Is TRUE DRINKS HOLDINGS (OTCMKTS:TRUU) Starting To Recover?

At the end of July the stock of TRUE DRINKS HOLDINGS (OTCMKTS:TRUU) had its highest close in quite a while of $0.28 per share. Since then, however, the chart performance of the ticker has been nothing short of disastrous as TRUU formed a prolonged downtrend that saw them sink to a close at less than 16 cents this Monday.

With the stock wiping such a huge portion of its value a bounce was definitely possible and indeed yesterday TRUU jumped upwards by nearly 12% and returned to $0.179. Is this a one-day spike though?

Well, last week TRUU submitted their financial report for the quarter ending June 30 and although it showed that their revenues are continuing to grow the balance sheet of the company remains rather bleak:

• $54,284 cash
• $4.2 million total current assets
• $7 million total current liabilities
• $2.08 million net sales
• $2.4 million net loss

As we said the revenues for the period were nearly three times bigger than the ones for the previous quarter and almost twice the amount for the same period last year. There is one huge problem though – in order to generate the $2.08 million in net sales TRUU incurred cost of goods sold of $2.14 million. This means that at the end of the quarter the company reported a gross loss of $58 thousand.

At the same time their cash reserves dwindled to critical levels. In order to remedy the situation TRUU decided to increase their authorized amount of Series C preferred convertible stock allowing them to sell more of the shares. As the August 18 8-K filing states TRUU plan to sell 17,648 shares of the Series C stock over the course of three separate closings the last of which will take place on September 15. The company expects to receive total proceed of around $2 million.

The issuance of more convertible preferred stock is something that investors must not underestimate. Exactly as we warned you in our previous article the resulting dulution fo the common stock has been massive – in a little over a month the outstanding shares of the company doubled from 53.7 million as of July 6 to 106.3 million as of August 13. With a lot more series C preferred shares and warrants outstanding the dilution could continue.

Even if you believe in the potential of TRUU’s AquaBall Naturally Flavored Water the red flags around the company remain far too serious to be taken lightly. Do extensive due diligence before putting any money on the line.