Borislav Tonev

Hybrid Coating Technologies Inc (OTCMKTS:HCTI) is in for a Reverse Split

by Borislav Tonev March 24, 2016

Hybrid Coating Technologies Inc (OTCMKTS:HCTI, HCTI message board) has undoubtedly been among the hottest penny stocks over the last few months. Why? Because its press releases sound very optimistic.

A few contracts with Fortune 500 companies were announced. No actual names were given, but plenty of revenue projections were posted in the press releases and that's enough to get regular penny stock investors trembling with excitement. It's even enough to get them to overlook some rather important things like, for example, the financial statement for the third quarter of last year which looks like this:

  • current assets: $428
  • current liabilities: $6,683,989
  • quarterly revenues: $1,712
  • quarterly net loss: $1,317,808

Investors also ignored the dilution that HCTI has gone through and many might be kicking themselves for doing so. The number of issued and outstanding shares grew from around 44 million at the beginning of 2015 all the way to over 704 million four months ago, and a Schedule 14 filing from Tuesday told us that it's now sitting at over 1.5 billion. The same Schedule 14 also informed the shareholders that HCTI is about to undergo a reverse split.

Investors didn't like the news. HCTI lost very nearly a third of its value during yesterday's session and it stopped at $0.0014 on a volume of just under 81 million shares.

Plenty of people are now quite disappointed, but it must be said that with the dilution happening at this rate, a reverse split was all but inevitable. Although retail investors didn't really care about it all that much, the share structure was becoming more and more unattractive for the people who really wanted to give the stock a chance. Still, the more forward-looking among you will say, once the reverse split has passed, HCTI will finally be given some room to breathe.

We're not terribly sure about that. You see, unlike some other OTC companies, HCTI announced that in addition to reverse splitting the stock, they will also lower the number of authorized shares. While the O/S count will be reduced by a factor of 200, however, the Authorized cap will only be lowered by a factor of 4 which basically means that the room for further dilution will be bigger than it is now.

And in light of the toxic debt presented in the latest 10-Q, this is a rather worrying thought. Make sure you don't let hype get the better of you.

Comments 1

1. Guest
May 22, 2016, 01:08PM

Quotes It sounds like HCTI will not honor the pre-14C, but will instead not lower authorized shares. This will allow further dilution of a potential 1.5 billion shares.

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