Vapor Corp (OTCMKTS:VPCO) Making Big Moves

Like many micro cap runners that got delisted from the NASDAQ or the NYSE, Vapor Corp (OTCMKTS:VPCO) has found love and a solid investor base on the OTC Markets. Last month, Vapor Corp withdrew its appeal of NASDAQ's delisting determination and started trading on the OTC Pinks Sheets. For eager penny stock traders, this was fine with them and the stock has rocketed off its lows as a result.Vapor Corp is a U.S. based distributor and retailer of vaporizers, e-liquids and electronic cigarettes. It recently acquired the retail store chain "The Vape Store" as part of a merger with Vaporin Inc. The company's innovative technology enables users to inhale nicotine vapor without smoke, tar, ash or carbon monoxide. Vapor Corp has a streamlined supply chain, marketing strategies and wide distribution capabilities to deliver its products. The company's brands include VaporX, Krave, Hookah Stix and Vaporin and are distributed to retail stores throughout the U.S. and Canada. The company sells direct to consumer via e-commerce and company-owned brick-and-mortar retail locations operating under "The Vape Store" brand.The latest quarterly figures showed gross profit grew $370,000 or 57% to $1,018,000 in the third quarter of 2015 compared to $648,000 in the third quarter of 2014. Gross profit from retail stores grew to $640,000 in the third quarter of 2015. Retail store revenue represented 34% of the company's total revenues for the three months ended September 30, 2015. Retail store revenue grew to $984,000 in the third quarter of 2015. CEO Jeff Holman said:

"We have delivered on our expansion strategy by opening and acquiring 11 additional vape retail stores, further strengthening our position in this vast growing industry. We currently operate a total of 21 retail locations, with each new store contributing to the growth of our revenue and putting us on the path towards profitability. As we achieved a higher gross profit during the quarter, we are continuing to invest and build out our retail footprint."

The biggest overhang on the stock has been dilution and last year's public offering. In July, VPCO closed the offering of 3,761,657 units at $11.00 per unit for gross proceeds of approximately $41.4 million and net proceeds of approximately $38.7 million. Each unit consisted of one-fourth of a share of Series A preferred stock and 20 Series A warrants. Each one-fourth of a share of Series A preferred stock is convertible into 10 shares of common stock and each Series A warrant is exercisable into one share of common stock at an exercise price of $1.24 per share.Last month, Vapor Corp entered into a standstill agreement with warrant holders owning in excess of 80% of the company's Series A Warrants. Each holder agreed not to exercise their Series A Warrants pursuant to the "cashless exercise" provisions of the Series A Warrants prior to April 15, 2016.The purpose of the capital raise was to allow Vapor Corp to accelerate its retail expansion through a combination of new store launches and a roll up in the form of purchasing existing, profitable vape store locations. The company correctly identified that the retail environment remains highly fragmented and a well-capitalized player like Vapor Corp could become the industry leader. Furthermore, Vapor Corp has identified untrained sales persons as one of the biggest problems in the industry. By having a uniform store concept and training, Vapor Corp will eliminate this problem and give the company a competitive advantage over its competitors.The other factor that could work out to Vapor Corp's benefit is new regulations from the FDA. CEO Jeff Holman said:

"We predict that the pending FDA regulations will improve safety and the responsible use of vaping products in what is currently a largely unregulated space. However, these regulations will likely make it more difficult for smaller, local vape shops to remain in business. As a result we expect to see the elimination or consolidation of much of the current vape store landscape. Vapor Corp is cognizant of the opportunity that this presents for the company to make reasonably priced acquisitions during its consolidation efforts, and at the same time offer smaller businesses a reasonable liquidity event under the circumstances. Vapor Corp is committed to the responsible use of vaporizers and accompanying substances, and is excited to be so strategically positioned to benefit from this changing regulatory landscape."

Shares of Vapor Corp have been taken the woodshed on the back of dilution and a coordinated short selling program. We see the current bounce off the lows as the beginning of a major short squeeze. We will be updating Insider Financial as soon as we know more. For continuing coverage on VPCO and our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!Disclosure: We have no position in VPCO and have not been compensated for this article.