Toxic Debt-Ridden Wisdom Homes of America Inc (OTCMKTS:WOFA) Takes Off
Nine months ago, Wisdom Homes of America Inc (OTCMKTS:WOFA) was traded at around $0.17 per share. Last week, it bottomed out at $0.0005. Not what you’d call a solid performance. Let’s take a look into some of the reasons for it.
The whole year took off on the wrong foot for the company. Treacherous weather conditions during the final quarter of 2014 and the first months of 2015 meant that WOFA logged no meaningful revenue during Q1. Then, the skies quite literally cleared up and allowed WOFA to end Q2 with some rather impressive sales. The management team were so excited about the way things were going, that they said that they’re on track to reach a target of $4 million in annual revenues for 2015. They appear to have spoken too soon.
On November 23, the report for the third quarter came out and it brought some disturbing news. Here’s what the 10-Q showed:
- cash: $2,497
- current assets: $2,451,126
- current liabilities: $3,899,835
- quarterly revenue: $72,725
- quarterly net loss: $589,659
The statement looks pretty underwhelming in almost every aspect, but the biggest cause for concern is the revenues. They have dropped by about 79% on a year-over-year basis and by a whopping 94% sequentially. Unlike the Q1 report, the one for the third quarter gave us no explanation for the appalling sales figures.
And while the revenues seem to be falling down, the O/S count appears to be going up. At a massive rate at that. In fact, it went from just over 50 million at the beginning of the year all the way to 77 million at the end of Q3. By November 14, however, it had grown to more than 146 million.
As you might have guessed from our article’s headline, the appalling dilution was triggered by the mountains of convertible debt WOFA has acquired over the years. At the end of Q3, the amount owed under the convertible notes stood at nearly $1.7 million and between September 30 and November 23, an undisclosed portion of it was turned into more than 71 million shares. When we wrote about the company in October, we touched upon the notes that are convertible at a 42% discount to the market price and we tried to warn our readers about the potential problems this could cause. Now, the effects seem to be pretty evident. But what will happen next?
Well, as you might have also guessed from the article’s headline, WOFA had an interesting session yesterday. It bounced out of triple-zero land and after an impressive 62% run, it stopped at $0.0013 per share. That’s not bad, but the worrying thing is that the jump wasn’t caused by anything immediately obvious. There were no press releases, SEC filings, or paid promotions that could have triggered the run which means that the short-term performance could be quite unpredictable. Unfortunately, the same can also be said about the longer term.
Recently, the company raised the number of authorized shares from 300 million to 900 million and it picked up yet another convertible note which could mean that the dilution is far from over. As you probably know, a reverse split is supposed to be effected within the next twelve months as well, and it could put the shareholders in an even more unpleasant situation. That’s why, proceeding with caution is essential.