US Highland, Inc. (OTCMKTS:UHLN) Revs Up
An outfit called Investor Desk has received a budget of $25 thousand per month from a third party and in exchange, it announced in October that US Highland, Inc. (OTCMKTS:UHLN) will be its pick for Q4 of 2015. The people behind Investor Desk created a video outlining the virtues of the company and at the moment, they’re hard at work distributing it around.
As you might imagine, they are telling everyone how great an investment UHLN might turn out to be. What they’re not saying is that the company is late with its report for the third quarter of 2015. And that is a rather big worry for serious investors because the 10-Q for the period ended June 30 isn’t exactly pretty. Here’s what it looks like:
- cash: $5,935
- current assets: $246,646
- current liabilities: $92,582,103
- NO revenue
- net operating loss: $113,506
Your attention is probably drawn to the humongous liabilities and we should note at this point that this is due to derivatives. The derivatives in question come from the numerous convertible debentures that UHLN has issued over the years. Some of them can be turned into stock at the all-too-familiar 45% discount to the market price, but most have fixed conversion rates that range from $0.01 to $0.05 per share.
So, based on all these facts we can conclude that UHLN is a rather thinly traded penny stock that is delinquent with its filings, has a rather miserable-looking financial statement, and is burdened with a huge amount of toxic debt. Why, then, did it surge almost 40% on Friday? And why did it generate nearly $340 thousand in dollar volume?
Well all the re-tweets and re-posts of Investor Desk’s video probably helped, but the real reason lies with the fact that, on the face of it at least, the management team appear to be trying to fix the problems.
At the end of September, they entered into a joint venture agreement which might just turn out to be a light at the end of the tunnel. Later, a creditor and major shareholder called Craigstone Ltd as well as a few other entities agreed to convert quite a lot of debt into Series A Preferred shares (not common ones) at a conversion rate of $0.50 apiece and a couple of weeks ago, the same Craigstone canceled 20 million of its own common shares in exchange for 5,000 Series B Preferred shares which, the management team were quick to point out, reduced the O/S count by as much as 29%.
That all sounds good… until you take a closer look.
The cancellation of stock means that the people behind Craigstone now have control over 4.6% of the company’s common shares, and although they can convert the Preferred B shares back to common ones, they mustn’t exceed the 5% ownership mark. Thanks to this, when they decide to sell common stock on the open market, they don’t need to file anything with the SEC.
And although the $0.50 conversion rate from October sounds normal enough, once you consider the fact that every Series A preferred share can be transformed into 10 common ones, you end up with an effective conversion price of $0.05 per common share.
That, you have to agree, is a rather big discount to the market price which, about forty minutes into today’s session, sits at $0.275.