Hemp Inc (HEMP)

[Det_Robert_Thorne]

3Q/14 Report filed. No revenue and big loss.

HEMP filed its 3Q/14 disclosure today, and it's a really strange report, because it shows zero stock based revenue from the consulting clients, less than $14.5K in sales revenue, nearly $2M in stock-based compensation and a net loss of almost $2.5M.

It follows the usual pattern of confusing numbers, loans from Perlowin, and preferred share conversions and grants, ultimately resulting in the number of outstanding shares at 2.674B shares, up 140M from the 2.533B shares reported at the end of 2Q/14.

Revenues are reported as $14,476, which is a 99% decline from the $2.4M in 2Q/14. There was no reported revenue from consulting clients. Since there was $9,318 entered as Cost of Sales for this revenue, perhaps it was revenue from the tiny web store.

For the second quarter in a row, there was no apparent revenue from the $50K/month of nutraceuticals that Perlowin himself is supposed to buy from HEMP, for two years, per the press release of April 26, 2013. Where's that $150K and the attendant cost of goods sold?

Net loss is reported as $2.5M, or about $0.001/share.

Regarding those outstanding shares, they increased by 140M due to combination of share conversions and a payment of common shares as compensation for services. This increased the number of Outstanding Shares to 2.674 billion shares. Preferred shares decreased by about 14.5M, becoming 36.9M commons, and Preferred K shares showed a net decrease of 7.2M shares, which became about 72M common.

I'll leave it to the reader to figure out who was the recipient of the shares.

Loans from Perlowin increased. At the end of 2Q/14, HEMP owed him $856K, but at the end of 3Q/14, the amount owed Bruce is now about $933 thousand

We now come to the value of the shares that were given to HEMP as payment by consulting clients. There's the value as revenue, and the value on the Balance Sheet.

The weird thing is that there was apparently no revenue recording in 3Q/14 from the consulting clients. From the PRs issued by HEMP, payments were to be made quarterly, so it's really strange that there were no payments recorded at all in the quarter. The contract with REVI was supposed to have been canceled by that company's new president, and WBXU is basically gone. The contract with HIMR was so onerous that it forced that company to perform a reverse split.

I think that it's possible that the other contracts were structured in the same way (Can't pay in cash? Then pay in shares at 50% of the share price), and so as the prices of those stocks fell, the number of shares owed was becoming ridiculous.

Maybe HEMP renegotiated the contracts so that no payment is owed the rest of the year? Who knows? The report certainly doesn't explain it.

The other odd thing is that the report shows a $447K lower value for the shares held on the balance sheet in 3Q/14 from 2Q/14, but doesn't take a writedown on the Statement of Cash Flows. Why?

No mention of the Kenaf, the hemp hearts, a contract with that Chinese company to grow more hemp, etc.

Finally, there is a section at the end (Note 11) describing the financing of the decorticator and the property it's on. It's complicated, but I think that basically:

HEMP took a $1.6M convertible note to pay for everything. The company then immediately issued 5M common shares to pay $286K in prepaid interest ($0.0572/share). Furthermore, the company issued 10M five year $0.10 warrants. Starting on May 12, 2015, the company will six amortizing payments of $296,667, for a total of $1.76M (I assume that these are annual payments, but they could be quarterly, the filing doesn't specify).

So that's it. Confusing as always.

Finally, I wrote a couple of weeks ago that shareholders should expect lower revenue, increased dilution, a decrease in the value of the shares on the balance sheet and loans for the decorticator, and what do you know, I was correct! (As usual.)

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=107963216