VPOR - my opinion and why i decided to hold after the 10Q

The opinions expressed in this write up are simply my opinions. I am not representing the firm I work for with relation to this write up. I am doing this on my own free time as an investor capacity. I currently hold a position in Vapor Group, Inc. I have not been compensated for this write up and this write up should not be relied on to make trading decisions. Please do your due diligence to confirm my opinions as they are just my opinions. Any statements and analysis herein are preliminary in nature and should not be relied upon until your own further research and analysis is conducted. This write up does not constitute tax advice or advice of any kind.

The purpose of this write up is to do a limited analysis and point out the major points from a business and shareholder perspective

Financial Statements

Vapor Group Inc., released their 10Q on Friday November 14^th. The most notable items are as follows:

1.      Increase authorized shares to 2,500,000,000

2.     Increase in Convertible notes payable to $4,488,423

As a shareholder, both of these are bad things. Means possible future dilution, harder to move the PPS price up (or down) and market cap can be overstated for the business much easier. Initially, I thought about exiting my position after I read the 10Q. However, I decided to take a look at the 10Q again from an overall business perspective rather than a stockholder perspective.

Keep in mind, the business perspective assumes that the business is legitimate and not another penny stock scam. I am not saying VPOR is a scam and I’m not stating that it is a legitimate business. No one knows for sure. Just keep in mind that statistically speaking, more OTC tickers are purely companies designed to sell shares. My personal choice is to give VPOR the benefit of the doubt, at least for now.

From a business perspective here are the following key points.

1.     Revenues increased by $2.65 million as compared to the previous years 9 months. More importantly Revs in Q1 were $966,401, in Q2 they were $1,025,365 and in Q3 they were $1,307,524. The company is showing steady growth in their operations.

2.     Costs of Revenues in total for the 9 months were $1,267,686. Overall Gross Profit of 61.6%. Not bad at all.

3.     However, overall the company had an overall loss of 561,841. More importantly net loss for Q1 was 237,393 for Q2 was 140,465 and for Q3 was 183,983. The loss remains somewhat consistent and decreased in trend as compared to Q1. I would like to have seen an overall decrease in net loss quarter over quarter, but its close.

4.     It is important to note that the majority of the expenses comes from SG&A totaling 1,498,363 for the 9 months. I cannot say for certain but I suspect that a majority of the expense could relate to Research and Development Costs (R&D) . VPOR keeps putting out new products so this assumption is not an outrageous one. R&D is expensive. However, It does appear that VPOR has a pretty good listing of items and it may be that these costs are decreased in the future. This is essential as this would free up cash that would allow VPOR to pay off the convertible notes rather than creating dilution.

Overall, from a business perspective VPOR, in my opinion, is not in a bad business position. Often start-ups incur losses in the first years of operations. Start-ups are typically capital intensive which could be the explanation for the increase in notes payable. Further, VPOR has a pretty good cash stock pile, a loan to a shareholder, Receivables (for which are almost entirely collectible and therefore no allowance for bad debts is required), Inventory and other current assets for which total is $3,555,710. This possibly indicates that VPOR is using the cash received from the notes for business purposes.

Furthermore, with increasing revenues, and hopefully decreasing expenses, VPOR will soon put in its first profitable quarter.

For now, I am giving VPOR the benefit of the doubt and choose to view it from a business perspective from what I personally have observed and expressed my opinion on. I am not saying that I am long VPOR, overall I am in this to make a profit and I will sell my position once my desired return has been reached. I stated publicly that my average cost is .0105 and I hope to exit half my position with 100% return on my investment. It may be that situations arise where I am enticed to sell part of my position at a lesser profit but for now that is not my intention.