After falling down to just 7 cents per share the stock of Vapor Group, Inc. (OTCMKTS:VPOR) was able to recover some of its lost positions during Friday’s session. The stock opened lower than the previous close but rallied and six and a half hours later was sitting nearly 17% in the green at $0.083. Despite the positive performance and significant gains the stock of the company is still down by more than 80% compared to the highs posted just two months ago.
Even the quarterly report that was filed last Tuesday failed to reverse the negative trend of the stock. The report covers the first three months of VPOR‘
s new e-cig and vaporizers
operations after the merger done in January and admittedly the results are not that discouraging:
- $61 thousand cash
- $1,2 million total current assets
- $1,5 million total current liabilities
- $966 thousand revenues
- $237 thousand net loss
If their revenues continue to grow achieving a positive bottom line is not out of the question. Still, the report also revealed a couple of serious red flags around the company.
At the end of March VPOR
had nearly $900 thousand worth of convertible notes
which means that the dilution of the common stock might not stop any time soon. Just for the period covered by the report another 64 million common shares saw the light of day through the conversion of old notes. Currently sitting at 334 million outstanding shares out of the 2 billion authorized there is quite a lot of room for future issuance of shares.
In order to secure enough funds for their business on April 29 VPOR
entered into a private placement of shares with the infamous toxic funder Hanover Holdings I, LLC
, an affiliate of Magna Corp. Initially the terms of the deal seem rather reasonable – the company sold four convertibles notes to Hanover for a total of $1,3 million. The conversion price is fixed at $0.15 per share and there is a six months holding period before any conversions are allowed. So what is the problem then?
have agreed that if their share price falls below 18 cents at any point after the holding period has expired they will be considered in default of the notes. This gives Hanover the right to convert the notes at a 30% discount from the lowest share price from the last five trading days. The holding period ends on October 29 and until then VPOR
has to more than
double its current price.
At the moment any investment in a pennystock even remotely connected to the marijuana industry should be preceded by extensive due diligence. The SEC has been targeting the industry for suspicious companies resulting in six suspended potstocks since the start of March. The latest one came just before the weekend when the stock of Fortitude Group Inc, Inc (OTCMKTS:FRTD
) was suspended from trading.