VHGI Holdings Inc (PINK:VHGI) Might Just be Onto Something

VHGI.pngWe all know about the volatility of penny stocks and we have all witnessed jumps and drops that would seem rather unconventional when it comes to the bigger companies. Typically there is a reason for the rapid changes in the share price – it is either due to some news around the business and the operations of the venture, or there is a paid promotion. Yesterday, when VHGI Holdings Inc (PINK:VHGI) gained an impressive 50% over their previous close, we were rather surprised to find that they are not being pumped by newsletters currently.

The jump was actually part of the excitement that has been brewing around VHGI in the recent days and it was sparked by an announcement that was published on April 1 (we hope that they weren’t joking) about VHGI‘s first deliveries of coal for the calendar 2013. The press release also contained projections for the future production of their mine and they say that starting May, it will be churning out as much as 20 thousand tonnes per month.

This got investors mightily excited and since then the price has been going steadily up. Yesterday, it reached $0.045 per share and, judging by the opinions posted on the investor message boards, people firmly believe that from now on, there is only one direction – up. Should they be so optimistic, though?

Well, pretty much the same opinions were expressed by promoters when they were touting VHGI back in January 2012 but, as you can see form the chart, they weren’t exactly spot on. This time, however, there are no emails, which means that we’ll leave the pumpers alone for a change and focus instead on the company’s financial situation.

When you consider this, things don’t look so bright anymore. They have recently published a notification of late filing, which means that we’ll have to wait a couple more days until we get the annual report for 2012 but, having in mind the figures that we read in their latest 10-Q, we fear that it won’t look much different. Here’s a recap of the most important financials as of September 30, 2012:

  • cash: $704 thousand
  • current assets: $1 million
  • current liabilities: $53 million
  • quarterly revenue: $122 thousand
  • net loss: $1.3 million

The first thing that we have to point out is that we see a mining penny stock company that is actually generating some revenue, which is definitely not something you see every day. Even so, the losses are quite significant. If the recent press releases are accurate in their predictions, we should see better-looking figures in the months to come and there’s even hope for a positive cash flow, but even if that happens, they still have to think about the gigantic liabilities.

7VHGI_logo.jpgThere is also a lawsuit filed against them, and according to the 10-Q, they need to pay $1 million to the plaintiff. The report also reveals that back in September 2012, there was an arbitration process running against them, as well as a few notes in default. All these could make their lives even harder.

In the meantime, due to the financial woes and the acquisition of one of the CEO’s companies, they were forced to increase the number of authorized shares and print out quite a lot of common and preferred stock. The latter is, of course, convertible at some very convenient terms and will become freely tradable once the common shares see the light of day.

All in all, while the PR’s sound very optimistic indeed, VHGI still need to provide us with some proof of their actual success. Until then, the risks remain quite high and you should consider them carefully before investing.

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