Frozen Food Gift Group Inc (OTCMKTS:FROZ) Enters Choppy Seas

On February 10, Frozen Food Gift Group Inc (OTCMKTS:FROZ) announced a letter of intent for the acquisition of a private company called APT Group Inc. APT is the designer and manufacturer behind the Motovox bikes and go-carts and, if the press release is to be believed, the potential merger should bring in a lot of revenues to FROZ‘s battered balance sheet.

The market’s reaction to the news wasn’t instantaneous, but inevitably, the stock started growing. It took FROZ two weeks and a couple of astonishing sessions to jump from just $0.0014 all the way to $0.0076 while the increased volumes ensured that everyone is paying attention. It experienced one or two corrections, but, surprisingly or not, it managed to avoid a more serious drop and, with the help of positive momentum, it regained some of the lost ground last week.

Yesterday’s performance, however, was somewhat worrying. FROZ opened the day at $0.0095 (around 5% above Friday’s close) and slipped in the red almost immediately. It managed to recover and it touched the $0.01 mark about an hour after the opening bell. Unfortunately, the pressure at these levels proved to be too much and in the afternoon, FROZ slipped below $0.008. It closed the day at $0.0074 which is nearly 17% below Friday’s value. The most disturbing thing is, however, the fact that the trading volume amounts to nearly 140 million shares which is an absolute record. So, what is going on?

It’s really hard to determine the cause of the drop. There have been no new press releases since the announcement of the letter of intent and FROZ is not in the paid pumpers’ sights. At the same time we can see that investors around message boards aren’t bothered about the less than perfect performance and they even seem quite happy about the fact that they are able to buy more shares at prices below the $0.01 mark. Everyone seems convinced that the merger will be completed and that things will be alright.

It’s up to you to decide whether the general opinion around message boards is the right one or not, but, as always, it’s vital to have all the facts in mind while considering the risks of a potential investment. And that’s where things get a little bit tricky.

While FROZ haven’t communicated with their shareholders through any press releases over the last month, they did file one or two SEC filings that contain some interesting information.

First, on March 4, they requested the withdrawal of a registration statement that was filed with the Commission on June 6, 2013. Then, on March 13, an entity called Tangiers Capital LLC filed a Schedule 13 form which informed us that they currently have a 9.36% stake in the company, but, perhaps more worryingly, the document revealed that the total number of issued an outstanding shares as of March 10 was 726,869,978. This means that in a matter of just over five months, FROZ have issued a whopping 497 million shares. Most of them were most likely printed as a conversion of debt and there are speculations that the balance sheet needs to be cleaned up before the acquisition of APT Group can be completed. That said, neither the press release, nor the accompanying 8-K stated anything about the satisfaction of liabilities.

Speaking of which, the PR told us that the deal was supposed to be closed by the end of February. Two weeks after the deadline, on Friday, FROZ published an 8-K form which reveals that they have extended the deadline to March 21. Hopefully, there will be no more delays, but you should probably bear in mind that even if the deal goes through, the pressure from the newly issued stock might prove to be too much for the ticker.

Yet another thing worth considering is the fact that this isn’t APT Group’s first attempt at merging with a publicly traded penny stock. As we mentioned a couple of weeks ago, back in the summer of 2013, they signed a similar letter of intent with ProTek Capital Inc (OTCMKTS:PRPM). The enthusiasm was just as high and the potential deal even prompted some pumpers to start sending in no-compensation emails. Unfortunately, things didn’t really pan out as expected. As you probably know, PRPM are now trying to make a name for themselves as a marijuana-related company.

If the merger gets completed, FROZ could be an interesting stock. At least for the time being, however, there are some things that could hamper the growth. Considering all the risks is, as always, absolutely crucial.