DANIA BEACH, Fla., Nov. 14, 2014
/PRNewswire/ -- Vapor Corp. (NASDAQCM: VPCO; "Vapor", the
"Company"), a U.S.-based electronic cigarette and vaporizer company
whose brands include emagine vaporTM, Krave®, VaporX®,
Hookah Stix®, Alternacig®, and Fifty-One®, today announced its
financial and operating results for the third quarter and nine
months ended September 30, 2014 along
with other recent Company highlights.
Recent Company Highlights:
- On November 6, 2014, executed a
binding term sheet to enter into a merger with Vaporin, Inc. (as
discussed below),
- On November 14, 2014, completion
of the private sale of $1.25 million
of convertible notes and common stock purchase warrants to
accredited investors as contemplated by the binding term sheet for
the proposed merger with Vaporin, Inc. (as discussed below),
- During the 2014 third quarter, entered into a total of nine (9)
real estate leases for eight (8) emagine vapor™ retail kiosks and
one (1) retail store, and.
- Since November 1, 2014, opened
initial six (6) emagine vapor™ retail kiosks in malls in
Maryland, New Jersey and Texas.
The Company will not host a conference call to discuss its
financial and operating results for the third quarter and nine
months ended September 30, 2014
because of the proposed merger with Vaporin, Inc.
Results of Operations for the Three Months Ended September 30, 2014
Net sales for the quarter ended September
30, 2014 were approximately $2.7
million compared with approximately $6.4 million during the same quarter last
year.
Cost of goods sold in the third quarter of 2014 decreased 48.3%
to approximately $2.0 million,
compared with approximately $3.9
million for the same quarter in the previous year, primarily
due to the decrease in sales, change in product mix to higher
vaporizer and e-liquid sales, which have higher gross margins than
the Company's e-cigarettes and an increase in sales incentives to
assist customers in selling off certain product lines. As
customers complete the migration to vaporizers, tanks and open
vaporizer systems, the Company expects sales incentives to
decrease.
Gross margins in the third quarter of 2014 decreased to 24.2%
from 38.9%, year-over-year, primarily as a result of an increase in
sales incentives and the change in the product mix. Gross margins
were relatively flat at 24.2% for the third quarter compared to
25.3% for the second quarter of 2014.
Selling, general and administrative expenses for the quarter
ended September 30, 2014 increased by
approximately 56% to approximately $2.6
million, compared with approximately $1.7 million from the same quarter in the prior
year. The increase was primarily attributable to non-cash
stock compensation expenses attributable to the consulting
agreement with Knight Global Services, professional fees due to
implementing the corporate actions the Company agreed to take in
connection with the private placement of common stock completed in
October 2013, including registering
the shares for resale with the Securities and Exchange Commission
and uplisting to the NASDAQ Capital Market, plus costs incurred in
connection with the initiation and termination of the previously
contemplated acquisition of International Vapor Group, Inc.'s
online, wholesale and retail operations, and consulting and
recruiting fees related to the development of the emagine vapor™
retail kiosk and store distribution channel.
Advertising expenses increased approximately 61% to
approximately $0.7 million for the
quarter ended September 30, 2014,
compared with approximately $0.4
million during the same quarter in 2013 due to increased
print advertising campaigns and participation in trade shows, and
the initiation of several new marketing campaigns, offset by
decreases in Internet advertising and the television direct
marketing campaign for the Alternacig® and VaporX® brands and
continuation of various other advertising campaigns.
Operating loss for the third quarter was $2.7 million, compared with operating income of
$0.4 million for the same quarter in
the prior year.
Interest expense for the quarters ended September 30, 2014 and 2013 was $8,107 and $107,867, respectively.
Income tax expense for the quarter ended September 30, 2014 and 2013 was approximately
$2.7 million and $4,600, respectively. The increase in the income
tax expense directly relates to the Company's increase in its
deferred tax asset valuation allowance at September 30, 2014, mainly resulting from the net
operating losses generated in the first nine months of 2014.
Net loss for the quarter ended September
30, 2014 was approximately $4.8
million compared with net income of approximately
$281,000 for the quarter ended
September 30, 2013.
At September 30, 2014, the Company
had cash of approximately $1.7
million compared to approximately $6.6 million at December
31, 2013, a decrease of approximately $4.9 million.
Results of Operations for the Nine Months Ended September 30, 2014
Net sales for the nine months ended September 30, 2014 decreased approximately 28.5%
to approximately $13.5 million
compared with approximately $19.0
million during the same period last year. The decrease
in sales is primarily attributable to decreased sales of television
direct marketing campaign for Alternacig® and VaporX® branded
campaigns, a decrease in sales from on-line stores, distributor
inventory build leveling off and continued pipeline load in the
e-cigarette category in 2013, and the increasing prevalence of
vaporizers, tanks and open system vapor products that are
marginalizing the e-cigarette category. Sales were also negatively
impacted by new national competitors' launches of their own branded
products during the second quarter of 2014.
Cost of goods sold in the nine months ended September 30, 2014 decreased approximately 8.3%
to approximately $10.4 million,
compared with approximately $11.3
million for the same period in the previous year. The
decrease is primarily due to the decrease in sales, change in
product mix to higher vaporizer and e-liquid sales, which have
higher gross margins than the Company's e-cigarettes, an inventory
provision of approximately $0.4
million to reduce the carrying value of certain products as
the Company transitioned to new product packaging and an increase
in sales incentives to assist customers in selling off certain
product lines. As customers complete the migration to
vaporizers, tanks and open vaporizer systems, the Company expectss
sales incentives to decrease.
Gross margins decreased to 23.2% in the nine months ended
September 30, 2014, compared with
40.1% for the same period in 2013, which is primarily due to the
inventory provision, increase in sales incentives and the change in
the product mix.
Selling, general and administrative expenses for the nine months
ended September 30, 2014 increased by
approximately 61.8% to approximately $7.8
million, compared with approximately $4.8 million, from the same period in the prior
year. The increase is primarily attributable to increases in
non-cash stock compensation expense primarily attributable to the
consulting agreement with Knight Global Services, professional fees
due to implementing the corporate actions the Company agreed to
take in connection with the private placement of common stock
completed in October 2013, including
registering the shares for resale with the SEC, reincorporating to
the State of Delaware from the
State of Nevada, effecting the
reverse stock split of common stock and uplisting to the NASDAQ
Capital Market, plus costs incurred in connection with the
initiation and termination of the previously contemplated
acquisition of International Vapor Group, Inc.'s online, wholesale
and retail operations, and consulting and recruiting fees related
to the development of the emagine vapor™ retail kiosk and store
distribution channel.
Advertising expenses decreased approximately 15.7% to
approximately $1.8 million for the
nine months ended September 30, 2014,
compared with approximately $2.2
million during the same period in 2013 due to a decrease in
Internet advertising and television direct marketing campaign for
Alternacig® brand, increased print advertising programs,
participation at trade shows, initiation of several new marketing
campaigns in which the Company sponsored several music concerts and
continuation of various other advertising campaigns.
Operating loss for the nine months ended September 30, 2014 was approximately $6.5 million, compared with operating income of
approximately $0.6 million for the
same period in the prior year.
Interest expense for the nine months ended September 30, 2014 and 2013 was $65,723 and $251,276, respectively.
Income tax expense for the nine months ended September 30, 2014 and 2013 was $767,333 and $13,770, respectively. The increase in the income
tax expense directly relates to the Company's increase in its
deferred tax asset valuation allowance at September 30, 2014, mainly resulting from the net
operating losses generated in the first nine months of 2014.
Net loss for the nine months ended September 30, 2014 was approximately $7.3 million compared with net income of
approximately $0.3 million for the
same period in 2013, as a result of the items discussed above.
Proposed Merger with Vaporin, Inc.
As previously announced, on November 6,
2014, the Company executed a binding term sheet ("Term
Sheet") to enter into a merger with Vaporin, Inc. ("Vaporin"), a
company whose primary focus is in vaporizers and eliquids.
The Term Sheet contemplates a proposed merger with Vaporin,
which will be structured with Vapor as the surviving party in the
transaction. As consideration for the merger, the Term Sheet
provides that the stockholders of Vaporin would be entitled to
receive the number of shares of the Company's common stock such
that the former Vaporin stockholders would collectively own 45.0%
of the issued and outstanding shares of common stock of the
combined company following consummation of the merger, subject to
any adjustments to the exchange ratio which would be necessary to
permit the respective financial advisers of both the Company and
Vaporin to make the determination that the merger consideration is
fair from a financial perspective.
The Term Sheet further contemplates, in connection with the
proposed merger, a series of financing transactions. The first
financing, which closed on November 14,
2014, consisted of $1.25
million of convertible notes and common stock purchase
warrants sold by the Company to institutional and individual
accredited investors (the "First Financing"). Pursuant to the Term
Sheet, a second equity financing of up to $3.5 million is expected to close contingent on
the closing of the merger with Vaporin. The Term Sheet also
contemplates that the Company may receive up to a total of
$25.0 million in additional equity
investments subject to financial covenants and performance-based
metrics still to be negotiated and documented in the final
definitive agreements.
The Company believes the potential financings, if consummated,
would allow the Company to continue to execute its strategy to
attempt to capture an increased share of the rapidly expanding
vaporizer market.
By signing the Term Sheet, the parties have agreed to negotiate
in good faith and to execute definitive agreements as soon as
possible, but in any event prior to December
21, 2014, and to otherwise use best efforts to consummate
the transactions contemplated by the Term Sheet on an expedited
basis. The parties are currently in the process of negotiating such
definitive agreements, which are subject to approval of each
party's board of directors. The proposed merger and financings
remain subject to receipt of fairness opinions, due diligence,
stockholder votes, and other customary closing conditions.
Additional information about the Term Sheet is set forth in the
Company's Current Report on Form 8-K dated November 6, 2014, as filed with the Securities
and Commission on November 6,
2014.
Additional information about the First Financing will be set
forth in a Current Report on Form 8-K that the Company expects to
file with the Securities and Exchange Commission on or before
November 17, 2014.
About Vapor Corp.
Vapor Corp., a NASDAQ listed company, is a U.S. based
electronic cigarette and vaporizer company, whose brands include
emagine vaporTM, Krave®, VaporX®, Hookah Stix®,
Alternacig® and Fifty-One®. We also design and develop
private label brands for some of our distribution customers.
"Electronic cigarettes" or "e-cigarettes," and "Vaporizers," are
battery-powered products that enable users to inhale nicotine vapor
without smoke, tar, ash or carbon monoxide. Vapor's electronic
cigarettes, vaporizers and accessories are available at Company
owned retail kiosks, online, through direct response to our
television advertisements and through retail locations throughout
the United States. For more
information on Vapor Corp. and its e-cigarette and vaporizer
brands, please visit us at www.vapor-corp.com.
Safe Harbor Statement
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, including but not limited to those regarding the proposed
merger and proposed financing. Such statements are not
historical facts and include expressions about management's
confidence and strategies and management's expectations about new
and existing programs and products, relationships, opportunities,
taxation, technology and market conditions. These statements
may be identified by such forward-looking terminology as "expect,"
"believe," "view," "opportunity," "allow," "continues," "reflects,"
"typically," "usually," "anticipate," or similar statements or
variations of such terms. Such forward-looking statements
involve certain risks and uncertainties. Actual results may differ
materially from such forward-looking statements. Factors that may
cause actual results to differ from those contemplated by such
forward-looking statements include, but are not limited to, the
following: failure to enter into a definitive merger agreement for
the proposed merger; failure to enter into the second and third
financing transactions in connection with the proposed merger,
reaction to the proposed merger of Vapor's customers and employees;
the diversion of management's time on issues relating to the
merger; the inability to realize expected cost savings and
synergies from the merger of Vapor with Vaporin in the amounts or
in the timeframe anticipated; Vapor's operations and its ability to
successfully execute its current business strategy changes in the
estimate of non-recurring charges; costs or difficulties relating
to integration matters might be greater than expected; changes in
the stock price of Vapor or Vaporin prior to closing; material
adverse changes in Vaporin's or Vapor's operations or earnings; the
inability to retain Vapor's customers and employees; or a decline
in the economy, as well as the risk factors set forth in Vapor Form
10-K (and as supplemented by Item 1.A. in Vapor's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2014). These forward-looking statements
are made as of the date of this press release, and Vapor assumes no
obligation to update the forward-looking statements or to update
the reasons why actual results could differ from those projected in
the forward-looking statements.
Additional Iformation and Where to Find It
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. In connection with the proposed merger and
upon the execution of a definitive merger agreement, Vapor intends
to file a Registration Statement on Form S-4 that will include a
joint proxy statement of Vapor and Vaporin and a prospectus of
Vapor with the Securities and Exchange Commission (the
"Commission"). Both Vapor and Vaporin may file other documents with
the Commission regarding the proposed transaction. If a definitive
merger agreement is executed by the parties, a definitive joint
proxy statement will be mailed to the stockholders of Vapor and
Vaporin. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE
JOINT PROXY STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE, AND ANY
OTHER RELEVANT DOCUMENTS FILED WITH THE COMMISSION, AS WELL AS ANY
AMENDMENTS OR SUPPLEMENTS TO THE DOCUMENTS, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION. Investors and security holders may
obtain a free copy of the registration statement (when available),
including the joint proxy statement/prospectus and other documents
containing information about Vapor and Vaporin at the Commission's
website at www.sec.gov. These documents may be accessed and
downloaded for free at Vapor's website at www.vapor-corp.com or by
directing a request to Harlan Press,
Chief Financial Officer, Vapor Corp., at 3001 Griffin Road,
Dania Beach, Florida 33312, telephone (888) 766-5351 or at
www.vaporin.com or by directing a request to Jim Martin, Chief Financial Officer, Vaporin,
Inc. at 4400 Biscayne Boulevard, Miami,
Florida 33137, telephone (305) 576-9298.
Participants in the Solicitation
This communication is not a solicitation of a proxy from any
security holder of Vapor or Vaporin. However, Vapor and Vaporin and
their respective directors and executive officers and other persons
may be deemed to be participants in the solicitation of proxies
from Vapor's and Vaporin's stockholders in respect of the proposed
merger. Information regarding the directors and executive officers
of Vapor may be found in its Annual Report on Form 10-K for the
fiscal year ended December 31, 2013
(the "Registrant Form 10-K"), which was filed with the Commission
on February 26, 2014, and its Current
Report on Form 8-K dated April 25,
2014, as filed with the Commission on April 28, 2014, both of which Reports can be
obtained free of charge from Vapor's website. Information regarding
the directors and executive officers of Vaporin may be found in its
Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the "Vaporin Form 10-K"),
which was filed with the Commission on March
27, 2014 and can be obtained free of charge from Vaporin's
website. Other information regarding the participants in the proxy
solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, will be contained in
the Joint Proxy Statement/Prospectus and other relevant materials
to be filed with the Commission when they become available.
VAPOR
CORP.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
September
30,
2014
|
|
December
31,
2013
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
CURRENT
ASSETS:
|
|
Cash
|
|
$
|
1,672,664
|
|
$
|
6,570,215
|
|
Due from merchant
credit card processor, net of reserve for chargebacks of $2,500 and
$2,500, respectively
|
|
|
115,894
|
|
|
205,974
|
|
Accounts receivable,
net of allowance of $125,917 and $256,833, respectively
|
|
|
824,459
|
|
|
1,802,781
|
|
Inventories
|
|
|
4,135,522
|
|
|
3,321,898
|
|
Prepaid expenses and
vendor deposits
|
|
|
1,332,110
|
|
1,201,040
|
|
Loan
receivable
|
|
|
512,207
|
|
-
|
|
Deferred tax asset,
net
|
|
|
-
|
|
766,498
|
|
TOTAL CURRENT
ASSETS
|
|
|
8,592,856
|
|
|
13,868,406
|
|
|
|
|
|
|
|
|
|
Property and
equipment, net of accumulated depreciation of $43,042 and $27,879,
respectively
|
|
|
114,593
|
|
|
28,685
|
|
Other
assets
|
|
|
374,565
|
|
|
65,284
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
9,082,014
|
|
$
|
13,962,375
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,809,577
|
|
$
|
1,123,508
|
|
Accrued
expenses
|
|
|
333,860
|
|
|
420,363
|
|
Term loan
|
|
|
1,000,000
|
|
|
478,847
|
|
Customer
deposits
|
|
|
255,200
|
|
|
182,266
|
|
Income taxes
payable
|
|
|
3,092
|
|
|
5,807
|
|
TOTAL CURRENT
LIABILITIES
|
|
|
3,401,729
|
|
|
2,210,791
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND
CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
Preferred stock,
$.001 par value, 1,000,000 shares authorized, none
issued
|
|
|
-
|
|
|
-
|
|
Common stock, $.001
par value, 50,000,000 shares authorized, 16,759,411 and 16,214,528
shares issued and 16,509,411 and 16,214,528 outstanding,
respectively
|
|
|
16,759
|
|
|
16,214
|
|
Additional paid-in
capital
|
|
|
14,383,218
|
|
|
13,115,024
|
|
Accumulated
deficit
|
|
|
(8,719,692)
|
|
|
(1,379,654)
|
|
TOTAL
STOCKHOLDERS' EQUITY
|
|
|
5,680,285
|
|
|
11,751,584
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
$
|
9,082,014
|
|
$
|
13,962,375
|
|
|
|
|
|
|
|
|
|
VAPOR
CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Nine Months
Ended
September
30,
|
|
For The Three Months
Ended
September
30,
|
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES,
NET
|
|
$
|
13,547,792
|
|
$
|
18,958,196
|
|
$
|
2,673,926
|
|
$
|
6,411,605
|
|
Cost of goods
sold
|
|
|
10,400,944
|
|
|
11,346,696
|
|
|
2,026,422
|
|
|
3,916,281
|
|
GROSS
PROFIT
|
|
|
3,146,848
|
|
|
7,611,500
|
|
|
647,504
|
|
|
2,495,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative
|
|
|
7,838,380
|
|
|
4,843,242
|
|
|
2,626,638
|
|
|
1,683,787
|
|
Advertising
|
|
|
1,815,450
|
|
|
2,153,491
|
|
|
671,817
|
|
|
418,253
|
|
Total operating
expenses
|
|
|
9,653,830
|
|
|
6,996,733
|
|
|
3,298,455
|
|
|
2,102,040
|
|
Operating (loss)
income
|
|
|
(6,506,982)
|
|
|
614,767
|
|
|
(2,650,951)
|
|
|
393,284
|
|
Other
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
65,723
|
|
|
251,276
|
|
|
8,107
|
|
|
107,867
|
|
Total other
expense
|
|
|
65,723
|
|
|
251,276
|
|
|
8,107
|
|
|
107,867
|
|
(LOSS) INCOME BEFORE
INCOME TAX EXPENSE
|
|
|
(6,572,705)
|
|
|
363,491
|
|
|
(2,659,058)
|
|
|
285,417
|
|
Income tax
expense
|
|
|
767,333
|
|
|
13,770
|
|
|
2,177,057
|
|
|
4,590
|
|
NET (LOSS)
INCOME
|
|
$
|
(7,340,038)
|
|
$
|
349,721
|
|
$
|
(4,836,115)
|
|
$
|
280,827
|
|
(LOSS) EARNINGS
PER SHARE-BASIC and DILUTED
|
|
$
|
(0.45)
|
|
$
|
0.03
|
|
$
|
(0.29)
|
|
$
|
0.02
|
|
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING-BASIC
|
|
|
16,372,260
|
|
|
12,055,766
|
|
|
16,489,058
|
|
|
12,074,469
|
|
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING-DILUTED
|
|
|
16,372,260
|
|
|
12,365,940
|
|
|
16,489,058
|
|
|
12,485,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOURCE Vapor Corp.