LIQUIDITY

9 Months Ended

Sep. 30, 2015

Liquidity

LIQUIDITY

The Company used cash in its operating activities of $6,515 for the nine months ended September 30, 2015. As of September 30, 2015, the Company has a working capital deficit of $34,129 and an accumulated deficit of $418,358. The Company incurred a loss from operations of $28,689 for the nine months ended September 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 stock 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. On September 30, 2015, the Company entered into a Forbearance Agreement with a major term loan lender since the Company did not have adequate capital resources to satisfy the cash payment of $1,251 of accrued interest.

Over the past two fiscal years, the Company has relied on debt and equity financings to fund its acquisitions and negative operating cash flows. As of September 30, 2015, convertible debt in the aggregate principal balance of $24,734 matures during the 12 months ending September 30, 2016. If the market price of the Company’s common stock does not increase above the conversion prices that range between $0.45 and $0.75 per share, the conversion options will not be exercised and the Company will be required to make cash payments to retire the maturing principal and accrued interest. Even if the market price of the Company’s common stock is higher than the conversion price, there is no assurance that holders will convert which would require the Company to pay cash. As a result of these and other factors, the Company’s capital resources may be insufficient to enable the execution of its global business plan in the near term. These and other conditions create ongoing substantial doubt about the Company’s ability to meet its financial obligations and to continue operating as a going concern in the normal course of business.

During the period from January 1, 2015 through October 30, 2015, the Company completed the following actions to improve liquidity and operating results:

• As discussed in Note 17, on October 30, 2015 the Company obtained additional Term Debt Financing for $18,000. The loan proceeds were used for (i) repayment of convertible debt (including accrued interest and prepayment penalties) for $5,272, (ii) repayment of all amounts outstanding under the ExWorks Revolving Loan Agreement for $4,538, (iii) settlement of delinquent trade payables and costs of the financing for $4,074, and (iv) repayment of $500 on the VIP Promissory Notes. The remaining $3,616 is available for working capital and other general corporate purposes.

• 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 in the first quarter of 2015 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 April 2015 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 September 30, 2015, borrowings under this Revolving Loan Agreement amounted to $2,788 and the Company had unused borrowing availability of $2,076.

• During each of the first three quarters of 2015, the Company completed favorable settlements with former executives, and certain current and former 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 about our ability to continue as a going concern 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 Must Have Limited (“VIP”) as an international premium brand

• Utilize FIN Electronic Cigarette Corporation, Inc. (“FIN”) and Vapestick Holdings Limited (“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 actions outlined above represent significant progress to improve liquidity and position the Company for profitable growth. In combination with the successful execution of management’s plans to further improve efficiency and lower costs, management believes adequate capital resources exist to carry out planned activities through the second quarter of 2016. If the market price of the Company’s common stock does not increase sufficiently to incentivize conversion of $19,457 of outstanding convertible debt that matures by the third quarter of 2016, the Company will be required to seek additional financing or renegotiate an extended due date, of which there can be no assurance that either tactic will be successful. Also, additional financing may be necessary if the Company is unsuccessful in its defense of ongoing patent infringement litigation discussed in Note 15.

While management believes the Company will generate adequate cash flows to continue operations in the normal course of business for the reasonably 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 for the recoverability and valuation of assets or the amounts and classification of liabilities if the Company is unable to continue as a going concern.