Is Hemp Inc (OTCMKTS:HEMPD) Reversing Its Direction?
On July 31 Hemp Inc (OTCMKTS:HEMPD) suddenly performed a 1-for-10 reverse stock split without giving any prior warning. Instead of scaring investors away the split had the opposite effect and for the next three sessions the stock moved up the chart posting increasing gains. Yesterday, however, it stumbled and closed 5% in the red at $0.19 cents. Is this a signal that HEMP is starting to hesitate?
Well, the reverse split did reduce the bloated outstanding shares count from more than 2.7 billion to around 270 million but it didn’t change anything else and HEMP is still as riddled with red flags as ever. We will see what the financial report for the second quarter of the year that is supposed to be filed by the middle of the month will bring but the one for the first quarter failed to inspire much confidence:
• $632 thousand cash
• $2.3 million current assets
• $2.27 million current liabilities
• $6,223 revenue
• $1.08 million net loss
In addition to the worsening financials investors should be wary of the potential dilution that could take place. With the recent increase of the authorized common shares from 3 billion to 5.5 billion and the reverse split HEMP actually have plenty of room to start issuing millions of fresh shares and if the past history of the company is any indication this may indeed happen.
In the past the amount HEMP owed to its CEO Mr. Bruce Perlowin was gradually decreased by giving him preferred K shares, each of which could be converted into 10 common shares. Thanks to the reverse split the 150 million outstanding preferred K shares had their conversion rights changed to a 1:1 ratio but this doesn’t affect any newly printed preferred shares. And according to the restated quarterly as of March 31 HEMP owed over $2 million to Mr. Perlowin.
At least the reassembly of the Temafa decortication line is moving forward – according to the latest update Phase I of the process is now completed. It could still take a couple of months before the plant becomes operational though with the wiring and the duct work just being started.
HEMP remains a dangerous choice. The stock has been dropping down the chart for quite a while and if the next quarterly shows even grimmer financials it could depress the ticker even further.
