Kentucky USA Energy (OTCBB: KYUS) closed at 3.83 today, up some 130 percent this month and over 480 percent higher since the beginning of the year. The reason for the surge is apparently an aggressive spam campaign which began in early May. Over the past month, millions of investors have received a mailer (pictures coming soon) which touts KYUS as a “$35 stock” but includes fine print revealing that Global Investor Watch was paid $2.4 million to circulate it.

As a result of this, KYUS is now trading a patently absurd price. In fact, Kentucky Energy currently has a market valuation of over $134 million despite having no revenue, a book value of only $2 million (reference), just $53,000 in cash (reference), and only three employees (reference). According to this SEC filing, Kentucky Energy does not even own the natural gas reserves it intends to exploit. Rather, it has a lease agreement contingent upon terms it is unlikely to meet:

Pursuant to the leasehold agreement for land in western Kentucky, we are required to drill 12 wells per year. We currently estimate that the cost to drill each well to be approximately $350,000, for a total of approximately $4.2 million each year. We currently do not have the funds to complete these drillings and we will require additional funds to do so. In the event that we cannot raise the necessary funds or do not drill 12 wells per year, we would lose the rights to the leasehold property. The loss of the leasehold land would have a material adverse impact on business.

In other words, KYUS desperately needs cash or it will lose its tenuous hold on the only significant “asset” it has. The same SEC filing goes on to note:

KY USA only has sufficient funds to conduct its operations for three months. There can be no assurance that financing will be available in amounts or on terms acceptable to KY USA, if at all.

Keep in mind the date of this report is May 2nd, 2008. That gives KYUS two more months to raise capital (i.e. sell stock) before it goes bankrupt. Of course, this is probably irrelevant — the pump and dump will end in the immediate future and leave KYUS absolutely worthless by then.