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Electronic Cigarettes Intl Group Ltd (OTCMKTS:ECIGD) Drops on 10k

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Electronic Cigarettes Intl Group Ltd (OTCMKTS:ECIGD) dropped big in early trading after the Company finally released the much awaited and anticipated 10k this morning. There were high hopes leading up to the release with ECIG gaining over 30% on Tuesday.

When the 10k finally came on April 1 it was a general disappointment even though the numbers do show tremendous growth with ECIG reporting $15.7 million in revenues for the 4th Quarter and $46.9 million for 2014, compared with $3.1 million in 2013.

An eye opener of the 10k was the 34,879,194 shares of its common stock outstanding as of March 30, 2015 up from 19,931,334 as of March 24. So in less than a week ECIG almost doubled its share count.

ECIG has been a disappointment ever since the 15 for 1 reverse stock split on March 23 which many thought of as a turning point for the Company. If the conversions had been over and ECIG reversed over $1 and was then introduced to a whole new breed of investors the reverse might have been successful.

But things did not turn out that way and its little wonder things did not turn out much worse considering how fast ECIG is printing shares here. The reverse was a complete disaster and if things don’t change quickly ECIG just might have to do another reverse to get back to a respectable price before all this is over.

Electronic Cigarettes Intl Group Ltd (OTCMKTS:ECIGD) had a vision of being the global king kong of electronic cigarette with brands selling all over the world appealing to multiple markets. We all know the history; ECIG sponsored its fast rise through a number of large acquisitions paid for primarily with toxic debt including VIP for $50 Million, FIN for $133 Million and Vapestick for $54 Million.

Management thought they could pay back that debt during the $150 million capital raise but the plan backfired when the electronic cigarettes market took a dip on some new legislation. Ultimately Wells Fargo backed out of the offering and the debt holders took control flooding the market with blocks of newly minted shares. With no limit on price conversions, debt holders began shorting the stock; the lower the price, the more shares they got.

The resulting death spiral was the biggest in recent small cap history decimating ECIG market valuation from well over $500 million to less than 10% of that today. Many would suggest this is where the opportunity lies as the underling Company is not the same but actually much stronger.

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On April 1 ECIG filed its 10k:

Fourth Quarter Summary

  • Adjusted revenue of $15.7 million, compared with $0.6 million in the fourth quarter of 2013
    One-off adjustments of $3.5 million, related to sales returns, allowances, customer concessions, credits and price adjustments
    Total revenue of $12.1 million, compared with $0.6 million in the fourth quarter of 2013
    GAAP net loss of $(336.2) million for the fourth quarter ended December 31, 2014, including impairment charges of $144.4 million which is primarily related to our “FIN” and “VAPESTICK” business units.

Full Year Summary

  • Adjusted revenue of $46.9 million, compared with $3.1 million in 2013
    One-off adjustments of $3.5 million, related to sales returns, allowances, customer concessions, credits and price adjustments
    Total revenue of $43.5 million, compared with $3.1 million in 2013
    GAAP net loss was $(381.6) million for the full year ended December 31, 2014. The net loss includes a goodwill impairment charge of $144.4 million related to the “FIN” and “Vapestick” reporting units.

Dan O’Neill, Executive Chairman of ECIG said “Recognizing the challenges faced by the Company during fiscal year 2014, the new team has been working tirelessly to position ECIG for future profitable growth. Since my appointment as Executive Chairman, every stone of the Company has been reviewed, discussed and challenged. The work to date has been focused on setting ourselves up to take advantage of the opportunities in the category and the brands in the ECIG portfolio. The restructuring of the balance sheet, the ability to secure both short-term and long-term financing, the changes to the Board and the cleaned up old inventory are mostly behind us. More importantly, we obtained an internal agreement for a new global strategy setting ourselves up for 2015. Cash and profits will be the drivers, with new targets set for inventory turns, SKU priorities, in-country production, receivables and payment terms. The category is one of major opportunity. Our mission is to capture and significantly improve our performance.”

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The long thesis on ECIG remains strong; the Company is a leader in a rapidly emerging industry, experiencing spectacular revenue growth that currently trades at a fraction of its former $500 million plus valuation. There is little wonder though that ECIG has been dropping fast since the 15 for 1 reverse stock split on March 23 and the much anticipated 10k released on April 1 failed to meet expectations. Most importantly the 10k shows the ECIG debt conversions are far from over with OS almost doubling over the past week. we will be updating on ECIGD on a daily basis so make sure you are subscribed to microcapdaily.com so you know what is going on with ECIGD.

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Disclosure: we hold no position in ECIGD either long or short and we have not been compensated for this article.

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