LIQUIDITY

6 Months Ended

Jun. 30, 2015

Liquidity

LIQUIDITY

The Company used cash in its operating activities of $4,082 for the six months ended June 30, 2015. As of June 30, 2015, the Company has a working capital deficit of $11,538 and an accumulated deficit of $427,587. The Company incurred a loss from operations of $24,564 for the six months ended June 30, 2015 and $215,167 for the year ended December 31, 2014. While these operating losses include significant noncash charges for items such as impairment of long-lived assets, advisory agreement warrants and stock-based compensation, the Company also incurred significant cash-based expenses related to four business combinations completed in 2014 and an aborted public offering of the Company’s common shares during the fourth quarter of 2014. The pace of the acquisitions in 2014 resulted in unanticipated difficulties in fully integrating the newly acquired business units, resulting in inefficiencies that contributed to the Company’s operating losses.

The Company has relied on debt and equity financings to fund its acquisitions and negative operating cash flows over the past 18 months. The Company was in technical default of its debt obligations as of December 31, 2014. As a result of these and other factors, the Company’s capital resources may be insufficient to enable full execution of its global business plan in the near term. These conditions create substantial doubt about the Company’s ability to meet its financial obligations and to continue as a going concern.

During the first six months of 2015, the Company completed the following actions to improve liquidity and operating results:

• Term debt financing in the aggregate original principal amount of $47,214 was obtained in the second quarter of 2015. This financing enabled the repayment or restructuring of debt that had been in default as of December 31, 2014, and the renegotiation with lenders to eliminate some of the highly dilutive features contained in previous debt instruments and warrants.

• 15% Notes for $19,457 in principal were restructured to reduce the interest rate from 15.0% to 8.0% and the maturity date was extended for 18 months until July and August of 2016.

• As of December 31, 2014, the Company owed an aggregate of $11,000 for the VIP Promissory Notes and $5,000 for a related earnout payment. The term debt financing enabled the repayment of $8,000 of the VIP Promissory Notes and deferral of the repayment date for the $5,000 earnout until December 2017.

• In June 2015, the Company obtained an asset-based working capital loan that provides for future borrowings up to $6,000 to fund working capital needs. As of June 30, 2015, no amounts had been borrowed under this Revolving Loan Agreement.

• Completed favorable settlements with former executives, suppliers and service providers which resulted in some payments being eliminated and others were deferred over an extended period.

• Added key employees to address needs in the accounting and information technology functions.

While significant uncertainty remains, management’s plans are now keenly focused on profitable growth and improving cash flows from operating activities through the following key initiatives designed to improve efficiency and lower costs:

• Establish VIP as an international premium brand

• Utilize FIN and Vapestick as traditional retail brands

• Expand profitably into non-traditional channels

• Strengthen the organizational talent base

• Become a low-cost provider

• Improve working capital

Management believes the financing actions taken in the first six months of 2015 are a significant step and, combined with the successful execution of management’s plans, will provide adequate capital resources to carry out planned activities over the following year. While management believes the Company will generate adequate cash flows to continue operations in the normal course of business for the foreseeable future, there can be no assurance that it will ultimately be able to do so. These consolidated financial statements do not include any adjustments to the recoverability and valuation of assets or the amounts and classification of liabilities if the Company is unable to continue as a going concern.