DAVIE, FL--(NewMediaWire - May 21, 2015) - Vapor Group, Inc. (OTCQB: VPOR), (the "Company" or "Vapor Group"), today released the following letter to its shareholders from its President and CEO Dror Svorai.
Dear Shareholders:
Yesterday afternoon and again this morning, we filed two 8-K's addressing recent events that have significantly impacted the Company. The following are my comments on each of them:
2014 Financial Statement Restatement: What the 8-K filed yesterday can't express is the frustration we feel in having to revise the 10-K for calendar 2014 solely to allow for adjustments for "embedded conversion options" inside convertible promissory notes. Previously, such calculation of the future value of conversions to shares was never required; yet our new auditors (replacing our prior auditor who resigned) have required its inclusion under strict public company accounting standards. We are complying with their request and in fact, much of the associated restatement work has already been done. We expect to file the amended 10-K within the week, if not sooner. Immediately after the amended 10-K is filed, we anticipate filing within a day or two of its filing, the Quarterly Report, or 10-Q. The 10-Q had already been written and ready for filing before May 15th, but couldn't be filed until similar "embedded conversion option" adjustments were made to it. SEC procedure demands that the revised K be filed first. A company can't file a subsequent financial report unless the prior one is corrected. All that said, we expect to be current on all our reports within a short period of time.
Increase In Authorized Shares: Our Board of Directors again found itself having to approve an increase in our authorized shares. This time, however, our feeling was to increase it to such an extent that we won't have to keep going through increases again and again.
We needed to have adequate shares to conduct daily business while dealing with noteholder demands for increases in their share reserves in order to avoid default under the terms of the promissory notes.
Given the dilution driven by debt conversions which have been pushing the market price of the stock down, and the related, non-stop repeated calls by these same noteholders for increases in share reserves against their future conversions, the Board moved to put enough shares into treasury to cover constant noteholder reserve demands while avoiding the risk of default for not having adequate reserves set aside. Generally, these share reserve requirements are onerous. They put in reserve a quantity of shares that often assumes a share price over time of 15-20% of the market price of the stock. In other words, they assume continued downward pressure on the market price of the stock.
We publicly stated that we would not do a reverse stock split in 2015, and we will honor that commitment. Had the Board decided to reverse the stock, the increase in the authorized wouldn't have been necessary, but we believe that our shareholders would be penalized by its outcome, and decided not to do it. Part of the effect of not doing the reverse is having to increase the treasury stock.
We Continue To Grow: The above issues aside, the Company in the first quarter continued to show increases in revenue, and the expansion of our product distribution, now including the bulk shipment of our proprietary e-liquids to a Chinese e-cigarette manufacturer. Domestically, we continue to expand our distribution footprint. It has been this continuous growth, and the requirement that it created for increasing amounts of investment capital, that has driven the above issues. We are here for the long term and committed to growing the company regardless of the periodic challenges that we face from time to time.
