Hydrophi Technologies Group Inc (OTCMKTS:HPTG) is Going Through Changes

You may or may not remember that there was once a TV show called Extreme Makeover in which normal individuals who don’t really fit into the modern society’s idea of beauty are taken to Hollywood and, with the help of copious amounts of money, are made to look like TV stars. Unfortunately, there is no such show for penny stocks, but despite this, numerous investors reckon that every now and then, one of the many OTC ducklings gets turned into a beautiful swan. Is this what’s going on with Hydrophi Technologies Group Inc (OTCMKTS:HPTG) at the moment?

Apparently. The company announced through a rather sizable 8-K form on Tuesday that it’s going through a reverse merger. The acquisition target is a company called Pro Start Freight Systems and, as you might have guessed already, it’s a freight company.

Investors were really happy with the news. The 8-K in question came out only about an hour before November 24’s closing bell, but even in that short period of time, it managed to push the stock almost 74% up to a close of $0.004. Although it closed yesterday’s session 25% in the red at $0.003, it reached an intraday high of over half a penny for the first time in over five months and it also logged a pretty substantial volume. At first glance at least, there is a very good reason for this.

Surprisingly or not, HPTG decided not to issue a press release dedicated to the merger, but they did say in the 8-K that Pro Star’s management has reported annual revenues for last year of $27.3 million and a net income of $660 thousand. By contrast, at the end of their most recent fiscal year, HPTG recorded about $278 thousand in revenues and a loss of more than $2.7 million.

So, the news is very good and people have every right to be excited. That’s true enough, but there might still be one or two things worth bearing in mind.

Investors are clearly ecstatic with the figures published in the 8-K, but some of them might be forgetting that the audited financial statements of HPTG‘s new subsidiary won’t be out for another two months. There’s also some questions around the surviving entity’s debt.

The 8-K says that some of the company’s older toxic notes have been canceled, but it also says that some new ones have been issued. Some more concrete information on these would be very helpful for investors and shareholders alike because the ones who have been following the company for long enough know that HPTG has had problems with toxic debt-induced dilution.

During the second and third quarter of this year for example, the company was forced to issue more than 166 million shares at an average price of $0.0016 in order to convert $280 thousand worth of debt. On September 30, the principal amount outstanding under the various notes was exceeded $1.4 million and on October 12, HPTG turned around $17 thousand of it into more than 33 million shares for a conversion rate of $0.0005 per share.

So, basically, while HPTG might look good on the outside, at least until a financial statement comes out, investors can’t really be sure whether its beauty is more than skin-deep.