10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ 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 TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 000-19001

VAPOR CORP.

(Exact name of Registrant as specified in its charter)

Delaware	84-1070932
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3001 Griffin Road Dania Beach, FL	33312
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 888-766-5351

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.    þ  Yes    ¨  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).    þ  Yes    ¨  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.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	þ

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

As of May 15, 2014, there were 16,456,911 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2014 (Unaudited) and December 31, 2013	3
Condensed Consolidated Statements of Operations for the Three Months Ended March  31, 2014 and 2013 (Unaudited)	4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March  31, 2014 and 2013 (Unaudited)	5
Notes to Condensed Consolidated Financial Statements (Unaudited)	6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
ITEM 4. Controls and Procedures	23
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings	24
ITEM 1.A. Risk Factors	24
ITEM 6. Exhibits	24
Signatures	25
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

VAPOR CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2014			December 31, 2013
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	4,109,471		$	6,570,215
Due from merchant credit card processor, net of reserve for chargebacks of $2,500 and $2,500, respectively		120,280			205,974
Accounts receivable, net of allowance of $170,519 and $256,833, respectively		1,866,652			1,802,781
Inventories		4,246,067			3,321,898
Prepaid expenses and vendor deposits		1,241,985			1,201,040
Deferred tax asset, net		1,520,747			766,498
TOTAL CURRENT ASSETS		13,105,202			13,868,406
Property and equipment, net of accumulated depreciation of $31,767 and $27,879, respectively		29,592			28,685
Other assets		90,284			65,284
TOTAL ASSETS	$	13,225,078		$	13,962,375
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,417,208		$	1,123,508
Accrued expenses		551,643			420,363
Term loan		297,116			478,847
Customer deposits		154,870			182,266
Income taxes payable		4,106			5,807
TOTAL CURRENT LIABILITIES		2,424,943			2,210,791
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued		—			—
Common stock, $.001 par value, 50,000,000 shares authorized, 16,614,528 and 16,214,528 shares issued and 16,264,528 and 16,214,528 outstanding, respectively		16,614			16,214
Additional paid-in capital		13,615,934			13,115,024
Accumulated deficit		(2,832,413	)		(1,379,654	)
TOTAL STOCKHOLDERS’ EQUITY		10,800,135			11,751,584
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	13,225,078		$	13,962,375

See notes to unaudited condensed consolidated financial statements

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VAPOR CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For The Three Months Ended March 31,
	2014			2013
SALES, NET	$	4,792,544		$	6,360,749
Cost of goods sold		3,831,928			3,708,806
GROSS PROFIT		960,616			2,651,943
EXPENSES:
Selling, general and administrative		2,769,726			1,606,098
Advertising		367,615			851,201
Total operating expenses		3,137,341			2,457,299
Operating (loss) income		(2,176,725	)		194,644
Other expense:
Interest expense		28,434			66,510
Total other expense		28,434			66,510
(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE		(2,205,159	)		128,134
Income tax (benefit) expense		(752,400	)		4,590
NET (LOSS) INCOME	$	(1,452,759	)	$	123,544
(LOSS) EARNINGS PER COMMON SHARE – BASIC	$	(0.09	)	$	0.01
(LOSS) EARNINGS PER COMMON SHARE – DILUTED	$	(0.09	)	$	0.01
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC		16,267,750			12,038,847
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – DILUTED		16,267,750			12,270,668

See notes to unaudited condensed consolidated financial statements

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VAPOR CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For The Three Months Ended March 31,
	2014			2013
OPERATING ACTIVITIES:
Net (loss) income	$	(1,452,759	)	$	123,544
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Change in allowances		(86,314	)		9,000
Depreciation		3,888			2,962
Amortization of debt discount		—			5,337
Stock-based compensation expense		610,414			15,605
Deferred income tax benefit		(754,249	)		—
Changes in operating assets and liabilities:
Due from merchant credit card processors		85,694			181,791
Accounts receivable		22,443			(247,701	)
Inventories		(924,169	)		(64,062	)
Prepaid expenses and vendor deposits		(40,945	)		(58,109	)
Other assets		(25,000	)		—
Accounts payable		293,700			28,569
Accrued expenses		131,280			9,164
Customer deposits		(27,396	)		(399,142	)
Income taxes		(1,701	)		4,590
NET CASH USED IN OPERATING ACTIVITIES		(2,165,114	)		(388,452	)
INVESTING ACTIVITIES:
Purchases of property and equipment		(4,795	)		(8,057	)
NET CASH USED IN INVESTING ACTIVITIES:		(4,795	)		(8,057	)
FINANCING ACTIVITIES
Offering costs		(109,104	)		—
Proceeds from issuance of senior convertible note payable		—			500,000
Principal payments on term loan payable		(181,731	)		—
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(290,835	)		500,000
(DECREASE) INCREASE IN CASH		(2,460,744	)		103,491
CASH — BEGINNING OF PERIOD		6,570,215			176,409
CASH — END OF PERIOD	$	4,109,471		$	279,900
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	29,077		$	53,168
Cash paid for income taxes	$	3,550		$	—

See notes to unaudited condensed consolidated financial statements

5

VAPOR CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

Vapor Corp. (the “Company”) is the holding company for its wholly owned subsidiary Smoke Anywhere U.S.A., Inc. (“Smoke”). The Company designs, markets and distributes electronic cigarettes, vaporizers, e-liquids and accessories under the Krave^®, VaporX^®, Hookah Stix^®, Alternacig^®, Fifty-One^® (also known as Smoke 51), EZ Smoker^®, Green Puffer^®, Americig^®, Fumaré™ and Smoke Star^® brands. “Electronic cigarettes” or “e-cigarettes,” designed to look like traditional cigarettes, are battery-powered products that enable users to inhale nicotine vapor without smoke, tar, ash, or carbon monoxide.

Reincorporation

The Company reincorporated to the State of Delaware from the State of Nevada effective on December 31, 2013. The reincorporation was effected in accordance with the Company’s obligation to reincorporate to the State of Delaware from the State of Nevada not later than December 31, 2013, in connection with the Company’s completion of a private placement of 3,333,338 shares of common stock at a per share price of $3.00 for gross proceeds of $10 million, which closed on October 29, 2013 (as described under “Private Placement of Common Stock” in Note 4 below).

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required for audited annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the condensed consolidated financial statements not misleading have been included. The condensed consolidated balance sheet at December 31, 2013 has been derived from the Company’s audited consolidated financial statements as of that date.

These unaudited condensed consolidated financial statements for the three months ended March 31, 2014 and 2013 should be read in conjunction with the audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on February 26, 2014. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014.

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Reverse Stock Split

Effective on December 27, 2013, the Company effected a reverse stock split of its common stock at a ratio of 1-for-5. As a result of the reverse stock split, the Company’s share capital was reduced to 51,000,000 shares from 251,000,000 shares, of which 50,000,000 shares are common stock and 1,000,000 shares are “blank check” preferred stock. All references in these notes and in the related condensed consolidated financial statements to number of shares, price per share and weighted average number of shares outstanding of common stock prior to the reverse stock split (including the share capital decrease) have been adjusted to reflect the reverse stock split (including the share capital decrease) on a retroactive basis, unless otherwise noted.

Note 2. SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany transactions and balances have been eliminated.

Use of estimates in the preparation of the financial statements

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of net revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include allowances, reserves and write-downs of receivables and inventory, valuing equity securities, stock-based payment arrangements, deferred taxes and valuation allowances. Certain of our estimates could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and records adjustments when necessary.

Revenue recognition

The Company recognizes revenue from product sales or services rendered when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.

Product sales and shipping revenues, net of promotional discounts, rebates, and return allowances are recorded when the products are shipped, title passes to customers and collection is reasonably assured. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon the Company’s delivery to the carrier. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon the Company’s delivery to the carrier. Return allowances, which reduce product revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales and consumption taxes.

The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases, inducement offers, such as offers for future discounts subject to a minimum current purchase, and other similar offers. Current discount offers, when accepted by the Company’s customers, are treated as a reduction to the purchase price of the related transaction, while inducement offers, when accepted by its customers, are treated as a reduction to the purchase price of the related transaction based on estimated future redemption rates. Redemption rates are estimated using the Company’s historical experience for similar inducement offers. The Company reports sales net of current discount offers and inducement offers, on its condensed consolidated statements of operations.

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Accounts Receivable

Accounts receivable, net is stated at the amount the Company expects to collect. The Company provides a provision for allowances that includes returns, allowances and doubtful accounts equal to the estimated uncollectible amounts. The Company estimates its provision for allowances based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the provision for allowances will change.

At March 31, 2014 accounts receivable balances included a concentration from two customers of an amount greater than 10% of the total net accounts receivable balance ($280,560 from Customer A and $235,947 from Customer B). At December 31, 2013 accounts receivable balances included a concentration from one customer of an amount greater than 10% of the total net accounts receivable balance ($286,768 from Customer B). As to revenues, no customers accounted for revenues in excess of 10% of the net sales for the three-month periods ended March 31, 2014 and 2013.

Inventories

Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. If the cost of the inventories exceeds their market value, provisions are recorded to write down excess inventory to its net realizable value. The Company’s inventories consist primarily of merchandise available for resale.

Income Taxes

The (benefit) provision for income taxes is based on (loss) income before income tax (benefit) expense reported for financial statement purposes after adjustments for transactions that do not have tax consequences. Deferred tax assets and liabilities are realized according to the estimated future tax consequences attributable to differences between the carrying value of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates as of the date of the condensed consolidated balance sheets. The effect of a change in tax rates on deferred tax assets and liabilities is reflected in the period that includes the statutory enactment date. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management has determined that a valuation allowance is not required at March 31, 2014 and December 31, 2013, to reduce the deferred tax assets for the amounts that will likely not be realized. Should the factors underlying management’s analysis change, future valuation adjustments to the Company’s net deferred tax assets may be necessary.

The Company recognizes a liability for uncertain tax positions. An uncertain tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law and which is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes.

In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter. Income tax (benefit) expense for the three months ended March 31, 2014 and 2013 was ($752,400) and $4,590, respectively. The effective tax rate for the three months ended March 31, 2014 differs from the U.S. federal statutory rate of 34% primarily due to

8

utilization of net operating losses and certain permanent differences between tax reporting purposes and financial reporting purposes. The Company files U.S. and state income tax returns in jurisdictions with various statutes of limitations. At March 31, 2014 the Company had federal and state net operating losses of $1,841,082 and $1,632,554, respectively. These net operating losses expire in 2032. Utilization of the Company’s net operating losses may be subject to annual limitation due to ownership change limitations that may have occurred or that could occur in the future with respect to the stock ownership of the Company, as required by section 382 of the Internal Revenue Service Code of 1986, as amended, as well as similar state provisions. These ownership changes may limit the amount of net operating losses that can be utilized annually to offset future taxable income and tax respectively.

Fair value measurements

The Company applies the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” (“ASC 820”). The Company’s short term financial instruments include cash, due from merchant credit card processors, accounts receivable, accounts payable and accrued expenses, each of which approximate their fair values based upon their short term nature. The Company’s other financial instruments include notes payable obligations. The carrying value of these instruments approximate fair value, as they bear terms and conditions comparable to market, for obligations with similar terms and maturities.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1 – quoted prices in active markets for identical assets or liabilities; Level 2 – quoted prices for similar assets and liabilities in active market or inputs that are observable; and Level 3 – inputs that are unobservable.

Stock-Based Compensation

The Company accounts for stock-based compensation under ASC Topic No. 718, “Compensation-Stock Compensation” (“ASC 718”). These standards define a fair value based method of accounting for stock-based compensation. In accordance with ASC 718, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes-Merton valuation model, whereby compensation cost is the fair value of the award as determined by the valuation model at the grant date or other measurement date. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.

Recent Accounting Pronouncements

The Financial Accounting Standards Board, the Emerging Issues Task Force and the SEC have issued certain accounting standards, updates and regulations as of March 31, 2014 that will become effective in subsequent periods; however, management of the Company does not believe that any of those standards, updates or regulations would have significantly affected the Company’s financial accounting measures or disclosures had they been in effect during the three months ended March 30, 2014 or 2013, and it does not believe that any of them will have a significant impact on the Company’s condensed consolidated financial statements at the time they become effective.

Note 3. FACTORING FACILITY AND TERM LOAN PAYABLE

Factoring Facility

On August 8, 2013, the Company and Smoke entered into an accounts receivable factoring facility (the “Factoring Facility”) with Entrepreneur Growth Capital, LLC (the “Lender”) pursuant to an Invoice Purchase and Sale Agreement, dated August 8, 2013, by and among them (the “Factoring Agreement”). During the three months ended March 31, 2014, the Company did not borrow under the Factoring Facility. At March 31, 2014 and December 31, 2013 the Company had no borrowings outstanding under the Factoring Facility.

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Term Loan

On August 16, 2013, the Company and Smoke entered into a $750,000 term loan (the “Term Loan”) with the Lender pursuant to a Credit Card Receivables Advance Agreement, dated August 16, 2013, by and among them (the “Term Agreement”). The Term Loan matures on August 15, 2014 (or earlier generally upon termination of the Factoring Agreement), is payable from the Company’s and Smoke’s current and future merchant credit card receivables at the annual rate of 16% subject to the Lender retaining a daily fixed amount of $3,346 from the daily collection of the merchant credit card receivables and is secured by a security interest in substantially all of the Company’s assets. The Company used the proceeds of the Term Loan for general working capital purposes.

At March 31, 2014 and December 31, 2013 the Company had $297,116 and $478,847 of borrowings outstanding under the Term Loan, respectively. During the three months ended March 31, 2014 and 2013, the Company recorded $28,434 and $0 in interest expense for the Term Loan, respectively, and this amount is included in interest expense in the accompanying condensed consolidated statements of operations.

Note 4. STOCKHOLDERS’ EQUITY

Issuance of Common Stock

On February 3, 2014, the Company entered into a consulting agreement (the “Consulting Agreement”) with Knight Global Services, LLC (“Knight Global”) pursuant to which the Company retained Knight Global to assist the Company with increasing awareness of its electronic cigarette brands as well as assisting the Company to expand and diversify its relationships with large retailers and national chains. Knight Global is a wholly owned subsidiary of Knight Global, LLC of which Ryan Kavanaugh is an investor and principal. Effective March 5, 2014, the Board of Directors of the Company elected Mr. Kavanaugh as a member of the Board of Directors in accordance with the Consulting Agreement. Knight Global serves as the family office for Mr. Kavanaugh. Mr. Kavanaugh is the Founder and Chief Executive Officer of Relativity, a next-generation media company engaged in multiple aspects of entertainment, including film production; financing and distribution; television; sports management; music publishing; and digital media.

Under the terms of the Consulting Agreement, the Company has issued to Mr. Kavanaugh 400,000 shares of its common stock, of which 50,000 shares have vested immediately while the remaining 350,000 shares will vest in installments of 50,000 shares per quarterly period beginning on the 90th day following February 3, 2014 and each ensuing quarterly period thereafter so long as the Consulting Agreement has not been terminated and during each quarterly period Knight Global has presented the Company with a minimum of six (6) bona fide opportunities for activities specified in the Consulting Agreement that are intended to increase awareness of the Company’s electronic cigarettes. In addition, during the term of the Consulting Agreement, which is 2 years, and during an 18-month post-termination period, the Company has agreed to pay Knight Global commissions payable in cash equal to 6% of “net sales” (as defined in the Consulting Agreement) of its products to retailers introduced by Knight Global and to retailers with which the Company has existing relationships and with which Knight Global is able, based on its verifiable efforts, to increase net sales of the Company’s products.

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The grant date fair value of the common shares issued on February 3, 2014 was $3,080,000 based on closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, on February 3, 2014. During the three months ended March 31, 2014 and 2013, the Company recognized stock-based compensation expense, for the Consulting Agreement, in the amount of $592,300 and $0, which is included as part of selling, general and administrative expense in the accompanying condensed consolidated statements of operations.

The Consulting Agreement is terminable by the Company between 181 days and 364 days after February 3, 2014 if Knight Global is not performing the consulting services in accordance with the terms of the Consulting Agreement subject to the Company providing Knight Global with written notice of non-performance and Knight Global having a 30-day cure period to cure such non-performance. In the event of such termination, in addition to delivering previously vested shares and commission payments due and owing Knight Global, 50,000 of the unvested shares subject to quarterly vesting as described above shall automatically vest and be delivered by the Company to Mr. Kavanaugh and Knight Global shall be entitled to commission payments during the 18-month post-termination period.

The Consulting Agreement is terminable by Knight Global, at any time, and the Company, after the termination period described in the preceding paragraph, for a material uncured breach of the Consulting Agreement, provided that the terminating party has provided the other party with written notice of material breach and a 30-day cure period (or longer under certain circumstances if the breach is not curable within such 30-day period and such party has initiated curative action within such 30-day period and thereafter diligently and continuously pursues such curative action until the breach has been cured). A breach by either party is not deemed to be material unless it causes economic harm to the other party. If the terminating party desires to terminate the Consulting Agreement after the notice and cure period on the basis that the other party has not cured the breach then the terminating party, within 30 days following expiration of the cure period, is required to initiate arbitration in the Delaware Court of Chancery to determine whether the other party has materially breached the Consulting Agreement.

Private Placement of Common Stock

On October 22, 2013, the Company entered into a purchase agreement (the “Purchase Agreement”) with various institutional and individual accredited investors and certain of its officers and directors to raise gross proceeds of $10 million in a private placement of 3,333,338 shares of its common stock at a per share price of $3.00 (the “Private Placement”). On October 29, 2013, the Company completed the Private Placement. The Company received net proceeds from the Private Placement of approximately $9.1 million, after paying placement agent fees and estimated offering expenses, which the Company will use to fund its growth initiatives and for working capital purposes.

Pursuant to the Purchase Agreement, concomitantly with completion of the Private Placement, the Company entered into a registration rights agreement with the investors (other than its participating officers and directors), pursuant to which the Company filed with the SEC an initial registration statement to register for resale the 3,216,171 shares of the Company’s common stock purchased by the investors (other than the Company’s participating officers and directors). The initial registration statement was declared effective by the SEC on January 27, 2014. On March 5, 2014, the Company filed a post-effective amendment to the initial registration statement. The post-effective amendment to the initial registration statement was declared effective by the SEC on March 11, 2014. The post-effective amendment does not include 1,035,732 shares of the Company’s common stock that were previously sold under the initial registration statement. If the post-effective amendment to the initial registration statement is not effective for resales for more than 20 consecutive days or more than 45 days in any 12 month period during the registration period (i.e., the earlier of the date on which the shares have been sold or are eligible for sale under SEC Rule 144 without restriction), the Company is required to pay the investors (other than the Company’s participating officers and directors) liquidated damages in cash equal to 1.5% of the aggregate purchase price paid by the investors (other than the Company’s participating officers and directors) for the shares for every 30 days or portion thereof until the default is cured. These cash payments could be as much as $98,120 for every 30 days.

Under the terms of the Purchase Agreement, the Company:

• Amended its existing equity incentive plan on November 20, 2013 to reduce the number of shares of its common stock reserved and available for issuance under the plan to 1.8 million from 8 million.

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• Effectuated a reverse stock split of its common stock at a ratio of 1-for-5, which became effective in the marketplace at the opening of business December 27, 2013.

• Reincorporated to the State of Delaware effective on December 31, 2013.

• Reconstituted its board of directors effective April 25, 2014 so that as so reconstituted, the board of directors consists of five members, a majority of whom each qualify as an “independent director” as defined in NASDAQ Marketplace Rule 5605(a)(2) and the related NASDAQ interpretative guidance (as described under “Reconstitution of the Board” in Note 6 below); and

• Is required no later than July 29, 2014 to list its common stock on The NASDAQ Capital Market and up until such time as the listing is accomplished the Company is required to comply with all NASDAQ rules (other than NASDAQ’s board composition, board committee, minimum bid price and similar listing requirements), such as holding annual meetings and the timely filing of proxy statements.

Warrants

A summary of warrant activity for the three months ended March 31, 2014 is presented below:

	Number of Warrants		Weighted- Average Exercise Price		Weighted- Average Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014		215,880		3.23
Warrants granted		—		—
Warrants exercised		—		—
Warrants forfeited or expired		—		—
Outstanding at March 31, 2014		215,880	$	3.23		5.0	$	727,516
Exercisable at March 31, 2014		215,880	$	3.23		5.0	$	727,516

Stock-based Compensation

During the three months ended March 31, 2014 and 2013, the Company recognized stock-based compensation expense in connection with the amortization of stock option expense of $18,106 and $10,688, respectively, which is included as part of selling, general and administrative expense in the accompanying condensed consolidated statements of operations. The amounts relate to the previously granted options and the granting of options during the first quarter of 2014 to a Director and to an employee to purchase 72,000 shares of the Company’s common stock with an exercise price of $8.30 per share which vest in 3 annual installments valued at $178,992.

The fair value of employee stock options was estimated using the following weighted-average assumptions:

	For Three Months Ended March 31, 2014
Expected term		5 -7 years
Risk Free interest rate		1.57	%
Dividend yield		0.0	%
Volatility		31	%

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No employee stock options were granted during the first quarter of 2013.

Stock option activity

Options outstanding at March 31, 2014 under the various plans are as follows (in thousands):

Plan	Total Number of Options Outstanding under Plans
Equity compensation plans not approved by security holders		900
Equity Incentive Plan		275
		1,175

A summary of activity under all option Plans at March 31, 2014 and changes during the three months ended March 31, 2014 (in thousands, except per share data):

	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014		1,119	$	2.17		6.89	$	7,815
Options granted		72		8.30		5.83		—
Options exercised		—		—		—		—
Options forfeited or expired		16		1.47		10.00		—
Outstanding at March 31, 2014		1,175	$	2.55		6.78	$	4,753
Exercisable at March 31, 2014		989	$	2.167		6.36	$	4,384
Options available for grant at March 31, 2014		1,482

At March 31, 2014 the amount of unamortized stock-based compensation expense on unvested stock options granted to employees and consultants was $307,076.

Earnings (loss) per share

Basic earnings and loss per share are computed by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and the conversion of the Company’s convertible debt and warrants (using the if-converted method). Diluted loss per share excludes the shares issuable upon the exercise of stock options from the calculation of net loss per share, as their effect is antidilutive.

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The following table reconciles the numerator and denominator for the calculation:

	For the Three Months Ended March 31,
	2014			2013
Net (loss) income—basic	$	(1,452,759	)	$	123,544
Denominator – basic:
Weighted average number of common shares outstanding		16,463,417			12,038,847
Basic (loss) earnings per common share	$	(0.09	)	$	0.01
Net (loss) income—diluted	$	(1,452,759	)	$	123,544
Denominator – diluted:
Weighted average number of common shares outstanding		16,463,417			12,038,847
Weighted average effect of dilutive securities:
Common share equivalents of outstanding stock options		—			224,816
Common share equivalents of outstanding convertible debt		—			—
Common share equivalents of outstanding warrants		—			7,005
Weighted average number of common shares outstanding		16,463,419			12,070,668
Diluted (loss) earnings per common share	$	(0.09	)	$	0.01
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive:
Convertible debt		—			665,419
Stock options		1,174,500			—
Warrants		215,880			8,142

Note 5. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases its Florida office and warehouse facilities under a twenty-four month lease agreement with an initial term through April 30, 2013 that the Company extended in March 2013 and 2014 when it exercised the first and second of three successive one-year renewal options. The lease provides for annual rental payments of $144,000 per annum (including 45 days of total rent abatement) during the initial twenty-four month term and annual rental payments of $151,200, $158,760 and $174,636 during each of the three one-year renewal options. In October 2013, the Company amended the master lease to include an additional approximately 2,200 square feet for an additional annual rental payment of $18,000 subject to the same renewal options and other terms and conditions set forth in the master lease.

The remaining minimum annual rents for the years ending December 31 are:

2014	$	131,940
2015		58,920
Total	$	190,860

Rent expense for the three months ended March 31, 2014 and 2013 was $44,838 and $38,160, respectively, and is included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.

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Legal Proceedings

From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of our business. There were no pending material claims or legal matters as of the date of this report other than two of the three following matters.

On May 15, 2011, the Company became aware that Ruyan Investment (Holdings) Limited (“Ruyan”) had named the Company, along with three other sellers of electronic cigarettes in a lawsuit filed in the U.S. District Court for the Central District of California alleging infringement of U.S. Patent No. 7,832,410, entitled “Electronic Atomization Cigarette.” against the Company’s Fifty-One Trio products. In that lawsuit, which was initially filed on January 12, 2011, Ruyan was unsuccessful in bringing suit against the Company due to procedural rules of the court. Subsequent thereto, on July 29, 2011, Ruyan filed a new lawsuit in which it named the Company, along with seven other sellers of electronic cigarettes, alleging infringement of the same patent. On March 1, 2013, the Company and Ruyan settled this multi-defendant federal patent infringement lawsuit as to them pursuant to a settlement agreement by and between them. Under the terms of the settlement agreement:

• The Company acknowledged the validity of Ruyan’s U.S. Patent No. 7,832,410 for “Electronic Atomization Cigarette” (the “410 Patent”), which had been the subject of Ruyan’s patent infringement claim against the Company;

• The Company paid Ruyan a lump sum payment of $12,000 for the Company’s previous sales of electronic cigarettes based on the 410 Patent; and

• On March 1, 2013, in conjunction with releasing one another (including their respective predecessors, successors, officers, directors and employees, among others) from claims related to the 410 Patent, the Company and Ruyan filed a Stipulated Judgment and Permanent Injunction with the above Court dismissing with prejudice all claims which have been or could have been asserted by them in the lawsuit.

On June 22, 2012, Ruyan filed a second lawsuit against the Company alleging infringement of U.S. Patent No. 8,156,944 (the ‘944 Patent). Ruyan also filed separate cases for patent infringement against nine other defendants asserting infringement of the 944 Patent. Ruyan’s second lawsuit against the Company known as Ruyan Investment (Holdings) Limited vs. Vapor Corp. CV-12-5466 is pending in the United States District Court for the Central District of California. All of these lawsuits have been consolidated for discovery and pre-trial purposes. The Company intends to vigorously defend against this lawsuit.

On February 25, 2013, Ruyan’s second patent infringement lawsuit against the Company as well as all of the other consolidated lawsuits were stayed as a result of the Court granting a stay in one of the consolidated lawsuits. The Court granted the motion to stay Ruyan’s separate lawsuits against the Company and the other defendants based on the filing of a request for inter partes reexamination of the ‘944 Patent at the United States Patent and Trademark Office.

As a result of the stay, all of the consolidated lawsuits involving the ‘944 Patent have been stayed until the reexamination is completed. As a condition to granting the stay of all the lawsuits, the Court required any other defendant who desires to seek reexamination of the 944 Patent and potentially seek another stay (or an extension of the existing stay) based on any such reexamination to seek such reexamination no later than July 1, 2013. Two other defendants sought reexamination of the 944 Patent before expiration of such Court-imposed deadline of July 1, 2013. All reexamination proceedings of the ‘944 Patent have been stayed by the United States Patent and Trademark Office Patent Trial and Appeal Board pending its approval of one or more of them.

On March 5, 2014, Fontem Ventures, B.V. and Fontem Holdings 1 B.V. (the successors to Ruyan) filed a complaint against the Company alleging infringement of U.S. Patent No. 8,365,742, entitled “Aerosol Electronic Cigarette”, U.S. Patent No. 8,375,957, entitled “Electronic Cigarette”, U.S. Patent No. 8,393,331, entitled “Aerosol Electronic Cigarette” and U.S. Patent No. 8,490,628, entitled “Electronic Atomization Cigarette. On April 8, 2014, plaintiffs amended their complaint to add U.S. Patent No. 8,689,805, entitled “Electronic Cigarette.” The products accused of infringement by the plaintiff are various Krave, Fifty-one and Hookah Stix products and parts. Eight other companies were also sued in separate lawsuits alleging infringement of one or more of the patents listed above. The Company filed its Answer and Counterclaims on May 1, 2014. The Company intends to vigorously defend against this lawsuit.

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Related Party Transactions

During the three months ended March 31, 2014 and 2013, the Company paid aggregate interest of $0 and $29,589, respectively to Ralph Frija, the father of the Company’s former Chief Executive Officer Kevin Frija and a less than 5% stockholder, pursuant to a previously outstanding senior note. During the three months ended March 31, 2014 and 2013, the Company paid aggregate interest of $0 and $5,658, respectively to Kevin Frija, a greater than 5% stockholder, pursuant to a previously outstanding senior convertible note. During the three months ended March 31, 2014 and 2013, the Company paid interest of $0 and $4,438, respectively to Doron Ziv, a greater than 5% stockholder, and to Harlan Press, the Company’s Chief Financial Officer, pursuant to previously outstanding senior convertible notes.

Purchase Commitments

At March 31, 2014 and December 31, 2013, the Company has vendor deposits of $690,715 and $782,363, respectively, and vendor deposits are included as a component of prepaid expenses and vendor deposits on the condensed consolidated balance sheets included herewith.

NOTE 6. SUBSEQUENT EVENTS

The Company evaluates events that have occurred after the balance sheet date but before the condensed consolidated financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the accompanying condensed consolidated financial statements other than those set forth below.

Reconstitution of the Board of Directors

Effective April 25, 2014, the Board of Directors (the “Board”) of the Company reconstituted itself to consist of five (5) members, a majority of whom each qualify as an “independent director” as defined in NASDAQ Marketplace Rule 5605(a)(2) and the related NASDAQ interpretative guidance.

Specifically, the Board’s reconstitution consisted of the following:

• the Board elected each of Robert J Barrett III, Angela Courtin, Frank E. Jaumot as a member of the Board to serve until his/her successor is duly elected or until his/her earlier resignation or removal from office. Mr. Barrett, Ms. Courtin and Mr. Jaumot each qualify as an “independent director” as defined by NASDAQ Marketplace Rule 5605(a)(2) and the related NASDAQ interpretative guidance;

• Kevin Frija, and Doron Ziv, incumbent members of the Board, resigned;

• The Board elected Jeffrey Holman, President and an incumbent member of the Board, as Chairman of the Board; and

• the size of the Board was increased to and fixed at five (5) members from four (4) members.

After reconstituting the Board, the five (5) members of the Board are Jeffrey Holman, Robert J Barrett III, Angela Courtin, Frank E. Jaumot and Ryan Kavanaugh.

In addition, the Board granted to each of Mr. Barrett, Ms. Courtin and Mr. Jaumot effective April 25, 2014 a non-qualified stock option award under the Company’s Equity Incentive Plan to purchase up to 60,000 shares of the Company’s common stock at an exercise price per share equal to $6.48 (the closing share price of the Company’s common stock as reported on the OTC Bulletin Board at the close of trading on the grant date). Each of Mr. Barrett’s, Ms. Courtin’s and Mr. Jaumot’s stock options expires on the fifth anniversary of the grant date, vests in equal annual installments over a three-year period from the grant date subject to he/she serving as a member of the Board on each such vesting date and is to be evidenced by a non-qualified stock option agreement customarily utilized under the Equity Incentive Plan.

There are no arrangements or understandings between any of Mr. Barrett, Ms. Courtin and Mr. Jaumot and any other person pursuant to which he/she was selected as a director.

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None of Mr. Barrett, Ms. Courtin and Mr. Jaumot have a direct or indirect material interest in any transaction with the Company involving an amount exceeding the lesser of $120,000 or one percent of the average of the Company’s total assets at year end for the last two completed fiscal years.

Mr. Ziv, a founder of the Company, will continue to serve as an employee of the Company and as a director of the Company’s subsidiary Smoke Anywhere USA, Inc. and is a greater than 5% stockholder of the Company.

Resignation of Chief Executive Officer and Appointment of New Chief Executive Officer

Effective April 25, 2014, Mr. Frija resigned as the Company’s Chief Executive Officer and the Board appointed the Company’s President and incumbent member of the Board, Jeffrey Holman, as the Company’s new Chief Executive Officer.

In connection with Mr. Frija’s resignation as Chief Executive Officer, the Board approved severance payments to Mr. Frija in an aggregate amount equal to one year of base salary at the rate of $159,000 per annum payable in installments in accordance with the Company’s normal payroll schedule conditioned upon his execution and delivery of a general release to the Company, which has become irrevocable in accordance with its terms and applicable law, and his compliance with the non-solicitation, confidentiality and non-competition covenants of his Employment Agreement dated February 27, 2012 with the Company until April 24, 2015 in certain respects and indefinitely in other respects. During the three months ended March 31, 2014 the Company accrued severance expense in the amount of $167,003, which is included as part of the selling, general and administrative expenses in accompanying condensed consolidated statements of operations in connection with Mr. Frija’s resignation.

In addition to serving as a member of the Board, Chairman of the Board and Chief Executive Officer, Mr. Holman, a founder of the Company, will continue to serve as the Company’s President, and as a director of the Company’s subsidiary Smoke Anywhere USA, Inc. and is a greater than 5% stockholder of the Company.

Entry into a material definitive agreement

On May 14, 2014, the Company and its newly formed wholly-owned subsidiary IVGI Acquisition, Inc., a Delaware corporation (the “Buyer”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with International Vapor Group, Inc., a Delaware corporation (“International Vapor”), certain of International Vapor’s subsidiaries (together with International Vapor, the “Sellers”) and the owners of International Vapor (the “Owners”), pursuant to which the Buyer will purchase the Sellers’ Business (as defined below) by acquiring substantially all of the Sellers’ assets and assuming certain of the Sellers’ liabilities in an asset purchase transaction (the “Transaction”).

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The Sellers are engaged in the business of (i) owning certain electronic cigarette and vaporizer brands, including South Beach Smoke^®, EverSmoke^® and Vapor Zone^® and related products and accessories, as well as any other electronic cigarette and vaporizer brands and related products and accessories commercially available and under development by the Sellers (collectively, the “E-Cig Products”), (ii) online sales of the E-Cig Products (the “Online Operations”), (iii) wholesale distribution of the E-Cig Products (the “Wholesale Operations”) and (iv) retail sales of the E-Cig Products (the “Retail Operations” and together with the E-Cig Products, the Online Operations and the Wholesale Operations, the “Business”).

Under the terms of the Purchase Agreement, the “Purchase Price” will be the sum of (x) $20,800,000 (the “Fixed Purchase Price”) plus (y) an earn-out aggregating up to a maximum of $29,200,000 (the “Earn-Out”).

Upon consummation of the Transaction (the “Closing”), the Company will, through the Buyer, pay the Fixed Purchase Price as follows: (i) $1.7 million in cash less any estimated net working capital shortfall of the Sellers and (ii) $19.1 million in 3,300,501 newly issued unregistered shares of the Company’s common stock (the “Fixed Shares”, which number of shares represents the quotient of the $19.1 million divided by $5.787 per share (the 30-trading day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board preceding May 14, 2014, the date of the Purchase Agreement)).

At Closing, 345,602 shares of the Fixed Shares with a value of $2 million will be deposited into escrow with a mutually acceptable escrow agent and will remain in escrow for a period of 27 months following as a non-exclusive source to secure the Sellers’ and the Owners’ indemnification obligations under the Purchase Agreement.

Payments of the Earn-Out are contingent and based upon the post-Closing performance of the Wholesale Operations, the Online Operations and the Retail Operations. Earn-Out payments are limited to $29,200,000 in the aggregate and will be determined as follows:

• Wholesale Operations. An amount equal to 200% of the audited revenues generated from the Wholesale Operations for the twelve (12) beginning on the first day of the month following the month in which the Closing Date occurs (the “Earn-Out Start Date”);

• Online Operations. An amount equal to 100% of the amount by which the aggregate audited revenues generated from the Online Operations and the online sales of the Company and its Affiliates (other than the Online Operations for the twelve (12) full calendar month period beginning on the Earn-Out Start Date) exceed the aggregate audited revenues generated by the Online Operations and the online sales of the Company for the calendar year ended December 31, 2013 subject to certain exclusions; and

• Retail Operations. $50,000 for each Retail Store that is opened by the Company or any of its Affiliates directly, or by franchisees of any of the foregoing, during the twenty four (24) months following the Earn-Out Start Date (the “Measurement Period”) so long as at least 75% of such Retail Stores that are opened during the Measurement Period generate positive cash flow for any three (3) months within any consecutive six (6) month period after being opened during the later of the Measurement Period or the twelve (12) full calendar months after expiration of the Measurement Period subject to certain exclusions.

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Payments of the Earn-Out if and when earned will be paid by the Company, through the Buyer, with newly issued unregistered shares of the Company’s common stock (the number of which will be equal to the quotient of an Earn-Out payment divided by $5.787 per share) (the “Earn-Out Shares”).

The Buyer and the principal Owners Nicolas Molina and David Epstein have entered into Employment Agreements which will become effective at Closing, pursuant to which Messrs. Molina and Epstein will continue to be involved in the Business as conducted by the Buyer. Pursuant to their respective Employment Agreements, Mr. Molina will serve as Senior Vice President of Retail & eCommerce and Mr. Epstein will serve as Vice President of Wholesale.

The Purchase Agreement generally contains customary representations, warranties, covenants and agreements of the parties. The Company’s and Buyer’s obligations and the Sellers’ and Owners’ obligations to consummate the Transaction are subject to certain conditions, including (i) the accuracy of the representations and warranties of the other parties; (ii) performance in all material respects by the other parties of their pre-Closing covenants and agreements; and (iii) that there has been no “Buyer/Parent Material Adverse Effect” or “Seller/Owner Material Adverse Effect” (as such terms are defined in the Purchase Agreement), as applicable, of the other parties.

In addition, consummation of the Transaction is conditioned upon the Company obtaining stockholder approval for issuance of the Fixed Shares and the Earn-Out Shares.

The Company expects to consummate the Transaction as soon as possible but not later than July 31, 2014.

Each of the Company and the Buyer and International Vapor and the Owners (severally, but not jointly, and ratably) have post-Closing indemnity obligations under the Purchase Agreement for breaches of their representations and warranties as well as their pre- and post-Closing covenants and agreements which are subject to specified caps, baskets, limits and survival periods depending on the nature of the indemnity claim. These indemnity obligations are the sole and exclusive remedy and recourse of the parties subject to limited exceptions for fraud and specific performance.

The Purchase Agreement is terminable by either the Company or International Vapor if the Transaction is not consummated by July 31, 2014 due to no fault of the terminating party.

If the Purchase Agreement is terminated by International Vapor because the Company has willfully and intentionally breached the Purchase Agreement, which includes the failure of the Company’s stockholders to approve the issuance of the Fixed Shares and the Earn-Out Shares, then the Company is required to pay International Vapor a $500,000 break-up fee in cash within two (2) business days following the date of termination of the Purchase Agreement. International Vapor is equally required to pay the Company a $500,000 break-up fee in cash if the Company terminates the Purchase Agreement because the Sellers or the Owners have willfully and intentionally breached the Purchase Agreement.

If the Purchase Agreement is terminated by either International Vapor or the Company because the non-terminating party breached the Purchase Agreement and such breach was unintentional then the non-terminating party is required to reimburse the terminating party for all out-of-pocket fees and expenses incurred by the terminating party up to a maximum of $300,000.

At the Closing, the Company is required to enter into a Registration Rights Agreement with International Vapor and the Owners, pursuant to which the Company will be required to file one or more shelf registration statements with the Securities and Exchange Commission registering for resale by International Vapor and the Owners the Fixed Shares and the Earn-Out Shares.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report.

Forward-Looking Statements

This quarterly report contains forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. When used in this report, the words “believe,” “anticipate,” “expect,” “will,” “estimate,” “intend”, “plan” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved. Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and in our subsequent filings with the SEC, and include, among others, the following: competition, consumer acceptance of our products, changes in customer preferences, reliance on Chinese suppliers and manufacturers, government regulation, product liability claims and the availability, terms and deployment of capital. The terms “Vapor Corp.,” “Vapor,” “we,” “us,” “our,” and the “Company” refer to Vapor Corp. and its wholly owned subsidiary Smoke Anywhere USA, Inc. and the terms “Smoke Anywhere USA,” and “Smoke” refer to our wholly owned subsidiary Smoke Anywhere USA, Inc.”

Executive Overview

The Company designs, markets and distributes electronic cigarettes, vaporizers, e-liquids and accessories under the Krave^®, VaporX^®, Hookah Stix^®, Alternacig^®, Fifty-One^® (also known as Smoke 51), EZ Smoker^®, Green Puffer^®, Americig^®, Fumaré^TM, and Smoke Star^® brands. “Electronic cigarettes” or “e-cigarettes,” are battery-powered products that enable users to inhale nicotine vapor without fire, smoke, tar, ash, or carbon monoxide.

The Company participates directly in the highly competitive and fragmented e-cigarette and e-vaporizer market, which includes competition from tobacco companies. Electronic cigarettes, vaporizers and e-liquids are relatively new products and the Company is continually working to introduce its product and brands to customers. The Company believes increased investment in marketing and advertising programs is critical to increasing product and brand awareness and that sales of its innovative and differentiated products are enhanced by knowledgeable salespersons who can convey the value and benefits electronic cigarettes have to offer over traditional tobacco burning cigarettes.

The Company’s business strategy leverages its ability to design, market and develop multiple e-cigarette brands and to bring those brands to market through its multiple distribution channels. The Company sells its products through its online stores, its direct response television marketing efforts, to retail channels through its direct sales force, and through third-party wholesalers, retailers, and value-added resellers.

Critical Accounting Policies and Estimates

In response to the SEC’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, we have selected for disclosure our revenue recognition process and our accounting processes involving significant judgments, estimates and assumptions. These processes affect our reported revenues and current assets and are therefore critical in assessing our financial and operating status. We regularly evaluate these processes in preparing our condensed consolidated financial statements. The processes for determining allowances, reserves and write-downs of trade receivables and inventory, the valuation of equity securities, stock-based compensation, deferred taxes and related valuation allowances involve certain assumptions and estimates that we believe to be reasonable under present facts and circumstances. These estimates and assumptions, if incorrect, could adversely impact our operations and financial position. There were no changes to our critical accounting policies during the quarter ended March 31, 2014 as described in Item 7. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

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Results of Operations for the Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013

Sales, net for the three months ended March 31, 2014 and 2013 were $4,792,544 and $6,360,749, respectively, a decrease of $1,568,205 or approximately 24.7%. The decrease in sales is primarily attributable to decreased sales of our television direct marketing campaign for our Alternacig^® brand, a delay in receiving product to fill orders for customers, distributor inventory build leveling off and continued pipeline load in the e-cigarette category in 2013, and the increasing prevalence of vaporizers, tanks and open system vapor products that are marginalizing the e-cigarette category. Due to low conversion rates, we limited the direct marketing campaign during the first quarter of 2014, resulting in lower sales of our Alternacig brand. Following the disappearance of the Malaysian Airlines Flight 370 on March 8, 2014, cargo and freight security inspections increased resulting in delays of shipments of product from China. We believe these delays resulted in approximately $1,250,000 of sales being recorded in early April 2014 instead of the first quarter of 2014. In addition, sales decreased due to certain wholesale and distribution customers selling off their current inventory of electronic cigarette products so they can switch to the vaporizers, tanks and open system vapor products (“e-vapor products”). During the three months ended March 31, 2014 we introduced several new e-vapor products under the Vapor X brand. We anticipate that the demand for e-vapor products will continue to increase, as users want products that have more advanced technology with higher performance and longer battery life. As a result, we are in the process of altering our product mix to include more e-vapor products, including premium USA made e-liquids.

Cost of goods sold for the three months ended March 31, 2014 and 2013 were $3,831,928 and $3,708,806, respectively, an increase of $123,122, or approximately 3.3%. The increase is primarily due to the change in product mix to higher distributor and wholesaler sales, which have lower gross margins than our direct sales to consumers, and an increase in sales incentives to assist customers in selling off certain product lines. As customers complete the migration to vaporizers, tanks and open vaporizer systems, our sales incentives should decrease. Our gross margins decreased to 20.0% from 41.7% primarily due to the increase in sales incentives and the change in the product mix.

Selling, general and administrative expenses for the three months ended March 31, 2014 and 2013 were $2,769,726 and $1,606,098, respectively, an increase of $1,163,628 or approximately 72.5%. The increase is primarily attributable to increases in non-cash stock compensation expense of $594,809 primarily attributable to the consulting agreement with Knight Global Services, professional fees of $385,435 due to implementing the corporate actions we agreed to take in connection with the private placement of common stock we completed in October 2013, including registering the shares for resale with the SEC, reincorporating to the State of Delaware from the State of Nevada and effecting the 1-for-5 reverse stock split of our common stock and costs incurred in connection with the pending acquisition of International Vapor Group, Inc.’s online, wholesale and retail operations, personnel cost of $104,270 primarily attributable to accrued severance related to the resignation of our Chief Executive Officer, variable selling expenses of $42,293 primarily related to increases in postage due to the mailing of new product catalogues, business insurance due to the increases in coverage limits and increases in travel due to increased presence at trade shows and conferences, net of decreased merchant card processing fees due to lower transaction volumes.

Advertising expense was approximately $367,615 and $851,201 for the three months ended March 31, 2014 and 2013, respectively, a decrease of $483,586 or approximately 56.8%. During the three months ended March 31, 2014, we decreased our Internet advertising and television direct marketing campaign for our Alternacig^® brand, increased our print advertising programs, participation at trade shows and continued various other advertising campaigns.

Interest expense was approximately $28,434 and $66,510 for the three months ended March 31, 2014 and 2013, respectively. The 2014 interest expense was attributable to the term loan and the 2013 interest expense was attributable to the $300,000 Senior Convertible Notes, as amended, the $50,000 Senior Convertible Note, as amended, and the Senior Note, as amended, issued in the second and third quarters of 2012, and the 2013 Senior Convertible Note issued in January 2013.

Income tax (benefit) expense for the three months ended March 31, 2014 and 2013 was ($752,400) and $4,590, respectively. The effective tax rate for the three months ended March 31, 2014 differs from the U.S. federal statutory rate of 34% primarily due to utilization of net operating losses, the under accrual of state income taxes from prior years and certain permanent differences between tax reporting purposes and financial reporting purposes. The effective tax rate for the three months ended March 31, 2013 differs from the U.S. federal statutory rate of 34% primarily due to utilization of net operating losses, the under accrual of state income taxes from prior years and certain permanent differences between tax reporting purposes and financial reporting purposes.

Net (loss) income for the three months ended March 31, 2014 and 2013 was ($1,452,759) and $123,544, respectively, as a result of the items discussed above.

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Liquidity and Capital Resources

We are not aware of any factors that are reasonably likely to adversely affect liquidity trends, other than those factors summarized under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013. We are not involved in any hedging activities and had no forward exchange contracts outstanding at March 31, 2014. In the ordinary course of business we enter into purchase commitments by issuing purchase orders, which may or may not require vendor deposits. These transactions are recognized in our condensed consolidated financial statements in accordance with GAAP.

Our liquidity and capital resources have decreased as a result of the net operating loss we incurred during the three months ended March 31 2014. At March 31, 2014, we had working capital of $10,680,259 compared to $11,657,615 at December 31, 2013, a decrease of $977,356.

Although the Company can provide no assurances, it believes its cash on hand and anticipated cash flow from operations will provide sufficient liquidity and capital resources to fund its business for at least the next twelve months. In the event the Company continues to experience liquidity and capital resources constraints because of continuing operating losses, greater than anticipated sales growth or otherwise, the Company may need to raise additional capital in the form of equity and/or debt financing. If such additional capital is not available on terms acceptable to the Company or at all then the Company may need to curtail its operations and/or take additional measures to conserve and manage its liquidity and capital resources, any of which would have a material adverse effect on our business, results of operations and financial condition.

Our net cash used in operating activities was $2,165,114 and $388,452 for the three months ended March 31, 2014 and 2013, respectively, an increase of $1,776,662. Our net cash used in operating activities for the three months ended March 31, 2014 resulted from increases in accounts receivable, inventories, prepaid expenses, other assets, accounts payable and accrued expenses, net of decreases in due from merchant credit card processors and customer deposits which are attributable to our efforts to increase sales, alter our product mix to include more e-vapor products and accommodate anticipated future sales growth.

Our net cash used in investing activities was $4,795 and $8,057 for the three months ended March 31, 2014 and 2013, respectively, for purchases of property and equipment.

Our net cash (used in) provided by financing activities was ($290,835) and $500,000 for the three months ended March 31, 2014 and 2013, respectively. These financing activities relate to the Company’s repayment of the term loan and offering costs in 2014 and the issuance of the 2013 Senior Convertible Note in 2013.

In the ordinary course of our business, we enter into purchase orders for components and finished goods, which may or may not require vendor deposits and may or may not be cancellable by either party. At March 31, 2014 and December 31, 2013, we had $690,715 and $782,363 in vendor deposits, respectively, which are included in prepaid expenses and vendor deposits on the condensed consolidated balance sheets included elsewhere in this report. At March 31, 2014 and December 31, 2013, we do not have any material financial guarantees or other contractual commitments that are reasonably likely to have an adverse effect on liquidity.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Seasonality

We do not consider our business to be seasonal.

Inflation and Changing Prices

Neither inflation or changing prices for the three months ended March 31, 2014 had a material impact on our operations.

22

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2014. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2014.

Changes in Internal Control Over Financial Reporting

During the quarter ended March 31, 2014, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rules 13a-15 or 15d-15 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

23

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

Reference is made to note 5 to the Company’s condensed consolidated financial statements included elsewhere in this report for the information required by this Item.

Item 1A. Risk Factors.

With the exception of the following, there have been no other material changes in the Company’s risk factors from those disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

The potential regulation of electronic cigarettes by the United States Food and Drug Administration may materially adversely affect our business.

On April 24, 2014, the United States Food and Drug Administration (the “FDA”) released proposed rules that would extend its regulatory authority to electronic cigarettes and certain other tobacco products under the Family Smoking Prevention and Tobacco Control Act. We are in the process of reviewing and analyzing the proposed rules and their impact on our business. We preliminarily note that the proposed rules would require that electronic cigarette manufacturers (i) register with the FDA and report electronic cigarette product and ingredient listings; (ii) market new electronic cigarette products only after FDA review; (iii) only make direct and implied claims of reduced risk if the FDA confirms that scientific evidence supports the claim and that marketing the electronic cigarette product will benefit public health as a whole; (iv) not distribute free samples; (v) implement minimum age and identification restrictions to prevent sales to individuals under age 18; (vi) include a health warning; and (vii) not sell electronic cigarettes in vending machines, unless in a facility that never admits youth. The proposed regulation will be subject to a 75-day public comment period, following which the FDA will finalize the proposed regulation. It is not known how long this regulatory process to finalize and implement the rules may take. Accordingly, although we cannot predict the content of any final rules from the proposed rules or the impact they may have, we believe that if the final rules enacted are materially more stringent then the proposed rules they could have a material adverse effect on our business, financial conditions and results of operations.

Item 6. Exhibits.

The documents set forth below are filed or furnished herewith as indicated.

Exhibit No.	Description
31.1*	Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.
31.2*	Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.
32.1 **	Section 1350 Certifications of Chief Executive Officer.
32.2 **	Section 1350 Certifications of Chief Financial Officer.
101.INS *	XBRL Instance Document
101.DEF *	XBRL Definition Linkbase Document
101.CAL *	XBRL Extension Calculation Linkbase Document
101.LAB *	XBRL Extension Label Linkbase Document
101.PRE *	XBRL Presentation Linkbase Document
101.SCH *	XBRL  ExtensionSchema Document

* Filed herewith.

** Furnished herewith (not filed).

24

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.

	VAPOR CORP.
Date: May 15, 2014	By:	/s/ Jeffrey Holman
		Jeffrey Holman Chief Executive Officer
Date: May 15, 2014
	By:	/s/ Harlan Press
		Harlan Press Chief Financial Officer

25

EX-31.1

Exhibit 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Jeffrey Holman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 of Vapor Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: May 15, 2014	/s/ Jeffrey Holman
	Name:	Jeffrey Holman
	Title:	Chief Executive Officer

EX-31.2

Exhibit 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Harlan Press, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 of Vapor Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: May 15, 2014	/s/ Harlan Press
	Name:	Harlan Press
	Title:	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey Holman, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Vapor Corp. on Form 10-Q for the quarterly period ended March 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Vapor Corp.

Dated: May 15, 2014	/s/ Jeffrey Holman
	Name:	Jeffrey Holman
	Title:	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Harlan Press, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Vapor Corp. on Form 10-Q for the quarterly period ended March 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Vapor Corp.

Dated: May 15, 2014	/s/ Harlan Press
	Name:	Harlan Press
	Title:	Chief Financial Officer

XML

Commitments and Contingencies (Details Textual) (USD $)	3 Months Ended
	Mar. 31, 2014 sqft	Mar. 31, 2013	Dec. 31, 2013
Employment Agreements [Line Items]
Minimum annual rentals	$ 144,000
Area Of Master Lease	2,200
Additional annual rental payment	18,000
Operating Leases, Rent Expense	44,838	38,160
Damages paid, value	12,000
Vendor Deposits	690,715		782,363
One Year Renewal Options [Member]
Employment Agreements [Line Items]
Minimum annual rentals	151,200
One Year Renewal Options One [Member]
Employment Agreements [Line Items]
Minimum annual rentals	158,760
One Year Renewal Options Two [Member]
Employment Agreements [Line Items]
Minimum annual rentals	174,636
Ralph Frija [Member]
Employment Agreements [Line Items]
Aggregate interest	0	29,589
Related Party Transaction, Description	Less than 5% stockholder.
Kevin Frija [Member]
Employment Agreements [Line Items]
Aggregate interest	0	5,658
Related Party Transaction, Description	Greater than 5% stockholder.
Doron Ziv [Member]
Employment Agreements [Line Items]
Aggregate interest	$ 0	$ 4,438
Related Party Transaction, Description	Mr. Ziv, a founder of the Company, will continue to serve as an employee of the Company and as a director of the Company's subsidiary Smoke Anywhere USA, Inc. and is a greater than 5% stockholder of the Company.

XML

Stockholders' Equity

3 Months Ended

Mar. 31, 2014

Stockholders' Equity [Abstract]

STOCKHOLDERS' EQUITY

Note 4. STOCKHOLDERS’ EQUITY

Issuance of Common Stock

On February 3, 2014, the Company entered into a consulting agreement (the “Consulting Agreement”) with Knight Global Services, LLC (“Knight Global”) pursuant to which the Company retained Knight Global to assist the Company with increasing awareness of its electronic cigarette brands as well as assisting the Company to expand and diversify its relationships with large retailers and national chains. Knight Global is a wholly owned subsidiary of Knight Global, LLC of which Ryan Kavanaugh is an investor and principal. Effective March 5, 2014, the Board of Directors of the Company elected Mr. Kavanaugh as a member of the Board of Directors in accordance with the Consulting Agreement. Knight Global serves as the family office for Mr. Kavanaugh. Mr. Kavanaugh is the Founder and Chief Executive Officer of Relativity, a next-generation media company engaged in multiple aspects of entertainment, including film production; financing and distribution; television; sports management; music publishing; and digital media.

Under the terms of the Consulting Agreement, the Company has issued to Mr. Kavanaugh 400,000 shares of its common stock, of which 50,000 shares have vested immediately while the remaining 350,000 shares will vest in installments of 50,000 shares per quarterly period beginning on the 90th day following February 3, 2014 and each ensuing quarterly period thereafter so long as the Consulting Agreement has not been terminated and during each quarterly period Knight Global has presented the Company with a minimum of six (6) bona fide opportunities for activities specified in the Consulting Agreement that are intended to increase awareness of the Company’s electronic cigarettes. In addition, during the term of the Consulting Agreement, which is 2 years, and during an 18-month post-termination period, the Company has agreed to pay Knight Global commissions payable in cash equal to 6% of “net sales” (as defined in the Consulting Agreement) of its products to retailers introduced by Knight Global and to retailers with which the Company has existing relationships and with which Knight Global is able, based on its verifiable efforts, to increase net sales of the Company’s products.

The grant date fair value of the common shares issued on February 3, 2014 was $3,080,000 based on closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board, on February 3, 2014. During the three months ended March 31, 2014 and 2013, the Company recognized stock-based compensation expense, for the Consulting Agreement, in the amount of $592,300 and $0, which is included as part of selling, general and administrative expense in the accompanying condensed consolidated statements of operations.

The Consulting Agreement is terminable by the Company between 181 days and 364 days after February 3, 2014 if Knight Global is not performing the consulting services in accordance with the terms of the Consulting Agreement subject to the Company providing Knight Global with written notice of non-performance and Knight Global having a 30-day cure period to cure such non-performance. In the event of such termination, in addition to delivering previously vested shares and commission payments due and owing Knight Global, 50,000 of the unvested shares subject to quarterly vesting as described above shall automatically vest and be delivered by the Company to Mr. Kavanaugh and Knight Global shall be entitled to commission payments during the 18-month post-termination period.

The Consulting Agreement is terminable by Knight Global, at any time, and the Company, after the termination period described in the preceding paragraph, for a material uncured breach of the Consulting Agreement, provided that the terminating party has provided the other party with written notice of material breach and a 30-day cure period (or longer under certain circumstances if the breach is not curable within such 30-day period and such party has initiated curative action within such 30-day period and thereafter diligently and continuously pursues such curative action until the breach has been cured). A breach by either party is not deemed to be material unless it causes economic harm to the other party. If the terminating party desires to terminate the Consulting Agreement after the notice and cure period on the basis that the other party has not cured the breach then the terminating party, within 30 days following expiration of the cure period, is required to initiate arbitration in the Delaware Court of Chancery to determine whether the other party has materially breached the Consulting Agreement.

Private Placement of Common Stock

On October 22, 2013, the Company entered into a purchase agreement (the “Purchase Agreement”) with various institutional and individual accredited investors and certain of its officers and directors to raise gross proceeds of $10 million in a private placement of 3,333,338 shares of its common stock at a per share price of $3.00 (the “Private Placement”). On October 29, 2013, the Company completed the Private Placement. The Company received net proceeds from the Private Placement of approximately $9.1 million, after paying placement agent fees and estimated offering expenses, which the Company will use to fund its growth initiatives and for working capital purposes.

Pursuant to the Purchase Agreement, concomitantly with completion of the Private Placement, the Company entered into a registration rights agreement with the investors (other than its participating officers and directors), pursuant to which the Company filed with the SEC an initial registration statement to register for resale the 3,216,171 shares of the Company’s common stock purchased by the investors (other than the Company’s participating officers and directors). The initial registration statement was declared effective by the SEC on January 27, 2014. On March 5, 2014, the Company filed a post-effective amendment to the initial registration statement. The post-effective amendment to the initial registration statement was declared effective by the SEC on March 11, 2014. The post-effective amendment does not include 1,035,732 shares of the Company’s common stock that were previously sold under the initial registration statement. If the post-effective amendment to the initial registration statement is not effective for resales for more than 20 consecutive days or more than 45 days in any 12 month period during the registration period (i.e., the earlier of the date on which the shares have been sold or are eligible for sale under SEC Rule 144 without restriction), the Company is required to pay the investors (other than the Company’s participating officers and directors) liquidated damages in cash equal to 1.5% of the aggregate purchase price paid by the investors (other than the Company’s participating officers and directors) for the shares for every 30 days or portion thereof until the default is cured. These cash payments could be as much as $98,120 for every 30 days.

Under the terms of the Purchase Agreement, the Company:

• Amended its existing equity incentive plan on November 20, 2013 to reduce the number of shares of its common stock reserved and available for issuance under the plan to 1.8 million from 8 million.

• Effectuated a reverse stock split of its common stock at a ratio of 1-for-5, which became effective in the marketplace at the opening of business December 27, 2013.

• Reincorporated to the State of Delaware effective on December 31, 2013.

• Reconstituted its board of directors effective April 25, 2014 so that as so reconstituted, the board of directors consists of five members, a majority of whom each qualify as an “independent director” as defined in NASDAQ Marketplace Rule 5605(a)(2) and the related NASDAQ interpretative guidance (as described under “Reconstitution of the Board” in Note 6 below); and

• Is required no later than July 29, 2014 to list its common stock on The NASDAQ Capital Market and up until such time as the listing is accomplished the Company is required to comply with all NASDAQ rules (other than NASDAQ’s board composition, board committee, minimum bid price and similar listing requirements), such as holding annual meetings and the timely filing of proxy statements.

Warrants

A summary of warrant activity for the three months ended March 31, 2014 is presented below:

	Number of Warrants		Weighted- Average Exercise Price		Weighted- Average Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014		215,880		3.23
Warrants granted		—		—
Warrants exercised		—		—
Warrants forfeited or expired		—		—
Outstanding at March 31, 2014		215,880	$	3.23		5.0	$	727,516
Exercisable at March 31, 2014		215,880	$	3.23		5.0	$	727,516

Stock-based Compensation

During the three months ended March 31, 2014 and 2013, the Company recognized stock-based compensation expense in connection with the amortization of stock option expense of $18,106 and $10,688, respectively, which is included as part of selling, general and administrative expense in the accompanying condensed consolidated statements of operations. The amounts relate to the previously granted options and the granting of options during the first quarter of 2014 to a Director and to an employee to purchase 72,000 shares of the Company’s common stock with an exercise price of $8.30 per share which vest in 3 annual installments valued at $178,992.

The fair value of employee stock options was estimated using the following weighted-average assumptions:

	For Three Months Ended March 31, 2014
Expected term		5 -7 years
Risk Free interest rate		1.57	%
Dividend yield		0.0	%
Volatility		31	%

No employee stock options were granted during the first quarter of 2013.

Stock option activity

Options outstanding at March 31, 2014 under the various plans are as follows (in thousands):

Plan	Total Number of Options Outstanding under Plans
Equity compensation plans not approved by security holders		900
Equity Incentive Plan		275
		1,175

A summary of activity under all option Plans at March 31, 2014 and changes during the three months ended March 31, 2014 (in thousands, except per share data):

	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014		1,119	$	2.17		6.89	$	7,815
Options granted		72		8.30		5.83		—
Options exercised		—		—		—		—
Options forfeited or expired		16		1.47		10.00		—
Outstanding at March 31, 2014		1,175	$	2.55		6.78	$	4,753
Exercisable at March 31, 2014		989	$	2.167		6.36	$	4,384
Options available for grant at March 31, 2014		1,482

At March 31, 2014 the amount of unamortized stock-based compensation expense on unvested stock options granted to employees and consultants was $307,076.

Earnings (loss) per share

Basic earnings and loss per share are computed by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and the conversion of the Company’s convertible debt and warrants (using the if-converted method). Diluted loss per share excludes the shares issuable upon the exercise of stock options from the calculation of net loss per share, as their effect is antidilutive.

The following table reconciles the numerator and denominator for the calculation:

	For the Three Months Ended March 31,
	2014			2013
Net (loss) income—basic	$	(1,452,759	)	$	123,544
Denominator – basic:
Weighted average number of common shares outstanding		16,463,417			12,038,847
Basic (loss) earnings per common share	$	(0.09	)	$	0.01
Net (loss) income—diluted	$	(1,452,759	)	$	123,544
Denominator – diluted:
Weighted average number of common shares outstanding		16,463,417			12,038,847
Weighted average effect of dilutive securities:
Common share equivalents of outstanding stock options		—			224,816
Common share equivalents of outstanding convertible debt		—			—
Common share equivalents of outstanding warrants		—			7,005
Weighted average number of common shares outstanding		16,463,419			12,070,668
Diluted (loss) earnings per common share	$	(0.09	)	$	0.01
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive:
Convertible debt		—			665,419
Stock options		1,174,500			—
Warrants		215,880			8,142

XML

Factoring Facility and Term Loan Payable

3 Months Ended

Mar. 31, 2014

Factoring Facility and Term Loan Payable [Abstract]

FACTORING FACILITY AND TERM LOAN PAYABLE

Note 3. FACTORING FACILITY AND TERM LOAN PAYABLE

Factoring Facility

On August 8, 2013, the Company and Smoke entered into an accounts receivable factoring facility (the “Factoring Facility”) with Entrepreneur Growth Capital, LLC (the “Lender”) pursuant to an Invoice Purchase and Sale Agreement, dated August 8, 2013, by and among them (the “Factoring Agreement”). During the three months ended March 31, 2014, the Company did not borrow under the Factoring Facility. At March 31, 2014 and December 31, 2013 the Company had no borrowings outstanding under the Factoring Facility.

Term Loan

On August 16, 2013, the Company and Smoke entered into a $750,000 term loan (the “Term Loan”) with the Lender pursuant to a Credit Card Receivables Advance Agreement, dated August 16, 2013, by and among them (the “Term Agreement”). The Term Loan matures on August 15, 2014 (or earlier generally upon termination of the Factoring Agreement), is payable from the Company’s and Smoke’s current and future merchant credit card receivables at the annual rate of 16% subject to the Lender retaining a daily fixed amount of $3,346 from the daily collection of the merchant credit card receivables and is secured by a security interest in substantially all of the Company’s assets. The Company used the proceeds of the Term Loan for general working capital purposes.

At March 31, 2014 and December 31, 2013 the Company had $297,116 and $478,847 of borrowings outstanding under the Term Loan, respectively. During the three months ended March 31, 2014 and 2013, the Company recorded $28,434 and $0 in interest expense for the Term Loan, respectively, and this amount is included in interest expense in the accompanying condensed consolidated statements of operations.

XML

Condensed Consolidated Balance Sheets (USD $)	Mar. 31, 2014	Dec. 31, 2013
CURRENT ASSETS:
Cash	$ 4,109,471	$ 6,570,215
Due from merchant credit card processor, net of reserve for chargebacks of $2,500 and $2,500, respectively	120,280	205,974
Accounts receivable, net of allowance of $170,519 and $256,833, respectively	1,866,652	1,802,781
Inventories	4,246,067	3,321,898
Prepaid expenses and vendor deposits	1,241,985	1,201,040
Deferred tax asset, net	1,520,747	766,498
TOTAL CURRENT ASSETS	13,105,202	13,868,406
Property and equipment, net of accumulated depreciation of $31,767 and $27,879, respectively	29,592	28,685
Other assets	90,284	65,284
TOTAL ASSETS	13,225,078	13,962,375
CURRENT LIABILITIES:
Accounts payable	1,417,208	1,123,508
Accrued expenses	551,643	420,363
Term loan	297,116	478,847
Customer deposits	154,870	182,266
Income taxes payable	4,106	5,807
TOTAL CURRENT LIABILITIES	2,424,943	2,210,791
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 1,000,000 shares authorized, none issued
Common stock, $.001 par value, 50,000,000 shares authorized, 16,614,528 and 16,214,528 shares issued and 16,264,528 and 16,214,528 outstanding, respectively	16,614	16,214
Additional paid-in capital	13,615,934	13,115,024
Accumulated deficit	(2,832,413)	(1,379,654)
TOTAL STOCKHOLDERS' EQUITY	10,800,135	11,751,584
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 13,225,078	$ 13,962,375

XML

Organization and Basis of Presentation

3 Months Ended

Mar. 31, 2014

Organization and Basis of Presentation [Abstract]

ORGANIZATION AND BASIS OF PRESENTATION

Note 1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

Vapor Corp. (the “Company”) is the holding company for its wholly owned subsidiary Smoke Anywhere U.S.A., Inc. (“Smoke”). The Company designs, markets and distributes electronic cigarettes, vaporizers, e-liquids and accessories under the Krave^®, VaporX^®, Hookah Stix^®, Alternacig^®, Fifty-One^® (also known as Smoke 51), EZ Smoker^®, Green Puffer^®, Americig^®, Fumaré™ and Smoke Star^® brands. “Electronic cigarettes” or “e-cigarettes,” designed to look like traditional cigarettes, are battery-powered products that enable users to inhale nicotine vapor without smoke, tar, ash, or carbon monoxide.

Reincorporation

The Company reincorporated to the State of Delaware from the State of Nevada effective on December 31, 2013. The reincorporation was effected in accordance with the Company’s obligation to reincorporate to the State of Delaware from the State of Nevada not later than December 31, 2013, in connection with the Company’s completion of a private placement of 3,333,338 shares of common stock at a per share price of $3.00 for gross proceeds of $10 million, which closed on October 29, 2013 (as described under “Private Placement of Common Stock” in Note 4 below).

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required for audited annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the condensed consolidated financial statements not misleading have been included. The condensed consolidated balance sheet at December 31, 2013 has been derived from the Company’s audited consolidated financial statements as of that date.

These unaudited condensed consolidated financial statements for the three months ended March 31, 2014 and 2013 should be read in conjunction with the audited consolidated financial statements and related notes thereto as of and for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K for such year as filed with the SEC on February 26, 2014. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014.

Reverse Stock Split

Effective on December 27, 2013, the Company effected a reverse stock split of its common stock at a ratio of 1-for-5. As a result of the reverse stock split, the Company’s share capital was reduced to 51,000,000 shares from 251,000,000 shares, of which 50,000,000 shares are common stock and 1,000,000 shares are “blank check” preferred stock. All references in these notes and in the related condensed consolidated financial statements to number of shares, price per share and weighted average number of shares outstanding of common stock prior to the reverse stock split (including the share capital decrease) have been adjusted to reflect the reverse stock split (including the share capital decrease) on a retroactive basis, unless otherwise noted.

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Stockholders' Equity (Details 4) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Net (loss) income - basic	$ (1,452,759)	$ 123,544
Denominator - basic:
Weighted average number of common shares outstanding	16,267,750	12,038,847
Basic (loss) earnings per common share	$ (0.09)	$ 0.01
Net (loss) income - diluted	$ (1,452,759)	$ 123,544
Denominator - diluted:
Weighted average number of common shares outstanding	16,267,750	12,038,847
Weighted average effect of dilutive securities:
Common share equivalents of outstanding stock options		224,816
Common share equivalents of outstanding convertible debt
Common share equivalents of outstanding warrants		7,005
Weighted average number of common shares outstanding	16,267,750	12,270,668
Diluted (loss) earnings per common share	$ (0.09)	$ 0.01
Convertible debt [Member]
Weighted average effect of dilutive securities:
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive:		665,419
Stock options [Member]
Weighted average effect of dilutive securities:
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive:	1,174,500
Warrants [Member]
Weighted average effect of dilutive securities:
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive:	215,880	8,142

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Commitments and Contingencies (Details) (USD $)	Mar. 31, 2014
Commitments and Contingencies [Abstract]
2014	$ 131,940
2015	58,920
Total	$ 190,860

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Summary of Certain Significant Accounting Policies

3 Months Ended

Mar. 31, 2014

Summary of Certain Significant Accounting Policies [Abstract]

SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES

Note 2. SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany transactions and balances have been eliminated.

Use of estimates in the preparation of the financial statements

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of net revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include allowances, reserves and write-downs of receivables and inventory, valuing equity securities, stock-based payment arrangements, deferred taxes and valuation allowances. Certain of our estimates could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and records adjustments when necessary.

Revenue recognition

The Company recognizes revenue from product sales or services rendered when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.

Product sales and shipping revenues, net of promotional discounts, rebates, and return allowances are recorded when the products are shipped, title passes to customers and collection is reasonably assured. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon the Company’s delivery to the carrier. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon the Company’s delivery to the carrier. Return allowances, which reduce product revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales and consumption taxes.

The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases, inducement offers, such as offers for future discounts subject to a minimum current purchase, and other similar offers. Current discount offers, when accepted by the Company’s customers, are treated as a reduction to the purchase price of the related transaction, while inducement offers, when accepted by its customers, are treated as a reduction to the purchase price of the related transaction based on estimated future redemption rates. Redemption rates are estimated using the Company’s historical experience for similar inducement offers. The Company reports sales net of current discount offers and inducement offers, on its condensed consolidated statements of operations.

Accounts Receivable

Accounts receivable, net is stated at the amount the Company expects to collect. The Company provides a provision for allowances that includes returns, allowances and doubtful accounts equal to the estimated uncollectible amounts. The Company estimates its provision for allowances based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the provision for allowances will change.

At March 31, 2014 accounts receivable balances included a concentration from two customers of an amount greater than 10% of the total net accounts receivable balance ($280,560 from Customer A and $235,947 from Customer B). At December 31, 2013 accounts receivable balances included a concentration from one customer of an amount greater than 10% of the total net accounts receivable balance ($286,768 from Customer B). As to revenues, no customers accounted for revenues in excess of 10% of the net sales for the three-month periods ended March 31, 2014 and 2013.

Inventories

Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. If the cost of the inventories exceeds their market value, provisions are recorded to write down excess inventory to its net realizable value. The Company’s inventories consist primarily of merchandise available for resale.

Income Taxes

The (benefit) provision for income taxes is based on (loss) income before income tax (benefit) expense reported for financial statement purposes after adjustments for transactions that do not have tax consequences. Deferred tax assets and liabilities are realized according to the estimated future tax consequences attributable to differences between the carrying value of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates as of the date of the condensed consolidated balance sheets. The effect of a change in tax rates on deferred tax assets and liabilities is reflected in the period that includes the statutory enactment date. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management has determined that a valuation allowance is not required at March 31, 2014 and December 31, 2013, to reduce the deferred tax assets for the amounts that will likely not be realized. Should the factors underlying management’s analysis change, future valuation adjustments to the Company’s net deferred tax assets may be necessary.

The Company recognizes a liability for uncertain tax positions. An uncertain tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law and which is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes.

In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter. Income tax (benefit) expense for the three months ended March 31, 2014 and 2013 was ($752,400) and $4,590, respectively. The effective tax rate for the three months ended March 31, 2014 differs from the U.S. federal statutory rate of 34% primarily due to utilization of net operating losses and certain permanent differences between tax reporting purposes and financial reporting purposes. The Company files U.S. and state income tax returns in jurisdictions with various statutes of limitations. At March 31, 2014 the Company had federal and state net operating losses of $1,841,082 and $1,632,554, respectively. These net operating losses expire in 2032. Utilization of the Company’s net operating losses may be subject to annual limitation due to ownership change limitations that may have occurred or that could occur in the future with respect to the stock ownership of the Company, as required by section 382 of the Internal Revenue Service Code of 1986, as amended, as well as similar state provisions. These ownership changes may limit the amount of net operating losses that can be utilized annually to offset future taxable income and tax respectively.

Fair value measurements

The Company applies the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” (“ASC 820”). The Company’s short term financial instruments include cash, due from merchant credit card processors, accounts receivable, accounts payable and accrued expenses, each of which approximate their fair values based upon their short term nature. The Company’s other financial instruments include notes payable obligations. The carrying value of these instruments approximate fair value, as they bear terms and conditions comparable to market, for obligations with similar terms and maturities.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1 – quoted prices in active markets for identical assets or liabilities; Level 2 – quoted prices for similar assets and liabilities in active market or inputs that are observable; and Level 3 – inputs that are unobservable.

Stock-Based Compensation

The Company accounts for stock-based compensation under ASC Topic No. 718, “Compensation-Stock Compensation” (“ASC 718”). These standards define a fair value based method of accounting for stock-based compensation. In accordance with ASC 718, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes-Merton valuation model, whereby compensation cost is the fair value of the award as determined by the valuation model at the grant date or other measurement date. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.

Recent Accounting Pronouncements

The Financial Accounting Standards Board, the Emerging Issues Task Force and the SEC have issued certain accounting standards, updates and regulations as of March 31, 2014 that will become effective in subsequent periods; however, management of the Company does not believe that any of those standards, updates or regulations would have significantly affected the Company’s financial accounting measures or disclosures had they been in effect during the three months ended March 30, 2014 or 2013, and it does not believe that any of them will have a significant impact on the Company’s condensed consolidated financial statements at the time they become effective.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Balance Sheets [Abstract]
Due from merchant credit card processor, reserve for chargebacks	$ 2,500	$ 2,500
Accounts receivable, allowance for doubtful accounts	170,519	256,833
Property and equipment, accumulated depreciation	$ 31,767	$ 27,879
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	16,614,528	16,214,528
Common stock, shares outstanding	16,264,528	16,214,528

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Factoring Facility and Term Loan Payable (Details) (USD $)			0 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Aug. 16, 2013 Term Loan [Member]
Debt Instrument [Line Items]
Debt instrument, face amount			$ 750,000
Maturity date			Aug. 15, 2014
Annual rate			16.00%
Daily fixed amount, retainage from collection of receivables			3,346
Term loan	$ 297,116	$ 478,847

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Document and Entity Information	3 Months Ended
	Mar. 31, 2014	May 15, 2014
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2014
Entity Registrant Name	VAPOR CORP.
Entity Central Index Key	0000844856
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		16,456,911

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Stockholders' Equity (Details) (Warrant [Member], USD $)	3 Months Ended
	Mar. 31, 2014
Warrant [Member]
Number of Warrants
Outstanding	215,880
Warrants granted
Warrants exercised
Warrants forfeited or expired
Outstanding	215,880
Exercisable at March 31, 2014	215,880
Weighted-Average Exercise Price
Outstanding	$ 3.23
Warrants granted
Warrants exercised
Warrants forfeited or expired
Outstanding	$ 3.23
Exercisable at March 31, 2014	$ 3.23
Weighted-Average Contractual Term
Outstanding at March 31, 2014	5 years
Exercisable at March 31, 2014	5 years
Aggregate Intrinsic Value
Outstanding
Outstanding	727,516
Exercisable at March 31, 2014	$ 727,516

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Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Statements of Operations [Abstract]
SALES, NET	$ 4,792,544	$ 6,360,749
Cost of goods sold	3,831,928	3,708,806
GROSS PROFIT	960,616	2,651,943
EXPENSES:
Selling, general and administrative	2,769,726	1,606,098
Advertising	367,615	851,201
Total operating expenses	3,137,341	2,457,299
Operating (loss) income	(2,176,725)	194,644
Other expense:
Interest expense	28,434	66,510
Total other expense	28,434	66,510
(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE	(2,205,159)	128,134
Income tax (benefit) expense	(752,400)	4,590
NET (LOSS) INCOME	$ (1,452,759)	$ 123,544
(LOSS) EARNINGS PER COMMON SHARE - BASIC	$ (0.09)	$ 0.01
(LOSS) EARNINGS PER COMMON SHARE - DILUTED	$ (0.09)	$ 0.01
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC	16,267,750	12,038,847
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED	16,267,750	12,270,668

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Summary of Certain Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2014

Summary of Certain Significant Accounting Policies [Abstract]

Principles of consolidation

Principles of consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany transactions and balances have been eliminated.

Use of estimates in the preparation of the financial statements

Use of estimates in the preparation of the financial statements

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of net revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include allowances, reserves and write-downs of receivables and inventory, valuing equity securities, stock-based payment arrangements, deferred taxes and valuation allowances. Certain of our estimates could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and records adjustments when necessary.

Revenue recognition

Revenue recognition

The Company recognizes revenue from product sales or services rendered when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.

Product sales and shipping revenues, net of promotional discounts, rebates, and return allowances are recorded when the products are shipped, title passes to customers and collection is reasonably assured. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon the Company’s delivery to the carrier. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon the Company’s delivery to the carrier. Return allowances, which reduce product revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales and consumption taxes.

The Company periodically provides incentive offers to its customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases, inducement offers, such as offers for future discounts subject to a minimum current purchase, and other similar offers. Current discount offers, when accepted by the Company’s customers, are treated as a reduction to the purchase price of the related transaction, while inducement offers, when accepted by its customers, are treated as a reduction to the purchase price of the related transaction based on estimated future redemption rates. Redemption rates are estimated using the Company’s historical experience for similar inducement offers. The Company reports sales net of current discount offers and inducement offers, on its condensed consolidated statements of operations.

Accounts Receivable

Accounts Receivable

Accounts receivable, net is stated at the amount the Company expects to collect. The Company provides a provision for allowances that includes returns, allowances and doubtful accounts equal to the estimated uncollectible amounts. The Company estimates its provision for allowances based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the provision for allowances will change.

At March 31, 2014 accounts receivable balances included a concentration from two customers of an amount greater than 10% of the total net accounts receivable balance ($280,560 from Customer A and $235,947 from Customer B). At December 31, 2013 accounts receivable balances included a concentration from one customer of an amount greater than 10% of the total net accounts receivable balance ($286,768 from Customer B). As to revenues, no customers accounted for revenues in excess of 10% of the net sales for the three-month periods ended March 31, 2014 and 2013.

Inventories

Inventories

Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. If the cost of the inventories exceeds their market value, provisions are recorded to write down excess inventory to its net realizable value. The Company’s inventories consist primarily of merchandise available for resale.

Income Taxes

Income Taxes

The (benefit) provision for income taxes is based on (loss) income before income tax (benefit) expense reported for financial statement purposes after adjustments for transactions that do not have tax consequences. Deferred tax assets and liabilities are realized according to the estimated future tax consequences attributable to differences between the carrying value of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates as of the date of the condensed consolidated balance sheets. The effect of a change in tax rates on deferred tax assets and liabilities is reflected in the period that includes the statutory enactment date. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management has determined that a valuation allowance is not required at March 31, 2014 and December 31, 2013, to reduce the deferred tax assets for the amounts that will likely not be realized. Should the factors underlying management’s analysis change, future valuation adjustments to the Company’s net deferred tax assets may be necessary.

The Company recognizes a liability for uncertain tax positions. An uncertain tax position is defined as a position in a previously filed tax return or a position expected to be taken in a future tax return that is not based on clear and unambiguous tax law and which is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes.

In order to determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates. Certain significant or unusual items are separately recognized in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter. Income tax (benefit) expense for the three months ended March 31, 2014 and 2013 was ($752,400) and $4,590, respectively. The effective tax rate for the three months ended March 31, 2014 differs from the U.S. federal statutory rate of 34% primarily due to utilization of net operating losses and certain permanent differences between tax reporting purposes and financial reporting purposes. The Company files U.S. and state income tax returns in jurisdictions with various statutes of limitations. At March 31, 2014 the Company had federal and state net operating losses of $1,841,082 and $1,632,554, respectively. These net operating losses expire in 2032. Utilization of the Company’s net operating losses may be subject to annual limitation due to ownership change limitations that may have occurred or that could occur in the future with respect to the stock ownership of the Company, as required by section 382 of the Internal Revenue Service Code of 1986, as amended, as well as similar state provisions. These ownership changes may limit the amount of net operating losses that can be utilized annually to offset future taxable income and tax respectively.

Fair value measurements

Fair value measurements

The Company applies the provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” (“ASC 820”). The Company’s short term financial instruments include cash, due from merchant credit card processors, accounts receivable, accounts payable and accrued expenses, each of which approximate their fair values based upon their short term nature. The Company’s other financial instruments include notes payable obligations. The carrying value of these instruments approximate fair value, as they bear terms and conditions comparable to market, for obligations with similar terms and maturities.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1 – quoted prices in active markets for identical assets or liabilities; Level 2 – quoted prices for similar assets and liabilities in active market or inputs that are observable; and Level 3 – inputs that are unobservable.

Stock-Based Compensation

Stock-Based Compensation

The Company accounts for stock-based compensation under ASC Topic No. 718, “Compensation-Stock Compensation” (“ASC 718”). These standards define a fair value based method of accounting for stock-based compensation. In accordance with ASC 718, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the vesting period. The value of the stock-based award is determined using the Black-Scholes-Merton valuation model, whereby compensation cost is the fair value of the award as determined by the valuation model at the grant date or other measurement date. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

The Financial Accounting Standards Board, the Emerging Issues Task Force and the SEC have issued certain accounting standards, updates and regulations as of March 31, 2014 that will become effective in subsequent periods; however, management of the Company does not believe that any of those standards, updates or regulations would have significantly affected the Company’s financial accounting measures or disclosures had they been in effect during the three months ended March 30, 2014 or 2013, and it does not believe that any of them will have a significant impact on the Company’s condensed consolidated financial statements at the time they become effective.

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Subsequent Events

3 Months Ended

Mar. 31, 2014

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 6. SUBSEQUENT EVENTS

The Company evaluates events that have occurred after the balance sheet date but before the condensed consolidated financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the accompanying condensed consolidated financial statements other than those set forth below.

Reconstitution of the Board of Directors

Effective April 25, 2014, the Board of Directors (the “Board”) of the Company reconstituted itself to consist of five (5) members, a majority of whom each qualify as an “independent director” as defined in NASDAQ Marketplace Rule 5605(a)(2) and the related NASDAQ interpretative guidance.

Specifically, the Board’s reconstitution consisted of the following:

• the Board elected each of Robert J Barrett III, Angela Courtin, Frank E. Jaumot as a member of the Board to serve until his/her successor is duly elected or until his/her earlier resignation or removal from office. Mr. Barrett, Ms. Courtin and Mr. Jaumot each qualify as an “independent director” as defined by NASDAQ Marketplace Rule 5605(a)(2) and the related NASDAQ interpretative guidance;

• Kevin Frija, and Doron Ziv, incumbent members of the Board, resigned;

• The Board elected Jeffrey Holman, President and an incumbent member of the Board, as Chairman of the Board; and

• the size of the Board was increased to and fixed at five (5) members from four (4) members.

After reconstituting the Board, the five (5) members of the Board are Jeffrey Holman, Robert J Barrett III, Angela Courtin, Frank E. Jaumot and Ryan Kavanaugh.

In addition, the Board granted to each of Mr. Barrett, Ms. Courtin and Mr. Jaumot effective April 25, 2014 a non-qualified stock option award under the Company’s Equity Incentive Plan to purchase up to 60,000 shares of the Company’s common stock at an exercise price per share equal to $6.48 (the closing share price of the Company’s common stock as reported on the OTC Bulletin Board at the close of trading on the grant date). Each of Mr. Barrett’s, Ms. Courtin’s and Mr. Jaumot’s stock options expires on the fifth anniversary of the grant date, vests in equal annual installments over a three-year period from the grant date subject to he/she serving as a member of the Board on each such vesting date and is to be evidenced by a non-qualified stock option agreement customarily utilized under the Equity Incentive Plan.

There are no arrangements or understandings between any of Mr. Barrett, Ms. Courtin and Mr. Jaumot and any other person pursuant to which he/she was selected as a director.

None of Mr. Barrett, Ms. Courtin and Mr. Jaumot have a direct or indirect material interest in any transaction with the Company involving an amount exceeding the lesser of $120,000 or one percent of the average of the Company’s total assets at year end for the last two completed fiscal years.

Mr. Ziv, a founder of the Company, will continue to serve as an employee of the Company and as a director of the Company’s subsidiary Smoke Anywhere USA, Inc. and is a greater than 5% stockholder of the Company.

Resignation of Chief Executive Officer and Appointment of New Chief Executive Officer

Effective April 25, 2014, Mr. Frija resigned as the Company’s Chief Executive Officer and the Board appointed the Company’s President and incumbent member of the Board, Jeffrey Holman, as the Company’s new Chief Executive Officer.

In connection with Mr. Frija’s resignation as Chief Executive Officer, the Board approved severance payments to Mr. Frija in an aggregate amount equal to one year of base salary at the rate of $159,000 per annum payable in installments in accordance with the Company’s normal payroll schedule conditioned upon his execution and delivery of a general release to the Company, which has become irrevocable in accordance with its terms and applicable law, and his compliance with the non-solicitation, confidentiality and non-competition covenants of his Employment Agreement dated February 27, 2012 with the Company until April 24, 2015 in certain respects and indefinitely in other respects. During the three months ended March 31, 2014 the Company accrued severance expense in the amount of $167,003, which is included as part of the selling, general and administrative expenses in accompanying condensed consolidated statements of operations in connection with Mr. Frija’s resignation.

In addition to serving as a member of the Board, Chairman of the Board and Chief Executive Officer, Mr. Holman, a founder of the Company, will continue to serve as the Company’s President, and as a director of the Company’s subsidiary Smoke Anywhere USA, Inc. and is a greater than 5% stockholder of the Company.

Entry into a material definitive agreement

On May 14, 2014, the Company and its newly formed wholly-owned subsidiary IVGI Acquisition, Inc., a Delaware corporation (the “Buyer”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with International Vapor Group, Inc., a Delaware corporation (“International Vapor”), certain of International Vapor’s subsidiaries (together with International Vapor, the “Sellers”) and the owners of International Vapor (the “Owners”), pursuant to which the Buyer will purchase the Sellers’ Business (as defined below) by acquiring substantially all of the Sellers’ assets and assuming certain of the Sellers’ liabilities in an asset purchase transaction (the “Transaction”).

The Sellers are engaged in the business of (i) owning certain electronic cigarette and vaporizer brands, including South Beach Smoke^®, EverSmoke^® and Vapor Zone^® and related products and accessories, as well as any other electronic cigarette and vaporizer brands and related products and accessories commercially available and under development by the Sellers (collectively, the “E-Cig Products”), (ii) online sales of the E-Cig Products (the “Online Operations”), (iii) wholesale distribution of the E-Cig Products (the “Wholesale Operations”) and (iv) retail sales of the E-Cig Products (the “Retail Operations” and together with the E-Cig Products, the Online Operations and the Wholesale Operations, the “Business”).

Under the terms of the Purchase Agreement, the “Purchase Price” will be the sum of (x) $20,800,000 (the “Fixed Purchase Price”) plus (y) an earn-out aggregating up to a maximum of $29,200,000 (the “Earn-Out”).

Upon consummation of the Transaction (the “Closing”), the Company will, through the Buyer, pay the Fixed Purchase Price as follows: (i) $1.7 million in cash less any estimated net working capital shortfall of the Sellers and (ii) $19.1 million in 3,300,501 newly issued unregistered shares of the Company’s common stock (the “Fixed Shares”, which number of shares represents the quotient of the $19.1 million divided by $5.787 per share (the 30-trading day weighted average closing price per share of the Company’s common stock, as reported on the OTC Bulletin Board preceding May 14, 2014, the date of the Purchase Agreement)).

At Closing, 345,602 shares of the Fixed Shares with a value of $2 million will be deposited into escrow with a mutually acceptable escrow agent and will remain in escrow for a period of 27 months following as a non-exclusive source to secure the Sellers’ and the Owners’ indemnification obligations under the Purchase Agreement.

Payments of the Earn-Out are contingent and based upon the post-Closing performance of the Wholesale Operations, the Online Operations and the Retail Operations. Earn-Out payments are limited to $29,200,000 in the aggregate and will be determined as follows:

• Wholesale Operations. An amount equal to 200% of the audited revenues generated from the Wholesale Operations for the twelve (12) beginning on the first day of the month following the month in which the Closing Date occurs (the “Earn-Out Start Date”);

• Online Operations. An amount equal to 100% of the amount by which the aggregate audited revenues generated from the Online Operations and the online sales of the Company and its Affiliates (other than the Online Operations for the twelve (12) full calendar month period beginning on the Earn-Out Start Date) exceed the aggregate audited revenues generated by the Online Operations and the online sales of the Company for the calendar year ended December 31, 2013 subject to certain exclusions; and

• Retail Operations. $50,000 for each Retail Store that is opened by the Company or any of its Affiliates directly, or by franchisees of any of the foregoing, during the twenty four (24) months following the Earn-Out Start Date (the “Measurement Period”) so long as at least 75% of such Retail Stores that are opened during the Measurement Period generate positive cash flow for any three (3) months within any consecutive six (6) month period after being opened during the later of the Measurement Period or the twelve (12) full calendar months after expiration of the Measurement Period subject to certain exclusions.

Payments of the Earn-Out if and when earned will be paid by the Company, through the Buyer, with newly issued unregistered shares of the Company’s common stock (the number of which will be equal to the quotient of an Earn-Out payment divided by $5.787 per share) (the “Earn-Out Shares”).

The Buyer and the principal Owners Nicolas Molina and David Epstein have entered into Employment Agreements which will become effective at Closing, pursuant to which Messrs. Molina and Epstein will continue to be involved in the Business as conducted by the Buyer. Pursuant to their respective Employment Agreements, Mr. Molina will serve as Senior Vice President of Retail & eCommerce and Mr. Epstein will serve as Vice President of Wholesale.

The Purchase Agreement generally contains customary representations, warranties, covenants and agreements of the parties. The Company’s and Buyer’s obligations and the Sellers’ and Owners’ obligations to consummate the Transaction are subject to certain conditions, including (i) the accuracy of the representations and warranties of the other parties; (ii) performance in all material respects by the other parties of their pre-Closing covenants and agreements; and (iii) that there has been no “Buyer/Parent Material Adverse Effect” or “Seller/Owner Material Adverse Effect” (as such terms are defined in the Purchase Agreement), as applicable, of the other parties.

In addition, consummation of the Transaction is conditioned upon the Company obtaining stockholder approval for issuance of the Fixed Shares and the Earn-Out Shares.

The Company expects to consummate the Transaction as soon as possible but not later than July 31, 2014.

Each of the Company and the Buyer and International Vapor and the Owners (severally, but not jointly, and ratably) have post-Closing indemnity obligations under the Purchase Agreement for breaches of their representations and warranties as well as their pre- and post-Closing covenants and agreements which are subject to specified caps, baskets, limits and survival periods depending on the nature of the indemnity claim. These indemnity obligations are the sole and exclusive remedy and recourse of the parties subject to limited exceptions for fraud and specific performance.

The Purchase Agreement is terminable by either the Company or International Vapor if the Transaction is not consummated by July 31, 2014 due to no fault of the terminating party.

If the Purchase Agreement is terminated by International Vapor because the Company has willfully and intentionally breached the Purchase Agreement, which includes the failure of the Company’s stockholders to approve the issuance of the Fixed Shares and the Earn-Out Shares, then the Company is required to pay International Vapor a $500,000 break-up fee in cash within two (2) business days following the date of termination of the Purchase Agreement. International Vapor is equally required to pay the Company a $500,000 break-up fee in cash if the Company terminates the Purchase Agreement because the Sellers or the Owners have willfully and intentionally breached the Purchase Agreement.

If the Purchase Agreement is terminated by either International Vapor or the Company because the non-terminating party breached the Purchase Agreement and such breach was unintentional then the non-terminating party is required to reimburse the terminating party for all out-of-pocket fees and expenses incurred by the terminating party up to a maximum of $300,000.

At the Closing, the Company is required to enter into a Registration Rights Agreement with International Vapor and the Owners, pursuant to which the Company will be required to file one or more shelf registration statements with the Securities and Exchange Commission registering for resale by International Vapor and the Owners the Fixed Shares and the Earn-Out Shares.

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Stockholders' Equity (Details Textual) (USD $)

0 Months Ended

1 Months Ended

3 Months Ended

0 Months Ended

3 Months Ended

3 Months Ended

0 Months Ended

Feb. 03, 2014

Dec. 27, 2013

Oct. 29, 2013

Mar. 31, 2014

Mar. 31, 2013

Oct. 29, 2013

Private Placement [Member]

Purchase Agreement [Member]

Oct. 22, 2013

Private Placement [Member]

Purchase Agreement [Member]

Mar. 31, 2014

Private Placement [Member]

Purchase Agreement [Member]

Nov. 20, 2013

Private Placement [Member]

Purchase Agreement [Member]

Pre Amendment Effect On Equity Incentive Plan [Member]

Nov. 20, 2013

Private Placement [Member]

Purchase Agreement [Member]

Post Amendment Effect On Equity Incentive Plan [Member]

Mar. 31, 2014

Directors And Employees [Member]

Mar. 31, 2014

Consulting Agreement [Member]

Mar. 31, 2013

Consulting Agreement [Member]

Feb. 03, 2014

Consulting Agreement [Member]

Board Of Directors [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Stock issued for services

400,000

Shares of its common stock, Vested

50,000

Shares of common stock expected to vested

4,921,056

350,000

Shares of common stock vested in installments

178,992

50,000

Consulting Agreement Description

Knight Global has presented the Company with a minimum of six (6) bona fide opportunities for activities specified in the Consulting Agreement that are intended to increase awareness of the Company’s electronic cigarettes. In addition, during the term of the Consulting Agreement, which is 2 years, and during an 18-month post-termination period, the Company has agreed to pay Knight Global commissions payable in cash equal to 6% of “net sales” (as defined in the Consulting Agreement) of its products to retailers introduced by Knight Global and to retailers with which the Company has existing relationships and with which Knight Global is able, based on its verifiable efforts, to increase net sales of the Company’s products.

Grant date fair value of the common shares

$ 3,080,000

Stock-based compensation expense

18,106

10,688

592,300

0

Consulting Agreement Termination Description

The Consulting Agreement is terminable by the Company between 181 days and 364 days after February 3, 2014 if Knight Global is not performing the consulting services in accordance with the terms of the Consulting Agreement subject to the Company providing Knight Global with written notice of non-performance and Knight Global having a 30-day cure period to cure such non-performance.

Commission description

Knight Global shall be entitled to commission payments during the 18-month post-termination period.

Unvested shares subject to automatically vest if consulting services not performed

50,000

Proceeds from issuance of private placement

10,000,000

9,100,000

10,000,000

Issuance of common stock of shares

3,333,338

3,333,338

Stock price per share

$ 3.00

$ 3.00

Resale of common stock of shares purchased by the investors

3,216,171

Effect on common stock after admentment to the initial registration statement, Description

The post-effective amendment does not include 1,035,732 shares of the Company's common stock that were previously sold under the initial registration statement. If the post-effective amendment to the initial registration statement is not effective for resales for more than 20 consecutive days or more than 45 days in any 12 month period during the registration period (i.e., the earlier of the date on which the shares have been sold or are eligible for sale under SEC Rule 144 without restriction), the Company is required to pay the investors (other than the Company's participating officers and directors) liquidated damages in cash equal to 1.5% of the aggregate purchase price paid by the investors (other than the Company's participating officers and directors) for the shares for every 30 days or portion thereof until the default is cured. These cash payments could be as much as $98,120 for every 30 days.

Number of shares of common stock reserved and available for issuance

8,000,000

1,800,000

Reverse stock split ratio

1-for-5

Share based compensation option granted

72,000

Share based compensation otion granted per shares

$ 8.30

Unamortized stock-based compensation expense on unvested stock options granted to employees and consultants

$ 307,076

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Stockholders' Equity (Details 1)	3 Months Ended
	Mar. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk Free interest rate	1.57%
Dividend yield	0.00%
Volatility	31.00%
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	5 years
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	7 years

XML

Organization and Basis of Presentation (Details) (USD $) In Millions, except Share data, unless otherwise specified	0 Months Ended	1 Months Ended
	Dec. 27, 2013	Oct. 29, 2013	Mar. 31, 2014	Dec. 31, 2013	Dec. 26, 2013
Organization and Basis of Presentation [Abstract]
Issuance of common stock for cash, net of offering costs, shares		3,333,338
Stock price per share		$ 3.00
Proceeds from issuance of private placement		$ 10
Reverse stock split ratio	1-for-5
Share capital, shares authorized	51,000,000				251,000,000
Common stock, shares authorized	50,000,000		50,000,000	50,000,000
Preferred stock, shares authorized	1,000,000		1,000,000	1,000,000

XML

Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2014

Stockholders' Equity [Abstract]

Schedule of warrant activity

	Number of Warrants		Weighted- Average Exercise Price		Weighted- Average Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014		215,880		3.23
Warrants granted		—		—
Warrants exercised		—		—
Warrants forfeited or expired		—		—
Outstanding at March 31, 2014		215,880	$	3.23		5.0	$	727,516
Exercisable at March 31, 2014		215,880	$	3.23		5.0	$	727,516

Schedule of weighted-average assumptions used to value employee stock options

	For Three Months Ended March 31, 2014
Expected term		5 -7 years
Risk Free interest rate		1.57	%
Dividend yield		0.0	%
Volatility		31	%

Schedule of options outstanding

Plan	Total Number of Options Outstanding under Plans
Equity compensation plans not approved by security holders		900
Equity Incentive Plan		275
		1,175

Schedule of stock options activity

	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014		1,119	$	2.17		6.89	$	7,815
Options granted		72		8.30		5.83		—
Options exercised		—		—		—		—
Options forfeited or expired		16		1.47		10.00		—
Outstanding at March 31, 2014		1,175	$	2.55		6.78	$	4,753
Exercisable at March 31, 2014		989	$	2.167		6.36	$	4,384
Options available for grant at March 31, 2014		1,482

Schedule of reconcilation of numerator and denominator of basic and diluted earnings per share

	For the Three Months Ended March 31,
	2014			2013
Net (loss) income—basic	$	(1,452,759	)	$	123,544
Denominator – basic:
Weighted average number of common shares outstanding		16,463,417			12,038,847
Basic (loss) earnings per common share	$	(0.09	)	$	0.01
Net (loss) income—diluted	$	(1,452,759	)	$	123,544
Denominator – diluted:
Weighted average number of common shares outstanding		16,463,417			12,038,847
Weighted average effect of dilutive securities:
Common share equivalents of outstanding stock options		—			224,816
Common share equivalents of outstanding convertible debt		—			—
Common share equivalents of outstanding warrants		—			7,005
Weighted average number of common shares outstanding		16,463,419			12,070,668
Diluted (loss) earnings per common share	$	(0.09	)	$	0.01
Securities excluded from the weighted outstanding because their inclusion would have been antidilutive:
Convertible debt		—			665,419
Stock options		1,174,500			—
Warrants		215,880			8,142

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies [Abstract]

Schedule of future minimum rental payments

2014	$	131,940
2015		58,920
Total	$	190,860

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Summary of Certain Significant Accounting Policies (Details) (USD $)	3 Months Ended
	Mar. 31, 2014 Customers	Mar. 31, 2013	Dec. 31, 2013
Number of customers	2
Accounts receivable	$ 1,866,652		$ 1,802,781
Income tax (benefit) expense	(752,400)	4,590
U.S. federal statutory rate	34.00%
Federal net operating losses	1,841,082
State net operating losses	1,632,554
Net operating loss carryforward expiration date	Dec. 31, 2032
Customer A [Member]
Accounts receivable	280,560
Customer B [Member]
Accounts receivable	$ 235,947		$ 286,768

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Stockholders' Equity (Details 3) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Number of Shares
Outstanding	1,119
Options granted	72
Options exercised
Options forfeited or expired	16
Outstanding	1,175	1,119
Exercisable at March 31, 2014	989
Options available for grant at March 31, 2014	1,482
Weighted-Average Exercise Price
Outstanding	$ 2.17
Options granted	$ 8.30
Options exercised
Options forfeited or expired	$ 1.47
Outstanding	$ 2.55	$ 2.17
Exercisable at March 31, 2014	$ 2.167
Weighted-Average Contractual Term
Outstanding	6 years 9 months 11 days	6 years 10 months 21 days
Options granted	5 years 9 months 29 days
Options exercised	0 years
Options forfeited or expired	10 years
Exercisable at March 31, 2014	6 years 4 months 10 days
Aggregate Intrinsic Value
Outstanding	$ 7,815
Options granted
Options exercised
Options forfeited or expired
Outstanding	4,753	7,815
Exercisable at March 31, 2014	$ 4,384

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Subsequent Events (Details) (USD $)	3 Months Ended		0 Months Ended					0 Months Ended
	Mar. 31, 2014	Mar. 31, 2014 Doron Ziv [Member]	May 14, 2014 Subsequent Event [Member]	May 14, 2014 Subsequent Event [Member] Wholesale Operations [Member]	May 14, 2014 Subsequent Event [Member] Online Operations [Member]	May 14, 2014 Subsequent Event [Member] Retail Operations [Member]	Apr. 25, 2014 Subsequent Event [Member] Frija [Member]	Apr. 25, 2014 Subsequent Event [Member] Board Of Directors [Member] Members	Apr. 25, 2014 Subsequent Event [Member] Board Of Directors [Member] Equity Incentive Plan [Member]	Apr. 25, 2014 Subsequent Event [Member] Chief Executive Officer [Member]
Subsequent Event [Line Items]
Number of members								5
Board of directors description								Size of the Board was increased to and fixed at five (5) members from four (4) members.
Reconstitution of the board of directors Description								None of Mr. Barrett, Ms. Courtin and Mr. Jaumot have a direct or indirect material interest in any transaction with the Company involving an amount exceeding the lesser of $120,000 or one percent of the average of the Company's total assets at year end for the last two completed fiscal years.
Common stock, Shares									60,000
Common stock exercise price per share									$ 6.48
Related Party Transaction, Description		Mr. Ziv, a founder of the Company, will continue to serve as an employee of the Company and as a director of the Company's subsidiary Smoke Anywhere USA, Inc. and is a greater than 5% stockholder of the Company.								In addition to serving as a member of the Board, Chairman of the Board and Chief Executive Officer, Mr. Holman, a founder of the Company, will continue to serve as the Company's President, and as a director of the Company's subsidiary Smoke Anywhere USA, Inc. and is a greater than 5% stockholder of the Company.
Annual base salary							$ 159,000
Accrued severance expense	167,003
Purchase price under agreement			20,800,000
Aggregrate earn out			29,200,000
Net working capital			1,700,000
Fixed Shares, Value			19,100,000
Unregistered shares of common stock			3,300,501
Shares price			$ 5.787
Fixed number of shares			345,602
Escrow deposit			2,000,000
Escrow purchase agreement period			27 months
Percentage revenue				200.00%	100.00%	75.00%
Franchisor revenue						50,000
Loss on contract termination for default			500,000
Fees and expenses on termination			$ 300,000

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
OPERATING ACTIVITIES:
Net (loss) income	$ (1,452,759)	$ 123,544
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Change in allowances	(86,314)	9,000
Depreciation	3,888	2,962
Amortization of debt discount		5,337
Stock-based compensation expense	610,414	15,605
Deferred income tax benefit	(754,249)
Changes in operating assets and liabilities:
Due from merchant credit card processors	85,694	181,791
Accounts receivable	22,443	(247,701)
Inventories	(924,169)	(64,062)
Prepaid expenses and vendor deposits	(40,945)	(58,109)
Other assets	(25,000)
Accounts payable	293,700	28,569
Accrued expenses	131,280	9,164
Customer deposits	(27,396)	(399,142)
Income taxes	(1,701)	4,590
NET CASH USED IN OPERATING ACTIVITIES	(2,165,114)	(388,452)
INVESTING ACTIVITIES:
Purchases of property and equipment	(4,795)	(8,057)
NET CASH USED IN INVESTING ACTIVITIES:	(4,795)	(8,057)
FINANCING ACTIVITIES
Offering costs	(109,104)
Proceeds from issuance of senior convertible note payable		500,000
Principal payments on term loan payable	(181,731)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(290,835)	500,000
(DECREASE) INCREASE IN CASH	(2,460,744)	103,491
CASH - BEGINNING OF PERIOD	6,570,215	176,409
CASH - END OF PERIOD	4,109,471	279,900
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	29,077	53,168
Cash paid for income taxes	$ 3,550

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

Note 5. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases its Florida office and warehouse facilities under a twenty-four month lease agreement with an initial term through April 30, 2013 that the Company extended in March 2013 and 2014 when it exercised the first and second of three successive one-year renewal options. The lease provides for annual rental payments of $144,000 per annum (including 45 days of total rent abatement) during the initial twenty-four month term and annual rental payments of $151,200, $158,760 and $174,636 during each of the three one-year renewal options. In October 2013, the Company amended the master lease to include an additional approximately 2,200 square feet for an additional annual rental payment of $18,000 subject to the same renewal options and other terms and conditions set forth in the master lease.

The remaining minimum annual rents for the years ending December 31 are:

2014	$	131,940
2015		58,920
Total	$	190,860

Rent expense for the three months ended March 31, 2014 and 2013 was $44,838 and $38,160, respectively, and is included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.

Legal Proceedings

From time to time the Company may be involved in various claims and legal actions arising in the ordinary course of our business. There were no pending material claims or legal matters as of the date of this report other than two of the three following matters.

On May 15, 2011, the Company became aware that Ruyan Investment (Holdings) Limited (“Ruyan”) had named the Company, along with three other sellers of electronic cigarettes in a lawsuit filed in the U.S. District Court for the Central District of California alleging infringement of U.S. Patent No. 7,832,410, entitled “Electronic Atomization Cigarette.” against the Company’s Fifty-One Trio products. In that lawsuit, which was initially filed on January 12, 2011, Ruyan was unsuccessful in bringing suit against the Company due to procedural rules of the court. Subsequent thereto, on July 29, 2011, Ruyan filed a new lawsuit in which it named the Company, along with seven other sellers of electronic cigarettes, alleging infringement of the same patent. On March 1, 2013, the Company and Ruyan settled this multi-defendant federal patent infringement lawsuit as to them pursuant to a settlement agreement by and between them. Under the terms of the settlement agreement:

• The Company acknowledged the validity of Ruyan’s U.S. Patent No. 7,832,410 for “Electronic Atomization Cigarette” (the “410 Patent”), which had been the subject of Ruyan’s patent infringement claim against the Company;

• The Company paid Ruyan a lump sum payment of $12,000 for the Company’s previous sales of electronic cigarettes based on the 410 Patent; and

• On March 1, 2013, in conjunction with releasing one another (including their respective predecessors, successors, officers, directors and employees, among others) from claims related to the 410 Patent, the Company and Ruyan filed a Stipulated Judgment and Permanent Injunction with the above Court dismissing with prejudice all claims which have been or could have been asserted by them in the lawsuit.

On June 22, 2012, Ruyan filed a second lawsuit against the Company alleging infringement of U.S. Patent No. 8,156,944 (the ‘944 Patent). Ruyan also filed separate cases for patent infringement against nine other defendants asserting infringement of the 944 Patent. Ruyan’s second lawsuit against the Company known as Ruyan Investment (Holdings) Limited vs. Vapor Corp. CV-12-5466 is pending in the United States District Court for the Central District of California. All of these lawsuits have been consolidated for discovery and pre-trial purposes. The Company intends to vigorously defend against this lawsuit.

On February 25, 2013, Ruyan’s second patent infringement lawsuit against the Company as well as all of the other consolidated lawsuits were stayed as a result of the Court granting a stay in one of the consolidated lawsuits. The Court granted the motion to stay Ruyan’s separate lawsuits against the Company and the other defendants based on the filing of a request for inter partes reexamination of the ‘944 Patent at the United States Patent and Trademark Office.

As a result of the stay, all of the consolidated lawsuits involving the ‘944 Patent have been stayed until the reexamination is completed. As a condition to granting the stay of all the lawsuits, the Court required any other defendant who desires to seek reexamination of the 944 Patent and potentially seek another stay (or an extension of the existing stay) based on any such reexamination to seek such reexamination no later than July 1, 2013. Two other defendants sought reexamination of the 944 Patent before expiration of such Court-imposed deadline of July 1, 2013. All reexamination proceedings of the ‘944 Patent have been stayed by the United States Patent and Trademark Office Patent Trial and Appeal Board pending its approval of one or more of them.

On March 5, 2014, Fontem Ventures, B.V. and Fontem Holdings 1 B.V. (the successors to Ruyan) filed a complaint against the Company alleging infringement of U.S. Patent No. 8,365,742, entitled “Aerosol Electronic Cigarette”, U.S. Patent No. 8,375,957, entitled “Electronic Cigarette”, U.S. Patent No. 8,393,331, entitled “Aerosol Electronic Cigarette” and U.S. Patent No. 8,490,628, entitled “Electronic Atomization Cigarette. On April 8, 2014, plaintiffs amended their complaint to add U.S. Patent No. 8,689,805, entitled “Electronic Cigarette.” The products accused of infringement by the plaintiff are various Krave, Fifty-one and Hookah Stix products and parts. Eight other companies were also sued in separate lawsuits alleging infringement of one or more of the patents listed above. The Company filed its Answer and Counterclaims on May 1, 2014. The Company intends to vigorously defend against this lawsuit.

Related Party Transactions

During the three months ended March 31, 2014 and 2013, the Company paid aggregate interest of $0 and $29,589, respectively to Ralph Frija, the father of the Company’s former Chief Executive Officer Kevin Frija and a less than 5% stockholder, pursuant to a previously outstanding senior note. During the three months ended March 31, 2014 and 2013, the Company paid aggregate interest of $0 and $5,658, respectively to Kevin Frija, a greater than 5% stockholder, pursuant to a previously outstanding senior convertible note. During the three months ended March 31, 2014 and 2013, the Company paid interest of $0 and $4,438, respectively to Doron Ziv, a greater than 5% stockholder, and to Harlan Press, the Company’s Chief Financial Officer, pursuant to previously outstanding senior convertible notes.

Purchase Commitments

At March 31, 2014 and December 31, 2013, the Company has vendor deposits of $690,715 and $782,363, respectively, and vendor deposits are included as a component of prepaid expenses and vendor deposits on the condensed consolidated balance sheets included herewith.

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Stockholders' Equity (Details 2)	Mar. 31, 2014	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total Number of Options Outstanding in Plans	1,175	1,119
Equity compensation plans not approved by security holders [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total Number of Options Outstanding in Plans	900
Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total Number of Options Outstanding in Plans	275