UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2014

or

[ ]

Transition Report Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________________ to ______________________.

Commission file number   333-173438

VAPOR HUB INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

67 W Easy Street, Unit 115,

Simi Valley, CA 93065

 (Address of principal executive offices)(zip code)

(805) 309-0530

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  [X]  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  [X]  No  [ ]

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

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

As of May 15, 2014, the issuer had 68,060,001 shares of common stock issued and outstanding.

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VAPR HUB INTERNATIONAL INC.
TABLE OF CONTENTS

PART I -- FINANCIAL INFORMATION

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PART I:  FINANCIAL INFORMATION

Item 1.

Financial Statements

VAPOR HUB INTERNATIONAL INC.
Condensed Consolidated Balance Sheets

The accompanying notes are integral part of these unaudited condensed consolidated financial statements

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VAPOR HUB INTERNATIONAL INC.
Unaudited Condensed Consolidated Statements of Operations

The accompanying notes are integral part of these unaudited condensed consolidated financial statements.

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VAPOR HUB INTERNATIONAL INC.

Unaudited Condensed Consolidated Statements of Cash Flows

The accompanying notes are integral part of these unaudited condensed consolidated financial statements

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VAPOR HUB INTERNATIONAL INC.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1- INCORPORATION, NATURE OF OPERATIONS AND ACQUISITION

Vapor Hub International Inc. (formerly DogInn, Inc.) (hereinafter known as “the Company”)  was  incorporated in the State of Nevada on July 15, 2010. On February 14, 2014, the Company entered into a Share Exchange Agreement with Vapor Hub Inc., a California corporation (“Vapor”), Delite Products, Inc., a California corporation (“Delite”) and the shareholders of both companies (the “Exchange Agreement”).  Pursuant to the terms of Exchange Agreement, the Company agreed to acquire all 30,000 of the issued and outstanding shares of Vapor’s common stock, as well as all 30,000 of the issued and outstanding shares of Delite’s common stock in exchange for the issuance by the company of 38,000,001 shares of common stock to the shareholders of both companies.  On March 14, 2014, the Company completed the acquisition of Vapor and issued all of the 38,000,001 shares of its stock to the shareholders of Vapor, who are also the shareholders of Delite.  On March 26, the Company completed the acquisition of Delite.  As a result of the closing of the transactions contemplated by the Exchange Agreement, Vapor and Delite became the Company’s wholly owned subsidiaries and the Company now carries on the business of developing, producing, marketing and selling electronic cigarette products.  The exchange transaction was accounted for as a reverse acquisition (recapitalization) with Vapor deemed to be the accounting acquirer (see Note 2), and the Company the legal acquirer.  Prior to the Company’s acquisition of Vapor, the Company existed as a “shell company” with nominal assets whose sole business was to identify, evaluate and investigate various companies to acquire or with which to merge.

Upon the Company’s acquisition of Vapor, Robin Looban resigned as the Company’s sole director, president, secretary, treasurer, Chief Financial Officer and Chairman of the Board of Directors and management members from Vapor were appointed to serve as directors and officers of the Company.   As a condition of the closing of the acquisition of Vapor, the Company cancelled 50,928,984 outstanding common shares and retired them in treasury.

Vapor was incorporated in the State of California on July 12, 2013 and is the retail arm of the Company’s electronic cigarettes business.  Vapor sells and markets the next generation of smokeless electronic cigarettes which are popularly known as Vaping devices as well as E-liquid, accessories, and supplies relating to electronic cigarettes through its retail locations. Vapor’s initial focus is to establish brand recognition by opening multiple locations in Southern California.  The format of the retail establishments is to provide a “lounge” atmosphere where “vaping” can be enjoyed by the customer in a congenial environment. Thus far, Vapor has opened two retail locations in Southern California.  Vapor sources substantially all of its products which it offers for sale from Delite.  

Delite was incorporated in the State of California on August 14, 2008 and is the wholesale and distribution arm of the Company’s electronic cigarettes business.  Delite provides a selection of brands of electronic cigarettes and related accessories which it sells nationally to wholesale customers and retail customers, including through its websites www.vapor-hub.com and www.smokelessdelite.com.  Products distributed by Delite include electronic cigarettes and related accessories purchased from third parties for resale as well as the company’s own electronic cigarettes and related accessories which it designs and sources, including the company’s popular “AR Mechanical Mods”.

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NOTE 2 – REVERSE ACQUISITION ACCOUNTING

Since former Vapor security holders owned, after the acquisition, the majority of the Company’s shares of common stock, and as a result of certain other factors, including that all members of the Company’s executive management are from Vapor, Vapor is deemed to be the acquiring company for accounting purposes and the acquisition of Vapor was accounted for as a reverse acquisition and a recapitalization in accordance with generally accepted accounting principles in the United States (“US GAAP”). These unaudited condensed consolidated financial statements reflect the historical results of Vapor prior to the exchange transaction and that of the combined company following the exchange transaction, and do not include the historical financial results of Vapor Hub International prior to the completion of the exchange transaction.  Common stock and the corresponding capital amounts of the Company pre-exchange transaction have been retroactively restated as capital stock shares reflecting the exchange ratio in the exchange transaction.  

NOTE 3 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The accompanying unaudited condensed consolidated financial statements primarily reflect the financial position, results of operations and cash flows of Vapor (See Note 2) and that of Delite after its acquisition on March 26, 2014. All intercompany transactions have been eliminated for the periods consolidated. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with US GAAP for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission.  Accordingly, these interim financial statements do not include all of the information and footnotes required by US GAAP for annual financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending June 30, 2014 or for any other period.             

Fiscal Year End

Following the exchange transaction, the Company elected to adopt the June 30 year end of Vapor, the accounting acquirer.  As such, the Company has presented activity since the inception of Vapor (July 12, 2013) and has presented the December 31, 2013 balance sheet for comparative purposes only, as this was the most recently audited period of Vapor.     

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Going Concern

The Company’s unaudited condensed consolidated financial statements have been presented on the basis that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company’s cash balance as of March 31, 2014 along with other factors raises doubt about its ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

The Company believes it will be necessary to raise additional funds to finance its operations in the next twelve months, and intends to do so through equity financings, debt financings (including the closing of the third financing tranche of $185,000 contemplated by the Exchange Agreement), or from other sources.  

Use of Estimates

Financial statements prepared in accordance with US GAAP require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Among other things, management makes estimates relating to the estimated depreciable lives of property and equipment, and the valuation allowance related to deferred income tax assets.  Actual results could differ from those estimates.

Cash

The Company considers all highly liquid investments with a maturity of three months or less at the time of issuance to be cash equivalents.

Concentration of Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash.  The Company places its cash with high quality banking institutions.

Fair Value Measurements

ASC 820, “Fair Value Measurements”, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  ASC 820 prioritizes the inputs into three levels that may be used to measure fair value: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, inputs other than level one that are either directly or indirectly observable such as quoted prices for identical or similar assets or liabilities on markets that are not active; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.  The Company had no assets or liabilities required to be recorded at fair value on a recurring basis at March 31, 2014.

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Revenue Recognition

The Company will recognize revenues when delivery of goods or completion of services has occurred provided there is persuasive evidence of an agreement, acceptance has been approved by its customers, the fee is fixed or determinable based on the completion of stated terms and conditions, and collection of any related receivable is probable.  

Inventories

Inventories consist primarily of vaping devices, electronic cigarettes, e-liquid, related supplies, and accessories and are stated at the lower of cost (first-in, first-out) or market value.

Property and Equipment

Property and equipment consist of computer equipment, furniture, facility equipment, and leasehold improvements which are carried at the lower of cost or fair market value and are depreciated over the estimated useful lives of the related assets. Estimated useful lives are from 3 to 10 years.   Much of the property and equipment was contributed by shareholders of the Company. Expenditures for maintenance and repairs are charged against operations.  The modified accelerated cost recovery system (straight line) is used for federal income tax purposes and also for financial reporting as the difference between the two does not appear to be material.

Net Income (Loss) Per Common Share

The Company has adopted ASC 260 “Earnings Per Share”. Basic net income per common shares excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the profit of the entity.  As of March 31, 2014, there are 261,669 outstanding dilutive securities related to convertible promissory notes.

Income Taxes

The Company accounts for income taxes under the provisions of ASC Topic 740-10, Income Taxes, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method.  Under this method, deferred tax liabilities and assets are determined and income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes determined on the differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Recent Accounting Pronouncements

The Company has reviewed all the recent accounting pronouncements issued to date of the issuance of these financial statements, and does not believe any of these pronouncements will have a material impact on the Company’s financial statements.

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NOTE 4 – CAPITAL STOCK

The Company is authorized to issue 140,000,000 shares of common stock and had 68,060,001 shares of common stock issued and outstanding as of March 31, 2014.

The Company is authorized to issue 10,000,000 shares of preferred stock and had no shares of preferred stock issued and outstanding as of March 31, 2014.

On January 9, 2014, the Company authorized an increase of its share capital from 65,000,000 common shares to 140,000,000 common shares. Furthermore, the Company approved a forward stock split of its issued and outstanding common shares by way of a stock dividend, on a basis of 1:9, pursuant to which, the company’s stockholders as at January 17, 2014 received eight (8) shares of common stock for each one (1) share of common stock currently held.  The pay-out date as approved by the company’s board of directors and Financial Industry Regulatory Authority was January 17, 2014. The effects of the forward split increased the Company’s issued and outstanding common shares from 8,998,776 common shares to 80,988,984 common shares. The effects of the forward split have been applied on a retroactive basis.

On February 14, 2014, the Company entered into the Exchange Agreement whereby the Company acquired all of the issued and outstanding shares of Vapor and Delite in exchange for 38,000,001 common shares of the Company. The Agreement was completed in two stages – with the acquisition of Vapor closing on March 14, 2014 and the acquisition of Delite closing on March 26, 2014.  In connection with the acquisition of Vapor on March 14, 2014, the Company canceled 50,928,984 common shares and issued a convertible debenture of approximately $185,000 (see Note 10).

NOTE 5 – LOAN FROM RELATED PARTY

As of March 31, 2014, the Company had a balance of $143,337 outstanding as related party loans from Kyle Winther, the Company’s COO, Lori Winther, the Company’s CFO and Winther & Company (an entity owned by the CFO’s husband).  The outstanding balances are non-interest bearing and repayable upon demand.

NOTE 6 – INVENTORIES

As of March 31, 2014, the Company has inventories which consist of vaping devices, electronic cigarettes, e-liquid, related supplies, and accessories.

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NOTE 7 – LEASE AGREEMENT

The Company entered into a lease agreement with S. J. Real Estate Group, LLC to lease a retail space in Chatsworth, California, effective September 13, 2013. The lease term is for one year with a monthly lease payment of $2,214. The Company has a remaining commitment under this lease of $17,712 through August 30, 2014.  

The Company also has a month-to-month rental agreement with Madera Development for a retail space in Simi Valley for $825.

The Company entered into a lease agreement with S.B.P.W., LLC to lease warehouse and office space in Simi Valley, California effective August 5, 2013 which agreement was subsequently amended on February 20, 2014. The lease term extends through April 30, 2015 with a monthly lease payment of $2,035 which increases to $4,070 effective July 1, 2014. The Company has a remaining commitment under this lease of $46,805 through April 30, 2015.  A security deposit of $10,482 has been paid to the landlord in relation to this lease.  

NOTE 8– OTHER INCOME

The Company received a fee of $30,000 in exchange for the right of an unaffiliated third party to share in 10% of the net profits derived from operations of the Chatsworth Vapor Hub lounge. At March 31, 2014, no obligation is due under this profit sharing agreement.

NOTE 9 – RELATED PARTIES

The Company entered into a Management Agreement with Kyle Winther and Gary “Jake” Perlingos who are each shareholders and officers of the Company related to operational supervision of the Vapor Hub Lounges in Simi Valley and Chatsworth.  Each of them was to receive 2.5% each (for a total of 5%) of the monthly revenue generated from each respective lounge.  The Agreement commenced September 1, 2013 and was scheduled to continue until terminated by agreement of the parties. Effective February 1, 2014, the parties agreed to terminate the Management Agreement.  An additional Management Agreement was entered into between Delite and Vapor, which relates to the provision of administrative support to Vapor.  Pursuant to the agreement, Delite received a fee of $10,000 per month from Vapor.  The Agreement commenced October 1, 2013 and was scheduled to continue until terminated by agreement of the parties. Effective March 1, 2014, the parties agreed to terminate the Management Agreement.  

Vapor purchases substantially all of its inventory which is sold at its retail locations from Delite.  As of March 26, 2014, Delite became a wholly-owned subsidiary of the Company.  As a result of the acquisition, all intercompany transactions subsequent to March 26, 2014 have been eliminated.  

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NOTE 10 – CONVERTIBLE NOTE PAYABLE

On March 14, 2014, the Company closed the first of three tranches of a financing transaction pursuant to the terms of the Exchange Agreement.  At the closing, the Company issued a convertible promissory note in the principal amount of $185,000 to GOTAMA CAPITAL S.A. in exchange for cash proceeds of $185,000.  The note bears interest at a rate of 8% per annum, with interest being payable on May 15^th of each year that the note remains outstanding. The principal amount of the note is convertible at any time, in whole or in part, at the Company’s election or the election of the holder into shares of the Company’s common stock at a price equal to the greater of $0.15 or 90% of the average closing prices of the Company’s common stock for the ten trading days immediately preceding the applicable conversion date.  Unless earlier converted or repaid, the principal amount of the note is due and payable on March 14, 2017. The Company may prepay the principal amount of the note at any time, in whole or in part, without the prior written consent of the holder.

NOTE 11 – DELITE ACQUISITION

As described in Note 4, the Company acquired Delite as part of the transactions contemplated by the Exchange Agreement on March 26, 2014. This transaction was treated as a business acquisition. The balance sheet of Delite has been consolidated with the Company as of March 31, 2014 and the activity subsequent to acquisition has been consolidated with the Company’s operations.

Below is a summarized presentation of unaudited pro-form results of operations with Delite for the period from inception (July 12, 2013) to March 31, 2014:

NOTE 12 – SUBSEQUENT EVENTS

On April 10, 2014, the Company closed the second tranche of the financing contemplated pursuant to the terms of the Exchange Agreement.  At the closing, the Company issued a convertible promissory note in the principal amount of $200,000 to one investor in exchange for cash proceeds of $200,000.  The note has the same terms as the note described in Note 10, except that unless earlier converted or repaid, the principal amount of the note is due and payable on April 10, 2017.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our Unaudited Condensed Consolidated Financial Statements and the related Notes thereto contained in Part I, Item 1 of this Report. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Report and in our other filings with the SEC, which discuss our business in greater detail.

This Quarterly Report contains forward-looking statements that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statements that do not directly relate to historical or current fact. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” “may,” “should,” “estimates,” “predicts,” “potential,” “continue,” “becoming,” “transitioning,” and similar expressions to identify such forward-looking statements. Our forward-looking statements include statements as to our business outlook, revenues, margins, expenses, tax provision, capital resources sufficiency, capital expenditures, interest income, cash commitments, and expenses. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those referenced in the subsection entitled “Risk Factors” in Part II, Item 1A of this Report, and similar discussions in our other SEC filings. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Overview

On February 14, 2014, we entered into a Share Exchange Agreement with Vapor Hub Inc., a California corporation (“Vapor”), Delite Products, Inc., a California corporation (“Delite”) and the shareholders of both companies (the “Exchange Agreement”).  Pursuant to the terms of Exchange Agreement, we agreed to acquire all 30,000 of the issued and outstanding shares of Vapor’s common stock, as well as all 30,000 of the issued and outstanding shares of Delite’s common stock in exchange for the issuance by our company of 38,000,001 shares of our common stock to the shareholders of both companies.  On March 14, 2014, we completed the acquisition of Vapor and issued all of the 38,000,001 shares of our stock to the shareholders of Vapor, who are also the shareholders of Delite.  On March 26, we completed the acquisition of Delite.  As a result of the closing of the transactions contemplated by the Exchange Agreement, Vapor and Delite became our wholly owned subsidiaries and we now carry on the business of developing, producing, marketing and selling electronic cigarette products.  The exchange transaction was accounted for as a reverse acquisition (recapitalization) with Vapor deemed to be the accounting acquirer, and us the legal acquirer.  Prior to our acquisition of Vapor, we existed as a “shell company” with nominal assets whose sole business was to identify, evaluate and investigate various companies to acquire or with which to merge.  

Upon our acquisition of Vapor, Robin Looban resigned as our sole director, president, secretary, treasurer, Chief Financial Officer and Chairman of the Board of Directors and management members from Vapor and Delite were appointed to serve as directors and officers of our company.  To reflect our acquisition of Vapor, on March 14, 2014 we changed our corporate name from Doginn, Inc. to Vapor Hub International Inc., and our stock symbol from “DOGI” to “VHUB”.  We also changed our fiscal year end from December 31 to June 30.

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In connection with our acquisition of Vapor and Delite, on March 14, 2014, we closed the first of three tranches of a financing contemplated pursuant to the terms of the Exchange Agreement.  At the closing, we issued a convertible promissory note in the principal amount of $185,000 to one investor in exchange for cash proceeds of $185,000.  The note bears interest at a rate of 8% per annum, with interest being payable on May 15^th of each year that the note remains outstanding.  Unless earlier converted or repaid, the principal amount of the note is due and payable on March 14, 2017.  

Our principal executive office is located at 67 W Easy Street Unit 115,Simi Valley CA 93065.  The telephone number at our principal executive office is (805) 309-0533.  

Vapor Hub

Vapor was incorporated in the State of California on July 12, 2013 and is the retail arm of our electronic cigarettes business.  Vapor sells and markets the next generation of smokeless electronic cigarettes which are popularly known as Vaping devices as well as E-liquid, accessories, and supplies relating to electronic cigarettes through its retail locations. Vapor’s initial focus is to establish brand recognition by opening multiple locations in Southern California.  The format of the retail establishments is to provide a “lounge” atmosphere where “vaping” can be enjoyed by the customer in a congenial environment. Thus far, Vapor has opened two retail locations in Southern California.  Vapor sources substantially all of its products which it offers for sale from Delite.  

Delite

Delite was incorporated in the State of California on August 14, 2008 and is the wholesale and distribution arm of our electronic cigarettes business.  Delite provides a selection of brands of electronic cigarettes and related accessories which it sells nationally to wholesale customers and retail customers, including through its websites www.vapor-hub.com and www.smokelessdelite.com.  Products distributed by Delite include electronic cigarettes and related accessories purchased from third parties for resale as well as the company’s own electronic cigarettes and related accessories, which it designs and sources, including the company’s popular “AR Mechanical Mods”.

Going Concern

Our capital requirements for the next twelve months will likely not be able to be funded in their entirety from our operating cash flows.  As of March 31, 2014, we had a cash balance of approximately $206,000.  We believe it will be necessary to raise additional funds to finance our operations, and intend to do so through equity financings, debt financings (including the closing of the third financing tranche of $185,000 contemplated by the Exchange Agreement), or from other sources.  The extent of our future capital requirements will depend on many factors, including results of operations and the growth rate of our business.  

Our unaudited condensed consolidated financial statements have been presented on the basis that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Our cash balance as of March 31, 2014 along with other factors raises doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the company to continue as a going concern.

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Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in accordance with U.S. GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statements presentation, financial condition, results of operations, and cash flows will be affected. Please refer to Note 3 “BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for further discussion.

Recently Issued Accounting Pronouncements

We have reviewed all the recent accounting pronouncements issued to date of the issuance of these financial statements, and do not believe any of these pronouncements will have a material impact on our financial statements.

Results of Operations

The following is a summary of our results from operation for the three month period ending March 31, 2014 and for the period commencing July 12, 2013 (our inception) to March 31, 2014:

Revenues are comprised of gross sales less returns and discounts. Our cost of revenue for the periods presented primarily represents the cost of products sold through our retail locations as well as certain administrative expenses.

General and administrative expenses consist primarily of payroll and related costs, marketing costs, infrastructure costs and costs associated with being a public reporting company.

During the three month period ending March 31, we generated revenues of approximately $189,000 and since our inception, we have generated revenues of approximately $400,000.  For the periods presented, revenues primarily relate to sales at our retail locations, as our acquisition of Delite was completed on March 26, 2014.  During the three months ended March 31, 2014, we incurred general and administrative expenses of approximately $97,000 and since inception we have incurred general and administrative expenses of $233,479.  

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Seasonality

Our operating results and operating cash flows historically have not been subject to seasonal variations and we do not anticipate this changing.

Liquidity and Capital Resources

As of March 31, 2014, we had cash and cash equivalents of approximately $206,000 and working capital of approximately $137,000.  During the period from our inception on July 12, 2013 to March 31, 2014, we have incurred a net operating loss of approximately $27,000.  We depend on cash from financing activities to fund our operating and investing activities, and we expect this trend to continue as we continue to grow our operations.  Cash flows from our operating, investing and financing activities for the period from July 12, 2013 to March 31, 2014 are summarized in the following table:

Cash Flows from Continuing Operations

Operating Activities

Net cash used in operating activities was approximately $61,000 for the period from our inception to March 31, 2014.  Net cash used in operations primarily results from expenses we have incurred to purchase inventory offset by decreased accounts payable and non-cash expenses incurred to finance our revenues.

Investing Activities

Net cash used in investing activities was approximately $70,000 for the period from our inception to March 31, 2014 and consists of the purchase of equipment for approximately $60,000 and approximately $10,000 paid as a security deposit in relation to one of our leased properties.

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Financing Activities

Net cash provided by financing activities was approximately $337,000 for the period from our inception to March 31, 2014 and includes proceeds of approximately $143,000 from affiliate loans and proceeds of $185,000 from the sale of a convertible promissory note. 

As of March 31, 2014, we had a balance of approximately $143,000 outstanding as related party loans from Kyle Winther, our COO, Lori Winther, our CFO and Winther & Company (an entity owned by the CFO’s husband).  The outstanding balances are non-interest bearing and repayable upon demand.

On March 14, 2014, we closed the first tranche of a financing required pursuant to the terms of the Exchange Agreement.  At the closing, we issued a convertible promissory note in the principal amount of $185,000 to one investor in exchange for cash proceeds of $185,000.  The note bears interest at a rate of 8% per annum, with interest being payable on May 15^th of each year that the note remains outstanding. The principal amount of the note is convertible at any time, in whole or in part, at our election or the election of the holder into shares of our common stock at a price equal to the greater of $0.15 or 90% of the average closing prices of our common stock for the ten trading days immediately preceding the applicable conversion date.  Unless earlier converted or repaid, the principal amount of the note is due and payable on March 14, 2017. We may prepay the principal amount of the note at any time, in whole or in part, without the prior written consent of the holder.

Financings Subsequent to our Quarter Ended March 31, 2014

On April 10, 2014, we closed the second tranche of the financing contemplated pursuant to the terms of the Exchange Agreement.  At the closing, we issued a convertible promissory note in the principal amount of $200,000 to one investor in exchange for cash proceeds of $200,000.  The note has the same terms as the note described in the immediately preceding paragraph, except that unless earlier converted or repaid, the principal amount of the note is due and payable on April 10, 2017.

Future Capital Requirements

Our capital requirements for the next twelve months will likely not be able to be funded in their entirety from our operating cash flows.  We believe it will be necessary to raise additional funds to finance our operations, and intend to do so through equity financings, debt financings (including the closing of the third financing tranche of $185,000 as described below), or from other sources.  The extent of our future capital requirements will depend on many factors, including results of operations and the growth rate of our business.

Although we intend to raise capital to finance our operations, there can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we may not be able to grow our operations as planned, and may not be able to meet our other obligations as they become due.

If we are successfully able to raise capital, the issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders and if capital is raised through debt facilities, such facilities will increase our liabilities and future cash commitments, and may also impose restrictive covenants relating to the operation of our business.

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Shortly following the filing of this report, we expect to close the third and final tranche of the financing contemplated pursuant to the terms of the Exchange Agreement.  At the closing of the financing, we will issue a convertible promissory note in the principal amount of $185,000 to one investor in exchange for cash proceeds of $185,000.  The note will have substantially the same terms as the notes issued in the first and second tranches of the financing described earlier in this report.

Other than as described above, we presently do not have any arrangements for additional financing.  However, we continue to evaluate various financing strategies to support our current operations and fund our future growth.

Off-Balance Sheet Arrangements

At March 31, 2014, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.  As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 ("Exchange Act"), the Company's management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2014, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2014, the disclosure controls and procedures were not effective.

Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

The Company's management has identified material weaknesses in its internal control over financial reporting related to the following matters:

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A lack of sufficient segregation of duties. Specifically, this material weakness is such that the design over these areas relies primarily on defective controls and could be strengthened by adding preventative controls to properly safeguard company assets.

A lack of sufficient personnel in the accounting function due to the Company's limited resources with appropriate skills, training and experience to perform certain tasks as it relates to financial reporting.

The Company's plan to remediate those material weaknesses is as follows:

To improve the effectiveness of the accounting group the Company has hired a Controller to augment existing resources, to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions. The Company plans to further mitigate the segregation of duties issues by hiring additional personnel in the accounting department once it generates significantly more revenue, or raises significant additional working capital.

           The new Controller is in the process of improving segregation procedures by strengthening cross approval of various functions including quarterly internal audit procedures where appropriate.

Changes in Internal Controls over Financial Reporting

Other than as described under the heading Evaluation of Disclosure Controls and Procedures, there was no change in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the quarter ended March 31, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II:  OTHER INFORMATION

Item 1A.

Risk Factors

The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the events or circumstances described in the following risk factors actually occurs, our business, operating results and financial condition could be materially adversely affected.

Risks Related to Our Business and Our Industry

We have a limited operating history.

We have a limited operating history and do not have a meaningful historical record of sales and revenues nor an established business track record.  While we believe that we have the opportunity to be successful in the E-Cigarette industry, there can be no assurance that we will be successful in accomplishing our business initiatives, or that we will be able to achieve any significant levels of revenues or net income, from the sale of our products.  

There is doubt about our ability to continue as a going concern due to insufficient cash resources to meet our business objectives.

Our continuation as a going concern is dependent on our ability to generate sufficient cash flows from operations to meet our obligations, which we have not been able to accomplish to date, and/or obtain additional financing from equity financings, debt financings, or from other sources.  The extent of our future capital requirements will depend on many factors, including results of operations and the growth rate of our business.

Although we intend to raise capital to finance our operations, there can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain additional financing on a timely basis, we may not be able to grow our operations as planned, may not be able to meet our other obligations as they become due and may even need to cease our operations.

If we are successfully able to raise capital, the issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders and if capital is raised through debt facilities, such facilities will increase our liabilities and future cash commitments, and may also impose restrictive covenants relating to the operation of our business.

Shortly following the filing of this report, we expect to close the third and final tranche of the financing contemplated pursuant to the terms of the Exchange Agreement.  At the closing of the financing, we will issue a convertible promissory note in the principal amount of $185,000 to one investor in exchange for cash proceeds of $185,000.  The note will have substantially the same terms as the notes issued in the first and second tranches of the financing described earlier in this report.

Other than as described above, we presently do not have any arrangements for additional financing.  However, we continue to evaluate various financing strategies to support our current operations and fund our future growth.

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Our inability to complete our future research and development and engineering projects in a timely manner could have a material adverse effect of our results of operations, financial condition and cash flows.

If our research and development projects are not completed in a timely fashion we could experience:

·

substantial additional cost to obtain a marketable product;

·

additional competition resulting from competitors in the electronic cigarette market, and;

·

delay in obtaining future inflow of cash from financing or partnership activities.

We could face intense competition, which could result in lower revenues and higher research and development expenditures and could adversely affect our results of operations.

Unless we keep pace with changing technologies, we could lose existing customers and fail to win new customers. In order to compete effectively in the electronic cigarette market, we must continually design, develop and market new and enhanced technologies. Our future success will depend, in part, upon our ability to address the changing and sophisticated needs of the marketplace.

The market for our technology and products is still developing and if the industry adopts test criteria that are different from our internal test criteria our competitive position would be negatively affected. Additionally, governments could institute laws which negatively affect our competitive position. Our plan to pursue sales in international markets may be limited by risks related to conditions in such markets.

Parts of our company’s business plan are dependent on business relationships with various parties.

We expect to rely in part upon third party manufacturers, and distribution partners to sell our products, and we may be adversely affected if those parties do not actively promote our products. Further, if our products are not timely delivered or do not perform as promised, we could experience increased costs, lower margins, liquidated damage payment obligations and reputational harm.

We must attract and maintain key personnel or our business will fail.

We must attract and retain key personnel in order to successfully operate our business.  We will have to compete with other companies both within and outside the tobacco/ Electronic Cigarette industry to recruit and retain competent employees.  If we cannot maintain qualified employees to meet the needs of our anticipated growth, our business and financial condition could be materially adversely effected.

Our business and operating results could be harmed if we fail to manage our growth or change.

Our business may experience periods of rapid change and/or growth that could place significant demands on our personnel and financial resources. To manage possible growth and change, we must continue to try to locate skilled professionals and adequate funds in a timely manner.

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If we are not able to adequately protect our intellectual property, then we may not be able to compete effectively and we may not be profitable.

Our commercial success may depend, in part, on obtaining and maintaining patent protection, trade secret protection and regulatory protection of our technologies and product candidates as well as successfully defending third-party challenges to such technologies and candidates. We will be able to protect our technologies and product candidates from use by third parties only to the extent that valid and enforceable patents, trade secrets or regulatory protection cover them and we have exclusive rights to use them. The ability of our licensors, collaborators and suppliers to maintain their patent rights against third-party challenges to their validity, scope or enforceability will also play an important role in determining our future.

The copyright and patent positions of technology related companies can be highly uncertain and involve complex legal and factual questions that include unresolved principles and issues. No consistent policy regarding the breadth of claims allowed regarding such companies’ patents has emerged to date in the United States, and the patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property. Accordingly, we cannot predict with any certainty the range of claims that may be allowed or enforced concerning our patents.

We may also rely on trade secrets to protect our technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we seek to protect confidential information, in part, through confidentiality agreements with our consultants and scientific and other advisors, they may unintentionally or willfully disclose our information to competitors. Enforcing a claim against a third party related to the illegal acquisition and use of trade secrets can be expensive and time consuming, and the outcome is often unpredictable. If we are not able to maintain patent or trade secret protection on our technologies and product candidates, then we may not be able to exclude competitors from developing or marketing competing products, and we may not be able to operate profitability.

If we are the subject of an intellectual property infringement claim, the cost of participating in any litigation could cause us to go out of business.

There has been, and we believe that there will continue to be, significant litigation and demands for licenses in our industry regarding patent and other intellectual property rights. Although we anticipate having a valid defense to any allegation that our current products,  production methods and other activities infringe the valid and enforceable intellectual property rights of any third parties, we cannot be certain that a third party will not challenge our position in the future. Other parties may own patent rights that we might infringe with our products or other activities, and our competitors or other patent holders may assert that our products and the methods we employ are covered by their patents. These parties could bring claims against us that would cause us to incur substantial litigation expenses and, if successful, may require us to pay substantial damages. Some of our potential competitors may be better able to sustain the costs of complex patent litigation, and depending on the circumstances, we could be forced to stop or delay our research, development, manufacturing or sales activities. Any of these costs could cause us to go out of business.

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We could lose our competitive advantages if we are not able to protect any proprietary technology and intellectual property rights against infringement, and any related litigation could be time-consuming and costly.

Our success and ability to compete depends to a significant degree on our proprietary technology incorporated into our products. If any of our competitor’s copies or otherwise gains access to our proprietary technology or develops similar technologies independently, we would not be able to compete as effectively.

We also consider our trademarks invaluable to our ability to continue to develop and maintain the goodwill and recognition associated with our brand. We have registered various trademarks in the United States. These and any other measures that we may take to protect our intellectual property rights, which presently are based upon a combination of copyright, trade secret and trademark laws, may not be adequate to prevent their unauthorized use.

Further, the laws of foreign countries may provide inadequate protection of such intellectual property rights. We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources. In addition, notwithstanding any rights we have secured in our intellectual property, other persons may bring claims against us that we have infringed on their intellectual property rights, including claims based upon the content we license from third parties or claims that our intellectual property right interests are not valid. Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our attention and resources, result in the loss of goodwill associated with our service marks or require us to make changes to our website or other of our technologies.

If we fail to effectively manage our growth our future business results could be harmed and our managerial and operational resources may be strained.

As we proceed with the expansion of our retail and manufacturing activities, we expect to experience significant and rapid growth in the scope and complexity of our business. We will need to add staff to market our services, manage operations, handle sales and marketing efforts and perform finance and accounting functions. We will be required to hire a broad range of additional personnel in order to successfully advance our operations. This growth is likely to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our potential business, or the failure to manage growth effectively, could have a materially adverse effect on our business and financial condition.

Our products and may become obsolete and unmarketable if we are unable to respond adequately to rapidly changing technology and customer demands.

Our industry is characterized by rapid changes in technology and customer demands. As a result, our products and services may quickly become obsolete and unmarketable. Our future success will depend on our ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products on a timely and cost-effective basis. Further, our products must remain competitive with those of other companies with substantially greater resources. We may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products or enhanced versions of existing products. Also, we may not be able to adapt new or enhanced services to emerging industry standards, and our new products may not be favorably received.

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

According to the FDA, electronic cigarettes may contain ingredients that are known to be toxic to humans and may contain other ingredients that may not be safe. Additionally, electronic 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 electronic cigarettes have not been submitted to the FDA, consumers currently have no way of knowing whether electronic 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 electronic 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 electronic cigarette can cause bodily injury and the publicity from such instances of injury could dramatically slow the growth of the market for electronic cigarettes.

Electronic cigarettes may become subject to regulation by the FDA.

The FDA did not appeal the decision of the U.S. Court of Appeals for the D.C. Circuit in Sottera, Inc. v. Food & Drug Administration (2010) which held that e-cigarettes and other nicotine-containing products are not drugs or devices unless they are marketed for therapeutic purposes.  The Court held further that electronic cigarettes and other nicotine-containing products can be regulated as “tobacco products” under the Food, Drug and Cosmetic Act. Consequently, the FDA may choose to develop regulations governing the manufacture, marketing and sale of e-cigarettes.

Potential FDA regulations, or significant costs to comply with potential FDA regulations could have a materially adverse effect on our company’s operations and profitability. Failure to comply 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.

On August 23, 2013, the Wall Street Journal reported that the FDA is considering a ban on online sales of electronic cigarettes. If the FDA implements such a ban, our financial results would be materially adversely affected.

New products face intense media attention and public pressure.

Our product is new to the marketplace and since its introduction certain members of the media, politicians, government regulators and advocate groups, including independent doctors have called for an outright ban of all electronic cigarettes, pending regulatory review and a demonstration of safety. A ban of this type would likely have the effect of terminating our United States’ sales and marketing efforts of certain products which we may currently market or have plans to market in the future. Such a ban would also likely cause public confusion as to which products are the subject of the ban and which are not and would have a material adverse effect on our business, financial condition and performance.

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The market for our products is uncertain and is still evolving.

Electronic cigarettes, having recently been introduced to market, are at an early stage of development and are evolving rapidly and are characterized by an increasing number of market entrants. Our future revenues and any future profits are substantially dependent upon the widespread acceptance and use of electronic cigarettes. Rapid growth in the use of, and interest in, electronic cigarettes is a recent phenomenon, and may not continue on a lasting basis. The demand and market acceptance for these products is subject to a high level of uncertainty.

We market a single class of products, which may be subject to certain government regulations, whose approval we may or may not be able to achieve.

Electronic cigarettes are new to the marketplace and may be subject to regulation as a drug, a medical device, a drug and medical device and or as a tobacco product. Most electronic cigarettes are sold as a means of delivering nicotine to the body. The FDA is the regulatory agency which oversees drugs, medical devices and tobacco; however at present it is unclear which, if any regulatory process is required to market, and sell electronic cigarettes. To date the FDA has not established a definitive policy regulating “electronic cigarettes” but is reviewing cases on a case by case basis. We intend to use reasonable efforts to file for the appropriate approvals to allow us to sell our product in the United States, however we have no indication that at present we will be able to afford to pursue regulatory approval and that if we are able to pursue said approval we have no assurances that the outcome of said approval process will result in our products being approved by the FDA. Moreover, if the FDA establishes a regulatory process that we are unable or unwilling to comply with our business, results of operations, financial condition and prospects would be adversely affected.

The anticipated costs of complying with future FDA regulations will be dependent on the rules issued by the FDA.  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 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 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.

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.

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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 our products are not taxed like cigarettes or other tobacco products, all of which have faced significant increases in the amount of taxes collected on the sale of their products. Should state and federal governments and or taxing authorities impose taxes similar to those levied against cigarettes and tobacco products on our products, it may have a material adverse effect on the demand for our products. Moreover we may be unable to establish the systems and processes needed to track and submit the 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 revenues, operation and financial condition.

States such as New York, Hawaii, Rhode Island, Georgia and North Carolina have begun collecting taxes on Internet sales where companies have used independent contractors in those states to solicit sales from residents of those states. The requirement to collect, track and remit 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 revenues, financial condition and operating results.

Our success is dependent upon our marketing efforts.

We have limited marketing experience in marketing electronic 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 rely, in part, on the efforts of our independent sales distributors and outside broker/dealer network to augment our internal sales efforts and distribute our product to wholesalers and or retailers to generate revenues. No single distributor currently accounts for a material percentage of our revenues and we believe that should any of these relationships terminate we would be able to find suitable replacements, however any change in distributors or our ability to timely replace any given distributor would have a material adverse effect on our business, prospects, financial condition and results of operations.

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Risks Relating to Ownership of Our Securities

Our stock price may be volatile, which may result in losses to our shareholders.

The stock markets have experienced significant price and trading volume fluctuations, and the market prices of companies listed on the Over-the-counter Bulletin Board quotation system in which shares of our common stock are listed, have been volatile in the past and have experienced sharp share price and trading volume changes. The trading price of our common stock is likely to be volatile and could fluctuate widely in response to many factors, including the following, some of which are beyond our control:

·

variations in our operating results;

·

changes in expectations of our future financial performance, including financial estimates by securities analysts and investors;

·

changes in operating and stock price performance of other companies in our industry;

·

additions or departures of key personnel; and

·

future sales of our common stock.

·

Domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may adversely affect the price of our common stock.  

Our common shares may become thinly traded and you may be unable to sell at or near ask prices, or at all.

We cannot predict the extent to which an active public market for trading our common stock will be sustained. Although the trading volume of our common shares increased significantly recently, it has historically been sporadically or “thinly-traded,” meaning that the number of persons interested in purchasing our common shares at or near bid prices at certain given time may be relatively small or non-existent.

This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community who generate or influence sales volume.  Even if we came to the attention of such persons, those persons tend to be risk-averse and may be reluctant to follow, purchase, or recommend the purchase of shares of an unproven company such as ours until such time as we become more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.

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The market price for our common stock is particularly volatile given our status as a relatively small company, which could lead to wide fluctuations in our share price. You may be unable to sell your common stock at or above your purchase price if at all, which may result in substantial losses to you.

Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.

We do not anticipate paying any cash dividends to our common shareholders.

We presently do not anticipate that we will pay dividends on any of our common stock in the foreseeable future. If payment of dividends does occur at some point in the future, it would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any common stock dividends will be within the discretion of our Board of Directors. We presently intend to retain all earnings after paying the interest for the preferred stock, if any, to implement our business plan; accordingly, we do not anticipate the declaration of any dividends for common stock in the foreseeable future.

Volatility in our common share price may subject us to securities litigation.

The market for our common stock is characterized by significant price volatility as compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management's attention and resources.

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The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights of our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.

Our Articles of Incorporation contains a specific provision that eliminates the liability of our directors and officers for monetary damages to our company and shareholders. Further, we are prepared to give such indemnification to our directors and officers to the extent provided for by Nevada law. We may also have contractual indemnification obligations under our employment agreements with our officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and shareholders.

Our business is subject to changing regulations related to corporate governance and public disclosure that have increased both our costs and the risk of noncompliance.

Because our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market exchange entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the SEC and FINRA, have issued requirements and regulations and continue to develop additional regulations and requirements in response to corporate scandals and laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Our efforts to comply with these regulations have resulted in, and are likely to continue resulting in, increased general and administrative expenses and diversion of management time and attention from revenue-generating activities to compliance activities. Because new and modified laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices.

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We will incur increased costs and compliance risks as a result of becoming a public company.

As a public company, we will incur significant legal, accounting and other expenses that our subsidiaries did not incur as a private companies prior to the private placement financing and share exchange.

We will incur costs associated with our public company reporting requirements. We also anticipate that we will incur costs associated with recently adopted corporate governance requirements, including certain requirements under the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the SEC and FINRA.  We expect these rules and regulations, in particular Section 404 of the Sarbanes-Oxley Act of 2002, to significantly increase our legal and financial compliance costs and to make some activities more time-consuming and costly. Like many smaller public companies, we face a significant impact from required compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires management of public companies to evaluate the effectiveness of internal control over financial reporting. The SEC has adopted rules implementing Section 404 for public companies as well as disclosure requirements. We are currently preparing for compliance with Section 404; however, there can be no assurance that we will be able to effectively meet all of the requirements of Section 404 as currently known to us in the currently mandated timeframe. Any failure to implement effectively new or improved internal controls, or to resolve difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet reporting obligations or result in management being required to give a qualified assessment of our internal controls over financial reporting. Any such result could cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price.

We also expect these new rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board of Directors or as executive officers. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

We are an “emerging growth company” under the JOBS Act of 2012, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30.

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Because we have elected to use the extended transition period for complying with new or revised accounting standards for an “emerging growth company” our financial statements may not be comparable to companies that comply with public company effective dates.

We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.  This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies.  As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.  Consequently, our financial statements may not be comparable to companies that comply with public company effective dates.  Because our financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

On March 14, 2014, we closed the first tranche of the financing contemplated pursuant to the terms of the Exchange Agreement.  At the closing, we issued a convertible promissory note in the principal amount of $185,000 to one investor in exchange for cash proceeds of $185,000.  The note bears interest at a rate of 8% per annum, with interest being payable on May 15^th of each year that the note remains outstanding. The principal amount of the note is convertible at any time, in whole or in part, at our election or the election of the holder into shares of our common stock at a price equal to the greater of $0.15 or 90% of the average closing prices of our common stock for the ten trading days immediately preceding the applicable conversion date.  Unless earlier converted or repaid, the principal amount of the note is due and payable on March 14, 2017. We may prepay the principal amount of the note at any time, in whole or in part, without the prior written consent of the holder.

On April 10, 2014, we closed the second tranche of the financing contemplated pursuant to the terms of the Exchange Agreement.  At the closing, we issued a convertible promissory note in the principal amount of $200,000 to one investor in exchange for cash proceeds of $200,000.  The note has the same terms as the note described in the immediately preceding paragraph, except that unless earlier converted or repaid, the principal amount of the note is due and payable on April 10, 2017.

We issued both of the above convertible notes to the same non-US Person (as that term is defined in Regulation S of the Securities Act of 1933) relying on Regulation S of the Securities Act of 1933.

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Item 6.

Exhibits

#

Furnished herewith.

**

The information in this exhibit is furnished and deemed 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.

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SIGNATURES

Pursuant to the requirements 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.

Date: May 15, 2014

Vapor Hub International Inc.

(Registrant)

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