SOURCE: Vapor Group, Inc.

Vapor Group, Inc.

February 04, 2015 08:00 ET

Vapor Group, Inc., VPOR, CEO Issues Letter to Shareholders

DAVIE, FL--(Marketwired - Feb 4, 2015) - Vapor Group, Inc. (OTCQB: VPOR), (the "Company" or "Vapor Group"), today released a letter to shareholders from its President and CEO, Dror Svorai. In the letter, Dror Svorai addresses several concerns of shareholders that have been brought to his attention.

Dear shareholder:

As a result of requests from several of you, I am writing to give you more information on recent events affecting your Company. I will address these one-by-one as follows.

The Increase in the Authorized: This morning we filed a form 8-K with the Securities and Exchange Commission that increased our authorized common stock from 2.5 billion to 3.5 billion shares. As stated in the 8-K, the increase was approved by the Company's Board of Directors and a majority of the voting stock of the Company. But before explaining this action further, let me review events pertaining to our common stock that are the reason for the increase. 

As we stated in the 8-K, and previously in the 8-K of December 4, 2014, we have had, and continue to have, several holders of convertible promissory notes convert portions of their debt into free-trading share. As noted, the Company has no control over their conversion of shares since a condition of their debt instruments is that each note holder can convert at will (in accordance with federal and state regulations).

Important, the documentation connected to the notes frequently requires that the Company authorize its transfer agent to reserve a quantity of shares that is a multiple of the total number of shares into which the note would convert at the time of its making, should the debt holder decide to convert any all or any of it after the six month regulatory holding period and should the stock price decline. Furthermore, such reservations frequently are set up such that any downturn in the stock's market price will trigger an increase in the quantity of shares reserved.

As a result of the recent downturn in our stock's market price, caused in no small part from the dilution of the sale of conversion shares by note holders, several note holders have required sizeable increases in their reserves resulting in a significant reduction in the number of authorized shares of common stock left in treasury. These treasury shares are needed, not only for their reserves, but for general business purposes, including future acquisitions that we are contemplating. In order to make sure that the Company does not default on its notes as a result of inadequate shares in treasury or in reserves, and in order to maintain adequate shares available for general business purposes, we increased the authorized common stock high enough to provide a significant cushion.

Swapping Stock for Debt: As of yesterday, primarily as a result of the large volume of shares issued from debt holder conversions, the number of shares issued and outstanding became 1,426,652,096. All of the debt conversions have resulted in a significant reduction in the Company's debt of over $1,500,000. We expect that such conversions will extend into early April and continue to reduce our debt even further.

Why so many conversions? The reality is most of the financing available to small startup public companies is from lenders who use a business model that lets them hedge the risk of loss of their loan's principal and its profit by methodically converting portions of their loan as soon as permissible. If the Company to whom they have lent the money has adequate stock trading volume, the lender will try to take advantage of that volume by converting debt and selling the resultant shares into the market. With the right company as a debtor, not only can they get repaid their note ahead of maturity, but actually can earn a significant profit over and above the return of the debt instrument itself. To protect their interests, such lenders will also limit, subject to their approval and significant penalty fees, the right of the borrower to prepay any of the note before maturity -- meaning that they have adequate time to convert debt and earn additional profit even when the company notifies them that it wants to pay down or pay off the loan.

To this point, since the first of the year, Vapor Group has attempted to pay down several convertible promissory notes, only to be told "No." by the note holders.

Ending Our Cycle of Debt Financing: As stated, based on the strength of our cash position, we have tried to pay down several convertible promissory notes to avoid their conversion into stock. And we will continue to do so. The recent, rapid returns of our new subsidiary, VGR Media, Inc., will help us pay down about $200,000 in debt this month. As I have said before, we believe that by late in the first quarter or latest, early second quarter, we will have reduced our debt burden by 90% or will have completely eliminated it. As a result of the Company's growth, going forward we believe that we can cease the use of convertible debt financing to fund our operations and expansion.

Reverse Split: Even though there are now almost 1.5 billion shares outstanding, our Board of Directors, for at least the period ending March 31, 2015, and most likely also for the period ending June 30, 2015, will not authorize any reverse split of our common shares. The matter of the quantity of shares issued and outstanding remains a concern to all of us; however, until we have either eliminated or significantly reduced the amount of debt on our balance sheet, which will limit the risk of debt holder conversions driving down the market price of the stock after the reverse, we won't consider any reverse split.

VGR Media, Inc.: Our newest subsidiary, a full service interactive advertising agency, continues to grow and as stated, will significantly contribute to our pay down of debt this month. To date it has helped us to greatly increase our online presence. This ad agency is a "platform" for the sales of our products, vaporizers and e-cigarettes alike, as well as products of other brand marketers. More detail on its results will be released in the near future in accordance with required federal regulatory filings pertaining to the acquisition of this subsidiary which we are now putting together.

Marketing: We continue to build distribution for our line of high quality, affordable vaporizers in Colorado, Washington and elsewhere. As stated before, in Colorado we have this line being "private labelled" for dispensaries and have expanded distribution to include over 100 retail stores across the State for our products. Separately, in March, we anticipate having final approvals so that we can announce the opening of our first "Total Vapor" franchise store in greater Philadelphia. In the months to come we will be announcing more franchise openings in the northeast.

Working Capital: All the startup activities and rapid growth that your Company consumes time, energy and lots of money. Throughout 2014 our monthly needs exceeded our cash flow which is why we used outside financing throughout the year to fuel our growth. 

Since the start of 2015, we have not entered into any new convertible promissory note agreements or similar debt instruments because we have not needed the cash. In fact, almost daily, we are turning down offers of additional financing. The fact is, going forward and with a strengthened cash position, we can no longer justify to ourselves or our shareholders the cost of this type of financing.

I predict that 2015 will be our "break out" year. By year-end, we project a stronger balance sheet, a more diversified portfolio of product and services, an expanded and deeper distribution footprint and improved profitability and revenues. We are emerging from the development stage.

Very truly yours,

Dror Svorai
President and CEO
Vapor Group, Inc.

About Vapor Group, Inc.

Vapor Group, Inc., www.vaporgroup.com, is in the business of designing, developing, manufacturing and marketing high quality, vaporizers and e-cigarette brands which use state-of-the-art electronic technology and specially formulated, "Made in the USA" e-liquids, with and without nicotine. It offers a range of products with unique e-liquid flavors that is unmatched in our industry. Its products are marketed under the Vapor Group, Total Vapor, Vapor 123, and Vapor Products brands. It sells nationwide through distributors, wholesalers and directly to consumers through its own websites and direct response advertising. In addition, Vapor Group owns and operates VGR Media, Inc., www.vgr-media.com, a full service interactive advertising agency, offering customized performance marketing solutions to help marketers of consumer products acquire new customers and maximize their return on investment. VGR Media operates in the U.S. and internationally.

Vapor Group is committed to providing e-cigarettes that are convenient and economical to use, safer and healthier than traditional smoking, and which provide a flavorful, enjoyable smoking experience.

Vapor Group is managed by a highly experienced team of executives committed to responsible business policies and practices, including the marketing of our products only to those eighteen years of age or older, not making or avoiding claims about our product health benefits, and fulfilling the requirements of all applicable laws and regulations.

Safe Harbor Statement:

This release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. Certain statements set forth in this press release constitute "forward-looking statements." Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance or achievements, and may contain the words "estimate", "project", "intend", "forecast", "anticipate", "plan", "planning", "expect", "believe", "will likely", "should", "could", "would", "may" or words or expressions of similar meaning. Such statements are not guarantees of future performance and are subject to risks and uncertainties that could cause the company's actual results and financial position to differ materially from those included within the forward-looking statements. Forward-looking statements involve risks and uncertainties, including those relating to the Company's ability to grow its business. Actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. The potential risks and uncertainties include, among others, the Company's limited operating history, the limited financial resources, domestic or global economic conditions -- activities of competitors and the presence of new or additional competition and conditions of equity markets.

Contact Information

  • CONTACT:
    Vapor Group, Inc.
    954-792-8450