SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2016

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

On May 5, 2016, the U.S. Food and Drug Administration (“FDA”) issued a final rule deeming certain products to be subject to the Federal Food, Drug, and Cosmetic Act and regulations thereunder, which includes regulation of electronic cigarettes (“E-cigarettes”).  The effective date of the FDA rules is August 8, 2016. The Company’s contract manufacturers have 3 years to comply with the regulations. Pertinent sections to the Company of the final rule include:

• Sale to minors are prohibited.

• Starting in 2 years E-cigarettes packaging must display a warning that the product contains nicotine.

• Manufacturers of E-cigarettes have 3 years to obtain approval for their products from the FDA.

• Producers of liquids will need to obtain FDA approval for the mix of ingredients in their liquid. Several manufacturers of liquid nicotine and other ingredients which are used to produce the liquids are already FDA compliant.

The FDA approval process will be phased in, whereby the Company will have up to two years to submit applications to obtain approval to continue to sell its existing products. The Company may continue to sell existing products during this two-year period, and can continue to sell existing products for an additional year while the FDA reviews the Company’s applications. Failure to obtain approval for any of the Company’s existing products would prevent the marketing and sale of such products in the United States beginning in August 2019, which could have a material adverse effect on the Company’s business, financial condition and results of operations at that time.

In addition, the regulations require the Company to obtain pre-market approval before introducing new products in the United States. The pre-market approval could take any of the following three pathways: (i) submission of a substantial equivalence (“SE”) report and receipt of an SE order; (ii) submission of a request for an exemption from SE requirements and receipt of an SE exemption determination, or (iii) submission of a premarket tobacco product application (“PMTA”) and receipt of a marketing authorization order which is essentially equivalent to obtaining FDA approval to market a new drug. The Company intends to pursue the SE assertion related to our products, which would result in the least onerous pathway to FDA approval. However, no assurance can be provided that the Company will be successful in obtaining FDA approval under any of the three pathways.

The Company cannot predict the impact these new regulations will have on its business and what additional restrictions the FDA may subsequently impose. In this regard, total compliance and related costs are not possible to predict. The costs of compliance by the Company and its suppliers will likely result in higher costs to purchase the Company’s products. To the extent it is not possible to pass increased costs on to customers, the Company’s financial results will likely deteriorate. Additionally, if the Company is unable to secure FDA approval to continue selling its existing products and any new products targeted for introduction, the Company’s net sales will be adversely impacted beginning in 2019. The ultimate outcome of these matters could have a material adverse effect on the Company’s business, results of operations and financial condition.