The latest events around Red Mountain Res Inc (OTC:RDMP) go down to the appointment of a new BoD member, as well as the issuance of a new debt instrument. The former led to a slight increase in the value of RDMP stock, while the latter brought about some price depreciation.
Let’s arrange the events in a chronological order to see how it all ended up. First, the company used an 8-K form dated Nov. 21 to present Mr. Randell K. Ford as the newest member of RDMP’s Board of Directors. As a result, RDMP stock went up 4.67% in the subsequent session.
What followed was another 8-K. Although it was filed on Nov. 22, the form revealed a debt agreement which had been signed six days ago, i.e Nov. 16. In a nutshell, the agreement dealt with a 12-month senior promissory note issued by the company for an amount of up to $4 million at an interest rate of 12% per annum. Not surprisingly, RDMP lost approx. 4% of its value following the publication of the 8-K.
The third and final 8-K saw the light of day yesterday. Filed by Ford himself, the document served to disclose that the new BoD member had now acquired a total of 1,303,169 shares of common RDMP stock. As a result, RDMP soared by 5.3% to $1.59, shifting in excess of 172 thousand shares, which is the company’s highest turnover since mid-October.
So, why did investors give a lukewarm response to the four-million-dollar promissory note The answer is evident in the company’s latest 10-Q report covering the period ended Aug. 31, 2011. The document shows:
- cash reserves of $390 thousand;
- working capital deficit of $7.5 million;
- net quarterly loss of $3.2 million.
On the one hand, making a breakthrough in the oil and gas industry undoubtedly requires large-scale investments. On the other hand, RDMP’s current financial state is not solid enough to support investment projects of such magnitude. In light of the company’s ever growing deficit, the issuance of any further debt instruments will hardly resonate with investors’ expectations.
