Hybrid Coating Technologies Inc (OTCMKTS:HCTI) Proves Unpredictable

After months of generating very little in terms of volume, Hybrid Coating Technologies Inc (OTCMKTS:HCTI) suddenly woke up on July 10 and it started marching towards the higher end of the charts. A few days later, the company announced that it had won EPA’s Green Chemistry Challenge award which, at first glance, looked like a guarantee for more gains. Sadly, in light of the news, the performance since then has been somewhat underwhelming.

HCTI did manage to exit the sub-penny levels shortly after the press release, but it immediately ran into a brick wall. A 45% drop on July 15 was followed by a relatively strong bounce, but as soon as it neared the penny per share mark, the ticker started hesitating again. Yesterday, it lost about a fifth of its market cap and it stopped at a hair under $0.007 per share. Time to take a look at some of the reasons for HCTI‘s unstable behavior.

It must be said that in certain aspects, HCTI doesn’t look like the most solid OTC enterprise out there. The company has only two employees and one of them is, of course, the CEO, Joseph Kristul. This is not Mr. Kristul’s first public company. Back in 2007, he was at the helm of Telava Networks Inc (which still exists under the Somerset Transition Corp (OTCMKTS:TLVA) name) and he was trying to secure a $1 million investment. Unfortunately, the negotiations fell through and Mr. Kristul as well as Telava found themselves in a spot of legal trouble.

Hopefully, he has learned from his mistakes and he will be more successful in raising money for his current business venture because the latest 10-Q shows just how desperately HCTI needs some fresh funding. Here’s a summary of the figures as recorded on March 31:

  • current assets: $1,821 in cash
  • current liabilities: $6,566,064
  • NO quarterly revenues
  • quarterly net loss: $2,225,488

It must be said that Mr. Kristul has so far been able to raise enough money to fund the company’s operations, but the terms under which he did it threaten to put a lot of strain on the ticker in the near future. Between July 2014 and March 2015, HCTI borrowed more than $1.2 million from various investors. A small portion of the debt was repaid with cash, but most of it was outstanding at the end of Q1 and it was convertible into stock at discounts that range from 40% to 50%.

Thanks to the cancellation of about 10 million shares (which were replaced by the same number of warrants exercisable at $0.001), the management team managed to put a leash on the dilution a couple of months ago. This might not last forever, though, especially when you have in mind the recent increase in the number of authorized shares from 150 million to 650 million.

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