Going to post an example of what I believe is NOT a good investment and a few things I believe investors need to be weary of while doing their due diligence. The reason I'm doing this is to bring awareness to what I believe are red flags I come across while doing my due diligence. Even though at first glance, many companies can be attractive, its when you start looking into their financial situation, their true colors start to shine.
The company I'm going to use as an example is Vape Holdings, OTC: VAPE The reason I chose this company is because they filed their annual OTC certificate last night and it got my attention knowing they are listed on the Marijuana Index.
The first thing I want to point out is even though they filed their OTC certificate, they are not maintaining the required pps of .01 or more to keep the QB status.
The second thing is as of September 2015, they have issued over 140 million shares for convertible debt and despite the fact they updated the OTC outstanding share count a little over a week ago, they did not update the float. They left the float of 8 million of over a year ago posted on the OTC website for investors to see which looks very nice but, being they updated the o/s and not the float, the float posted is now a bold face lie that is over a year old which says plenty about management. I don't need to call the TA or the company, all I need to do is look at the chart and the volume tells all, the float is nowhere close to 8 million shares.
The next thing is their balance sheet. Sure $1 million in assets looks good on paper but, of that $1 million, only roughly half of it carries any true value. The rest is unpaid accounts, deferred financing costs, office furniture, and what they value their their trademark at which by the way will be worthless if the company fails which they are on track to do imo.
More importantly is to look at is their liabilities and deficit. They currently carry over $1.392 million in liabilities of which the majority is toxic convertible debt. But what really turned me away is their ($26,000,000) deficit. Ouch.
Also they just issued another 16.2 million shares to hard lender Typenex Co-Investment, LLC who is notorious for driving otc and pink sheets into the ground with their 30 and 40% discounted conversion agreements and bottomless share financing arrangements. This also pushes the outstanding share count to over 174 million shares. Also I need to point out that Typenex's owner John Fife has been under the SEC radar for some time and has been busted by the SEC before for engaging in fraudulent scheme's.
Going over their revenues, they are not trending with the industry. True their sales have increased around 50% year over year, but the industry is trending at 100% or more year over year growth. Plus a huge red flag is when they generate $1.2 million in revs but management blows over $3 million in operation expenses.
Last thing I looked for is insiders holdings. Only about 15% of the o/s is now held by insiders. No biggie for them because I really don't foresee someone doing a hostle takeover of a company that is carrying a $26 million deficit and spends 3x's more than the revenues they generate.
Like I said this is just an example of what I look for. In no way am I trying to slam this company, they're nubers did all the talking for me during a quick DD scan.
Sobek is a non-professional individual investor who may own, not own, buy, or sell stock at any given time in any security ever mentioned in posts. I never accept compensation in any form to post. Always consult an investment professional when investing.
