Electronic Cigarettes International Group, Ltd. - FORM 10-K/A

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - Electronic Cigarettes International Group, Ltd.	Financial_Report.xls
EX-32.2 - CERTIFICATIONS - Electronic Cigarettes International Group, Ltd.	ecig_ex322.htm
EX-31.1 - CERTIFICATIONS - Electronic Cigarettes International Group, Ltd.	ecig_ex311.htm
EX-31.2 - CERTIFICATIONS - Electronic Cigarettes International Group, Ltd.	ecig_ex312.htm
EX-32.1 - CERTIFICATIONS - Electronic Cigarettes International Group, Ltd.	ecig_ex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K /A

Amendment No. 2

(Mark One)

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

For the fiscal year ended December 31, 2013

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: 000-52745

Victory Electronic Cigarettes Corporation

(Exact name of registrant as specified in its charter)

Nevada		98-0534859
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

11355 Apple Drive

Nunica, MI 49448

(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code: (616) 384-3272

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:		Name of each exchange on which registered:
None		None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ 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). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III or this Form 10-K or any amendment to this Form 10-K. ¨

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.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ

As of June 30, 2013, 53,344,000 shares of common stock were outstanding. The aggregate market value of the common stock held by non-affiliates of the registrant, as of June 28, 2013, the last business day of the second fiscal quarter, was approximately $17,258,640, based on price of $0.56 at which the registrant’s common equity was last sold as quoted on the Over-the-Counter Bulletin Board on that date. Shares of common stock held by each director, each officer and each person who owns 10% or more of the outstanding common stock have been excluded from this calculation in that such persons may be deemed to be affiliates. The determination of affiliate status is not necessarily conclusive.

The registrant had 71,299,899 shares of its common stock outstanding as of March 28, 2014.

DOCUMENTS INCORPORATED BY REFERENCE

None.

EXPLANATORY NOTE

Victory Electronic Cigarettes Corporation (the “Company” or “we”) is filing this Amendment No. 2 (the “Second Amendment”) to our annual report on Form 10-K for the year ended December 31, 2013, filed on March 31, 2014 (the “Original Filing”), as amended by Amendment No. 1 to Form 10-K filed on April 1, 2014 (the “Amendment”) to restate and amend our previously issued audited consolidated financial statements and related financial information for the year ended December 31, 2013 and 2012 previously included in the Original Filing.

Background to the Restatements

On April 24, 2014, the Audit Committee of the Company determined that due to a change in an input to the Company’s valuation models, the Company’s consolidated financial statements as of December 31, 2013 and for the year ended December 31, 2013 as contained in the Original Filing should no longer be relied upon.

The change in an input was the result of a change in the valuation methodology used to value the Company’s stock. The change in the input is used in the valuation models to determine the fair value of certain of the Company’s warrant liabilities, stock options and for the allocation of proceeds related to a convertible debt instrument. Based upon the Company’s analysis, the change increased advisory agreement warrants expense by approximately $9.6 million, increased interest expense by approximately $1.5 million, increased general and administrative expenses by approximately $200,000 and increased the net loss, as reported, by approximately $11.3 million. These adjustments have no effect on the Company’s assets or cash flows.

The Audit Committee of the Company’s Board of Directors and management have discussed this matter with the Company’s independent registered public accounting firm, McGladrey LLP. McGladrey LLP was appointed as the Company’s independent registered public accounting firm on April 1, 2014.

Effects of Restatement

Management has considered the effect of the restatements on our prior conclusions as to the effectiveness of our disclosure controls and procedures and internal control over financial reporting. Management has concluded that no material weakness in internal controls over financial reporting existed as of December 31, 2013, and that our disclosure controls and procedures and internal control over financial reporting for such periods were therefore effective.

This Second Amendment amends and restates Items 1A (Risk Factors) of Part I and Items 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and 8 (Financial Statements and Supplementary Data) of Part II of the Original Filing, as necessary based on the restatement of our consolidated financial statements. Additionally, this Second Amendment replaces the interactive data files required by Item 601(b)(101) of Regulation S-K and Sections 405 and 406T of Regulation S-T, that were initially filed on the Amendment. As required pursuant to the Securities and Exchange Act of 1934, as amended, this Second Amendment also includes updated certifications from the Company’s Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32.1 and 32.2.

Except as described above or the specific events of a later date as disclosed in Item 7, this Second Amendment does not amend, update or change any other items or disclosures in the Original Filing and the Amendment and does not purport to reflect any information or events subsequent to the filing thereof. Accordingly, this Second Amendment should be read in conjunction with the Original Filing and the Amendment.

TABLE OF CONTENTS

		Page
PART I

Item 1A.	Risk Factors	1

PART II

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 8.	Financial Statements and Supplementary Data	23


PART IV

Item 15.	Exhibits, Financial Statement Schedules	24

SIGNATURES		26

INDEX TO EXHIBITS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K /A (this “Report”) contains “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash needs, business plans and future financial results, and any other statements that are not historical facts.

From time to time, forward-looking statements also are included in our other periodic reports on Forms 10-Q and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public. Any or all of the forward-looking statements included in this Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a materially different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

For discussion of factors that we believe could cause our actual results to differ materially from expected and historical results see “Item 1A — Risk Factors” below.

PART I

Item 1A. Risk Factors

Our business, financial condition and operating results are subject to a number of risk factors, both those that are known to us and identified below and others that may arise from time to time. These risk factors could cause our actual results to differ materially from those suggested by forward-looking statements in this Report and elsewhere, and may adversely affect our business, financial condition or operating results. If any of those risk factors should occur, moreover, the trading price of our securities could decline, and investors in our securities could lose all or part of their investment in our securities. These risk factors should be carefully considered in evaluating our prospects.

Risks Related to Our Business

We have incurred losses and cannot assure you that we will achieve or maintain profitable operations.

As of December 31, 2013, we had an accumulated deficit of $ 21,293,048 . We had a net loss of $ 20,706,448 for the year ended December 31, 2013. Our accumulated deficit and net loss are primarily due to, among other reasons, increases in our distribution and marketing expenditures to grow sales of our e-cigarettes, stock-based compensation expenses and the establishment of our business infrastructure and operations. We estimate our expenses over the next 12 months to be approximately $30,000,000, including general and administrative expenses. As of December 31, 2013, we had working capital of $60,608. We cannot assure you that we will generate operating profits on a sustainable basis as we continue to expand our infrastructure, make acquisitions, further develop our marketing efforts and otherwise implement our growth initiatives.

If we do not obtain additional financing, we will not be able to conduct our business operations and achieve our business objectives.

In order to achieve our objectives established in our business plan, investment capital is required to purchase inventory and invest in infrastructure to grow our business. Our capital resources are insufficient to fund our planned operations for the next 12-month period, as we estimate that we require an additional $30,000,000 in funds to implement our business plan for the next twelve months. If we are unable to generate sufficient profit to cover the shortfall, we may have to raise additional funds for the continued development of our business and the marketing of our products. Such additional funds may be raised through the sale of additional stock, stockholder and director advances and/or commercial borrowing. There can be no assurance that a financing will continue to be available if necessary to meet these continuing development costs or, if the financing is available, that it will be on terms acceptable to us. The issuance of additional equity securities by us will result in a significant dilution in the equity interests of our stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may not be able to expand or continue our operations and developments and so may be forced to scale back or cease operations or discontinue our business and you could lose your entire investment. We believe that our expenses will increase in the long-term as we anticipate our business will grow. We are unable to quantify those increases due to uncertainty with future expenses, such as increased costs associated with our growth and the cost of complying with governmental regulations.

We have a limited operating history and cannot offer any assurance as to our future financial results. You may lose your entire investment.

We have a limited operating history upon which to base any assumption as to the likelihood that we will be successful in implementing our business plan, and we may not be able to generate significant revenues or achieve profitability. There is no assurance that the growth rate we have experienced to date will continue. Even if we generate future revenues sufficient to expand operations, increased infrastructure costs and cost of goods sold and marketing expenses could impair or prevent us from generating profitable returns. We recognize that if we are unable to generate significant revenues from our business development, we will not be able to earn profits or potentially continue operations. If we are unsuccessful in addressing these risks, our business will most likely fail.

The market for e-cigarettes is a niche market, subject to a great deal of uncertainty, and is still evolving.

E-cigarettes, having recently been introduced to market, are at an early stage of development, represent a niche market and are evolving rapidly and are characterized by an increasing number of market entrants. Our future sales and any future profits are substantially dependent upon the widespread acceptance and use of e-cigarettes. Rapid growth in the use of, and interest in, e-cigarettes is recent, and may not continue on a lasting basis. The demand and market acceptance for these products is subject to a high level of uncertainty. Therefore, we are subject to all of the business risks associated with a new enterprise in a niche market, including risks of unforeseen capital requirements, failure of widespread market acceptance of e-cigarettes, in general or, specifically our products, failure to establish business relationships and competitive disadvantages as against larger and more established competitors.

Our four years of operating history makes it difficult to accurately predict our future sales and appropriately budget our expenses.

On March 2, 2010, we began marketing and distributing electronic cigarettes. Because we have only four years of operating history, and our business is still evolving, it is difficult to accurately predict our future sales and appropriately budget our expenses. Additionally, our operations will be subject to risks inherent in the establishment of a developing new business, including, among other things, efficiently deploying our capital, developing our products, expanding our supply and distribution capabilities, integrating our acquisitions, developing and implementing our marketing campaigns and strategies and entering into international markets. Our ability to generate future sales will be dependent on a number of factors, many of which are beyond our control, including the pricing of competing products, overall demand for e-cigarettes, changes in consumer preferences, market competition and government regulation. We are currently expanding our staffing, advertising campaigns and operational expenditures in anticipation of future sales growth. If our sales do not increase as anticipated, we could incur significant losses due to our higher infrastructure expense levels if we are not able to decrease our advertising and operating expenses in a timely manner to offset any shortfall in future sales.

Our sales and profitability may decline as a result of increasing product costs and decreasing selling prices.

Our business is subject to pressure on pricing and costs caused by many factors, including intense competition, potential constrained sourcing capacity, pressure from consumers to reduce the prices we charge for our products and changes in consumer demand. These factors may cause us to experience increased costs, reduce our sales prices to consumers or experience reduced sales in response to increased prices, any of which could have a material adverse effect on our financial conditions, operating results and cash flows.

A recent United States Federal Court decision permits the United States Food and Drug Administration to regulate e-cigarettes as “tobacco products” under the Family Smoking Prevention and Tobacco Control Act of 2009 and the United States Food and Drug Administration has indicated that it intends to do so.

Based on the December 2010 U.S. Court of Appeals for the D.C. Circuit’s decision in Sottera, Inc. v. Food & Drug Administration, 627 F.3d 891 (D.C. Cir. 2010), the United States Food and Drug Administration (the “FDA”) is permitted to regulate e-cigarettes as “tobacco products” under the Family Smoking Prevention and Tobacco Control Act of 2009 (the “Tobacco Control Act”).

Under this Court decision, the FDA is not permitted to regulate e-cigarettes as “drugs” or “devices” or a “combination product” under the Federal Food, Drug and Cosmetic Act unless they are marketed for therapeutic purposes.

Because we do not market our e-cigarettes for therapeutic purposes, our e-cigarettes are subject to being classified as “tobacco products” under the Tobacco Control Act. The Tobacco Control Act grants the FDA broad authority over the manufacture, sale, marketing and packaging of tobacco products, although the FDA is prohibited from issuing regulations banning all cigarettes or all smokeless tobacco products, or requiring the reduction of nicotine yields of a tobacco product to zero. Among other measures, the Tobacco Control Act (under various deadlines):

●	increases the number of health warnings required on cigarette and smokeless tobacco products, increases the size of warnings on packaging and in advertising, requires the FDA to develop graphic warnings for cigarette packages, and grants the FDA authority to require new warnings;

●	requires practically all tobacco product advertising to eliminate color and imagery and instead consist solely of black text on white background;

●	imposes new restrictions on the sale and distribution of tobacco products, including significant new restrictions on tobacco product advertising and promotion as well as the use of brand and trade names;

●	bans the use of “light,” “mild,” “low” or similar descriptors on tobacco products;

●

gives the FDA the authority to impose tobacco product standards that are appropriate for the protection of the public health (by, for example, requiring reduction or elimination of the use of particular constituents or components, requiring product testing, or addressing other aspects of tobacco product construction, constituents, properties or labeling);

●	requires manufacturers to obtain FDA review and authorization for the marketing of certain new or modified tobacco products;

●	requires pre-market approval by the FDA for tobacco products represented (through labels, labeling, advertising, or other means) as presenting a lower risk of harm or tobacco-related disease;

●	requires manufacturers to report ingredients and harmful constituents and requires the FDA to disclose certain constituent information to the public;

●	mandates that manufacturers test and report on ingredients and constituents identified by the FDA as requiring such testing to protect the public health, and allows the FDA to require the disclosure of testing results to the public;

●	requires manufacturers to submit to the FDA certain information regarding the health, toxicological, behavioral or physiologic effects of tobacco products;

●	prohibits use of tobacco containing a pesticide chemical residue at a level greater than allowed under federal law;

●	requires the FDA to establish “good manufacturing practices” to be followed at tobacco manufacturing facilities;

●	requires tobacco product manufacturers (and certain other entities) to register with the FDA; and

·	grants the FDA the regulatory authority to impose broad additional restrictions.

The Tobacco Control Act also requires establishment, within the FDA’s new Center for Tobacco Products, of a Tobacco Products Scientific Advisory Committee to provide advice, information and recommendations with respect to the safety, dependence or health issues related to tobacco products.

As indicated above, the Tobacco Control Act imposes significant new restrictions on the advertising and promotion of tobacco products. For example, the law requires the FDA to finalize certain portions of regulations previously adopted by the FDA in 1996 (which were struck down by the Supreme Court in 2000 as beyond the FDA’s authority). As written, these regulations would significantly limit the ability of manufacturers, distributors and retailers to advertise and promote tobacco products, by, for example, restricting the use of color, graphics and sound effects in advertising, limiting the use of outdoor advertising, restricting the sale and distribution of non-tobacco items and services, gifts, and sponsorship of events and imposing restrictions on the use for cigarette or smokeless tobacco products of trade or brand names that are used for non-tobacco products. The law also requires the FDA to issue future regulations regarding the promotion and marketing of tobacco products sold or distributed over the internet, by mail order or through other non-face-to-face transactions in order to prevent the sale of tobacco products to minors.

It is likely that the Tobacco Control Act could result in a decrease in tobacco product sales in the United States, including sales of our e-cigarettes.

While the FDA has not yet mandated that e-cigarettes be regulated as tobacco products, during 2012, the FDA indicated that it intends to regulate e-cigarettes under the Tobacco Control Act through the issuance of deeming regulations that would include e-cigarettes under the definition of a “tobacco product” under the Tobacco Control Act subject to the FDA’s jurisdiction. The FDA initially announced that it would issue proposed deeming regulations by April 2013 and then extended the deadline to October 31, 2013. As of the date of this Report, the FDA had not taken such action.

The application of the Tobacco Control Act to e-cigarettes could impose, among other things, restrictions on the content of nicotine in e-cigarettes, the advertising, marketing and sale of e-cigarettes, the use of certain flavorings and the introduction of new products. We cannot predict the scope of such regulations or the impact they may have on our company specifically or the e-cigarette industry generally, though if enacted, they could have a material adverse effect on our business, results of operations and financial condition.

In this regard, total compliance and related costs are not possible to predict and depend substantially on the future requirements imposed by the FDA under the Tobacco Control Act. Costs, however, could be substantial and could have a material adverse effect on our business, results of operations and financial condition. In addition, failure to comply with the Tobacco Control Act and with FDA regulatory requirements could result in significant financial penalties and could have a material adverse effect on our business, financial condition and results of operations and ability to market and sell our products. At present, we are not able to predict whether the Tobacco Control Act will impact us to a greater degree than competitors in the industry, thus affecting our competitive position.

For a description of risks related to other government regulations, please see “Risks Related to Government Regulation” in this Section.

The European Parliament has approved the revised European Union Tobacco Product Directive.

On February 26, 2014, the European Parliament approved the revised European Union (“EU”) Tobacco Product Directive (the “Tobacco Product Directive”) which (1) will cover e-cigarettes containing nicotine; (2) will require nicotine liquids to be sold in child- and tamper-proof packaging and contain only “ingredients of high purity”; (3) provides that e-cigarettes must deliver nicotine doses at “consistent levels under normal conditions of use” and come with health warnings, instructions for their use, information on “addictiveness and toxicity”, an ingredients list, and information on nicotine content; and (4) will require e-cigarette manufacturers to notify EU Member States before placing new products on the market, report annually to Member States on their sales volumes, types of users and their “preferences and trends”, and comply with any existing rules for cross-border advertising and promotion of tobacco products. The new Tobacco Product Directive is scheduled to take effect in May 2014 and give Member States a two-year transition period to bring national legislation into line with the Tobacco Product Directive, with enforcement of the new rules first occurring in the first half on 2016.

In the United Kingdom, although subject to the Tobacco Product Directive, MHRA has indicated that it believes that e-cigarettes should be regulated as medicines only. This is not currently the law, but there is a possibility that such a law could be passed within the next 2-3 years. If such law is passed, this will mean that e-cigarettes will not be able to be sold in the United Kingdom unless the product is licensed as a medicine. To obtain such a license, it would have to be demonstrated that, on balance, there is a health benefit from the e-cigarettes, and the device is not harmful.

We cannot predict the scope of the new rules or the impact they may have on our company specifically or the e-cigarette industry generally, though as they are enacted, they could have a material adverse effect on our business, results of operations and financial condition. In this regard, total compliance and related costs are not possible to predict and depend substantially on the future requirements imposed by the EU Member States under the Tobacco Product Directive. Costs, however, could be substantial and could have a material adverse effect on our business, results of operations and financial condition. In addition, failure to comply with any of the rules promulgated in accordance with the Tobacco Product Directive could result in significant financial penalties and could have a material adverse effect on our business, financial condition and results of operations and ability to market and sell our products in the EU. Furthermore, if we are ultimately required to obtain a license to sell e-cigarettes as a medicine in the United Kingdom or elsewhere in the EU, we can give no assurances that we would be able to demonstrate to the satisfaction of the relevant regulatory authorities that, on balance, there is a health benefit from the e-cigarettes and the device is not harmful. At present, we are not able to predict whether the Tobacco Product Directive will impact us to a greater degree than competitors in the industry, thus affecting our competitive position.

Limitation by states and cities on sales of e-cigarettes may have a material adverse effect on our ability to sell our products in the United States.

Certain states and cities have enacted laws which preclude the use of e-cigarettes where traditional tobacco-burning cigarettes cannot be used and others have proposed legislation that would categorize e-cigarettes as tobacco products, equivalent to their tobacco burning counterparts. If the use of e-cigarettes is banned anywhere the use of traditional tobacco burning cigarettes is banned, e-cigarettes may lose their appeal as an alternative to cigarettes; which may have the effect of reducing the demand for our products and as a result have a material adverse effect on our business, results of operations and financial condition.

The recent development of e-cigarettes has not allowed the medical profession to study the long-term health effects of e-cigarette use.

Because e-cigarettes were recently developed the medical profession has not had a sufficient period of time to study the long-term health effects of e-cigarette use. Currently, therefore, there is no way of knowing whether or not e-cigarettes are safe for their intended use. If the medical profession were to determine conclusively that e-cigarette usage poses long-term health risks, e-cigarette usage could decline, which could have a material adverse effect on our business, results of operations and financial condition.

The use of e-cigarettes may pose health risks as great as, or greater than, regular tobacco products.

According to the FDA, e-cigarettes may contain ingredients that are known to be toxic to humans and may contain other ingredients that may not be safe. Additionally, e-cigarettes may be attractive to young people and may lead them to try other tobacco products, including conventional cigarettes that are known to cause disease. Because clinical studies about the safety and efficacy of e-cigarettes have not been submitted to the FDA, consumers currently have no way of knowing whether e-cigarettes are safe before their intended use; what types or concentrations of potentially harmful chemicals are found in these products; or how much nicotine is being inhaled. In February 2012, it was reported in Florida that an e-cigarette exploded in a smoker’s mouth causing serious injury. Although there does not appear to be similar incidences elsewhere nor are there specific details concerning the Florida incident, there is a risk that an e-cigarette can cause bodily injury and the publicity from such instances of injury could dramatically slow the growth of the market for e-cigarettes.

E-cigarettes face intense media attention and public pressure.

E-cigarettes are new to the marketplace and since their introduction certain members of the media, politicians, government regulators and advocate groups, including independent medical physicians have called for an outright ban of all e-cigarettes, pending regulatory review and a demonstration of safety. A partial or outright ban would have a material adverse effect on our business, results of operations and financial condition.

Our products contain nicotine, which is considered to be a highly addictive substance.

Certain of our products contain nicotine, a chemical found in cigarettes and other tobacco products which is considered to be highly addictive. The Family Smoking Prevention and Tobacco Control Act, empowers the FDA to regulate the amount of nicotine found in tobacco products, but may not require the reduction of nicotine yields of a tobacco product to zero. Any FDA regulation may require us to reformulate, recall and or discontinue certain of the products we may sell from time to time, which may have a material adverse effect on our ability to market our products and have a material adverse effect on our business, financial condition, results of operations, cash flows and/or future prospects.

Sales of conventional tobacco cigarettes have been declining, which could have a material adverse effect on our business.

We believe that the vast majority of e-cigarette users are people trying to switch from regular cigarettes. The overall global market for conventional tobacco cigarettes has generally been declining in terms of volume of sales, however, as a result of restrictions on advertising and promotions, funding of smoking prevention campaigns, increases in regulation and excise taxes, a decline in the social acceptability of smoking, and other factors, and such sales are expected to continue to decline. While the sales of e-cigarettes have been increasing over the last several years, the e-cigarette market is only developing and is a fraction of the size of the conventional tobacco cigarette market. A continual decline in cigarette sales may adversely affect the growth of the e-cigarette market, which could have a material adverse effect on our business, results of operations and financial condition.

Our business may be affected if we are taxed like other tobacco products or if we are required to collect and remit sales tax on certain of our internet sales.

Presently the sale of e-cigarettes is not subject to federal, state and local excise taxes like the sale of conventional cigarettes or other tobacco products, all of which have faced significant increases in the amount of taxes collected on their sales. Should federal, state and local governments and/or other taxing authorities, including those in the EU or the United Kingdom, impose excise taxes similar to those levied against conventional cigarettes and tobacco products on our products, it may have a material adverse effect on the demand for our products, as consumers may be unwilling to pay the increased costs for our products.

We may be unable to establish the systems and processes needed to track and submit the excise and sales taxes we collect through Internet sales, which would limit our ability to market our products through our websites which would have a material adverse effect on our business, results of operations and financial condition. States such as New York, Hawaii, Rhode Island and North Carolina have begun collecting sales taxes on Internet sales where companies have used independent contractors in those states to solicit sales from residents of that state. The requirement to collect, track and remit sales taxes based on independent affiliate sales may require us to increase our prices, which may affect demand for our products or conversely reduce our net profit margin, either of which would have a material adverse effect on our business, results of operations and financial condition.

Our success is dependent upon our marketing efforts.

We have limited marketing experience in marketing e-cigarettes and limited financial, personnel and other resources to undertake extensive marketing activities. If we are unable to generate significant market awareness for our products and our brands our operations may not generate sufficient revenues for us to execute our business plan, generate revenues and achieve profitable operations.

We may not be able to establish sustainable relationships with large retailers or national chains.

We believe the best way to develop brand and product recognition and increase sales volume is to establish relationships with large retailers and national chains. We currently have established relationships with several large retailers and national chains and in connection therewith we have agreed to pay such retailers and chains fees, known as “slotting fees”, to carry and offer our products for sale based on the number of stores our products will be carried in. These existing relationships are “at-will” meaning that either party may terminate the relationship for any reason or no reason at all. We may not be able to sustain these relationships or establish other relationships with large retailers or national chains or, even if we do so, sustain such other relationships. Our inability to develop and sustain relationships with large retailers and national chains will impede our ability to develop brand and product recognition and increase sales volume and, ultimately, require us to pursue and rely on local and more fragmented sales channels, which will have a material adverse effect on our business, results of operations and financial condition.

We rely on the efforts of third party agents to generate sales of our products.

We rely significantly on the efforts of independent distributors to purchase and distribute our products to wholesalers and retailers. No single distributor currently accounts for a material percentage of our sales and we believe that should any of these relationships terminate we would be able to find suitable replacements and do so on a timely basis. However, any loss of distributors or our ability to timely replace any given distributor could have a material adverse effect on our business, financial condition and results of operations.

We rely, in part, on the efforts of independent salespersons who sell our products to distributors and major retailers and Internet sales affiliates to generate sales of products. No single independent salesperson or Internet affiliate currently accounts for a material percentage of our sales and we believe that should any of these relationships terminate we would be able to find suitable replacements and do so on a timely basis. However, any loss of independent sales persons or Internet sales affiliates or our ability to timely replace any one of them could have a material adverse effect on our business, financial condition and results of operations.

We depend on a small number of third party suppliers and manufacturers for our e-cigarette products.

We do not own or control our supply chain our suppliers or our suppliers’ suppliers, therefore we are unable to control or ensure our supply of products or the consistency of those products. We depend on a small number of third-party suppliers and manufacturers for our e-cigarette products, which includes, but is not limited to, our electrical components, technology, flavorings and essences. Our customers associate certain characteristics of our products including the weight, feel, draw, flavor, packaging and other unique attributes of our products to the brands we market, distribute and sell. Export from certain provinces in China , or at times from Hong Kong, have run into delays, as have imports and receipts in the United States. A natural or man-made disaster or other interruption in supply and or consistency of our products may harm our relationships and goodwill with customers, and have a materially adverse effect on our cash flow and our operations.

Although we believe that several alternative and redundant sources for our products are available, any failure to obtain the components, chemicals constituents and manufacturing services necessary for the production of our products would have a material adverse effect on our business and prevent us from timely execution of our business plan and may result in additional expenditures of time and money in seeking viable new sources of supply and manufacturer alternatives.

Moreover our inability to replicate those certain characteristics of our products, which our customers associate and enjoy, which are unique to our brands, may cause a loss of customer loyalty, patronage and goodwill and which may have a material adverse effect on our business.

Existing or pending patents could prevent us from operating our business in its present form.

Ruyan Investments Holding Ltd. (“Ruyan”), a Chinese company, has made certain public claims as to their ownership of a Chinese patent relating to an “Atomizing Electronic Cigarette.” We currently purchase our products from Chinese manufacturers other than Ruyan. Should Ruyan’s patent be valid and enforceable and cover the devices we purchase from our suppliers, we may be forced to pay more for our products or we may be cut off from our supply. Ruyan has filed a lawsuit against FIN, our wholly owned subsidiary that we recently acquired, and named the Company as a co-defendant following the acquisition. We may ultimately lose that lawsuit. Should any of these events occur, they are likely to have a material adverse effect on our ability to operate our business as a going concern.

Other than the lawsuit brought against FIN, neither Ruyan nor R.J. Reynolds has contacted us regarding any possible infringement of their intellectual property rights nor has any party commenced or threatened to commence any legal action against us. If we are required to participate in additional litigation we may not have the resources to fund the required litigation costs, which may adversely affect our business prospects, financial condition and results of operations.

In the event that either Ruyan or R. J. Reynolds’ patents are enforceable against us, we may be required to obtain a license to the covered intellectual property or substantially modify or redesign our existing product line in order to continue operations. We can offer no assurance that a license would be available on acceptable terms or at all, or that we will be able to revise our business model economically, efficiently or at all.

We do not own any patents relating to e-cigarettes.

While the Company owns the United States trademark for the “Victory” brand for e-cigarettes and has filed a patent application with the United States Patent and Trademark Office, we do not currently own any domestic or foreign patents relating to our electronic cigarettes, nor does the Company currently have any licenses to use any third-party intellectual property. As such, if the Company is not successful in obtaining intellectual property rights covering its products, or obtaining licenses to use a third-party’s intellectual property on reasonable and acceptable terms, it could result in lawsuits against us for trademark and/or intellectual property infringement. Any such infringement, litigation or adverse proceeding could result in substantial costs and diversion of resources and could seriously harm our business operations or results of operations.

We may be required to obtain licenses to patents or proprietary rights of others.

We may be required to obtain licenses to patents or proprietary rights of others. We cannot assure you that any licenses required under any such patents or proprietary rights would be made available on terms acceptable to us or at all. If we do not obtain such licenses, we could encounter delays in product market introductions while we attempt to design around such patents, or could find that the development, manufacture, or sale of products requiring such licenses could be foreclosed. Litigation may be necessary to defend against claims of infringement asserted against us by others, or assert claims of infringement to enforce patents issued to us or exclusively licensed to us, to protect trade secrets or know-how possessed by us, or to determine the scope and validity of the proprietary rights of others. In addition, we may become involved in oppositions in foreign jurisdictions, reexaminations declared by the United States Patent and Trademark Office, or interference proceedings declared by the United States Patent and Trademark Office to determine the priority of inventions with respect to our patent applications or those of our licensors. Litigation, opposition, reexamination or interference proceedings could result in substantial costs to and diversion of effort by us, and may have a material adverse impact on, us. In addition, we cannot assure you that our efforts to maintain or defend our intellectual property will be successful.

We use Chinese manufacturers for the production of our products.

Our suppliers and product manufacturers are based in China. Should Chinese factories continue to draw public criticism for exporting unsafe products, whether those products relate to us or not, we may be adversely and materially affected by the stigma associated with Chinese production, which would affect our business operation, our revenues and our financial projections and prospects.

Moreover, products manufactured by our Chinese suppliers that are not considered safe and or those products that do not comply with U.S. safety and health standards may cause significant harm and or death to persons who use the product and subject us to liability and potential legal claims and cause injury to our reputation, goodwill and operating results.

We may be unable to successfully promote and maintain our brands.

We believe that establishing and maintaining the brand identities of our products is a critical aspect of attracting and expanding a large client base. Promotion and enhancement of our brands will depend largely on our success in continuing to provide high quality products. If our customers and end users do not perceive our products to be of high quality, or if we introduce new products or enter into new business ventures that are not favorably received by our customers and end users, we will risk diluting our brand identities and decreasing their attractiveness to existing and potential customers.

Moreover, in order to attract and retain customers and to promote and maintain our brand equity in response to competitive pressures, we may have to increase substantially our financial commitment to creating and maintaining a distinct brand loyalty among our customers. If we incur significant expenses in an attempt to promote and maintain our brands, our profitability will likely be impaired.

We may not fully realize anticipated benefits from past or future acquisitions or equity investments.

Our growth to date has been, and we expect that a substantial portion of any future growth of our business will be, accomplished by acquiring existing businesses, products or technologies. The success of any acquisition will depend upon, among other things, our ability to integrate acquired personnel, operations, products and technologies into our organization effectively, to retain and motivate key personnel of acquired businesses and to retain their clients. In addition, we might not be able to identify suitable acquisition opportunities or obtain any necessary financing on acceptable terms. We might also spend time and money investigating and negotiating with potential acquisition or investment targets, but not complete the transaction.

Although we expect to realize strategic, operational and financial benefits as a result of our past or future acquisitions and equity investments, we cannot predict whether and to what extent such benefits will be achieved. There are significant challenges to integrating an acquired operation into our business, including, but not limited to:

●	successfully managing our operations and supply and distribution channels;

●	integrating the sales organizations and maintaining and increasing the customer base;

●	retaining key employees, suppliers and distributors;

●	integrating management information, inventory, accounting, technology and research and development activities; and

●	addressing operating losses related to individual facilities or product lines.

Any future acquisition could involve other risks, including the assumption of additional liabilities and expenses, issuances of debt, transaction costs and diversion of management’s attention from other business concerns and such acquisition may be dilutive to our financial results.

We may encounter difficulties in managing our growth, which would adversely affect our results of operations.

If we are successful in growing our business, we will need to significantly expand our operations, which could put significant strain on our management and our operational and financial resources. To manage future growth, we will need to hire, train, and manage additional employees. Concurrent with expanding our operational and marketing capabilities, we will also need to increase our product development activities. We may not be able to support, financially or otherwise, future growth, or hire, train, motivate, and manage the required personnel. Our failure to manage growth effectively could limit our ability to achieve our goals.

Our success in managing our growth will depend in part on the ability of our executive officers to continue to implement and improve our operational, management, information and financial control systems and to expand, train and manage our employee base, and particularly to attract, expand, train, manage and retain a sales force to market our products on acceptable terms. Our inability to manage growth effectively could cause our operating costs to grow at a faster pace than we currently anticipate, and could have a material adverse effect on our business, financial condition, results of operations and prospects.

Expanding our operations internationally poses additional risks to our business, including numerous legal and regulatory risks.

As we grow our business internationally, we must successfully tailor our products to the unique customs and cultures of relevant countries and markets. Learning the customs and cultures of various countries and markets can be difficult and costly, and the failure to do so could slow international growth. In addition, we incur additional legal and compliance costs associated with our international operations and could become subject to legal penalties in foreign countries if we do not comply with local laws and regulations. Operating in international markets also exposes us to additional risks, including, among others:

●	Economic and political instability in the various countries and regions in which we operate.

●	A number of U.S. federal laws and regulations, including restrictions imposed by the Foreign Corrupt Practices Act (“FCPA”) as well as trade sanctions administered by the Office of Foreign Assets Control (“OFAC”) and the Commerce Department.

●	The laws and regulations of non-U.S. jurisdictions, including the U.K. Bribery Act and anti-corruption legislation in the countries in which we conduct operations.

●	Restrictions on our ability to access cash generated by international operations due to restrictions on the repatriation of dividends, distribution of cash to shareholders outside of such countries, foreign exchange control, and other restrictions.

●	Changes in, and violations of, governmental regulation, including labor regulations, and our inability or failure to obtain required approvals, permits, or registrations.

●	Adverse tax consequences, including imposition of withholding or other taxes on payments by subsidiaries.

These risks could lead to certain events that could lead to disruption of our e-cigarette business, significant expenditures and/or damage to our reputation, and could harm our reputation or have a material adverse effect on our business, results of operations and financial condition.

We face intense competition and our failure to compete effectively could have a material adverse effect on our business, results of operations and financial condition.

We face intense competition from direct and indirect competitors, including “big tobacco,” “big pharma,” and other known and established or yet to be formed e-cigarette companies, each of whom pose a competitive threat to our current business and future prospects. We expect competition to intensify in the future. Certain of these companies are either currently competing with us or are focusing significant resources on providing products that will compete with our e-cigarette product offerings in the future.

Our principal competitors can be classified into three main categories: 1) tobacco companies; 2) other e-cigarette companies; and 3) pharmaceutical companies. We compete primarily on the basis of product quality, brand recognition, brand loyalty, service, marketing, advertising and price. We are subject to highly competitive conditions in all aspects of our business, and barriers to entry into the online business are low. The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors’ introduction of low-priced products or innovative products, cigarette excise taxes, higher absolute prices and larger gaps between price categories, and product regulation that diminishes the ability to differentiate tobacco products.

Tobacco companies, including Phillip Morris, R.J. Reynolds, and Lorillard, currently offer traditional tobacco products and may introduce new tobacco based cigarettes and smoking devices (e.g., the “tobacco containing smoking article” covered by patent # 20080092912 as filed by R.J. Reynolds, one of the world’s largest tobacco companies.) Because of their well-established sales and distribution channels, marketing expertise and significant resources, “big tobacco” is better positioned than small competitors to capture a larger share of the e-cigarette market. We also face competition from smaller tobacco companies that are much larger, better funded, and more established than us.

E-cigarette companies, that currently market competing products, include but are not limited to, Njoy, Blu, Vapor Corp., V2 Cigs and others. There can be no assurance that we will be able to compete successfully against any of the aforementioned competitors, who may have greater resources, capital, experience, market penetration, sales and distribution channels than us. We have no assurances that we will be able to compete with these competitors and that we will be successful in operating our business and increasing profitability. Our inability to successfully compete against these or any of our competitors will have a material adverse effect our business, results of operations and financial condition.

Pharmaceutical companies market smoking cessation aids and alternative nicotine delivery products such as, in the case of Glaxo SmithKline, Nicorette® Gum, the NicoDerm® patch, and the Zyban® sustained release tablet, and in the case of Pfizer, Chantix® prescription medication and the Nicotrol® nicotine inhaler.

We face competition from foreign importers who do not comply with government regulation.

We face competition from foreign sellers of e-cigarettes that may illegally ship their products into the United States for direct delivery to customers. These market participants will not have the added cost and expense of complying with U.S. regulations and taxes and as a result will be able to offer their product at a more competitive price than us and potentially capture market share. Moreover, should we be unable to sell certain of our products during any regulatory approval process we have no assurances that we will be able to recapture those customers that we lost to our foreign domiciled competitors during any “blackout” periods, during which we are not permitted to sell our products. This competitive disadvantage may have a material adverse effect on our business, results of operations and our financial condition.

We rely on a limited number of key employees and may experience difficulty in attracting and hiring qualified new personnel in some areas of our business.

The loss of any of our key employees could adversely affect our business. As a member of the tobacco industry, we may experience difficulty in identifying and hiring qualified executives and other personnel in some areas of our business. This difficulty is primarily attributable to the health and social issues associated with the tobacco industry. The loss of services of any key employees or our inability to attract, hire and retain personnel with requisite skills could restrict our ability to develop new products, enhance existing products in a timely manner, sell products or manage our business effectively. These factors could have a material adverse effect on our business, results of operations and financial condition.

Currently, we do not have key person life insurance on our executive officers or board members and may be unable to obtain such insurance in the near future due to high cost or other reasons. The loss of the services of any of our executive officers/key employees could have a material adverse effect on our business, if we are unable to find suitable replacements.

We may experience product liability claims in our business, which could adversely affect our business.

The tobacco industry in general has historically been subject to frequent product liability claims. As a result, we may experience product liability claims from the marketing and sale of e-cigarettes. Any product liability claim brought against us, with or without merit, could result in:

●	liabilities that substantially exceed our product liability insurance, which we would then be required to pay from other sources, if available;

●	an increase of our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, or at all;

●	damage to our reputation and the reputation of our products, resulting in lower sales;

●	regulatory investigations that could require costly recalls or product modifications;

●	litigation costs; and

●	the diversion of management’s attention from managing our business.

Any one or more of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

We face a risk of product liability claims and may not be able to obtain adequate insurance.

Our business exposes us to potential liability risks that may arise from the clinical testing, manufacture, and sale of our products. Substantial damage awards have been issued in certain jurisdictions against pharmaceutical and tobacco companies based on claims for injuries allegedly caused by the use of pharmaceutical and tobacco products. Liability claims may be expensive to defend and result in large judgments against us. We currently carry liability insurance, however there is no assurance that it will continue to be available to us at an affordable price if at all. Our insurance may not reimburse us, or the coverage may not be sufficient to cover claims made against us. We cannot predict any or all of the possible harms or side effects that may result from the use of our current products or any future products and, therefore, the amount of insurance coverage we currently hold may not be adequate to cover all liabilities we might incur. If we are sued for any injury allegedly caused by our products, our liability could exceed our ability to pay the liability. Whether or not we are ultimately successful in any adverse litigation, such litigation could consume substantial amounts of our financial and managerial resources, all of which could have a material adverse effect on our business, financial condition, results of operations, prospects and stock price.

If we experience product recalls, we may incur significant and unexpected costs and our business reputation could be adversely affected.

We may be exposed to product recalls and adverse public relations if our products are alleged to cause illness or injury, or if we are alleged to have violated governmental regulations. A product recall could result in substantial and unexpected expenditures that could exceed our product recall insurance coverage limits and harm to our reputation, which could have a material adverse effect on our business, results of operations and financial condition. In addition, a product recall may require significant management time and attention and may adversely impact on the value of our brands. Product recalls may lead to greater scrutiny by federal or state regulatory agencies and increased litigation, which could have a material adverse effect on our business, results of operations and financial condition.

Product exchanges, returns and warranty claims may adversely affect our business.

If we are unable to maintain an acceptable degree of quality control of our products we will incur costs associated with the exchange and return of our products as well as servicing our customers for warranty claims. Any of the foregoing on a significant scale may have a material adverse effect on our business, results of operations and financial condition.

Adverse economic conditions may adversely affect the demand for our products.

E-cigarettes are new to market and may be regarded by users as a novelty item and expendable as such demand for our products may be extra sensitive to economic conditions. When economic conditions are prosperous, discretionary spending typically increases; conversely, when economic conditions are unfavorable, discretionary spending often declines. Any significant decline in economic conditions that affects consumer spending could have a material adverse effect on our business, results of operations and financial condition.

We may not be able to adapt to trends in our industry.

We may not be able to adapt as the e-cigarette industry and customer demand evolves, whether attributable to regulatory constraints or requirements, a lack of financial resources or our failure to respond in a timely and/or effective manner to new technologies, customer preferences, changing market conditions or new developments in our industry. Any of the failures to adapt for the reasons cited herein or otherwise could make our products obsolete and would have a material adverse effect on our business, financial condition and results of operations.

We may face liability for improper marketing, medical claims and labeling.

As a distributor and marketer of a product that the FDA may assert is a smoking cessation device and or a tobacco product, the Company faces potential fines, sanctions, administrative actions, penalties, and other liability for: improper labeling, making improper claims, referencing or publishing to its websites, marketing materials, advertisements, testimonials or representations that certain of our products have the ability or potential to treat, cure or otherwise improve a medical condition, and or provide a healthier alternative to other more traditional tobacco products.

Moreover, if the FDA asserts we are a tobacco product, we may be required to follow federal and state tobacco labeling laws, and could face potential fines, sanctions, administrative actions, penalties and other liability, either civil and or criminal, for any violations thereof.

Any violation of law with respect to the Company’s marketing materials and or labeling could expose our company to liability including but not limited to fines, sanctions, administrative actions, penalties, civil actions and or criminal prosecution. And although our company maintains general liability insurance, our company’s insurance may not cover potential claims of this type or may not be adequate to indemnify our company for all liability that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our company’s business, results of operations and financial condition. (See “Government Regulation” beginning on page 7).

Internet security poses a risk to our e-commerce sales.

At present, we generate significant revenues through the sale of our products through our websites. We manage our websites and e-commerce platform internally and as a result any compromise of our security or misappropriation of proprietary information could have a material adverse effect on our business, prospects, financial condition and results of operations. We rely on encryption and authentication technology licensed from other companies to provide the security and authentication necessary to effect secure Internet transmission of confidential information, such as credit and other proprietary information. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the technology used by us to protect client transaction data. Anyone who is able to circumvent our security measures could misappropriate proprietary information or cause material interruptions in our operations. We may be required to expend significant capital and other resources to protect against security breaches or to minimize problems caused by security breaches. To the extent that our activities or the activities of others involve the storage and transmission of proprietary information, security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability. For example the storage and loss of credit card numbers that may reside on our servers and be used directly by us or by our service suppliers (ex. merchant account processors). Our security measures may not prevent security breaches. Our failure to prevent these security breaches may result in consumer distrust and may adversely affect our business, results of operations and financial condition.

Our earnings could be adversely affected by currency exchange rates and currency devaluations.

The majority of our revenues are currently generated in U.S. dollars, however our manufacturers and suppliers are located in China. Fluctuations in exchange rates between our respective currencies could result in higher production and supply costs to us which would have an adverse effect on our profit margins and our business operation if we are not willing or able to pass those costs on to our customers or effectively hedge our currency exposure.

Moreover, if we attempt to hedge our risk in the currency markets and are unsuccessful and or if our competitors are more successful arbitraging the currency risk we may find ourselves at a competitive disadvantage to other market participants which would have a material adverse effect on our business operations.

The requirements of being a U.S. public company may strain our resources and divert management’s attention.

We are required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, the Securities and Exchange Act of 1934, and the rules and regulations adopted by the Securities and Exchange Commission and the Public Corporation Accounting Oversight Board. We anticipate that we will spend approximately $500,000 each year to comply with these rules. Further, compliance with various regulatory reporting requires significant commitments of time from our management and our directors, which reduces the time available for the performance of their other responsibilities. Our failure to track and comply with the various rules may materially adversely affect our reputation, ability to obtain the necessary certifications to financial statements, lead to additional regulatory enforcement actions, and could adversely affect the value of our common stock.

We may experience difficulties in complying with Section 404 of the Sarbanes-Oxley Act in the future.

We are required, pursuant to Section 404(a) of the Sarbanes-Oxley Act, to furnish a report by our management on, among other things, the effectiveness of our internal controls over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal controls over financial reporting. As a smaller reporting company, we are exempt from the requirement that our independent registered public accounting firm issue an opinion on our internal controls over financial reporting.

We concluded that our internal controls over financial reporting were effective as of December 31, 2013; however, we do not expect internal controls over financial reporting to prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Failure of our internal control systems to prevent error or fraud could materially adversely impact us, could lead to restatements of our financial statements and investors not being able to rely on the completeness and accuracy of the financial information contained in our filings with the SEC, and could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities or stockholder litigation.

Risks Related to Government Regulation

Changes in laws, regulations and other requirements could adversely affect our business, results of operations or financial condition.

In addition to the anticipated regulation of our business by the FDA, the recent announcement of the revised EU Tobacco Product Directive, and the possibility of regulation in the United Kingdom by the MHRA, our business, results of operations or financial condition could be adversely affected by new or future legal requirements imposed by legislative or regulatory initiatives, including, but not limited to, those relating to health care, public health and welfare and environmental matters. For example, in recent years, states and many local and municipal governments and agencies, as well as private businesses, have adopted legislation, regulations or policies which prohibit, restrict, or discourage smoking; smoking in public buildings and facilities, stores, restaurants and bars; and smoking on airline flights and in the workplace. Furthermore, some states prohibit and others are considering prohibiting the sales of e-cigarettes to minors. Other similar laws and regulations are currently under consideration and may be enacted by state and local governments in the future. At present, it is not clear if e-cigarettes, which omit no smoke or noxious odors, are subject to such restrictions. If e-cigarettes are subject to restrictions on smoking in public and other places, our business, operating results and financial condition could be materially and adversely affected. New legislation or regulations may result in increased costs directly for our compliance or indirectly to the extent such requirements increase the prices of goods and services because of increased costs or reduced availability. We cannot predict whether such legislative or regulatory initiatives will result in significant changes to existing laws and regulations and/or whether any changes in such laws or regulations will have a material adverse effect on our business, results of operations or financial condition.

We may be unable to afford to comply with FDA regulation and the EU Tobacco Product Directive.

The anticipated costs of complying with future FDA regulations as well as the EU Tobacco Product Directive will be dependent on the rules issued by the FDA and the European Parliament, respectively. Since our products are manufactured by third parties, we anticipate that they will bear the initial investment of approval and will pass those costs to us through price increases. If we need to seek FDA approval, then based on several factors including either pre-market approval or 510K application, we estimate an application could take between 6 to 24 months with a cost of $100,000 to $2 million. If the device is deemed a drug and a device, we anticipate that the time and costs to comply with FDA regulations would be prohibitive to the future operations of our company and may have a material adverse effect on our business, results of operations and financial condition. In addition, failure to comply with FDA regulatory requirements or the EU Tobacco Product Directive could result in significant financial penalties and could have a material adverse effect on our business, financial condition and results of operations and ability to market and sell our products.

Restrictions on the public use of e-cigarettes may reduce the attractiveness and demand for our e-cigarettes.

Certain states, cities, businesses, providers of transportation and public venues in the U.S. have already banned the use of e-cigarettes, while others are considering banning the use of e-cigarettes. If the use of e-cigarettes is banned anywhere the use of traditional tobacco burning cigarettes is banned, e-cigarettes may lose their appeal as an alternative to traditional tobacco burning cigarettes, which may reduce the demand for our products and, thus, have a material adverse effect on our business, results of operations and financial condition.

The FDA has issued an import alert which has limited our ability to import certain of our products.

As a result of FDA import alert 66-41 (which allows the detention of unapproved drugs promoted in the U.S.), U.S. Customs has from time to time temporarily and in some instances indefinitely detained products sent to us by our Chinese suppliers. If the FDA modifies the import alert from its current form which allows U.S. 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 saleable product, which will have a material adverse effect on our business, results of operations and financial condition. We believe this FDA import alert will become less relevant to us as and when the FDA regulates e-cigarettes under the Tobacco Control Act.

The application of the Prevent All Cigarette Trafficking Act and/or the Federal Cigarette Labeling and Advertising Act to e-cigarettes would have a material adverse affect on our business.

At present, neither the Prevent All Cigarette Trafficking Act (which prohibits the use of the U.S. Postal Service to mail most tobacco products and which amends the Jenkins Act, which would require individuals and businesses that make interstate sales of cigarettes or smokeless tobacco to comply with state tax laws) nor the Federal Cigarette Labeling and Advertising Act (which governs how cigarettes can be advertised and marketed) apply to e-cigarettes. The application of either or both of these federal laws to e-cigarettes could result in additional expenses, could prohibit us from selling products through the internet and require us to change our advertising and labeling and method of marketing our products, any of which would have a material adverse effect on our business, results of operations and financial condition.

We may face the same governmental actions aimed at conventional cigarettes and other tobacco products.

Tobacco industry expects significant regulatory developments to take place over the next few years, driven principally by the World Health Organization’s Framework Convention on Tobacco Control (“FCTC”). The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. Regulatory initiatives that have been proposed, introduced or enacted include:

●	the levying of substantial and increasing tax and duty charges;

●	restrictions or bans on advertising, marketing and sponsorship;

●	the display of larger health warnings, graphic health warnings and other labeling requirements;

●	restrictions on packaging design, including the use of colors and generic packaging;

●	restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines;

●	requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels;

●	requirements regarding testing, disclosure and use of tobacco product ingredients;

●	increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors;

●	elimination of duty free allowances for travelers; and

●	encouraging litigation against tobacco companies.

If e-cigarettes are subject to one or more significant regulatory initiates enacted under the FCTC, our business, results of operations and financial condition could be materially and adversely affected.

If we have improperly marketed and distributed certain of our products in violation of FDA regulations we may be subject to disciplinary, actions, administrative actions, sanctions and fines.

We may be subject to disciplinary, administrative and or regulatory actions if the FDA and/or a court of proper jurisdiction determines that our products or the means by which we marketed and sold our products was affected without the proper regulatory approvals. Any such disciplinary, regulatory or administrative actions, fines and or sanctions which may have a material adverse effect on our operations, financial results and business prospects.

Changes in governmental regulation may affect the countries in which we sell our products.

Foreign jurisdictions have varying policies and laws with respect to the use of e-cigarettes that vaporize nicotine. Countries such as the United Kingdom do not restrict its use, while other countries, such as Thailand, have instituted a total ban. If countries such as the United Kingdom reverse their stance or should other countries that have a neutral stance move towards prohibition, it will have a direct impact on our ability to market our products and will have a material adverse effect on our business.

In the United Kingdom, although subject to the Tobacco Product Directive, the MHRA has indicated that it believes that e-cigarettes should be regulated as medicines only. This is not currently the law, but there is a possibility that such a law could be passed within the next 2-3 years. If such law is passed, this will mean that e-cigarettes will not be able to be sold in the United Kingdom unless the product is licensed as a medicine. To obtain such a license, it would have to be demonstrated that, on balance, there is a health benefit from the e-cigarettes, and the device is not harmful.

If our third-party suppliers or contract manufacturers do not maintain appropriate standards of manufacturing in accordance with GMP and other manufacturing regulations, our development and commercialization activities could suffer significant interruptions or delays.

We rely, and intend to continue to rely, on third-party suppliers and contract manufacturers to provide us with our products. These suppliers and manufacturers must continuously adhere to good manufacturing practice (“GMP”) as well as any applicable corresponding manufacturing regulations outside of the United States. In complying with these regulations, we and our third-party suppliers and contract manufacturers must expend significant time, money and effort in the areas of design and development, testing, production, record-keeping and quality control to assure that our products meet applicable specifications and other regulatory requirements. Failure to comply with these requirements could result in an enforcement action against us, including warning letters, the seizure of products, suspension or withdrawal of approvals, shutting down of production and criminal prosecution. Any of these third-party suppliers or contract manufacturers will also be subject to audits by the FDA and other regulatory agencies. If any of our third-party suppliers or contract manufacturers fails to comply with GMP or other applicable manufacturing regulations, our ability to develop and commercialize our products could suffer significant interruptions and delays.

Risks Related to our Common Stock

Our common stock is quoted only on the OTC Bulletin Board (“OTCBB”), which may have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the OTCBB. The OTCBB is a significantly more limited market than the New York Stock Exchange or the NASDAQ Stock Market. The quotation of our shares on the OTCBB may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

There can be no assurance that there will be an active market for our shares of common stock either now or in the future. Market liquidity will depend on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. As a result, holders of our securities may not find purchasers for our securities should they to desire to sell them. Consequently, our securities should be purchased only by investors having no need for liquidity in their investment and who can hold our securities for an indefinite period of time.

The market price for our common shares is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, limited operating history and lack of profits, which could lead to wide fluctuations in our share price. You may be unable to sell your common shares at or above your purchase price, which may result in substantial losses to you.

The market for our common shares is characterized by significant price volatility when compared to the shares of larger, more established companies that trade on a national securities exchange and have large public floats, and we expect that our share price will continue to be more volatile than the shares of such larger, more established companies for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are, compared to the shares of such larger, more established companies, sporadically and thinly traded. As a consequence, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand. Secondly, we are a speculative or “risky” investment due to our limited operating history, lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established company that trades on a national securities exchange and has a large public float. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance.

Our board of directors is authorized to issue additional shares of our stock which would dilute existing shareholders.

We are currently authorized to issue up to 100,000,000 shares of common stock, of which 71,299,899 shares are currently issued and outstanding. We intend to amend our Articles of Incorporation to increase the number of authorized shares of common stock from 100,000,000 to 300,000,000, which amendment has already been approved by written consent of the majority stockholders and is expected to be effective by April 7, 2014. Additional shares of our common stock may be issued by our board of directors for such consideration as they may consider sufficient without seeking stockholder approval. The issuance of additional shares of common stock in the future will reduce the proportionate ownership and voting power of current stockholders.

Your percentage ownership of our common shares may be diluted by future share issuances.

To the extent we issue new shares to fund acquisitions, to raise additional capital, to compensate employees and other persons your percentage ownership of our shares will be diluted.

We do not intend to pay dividends for the foreseeable future, and you must rely on increases in the market prices of our common stock for returns on equity investment.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

The majority of our board does not consist of independent directors, which limits our ability to establish effective independent corporate governance procedures.

Our board is composed of seven directors, one of whom we have determined to be independent based on the NASDAQ listing rules. Thus, the majority of our directors are not deemed independent, which is not a requirement since our common stock is not currently listed on a national securities exchange. Accordingly, without a majority of independent directors on our board, our ability to establish effective corporate governance procedures to oversee functions such as audit, compensation and corporate governance is limited. Furthermore, a majority of our directors, or four of the seven directors, are also executive officers of the Company. This structure gives our executive officers significant control over all corporate issues and decisions.

In the absence of a majority of independent directors, our executive officers, most of whom are also principal stockholders and directors, could establish policies and enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest between us and our shareholders generally and the controlling officers, shareholders or directors. Although we anticipate seeking new independent directors in the future, there can be no assurance as to whether or when we will be successful in appointing any new directors.

PART II

Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the results of operations and financial condition for the fiscal years ended December 31, 2013 and 2012 and should be read in conjunction with our financial statements, and the notes to those financial statements that are included elsewhere in this Report.

Overview

We are engaged in the business of marketing and distributing a product for smokers to “smoke” nicotine without the fire, flame, tobacco, tar, carbon monoxide, ash, stub, smell and all the other chemicals found in traditional cigarettes. We believe that we provide our consumers an opportunity to smoke without the social stigmas increasingly associated with cigarettes. We compete in a highly competitive market including other e-cigarette marketing companies, as well as traditional tobacco companies. In a highly fragmented market, we believe that it is key that we continue to build brand awareness through increased advertising and marketing strategies, as well as to continue to develop our supply chain and fulfillment capabilities.

Significant Developments In 2013

Reverse Merger

We were incorporated in the state of Nevada on May 19, 2004 as Teckmine Industries, Inc. On June 25, 2013, pursuant to a share exchange agreement, we acquired Victory Electronic Cigarettes, Inc., a Nevada corporation (“VEC”), in which the existing stockholders of VEC exchanged all of their issued and outstanding shares of common stock for 32,500,000 shares of our common stock (the “Reverse Merger”). After the consummation of the Reverse Merger, stockholders of VEC owned 60.9% of our outstanding common stock. As a result of the Reverse Merger, VEC became our wholly owned subsidiary. For accounting purposes, the Reverse Merger was treated as a reverse acquisition with VEC as the acquirer and Teckmine Industries as the acquired party.

On July 11, 2013, we changed our name to “Victory Electronic Cigarettes Corporation”.

Private Placements

On March 25, 2013, we issued four convertible promissory notes dated January 31, 2013 and totaling $200,000 and issued five-year warrants dated January 31, 2013 to purchase 50,000 shares of Common Stock to each of the four parties issued the convertible notes. The notes carried an interest rate of 12% and were due on January 31, 2014 and the notes and warrants were convertible into Common Stock at the share price offered in the private placement that was to occur prior to the Reverse Merger and is described in the following paragraph (i.e. $0.25 per share). Accrued interest on the notes was payable or convertible at any time determined by the holders or at maturity. On January 31, 2014, the notes were converted into 800,000 shares of Common Stock and the accrued interest was paid in cash.

On June 25, 2013, we completed a private placement with investors for the sale of 10,000,000 shares of Common Stock at $0.25 per share for total net proceeds of $2,200,000.

On November 4, 2013, we entered into private placement subscription agreements with three persons and issued three notes in the aggregate principal amount of $2,475,000, which carried an interest rate of 6% and were due on January 1, 2014, and were convertible into Common Stock at $0.50 per share. On the issue date, the investors converted one third of the face value of the notes into 1,649,999 shares of Common Stock. At December 31, 2013, $1,200,000 of the notes were repaid and on January 1, 2014, the remaining balance of $450,000 was repaid in full.

Agreements with Fields Texas Limited LLC's affiliate, E-Cig Acquisition Company LLC

On December 30, 2013, we entered into a comprehensive partnership agreement (the “Agreement”) with Fields Texas Limited LLC's affiliate, E-Cig Acquisition Company LLC (“Fields Texas”) pursuant to which Fields Texas will act as the exclusive agent of the Company to secure sales and distribution agreements of the Company’s products with various retailers and distributors both in the United States and internationally. Fields Texas will also support our acquisition, product development, marketing, pricing and promotional efforts both in the United States and internationally. Upon the execution of the Agreement, the Company issued Fields Texas warrants to purchase 6,975,000 shares of Common Stock at an exercise price of $9.05 per share. Pursuant to the adjustment provision contained in the warrant, as further described below, following the completion of our private offering on January 7, 2014, the exercise price of the warrant adjusted to $5.00 per share with the ability to purchase up to 12,624,750 shares of Common Stock. The Company also paid Fields Texas a $200,000 development fee to offset initial start-up costs and expenses.

Pursuant to the Agreement, we will pay Fields Texas ongoing commissions on the net sales of our products sold through the sales and distribution agreements secured by Fields Texas. In addition, for every $10,000,000 in annual net sales realized through the sales and distribution agreements secured by Fields Texas, up to an aggregate of $100,000,000 in annual net sales realized, we will issue Fields Texas five-year warrants (the “Warrants”) to purchase 530,000 shares of Common Stock at an exercise price equal to the closing price on the date the warrants are issued.

The exercise prices of the Warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate changes and dilutive issuances. The holders of the Warrants have piggyback registration rights.

For a merger or acquisition, strategic partnership, joint venture, licensing or similar transaction that Fields Texas facilitates, we will pay a one-time fee equal to 5% of the purchase price paid in the same form of consideration as used in the transaction. To date, we have paid Fields Texas a commission of $500,000 and issued five-year warrants to purchase 500,000 shares of Common Stock at an exercise price of $10.00 per share in connection with the FIN acquisition, and will pay Fields Texas an additional $750,000 as commission upon our repaying of the Promissory Notes as described below.

The term of the Agreement is for three years and will automatically be renewed for successive periods upon achieving annual net sales targets.

Results of Operations

Year ended December 31, 2013 compared with year ended December 31, 2012

Revenues

Revenues for the years ended December 31, 2013 and 2012 were $3,102,729 and $1,470,204, respectively, an increase of $1,632,525 or approximately 111%. The increase in sales is primarily attributable to increases in online sales to new and recurring customers and sales to retail and wholesale sources, as a result of our increase in distributors and in marketing in 2013.

Cost of goods sold for the years ended December 31, 2013 and 2012 were $1,288,914 and $526,300 , respectively, an increase of $ 762,614 or approximately 145% . The increase is primarily due to an increase in sales as well as a change in product mix to higher distributor and wholesaler sales, which have lower gross margin than our online sales to consumers. Management believes that cost of goods sold and shipping expense as a percent of net sales will maintain or marginally improve with increased scale and efficiency.

Operating Expenses

Advisory agreement warrant expense for the years ended December 31, 2013 and 2012 were $16,600,500 and $0 respectively. This expense was due to the warrants we issued to Fields Texas in connection with the advisory agreement that we entered into with Fields Texas on December 30, 2013 as discussed above.

Distribution marketing and advertising expenses for the years ended December 31, 2013 and 2012 were $1,078,180 and $323,167, respectively, an increase of $755,013. During the year ended December 31, 2013, we continued and increased various advertising campaigns to increase both online and point of sale brand awareness, which caused the increase in the expense.

Selling, general and administrative cost for the years ended December 31, 2013 and 2012 were $ 3,036,873 and $1,068,767, respectively. The increase is primarily due to cost associated with general administrative fees, insurance, telecommunications, printing, supplies, and other miscellaneous items.

Other Expense

Interest expense for the years ended December 31, 2013 and 2012 was $1,804,710 and $30,140, respectively. The increase was attributable to the interest paid on the convertible notes issued by the Company in 2013.

Net loss

The net loss for the years ended December 31, 2013 and 2012 was $20,706,448 and $478,170, respectively. The net loss per common share for the years ended December 31, 2013 and 2012 was $0.48 and $0.01, respectively.

Liquidity and Capital Resources

As of December 31, 2013, we had cash of $2,081,963 and working capital of $60,608 as compared to cash of $17,438 and a working capital deficit of $517,289 as of December 31, 2012. We estimate our operating expenses for the next 12 months will be $30,000,000, consisting primarily of headcount and infrastructure costs, sales and marketing expenditures, research and development, and general and administrative costs. We are in the early stages of our business. We are required to fund growth from financing activities, and we intend to rely on a combination of equity and debt financings. Due to market conditions and the early stage of our operations, there is considerable risk in our company being able to consummate debt and equity financings and on terms that are not overly dilutive to our existing shareholders. We can offer no assurance that we will be able to raise additional capital on acceptable terms or at all.

On June 25, 2013, we completed a private placement with investors for the sale of 10,000,000 shares of Common Stock at $0.25 per share for total net proceeds of $2,200,000.

On July 29, 2013, the Company entered into a loan repayment agreement with a note holder, pursuant to which the Company paid the $250,000 balance owed and accrued interest of $5,000 for a note that matured on January 31, 2014, in exchange for the note holder agreeing to cancel 1,600,000 shares of the Company’s common stock.

On November 4, 2013, we entered into private placement subscription agreements with three persons and issued three notes in the aggregate principal amount of $2,475,000. Immediately upon the issuance of the notes, our Company issued an aggregate of 1,649,999 common shares to such persons following which the aggregate principal amount of the notes was reduced to $1,650,000. Each note bears interest at 6% per annum and matures on January 1, 2014. These notes were paid in full on February 6, 2014.

On January 7, 2014, January 14, 2014, and January 31, 2014, we completed and exercised the oversubscription amount allowed of “best efforts” private offering of up to $10,000,000 in 15% Senior Secured Convertible Promissory Notes (the “Notes”) (the “First Offering”), with a group of accredited investors (the “Purchasers”) for total net proceeds to the Company of $10,505,790 after deducting placement agent fees and other expenses. Pursuant to a securities purchase agreement with the Purchasers (the “Purchase Agreement”), we issued to the Purchasers (i) $11,325,000 aggregate principal amount of Notes and (ii) warrants (the “Warrants”) to purchase 2,265,000 shares (the “Warrant Shares” and together with the Notes and the Warrants, the “Securities”) of Common Stock at an exercise price of $5.00 per share. Each note bears interest at 15% per annum and matures on January 7, January 14, or January 31, 2015.

On February 28, 2014, we completed a “best efforts” private offering of up to $16,050,000 in principal amount of Notes (the “Second Offering” and together with the First Offering, the “Offerings”) with a group of accredited investors (the “Purchasers”) for total net proceeds to the Company of $14,919,000 after deducting placement agent fees and other expenses. Pursuant to a Purchase Agreement with the Purchasers, we issued to the Purchasers (i) $16,050,000 aggregate principal amount of Notes and (ii) warrants (the “Warrants”) to purchase 3,210,000 shares (the “Warrant Shares” and together with the Notes and the Warrants, the “Securities”) of our Common Stock at an exercise price of $5.00 per share. Each note bears interest at 15% per annum and matures on February 28, 2015.

On February 28, 2014, we issued $15 million of promissory notes (the “Promissory Notes”) to satisfy certain indebtedness and liabilities of FIN. The Promissory Notes become due 90 days from the date of issuance, on May 29, 2014, and accrue interest at a rate of 10% per annum. We may prepay the Promissory Notes without penalty. If we fail to pay off the Promissory Notes in full by June 9, 2014, for every subsequent day the Promissory Notes are not paid in full, we will issue up to 12,500 shares of Common Stock per day, dependent on the outstanding principal amount at that time, but no more than a total of 500,000 shares of Common Stock, to the note holders as a penalty payment.

On April 22, 2014, the Company completed a private offering with a group of accredited investors (the “Purchasers”) for total net proceeds to the Company of $20,511,200 after deducting placement agent fees and other expenses. Pursuant to a securities purchase agreement with the Purchasers (the “Purchase Agreement”), the Company issued to the Purchasers 6% Original Issue Discount Senior Secured Convertible Promissory Notes for a principal amount of $24,175,824 (the “Notes”). The Notes mature on April 22, 2015, and bear interest at a rate of 6% on the aggregate unconverted and outstanding principal amount payable in cash on a monthly basis. The Company must prepay $12,000,000 of the principal amount of the Notes, plus any accrued and unpaid interest hereon, between 15 days and 30 days following the issue date. The Purchasers have the right, in certain circumstances, to redeem all or portions of the Notes, in exchange for either cash or shares of the Company's common stock, including the ability to redeem an aggregate of up to $800,000 per month, as further described in Section 7 of the Notes.

On April 22, 2014, we issued $11,000,000 of promissory notes (the “Promissory Notes”) to the MHL Shareholders in connection with our acquisition of VIP. The Promissory Notes become due at the earlier of 1) October 14, 2014, 2) the day the Company first trades it shares of a common stock on certain listed exchanges (including the NYSE Market, the Nasdaq Capital Market, the Nasdaq Global Select Market, the Nasdaq Global Market or the New York Stock Exchange) or 3) the Company completes an underwritten public offering of a minimum of $40 million (the “Maturity Date”). Beginning 120 days following the date of issuance, the Promissory Notes will accrue interest at a rate of 10% per annum.

Cash Flows

Operating activities for the year ended December 31, 2013 used cash of $ 2,004,325 compared to $ 590,515 for the year ended December 31, 2012, an increase of $ 1,413,810 . This increase was primarily due to an increase in losses between the two periods. Our cash flows provided by investing activities were $29,385 and $0 for the years ended December 31, 2013 and 2012, respectively, an increase of $29,385 primarily due to proceeds from the sale of common stock . Our cash flows from financing activities were $ 4,098,235 and $ 601,594 for the years ended December 31, 2013 and 2012, respectively, an increase of $ 3,496,641 primarily due to the proceeds from the sales of common stock and convertible notes discussed above.

Subsequent Events

Private Placements

January and February 2014

On January 7, 2014, January 14, 2014, and January 31, 2014, we completed a “best efforts” private offering of $11,325,000 aggregate principal amount of 15% Senior Secured Convertible Promissory Notes (the “Notes”) and warrants (the “Warrants”) to purchase shares of Common Stock at an exercise price of $5.00 per share (the “First Offering”), with a group of accredited investors (the “Purchasers”) for total net proceeds to the Company of $10,505,790 after deducting placement agent fees and other expenses.

On February 28, 2014, we completed another “best efforts” private offering of $16,050,000 aggregate principal amount of Notes and Warrants (the “Second Offering” and together with the First Offering, the “Offerings”) with a group of accredited investors (the “Purchasers”) for total net proceeds to the Company of $14,919,000 after deducting placement agent fees and other expenses.

Notes

The Notes are due on the first anniversary of their respective issuance dates (the “Maturity Date”) if not converted prior to the Maturity Date and accrue interest at a rate of 15% on the aggregate unconverted and outstanding principal amount, payable in cash on a quarterly basis. The shares of Common Stock issuable upon conversion of the Notes shall equal: (i) the principal amount of the Note divided by (ii) $5.00. The conversion price for the Notes is subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances. The Notes may be prepaid in whole or in part at any time for 115% of the outstanding principal and accrued interest.

Warrants

The Warrants issued in the Offerings are exercisable for an aggregate of 5,475,000 shares of the Company’s Common Stock. The Warrants are exercisable for a period of five years from their respective issue dates. The exercise price with respect to the Warrants is $5.00 per share. The exercise price for the Warrants is subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances.

Registration Rights Agreement

In connection with the sale of the Notes and Warrants in the Offerings, we entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which we agreed to register all of the shares of our Common Stock underlying the Notes and the Warrants (the “Registrable Securities”) on a Form S-1 registration statement (the “Registration Statement”) to be filed with the SEC by May 15, 2014 (the “Filing Date”) and to cause the Registration Statement to be declared effective under the Securities Act within 90 days following the Filing Date (the “Required Effective Date”).

If the Registration Statement is not filed by the Filing Date or declared effective by the Required Effective Date, the Company is required to pay partial liquidated damages in cash to each Purchaser in the amount equal to 2% of the purchase price paid for the Notes and Warrants then owned by such Purchaser for each 30-day period for which the Company is non-compliant.

Security Agreement

As collateral security for all of the Company’s obligations under the Purchase Agreement and related documents executed in connection with the Offerings, the Company granted the Purchasers a first priority security interest in all of the Company’s assets pursuant to the terms of the Security Agreement entered into between the Company and the Purchasers (the “Security Agreement”).

April 22, 2014

Notes

The Notes are due on the first anniversary of the issue date (the “Maturity Date”) less any amounts converted or redeemed prior to the Maturity Date and accrue interest at a rate of 6% on the aggregate unconverted and outstanding principal amount payable in cash on a monthly basis. The shares of Common Stock issuable upon conversion of the Notes shall equal: (i) the principal amount of the Note to be converted (plus accrued interest and unpaid late charges, if any) divided by (ii) $9.92 (the "Original Conversion Price"). The Original Conversion Price for the Notes is subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances. Additionally, should the Company complete an underwritten public offering of a minimum of $25 million, the conversion price would reset to the price that is equal to 115% of the VWAP of the Company’s shares of common stock on the trading day immediately following the pricing of such public offering should that price be lower than the Original Conversion Price. The Company must prepay $12,000,000 of the principal amount of the Notes, plus any accrued and unpaid interest thereon, between 15 days and 30 days following the issue date. The Notes may not be prepaid in whole or in part at any other time. The Purchasers have the right, in certain circumstances, to redeem all or portions of the Notes, in exchange for either cash or shares of the Company's common stock, including the ability to redeem an aggregate of up to $800,000 per month, as further described in Section 7 of the Notes.

Registration Rights Agreement

In connection with the sale of the Notes, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which the Company agreed to register all of the shares of our Common Stock underlying the Notes (the “Registrable Securities”) on a Form S-1 registration statement (the “Registration Statement”) to be filed with the SEC by June 6, 2014, subject to the satisfaction of any registration rights previously granted by the Company (the “Filing Date”) and to cause the Registration Statement to be declared effective under the Securities Act within 90 days following the Filing Date (the “Required Effective Date”).

If the Registration Statement is not filed by the Filing Date or declared effective by the Required Effective Date, the Company is required to pay partial liquidated damages in cash to each Purchaser in the amount equal to 2% for the purchase price paid for the Notes then owned by such Purchaser for each 30-day period for which the Company is non-compliant.

Security Agreements

As security for all of the Company’s obligations under the Purchase Agreement and related documents executed in connection with the Offering: (i) MHL (as defined below) granted a guarantee in favor of the Purchasers (the "Purchasers' Guarantee") supported by a first priority security interest in all of MHL’s assets pursuant to the terms of the Debenture entered into between MHL and the security trustee for the Purchasers (the “Purchasers' Security Agreement”); and (ii) the Company granted the Purchasers a first priority security interest in all of the shares owned by the Company in MHL following completion of the Share Exchange, as further described below, pursuant to the terms of a share charge entered into between the Company and the security trustee for the Purchasers (the "Share Charge").

April 30, 2014

On April 30, 2014, we completed an initial closing of a “best efforts” private offering of $3,139,987.50 (the “Offering”) of units, each unit consisting of (i) one (1) share of our common stock, par value $0.001per share (the “Common Stock) and (ii) a warrant to purchase ¼ share of our Common Stock (the “Units”). Pursuant a purchase agreement, we sold 483,075 Units in the Offering, at a price of $6.50 per Unit, to a group of accredited investors (the “Purchasers”) for total net proceeds to the Company of $2,825,988.75 after deducting placement agent fees and other expenses. In the Offering, we issued 483,075 share of our Common Stock (the “Shares”) and warrants to purchase 120,768 shares of our Common Stock (the “Warrants”).

Warrants

The Warrants are exercisable for a period of five years from their issue date. The exercise price with respect to the Warrants is $6.50 per full share. The exercise price for the Warrants is subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances.

Registration Rights Agreement

In connection with the sale of the Shares and Warrants in the Offerings, we entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers, pursuant to which we agreed to register all of the Shares and shares of our Common Stock underlying the Warrants (the “Registrable Securities”) on a Form S-1 registration statement (the “Registration Statement”) to be filed with the SEC within 90 calendar days following the uplisting of our Common Stock on the Nasdaq Stock Market (the “Filing Date”) and to cause the Registration Statement to be declared effective under the Securities Act within 90 days following the Filing Date (the “Required Effective Date”).

If the Registration Statement is not filed by the Filing Date or declared effective by the Required Effective Date, the Company is required to pay partial liquidated damages in cash to each Purchaser in the amount equal to 2% of the purchase price paid for the Shares and Warrants then owned by such Purchaser for each 30-day period for which the Company is non-compliant.

Acquisitions

Acquisition of Vapestick

On January 9, 2014, we completed the acquisition of all of the issued and outstanding ordinary shares of Vapestick Holdings Limited, a company incorporated under the laws of England and Wales (“Vapestick”), pursuant to a Share Exchange Agreement by and between us, Vapestick and all of the shareholders of Vapestick (the “Shareholders”) dated December 15, 2013 (the “Exchange Agreement”).

Pursuant to the terms of the Exchange Agreement, we acquired all issued and outstanding shares of Vapestick from its Shareholders in consideration for (a) an aggregate cash payment of £3,500,000 (approximately $5.74 million) and (b) the issuance of 6,595,900 shares of our Common Stock.

Acquisition of FIN

On February 28, 2014, (the “Closing Date”), we completed the acquisition (the “Merger”) of FIN Electronic Cigarette Corporation, Inc., a Delaware corporation (“FIN”), through a merger with and into VCIG LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company ("VCIG"), pursuant to the Agreement and Plan of Merger dated February 12, 2013, by and among the Company, VCIG, FIN, and Elliot B. Maisel, as representative of the FIN stockholders (the “Merger Agreement”).

Pursuant to the terms of the Merger Agreement, and on the Closing Date, we acquired all issued and outstanding shares of FIN from its shareholders (the “FIN Shareholders”) in consideration for an aggregate of 10,000,000 shares of Common Stock (the “Merger Shares”). Additionally, on the Closing Date we paid $10 million of certain indebtedness and liabilities of FIN and its subsidiaries and issued $15 million of promissory notes (the “Promissory Notes”) to satisfy other indebtedness and liabilities of FIN and its subsidiaries. The Promissory Notes become due 90 days from the date of issuance, on May 29, 2014, and accrue interest at a rate of 10% per annum. We may prepay the Promissory Notes without penalty. If we fail to pay off the Promissory Notes in full by June 9, 2014, for every subsequent day the Promissory Notes are not paid in full, we will issue up to 12,500 shares of Common Stock per day, dependent on the outstanding principal amount at that time, but no more than a total of 500,000 shares of Common Stock, to the note holders as a penalty payment (the “Late Payment Shares”).

In connection with the Merger, the Company entered into a registration rights agreement (the “FIN Registration Rights Agreement”) with the FIN Shareholders, pursuant to which we agreed to register all of the Merger Shares and the Late Payment Shares, if any (the “Registrable Securities”) on a Form S-1 registration statement (the “Registration Statement”) to be filed with the SEC by April 26, 2014, subject to the satisfaction of the registration rights of the Purchasers in connection with the January and February 2014 private offerings , which if not satisfied by the Filing Date, will cause the Filing Date to be a date following the Purchasers' registration rights being satisfied (the “Filing Date”) , and to cause the Registration Statement to be declared effective under the Securities Act within 90 days following the Filing Date (the “Required Effective Date”).

If the Registration Statement is not filed by the Filing Date or declared effective by the Required Effective Date, the Company is required to pay partial liquidated damages to the FIN Shareholders in cash in the amount equal to 2% of the value of the Merger Shares on the Closing Date for each 30-day period for which the Company is non-compliant.

Acquisition of Must Have Limited (VIP)

On April 22, 2014 (the “Closing Date”), the Company entered into a share purchase agreement (the “Exchange Agreement”) by and between (i) the Company and (ii) the shareholders of Must Have Limited (“MHL”), an England and Wales incorporated limited company (the “MHL Shareholders”). Pursuant to the terms of the Exchange Agreement, the MHL Shareholders transferred to the Company all of the shares of MHL held by such shareholders in exchange for (1) the issuance of 2,300,000 shares (the “Exchange Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), (2) GBP £5,345,713.58 (equivalent to $9,000,000) in cash consideration, (3) $11,000,000 of promissory notes (the “Share Exchange”), (4) GBP £6,796,303 in respect of MHL's surplus cash, and (5) (if payable in accordance with the terms of the Exchange Agreement) up to $5,000,000 as an earn-out.

On the Closing Date, the Company issued $11,000,000 of promissory notes (the “Promissory Notes”). The Promissory Notes become due at the earlier of 1) October 14, 2014, 2) the day the Company first trades it shares of common stock on certain listed exchanges (including the NYSE Market, the Nasdaq Capital Market, the Nasdaq Global Select Market, the Nasdaq Global Market or the New York Stock Exchange) or 3) the Company completes an underwritten public offering of a minimum of $40 million (the “Maturity Date”). Beginning 120 days following the date of issuance, the Promissory Notes will accrue interest at a rate of 10% per annum.

In connection with the Share Exchange, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the MHL Shareholders, pursuant to which the Company agreed to register all of the Exchange Shares (the “Registrable Securities”) on a Form S-1 registration statement (the “Registration Statement”) to be filed with the SEC within 30 calendar days following the completion of the audit of the MHL financial statement for the MHL 2013 fiscal year, subject to the satisfaction of any registration rights previously granted by the Company (the “Filing Date”), and to cause the Registration Statement to be declared effective under the Securities Act within 90 days following the Filing Date (the “Required Effective Date”).

If the Registration Statement is not filed by the Filing Date or declared effective by the Required Effective Date, the Company is required to pay partial liquidated damages to the MHL Shareholders in the amount equal to 2% of the value of the Exchange Shares on the Closing Date for each 30-day period for which the Company is non-compliant.

As security for all of the Company’s obligations under the Promissory Notes and related documents executed in connection with the Share Exchange, MHL granted a guarantee in favor of the MHL Shareholders (the "MHL Shareholders' Guarantee") supported by a second priority security interest in all of MHL’s assets pursuant to the terms of the Debenture entered into between MHL and the security trustee for the MHL Shareholders (the “Security Agreement”).

In connection with the closing of the Share Exchange and the sale of the Notes, on April 22, 2014, the Company, MHL, the Purchasers, the security trustee for the Purchasers, the MHL Shareholders and the security trustee for the MHL Shareholders entered into an intercreditor agreement (the “Intercreditor Agreement”). The Intercreditor Agreement governs the relative priorities (and certain other rights) of the Purchasers and MHL Shareholders pursuant the respective security agreements that each entered into with the Company and MHL.

Off-Balance sheet arrangements

There were no off-balance sheet arrangements for the period ended December 31, 2013.

Critical Accounting Policies

Revenue Recognition

Revenue is derived from product sales and is recognized upon shipment to the customer. Direct sales to individual customers are recognized within internet sales in the accompanying consolidated statements of income, while all sales to retailers and distributors are recognized within retail and wholesale revenues. Returns are accepted, but are not significant to the Company’s overall operations. As such, no reserve for sales returns and allowances has been determined necessary by management at both December 31, 2013 and 2012. Payments received by the Company in advance are recorded as deferred revenue until the merchandise has shipped to the customer.

Accounts Receivable

Accounts receivable, primarily from retail and wholesale customers or third-party internet brokers, are reported at the amount invoiced. Payment terms vary by customer and may be subject to an early payment discount. Management reviews accounts receivable on a monthly basis to determine if any receivables are potentially uncollectible. An overall allowance for doubtful accounts is determined based on a combination of historical experience, length of time outstanding, customer credit worthiness, and current economic trends. Management judgments and estimates are used in connection with establishing the allowance in any accounting period. Changes in estimates are reflected in the period they become known. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. As of December 31, 2013 and December 31, 2012, the Company expects the amount of any potentially uncollectible receivables to be insignificant and therefore no allowance for doubtful accounts that has been determined necessary by management. For the years ended December 31, 2013 and December 31, 2012, no accounts receivable were written off.

Inventory

Inventory, which consists of ready for sale disposable and rechargeable e-cigarettes, batteries, cartomizers and other accessories, is carried at the lower of cost or fair market value. Cost is determined using the first-in, first-out method. Judgments and estimates are used in determining the likelihood that goods on hand can be sold to customers. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, inventory write-downs may be required.

Prepaid inventory consists of deposits paid for inventory to be manufactured by a third-party overseas supplier or inventory which is in-transit and the Company has not yet received title for the goods.

Employee Stock Based Compensation

The Company awards stock based compensation as an incentive for employees to contribute to the Company’s long-term success. The Company accounts for employee stock based compensation in accordance with ASC 718, Compensation – Stock Compensation (“ASC 718”), which provides investors and other users of financial statements with more complete and neutral financial information, by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. The cost is measured based on the fair value of the equity or liability instruments issued on the date of grant. Determining the appropriate fair value model and calculating the fair value of stock compensation awards requires the input of certain highly complex and subjective assumptions, including the expected life of the stock compensation awards and the Company’s expected common stock price volatility. The assumptions used in calculating the fair value of stock compensation awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary to use different assumptions, stock compensation expense could be materially different from what has been recorded in the current period.

ASC 718 covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans.

Non-Employee Stock Based Compensation

The Company accounts for stock based compensation awards issued to non-employees for services, as prescribed by ASC 718, at either the fair value of the services or the instruments issued in exchange for such services (based on the same methodology described for employee stock based compensation), whichever is more readily determinable.

Income Taxes

Prior to the conversion to a corporation on March 8, 2013, the Company acted as a pass-through entity for tax purposes. Accordingly, the consolidated financial statements do not include a provision for federal income taxes prior to the conversion. The Company’s earnings and losses were included in the previous members’ personal income tax returns and the income tax thereon, if any, was paid by the members.

The Company now files income tax returns in the United States, which are subject to examination by the tax authorities in that jurisdiction, generally for three years after the filing date. Income taxes are provided for under the liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The calculation of the Company’s tax liabilities for uncertain income tax positions based on estimates of whether, and the extent to which, additional taxes will be required.

In assessing the possible realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In making this assessment, management does not believe that it is more likely than not that the Company will realize the benefits of the net deferred tax assets as of December 31, 2013. This determination was based on cumulative net losses as of the balance sheet date.

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1 — Quoted prices for identical assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.

Level 2 — Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data. Level 2 also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data.

Level 3 — Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for nonbinding single dealer quotes not corroborated by observable market data.

The Company has various processes and controls in place to ensure that fair value is reasonably estimated. A model validation policy governs the use and control of valuation models used to estimate fair value. The Company performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process. Where market information is not available to support internal valuations, independent reviews of the valuations are performed and any material exposures are escalated through a management review process.

Warrant liability

The Company utilizes a binomial option pricing model to derive the estimated fair value. Key inputs into the model include a discount for lack of marketability on the stock price, expected volatility, and a risk-free interest rate. Any significant changes to these inputs would have a significant impact to the fair value. See further discussion in Note 7.

Assets and liabilities measured at fair value as of December 31, 2013 are summarized as follows:

Recurring fair value measurements	December 31, 2013
	Total		Level 1		Level 2		Level 3
Liabilities:
Warrant Liability	$	16,600,500	$	-	$	-	$	16,600,500

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Recent Accounting Pronouncements

In July 2013, the FASB issued guidance on the Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under the guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, noting several exceptions. This guidance is effective for fiscal and interim reporting periods beginning after December 15, 2013. The Company has determined that this new guidance will not have a material impact on its consolidated financial statements.

Item 8. Financial Statements and Supplementary Data.

The financial statements, notes to the financial statements and report of the Company’s independent registered accountant required to be filed in response to this Item 8 begin on page F-1.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The following documents are filed as part of this Report:

(1)

Financial Statements:

The audited consolidated balance sheets of the Company as of December 31, 2013, the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended, the footnotes thereto, and the report of McGladrey LLP, independent auditors, are filed herewith.

The audited consolidated balance sheets of the Company as of December 31, 2012, the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended, the footnotes thereto, and the report of Accell Audit & Compliance P.A., independent auditors, are filed herewith.

(2)

Financial Schedules:

None

Financial statement schedules have been omitted because they are either not applicable or the required information is included in the consolidated financial statements or notes hereto.

(3)

Exhibits:

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report.

(b) The following are exhibits to this Report and, if incorporated by reference, we have indicated the document previously filed with the SEC in which the exhibit was included.

Certain of the agreements filed as exhibits to this Report contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

●	may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;

●	may apply standards of materiality that differ from those of a reasonable investor; and

●	were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.

Exhibit No.		Description of Exhibit

2.1		Share Exchange Agreement dated April 2, 2013 among our Company, Victory Electronic Cigarettes, Inc. and the shareholders of Victory Electronic Cigarettes, Inc. (1)
2.2 *		Share Exchange Agreement by and among Victory Electronic Cigarettes Corporation, Vapestick Holdings Ltd., and all the shareholders of Vapestick Holdings Ltd., dated December 15, 2013
2.3		Agreement and Plan of Merger by and among Victory Electronic Cigarettes Corporation, VCIG LLC, FIN Electronic Cigarette Corporation, Inc. and Elliot B. Maisel as Representative, dated February 12, 2014 (2)
3.1(i)		Certificate of Incorporation (3)
3.1(ii)		Bylaws (3)
4.1		Form of Convertible Note (4)
4.2		Form of Warrant (4)
4.3		Form of Convertible Note dated November 4, 2013 (5)
4.4		Form of Warrant issued to E-Cig Acquisition Company LLC (6)
4.5		Form of 15% Senior Secured Convertible Promissory Note issued in offerings in January and February 2014 (7)
4.6		Form of Warrant issued in offerings in January and February 2014 (7)
4.7		Form of Agent Warrant (8)
10.1		$200,000 Debenture dated January 31, 2013 issued by Victory Electronic Cigarettes LLC in favor of our company (1)
10.2		Security Agreement dated March 25, 2013 but effective as of January 31, 2013 between Victory Electronic Cigarettes Inc. as debtor and our company as secured party (1)
10.3		Return To Treasury Agreement dated June 18, 2013 between our company and Stephen Brady (9)
10.4		Non-Broker Private Placement Agreement dated May 1, 2013 between our company and Wolverton Securities Ltd. (9)
10.5		General Financial Advisory Agreement dated June 21, 2013 between our company and Wolverton Securities Ltd. (9)
10.6		Promissory Note with Brent Willis (10)
10.7		Promissory Note with Marc Hardgrove (10)
10.8		Promissory Note with David Martin (10)
10.9		Sales and Consulting Agreement dated December 30, 2013 (6)
10.10		Form of Securities Purchase Agreement from offerings in January and February 2014 (7)
10.11		Form of Registration Rights Agreement from offerings in January and February 2014 (7)
10.12		Form of Security Agreement from offerings in January and February 2014 (7)
10.13		Form of Promissory Notes dated February 28, 2014 (7)
10.14		Form of Registration Rights Agreement entered into by and among Victory Electronic Cigarettes Corporation and the FIN shareholders dated February 28, 2014 (7)
10.15 †		Employment Agreement with Brent Willis. (9)
10.16 †		Employment Agreement with Marc Hardgrove. (9)
10.17 †		Employment Agreement with Robert Hartford (11)
10.18 †		Director Agreement with Elliot B. Maisel (7)
10.19 †		2013 Stock Option Plan (9)
14.1		Code of Ethics (12)
16.1		Letter from Manning Elliot LLP dated June 27, 2013 (9)
21.1 *		List of Subsidiaries
31.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS *		XBRL Instance Document
101.SCH *		XBRL Taxonomy Schema
101.CAL *		XBRL Taxonomy Calculation Linkbase
101.DEF *		XBRL Taxonomy Definition Linkbase
101.LAB *		XBRL Taxonomy Label Linkbase
101.PRE *		XBRL Taxonomy Presentation Linkbase

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

* Previously filed or furnished, as applicable, with the Original Filing.

* * XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

† Management contract or compensatory plan or arrangement.

(1)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on April 5, 2013.
(2)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on February 19, 2014.
(3)	Filed as an Exhibit on Registration Statement on Form SB-2 with the SEC on May 15, 2007.
(4)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on February 6, 2013.
(5)	Filed as an Exhibit on Quarterly Report on Form 10-Q with the SEC on November 14, 2013.
(6)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on January 6, 2014.
(7)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on March 6, 2014.
(8)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on January 17, 2014.
(9)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on June 28, 2013.
(10)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on August 21, 2013.
(11)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on July 12, 2013.
(12)	Filed as an Exhibit on Registration Statement on Form 10-KSB with the SEC on March 31, 2008.

SIGNATURES

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.

	VICTORY ELECTRONIC CIGARETTE CORPORATION

Date: May 6, 2014	By:	/s/ Brent David Willis
		Brent David Willis
		Chief Executive Officer, President and Secretary (Principal Executive Officer)

Date: May 6 , 2014	By:	/s/ Jim McCormick
		Jim McCormick
		Chief Financial Officer and Treasurer (Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Date: May 6 , 2014	By:	/s/ Brent David Willis
		Brent David Willis
		Chief Executive Officer, President, Secretary and Director (Principal Executive Officer)
Date: May 6 , 2014	By:	/s/ Jim McCormick
		Jim McCormick
		Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)
Date: May 6 , 2014	By:	/s/ Marc Hardgrove
		Marc Hardgrove
		Chief Creative Innovation Officer and Director
Date: May 6 , 2014	By:	/s/ Michael Clapper
		Michael Clapper
		President – International and Director
Date: May 6, 2014	By:	/s/ James P. Geiskopf
		James P. Geiskopf
		Director
Date: May 6 , 2014	By:	/s/ William R. Fields
		William R. Fields
		Director
Date: May 6 , 2014	By:	/s/ Paul Herman
		Paul Herman
		Director

FINANCIAL STATEMENTS

VICTORY ELECTRONIC CIGARETTES CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm – 2013	F–1

Report of Independent Registered Public Accounting Firm – 2012	F–2

Consolidated Balance Sheets as of December 31, 2013 and 2012	F–3

Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2013 and 2012	F–4

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2013 and 2012	F–5

Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012	F–6

Notes to Consolidated Financial Statements	F–7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Victory Electronic Cigarettes Corporation

We have audited the accompanying consolidated balance sheet of Victory Electronic Cigarettes Corporation as of December 31, 2013, and the related consolidated statements of operations and comprehensive income, stockholders’ deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2013 consolidated financial statements, referred to above present fairly, in all material respects, the financial position of Victory Electronic Cigarettes Corporation as of December 31, 2013, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the financial statements, the 2013 consolidated financial statements as previously filed on March 31, 2014, have been restated.

/s/ McGladrey LLP

Fort Lauderdale, Florida

May 6, 2014

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Victory Electronic Cigarette s Corporation

We have audited the accompanying consolidated balance sheet of Victory Electronic Cigarette s Corporation and subsidiary (the “Company”) as of 2012, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Victory Electronic Cigarette s Corporation and subsidiary as of December 31, 2012, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Accell Audit & Compliance, P.A.

Tampa, FL

February 28, 2013

4868 West Gandy Boulevard ● Tampa, Florida 33611 ● 813.440.6380

F-2

VICTORY ELECTRONIC CIGARETTES CORPORATION

Consolidated Balance Sheets

	December 31,
	2013			December 31,
	(as restated)			2012

Assets

Current assets:
Cash	$	2,081,963		$	17,438
Accounts receivable		112,921			157,295
Inventory		340,636			287,373
Prepaid expenses		42,704			150,671
Other current assets		6,750			-
Total current assets		2,584,974			612,777

Furniture and equipment, net		27,376			-

Total assets	$	2,612,350		$	612,777


Liabilities and stockholders' deficit

Current liabilities:
Accounts payable and accrued expenses	$	306,200		$	37,853
Deferred revenue		-			17,699
Revolving credit line		-			20,641
Convertible promissory notes		650,000			-
Private placement funds received in advance		1,100,000			-
Due to related parties		448,166			703,870
Deferred compensation		-			350,003
Other liabilities		20,000			-
Total current liabilities		2,524,366			1,130,066

Warrant liability		16,600,500			-
Total liabilities	$	19,124,866		$	1,130,066


Stockholders' deficit
Common stock, $.001 par value; 100,000,000 shares
authorized, 53,394,000 and 32,500,000 shares
issued and outstanding at December 31, 2013
and 2012, respectively	$	53,394		$	32,500
Additional paid-in capital		4,727,138			36,811
Accumulated deficit		(21,293,048	)		(586,600	)
Total stockholders' deficit	$	(16,512,516	)	$	(517,289	)

Total liabilities and stockholders' deficit	$	2,612,350		$	612,777

See notes to consolidated financial statements.

F-3

VICTORY ELECTRONIC CIGARETTES CORPORATION

Consolidated Statements of Operations

and Comprehensive Income

	Years Ended December 31,
	2013
	(as restated)			2012

Revenues
Internet sales	$	1,758,762		$	855,758
Retail and wholesale revenues		1,343,967			614,446
Total revenues		3,102,729			1,470,204

Cost of goods sold		1,288,914			526,300
Gross profit		1,813,815			943,904

Operating expenses
Advisory agreement warrants	$	16,600,500		$	-
Distribution, marketing and advertising		1,078,180			323,167
Selling, general and administrative		3,036,873			1,068,767
Total operating expenses		20,715,553			1,391,934

Loss from operations	$	(18,901,738	)	$	(448,030	)

Other expense
Interest expense		(1,804,710	)		(30,140	)
Loss before income taxes		(20,706,448	)		(478,170	)

Income tax provision		-			-
Net loss		(20,706,448	)		(478,170	)

Other comprehensive income (loss)		-			-
Comprehensive loss	$	(20,706,448	)	$	(478,170	)

Net loss per common share:
Basic	$	(0.48	)	$	(0.01	)
Diluted	$	(0.48	)	$	(0.01	)

Weighted average number of shares outstanding
Basic		42,871,414			32,500,000
Diluted		42,871,414			32,500,000

See notes to consolidated financial statements.

F-4

VICTORY ELECTRONIC CIGARETTES CORPORATION

Consolidated Statements of Changes in Stockholders’ Deficit


	Common stock						Additional			Accumulated			Total stockholders'
	Shares			Amount			paid-in capital			deficit			deficit

Balance at December 31, 2011		32,500,000		$	32,500		$	36,811		$	(108,430	)	$	(39,119	)

Net loss		-			-			-			(478,170	)		(478,170	)

Balance at December 31, 2012		32,500,000			32,500			36,811			(586,600	)		(517,289	)

Sale of common shares, net of issuance costs		10,000,000			10,000			2,199,600			-			2,209,600

Issuance of common shares in reverse merger		10,844,000			10,844			(10,844	)		-			-

Debt assumed as part of reverse merger		-			-			(210,000	)		-			(210,000	)

Retirement of shares returned from shareholder		(1,600,000	)		(1,600	)		1,600			-			-

Issuance of common shares		1,650,000			1,650			823,350			-			825,000

Stock based compensation		-			-			235,000			-			235,000

Net loss		-			-			-			(9,427,558	)		(9,427,558	)

Balance at December 31, 2013, as previously filed		53,394,000		$	53,394		$	3,075,517		$	(10,014,158	)	$	(6,885,247	)

Issuance of common shares		-			-			1,451,621			-			1,451,621

Stock based compensation		-			-			200,000			-			200,000

Net loss		-			-			-			(11,278,890	)		(11,278,890	)

Balance at December 31, 2013, as restated		53,394,000		$	53,394		$	4,727,138		$	(21,293,048	)	$	(16,512,516	)

See notes to consolidated financial statements.

F-5

VICTORY ELECTRONIC CIGARETTES CORPORATION

Consolidated Statements of Cash Flows


	Year Ended December 31,
	2013
	(as restated)			2012

Cash flows from operating activities:
Net loss	$	(20,706,448	)	$	(478,170	)
Adjustments to reconcile net loss to
net cash (used in) operating activities:
Depreciation expense		2,009			-
Stock based compensation		435,000			-
Amortization of debt discount		1,451,621			-
Amortization of deferred financing costs		210,020			-
Warrant liability		16,600,500			-
Changes in operating assets and liabilities:
Accounts receivable		44,374			(156,977	)
Inventory		(53,263	)		(241,177	)
Prepaid expenses		107,967			(119,588	)
Other current assets		(6,750	)		-
Accounts payable and accrued expenses		258,347			37,695
Other liabilities		20,000			-
Deferred revenue		(17,699	)		17,699
Deferred compensation		(350,003	)		350,003
Net cash (used in) operating activities		(2,004,325	)		(590,515	)

Cash flows from investing activities:
Purchases of property and equipment		(29,385	)		-
Net cash (used in) investing activities		(29,385	)		-


Cash flows from financing activities:
Due to related parties		(255,704	)		580,953
Sale of common stock related private placement		2,209,600			-
Sale of common stock related to convertible debentures		2,276,621			-
Payment of debt issuance costs		(210,020	)		-
Revolving line of credit		(20,641	)		20,641
Convertible debentures		198,379			-
Private placement funds received in advance		1,100,000			-
Repayment of convertible debentures		(1,200,000	)		-
Net cash provided by financing activities		4,098,235			601,594

Net change in cash		2,064,525			11,079

Cash beginning of the period		17,438			6,359

Cash at end of the period	$	2,081,963		$	17,438

Supplementary Cash Flow Information
Cash paid for interest	$	368,028		$	23

Non-cash financing transactions

Stock issued in reverse merger	$	10,844		$	-

Convertible debenture assumed as part of reverse merger	$	210,000		$	-

Retirement of shares returned from shareholder	$	1,600		$	-

See notes to consolidated financial statements.

F-6

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

1.	NATURE OF BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Victory Electronic Cigarettes Corporation (“Victory”) together with its wholly-owned subsidiary Victory Electronic Cigarettes, Inc. (“VEC”), collectively referred to herein as the “Company”, imports and distributes smokeless electronic cigarettes. It offers starter kits, cartridges, carrying cases, charger packs, disposable tobacco, and other related products for smokers. The Company offers its products through retail stores, distributors, independent retailers, and grocery and convenience store operators, as well as online in the United States. Pursuant to the Company's recent acquisitions in 2014, the Company has expanded its operations outside of the United States. See Note 12. The Company’s primary operations are based in Nunica, Michigan.

Basis of Presentation

These consolidated financial statements represent the consolidated financial statements of Victory, formerly known as Teckmine Industries, Inc, (“Teckmine”), and its wholly-owned operating subsidiary VEC. VEC was formed as a limited liability company under the laws of the State of Florida on March 2, 2010 and effected a conversion on March 8, 2013 into a corporation under the laws of the State of Nevada.

On June 25, 2013, pursuant to a share exchange agreement, Teckmine acquired VEC in which the existing stockholders of VEC exchanged all of their issued and outstanding shares of common stock for 32,500,000 shares of common stock of Teckmine (the “Reverse Merger”). The Reverse Merger was treated as a reverse recapitalization with VEC as the accounting acquirer and Teckmine as the accounting acquired party. Immediately after the consummation of the Reverse Merger, the previous stockholders of VEC owned 60.9% of Teckmine’s outstanding common stock and VEC became a wholly-owned subsidiary of Teckmine. Teckmine was renamed Victory. See Note 2.

As a result, the business and financial information included in these consolidated financial statements are the business and financial information of VEC.

Significant Accounting Policies

Restatement

The Company is restating its consolidated financial statements for the year ended December 31, 2013 to correct errors related to the fair value of warrant liabilities, the allocation of proceeds related to the issuance of common stock and a debt instrument and stock compensation expense. The Company’s decision to restate the aforementioned consolidated financial statements was made as a result of management’s reconsideration of the fair value of its stock as included in various valuation models. On April 21, 2014, management concluded, and the Board of Directors has agreed, that the fair value of the Company’s stock previously determined as if the Company were a private enterprise did not properly consider the public trading value of the Company’s stock. This error impacted the warrant liability and stockholders’ deficit in the consolidated balance sheet as well as advisory agreement warrant expense, selling, general and administrative expense and interest expense in the accompanying consolidated statement of operations and comprehensive income; accordingly, these were misstated in the previously issued consolidated financial statements. The December 31, 2013 consolidated balance sheet, consolidated statement of operations and comprehensive income, consolidated statement of stockholders’ deficit, and notes to the consolidated financial statements have been restated to correct these errors.

The effect of these error corrections on the consolidated statement of operations and comprehensive income for the year ended December 31, 2013 is to increase the net loss by $11,278,890 (including increasing advisory agreement warrant expense and selling, general and administrative expense by $9,627,269 and $200,000, respectively, and increasing interest expense by $1,451,621).

The Company’s consolidated financial statements have been restated as follows:

Consolidated Statement of Operations and Comprehensive Income

	Year Ended December 31, 2013
	As Previously Reported			Adjustments			As Restated
Advisory agreement warrants	$	6,973,231		$	9,627,269		$	16,600,500
Selling, general and administrative		2,836,873			200,000			3,036,873
Interest expense		353,089			1,451,621			1,804,710
Net loss		(9,427,558	)		(11,278,890	)		(20,706,448	)

F-7

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements


Consolidated Balance Sheet

	December 31, 2013
	As Previously Reported			Adjustments			As Restated
Warrant liability	$	6,973,231		$	9,627,269		$	16,600,500
Additional paid-in capital		3,075,517			1,651,621			4,727,138
Accumulated deficit		(10,014,158	)		(11,278,890	)		(21,293,048	)

Principles of Consolidation

The consolidated financial statements include the accounts of Victory and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include the allowance for doubtful accounts, the reserve for excess and obsolete inventory, assumptions used in the valuation of stock-based compensation, warrant liabilities and the allocation of proceeds with regard to convertible debt instruments as well as the recoverability of the Company’s net deferred tax assets.

Concentration of Credit and Supply Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk include cash in banks in excess of federally insured limits. The Company manages this risk by maintaining all deposits in high quality financial institutions. Cash is deposited in various financial institutions. Due to the timing of deposits and posting of disbursements, balances occasionally exceed amounts insured by the Federal Deposit Insurance Corporation.

At December 31, 2013 and 2012, there were no significant concentrations of accounts receivable included in the accompanying consolidated balance sheets.

In both 2013 and 2012, all of the Company’s products were obtained from vendors in the People’s Republic of China (“China”). Because the Company sources products in China, the Company is significantly affected by economic conditions in that country, including increased duties, possible employee turnover, and labor unrest. However, the Company believes that if necessary, alternative vendors for inventory would be available.

Revenue Recognitio

Revenue is derived from product sales and is recognized upon shipment to the customer and when collection is reasonably assured . Direct sales to individual customers are recognized within internet sales in the accompanying consolidated statements of operations and comprehensive income, while all sales to retailers and distributors are recognized within retail and wholesale revenues. Returns are accepted for a limited period , but are not significant to the Company’s overall operations. As such, no reserve for sales returns and allowances has been determined necessary by management at both December 31, 2013 and 2012. Payments received by the Company in advance are recorded as deferred revenue until the merchandise has shipped to the customer.

Cost of Goods Sold

The Company recognizes the direct cost of purchasing product for sale, including freight-in and packaging, as cost of goods sold in the accompanying consolidated statements of operations and comprehensive income.

Shipping and Handling Costs

Outgoing shipping and handling costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income and totaled $282,935 and $168,350 for the years ended December 31, 2013 and 2012, respectively.

Advertising and Promotion

The Company expenses advertising and promotion costs as incurred. Advertising and promotion expense recognized for the years ended December 31, 2013 and 2012 was $1,078,180 and $323,167, respectively, and is included in distribution, marketing, and advertising in the accompanying statements of operations and comprehensive income.

Cash

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At December 31, 2013 and 2012, the Company had no cash equivalents.

Accounts Receivable

Accounts receivable are primarily from retail and wholesale customers or third-party internet brokers. Management reviews accounts receivable on a monthly basis to determine if any receivables are potentially uncollectible. An allowance for doubtful accounts is determined based on a combination of historical experience, length of time outstanding, customer credit worthiness, and current economic trends. As of December 31, 2013 and 2012, the Company expects the amount of any potentially uncollectible receivables to be insignificant; therefore, no allowance for doubtful accounts has been determined necessary by management. For the years ended December 31, 2013 and 2012, no accounts receivable were written off.

F-8

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

Inventory

Inventory, which consists of ready for sale disposable and rechargeable e-cigarettes, batteries, cartomizers and other accessories, is carried at the lower of cost or fair market value. Cost is determined using the first-in, first-out method. Historical inventory usage and current revenue trends are considered in estimating both excess and obsolete inventories. If actual product demand and market conditions are less favorable than those projected by management, inventory write-downs may be required.

Furniture and Equipment

The Company records furniture and equipment at historical cost, less accumulated depreciation. Major expenditures for additions and improvements that substantially extend the useful life of furniture and equipment or increase its operating effectiveness are capitalized. Repair and maintenance costs are expensed as incurred.

Long-lived assets are reviewed for impairment whenever events or circumstances warrant such a review. Recoverability of the asset is measured by comparison of its carrying amount to the undiscounted future net cash flows the asset is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value, which is measured by future discounted cash flows.

The Company depreciates the cost of property and equipment over the estimated useful lives of the assets, ranging from five to ten years, using the straight-line method. As of December 31, 2013 and 2012, the Company had furniture and equipment of $29,385 and $0, respectively, and accumulated depreciation of $2,009 and $0, respectively. Depreciation expense for the years ended December 31, 2013 and 2012 was $2,009 and $0, respectively.

Employee Stock Based Compensation

The Company awards stock based compensation as an incentive for employees to contribute to the Company’s long-term success. The cost is measured based on the fair value of the equity or liability instruments issued on the date of grant. Determining the appropriate fair value model and calculating the fair value of stock compensation awards requires the input of certain assumptions, including the expected life of the stock compensation awards and the Company’s expected common stock price volatility.

Non-Employee Stock Based Compensation

The Company accounts for stock based compensation awards issued to non-employees for services, at either the fair value of the services or the instruments issued in exchange for such services (based on the same methodology described for employee stock based compensation), whichever is more readily determinable.

Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share data reflects the potential dilution of securities that could share in the earnings of an entity, such as stock options and warrants and convertible debt instruments only in periods where such effect would have been dilutive.

Income Taxes

The asset and liability method is used in accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The calculation of the Company’s tax liabilities for uncertain income tax positions based on estimates of whether, and the extent to which, additional taxes will be required.

Prior to the conversion to a corporation on March 8, 2013, the Company was a pass-through entity for income tax purposes. Accordingly, the consolidated financial statements do not include a provision for federal income taxes prior to the conversion. The Company’s earnings and losses were included in the previous members’ personal income tax returns and the income tax thereon, if any, was paid by the members. The Company now files income tax returns in the United States and state and local jurisdictions, which are subject to examination by the tax authorities in that jurisdiction, generally for three years after the filing date.

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to the consolidated financial statements.

F-9

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

Financial Instruments

The carrying amounts of cash, accounts receivable , and accounts payable approximate fair value as of December 31, 2013 and 2012, because of the relatively short maturities of these instruments.

The estimated fair values for financial instruments presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values. The carrying values of the Company’s promissory notes approximate fair value because the underlying instruments are fixed‑rate notes based on current market rates and current maturities.

Reclassifications

Certain reclassifications have been made to the prior year balances in order to conform to the current year presentation. These reclassifications had no impact on working capital, net income, stockholders’ deficit or cash flows as previously reported.

2. REVERSE MERGER

The transaction between Teckmine (renamed Victory) and VEC described in Note 1 was accounted for as a reverse recapitalization of VEC. VEC is the accounting acquirer (and legal acquiree) based on Teckmine’s status as a non operating, public shell company, VEC stockholders obtaining approximately 60.9% of the post-transaction common shares of stock and post-transaction management and Board composition (VEC). As a result, the common stock of VEC was retroactively restated to give effect to the 32,500,000 shares issued in the June 25, 2013 share exchange agreement.

On June 25, 2013, Victory completed a private placement transaction concurrently with the Reverse Merger to provide post-transaction working capital. As a result of the private placement, 10,000,000 shares were issued at $0.25 per share resulting in proceeds of $2,500,000. During the private placement, Victory incurred issuance costs of $290,400 which were netted against the proceeds.

Additionally, in conjunction with the closing of the Reverse Merger, various other share-based transactions occurred as follows:

Teckmine shares previously outstanding	19,506,304
Teckmine shares retired	(9,506,304	)
Shares issued in connection with the Reverse Merger	844,000
Total shares issued in Reverse Merger	10,844,000

Teckmine Convertible Promissory Notes and Warrants

Effective on January 31, 2013, in anticipation of the Reverse Merger, Teckmine issued $200,000 of convertible promissory notes (the “Teckmine Notes”). The Teckmine Notes were assumed by the Company in the Reverse Merger and, as such, were recorded at fair value which was considered to approximate face value plus accrued and unpaid interest given the short remaining term to maturity and terms reflective of current market conditions. These notes bear interest at 12% and are due on January 31, 2014 or are convertible to the unregistered common stock of the Company at a conversion price that was set at $0.25 at the time of the Reverse Merger. On January 31, 2014, the Teckmine Notes were converted to 800,000 shares of the Company’s common stock and accrued and unpaid interest was paid in cash.

Concurrent with the issuance of the Teckmine Notes, Teckmine issued 200,000 five-year common stock warrants (the “Teckmine Warrants”). The warrants were assumed in the Reverse Merger and are exercisable for unregistered common stock of the Company at an exercise price of $0.25. The Teckmine Warrants are considered to be equity instruments based on the fact that the terms are not subject to adjustment and no circumstances exist under which the holder can receive cash in exchange for the warrant and/or the underlying shares.

3. REVOLVING CREDIT LINES

The Company no longer maintains any revolving credit lines and has closed its credit cards. The Company had a balance due on these credit cards of $0 and $20,641 at December 31, 2013 and 2012, respectively.

4. CONVERTIBLE PROMISSORY NOTES

In addition to the Teckmine Notes described in Note 2, on November 4, 2013, the Company issued 6% convertible debentures with a total face value of $2,475,000, maturing on January 1, 2014 convertible at $0.50 per common share at the Company’s option or by the holders if the Company does not convert or repay the notes on or prior to the maturity date. Concurrent with the issuance of the notes , 1,649,999 shares of the Company’s unregistered common stock were issued to the investors and the face amount of the notes was reduced to $1,650,000. The proceeds from the notes were allocated based on the proportionate fair values of the debt and the shares issued creating a discount on the debt of $1,451,621 which was fully amortized to interest expense during the year ended December 31, 2013. At December 31, 2013, $1,200,000 of the note was repaid, and on January 1, 2014, the remaining balance of $450,000 was repaid in full satisfaction of the notes .

F-10

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

5. RELATED PARTY TRANSACTIONS

On December 30, 2013, the Company entered into a comprehensive partnership agreement (the "Agreement") with Fields Texas Limited LLC's affiliate, E-Cig Acquisition Company LLC (“Fields Texas”), which is partially owned by one of the Company’s directors. See Note 7.

At December 31, 2013 and 2012, stockholders of the Company had loaned amounts totaling $448,166 and $703,570, respectively , which is included in due to related parties in the accompanying consolidated balance sheets. Associated accrued interest of approximately $110,000 and $34,000, respectively, is included in accounts payable and accrued expenses in the accompanying consolidated balance sheets. These payables accrue interest at a rate of 12% annually and have a maturity date of January 31, 2014.

On January 27, 2013 (prior to the Reverse Merger ), a related party loaned the Company $250,000 and VEC issued a promissory note for the principal amount with a maturity date of January 31, 2014. As an incentive to advance the loan, VEC issued an 8% interest in VEC to the related party which was converted into 40,000 common shares of VEC (pre-reverse merger). On June 25, 2013, pursuant to the Reverse Merger, the Company exchanged the related party’s shares for 2,600,000 Victory shares. On July 29, 2013, the Company entered into a loan repayment agreement with the related party whereby the Company repaid the $250,000 as full and final settlement. In exchange for early repayment, the related party surrendered 1,600,000 of the 2,600,000 shares issued. Given the fact that this transaction was with a related party and the shares had minimal value at issuance, this transaction has been recorded in stockholders’ deficit.

At December 31, 2012, the Company owed deferred compensation to three individuals totaling $350,000. The deferred compensation was non-interest bearing and for services rendered during 2012. Such amounts were paid in 2013.

In September 2013, the Company moved its operations from Ballground, Georgia to Nunica, Michigan and entered into a month to month agreement with a company related to the Chief Executive Officer to provide office and warehouse facilities, as well as administrative services to include a call center, order fulfillment, purchasing, inventory management and accounting for a monthly fee of approximately $21,000 per month. The contract is cancellable at any time by either party.

6. COMMITMENTS AND CONTINGENCIES

From time to time we may be involved in various claims and legal actions arising in the ordinary course of our business. When the Company becomes aware of potential litigation, it evaluates the merits of the case in accordance with the applicable accounting literature . The Company evaluates its exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. If the Company determines that an unfavorable outcome is probable and can be reasonably estimated, it establishes the necessary accruals. Certain insurance policies held by the Company may reduce the cash outflows with respect to an adverse outcome on certain of these litigation matters. The Company does not believe it is reasonably possible that any of these matters will have a material adverse effect on the Company's consolidated financial position, results of operations and cash flows.

7. DISTRIBUTION AGREEMENT

On December 30, 2013, the Company entered into the Agreement described above whereby Fields Texas will act as the exclusive agent to secure sales and distribution agreements for the Company’s products with various retailers and distributors. Fields Texas will also support the Company’s acquisition, product development, marketing, pricing and promotional efforts.

F-11

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

Pursuant to the Agreement, the Company paid and recorded an expense of $200,000 related to a development fee and issued Fields Texas five-year warrants to purchase 6,975,000 shares of the Company’s common stock. The warrants have an original strike price of $9.05, and contain a provision which could reduce the strike price based on certain future events and are thus considered to be a liability . In addition, the Company will pay Fields Texas commissions on the net sales of their products sold. Also, for every $10,000,000 in annual net sales realized, pursuant to the agreement , up to $100,000,000, the Company will issue Fields Texas additional five-year warrants to purchase 530,000 shares of common stock at an exercise price equal to the closing price on the date the warrants are issued.

For a merger or acquisition, strategic partnership, joint venture, licensing or similar transaction that Fields Texas facilitates, Victory will pay a one-time fee of 5% of proceeds . The term of the Agreement is for three years and will automatically be renewed for successive periods upon achieving annual net sales targets.

As a result of this Agreement , a liability has been recorded at December 31, 2013 with the related expense recorded in advisory agreement warrants in the accompanying consolidated statements of operations and comprehensive income . The warrants were valued at the balance sheet date using a binomial pricing model based on the terms of the warrant agreement.

In order to calculate the fair value of the warrants, certain assumptions are made regarding components of the model including the estimated fair value of the underlying common stock, risk-free interest rate and volatility. Changes to the assumptions could cause significant adjustments to the valuation. At December 31, 2013, the assumptions are as follows:

Fair value of common shares	$	7.24

Term (years)		5.00

Term-matched risk-free interest rate		1.74	%

Term-matched stock volatility		40	%

Exercise price	$	9.05

The fair value of the underlying common stock was determined based on the traded price of the Company’s stock with a marketability discount of 25%. The risk-free interest rate is based on the yield of U.S. treasury bonds over the expected term . The expected stock volatility is based on historical common stock prices for comparable publicly traded companies over a period commensurate with the life of the instrument.

8. STOCK BASED COMPENSATION

During 2013, the Company adopted the 2013 Stock Option Plan (the “Plan”) which is intended to advance the interest of the Company’s stockholders by enhancing the Company’s ability to attract, retain, and motivate persons who make (or are expected to make) important contributions to the Company. The maximum aggregate number of shares of the Company’s common stock that may be issued under the Plan is 10,000,000 shares. As of December 31, 2013, the Company granted an aggregate of 9,700,000 stock options to purchase the Company common stock to directors, officers and certain employees and consultants. During the fourth quarter, 2,000,000 of the options were forfeited, leaving 7,700,000 options outstanding at December 31, 2013. The options granted in June and July of 2013 which total 7,500,000 are exercisable at $0.25 and the 200,000 options granted in December are exercisable at $9.05 per share. The options are exercisable for a period of five years from the date of grant. Options to purchase 2,500,000 shares vested immediately, while options to purchase the remaining 5,200,000 shares vested 50% on December 31, 2013 and 50% on December 31, 2014.

F-12

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses the assumptions noted in the following table. The Company calculates expected volatility based on a comparable industry group and estimates the expected term of its stock options using the simplified method. The expected term represents an estimate of the time options are expected to remain outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. treasury yield curve in effect at the time of grant. The stock price is based on the Company’s trading price at the date of grant and with a marketability discount of 25%. The assumptions are as follows:

Fair value of common shares	$	0.25 - $7.24

Risk free interest rate		.50%-.59	%

Expected award life (years)		2.5

Expected volatility		38% - 40	%

A summary of option activity under the Plan as of December 31, 2013, and changes during the year then ended is presented below:

	Number of Options			Weighted Average Exercise Price			Weighted -Average Remaining Contractural Term		Aggregate Intrinsic Value
Outstanding, December 31, 2012		-			-			-
Granted		9,700,000		$	0.43
Forfeited		(2,000,000	)	$	(0.25	)		-
Exercised		-			-			-
Outstanding as of December 31, 2013		7,700,000		$	0.48			5.5	$	59,367,000
Exercisable as of December 31, 2013		5,100,000		$	0.60			5.5	$	39,320,000

The weighted-average grant-date fair value of options granted during the years ended December 31, 2013 was $0.47.

Total stock based compensation expense for the year ended December 31, 2013 and 2012 was $435,000 and $0, respectively. As of December 31, 2013, there was $130,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized during 2014.

F-13

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

9. EARNINGS PER SHARE

The following table represents a reconciliation of basic and diluted earnings per share:

	2013			2012

Net loss used in the computation of basic and diluted earnings per share	$	(20,706,448	)	$	(478,170	)

Weighted average shares outstanding - basic		42,871,414			32,500,000
Common stock equivalents		-			-
Total weighted average shares outstanding - diluted		42,871,414			32,500,000

Per Share Data:
Basic
Net earnings	$	(0.48	)	$	(0.01	)
Diluted
Net earnings	$	(0.48	)	$	(0.01	)

For the periods where the Company reported losses, all common stock equivalents are excluded from the computation of diluted earnings per share, since the result would be antidilutive. Securities, that were not included in the calculation of diluted earnings per share because to do so would have been antidilutive for the periods presented, are as follows:

	Years Ended December 31
	2013		2012
Stock options		7,269,656		-
Warrants		775,430		-
Convertible debt		1,700,000		-
Total antidilutive common stock equivalents
excluded from dilutive earnings per share		9,745,086		-

F-14

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

10. INCOME TAXES

Due to the Company’s loss and the valuation allowance related to the resulting tax benefit, there was no income tax expense for the current year.

The reconciliation between the effective tax rate and the statutory rate is as follows:


	Years Ended December 31,
	2013			2012

US Federal statutory income tax rate		35.00	%		-	%
Permanent non-deductible items		(0.27	)		-
Other		0.16			-
Effect of valuation allowance		(34.89	)		-
Effective income tax rate		-	%		-	%

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The significant components of the deferred income tax asset (liability) are as follows:

	Years Ended December 31,
	2013			2012
Deferred tax assets:
Net operating loss (“NOL”) carryforwards	$	921,499		$	-
Stock compensation		123,782			-
Stock warrants		6,133,885
Deferred tax liabilities:
Basis difference in fixed assets		(1,429	)		-
Net Deferred Tax Assets		7,177,737			-
Valuation allowance		(7,177,737	)		-
Total deferred tax assets	$	-		$	-

The Company has net operating loss carryforwards for federal purposes of approximately $2,493,908 and $0 for the years ended December 31, 2013 and 2012, respectively. The losses will begin expiring in 2033.

Upon adoption, the Company had no unrecognized tax benefits, and there were no material changes for the year ended December 31, 2013. The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expenses. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. There was no interest or penalties related to income tax matters for the year ended December 31, 2013. The company does not have any open years for audit as of December 31, 2013.

F-15

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

11. FAIR VALUE MEASUREMENTS

Level 1 — Quoted prices for identical assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.

While the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

As described in Note 1, the Company re-evaluated its common stock price which resulted in a restatement. There were no other changes to the Company's valuation techniques that had, or are expected to have, a material impact on its consolidated financial position or results of operations.

The following is a description of the valuation methodologies used for instruments measured at fair value:

Warrant liability

Assets and liabilities measured at fair value as of December 31, 2013 are summarized as follows:

Recurring fair value measurements	December 31, 2013
	Total		Level 1		Level 2		Level 3
Liabilities:
Warrant Liability	$	16,600,500	$	-	$	-	$	16,600,500

The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3 assets).

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

	Warrant Liability
Balance, January 1, 2013		-
Transfers Into Level 3		-
Transfers Out of Level 3		-
Total net gains (losses)
Net income		-
Other comprehensive income		-
Purchases, sales, issues and
settlements
Purchases		-
Issues		16,600,500
Sales		-
Settlements		-
Balance, December 31, 2013	$	16,600,500

F-16

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

12. SUBSEQUENT EVENTS

Private Placements

January and February 2014

Notes

Warrants

Registration Rights Agreement

Security Agreement

April 22, 2014

Notes

F-17

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

Registration Rights Agreement

If the Registration Statement is not filed by the Filing Date or declared effective by the Required Effective Date, the Company is required to pay partial liquidated damages in cash to each Purchaser in the amount equal to 2% for the purchase price paid for the Notes then owned by such Purchaser for each 30-day period for which the Company is non-compliant.

Security Agreements

April 30, 2014

Warrants

Registration Rights Agreement

If the Registration Statement is not filed by the Filing Date or declared effective by the Required Effective Date, the Company is required to pay partial liquidated damages in cash to each Purchaser in the amount equal to 2% of the purchase price paid for the Shares and Warrants then owned by such Purchaser for each 30-day period for which the Company is non-compliant.

F-18

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

Acquisitions

Acquisition of Vapestick

The assets and liabilities of Vapestick shown below are based on preliminary estimates of their acquisition date fair values. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. As such, the Company has not yet completed the valuation analysis and calculations in sufficient detail necessary to arrive at the final estimates of the fair value of Vapestick’s assets acquired and liabilities assumed, along with the related allocations to goodwill and intangible assets. The fair values of certain tangible assets, intangible assets, and residual goodwill are the most significant areas not yet finalized and therefore are subject to change. The final fair value determinations may be significantly different than those shown below.

The following is our preliminary assignment of the aggregate consideration:


Estimated Fair Value of Consideration Transferred

Cash	$	5,746,965
Issuance of shares of common stock		47,718,321
	$	53,465,286


Assets Acquired and Liabilities Assumed

Cash	$	99,353
Accounts receivable		229,007
Inventory		234,656
Prepaids and other current assets		120,683
Furniture and equipment		47,772
Tradename		7,814,000
Customer Relationships		2,923,000
Accounts payable and accrued expenses		(149,814	)
Revolving line of credit		(320,848	)
Long-term debt		(55,051	)
Other liabilities		(114,777	)
Total identifiable net assets		10,827,981
Goodwill		42,637,305
Total fair value of consideration	$	53,465,286

The excess of the purchase price over the net assets has been preliminarily allocated to goodwill pending final valuation by an independent valuation firm. The Company expects that intangible assets will be identified and valued and some portion of the identified intangibles will be subject to amortization.

Acquisition of FIN

F-19

VICTORY ELECTRONIC CIGARETTES

CORPORATION

Notes to Consolidated Financial Statements

In connection with the Merger, the Company entered into a registration rights agreement (the “FIN Registration Rights Agreement”) with the FIN Shareholders, pursuant to which we agreed to register all of the Merger Shares and the Late Payment Shares, if any (the “Registrable Securities”) on a Form S-1 registration statement (the “Registration Statement”) to be filed with the SEC by April 26, 2014, subject to the satisfaction of the registration rights of the Purchasers in connection with the January and February 2014 private offerings, which if not satisfied by the Filing Date, will cause the Filing Date to be a date following the Purchasers, registration rights being satisfied (the “Filing Date”), and to cause the Registration Statement to be declared effective under the Securities Act within 90 days following the Filing Date (the “Required Effective Date”).

The Company has not yet assessed the fair value of the assets acquired and the liabilities assumed in this transaction. Revenues and expenses of FIN will be included in the consolidated financial statements beginning February 28, 2014.

Acquisition of Must Have Limited (VIP)

If the Registration Statement is not filed by the Filing Date or declared effective by the Required Effective Date, the Company is required to pay partial liquidated damages to the MHL Shareholders in the amount equal to 2% of the value of the Exchange Shares on the Closing Date for each 30-day period for which the Company is non-compliant.

The Company has not yet assessed the fair value of the assets acquired and the liabilities assumed in this transaction. Revenues and expenses of Must Have will be included in the consolidated financial statements beginning April 22 , 2014.

F-20

INDEX TO EXHIBITS

Exhibit No.		Description of Exhibit

2.1		Share Exchange Agreement dated April 2, 2013 among our Company, Victory Electronic Cigarettes, Inc. and the shareholders of Victory Electronic Cigarettes, Inc. (1)
2.2 *		Share Exchange Agreement by and among Victory Electronic Cigarettes Corporation, Vapestick Holdings Ltd., and all the shareholders of Vapestick Holdings Ltd., dated December 15, 2013
2.3		Agreement and Plan of Merger by and among Victory Electronic Cigarettes Corporation, VCIG LLC, FIN Electronic Cigarette Corporation, Inc. and Elliot B. Maisel as Representative, dated February 12, 2014 (2)
3.1(i)		Certificate of Incorporation (3)
3.1(ii)		Bylaws (3)
4.1		Form of Convertible Note (4)
4.2		Form of Warrant (4)
4.3		Form of Convertible Note dated November 4, 2013 (5)
4.4		Form of Warrant issued to E-Cig Acquisition Company LLC (6)
4.5		Form of 15% Senior Secured Convertible Promissory Note issued in offerings in January and February 2014 (7)
4.6		Form of Warrant issued in offerings in January and February 2014 (7)
4.7		Form of Agent Warrant (8)
10.1		$200,000 Debenture dated January 31, 2013 issued by Victory Electronic Cigarettes LLC in favor of our company (1)
10.2		Security Agreement dated March 25, 2013 but effective as of January 31, 2013 between Victory Electronic Cigarettes Inc. as debtor and our company as secured party (1)
10.3		Return To Treasury Agreement dated June 18, 2013 between our company and Stephen Brady (9)
10.4		Non-Broker Private Placement Agreement dated May 1, 2013 between our company and Wolverton Securities Ltd. (9)
10.5		General Financial Advisory Agreement dated June 21, 2013 between our company and Wolverton Securities Ltd. (9)
10.6		Promissory Note with Brent Willis (10)
10.7		Promissory Note with Marc Hardgrove (10)
10.8		Promissory Note with David Martin (10)
10.9		Sales and Consulting Agreement dated December 30, 2013 (6)
10.10		Form of Securities Purchase Agreement from offerings in January and February 2014 (7)
10.11		Form of Registration Rights Agreement from offerings in January and February 2014 (7)
10.12		Form of Security Agreement from offerings in January and February 2014 (7)
10.13		Form of Promissory Notes dated February 28, 2014 (7)
10.14		Form of Registration Rights Agreement entered into by and among Victory Electronic Cigarettes Corporation and the FIN shareholders dated February 28, 2014 (7)
10.15 †		Employment Agreement with Brent Willis. (9)
10.16 †		Employment Agreement with Marc Hardgrove. (9)
10.17 †		Employment Agreement with Robert Hartford (11)
10.18 †		Director Agreement with Elliot B. Maisel (7)
10.19 †		2013 Stock Option Plan (9)
14.1		Code of Ethics (12)
16.1		Letter from Manning Elliot LLP dated June 27, 2013 (9)
21.1 *		List of Subsidiaries
31.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS *		XBRL Instance Document
101.SCH *		XBRL Taxonomy Schema
101.CAL *		XBRL Taxonomy Calculation Linkbase
101.DEF *		XBRL Taxonomy Definition Linkbase
101.LAB *		XBRL Taxonomy Label Linkbase
101.PRE *		XBRL Taxonomy Presentation Linkbase

In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.

* Previously filed or furnished, as applicable, with the Original Filing.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

† Management contract or compensatory plan or arrangement.

(1)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on April 5, 2013.
(2)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on February 19, 2014.
(3)	Filed as an Exhibit on Registration Statement on Form SB-2 with the SEC on May 15, 2007.
(4)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on February 6, 2013.
(5)	Filed as an Exhibit on Quarterly Report on Form 10-Q with the SEC on November 14, 2013.
(6)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on January 6, 2014.
(7)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on March 6, 2014.
(8)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on January 17, 2014.
(9)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on June 28, 2013.
(10)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on August 21, 2013.
(11)	Filed as an Exhibit on Current Report to Form 8-K with the SEC on July 12, 2013.
(12)	Filed as an Exhibit on Registration Statement on Form 10-KSB with the SEC on March 31, 2008.

Electronic Cigarettes International Group, Ltd. - FORM 10-K/A - May 6, 2014

Attached files

Electronic Cigarettes International Group, Ltd. Reports