Frozen Food Gift Group Inc (OTCMKTS:FROZ) isn’t as Explosive as Expected
If you are a shareholder of Frozen Food Gift Group Inc (OTCMKTS:FROZ), you’d know that completing a reverse merger isn’t the easiest thing in the world. In fact, it’s proving to be quite difficult.
As you probably know, FROZ announced on February 10 that they have signed a letter of intent to acquire a private enterprise called APT Group Inc. This was an incredibly positive development for the tormented shareholders since, as we wrote in our previous articles, FROZ never really managed to achieve anything substantial with their previous business plan.
At the same time, APT Group seems like a solid enough enterprise. They own the brand and manufacture the Motovox motorbikes and go-carts. They also have a patented fuel system for small engines, but, perhaps more importantly, they are a revenue-generating entity. In fact, the press release said that APT expect to earn somewhere between $16 million and $20 million during their 2014 fiscal year.
The same press release told us that the letter of intent is expected to close “on or before March 1, 2014“. That didn’t happen. In fact, on March 14, FROZ filed an 8-K form which informed us that they’ve been forced to extend the deadline for the signing of the definitive agreement to March 21.
Fortunately, this time, they were able to keep it. About half an hour before Friday’s closing bell, FROZ filed another 8-K form telling us that the stock purchase agreement has been inked. The filing gives us some more details on the deal as well.
Not surprisingly, the merger is expected to be completed with the issuance of both common and preferred shares. If they manage to close the deal, APT Group will become a wholly owned subsidiary of FROZ and all the millions of dollars in revenues should appear in the public company’s future financial statements.
Lots of people were expecting to see some massive buying pressure in light of the new filing, but, apart from the volume which was substantial, FROZ failed to impress. The 8-K came out late in the afternoon on Friday which means that it simply didn’t have the time to generate any sort of reaction. All eyes were on the ticker yesterday and, somewhat predictably, it opened the day with a huge gap up at $0.017. Unfortunately, six and a half hours later, it was sitting at just $0.0129. Early trading today suggests that things are getting from bad to worse. About half an hour after the opening bell, FROZ is hovering around $0.01 (more than 20% below yesterday’s value). Not the performance everyone was expecting, but what could be the reason for this?
Some people argue that the pressure is exerted by short sellers. Others blame the market makers while a third group reckons that the majority of investors simply didn’t understand the 8-K filing. According to them, a press release could turn the tables. Whatever the reason, there are some terms of the deal that you should probably keep in mind while contemplating the risks of a potential investment.
For one, the deadline for the closing of the merger is set at April 30 and, as you can see, the volatility of the stock means that anything can happen in such a long period of time. There are also some questions around the dilution that could potentially hit the current shareholders. Lots of stock will be issued, but the 8-K doesn’t say anything about a restriction on the securities.
There is also a problem with the public company’s debt. According to the 8-K, FROZ must have less than $290,918.65 in indebtedness if the merger is to be completed. As you can see from the latest 10-Q, they had around $1.4 million in liabilities as of September 30. Of course, some of the debt might have been satisfied over the last six months, but the management team haven’t made an official announcement about it.
You can see that FROZ are trying to close the deal and they seem to have made some progress. There are still some things that could put a spoke in the wheel though. Carefully evaluating the risks and doing a lot of due diligence is absolutely essential.
FROZ wasn’t the only ticker to start the week on the wrong foot. Growlife Inc (OTCBB:PHOT) slipped and lost nearly 14% of its market cap while shifting a whopping $27 million worth of shares. GreenGro Technologies, Inc. (OTCMKTS:GRNH)’s performance was marginally better. It racked up a dollar volume of $4.09 million while wiping out around 9% of its value.