Vapor Group Inc (OTCMKTS:VPOR) Sinks After Quarterly Results

VPOR.pngVapor Group Inc (OTCMKTS:VPOR) made an absolutely astonishing run back in February and March. In just a month and a half, the ticker managed to climb from under $0.01 per share all the way to more than $0.40.

These sort of runs are not that uncommon in Pennyland, but they are, more often than not, associated with a paid pump. VPOR (which was then traded under the SPLI symbol), however, didn’t need a promotion.

The reverse merger and the change in the business plan was enough to get investors all fired up. The press releases were optimistic, the volumes were huge, and the connection between the e-cig business and the marijuana industry were contributing to the hype and excitement.

Unfortunately, at one point, the ticker ran out of steam and it started sliding towards the bottom of the charts at a rapid rate. Yesterday, just fifty-five days after hitting an all time high of $0.45, VPOR closed the session at $0.078 per share. That’s more than 80% of the value gone and the most logical question is: “Why?“.

There was quite a lot of controversy around the ticker from the very beginning. We, as well as some other people, tried to warn investors about the fact that the company’s new CEO, Dror Svorai, has been involved with Onteco Corp. (OTCMKTS:ONTC) in the past and that while he was there, there were some legal complaints against him. The surviving entity’s financial situation was unknown and there were concerns around FDA’s opinion on e-cigarettes.

Nevertheless, there were still people who believed that VPOR is a solid company and they claimed that the 10-Q covering the first quarter of 2014 will prove them right. Among the stock’s supporters was an investment group called #wolfpack. It’s led by a Twitter user known as the Wolf of Weed Street and even though one of his latest picks, Fusion Pharm Inc (OTCMKTS:FSPM), got suspended by the SEC just hours after he alerted investors about it, some people are, apparently, still ready to trust him.

About thirty minutes before yesterday’s opening bell, the long awaited Q1 results came out and we should note that there are some rather solid points to the report. Here’s a summary of the most important figures:

  • cash: $61 thousand
  • current assets: $1.2 million
  • current liabilities: $1.5 million
  • quarterly revenues: $966 thousand
  • quarterly net loss: $237 thousand

The financials are not perfect. There’s around $300 thousand in working capital deficit and the bottom line is negative. Still, there is an impressive revenue growth and the gross margin is not at all bad. If everything goes according to plan, VPOR might just be able to show us some more decent figures in the quarters to come. The future statements should tell us how the business is going, but while we’re on the subject of yesterday’s report, we should probably note that investors might have overlooked one rather important aspect.

26VPOR_logo.pngIf you scroll down to page 35 of the 10-Q, you’ll see that between January 17 and February 27, some old notes were converted into more than 64 million shares of common stock. The principal amount of these notes was $57 thousand and the unaffiliated parties that held them converted only the remaining balance. This means that we can’t tell you exactly what the conversion rate is, but a quick calculation shows that it’s hovering somewhere in the triple-zero levels.

There’s still a lot of convertible debt waiting to be turned into common stock and with 2 billion shaes authorized, there’s no shortage of room for issuance. Considering this is, we reckon, absolutely crucial before putting any money on the line.

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