Attached files
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EX-32.1 - EXHIBIT 32.1 - Healthier Choices Management Corp. | c21770exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - Healthier Choices Management Corp. | c21770exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - Healthier Choices Management Corp. | c21770exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment
No. 1)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
Or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from_____to _____
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 No.) | |
of incorporation or organization) | ||
3001 Griffin Road | ||
Dania Beach, FL | 33312 | |
(Address of principal executive offices) | (Zip Code) |
Registrants 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 of shares of the Registrants common stock outstanding as of May 12, 2010 was
60,000,344.
Table of Contents
EXPLANATORY NOTE
Vapor Corp. (the Company) is filing this Amendment No. 1 to its Quarterly Report on Form
10-Q for the quarter ended March 31, 2010, as filed with the Securities and Exchange
Commission (the SEC) on May 14, 2010 (the Original Filing), to restate its unaudited
condensed consolidated financial statements for the three months ended March 31, 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 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 $297,665 for the quarter ended March 31, 2010,
and an understatement of additional paid capital of$586,790 and
$289,125 as of March 31, 2010
and December 31, 2009, respectively, and an overstatement of
retained earnings of $586,790 and
$289,125 as of March 31, 2010 and December 31, 2009, respectively.
In addition, the Company has concluded that these accounting and reporting errors constitute a
material weakness in the Companys internal control over financial reporting as of March 31,
2010 and that its disclosure controls and procedures were ineffective at March 31, 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 Companys 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 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
VAPOR CORP.
F/K/A MILLER DIVERSIFIED CORPORATION
(RESTATED)
(NOTE 2)
F/K/A MILLER DIVERSIFIED CORPORATION
(RESTATED)
(NOTE 2)
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2010 | December 31, 2009 | |||||||
(Unaudited) | (Audited) | |||||||
(Restated) | (Restated) | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash |
$ | 45,762 | $ | 841 | ||||
Due from merchant credit card processor, net
of reserve for chargebacks of $30,000 |
342,073 | 361,623 | ||||||
Accounts receivable |
61,612 | | ||||||
Vendor deposits |
171,924 | 169,424 | ||||||
Inventories |
869,121 | 827,412 | ||||||
Sundry current assets |
3,180 | | ||||||
TOTAL CURRENT ASSETS |
1,493,672 | 1,359,300 | ||||||
DEFERRED TAXES |
99,000 | | ||||||
TOTAL ASSETS |
$ | 1,592,672 | $ | 1,359,300 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Accounts payable and accrued expenses |
$ | 836,476 | $ | 453,823 | ||||
Income taxes payable |
202,000 | 202,000 | ||||||
TOTAL LIABILITIES |
1,038,476 | 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 |
||||||||
60,000,344 shares issued and outstanding |
60,000 | 60,000 | ||||||
Additional paid-in capital |
912,290 | 614,625 | ||||||
(Accumulated deficit) retained earnings |
(418,094 | ) | 28,852 | |||||
TOTAL STOCKHOLDERS EQUITY |
554,196 | 703,477 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERSEQUITY |
$ | 1,592,672 | $ | 1,359,300 | ||||
See
notes to unaudited condensed consolidated financial statements
Table of Contents
VAPOR CORP.
F/K/A MILLER DIVERSIFIED CORPORATION
F/K/A MILLER DIVERSIFIED CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, | ||||||||
2010 | 2009 | |||||||
(Restated) | ||||||||
SALES |
$ | 1,875,642 | $ | 1,080,814 | ||||
COSTS AND EXPENSES: |
||||||||
Cost of sales |
1,000,638 | 543,114 | ||||||
Selling, general and administrative |
1,123,285 | 283,849 | ||||||
Stock-based compensation expense |
297,665 | | ||||||
TOTAL COSTS AND EXPENSES |
2,421,588 | 826,963 | ||||||
(LOSS) INCOME BEFORE INCOME TAX EXPENSE (CREDIT) |
(545,946 | ) | 253,851 | |||||
Income tax expense (credit) |
(99,000 | ) | 98,000 | |||||
NET (LOSS) INCOME |
$ | (446,946 | ) | $ | 155,851 | |||
BASIC AND DILUTED NET (LOSS) INCOME PER COMMON SHARE |
$ | (0.01 | ) | $ | 1,558.51 | |||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC
AND DILUTED |
60,000,344 | 100 | ||||||
See notes to unaudited condensed consolidated financial statements
Table of Contents
VAPOR CORP.
F/K/A MILLER DIVERSIFIED CORPORATION
F/K/A MILLER DIVERSIFIED CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED | ||||||||
MARCH 31, | ||||||||
2010 | 2009 | |||||||
(Restated) | ||||||||
OPERATING ACTIVITIES: |
||||||||
Net (loss) income |
$ | (446,946 | ) | $ | 155,851 | |||
Adjustments to reconcile net (loss) income to
net cash provided by operating activities: |
||||||||
Stock -based compensation expense |
297,665 | |||||||
Deferred tax asset |
(99,000 | ) | | |||||
Changes in operating assets and liabilities: |
||||||||
Due from merchant credit card processor |
19,550 | | ||||||
Accounts receivable |
(61,612 | ) | | |||||
Vendor deposits |
(2,500 | ) | (154,246 | ) | ||||
Inventories |
(41,709 | ) | (298,043 | ) | ||||
Sundry current assets |
(3,180 | ) | 4,755 | |||||
Accounts payable and accrued expenses |
382,653 | 178,150 | ||||||
Customer deposits |
| (11,189 | ) | |||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
AND INCREASE (DECREASE) IN CASH |
44,921 | (124,722 | ) | |||||
CASH BEGINNING OF PERIOD |
841 | 311,762 | ||||||
CASH END OF PERIOD |
$ | 45,762 | $ | 187,040 | ||||
See notes to unaudited condensed consolidated financial statements
Table of Contents
VAPOR CORP.
F/K/A MILLER DIVERSIFIED CORPORATION
F/K/A MILLER DIVERSIFIED CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
1 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Business description |
||
Vapor Corporation 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 PufferTMbrands. |
||
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 Managements 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 three months ended March
31, 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 Companys 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) filed 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 Companys
results of operation or its financial position. |
||
Income taxes |
||
As of March 31, 2010, the Company has a U.S. Federal net operating loss carryforward of
approximately $248,000. The Federal net operation loss carryforward expires in 2029. The
deferred tax asset resulting from this loss carryforward is approximately $99,000. |
||
Federal tax laws impose significant restrictions on the utilization of net operating loss
carryforwards and research and development credits in the event of a change in ownership of
the Company, as defined by the Internal
Revenue Code Section 382. The Companys net operating loss carryforward and research and
development credits may be subject to the above limitations. |
Table of Contents
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 18). 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 18), 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 quarter ended March 31, 2010, the Company recognized stock-based
compensation expense of $297,665. The $297,665
relates to the granting of options to its President and Chief Executive Officer to purchase
900,000 shares of the Companys 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 Companys common stock in October 2009 and January 2010, valued at $925,200 and $136,644,
respectively. The stock-based compensation expense for March 31, 2010, related to the amortization of the options discussed above. |
2 | RESTATEMENT |
The Company has restated its condensed consolidated financial statements as at March 31, 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 shares outstanding. This error and the related
adjustments resulted in an understatement of net loss of $297,665 for the quarter ended March
31, 2010, and an understatement of additional paid capital of $586,790 and $289,125 as of
March 31, 2010 and December 31, 2009, respectively, and an overstatement of retained earnings
of $586,790 and $289,125 as of March 31, 2010 and December 31, 2009, respectively.
Accordingly, the Companys condensed consolidated financial statements for the quarterly
period ended March 31, 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 balance sheet:
VAPOR CORPORATION
f/k/a MILLER DIVERSIFIED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
f/k/a MILLER DIVERSIFIED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2010 | As of December 31, 2009 | |||||||||||||||
As | ||||||||||||||||
Previously | As | As Previously | As | |||||||||||||
Recorded | Restated | Recorded | Restated | |||||||||||||
TOTAL ASSETS |
$ | 1,592,672 | $ | 1,592,672 | $ | 1,359,300 | $ | 1,359,300 | ||||||||
TOTAL LIABILITIES |
$ | 1,038,476 | $ | 1,038,476 | $ | 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,
60,000,344 issued and
outstanding |
$ | 60,000 | $ | 60,000 | $ | 60,000 | $ | 60,000 | ||||||||
Additional paid-in capital |
$ | 325,500 | $ | 912,290 | $ | 325,500 | $ | 614,625 | ||||||||
Retained earnings (deficit) |
$ | 168,696 | $ | (418,094 | ) | $ | 317,977 | $ | 28,852 | |||||||
TOTAL STOCKHOLDERS EQUITY |
$ | 554,196 | $ | 554,196 | $ | 703,477 | $ | 703,477 | ||||||||
TOTAL LIABILITIES AND
STOCKHOLDER EQUITY |
$ | 1,592,672 | $ | 1,592,672 | $ | 1,359,300 | $ | 1,359,300 | ||||||||
Table of Contents
Condensed Consolidated Statement of Operations impact
The following table set forth the effects of the restatement adjustments on operations for the
three months ended March 31, 2010:
VAPOR CORPORATION
f/k/a MILLER DIVERSIFIED CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
f/k/a MILLER DIVERSIFIED CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2010 | ||||||||
As Previously | ||||||||
Recorded | As Restated | |||||||
Stock-based compensation expense |
$ | | $ | 297,665 | ||||
TOTAL COSTS AND EXPENSES |
$ | 2,123,923 | $ | 2,421,588 | ||||
(LOSS) BEFORE INCOME TAXES |
$ | (248,281 | ) | $ | (545,946 | ) | ||
NET (LOSS) |
$ | (149,281 | ) | $ | (446,946 | ) | ||
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE |
$ | 0.004 | $ | (0.01 | ) | |||
Weighted average number of outstanding shares basic and diluted |
42,575,342 | 60,000,344 | ||||||
Condensed Consolidated Statement of Cash Flows impact
The following table set forth the effects of the restatement adjustments on the Companys condensed
consolidated statement of cash flows for the three months ended March 31, 2010:
VAPOR CORPORATION
f/k/a MILLER DIVERSIFIED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
f/k/a MILLER DIVERSIFIED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2010 | ||||||||
As Previously | ||||||||
Recorded | As Restated | |||||||
NET (LOSS) |
$ | (149,281 | ) | $ | (446,946 | ) | ||
Variable stock-based compensation expense |
$ | | $ | 297,665 | ||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
$ | 44,921 | $ | 44,921 |
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
(Restated)
You should read the following Managements Discussion and Analysis together with our financial
statements and notes to those financial statements 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 managements 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 Managements 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 Miller
Diversified, Miller, we, us, our, and the Company refer to Miller Diversified
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) whereby the Company will acquire 100% of the issued and outstanding shares of Smoke
Anywhere USA, Inc., as a result of the transaction Smoke will become 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 a control
in excess of eighty percent of the companys outstanding stock.
In connection with the Companys 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 Companys controlling shareholder.
Pursuant to the Acquisition Agreement and Plan of Merger, the company will issue an additional
50,000,000 shares, subsequent to certain corporate actions as set forth above and elsewhere herein.
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.
Table of Contents
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.
Table of Contents
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 18). 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
18), 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 March 31, 2010 Compared to the Three Months Ended
March 31, 2009
During the three months ended March 31, 2010 we had $1,875,642 in revenues. This was an increase of
$794,828 or approximately 73.5% from the three months ended March 31, 2009.
Our cost of sales increased by
$457,524 to $1,000,638 for the three months ended March 31,
2010. This was an increase of 84%, as compared to cost of sales of $543,114 for the three
months ended March 31, 2009. Our selling, general and administrative expenses for the
three months ended March 31, 2010 were $1,123,285 compared to of $283,849 for the
three months ended March 31, 2009.
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During the quarter ended March 31, 2010, we recognized stock-based compensation expense of
$297,665. The $297,665 relates to the granting of
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 our common stock in October 2009 and January 2010, valued
at $925,200 and $136,644, respectively. The stock-based compensation
expense for the three months ended March 31, 2010 related to
the amortization of the options discussed above.
During the three months ended March 31, 2010 we had $0 in research and development costs. This was
unchanged from the three months ended March 31, 2009.
We had net (loss) of ($446,946) for the three months ended March 31, 2010, as compared to net
income of $155,851 for the three months ended March 31, 2009.
Liquidity and Capital Resources
We had total assets of $1,592,672 and $1,359,300 as of March 31, 2010 and December 31, 2009,
respectively. We had total liabilities of $1,038,476 and $655,823 as of March 31, 2010 and December
31, 2009, respectively.
We had additional paid in capital of $912,290 and $614,625 and (accumulated deficit) retained
earnings of ($418,094) and $28,852 and total stockholders
equity of $554,196 and $703,477 as of
March 31, 2010 and December 31, 2009, respectively.
Our net increase (decrease) in cash of $44,921 and ($124,722) for the three months ended March 31,
2010 and 2009, respectively, was due to the cash provided (used) by operating activities, which was
primarily due to net (loss) income of ($446,946) and $155,851, decrease (increase) from merchant
account processors of $19,550 and $0, accounts receivable of ($61,612) and $0, vendor deposit of
($2,500) and ($154,246), inventories of ($41,709) and ($298,043), and increase (decrease) from
accounts payable and other accrued liabilities of $382,653 and
$178,150 and stock-based compensation expense of $297,665 and $0 and
deferred tax asset of ($99,000) and $0, 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.
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Item 4. Controls and Procedures. (Restated)
Restatement
As discussed elsewhere in this Amendment No. 1 and in Note 2 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 March 31,
2010 to restate its condensed
consolidated financial statements as of March 31, 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 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 SECs 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
material weaknesses in our internal control over financial.
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 March 31, 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 Companys corporate legal counsel.
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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 IIOTHER INFORMATION
Item 1. Legal Proceedings.
As of March 31, 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.
None.
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. (Removed and Reserved).
Item 5. Other Information.
None.
Item 6. Exhibits.
Incorporated by Reference | |||||||
Filing Date/ | |||||||
Exhibit | Period End | ||||||
Number | Exhibit Description | Form | 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) |
* | Previously Filed |
|
** | Filed herewith. |
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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.
VAPOR CORP. |
||||
By: | /s/ Kevin Frija | |||
Kevin Frija | ||||
President, Chief Executive Officer and Chief Financial Officer |
||||