UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

(Amendment No. 1)

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-19001

VAPOR CORP.

(Exact name of Registrant as specified in its charter)

Nevada		84-1070932
(State or other jurisdiction		(I.R.S. Employer Identification
of incorporation or organization)		No.)
3001 Griffin Road
Dania Beach, FL		33312
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 888-766-5351

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

o Large accelerated filer		o Accelerated filer		o Non-accelerated filer		þ Smaller reporting company
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes þ No

The number shares of the Registrant’s common stock outstanding as of November 14, 2010 was 60,135,344

 

 

EXPLANATORY NOTE

Vapor Corp. (the “Company”) is filing this Amendment No. 1 to it Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, as filed with the Securities and Exchange Commission (“SEC”) on November 15, 2010 (the “Original Filing”), to restate its unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2010 and related financial information contained therein to reflect the effects of accounting and reporting errors, to include stock-based compensation expense for employee and non-employee stock options issued on October 1, 2009 and January 1, 2010, and to correct the weighted average number of common shares outstanding. These accounting and reporting errors and the related adjustments resulted in an understatement of net loss of $892,996 and $297,665 for the nine months and quarter ended September 30, 2010, respectively, and an understatement of additional paid-in capital of $1,182,121 and $289,125 as of September 30, 2010 and December 31, 2009, respectively and an overstatement of retained earnings of $1,182,121 and $289,125 as of September 30, 2010 and December 31, 2009, respectively.

In addition, the Company has concluded that these accounting and reporting errors constitute a material weakness in the Company’s internal control over financial reporting as of September 30, 2010 and that its disclosure controls and procedures were ineffective at September 30, 2010 (see Item 4 of Part I, “Controls and Procedures (Restated)”).

Except as required to reflect the effects of the restatement for the items above, no additional modifications or updates in this Amendment No. 1 have been made to the Original Filing. Information not affected by the restatement remains unchanged and reflects the disclosures made at the time of the Original Filing. This Amendment No. 1 does not describe other events occurring after the Original Filing, including exhibits, or modify or update those disclosures affected by subsequent events. This Amendment No. 1 should be read in conjunction with the Company’s filings made with the SEC subsequent to the filing of the Original Filing, as those filings may have been amended, as information in such reports and documents may update or supersede certain information contained in this Amendment No. 1. Accordingly, this Amendment No. 1 only amends and restates Items 1, 2 and 4 of Part I and Item 6 of Part II of the Original Filing, in each case, solely as a result of, and to reflect, the restatement, and no other information in the Original Filing is amended hereby. Additionally, pursuant to the rules of the SEC, Item 6 of Part II of the Original Filing has been amended to contain currently dated certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, which are attached to this Amendment No. 1 as Exhibits 31.1, 31.2, and 32.1 and an updated signature page.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) (RESTATED)
Unaudited Financial Statements—September 30, 2010 and 2009:
Condensed Consolidated Balance Sheets as of September 30, 2010(Unaudited)(Restated) and December 31, 2009 (Audited) (Restated)
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 (Restated) and 2009
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 (Restated) and 2009
Notes to Unaudited Condensed Consolidated Financial Statements
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (RESTATED)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES (RESTATED)
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 1A. RISK FACTORS
ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. (REMOVED AND RESERVED)
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS (RESTATED)
SIGNATURES (RESTATED)
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

VAPOR CORP.
F/K/A MILLER DIVERSIFIED CORPORATION
(Restated)
(Note 3)

CONDENSED CONSOLIDATED BALANCE SHEETS

		September 30, 2010				December 31, 2009
		(Unaudited)				(Audited)
		(Restated)				(Restated)
ASSETS
CURRENT ASSETS:
Cash		$	126,876			$	841
Due from merchant credit card processor, net of reserve for chargebacks of $60,000			341,774				361,623
Accounts receivable, net of allowance of $5,000			176,760				—
Vendor deposits			127,355				169,424
Inventories			555,342				827,412
Sundry current assets			2,048				—
TOTAL ASSETS		$	1,330,155			$	1,359,300
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	584,933			$	453,823
Income taxes payable			140,032				202,000
TOTAL CURRENT LIABILITIES			724,965				655,823
STOCKHOLDERS’ EQUITY:
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued			—				—
Common stock, $.001 par value 250,000,000 shares authorized 60,135,344 & 60,000,344 shares issued and outstanding, respectively			60,135				60,000
Additional paid-in capital			1,529,276				614,625
(Accumulated deficit) retained earnings			(984,181	)			28,852
TOTAL STOCKHOLDERS’ EQUITY			605,230				703,477
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,330,155			$	1,359,300

See notes to unaudited condensed consolidated financial statements

VAPOR CORP.
F/K/A MILLER DIVERSIFIED CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		NINE MONTHS ENDED								THREE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2010				2009				2010				2009
		(Restated)								(Restated)
SALES		$	7,520,233			$	4,484,729			$	2,780,399			$	1,437,062
COSTS AND EXPENSES:
Cost of sales			4,161,503				2,173,618				1,657,485				548,829
Selling, general and administrative			3,540,767				1,642,334				1,243,611				945,776
Stock-based compensation expense			892,996				—				297,665				—
TOTAL COSTS AND EXPENSES			8,595,266				3,815,952				3,198,761				1,494,605
(LOSS) INCOME BEFORE INCOME TAX (CREDIT) EXPENSE			(1,075,033	)			668,777				(418,362	)			(57,543	)
Income tax expense (benefit)			(62,000	)			265,725				(51,826	)			(14,780	)
NET (LOSS) INCOME		$	(1,013,033	)		$	403,052			$	(366,536	)		$	(42,763	)
BASIC AND DILUTED NET (LOSS) INCOME PER COMMON SHARE		$	(0.02	)		$	4,030.52			$	(0.01	)		$	(427.63	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC AND DILUTED			60,007,890				100				60,022,735				100

See notes to unaudited condensed consolidated financial statements

VAPOR CORP.
F/K/A MILLER DIVERSIFIED CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		NINE MONTHS ENDED
		SEPTEMBER 30,
		2010				2009
		(Restated)
OPERATING ACTIVITIES:
Net (loss) income		$	(1,013,033	)		$	403,052
Adjustments to reconcile net (loss) income
Stock-based compensation expense			892,996				—
Stock issued for services			21,750				—
Changes in operating assets and liabilities:
Due from merchant credit card processor			19,849				—
Accounts receivable			(176,760	)			—
Vendor deposits			42,069				(83,333	)
Inventories			272,070				(788,431	)
Sundry current assets			(2,048	)			4,755
Accounts payable and accrued expenses			131,143				230,024
Income taxes payable			(62,001	)			265,726
Customer deposits			—				(21,190	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			126,035				10,603
FINANCING ACTIVITIES:
Investment from stockholder			—				10,000
NET CASH PROVIDED BY FINANCING ACTIVITIES			—				10,000
INCREASE IN CASH			126,035				20,603
CASH — BEGINNING OF PERIOD			841				311,762
CASH — END OF PERIOD		$	126,876			$	332,365

See notes to unaudited condensed consolidated financial statements

VAPOR CORP.
F/K/A MILLER DIVERSIFIED CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

		Business description
		Vapor Corp. F/K/A Miller Diversified Corporation (the “Company”) is the holding company for its wholly-owned subsidiary Smoke Anywhere U.S.A., Inc. The Company markets and distributes personal vaporizers under the Fifty-OneTM, KraveTM, EZ SmokerTM, and Green PufferTM brands.
		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 for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the restated audited annual consolidated financial statements and related notes thereto as of and for the year ended December 31, 2009 included in the Annual Report on Form 10-K/A (Amendment No. 1) for the year ended December 31, 2009. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. Operating results for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.
		Recent accounting pronouncements
		In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (topic 820) — Improving Disclosures about Fair Value Measurements. ASU 2010-06 requires new disclosures regarding transfers in and out of the Level l and 2 and activity within Level 3 fair value measurements. ASU 2010-06 also includes conforming amendments to employers’ disclosures about postretirement benefit plan assets. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure of activity within Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010, and for interim periods within those years. There was no impact upon adoption of ASU 2010-06 on January 1, 2010 to the Company’s financial position or results of operations. The Company does not expect there will be an impact to its financial position or results of operations for the additional disclosure requirements in 2011.
		In February 2010, the FASB issued ASU 2010-09, Subsequent Events (Topic 855) — Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 requires an entity that is a Securities and Exchange Commission (“SEC”) filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement that an SEC filer disclose the date through which subsequent events have been evaluated. ASC 2010-09 was effective upon issuance. The adoption of this standard had no effect on the Company’s results of operation or its financial position.

		Stock-Based Compensation
		The Company accounts for stock-based compensation under ACS Topic 505-50, formerly SFAS No. 123R, “Share-Based Payment” and SFAS No. 148,“Accounting for Stock-Based Compensation - Transition and Disclosure — An amendment to SFAS No. 123” “(currently known as ASC Topic 718, “Compensation-Stock Compensation (“ASC Topic 718”). These standards define a fair value based method of accounting for stock-based compensation. In accordance with SFAS Nos. 123R and 148 (currently known as ASC Topic 718), the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes-Merton valuation model, whereby compensation cost is the excess of the fair value of the award as determined by the valuation model at the grant date or other measurement date over the amount that must be paid to acquire the stock. 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. During the three and nine months ended September 30, 2010, the Company recognized stock based compensation expense of $297,665 and $892,996, respectively. The $297,665 and $892,996 relates to the amortization expense related to granting of options to its President and Chief Executive Officer to purchase 900,000 shares of the Company’s common stock in October 2009 valued at $231,300 and from the granting of options to employees and consultants to purchase 3,600,000 and 708,000 shares of the Company’s common stock in October 2009 and January 2010, valued at $925,200 and $136,644, respectively.

2

RELATED PARTY TRANSACTIONS

		The Company leases its office and warehouse space from a shareholder of the Company for $2,756 per month on a month-to-month basis.
		The Company utilizes the services of an entity that is owned 50% by the CEO of the Company. The entity performs fulfillment services for the Company at a cost that is approximately equal to what these services would cost from an unrelated third party.

3

RESTATEMENT

The Company has restated its condensed consolidated financial statements as at June 30, 2010 because the Company failed to record stock-based compensation expense for employee and non-employee stock options in accordance with ACS Topic 505-50, formerly SFAS No. 123R, “Share-Based Payment” and SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure — An amendment to SFAS No. 123.”(currently known as ASC Topic 718, “Compensation-Stock Compensation (“ASC Topic 18”), and the Company failed to properly calculate the weighted average number of common shares outstanding. These accounting and reporting errors and the related adjustments resulted in an understatement of net loss of $892,996 and $297,665 for the nine months and quarter ended September 30, 2010, respectively, and an understatement of additional paid capital of $1,182,121 and $289,125 as of September 30, 2010 and December 31, 2009, respectively and an overstatement of retained earnings of $1,182,121 and $289,125 as of September 30, 2010 and December 31, 2009, respectively. Accordingly, the Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2010 have been restated to correct for these errors.

Condensed Consolidated Balance Sheet Impact —

The following table sets forth the effects of the restatement adjustments on the condensed consolidated balance sheets as of September 30, 2010 and December 31, 2009:

VAPOR CORP.
f/k/a MILLER DIVERSIFIED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

		As of September 30, 2010								As of December 31, 2009
		As Previously				As				As Previously
		Recorded				Restated				Recorded				As Restated
TOTAL ASSETS		$	1,330,155			$	1,330,155			$	1,359,300			$	1,359,300
TOTAL LIABILITIES		$	724,965			$	724,965			$	655,823			$	655,823
STOCKHOLDERS’ EQUITY
Preferred Stock, $0.001 par value, 1,000,000 shares authorized, none issued			—				—				—				—
Common stock, .001 par value; 250,000,000 shares authorized, 60,135,344 and 60,000,344 issued and outstanding as of September 30, 2010 and December 31, 2009, respectively			60,135				60,135				60,000				60,000
Additional paid-in capital			347,155				1,529,276				325,500				614,625
Retained earnings (accumulated deficit)			197,940				(984,181	)			317,977				28,852
TOTAL STOCKHOLDERS’ EQUITY			605,230				605,230				703,477				703,477
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,330,155			$	1,330,155			$	1,359,300			$	1,359,300

Condensed Consolidated Statement of Operations impact —

The following table set forth the effects of the restatement adjustments on the condensed consolidated statements of operations for the Nine and Three months ended September 30, 2010:

VAPOR CORP.
f/k/a MILLER DIVERSIFIED CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS

		Nine Months Ended								Three Months Ended
		September 30, 2010								September 30, 2010
		As Previously								As Previously
		Recorded				As Restated				Recorded				As Restated
Stock-based compensation expense		$	—			$	892,996			$	—			$	297,665
TOTAL COSTS AND EXPENSES			7,702,270				8,595,266				2,901,096				3,198,761
(LOSS) BEFORE INCOME TAXES			(182,037	)			(1,075,033	)			(120,697	)			(418,362	)
NET INCOME (LOSS)		$	(120,037	)		$	(1,013,033	)		$	(68,871	)		$	(366,536	)
BASIC AND DILUTED NET (LOSS) PER COMMON SHARE		$	(0.002	)		$	(0.02	)		$	(0.00	)		$	(0.01	)
Weighted average common shares outstanding — basic and diluted			60,007,546				60,007,890				60,022,391				60,022,735

Condensed Consolidated Statement of Cash Flows impact —

The following table set forth the effects of the restatement adjustments on the condensed consolidated statement of cash flows for the nine months ended September 30, 2010:

VAPOR CORP.
f/k/a MILLER DIVERSIFIED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine Months Ended September 30, 2010
		As Previously
		Recorded				As Restated
NET (LOSS)		$	(120,037	)		$	(1,013,033	)
Stock-based compensation expense			—				892,996
NET CASH PROVIDED BY OPERATING ACTIVITIES		$	126,035			$	126,035

You should read the following Management’s Discussion and Analysis together with our condensed consolidated financial statements and related notes included elsewhere in this report.

Forward-Looking Statements

This current report contains forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. When used in this report, the words “believe,” “anticipate,” “expect,” “estimate,” “intend”, “plan” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. These statements reflect management’s current view of us concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others: a general economic downturn; a downturn in the securities markets; federal or state laws or regulations having an adverse effect on proposed transactions that we desire to effect; Securities and Exchange Commission regulations which affect trading in the securities of “penny stocks,”; and other risks and uncertainties. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected. The accompanying information contained herein, including, without limitation, the information set forth under the heading “Management’s Discussion and Analysis and Plan of Operation” identifies important additional factors that could materially adversely affect actual results and performance. You are urged to carefully consider these factors. All forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement. The terms “Vapor Corp.,” “Vapor,” “we,” “us,” “our,” and the “Company” refer to Vapor Corporation and the terms “Smoke Anywhere USA,” and “Smoke” refer to our wholly owned subsidiary Smoke Anywhere USA, Inc.”

Recent Developments

Purchase Business Combination:

On September 1, 2009 Miller Diversified, Corp. (“we,” “Miller” or the “Company”) entered into a definitive agreement (the “Agreement”) with Smoke Anywhere USA, Inc., a Florida corporation (“Smoke”) to acquire 100% of the issued and outstanding shares of Smoke Anywhere USA, Inc., as a result of the transaction Smoke became a wholly-owned subsidiary of the Company. On November 5, 2009, Miller and Smoke, completed, subject to certain post closing undertakings, the transaction. The transaction contemplated by the Agreement was intended to be a “tax-free” reorganization pursuant to the provisions of Section 351 and 368 of the Internal Revenue Code of 1986, as amended. For accounting purposes, this transaction was being accounted for as a reverse merger, since the stockholders of Smoke own a majority of the issued and outstanding shares of common stock of the Company, and the directors and executive officers of Smoke now own and control in excess of eighty percent of the company’s outstanding stock.

In connection with the Company’s acquisition of the common stock of Smoke, the Company issued 20,670,000 shares of common stock of Miller to the SMOKE Shareholders, of which 2,074,640 of the Miller shares of Common Stock were loaned to the Company by, the Company’s controlling shareholder. Pursuant to the Acquisition Agreement and Plan of Merger, the company issued an additional 50,000,000 shares, subsequent to certain corporate actions as set forth in the Acquisition Agreement and Plan of Merger.

Restricted Inventories

In early 2009 the FDA issued import alert 66-41, and subsequent thereto US Customs has from time to time temporarily and in some instances indefinitely detained products sent to us by our Chinese suppliers. If the FDA and or customs modifies the import alert from a its current form which allows US customs’ discretion to release our products to us to a mandatory and definitive hold we will no longer be able to ensure a supply of product for US sales. At present we have two shipments of product that are subject to regulatory holds, one shipment has been detained by customs and another shipment is in our possession but subject to an FDA hold. The value of these two lots of inventory is approximately $500,000.

Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make significant estimates and judgments that affect the amounts reported in the consolidated financial statements and the accompanying notes. These items are regularly monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. The estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from the estimates.

Revenue Recognition

We recognize revenue from product sales or services rendered when the persuasive evidence of an arrangement exists, delivery has occurred and collect-ability is reasonably assured. Product sales and shipping revenues, net of promotional discounts, rebates, and return allowances, are recorded when the products are shipped and title passes to customers. Retail items sold to customers are made pursuant to sales contracts that generally provide for transfer of both title and risk of loss upon our delivery to the carrier. Return allowances, which reduce product revenue by our best estimate of expected product returns, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales taxes.

Taxes

We record valuation allowances against our deferred tax assets. Realization of deferred tax assets (such as net operating loss carry-forwards) is dependent on future taxable earnings and is therefore uncertain. At least quarterly, we assess the likelihood that our deferred tax asset balance will be recovered from future taxable income. To the extent we believe that recovery is not likely, we establish a valuation allowance against our deferred tax asset, which increases our income tax expense in the period when such determination is made.

In addition, we do not plan to record U.S. income tax expense for foreign earnings that we have determined to be indefinitely reinvested offshore, thus reducing our overall income tax expense. The amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in our offshore assets and our expectations of the future cash needs of our U.S. and foreign entities. Income tax considerations are also a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore.

We carefully review all factors that drive the ultimate disposition of foreign earnings determined to be reinvested offshore, and apply stringent standards to overcoming the presumption of repatriation. Despite this approach, because the determination involves our future plans and expectations of future events, the possibility exists that amounts declared as indefinitely reinvested offshore may ultimately be repatriated. For instance, the actual cash needs of our U.S. entities may exceed our current expectations, or the actual cash needs of our foreign entities may be less than our current expectations. This would result in additional income tax expense in the year we determined that amounts were no longer indefinitely reinvested offshore. Conversely, our approach may also result in a determination that accumulated foreign earnings (for which U.S. income taxes have been provided) will be indefinitely reinvested offshore. In this case, our income tax expense would be reduced in the year of such determination.

On an interim basis, we estimate what our effective tax rate will be for the full fiscal year. The estimated annual effective tax rate is then applied to the year-to-date pre-tax income excluding infrequently occurring or unusual items, to determine the year-to-date tax expense. The income tax effects of infrequent or unusual items are recognized in the interim period in which they occur. As the fiscal year progresses, we continually refine our estimate based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically results in a change to our expected effective tax rate for the fiscal year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision equals the expected annual rate.

We account for uncertain tax positions on a quarterly basis, we reevaluate the probability that a tax position will be effectively sustained and the appropriateness of the amount recognized for uncertain tax positions based on factors including changes in facts or circumstances, changes in tax law, settled audit issues and new audit activity. Changes in our assessment may result in the recognition of a tax benefit or an additional charge to the tax provision in the period our assessment changes. We recognize interest and penalties related to income tax matters in income tax expense.

Stock-Based Compensation

We account for stock-based compensation under ACS Topic 505-50, formerly SFAS No. 123R, “Share-Based Payment” and SFAS No. 148,“Accounting for Stock-Based Compensation — Transition and Disclosure — An amendment to SFAS No. 123” (currently known as ASC Topic 718, “Compensation-Stock Compensation (“ASC Topic 718”). These standards define a fair value based method of accounting for stock-based compensation. In accordance with SFAS Nos. 123R and 148 (currently known as ASC Topic 718), the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes-Merton valuation model, whereby compensation cost is the excess of the fair value of the award as determined by the valuation model at the grant date or other measurement date over the amount that must be paid to acquire the stock. The resulting amount is charged to expense on the straight-line basis over the period in which we expect to receive the benefit, which is generally the vesting period.

Other Contingencies

In the ordinary course of business, we are involved in legal proceedings regarding contractual and employment relationships, product liability claims, trademark rights, and a variety of other matters. We record contingent liabilities resulting from claims against us, including related legal costs, when a loss is assessed to be probable and the amount of the loss is reasonably estimable. Assessing probability of loss and estimating probable losses requires analysis of multiple factors, including in some cases judgments about the potential actions of third party claimants and courts. Recorded contingent liabilities are based on the best information available and actual losses in any future period are inherently uncertain. If future adjustments to estimated probable future losses or actual losses exceed our recorded liability for such claims, we would record additional charges as other (income) expense, net during the period in which the actual loss or change in estimate occurred. In addition to contingent liabilities recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will materially exceed the recorded liability. Currently, we do not believe that any of our pending legal proceedings or claims will have a material impact on our financial position or results of operations.

Results of Operations for the Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009

During the three months ended September 30, 2010 we had $2,780,399 in revenues. This was an increase of $1,343,337 or approximately 93% for the three months ended September 30, 2009.

Our cost of sales increased by $1,108,656 to $1,657,485 for the three months ended September 30, 2010. This was an increase of 202%, as compared to cost of sales of $548,829 for the three months ended September 30, 2009. Our operating expenses for the three months ended September 30, 2010 consisted of selling, general and administrative expenses of $1,243,611 compared to selling, general and administrative expenses of $945,776 for the three months ended September 30, 2009. This was an increase of $297,835 or approximately 31% for the three months ended September 30, 2009.

During the three months ended September 30, 2010, we recognized stock based compensation expense of $297,665. The $297,665 relates to the amortization expense relating to the granting of stock options to our President and Chief Executive Officer to purchase 900,000 shares of our common stock in October 2009 valued at $231,300 and from the granting of options to employees and consultants to purchase 3,600,000 and 708,000 shares of the Company’s common stock in October 2009 and January 2010, valued at $925,200 and $136,644, respectively.

During the three months ended September 30, 2010 we had $0 in research and development costs. This was unchanged from the three months ended September 30, 2009.

We had net loss of $366,536 for the three months ended September 30, 2010, as compared to net loss of $42,763 for the three months ended September 30, 2009.

Results of Operations for the Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009

During the nine months ended September 30, 2010 we had $7,520,233 in revenues. This was an increase of $3,035,504 or approximately 68% for the nine months ended September 30, 2009.

Our cost of sales increased by $1,987,885 to $4,161,503 for the nine months ended September 30, 2010. This was an increase of 91%, as compared to cost of sales of $2,173,618 for the nine months ended September 30, 2009. Our operating expenses for the nine months ended September 30, 2010 consisted of selling, general and administrative expenses of $3,540,767 compared to selling, general and administrative expenses of $1,642,334 for the nine months ended September 30, 2009. This was an increase of $1,898,433 or approximately 116% for the nine months ended September 30, 2009.

During the nine months ended September 30, 2010, we recognized stock based compensation expense of $892,996. The $892,996 relates to the amortization expense relating to the granting of stock options to our President and Chief Executive Officer to purchase 900,000 shares of our common stock in October 2009 valued at $231,300 and from the granting of options to employees and consultants to purchase 3,600,000 and 708,000 shares of the Company’s common stock in October 2009 and January 2010, valued at $925,200 and $136,644, respectively.

During the nine months ended September 30, 2010 we had $0 in research and development costs. This was unchanged from the nine months ended September 30, 2009.

We had net (loss) of ($1,013,033) for the nine months ended September 30, 2010, as compared to net income of $403,052 for the nine months ended September 30, 2009.

Liquidity and Capital Resources

We had total assets of $1,330,155 and $1,359,300 as of September 30, 2010 and December 31, 2009, respectively.

We had total liabilities of $724,965 and $655,823 as of September 30, 2010 and December 31, 2009, respectively.

We had additional paid in capital of $1,529,276 and $614,625 and (accumulated deficit) retained earnings of ($984,181) and $28,852 and total stockholders’ equity of $605,230 and $703,477 as of September 30, 2010 and December 31, 2009, respectively.

Our net increase in cash of 126,035 and $20,603 for the nine months ended September 30, 2010 and 2009, respectively, was primarily due to the cash provided (used) by operating activities, which was primarily due to net (loss) income of ($1,013,033) and $403,052, stock based compensation expense of $892,996 and $0, decrease (increase) from merchant credit card processors of $19,849 and $0, accounts receivable of ($176,760) and $0, vendor deposit of $42,069 and ($83,333), inventories of $272,070 and ($788,431), and increase (decrease) from income taxes payable of $(62,001) and $265,726 for the nine months ended September 30, 2010 and 2009, respectively.

Cash flows from operations were sufficient to fund our requirements during this period.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

A smaller reporting company is not required to provide the information required by this Item.

Item 4. Controls and Procedures. (Restated)

Restatement

As discussed elsewhere in this Amendment No. 1 and in Note 3 to the condensed consolidated financial statements contained in Item 1 of Part I hereof, the Company has amended its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 to restate its condensed consolidated financial statements as of September 30, 2010 to reflect the effects of accounting and reporting errors, to include stock based compensation expense for employee and non-employee stock options issued on October 1, 2009 and January 1, 2010, and to correct the weighted average number of common shares outstanding.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) that are designed to provide reasonable assurance that the information required to be disclosed by us in reports we file under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Our management with the participation of our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective in providing reasonable assurance of achieving their objectives because of the material weaknesses in internal control over financial reporting described in our Annual Report on Form 10-K/A (Amendment No. 1) for the year ended December 31, 2009, as filed with the SEC on August 24, 2011.

In light of the material weakness, we performed additional post-closing procedures and analyses, which are not part of our internal control over financial reporting, in order to prepare the condensed consolidated financial statements included in this report. As a result of these procedures and analyses, we believe our condensed consolidated financial statements included in this report present fairly, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

Changes in Internal Control Over Financial Reporting

As disclosed in our Annual Report on Form 10-K/A (Amendment No. 1) for the year ended December 31, 2009, management and our independent registered public accounting firm have identified [three] [Harlan, Should this be two because the valuation allowance weakness arose in the first quarter of 2011? If so, please change the three to two in 3-31 and 6-30 Form 10-Q reports] material weaknesses in our internal control over financial reporting.

Remediation of Material Weakness

We have commenced efforts to address the material weakness in our internal control over financial reporting and the ineffectiveness of our disclosure controls and procedures as of September 30, 2010. Our remediation plan includes the following actions:

We are actively seeking to hire additional, qualified finance and accounting staff with significant depth and expertise to supplement existing personnel, including a Chief Financial Officer. During the third quarter of 2011, we retained an independent financial consultant to advise us on the organization and composition of the finance and accounting department. We will establish a formal review process of significant accounting transactions that includes participation of the Chief Executive Officer, the Chief Financial Officer and the Company’s corporate legal counsel.

Although the remediation efforts are underway, the above material weakness will not be considered remediated until new controls over financial reporting are fully designed and operating effectively for an adequate period of time. There is no assurance that our remediation efforts will be successful on a timely basis or at all. If these material weaknesses persist, it may be necessary to make further restatements of our consolidated financial statements and investors will not be able to rely on the completeness and accuracy of the financial information contained in our filings with the SEC and this could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities or stockholder litigation.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

As of September 30, 2010, the end of the quarterly period covered by this report, the Company was subject to the various legal proceedings and claims discussed below, as well as certain other legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. In the opinion of management, the Company does not have a potential liability related to any current legal proceedings and claims that would individually or in the aggregate materially adversely affect its financial condition or operating results. However, the results of legal proceedings cannot be predicted with certainty. Should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.

Smoke Anywhere USA, Inc. v. TransFirst

On February 23, 2010 Smoke Anywhere USA, Inc., our wholly owned subsidiary, filed an arbitration against TransFirst, a company providing us credit card transaction processing services, as required, in the event of a dispute under the services contract by and between the parties. TransFirst refused arbitration in the forum the company selected and filed Complaint to Compel Arbitration and for Related Declaratory Relief in the state of Colorado. We have retained the law firm of Greenberg Traurig to represent us. We are seeking to have certain fees and fines related to our credit card processing activities reversed, in addition to demanding that certain monies held by TransFirst, be released to the Company.

Item 1A. Risk Factors.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On September 14, 2010 the Company issued a total of 125,000 shares of stock as compensation pursuant to several sponsorship agreements with certain professional poker players for marketing services rendered during the World Series of Poker, poker tournament in Las Vegas, Nevada.

The unregistered shares were issued as follows:

Michael Mizrachi 60,000; Robert Mizrachi 45,000; Eric Mizrachi 5,000; Daniel Mizrachi 5,000; David Rheem 5,000; Noah Boeken 5,000.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

None.

Item 6. Exhibits. (Restated)

					Incorporated by Reference
Exhibit							Filing Date/
Number			Exhibit Description		Form		Period End Date
3.1	*		Amended and Restated Articles of Incorporation, filed with the Secretary of State of the State of Nevada on January 4, 2010.		DEF-14C		12/10/09
3.2	*		By-Laws of the Registrant, as amended.		8-K		01/10/86
31.1	**		Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer. (Restated)
31.2	**		Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer. (Restated)
32.1	**		Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer. (Restated)

SIGNATURES (RESTATED)

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 24th day of August 2011.