Borislav Tonev

Trans-Pacific Aerospace Company Inc (OTCMKTS:TPAC) Kept on the Ground By Devastating Dilution

by Borislav Tonev March 17, 2015

We last heard from Trans-Pacific Aerospace Company Inc (OTCMKTS:TPAC, TPAC message board)'s management team on October 30 (nearly four months ago), when William McKay, the company CEO, updated the shareholders on a few recent developments around the company.

In the press release, he said that the negotiations with TPAC's potential joint venture partner are progressing along nicely. He also said that the company has completed the shipment of its first order well ahead of schedule. Last, but by no means least, he assured the people invested in TPAC that the management team is doing everything it can to pay off the outstanding convertible notes before their due date.

Yesterday, the 10-Q for the period ended January 31 came out. Let's open it and see if Mr. Mckay's optimistic words have affected the balance sheet.

When he said that TPAC has completed its first shipment, many people thought that this is the start of the revenue generating process. That's not the case. The 10-Q says that 'we have not commenced revenue producing operations and do not expect to until the fourth quarter of 2015, at the least'.

The rest of the report looks like this:

  • cash: $36 thousand
  • current assets: $40 thousand
  • current liabilities: $912 thousand
  • quarterly net loss: $1.5 million

We'll leave you to draw your own conclusions from the figures above, but in the meantime, we'll move on to the joint venture part of Mr. McKay's update.

All we can say about it is that the words 'joint' and 'venture' are nowhere to be found in the financial report.

And now we come to the toxic debt. There have been some serious issues on that front. During the fiscal year ended October 31, 2014, TPAC entered into several convertible note agreements in the aggregate principal amount of $325 thousand. All of the debt can be turned into common stock at discounts ranging from 40% to 50%, so when Mr. McKay told the shareholders that he wants to pay the debt off with cash, many people breathed a sigh of relief.

Sadly, instead of satisfying the outstanding ones with money, the company issued $67,500 worth of new convertible notes just a couple of weeks after Mr. McKay's press release. TPAC's authorized share count was lifted from 500 million to 1.5 billion after two amendments to the articles of incorporation filed in a matter of just two weeks.

The dilution, as you might imagine, is pretty catastrophic. During the quarter ended January 31, 2015, TPAC converted $46 thousand worth of notes into 37.3 million shares, bringing the average conversion rate down to just $0.0012. Of course, the share printing didn't stop there. The 10-Q suggests that between January 31 and March 4, the O/S count grew from 218 million all the way to 497 million. 182 million shares were issued 'as payment for consulting services' and 68.7 million saw the light of day as a conversion of debt. The rates at which the newly printed stock saw the light of day were not disclosed and there are about 28 million shares that were not accounted for at all.

So, it's fair to say that there's a rather big gap between what Mr. McKay said in the press release from October 30 and what has actually happened. How did investors react to it?

The 10-Q came out less than an hour before the closing bell, so it didn't really have the time to influence the stock performance, but it must be said that over the last few days, the ticker has been steadily climbing the chart. Five consecutive green sessions resulted in aggregate gains of about 120% and a closing price of $0.0015 on Monday. This is still a mind-boggling 97.6% below the 52-week high of over $0.06 per share, but the steep appreciation and the increased volumes suggest that a lot of people have put their money on the line.

If the message boards are anything to go by, the whole thing seems to be triggered by an awareness campaign from PennyBuster. The details are a bit sketchy at the moment and we have yet to see an email in our inbox.

Nevertheless, we opened PennyBuster's disclaimer, scrolled down to the bottom of the page, and we found the following warning:

Paid awareness is nearly always a means to sell shares to the public in the open market, so you should always assume if there is an awareness campaign then someone is selling shares of the company in question.

We reckon that keeping those words in mind might not be a bad call.

Comments 2

1. Guest
April 13, 2015, 11:51PM

Quotes Yes you should

2. Guest
March 22, 2015, 11:00AM

Quotes I have inversted £6500 pounds,shall i be ready to kiss goodby to my hard
earned money???????

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