Late the other day, I was asked what thoughts I had about HEMP stock and CEO Bruce Perlowin after the Q2 2014 report came out. I don’t really follow Hemp Inc, so I had no immediate thoughts. I opened up the quarterly report, squinted my eyes quite a few times, and then checked the popular stock boards and marijuana stock news blogosphere to see what regular followers were feeling.
There’s some happy HEMP investors and pushers talking up the stock, but there’s a lot of questionable and concerning aspects to that report. Let me say it outright. The numbers are kind of scary and confusing and I’m glad that I am not holding HEMP right now. That can change, but we are where we are right now.
First of all, we see some dilution. Outstanding shares (O/S) were about 2.1 billion, and they’re now sitting over 2.5 billion. What’s concerning here is that we really don’t have any way of identifying whether the dilution has a positive side to it. If you have to dilute the stock to bring in new management, secure more investments, entertain an acquisition (and so on), then I could simply nod my head and say, “Okay, let’s see how the strategy here plays out.”
But we have no idea, and we’re left with only lines and scribbles to speculate on. A little shy of 400 common shares were added to the total O/S, much of which apparently comes from the conversion of Preferred K shares, which was supposed to be used to clean some debt off the balance sheet. The problem? It’s unclear who was supposed to receive these preferred shares in the first place. Is it Bruce Perlowin or another insider? Is it an unnamed special interest, perhaps a private equity firm?
Then there’s the issue of the reported revenue. Slightly over $2.36 million in revenue was reported for the period. The problem? It seems the vast majority of this revenue is from other OTC stock received from “six corporate customers,” and this is accompanied with an ugly $3.3 million reported loss from what is vaguely referred to as “other comprehensive losses.”
Where does this come from? Previous shares were received and recorded for a couple quarters now, and it seems this 3 million pinch comes from those securities declining in value. So now it would appear that reported “revenue” can face some pretty rocky waters and potentially find large portions of itself lost to sea. If these are all OTC stocks, you can expect that crazy volatility to continue.
What a mess, I say. I’ll leave you with an interesting post on Yahoo from a guy that goes by “andrewcapt.” Yahoo boards don’t always bring about the most reliable or fruitful discussions, but some of the more detailed postings do make you think:
I don’t like to see games being played with “revenue.” That’s my final thought. If you have similar or very different thoughts, sure, let’s here them.