Kalahari Greentech Inc (OTCMKTS:KHGT): What Goes Up Must Come Down

It was a really wild session for Kalahari Greentech Inc (OTCMKTS:KHGT). The ticker started this week’s trading on the right foot and about an hour after Monday’s opening bell, it hit a 52-week high of just over $0.003 per share. Then, it settled down, but it was still preparing itself for a green close. Forty-five minutes before the closing bell, however, it crashed and came to a stop at $0.0009 per share – just inches away from its 52-week low.

Clearly, investors were initially excited, but then, something appeared that made them think twice. Time to find out what happened exactly.

The initial hype was created by the fact that KHGT‘s management team made a couple of changes to the articles of incorporation. The Nevada Secretary of State’s website shows that last week, the number of authorized shares was decreased from 2 billion to 520 million and that the company name was changed to PF Hospitality Group Inc.

The message boards were buzzing with activity and many people were predicting that a merger is on the way. And KHGT definitely needs a merger with an operating entity because according to the latest report, they had absolutely no assets at the end of Q1.

Around 3:45 PM, KHGT confirmed the rumors. The company issued its first press release in over a year and a half and said that they are in negotiations for a merger with Pizza Fusion Holdings Inc – a company that operates several pizza restaurants in the US and a few more in Saudi Arabia. People were pretty excited, and rightly so. Pizza Fusion does appear to be a relatively successful entity with numerous followers on their social media profiles and positive reviews.

The press release, however, carried some bad news as well. And it’s really bad. If the deal is to be closed, KHGT‘s shareholders will need to go through a 1 for 2,000 reverse split. Seratosa Inc (OTCMKTS:STOA) came up with a similar press release on Friday and in a matter of a single session, it managed to wipe out more than 70% of its value which clearly goes to show that penny stock investors don’t really like reverse splits. So the massive drop that KHGT experienced towards the end of yesterday’s session is understandable.

Still, some people are saying that the stock might turn out to be interesting once it emerges from the split. That might as well be the case, but it doesn’t mean that you shouldn’t consider one or two things.

For one, this isn’t Pizza Fusion’s first attempt to go public through a merger with a penny stock enterprise. A few years ago, Unique Pizza & Subs (OTCMKTS:UPZS) announced that they are about to acquire the same exact company, but the deal was eventually called off. UPZS has since then gone through a reverse split and it has lost a vast portion of its value.

Then we come to the other conditions KHGT has to meet in order to complete the merger with Pizza Fusion. The name of the public entity will need to be changed officially and some new people will need to take the helm. Last but not least, $65,600 worth of debt must be converted into 40 million shares of KHGT common stock if the merger is to go through.

The conversion rate sits at about $0.0016 per share which doesn’t sound that bad considering the current market price. Bear in mind, however, that the press release doesn’t say whether the debt conversion will occur before or after the reverse split. And that could make a heap of difference.