Form 10-Q for VAPORIN, INC.
We were incorporated under the laws of the State of Delaware in 2009. In January 24, 2014, the Company entered into a Share Exchange Agreement (“Share Exchange”) with Vaporin Florida, Inc., a privately-held Florida corporation (“Vaporin Florida”). Pursuant to the Exchange Agreement, all of the issued and outstanding common stock of Vaporin Florida was exchanged for an aggregate of 35 million shares of the Company’s common stock. The Share Exchange was accounted for as a reverse acquisition and re-capitalization, whereas Vaporin Florida is deemed the accounting acquirer and Vaporin, Inc. the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in the Company’s financial statements are those of Vaporin Florida, and the Company’s assets, liabilities and results of operations were consolidated with the assets, liabilities and results of operations of Vaporin Florida effective January 24, 2014.
Effective August 29, 2014 (the “Closing”), the Company , Vaporin Acquisitions, Inc., a Florida corporation and wholly-owned subsidiary of the Company (the “Merger Sub”), The Vape Store, Inc., a Florida corporation (“Vape Store”), and Steve and Christy Cantrell, holders of all outstanding Vape Store shares (the “Cantrells”) entered into and closed an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, Vape Store merged with and into Merger Sub (the “Merger”), with Merger Sub continuing as the surviving corporation and a wholly-owned subsidiary of the Company.
We are a distributor of electronic cigarettes, e-liquids and related products.
Results of Operations
The following are the results of operations for three and nine months ended September 30, 2014 and 2013.
Total revenue for the three and nine months ended September 30, 2014 was approximately $837,000 and 1,439,000, respectively, and for both the three and nine months ended September 30, 2013 was approximately $28,000. The approximately $809,000 and 1,411,000 increase was primarily reflective of purchasing inventory, establishing our sales effort and approximately $200,000 in sales from our acquisition of the Vape Store. Our focus has been on gaining market share through product distribution, retail stores, direct sales and website sales of our products. Our Internet business is growing. In promotion of this, in July 2014, we hired a Vice President of Internet Marketing and expect that aspect of our business to further grow. Additionally, in connection with the Merger we hired a Vice President to manage the Vape Store.
Total operating expenses for the three and nine months ended September 30, 2014 were approximately $1,799,000 and $4,286,000, respectively, and total operating expenses for the three and nine months ended September 30, 2013 were approximately $36,000 and $149,000, respectively.
The approximate $1,763,000 and $4,137,000 increase in operating expenses for the three and nine months ended September 30, 2014 compared to the three and nine months ended September 30, 2013, respectively, is primarily attributable to an increases in stock based compensation, advertising and promotion expense, consulting fees, payroll and professional fees as a result of continued growth and development of the Company’s sales and general business activity. Non cash stock based compensation for employees and consultants for the three and nine months ended September 30, 2014 was approximately $659,000 and $1,585,000, respectively. Advertising and promotion expense for the three and nine months ended September 30, 2014 was approximately $202,000 and $649,000, respectively.
Loss from operations
We reported an operating loss from continuing operations of approximately $1,386,000 and $3,625,000 for the three and nine months ended September 30, 2014, respectively, and $48,000 and $161,000 for the three and nine months ended September 30, 2013, respectively. The increase in operating loss was primarily due to continued growth, market penetration and development of operations. Non cash stock based compensation was approximately 47.5% and 43.7% respectively, of our loss from operations for the three and nine months ended September 30, 2014.
Other Income (Expenses)
Total other income (expense) was approximately $28,000 and ($312,000) for the three and nine months ended September 30, 2014, respectively, and $0 for the three and nine months ended September 30, 2013, respectively.
The change in other income (expense) for the three months ended September 30, 2014 compared to September 30, 2013 is primarily attributable to an increase of approximately $53,000 of interest expense in connection with the amortization of debt discount and the additional warrants granted related to the 10% convertible note payable, and offset by an increase in income from the change in fair value of derivative liabilities of approximately $81,000. There was no derivative expense for the three months ended September 30, 2014 and 2013.
The change in other income (expense) for the nine months ended September 30, 2014 compared to September 30, 2013 is primarily attributable to an increase of approximately $398,000 of interest expense in connection with the amortization of debt discount and the additional warrants granted related to the 10% convertible note payable, derivative expense of $86,000 and was offset by an increase in income from the change in fair value of derivative liabilities of approximately $173,000.
As a result of the operating expense and other expense discussed above, we reported a net loss of approximately $1.4 million and $48,000 for the three months ended September 30, 2014 and 2013, respectively, and $3.9 million and $161,000 for the nine months ended September 30, 2014 and 2013, respectively.
Liquidity and Capital Resources
Cash Flows from Operating Activities
For the nine months ended September 30, 2014, we used approximately $2,815,000 of cash in operating activities. This is an increase of approximately $2,300,000 on cash used in operations from approximately $515,000 of cash provided from operating activities during the nine months ended September 30, 2013. The cash use was primarily related to establishing operations by purchasing initial inventory, advertising and promotion, payroll and consulting.
Cash Flows from Investing Activities
For the nine months ended September 30, 2014, we had approximately $798,000 provided by financing activities as a result of the acquisition of the Vape Store.
Cash Flows from Financing Activities
For the nine months ended September 30, 2014, we had approximately $4,357,000 provided by financing activities as a result of proceeds from the sale of common and preferred stock and from the issuance of debt prior to recapitalization.
At November 7, 2014, we had approximately $330,000 in available cash. We believe we do not have sufficient cash to meet our forecasted working capital needs for the next 12 months. As a result, it is likely that we will be required to obtain additional external financing through collaborative agreements. No assurance can be given that such additional financing will be available on acceptable terms, if at all. Our ability to sell additional shares of our stock and/or borrow cash could be materially adversely affected by the current climate in the global equity and credit market, particularly for microcap companies like us. There can be no assurances that the plans and actions proposed by management will be successful or that we will generate profitability and positive cash flows in the future. Additionally, the sales of equity or convertible debt securities may result in dilution to our stockholders. We recently terminated our private placement as a result of the weakness of our common stock price. If we seek to raise additional capital, our future stock price may result in substantial dilution to existing shareholders.
The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent on management’s plans, which include further implementation of its business plan.
Recent Accounting Pronouncements
See Note 2 to our unaudited interim condensed consolidated financial statements regarding recent accounting pronouncements.
Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements including statements regarding our liquidity our future growth, and completing the Vapor Corp. merger. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include intense competition, regulatory initiatives that adversely affect the e-cigarette industry and the results of our marketing initiatives, our future common stock price, the market for microcap companies, the receipt of fairness opinions relating to the proposed merger and regulatory approvals and the consummation of the Vapor Corp. and financings contemplated by the letter of intent. Further information on our risk factors is contained in our filings with the SEC, including our Annual Report on Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.
MAPH Enterprises, LLC | (305) 414-0128 | 1501 Venera Ave, Coral Gables, FL 33146 | email@example.com