement | ||
Pre-amendment effect on equity incentive plan | Post-amendment effect on equity incentive plan | |||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' | ' | ' | ' | ' | ' |
Proceeds from issuance of private placement | ' | $10 | $9.10 | ' | ' | ' |
Issuance of common stock of shares | ' | 3,333,338 | ' | ' | ' | ' |
Stock price per share | ' | $3 | ' | ' | ' | ' |
Resale of common stock of shares purchased by the investors | ' | ' | ' | 3,216,171 | ' | ' |
Effect on common stock after amendment to the initial registration statement, Description | ' | ' | ' | 'The post-effective amendment to the initial registration statement was declared effective by the SEC on March 11, 2014. On June 20, 2014, the Company filed a second post-effective amendment to the initial registration statement. The second post-effective amendment to the initial registration statement was declared effective by the SEC on June 27, 2014. If the second post-effective amendment to the initial registration statement after being declared effective by the SEC is not effective for resales for more than 20 consecutive days or more than 45 days in any 12 month period during the registration period (i.e., the earlier of the date on which the shares have been sold or are eligible for sale under SEC Rule 144 without restriction), the Company is required to pay the investors (other than the Company's participating officers and directors) liquidated damages in cash equal to 1.5% of the aggregate purchase price paid by the investors (other than the Company's participating officers and directors) for the shares for every 30 days or portion thereof until the default is cured. These cash payments could be as much as $81,489 for every 30 days. | ' | ' |
Number of shares of common stock reserved and available for issuance | ' | ' | ' | ' | 8,000,000 | 1,800,000 |
Reverse stock split ratio | '1-for-5 | ' | ' | ' | ' | ' |
STOCKHOLDERS_EQUITY_Detail_Tex
STOCKHOLDERS' EQUITY (Detail Textuals 2) (USD $) | 0 Months Ended | 9 Months Ended | 0 Months Ended | 1 Months Ended | ||
8-May-14 | Sep. 30, 2014 | Sep. 30, 2014 | Sep. 30, 2014 | Mar. 06, 2014 | Apr. 25, 2014 | |
Non-qualified director's stock option award | Directors, Employees And Consultants | Ryan Kavanaugh | Three other New Directors | |||
Installment | Non-qualified director's stock option award | Non-qualified director's stock option award | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ' | ' | ' | ' | ' | ' |
Warrants exercised on cashless basis | 192,970 | ' | ' | ' | ' | ' |
Number of common stock called by warrants | 142,383 | ' | ' | ' | ' | ' |
Number of common stock shares authorized under Equity Incentive Plan | ' | ' | 12,000 | ' | 60,000 | 60,000 |
Exercise price per share of common stock authorized | ' | $7 | $8.30 | ' | $8.30 | $6.48 |
Weighted average contractual term for options vested | ' | ' | ' | ' | ' | '3 years |
Number of annual installments for options vested | ' | ' | 3 | ' | ' | ' |
Weighted average grant date fair value for options vested | ' | ' | $29,832 | ' | $149,160 | $315,720 |
Unamortized stock-based compensation expense on unvested stock options granted to employees, directors and consultants | ' | ' | ' | $531,616 | ' | ' |
Unvested stock options amortization period | ' | ' | ' | '3 years | ' | ' |
COMMITMENTS_AND_CONTINGENCIES_1
COMMITMENTS AND CONTINGENCIES (Details) (USD $) | Sep. 30, 2014 |
Commitments and Contingencies [Abstract] | ' |
2014 | $134,953 |
2015 | 572,798 |
2016 | 307,488 |
2017 | 300,279 |
2018 | 253,841 |
Thereafter | 203,964 |
Total | $1,773,323 |
COMMITMENTS_AND_CONTINGENCIES_2
COMMITMENTS AND CONTINGENCIES (Detail Textuals) (USD $) | 3 Months Ended | 9 Months Ended | |||||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | 14-May-14 | Dec. 31, 2013 | Oct. 31, 2013 | |
Lease | Store | Lease | sqft | ||||
Lease | |||||||
Commitments And Contingencies [Line Items] | ' | ' | ' | ' | ' | ' | ' |
Minimum annual rentals | ' | ' | $144,000 | ' | ' | ' | ' |
Area of master lease | ' | ' | ' | ' | ' | ' | 2,200 |
Number of real estate leases for new retail stores | 9 | ' | 9 | ' | 10 | ' | ' |
Number of new retail kiosks | ' | ' | 8 | ' | ' | ' | ' |
Number of new retail store | ' | ' | 1 | ' | ' | ' | ' |
Additional annual rental payment | ' | ' | 18,000 | ' | ' | ' | ' |
Rent expense | 46,841 | 40,068 | 137,853 | 117,660 | ' | ' | ' |
Damages paid, value | ' | ' | 12,000 | ' | ' | ' | ' |
Vendor deposits | 600,902 | ' | 600,902 | ' | ' | 782,363 | ' |
One Year Renewal Options | ' | ' | ' | ' | ' | ' | ' |
Commitments And Contingencies [Line Items] | ' | ' | ' | ' | ' | ' | ' |
Minimum annual rentals | ' | ' | 151,200 | ' | ' | ' | ' |
One Year Renewal Options Two | ' | ' | ' | ' | ' | ' | ' |
Commitments And Contingencies [Line Items] | ' | ' | ' | ' | ' | ' | ' |
Minimum annual rentals | ' | ' | 158,760 | ' | ' | ' | ' |
One Year Renewal Options Three | ' | ' | ' | ' | ' | ' | ' |
Commitments And Contingencies [Line Items] | ' | ' | ' | ' | ' | ' | ' |
Minimum annual rentals | ' | ' | 174,636 | ' | ' | ' | ' |
Ralph Frija | ' | ' | ' | ' | ' | ' | ' |
Commitments And Contingencies [Line Items] | ' | ' | ' | ' | ' | ' | ' |
Aggregate interest | ' | 35,553 | ' | 94,491 | ' | ' | ' |
Related party transaction, description | ' | 'less than 5% stockholder | ' | 'less than 5% stockholder | ' | ' | ' |
Kevin Frija | ' | ' | ' | ' | ' | ' | ' |
Commitments And Contingencies [Line Items] | ' | ' | ' | ' | ' | ' | ' |
Aggregate interest | ' | 6,805 | ' | 20,194 | ' | ' | ' |
Related party transaction, description | ' | 'greater than 5% stockholder | ' | 'greater than 5% stockholder | ' | ' | ' |
Doron Ziv | ' | ' | ' | ' | ' | ' | ' |
Commitments And Contingencies [Line Items] | ' | ' | ' | ' | ' | ' | ' |
Aggregate interest | ' | 4,537 | ' | 13,463 | ' | ' | ' |
Related party transaction, description | ' | 'greater than 5% stockholder | ' | 'greater than 5% stockholder | ' | ' | ' |
Philip Holman | ' | ' | ' | ' | ' | ' | ' |
Commitments And Contingencies [Line Items] | ' | ' | ' | ' | ' | ' | ' |
Aggregate interest | ' | $4,142 | ' | $4,142 | ' | ' | ' |
Related party transaction, description | ' | 'less than 5% stockholder | ' | 'less than 5% stockholder | ' | ' | ' |
SUBSEQUENT_EVENTS_Detail_Textu
SUBSEQUENT EVENTS (Detail Textuals) (Consulting Agreement) | 9 Months Ended |
Sep. 30, 2014 | |
Consulting Agreement | ' |
Subsequent Event [Line Items] | ' |
Additional shares of common stock vested | 50,000 |
SUBSEQUENT_EVENTS_Detail_Textu1
SUBSEQUENT EVENTS (Detail Textuals 1) (USD $) | 8-May-14 | Nov. 06, 2014 | Nov. 14, 2014 | Nov. 06, 2014 | Nov. 06, 2014 | Nov. 14, 2014 |
In Millions, except Share data, unless otherwise specified | Subsequent Event | Subsequent Event | Subsequent Event | Subsequent Event | Subsequent Event | |
Vaporin, Inc. | Vaporin, Inc. | Vaporin, Inc. | Vaporin, Inc. | Palladium Capital Advisors LLC | ||
Securities purchase agreement | Securities purchase agreement | Securities purchase agreement | First Financing Transactions | |||
Investor | Investor | Investor | ||||
First Financing Transactions | Second Financing Transactions | Third Financing Transactions | ||||
Private Placement | Private Placement | Private Placement | ||||
Senior secured convertible notes | Senior secured convertible notes | Senior secured convertible notes | ||||
Subsequent Event [Line Items] | ' | ' | ' | ' | ' | ' |
Percentage of issued and outstanding shares of common stock | ' | 45.00% | ' | ' | ' | ' |
Gross proceeds from sale of convertible debt and warrants | ' | ' | $1.25 | ' | ' | ' |
Number of common stock called by warrants | 142,383 | ' | 1,136,364 | ' | ' | ' |
Debt instrument, conversion price | ' | ' | $1.10 | ' | ' | ' |
Closing amount of common stock and warrants for proposed merger | ' | ' | ' | $3.50 | $25 | ' |
Interest rate | ' | ' | 7.00% | ' | ' | ' |
Exercise price per share | ' | ' | $2 | ' | ' | ' |
Warrants exercisable period | ' | ' | '5 years | ' | ' | ' |
Percentage of placement fee | ' | ' | ' | ' | ' | 5.00% |
Percentage of warrants received | ' | ' | ' | ' | ' | 5.00% |