Borislav Tonev

Cherubim Interests Inc (OTCMKTS:CHIT) With an Impressive Bounce

by Borislav Tonev November 20, 2015

Just take a look at that horrific chart. In June, the company effected a 1 for 15 reverse split and during the first couple of months after it, the ticker remained pretty much stationary. Then, however, in September, the pumpers came along and they beat it to the ground.

In a matter of just three weeks, CHIT dropped from around $0.05 per share all the way to a hair over $0.002. Then the pumpers left, but although several attempts at a bounce were made, the push simply wasn't energetic enough to let CHIT climb back to its former glory. The slide continued and about a week ago, the ticker fell into triple-zero land.

The pumpers certainly played a part in CHIT's horrible drop, but they aren't the only ones to blame. The company has issued a few press releases over the last few months and the truth is, they all sound great. Unfortunately for the shareholders, the PR action proved to be insufficient which, it must be said, is hardly shocking considering the fact that at the end of May, the company had absolutely no assets, no revenues, and current liabilities in excess of $2.3 million.

The only thing worse than the financial statement has been the truly absurd dilution CHIT was forced through. The cause of the massive stock printing is, as is often the case in Pennyland, toxic debt, and in case you've ever had any doubts around its effects on the share structure, you might want to pay close attention to the next few sentences.

On July 20, about a month after the reverse split, there were around 58 million shares issued and outstanding. On November 10, just three and a half months later, this number was sitting at very nearly 2.4 billion.

The company recently decided to raise the number of authorized shares to 5 billion which means that the note holders can continue to convert to their heart's content. Or can they?

Well, yesterday, CHIT's management team said that they are aware of the problem and they proudly announced that they have persuaded some of the toxic note holders to convert the debt into Series B Preferred shares instead of common ones. The conversion rate will be fixed at $2.50 per share. They then said that this should put an end to the dilution and they made a few forward-looking statements about a potential up-listing to one of the bigger exchanges.

Investors were ecstatic about the news. In a matter of six and a half hours they traded a whopping 128 million shares and they pushed CHIT out of the triple-zero levels and on to a close of $0.0011 per share. Clearly people reckon that the absolutely diabolical dilution has finally come to an end, but is this really the case?

That is for time to tell. What we can say at the moment is that according to the Certificate of Designation (which can be found in this 8-K form), every single one Series B Preferred share can be converted into 100,000 common shares. In other words, if the now-former note holders convert their newly acquired preferred shares into common ones, they will get an effective conversion rate of $0.000025 per common share.

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