Vapor Corp. (OTCMKTS:VPCO) Hesitates After Q3 Results
It’s fair to say that Vapor Corp. (OTCMKTS:VPCO)’s shareholders won’t remember last week as the most eventful in their lives (at least in terms of chart movement). Indeed, only one out of the five sessions ended in the red, but the movements towards the higher end of the charts were dismal and, safe for Wednesday when more than 1.4 million shares changed hands, trading volumes suggest that people didn’t really seem all that interested.
That’s not the typical behavior of a volatile penny stock and it wouldn’t have been so strange if there was nothing going on around the company. But there is.
Two massive pieces of news hit the wire last week and we’re somewhat baffled by the lack of trading activity considering the magnitude of the developments. About an hour before the opening bell on October 21, the 10-Q covering the third quarter of 2013 appeared on the OTC Markets website. We’ve been covering the ticker for a while now and we’ve always mentioned that VPCO certainly have a more solid financial statement when compared to the ones seen from other penny stocks and having gone through the figures in the latest report, we can definitely say that they are doing a fair job at keeping their reputation intact. Here’s a rundown of the most important financials:
- cash: $303 thousand
- current assets: $6.2 million
- current liabilities: $5.6 million
- quarterly revenue: $6.4 million
- quarterly net income: $280 thousand
You can see straight away that they are in a much better shape than other small OTC ventures like Press Ventures Inc (OTCBB:PVEN) and Vertical Computer Systems Inc. (OTCMKTS:VCSY) but, more importantly, VPCO seem determined at improving their balance sheet with every quarter. We must say that they’re proving rather successful at this point. When you compare the latest report to the Q2 results, you’ll see that they now have a more solid working capital, a quarter-over-quarter growth in the revenues and profitability both for the three and nine months ended September 30. The only problem at the moment seems to be the rather modest cash reserves and that’s where the second piece of news comes in.
About an hour before the opening bell on Wednesday, VPCO issued a press release (the 8-K form was filed a couple of hours later) through which they informed their shareholders that they are about to close a $10 million private placement. A total of 16,666,667 shares will be issued which brings in the purchase price to $0.60 per share. This rate doesn’t seem like the most favorable of conditions. VPCO has been above these values for around four months and we’re sure that the discount has prompted some of the investors to hit the panic button and run away. When you go through the 8-K, however, you’ll see that the massive discount and the rather scary dilution might not be just a senseless means of crushing the shareholders.
As a part of the agreement, some of the convertible notes will be turned into common stock which will, once again, make stockholders grumpy, but, on the bright side, it will clear up the balance sheet even further. A reverse stock split is expected to be completed within the next sixty days and the document explicitly says that the ticker should be moved to NASDAQ within the next nine months. If everything goes according to plan, this could be a massive milestone for VPCO and its shareholders and if all the steps are completed, the effects of the current dilution will quickly be forgotten. The problem is, as you probably know, having your stock quoted on one of the national exchanges is quite an undertaking. There are countless rules and regulations and a failure to comply with even one of them could lead to a rejection which, in turn, will probably affect VPCO adversely.
At the moment this is a rather substantial risk and is probably contributing to the ticker’s inconsistent behavior from the last couple of days. Despite the apparent progress in terms of operations, VPCO still hides its dangers and considering them carefully is, as always, absolutely crucial.
