Borislav Tonev

Cherubim Interests Inc (OTCMKTS:CHIT)'s Pump Misfires

by Borislav Tonev September 2, 2015

Epic Stock Picks and their affiliated outfits organized a promotion for Cherubim Interests Inc (OTCMKTS:CHIT, CHIT message board) yesterday. The pump cost $20 thousand, it started minutes before the opening bell, and, in typical Epic Stock Picks fashion, it was done both through the emails and through Twitter.

There was some increased interest. In fact, investors traded more than 3 million shares which is about 143 times the thirty-day average. Despite the impressive volume, however, CHIT failed to gain any momentum and it closed the session at $0.043 per share, or about 8% below Monday's value.

So, the pump turned out to be a rather miserable failure. Let's find out why.

Mere hours before the emails and tweets started flying around, CHIT issued a press release which said that in addition to the real estate business that they currently have, they also want to tap into the booming legal marijuana industry. In other words, they said that they are changing the business plan.

That's nothing new for CHIT. Over the years, the company has gone through a few name changes and it has been trying its hands at selling food, pumping oil out of the ground, as well as a few other initiatives. Neither of those worked.

Leading the company into the new uncharted waters is CHIT's CEO, Patrick Johnson, and it's fair to say that he's no newcomer to the OTC Markets. He has been involved with Victura Construction (OTCMKTS:VICT) (the previous owner of CHIT's real estate business) and DoMark International Inc (OTCMKTS:DOMK). Like CHIT, these companies have tried different business initiatives, but they too have failed to make anything significant.

And it's not like Mr. Johnson's task with CHIT is any easier. In fact, considering the latest 10-Q, he has not one, but several mountains to climb. Here's a summary of the figures recorded on May 31:

  • NO assets whatsoever
  • current liabilities: $2,373,259
  • NO revenue
  • quarterly operating loss: $289,196

The figures alone will probably be enough to deter the more risk-averse investors away, but we're quite sure that there are some who will be willing to take the gamble. They should probably read through the rest of the 10-Q because they might be able to spot another problem.

It's found under the Convertible Notes Payable section which says that between August 2014 and December 2014, CHIT borrowed more than $100 thousand under various toxic note agreements. The discounts range from 42% to 50% and although some of the debt was converted during the first five months of the year, a lot of it was still outstanding at the end of May.

We won't be too surprised if the note holders have already take advantage of the favorable conversion rates. On July 20, when CHIT published their latest 10-Q, they reported an O/S count of 58 million. Just ten days later, however, the management team said that it had grown to more than 77 million. The company profile was recently updated and it says that on Monday, there were more than 127 million shares issued and outstanding.

About a month ago, CHIT also decided to raise the A/S count from 200 million to 500 million which means that, at least for the time being, hitting the authorized cap won't be an issue.

Comments 0

Type the characters that you see in the box (5 characters).