Electronic Cigarettes International Group Ltd fka ECIGQ

[Bjdev89]

ECIG Opportunity Summary (Updated 3/24/15)

Updates begin after the March 17 date. Please let me know if there are any major items I’ve left out, overstated, etc.

2014:

ECIG issued large amounts of convertible debt in order to acquire multiple electronic cigarette brands. The strategy was to be the worlds largest electronic cigarette company with brands selling all over the world appealing to multiple markets. To pull this off, ECIG needed to expand quickly to grab market share quickly…thus, THE notorious and murderous convertible debt that has provided this "penny stock" opportunity was acquired by the company. The ECIG market during 2014 was widely regarded to be growing rapidly and there was large interest from retailers to stock their shelves with electronic cigarettes. The intention of management was to quickly pay off this debt by up listing to the NASDAQ with an IPO. This IPO document has a ton of wonderful company strategy/history/market/brand/distribution data and is worth viewing for more detail.

Acquisitions:

1. Vapestick: $5.74 million cash, 6,595,900 shares.
2. FIN: 10 million shares, $10 million cash, $15 million note
3. VIP: 2.3 million shares, $9 million cash, $11 million note
4. Hardwire Assets: $5 million cash, 3 million shares

There were various other fees involved with these acquisitions that show up costing in the tens of millions under the SG&A and Marketing & distribution accounts on the quarterly statements for Q1-Q3.

• Total convertible debt from this: $62.6 million as of October 21, 2014
• Total warrants outstanding as of October 21, 2014: ~42 million shares worth

This convertible debt was supposed to be paid off by the IPO; however, the IPO failed and debt holders began converting. An added casualty of the missed IPO is it prevented ECIG from acquiring what could have been its largest brand, Ten Motives. The debt was toxic. Debt holders had no incentive to support share price (in fact, they were incentivized to have it decrease). Toxic debt death spiral commenced. Imagine throwing a rock off a 200-foot cliff. PPS dropped from dollars to between $.03 and $.04/share.

OS as of December 22, 2014: 136,810,361

Link to a good article from closer to when this occurred discussing the toxic debt and death spiral: http://seekingalpha.com/instablog/1107010-edward-vranic-cfa/3561345-ecig-has-become-a-buyout-target-for-big-tobacco-after-its-failed-ipo

For full prospectus filed with SEC from October 2014:

http://irdirect.net/filings/viewer/index/1398702/000119312514379175/

2015

January 5: ECIG announces national advertising campaign for FIN brand. The new advanced vaping system had already expanded to 30,000 accounts across the United States at this point. The campaign would be a “multi-million dollar” campaign. Additional rollout to 15,000 more US accounts anticipated for Q1 2015.

• Meanwhile our share price closed at $.073/share that day
• OS was ~185 million January 5

January 7: SEC filing for preliminary shareholder meeting/vote to vote on a RS of up to 1 for 100 as well as increase AS by double (to 500 million) and give preferred shares (50 million) with unlimited rights to the company to do with as they please.

• Share price closed at $.054
• OS was ~202 million January 7

Timely opinion piece on the RS vote:http://seekingalpha.com/instablog/1107010-edward-vranic-cfa/3618685-vote-no-to-ecigs-reverse-split

January 14: ECIG brings in Dan O’Neil and Phil Anderson to act as Executive Chairman and CFO respectively. Old CFO steps down.

Dan O’Neil (every long’s favorite person in the world) said: “I am extremely excited to be joining ECIG and to lead this enterprise in one of the fastest growing and most interesting consumer goods opportunities in the past twenty plus years. The first priorities are to restructure the Company’s balance sheet and to improve overall cash flow management. The opportunity to replace tobacco cigarettes is not only a great business endeavor, but also represents an excellent opportunity to do something positive for society. ECIG is the best positioned company globally to take on this challenge, and with a strengthened and restructured balance sheet, coupled with a portfolio of strong brands, the potential of ECIG is tremendous. My goal will be to drive controlled, profitable growth globally and to deliver superior and sustainable returns to our shareholders. I look forward to working with our CEO Brent Willis to deliver on these commitments.”

• Share price got as high as $.0815 but closed at $.053
• OS was ~223 million

January 26: ECIG updates us on restructuring progress and alters RS ratio and AS increase details:

• An agreement has been reached with approximately 85% of the senior note holders to extend the length of their note by an additional 18 months, reduce the interest rate to 8%, affix their conversion price, and eliminate the ratchet provision on their warrants.

• Existing investors agreed to provide short-term working capital to continue to fund the Company’s growth and operational requirements.

• Sources for a larger infusion of long-term growth capital have been identified, and ECIG is working with these investors to structure an agreement that will allow the Company to proceed with its global expansion strategy.

• Reduce requested RS for shareholder vote from a 1 for 10 to a 1 for 100 down to a range of 1 for 5 to 1 for 20. Also reduced the AS increase from 500 million total AS w/ 50 million preferred shares to 350 million total AS with 20 million preferred shares.

• PPS closed at $.0515
• OS was ~246 million

Dan (“the man”) O’Neil commented: “When I joined ECIG, I made a commitment to working toward strengthening and restructuring the Company’s balance sheet to establish a solid foundation for controlled profitable growth. The restructuring of the senior note holder’s debt, and the decision by them to further invest in the firm is an important first step. We have additional steps on the capital structure and balance sheet underway that are intended to provide full visibility for shareowners on how we expect to deliver superior and sustainable growth.”

January 27: SEC filing confirming shareholder meeting with final date and meeting location. Between a 1 for 5 and a 1 for 20 RS up for vote as well as increasing AS with preferred shares.

• PPS closed at $.0555
• OS was ~254 million

February 9: ECIG expands distribution with “Murphy” gas stations/convenience outlets from 600 locations to 1200 locations.

• PPS closed at $.0495 (down from $.054 that day)
• OS was ~287,661,190

February 17: SEC filings show Brent Willis hasn’t sold any of his ~4.7 million shares in 2014.

• PPS closed at $.071
• TA was instructed to direct investor inquiries regarding the OS to Phil Anderson, CFO. No more OS # updates. Appears to have remained steady at ~287 million per SEC filings filed during February & March.

March 9: Business update issued by ECIG the day before the shareholder vote. Dan “the man” O’Neil commented:

“We continue to make progress on our key operational initiatives. In addition, we believe our ongoing effort to strengthen and restructure ECIG’s balance sheet will establish a solid foundation for the Company’s long-term profitable growth and generate long-term shareholder value. We look forward to updating investors on our continued progress, including reporting on the results of ourspecial shareholder meeting, and on our fourth quarter and year-end results upon the completion of the audit of 2014 results.”

• PPS closed at $.092

March 10-11: Vote results reported by PR in March 10, SEC filing March 11. RS passed with vast majority, AS rejected with vast majority.

• PPS closed at $.148 on March 11
• Reported by attendees of the meeting that ECIG would be an accelerated filer (10-K due March 16)

March 16: ECIG files for extension to file 10-K. Latest date to report March 31.

• PPS closed at $.156

March 17: SEC filing 8-K filed showing massive balance sheet changes/refinancing.

• See post # 52272 for brief description of what happened (possible opinions present in the post)

• See post # 53156 for link to spreadsheet with the RS fleshed out in terms of new OS, warrants, etc

• See post # 52482 for another description of what happened and a well-respected posters opinion
• Bears see this as the news of further dilution post-RS. Bears are generally looking to re-enter post-RS to avoid dilution.

• Overall, new debt terms have a fixed conversion price of $.05 ($.75 post RS) per share, are paired with warrants (options to buy shares) that give the warrant holder the write to buy shares at $.03 ($.45 post RS), have dilutive limitations (shares owned cannot exceed 4.9% RS until 61 day notice given to company, and then 9.9% max limit), the ability to reduce warrants by half if the company pays the debt early, and other provisions that eliminate the toxicity of the debt.

Link to SEC filing:http://irdirect.net/filings/viewer/index/1398702/000161577415000491/

Updates (3/24/15)

1. The RS ratio was a 1 for 15 and Tuesday, March 24 is the day it was enacted. The refinancing from March 17 is in full swing.

2. We’re still waiting on the 10-K to get a better idea of how last year ended and hopefully what we can expect Q1 of 2015.

3. The 2014 10-K should be filed by March 31. Many expect sooner. What do Q4 revenue look like? Revenue growth into Q4 is a significant measure of whether this is a good investment as Q1-Q3 of 2014 were major growth quarters with new acquisitions. Momentum quarter to quarter appears to be very. A rumored email from the CEO stated the 2014 would see $80 million revenue for 2014. Images of the email have been shared and seen by many. Questions are legion as to whether or not this is legitimate.

a. Q1 2014 revenue: $4,138,540
b. Q2 2014 revenue: $11,287,723
c. Q3 2014 revenue: $15,901,907
d. Q4 2014 revenue: FIN AVS rollout, ~3000 additional retail outlets. Most expect $20 million +
e. 2014 Annual revenue currently $31.3 million before Q4.
f. Market cap as of 3/24/2015 ~$27 million.
g. Operating cash flow has been negative during ECIG’s first year in 2014. This was largely due to one time costs related to business rollout from being an online only business, acquisitions (all of which occurred during 2014), and attempting to uplist to the NASDAQ. See post # 54982 for more details and links to discussion from two perspectives.

4. 2015 Q1 earnings in May will be of great interest given new AVS rollout with Vapestick, new management, new distribution, national advertising campaign, and more. It will also be the first full quarter that wasn’t riddled by acquisitions, up-list attempts, etc. It is the first quarter in what will be ECIG’s first full year as one company.

Link to ECIG PR’s described above: http://ecig.co/press/press-release/
Link to ECIG SEC filings described above: http://ecig.co/investors/sec-filings/

Summary

Key Risks- Post RS dilution and/or no/slow revenue growth.

Key upside - formerly valued as high as ~$1 billion. Private placement in July 2014 valued company at approximately $600 million. Current market cap ~$27 million (March 24, 2015 end of day). Will a restructured balance sheet paired with growing revenue enable ECIG to get its market cap back up to where it used to be?

I’ve done my best to be neutral and stick to facts. That being said, now that we’re at the end and I’m the one that worked his butt off putting this together, I will make one comment/observation. I am a long-term investor here. I think you can see a real catalyst occurred with the new management. To date, they have followed through on their commitments. Read their public comments and observe what followed. They are the real difference here between 2014 and 2015.

Special thanks to TESLA777 for monitoring the OS all those weeks and sharing his DD. This has been compiled from wonderful input, DD, brainstorming, discussion from the many dedicated investors who prowl this board. Please keep sharing your DD! We can all learn from others’ perspectives no matter their background or experience.