A Free Promotion Sends Mendocino Brewing Co Inc (OTCMKTS:MENB) Flying
Mendocino Brewing Co Inc (OTCMKTS:MENB) has never really been the most actively traded stock in Pennyland. In fact, if you take the time to go through the historical records, you’ll see that over the last twelve months, it has hardly registered any volume at all. Yesterday, however, it absolutely exploded.
MENB opened the session with an 81% gap up and started climbing almost immediately. A few minutes later, it found itself at a 52-week high of $0.91 and the huge surge of interest suggested that there was enough momentum to push it even further up. Unfortunately, that didn’t happen. MENB slid back down to more manageable levels and it eventually closed the day with a price of $0.63 per share and a dollar volume of around $340 thousand.
As you can see, the stock lost quite a lot of ground in the afternoon, but it still managed to close the session 129% above its previous value. Naturally enough, a question arises: “Can MENB hold on to yesterday’s price?“.
To find out, we have to take a look at the reason for the surge. 129% in daily gains don’t appear out of thin air and if you take a look at our database, you’ll see that MENB‘s spike was caused by nothing more than a pump carried out by a number of promotional newsletters.
The emails started flying around just minutes after the opening bell and so far, we have received a total of fifteen alerts from a range of relatively influential outfits like Stock Publisher, Penny Stock Scholar, and David Cohen. They all say that they have not been compensated for the pump and, somewhat understandably, plenty of investors are asking the same question: “Why would they tout MENB for free?“.
Whatever the motives, the campaign is proving to be quite successful at drawing attention to what is undoubtedly an operating OTC-listed company. Will this be enough, though?
MENB‘s latest 10-Q does show some strong points, but it also contains a few things that are well worth considering. Here’s what the company recorded on March 31:
- cash: $45 thousand
- current assets: $6.8 million
- current liabilities: $13.5 million
- quarterly revenues: $7.8 million
- quarterly net loss: $468 thousand
The lack of cash is a serious problem and so is the huge working capital deficit. There’s also a year-over-year drop in the sales and a 34% growth in the net loss, both of which are due to fluctuating demand in the US and foreign segments of their business. On the bright side, the gross profit has been improved a little bit.
In terms of operations, then, things could go either way. Unfortunately, there are some other problems. MENB had a credit agreement with Cole Taylor Bank which was dependent on the company meeting several requirements. Unfortunately, they failed to do so and in September 2013, Cole Taylor sent a default notice which could potentially have an adverse effect on MENB‘s situation.
In November, United Breweries (Holdings) Ltd. (NSE:UBHOLDINGS), Mendocino’s largest indirect shareholder, issued a Letter of Support and promised that they’ll do everything they can to help MENB with their financial obligations. Hopefully, UBHOLDINGS‘ helping hand will be strong enough to pull Mendocino out of the mess. Unfortunately, there can be no guarantees.
Yet another problem lies with MENB‘s liquidity. As we mentioned in the first paragraph, there’s hardly been any trading in the company’s stock over the last year and when the pumpers decide to move on to their next pick, investors might walk away and return to more actively traded tickers like Tranzbyte Corp (OTCMKTS:ERBB) and Minerco Resources Inc (OTCMKTS:MINE).
Nobody wants to hold a stock that can’t be sold which is why careful consideration of all the risks is absolutely essential.