Victory Electronic Cigarettes Corporation

Victory Electronic Cigarettes Corporation

November 18, 2013 08:00 ET

Victory Reports Third Quarter Financial Results and Provides Corporate Update

Revenues Increase 160% on Strong Growth in all Divisions

Achieves Major Strategic Expansion of International and Domestic Retail Presence

Expects Further Acceleration in Fourth Quarter from Shipments to New Partners

SPRING LAKE, MICHIGAN--(Marketwired - Nov. 18, 2013) - Victory Electronic Cigarettes Corporation (OTCBB:ECIG) ("Victory" or "the Company"), an emerging leader in the electronic cigarette industry, today reported strong results for its third quarter ended September 30, 2013.

Brent Willis, Chairman and Chief Executive Officer of Victory, commented, "We continue to drive rapid growth in our online, US retail, and international businesses. We believe that we have established a competitive advantaged platform to capture a unique opportunity to build a strong brand and attain significant global share of the rapidly emerging electronic cigarette market."

Third quarter revenue increased by 160% compared to the prior year, with excellent growth coming from all Divisions. Total revenue for the third quarter and for the nine months ended September 30, 2013 was $0.83 million and $2.5 million, respectively, prior to shipments to newly gained international or US national accounts. The Company expects to continue rapid growth through new retail distributors in the US, expanded international distribution, and continued increases in its online business.

Gross margin in the quarter remained strong at approximately 44% of revenues. The Company noted that it continued to significantly expand its capabilities during the third quarter and made investments across the business, including in the areas of sales, marketing, sourcing and finance. SG&A spending in the third quarter increased to $1.1 million from $0.3 million in the same quarter of the prior year, when Victory was still a private company. This increase also reflects investments in permanent merchandising racks, sampling, marketing and distribution with new customers. As planned, the pace of investment spending resulted in a net loss per share of $0.01 for the third quarter.

The Company entered into several key customer and distribution agreements during and after the close of the third quarter and is well positioned for continued success in its retail distribution strategy. In particular, the Company expects strong fourth quarter revenue from substantial initial shipments to new distribution partners in both the United States and abroad.

In the United States, the Company has begun to distribute product through CST Brands, a leading national convenience retailer with over 1,900 locations, primarily under the Corner Store and Valero brand names. The Company also entered into a comprehensive distribution agreement with one of the largest distributors to the convenience store industry in the United States. This distributor is one of the leading suppliers of packaged consumer products in North America and serves nearly 30,000 retail stores including traditional convenience retailers, grocers, mass merchandisers, drug, liquor and specialty stores. Internationally, Victory executed a distribution agreement with Quipo S.A. de C.V to become the first major brand of electronic cigarettes to be distributed throughout Central America. This agreement covers El Salvador, Guatemala, Honduras, Nicaragua, Panama, and Costa Rica.

Mr. Willis commented, "We are simultaneously executing our development strategy in the United States and in a variety of international markets, where the electronic cigarette category remains virtually untapped. Almost 90% of the global tobacco market is outside the United States, so this balanced approach to growth will create strong opportunities both in the short-term and, more importantly, long into the future."

The Company also noted that, as disclosed on November 7, 2013, it successfully completed a private placement financing of $2,475,000 to fund growth-related working capital needs and for general corporate purposes.

Mr. Willis concluded, "We believe Victory's investments in its cost-advantaged infrastructure will pay off in the long run. The vast majority of the electronic cigarette category opportunity is in front of us and we are confident that we are increasingly well positioned to capture a leading share of the growth. We believe we have the right business model, a strong brand, a preferred product and an excellent team to emerge as a global leader in this new and truly disruptive category. We believe that this very large emerging market holds an excellent opportunity to create value for our consumers, retailers, business partners and shareholders."

Consolidated Balance Sheets

September 30,
December 31,
Current assets:
Cash 590,017 $ 17,438
Accounts receivable 16,239 157,295
Inventory 281,713 287,373
Prepaid inventory 54,346 141,995
Other prepaid expenses 30,000 8,676
Employee advances 6,750 -
Total current assets 979,065 612,777
Furniture and equipment, net 28,067 -
Total assets 1,007,132 $ 612,777
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses 138,843 $ 37,853
Deferred revenue - 17,699
Revolving credit line - 20,641
Deferred compensation - 350,003
Due to related party 448,166 703,870
Convertible related party promissary notes 200,000 -
Total current liabilities 787,009 1,130,066
Total liabilities 787,009 1,130,066
Commitments and contingencies
Stockholders' equity (deficit)
Common stock, $.001 par value; 100,000,000 shares authorized; 51,744,000 and 32,500,000 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively 51,744 32,500
Additional paid-in capital 2,244,289 36,811
Accumulated deficit (2,075,910 ) (586,600 )
Total stockholders' equtiy (deficit) 220,123 (517,289 )
Total liabilities and stockholders' equity (deficit)
1,007,132 $ 612,777

Consolidated Income Statements

Nine Months
Ended September 30,
Three Months
Ended September 30,
2013 2012 2013 2012
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Total revenues 2,458,243 832,610 833,257 321,010
Cost of Goods Sold 1,118,609 278,116 468,290 111,217
Gross profit 1,339,634 554,494 364,967 209,793
Operating expenses
Advertising and promotion 938,795 235,053 351,810 36,933
Personnel costs 852,453 420,781 411,395 167,085
Professional fees 244,078 5,337 70,162 4,087
Selling expenses 227,803 56,191 76,619 2,250
General and administrative 246,555 81,491 114,984 34,126
Merchant account fees 141,981 9,186 34,123 6,826
Research and development - 78,317 - -
Total operating costs 2,651,666 886,356 1,059,094 251,307
Loss from operations (1,312,032 ) (331,862 ) (694,127 ) (41,514 )
Other income (expense)
Interest expense (114,280 ) - (38,447 ) -
Net loss $ (1,426,312 ) (331,862 ) $ (732,574 ) $ (41,514 )
Net loss per common share:
Basic $ (0.036 ) $ (0.010 ) $ (0.014 ) $ (0.001 )
Diluted $ (0.036 ) $ (0.010 ) $ (0.014 ) $ (0.001 )
Weighted average number of shares outstanding
Basic 39,615,067 32,500,000 52,224,000 32,500,000
Diluted 39,615,067 32,500,000 52,224,000 32,500,000

About Victory

Victory Electronic Cigarettes is dedicated to providing a cleaner and healthier alternative to smoking for all and intends to empower smokers to regain their freedom. Victory is one of the leading companies in this rapidly emerging and fast-growing market. The Company began online sales in 2012 and expanded to retail early in 2013. Victory offers consumers a full product portfolio that incorporates the highest quality and latest technology, and has been rated as superior in real tobacco taste amongst major brands. Recently public, Victory's experienced, new management team is positioned to leverage its clearly differentiated and well-recognized brand, established online presence, and low-cost infrastructure to accelerate growth and drive significant value for its shareholders.

Safe Harbor Language

This press release contains forward-looking statements reflecting management's current expectations regarding future results of operations, economic performance, financial condition and achievements of Victory, including statements regarding Victory's expectation to see continued growth. The forward-looking statements are based on the assumption that operating performance and results will continue to materialize consistent with recent trends. Management believes these assumptions to be reasonable but there is no assurance that they will prove to be accurate. Forward-looking statements, specifically those concerning future performance are subject to certain risks and uncertainties, and actual results may differ materially. These risks and uncertainties include: Victory's reliance on additional financing, as Victory has not achieve profitability; risks associated with Victory's products, including that they may pose a health risk; governmental regulations may impact Victory's business; the market or consumers may not accept Victory's products; Victory relies on a single class of products; existing or pending patents may affect Victory's business; and other factors disclosed in the Company's filings with the Securities and Exchange Commission. Unless required by applicable law, Victory undertakes no obligation to update or revise any forward-looking statements.

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