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.
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.