Wisdom Homes of America Inc (OTCMKTS:WOFA) Bursts Out of Obscurity

Investors first learned about an outfit called The Wolf of Penny Stocks a few months ago through an ad on an internet forum. There haven’t been many newcomers to the penny stock promotional industry which is why a lot of people thought that the newsletter’s results probably won’t be that dramatic. Wisdom Homes of America Inc (OTCMKTS:WOFA) showed us on Friday just how wrong these people were.

Both the emails and the tweets told us that there’s been no compensation for the pump and yet, the campaign worked remarkably well. In fact, WOFA gapped up at the open and ran to an intraday high of $0.016 per share (a whopping 900% above Thursday’s close). Indeed, it later slid back down and finished the week at $0.0075, but this still presents a hefty 337% in gains. At $665 thousand, the dollar volume is even more impressive than the performance.

So, The Wolf clearly made WOFA fly high, but is it all going to be just a one-day-wonder? Or is the company a viable investment option?

The company profile will tell you that there’s been a few name changes over the years which isn’t such a great sign as it suggests that the previous business plans didn’t really work out. With the latest one, the selling of manufactured homes, however, WOFA seems to be on to something.

Due to appalling weather conditions, Q1 sales were pretty dismal, but during the second quarter, WOFA managed to log no less than $1.2 million in revenues which is a rather decent number considering the fact that the company opened its first ever retail center in February 2014.

Unfortunately, the rest of the 10-Q isn’t nearly as exciting:

  • cash: $252 thousand
  • current assets: $2.6 million
  • current liabilities: $3.7 million
  • quarterly net loss: $1 million

As you can see, there isn’t a whole lot of cash and the working capital deficit is pretty substantial. So is the net loss which means that the company is forced to rely on debt financing.

Quite a lot of convertible notes have been issued over the last year or so and most of them can be turned into stock at a 42% discount to the market price. By the looks of things, some of the note holders have already started taking advantage of the said discount which means that the share structure has taken a beating.

At the end of last year, the number of issued and outstanding shares was sitting at just over 50 million, but just six months later, it was already hovering above 65 million. By August 13, it had grown to around 74 million, but a recent Schedule 14 form tells us that just twelve days later, it was already sitting at more than 80 million.

The Schedule 14 in question contains some more vital information. It says that the Board of Directors has been allowed to effect a 1 for 50 reverse split before the end of 2016. It also says that the authorized cap will be upped to 900 million in the very near future.

All in all, while The Wolf of Penny Stocks managed to push WOFA on a remarkable run, there isn’t a whole lot to stop it from retracing at least some of its steps back. Make sure you think through all the potential pitfalls carefully before you put any money on the line.

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