According to the research I've obtained recently and an interview I held with an auditor of a mid-size firm regarding convertible debt and VPOR's specific circumstances, I've come up with a thesis on the current status, of which I thought would be helpful to share....
I'm confident financials are imminent (within a short timeframe), and believe the delay is with the 10-k, which according to our specifics, requires a minimum of 8 weeks to complete. Year-end annual report is fully audited, as apposed to quarterlies that are reviewed, and Anton and Chia being a reputable firm, and recently brought on board, therefore unfamiliar with the structure, will not sign off haphazardly. I was assured, especially due to the circumstances with the previous auditor, they will most likely perform a fully detailed audit of their last reported Annual Report, which in addition to other procedural functions, involves a process called "substantive testing" - maybe the auditors on this board can confirm this. Also, there were four pages of convertible debt dating back to early days of Avworks Aviation (SPLI), and according to my source would have to be individually broken down to their conversion feature, which amongst other details are to be verified in writing from each of the note holders, as I've insisted here before. I'm not going to pretend to know the specifics of an audit process, but it's my understanding that it's a lengthy and time consuming process, and often entails re-calculations, so according to my estimation, give or take a couple days to the 8 week mark from when they secured the auditor, and that's when we should see the 10-k, followed by 1st quarter 10-Q and then Q-2.
When I read comments like "going out of business" or "we'll never see financials", I can't help but wonder - what's the motivation for these statements since the evidence points to the contrary, and for lack of a better description - sounds ludicrous! There is indeed a delay, however this was not deliberate or intentional. I'm sure it would've been avoided if they were provided with adequate notice from Johnson in April, rather it occurring last minute where they had to scramble to comply. Needless to say, without proper communication from the company, I'm sure even the most ardent supporters have thought twice with continuing their support.
Now, why hasn't Dror submitted a letter and an update?
By a close examination of VPOR's history, we can for the most part conclude that they have been consistent with communication up to this point. If you do a fair side-by-side comparison with other pink sheets, you'll find their record to be in accord with filings, rarely late, and have always followed up with a PR or letter to their shareholders, and always devoid of any appearance of a pump. Though I have my own gripes, primarily having to do with the amount of convertible debt, I have to give them credit where credit is due, therefore concluding the silence to be out of character for a company that has proven to be a viable enterprise, has kept their shareholders abreast of developments, and have regularly followed up according to guidelines.
So, we arrive at the mystery of why operate a successful operation, continue to grow, keep up with communication with investors, keep current in regulatory filings for a year and half, about to clear out the debt, and do so absent of the appearance of a PnD, just to be derailed by an auditor change? Doesn't make sense....
After a few weeks of serious introspect, and a few conversations with those knowledgeable enough that could shed some light on the current situation, in particular my recent interactions as I've indicated above, I've come to the following conclusion to the cause and effect of recent events. I'd like to note, it's only an "opinion" and I'm certain I'm not completely correct in regards to the details, however I may also not be far off....
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I believe they had every intention to release more information as the "anticipation" date could not possibly be met, however shortly after their final communique, there was a heightened sense of negative sentiment, hinting at possible wrongdoing by individuals, and coupled with recent volatility of news events snowballed into a sell-off. This led to the company appropriately choosing to pursue a more cautionary route, and for the immediate future proceeded into a "quiet period" ---- If you understand regulatory laws, then you realize if they were working on a major deal or event to follow within the time frame of the release of their financials, then this was the appropriate move, both for them, and their shareholders.
Having said that, it is my opinion that they may use this period to arrive at one of several objectives....
first, to ensure the debenture holders are no longer able to benefit "substantially" from the sale of their convertible shares - PR's during conversions only enriches the note holders, while producing bag holders for the company. It's no secret (though not quite legal) for note holders to short a stock prior to conversions, knowing full well they will soon be able to cover with their convertible shares. I've noticed it here and other similar tickers going through toxic financing. This is also the reason there's still many MM's left in this stock - it has served as a reliable ATM for both parties. I'd also like to note, the number of MM's still covering VPOR with so little liquidity, and current non-compliancy, indicates a good sign, that they're also aware of more action coming their way. So Dror wants to use this time to cut the cord that's been feeding the beast (note holders), I say more power to him.
Second, lack of current liquidity is cause for further uncertainty and concern, and in the case of those note holders that didn't allow a cash payment, Dror could very well force them to reconsider their position with a payment, rather than opting for more convertible shares. They've made plenty of cash, while decimating the stock - why not take payment for the last tranche!
Third, if he was ever considering a buy-back, strategically speaking - this is the perfect opportunity. Keep in mind, if the company chooses to do a buy-back on the open market, they have to stay within guidelines, and are only able to buy 25% of average volume, so it won't be much initially before the public is alerted by the filing, but no doubt will be a symbolic move, signaling confidence. They can continue to buy on the open market, or submit a re-purchase plan, so whatever is within their financial threshold, the opportunity is here, and I believe this point is a likely possibility.
Fourth, majority of other companies I've noticed to proceed this route (quiet period) do so generally to follow up with a major move or development....whether that's a merger, acquisition, expansion, private placement, payoff of mature convertible debt, share repurchase, whatever it may be, it can't be jeopardized or derailed, and they have to err on the side of caution, and follow the regulatory guidelines, and stay quiet until the appropriate time.
Finally, he could use this time to flush out all those X-SPLI shareholders that have proven to be nothing but negative and a drag on their stock.....look around....there's more hateful dialogue going on within and out of this quorum than anything constructive, and I believe he wants to shed the past and ensure those people are forever distanced. He's been bombarded for an entire year with nothing but hateful banter, especially lately, and I could see where the final straw of the current events is what finally broke the camels back. Don't get me wrong, for the exception of the auditor fiasco, it's all been by his own making, nevertheless, he could care less that his previous longs are sitting around in what closely resembles a sewing circle, banging heads and constantly referring to him in derogatory terms and degrading his company. So the few true, loyal, supportive longs, that have been silent for the most part become the victims of the blowhards with an agenda and nothing to lose....can't help but feel bad for these folks who have endured emotional outbursts from those unwilling to take personal responsibility, and are constantly blaming everyone else except their own lack of good judgement with their investment.
So, In conclusion I suggest taking a moment to gain some perspective....
VPOR is a viable, thriving business in a "disruptive innovation" market. They separated themselves from the herd early on, in part by moving away from "E-cigs" and into the tank model, when companies like VPC_ and MC__ were by far lagging behind. They also distinguished themselves by concentrating in the primary market of mass retail and distribution via contracts like Resnick. I recall when they announced Resnick, a member of another board caused a scene by transposing their name onto the PR to show what their company could achieve in the future. They also were smart to employ an FDA approved lab for their e-liquids, which in light of pending regulations, safely places them in compliance with the laws. Deals like Resnick and direct sales to China, are huge factors in determining viability, and if it weren't for negative factors offsetting these developments, it would almost certainly reflect in pps. Resnick, China, and all the smaller retailers found by KB are results of growth, and often fall by the wayside because for some reason VPOR is held to a strange set of standards that's typically not applied elsewhere. Similar tickers issue PR's for small and insignificant events that result in significant price movement, yet deals like Resnick, Marijuana dispensaries, franchising, and others alike are hardly given a second thought, and often questioned on merit or accuracy. It's a good lesson for those that thought the company wasn't issuing enough PR's, or that the content was not substantive. I don't mean to diminish the fact that they did take on too much debt, however in part we're seeing results of the funding in rapid growth of the company....$4.5 million in revs for a first year operation is nothing to sneeze at, but was it worth it? Probably not!.... In closing, after my research, I'm more confident today than I was yesterday, that financials are delayed, not because they are packing up and leaving town, but because it's naturally a lengthy process, which I wasn't aware of previously. I also believe there's more to it than what we see on the surface, but the year of negative exposure has taken a toll, where the notion of good things actually happening here is but a fleeting thought.
I happen to believe the contrary, and I'd like to see those loyal longs described earlier rewarded for their patience.....I'm always rooting for the underdog!
On a side note; Preferred shares are not available until 2016 along with any possibility of a RS, so I'm not going to bother discussing something that has no bearing until 6 months from now. Let's have that discussion in December.
So, I'm granting them the necessary time required to make their filings current, and judge the company adequately according to the numbers and fundamentals, as I believe they're both about to change for the better constituting progress. I'm confident Dror will do the right thing, regardless of the noise.
JMO GLTY
